##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 20-F





(Mark One)

| ̈ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------------------

OR



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2007.

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

OR



| ̈ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -------------------------------------------------------------------------------------------

Date of event requiring this shell company report

For the transition period from  to

Commission file number: 001-32689





HOME INNS & HOTELS MANAGEMENT INC.

(Exact name of Registrant as specified in its charter)





N/A

(Translation of Registrants name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

Lane No. 421, Chang Ping Road

Jing An District

Shanghai 200041

Peoples Republic of China

(Address of principal executive offices)



May Y. Wu, Chief Financial Officer

Lane No. 421, Chang Ping Road

Jing An District

Shanghai 200041, Peoples Republic of China

Phone: +(86 21) 3218-9988

Fax: +(86
21) 6271-6087





Securities registered or to be registered pursuant to Section 12(b) of the Act:



|                                                                                              |  |                                                         
|--------------------------------------------------------------------------------------------- |  | --------------------------------------------------------
|Title of each class                                                                           |  | Name of exchange on which each class is to be
registered
|American Depositary Shares, each representing two ordinary shares, par value $0.005 per share |  | Nasdaq Global Market                                    

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of
Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

(Title of Class)





Indicate the number of outstanding shares of each of the Issuers classes of capital or common stock as of the close of the period covered by the
annual report. 70,487,385 ordinary shares, par value US$0.005 per share, as of December 31, 2007.

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

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   ̈    No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 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  x    No   ̈

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   ̈    Accelerated filer  x    Non-accelerated filer   ̈

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

U.S. GAAP  x    International Financial Reporting Standards as issued by the International Accounting
Standards Board   ̈    Other   ̈

Indicate by check mark which financial statement item the registrant has elected to follow.    Item 17   ̈    Item 18  x

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

U.S. GAAP  x    International Financial Reporting
Standards as issued by the International Accounting Standards Board   ̈    Other    ̈

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   ̈    Item 18   ̈

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ̈    No  x

(APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    Yes   ̈    No   ̈









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TABLE OF CONTENTS



|             |  |                                                                              |  |     
|------------ |  | ---------------------------------------------------------------------------- |  | ----
|             |  |                                                                              |  | Page
|INTRODUCTION |  | 1                                                                           
|             | 
|PART I       |  |                                                                             
|             |  |                                                                             
|ITEM 1.      |  | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                        |  | 2   
|             |  |                                                                             
|ITEM 2.      |  | OFFER STATISTICS AND EXPECTED TIMETABLE                                      |  | 2   
|             |  |                                                                             
|ITEM 3.      |  | KEY INFORMATION                                                              |  | 2   
|             |  |                                                                             
|ITEM 4.      |  | INFORMATION ON THE COMPANY                                                   |  | 18  
|             |  |                                                                             
|ITEM 4A.     |  | UNRESOLVED STAFF COMMENTS                                                    |  | 32  
|             |  |                                                                             
|ITEM 5.      |  | OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                 |  | 32  
|             |  |                                                                             
|ITEM 6.      |  | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                   |  | 47  
|             |  |                                                                             
|ITEM 7.      |  | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                            |  | 54  
|             |  |                                                                             
|ITEM 8.      |  | FINANCIAL INFORMATION                                                        |  | 56  
|             |  |                                                                             
|ITEM 9.      |  | THE OFFER AND LISTING                                                        |  | 56  
|             |  |                                                                             
|ITEM 10.     |  | ADDITIONAL INFORMATION                                                       |  | 57  
|             |  |                                                                             
|ITEM 11.     |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |  | 63  
|             |  |                                                                             
|ITEM 12.     |  | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |  | 63  
|             |  |                                                                             
|PART II      |  |                                                                              |  |     
|             |  |                                                                             
|ITEM 13.     |  | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |  | 63  
|             |  |                                                                             
|ITEM 14.     |  | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |  | 64  
|             |  |                                                                             
|ITEM 15.     |  | CONTROLS AND PROCEDURES                                                      |  | 64  
|             |  |                                                                             
|ITEM 16A.    |  | AUDIT COMMITTEE FINANCIAL EXPERT                                             |  | 64  
|             |  |                                                                             
|ITEM 16B.    |  | CODE OF ETHICS                                                               |  | 64  
|             |  |                                                                             
|ITEM 16C.    |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                       |  | 64  
|             |  |                                                                             
|ITEM 16D.    |  | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                   |  | 65  
|             |  |                                                                             
|ITEM 16E.    |  | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.      |  | 65  
|             |  |                                                                             
|PART III     |  |                                                                              |  |     
|             |  |                                                                             
|ITEM 17.     |  | FINANCIAL STATEMENTS                                                         |  | 65  
|             |  |                                                                             
|ITEM 18.     |  | FINANCIAL STATEMENTS                                                         |  | 65  
|             |  |                                                                             
|ITEM 19.     |  | EXHIBITS                                                                     |  | 65  



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INTRODUCTION

Unless otherwise indicated and except where the context otherwise requires, references in this
annual report on Form 20-F to:



| |  |  | we, us, our company, our and Home Inns refer to Home Inns & Hotels Management Inc., a Cayman
Islands company, and its predecessor entities and subsidiaries, except in the context of discussing our consolidated financial data for the periods prior to April 2004, where the reference excludes Home Inns Beijing and its subsidiaries;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | BTG refers to Beijing Tourism Group, a state-owned enterprise established in the PRC, and its predecessors and subsidiaries, including Beijing Capital
Travel International Hotel Group Co., Ltd.;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | China or PRC refers to the Peoples Republic of China, and solely for the purpose of this report, excluding Taiwan, Hong Kong and
Macau;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Home Inns Beijing refers to Home Inns & Hotels Management (Beijing) Co., Ltd., and its subsidiaries, which have been our consolidated
subsidiaries since April 2004;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Home Inns Hong Kong refers to Home Inns & Hotels Management (Hong Kong) Limited;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | Home Inns Shanghai refers to Home Inns & Hotels Management (Shanghai) Co., Ltd.;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | Top Star refers, collectively, to Hong Kong Ai Home Investment Company, Shanghai Chuwen Investment Holding Co., Ltd. and their subsidiaries, which we
acquired in October 2007;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our hotels refers, collectively, to our leased-and-operated and franchised-and-managed hotels;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | average daily rate refers to total hotel room revenues divided by the total number of occupied rooms in a given period;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | occupancy rate refers to the total number of occupied rooms divided by the total number of available rooms in a given period;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | RevPAR represents revenue per available room, which is calculated by dividing total hotel room revenues by the total number of available rooms in a
given period, or by multiplying average daily rates and occupancy rates in a given period;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | shares or ordinary shares refers to our ordinary shares; preferred shares refers to our Series A convertible preferred shares,
Series B convertible preferred shares and Series C convertible preferred shares, collectively, all of which were converted into an equal number of ordinary shares on October 31, 2006 upon the completion of our initial public offering;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ADSs refers to our American depositary shares, each of which represents two ordinary shares, and ADRs refers to the American depositary
receipts that evidence our ADSs; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | RMB or Renminbi refers to the legal currency of China; $, dollars, US$ or U.S. dollars
refers to the legal currency of the United States; and HK$ refers to the legal currency of Hong Kong.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

This
annual report on Form 20-F includes our audited consolidated financial statements for the years ended December 31, 2005, 2006 and 2007 and as of December 31, 2006 and 2007.

All translations from Renminbi to U.S. dollars were made at the noon buying rate in The City of New York for cable transfers in Renminbi per U.S. dollar
as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise stated, the translation of Renminbi into U.S. dollar has been made at the noon buying rate in effect on December 31, 2007, which was RMB 7.2946 to
US$1.00. We make no representation that the Renminbi or dollar amounts referred to in this annual report on Form 20-F could have been or could be converted into dollars or Renminbi, as the case may be, at any particular rate or at all. See
Item 3. Key InformationD. Risk FactorsRisk Related to Doing Business in ChinaFluctuation in the value of the Renminbi may have a material adverse effect on your investment.On April 17, 2008, the noon buying rate
was RMB 6.9840 to US$1.00.

FORWARD-LOOKING STATEMENTS

This annual report on Form 20-F contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. These statements
involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.



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You can identify these forward-looking statements by words or phrases such as may,
will, expect, anticipate, aim, estimate, intend, plan, believe, likely to or other similar expressions. We have based these forward-looking
statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking
statements include:



| |  |  | our anticipated growth strategies;
| | - |  | ----------------------------------



| |  |  | our future business development, results of operations and financial condition;
| | - |  | -------------------------------------------------------------------------------



| |  |  | expected changes in our revenues and certain cost or expense items;
| | - |  | -------------------------------------------------------------------



| |  |  | our ability to attract customers and leverage our brand;
| | - |  | --------------------------------------------------------



| |  |  | trends and competition in the lodging industry; and
| | - |  | ---------------------------------------------------



| |  |  | our ability to develop new hotels at desirable locations in a timely and cost-effective manner.
| | - |  | -----------------------------------------------------------------------------------------------

You should read thoroughly this annual report and the documents that we refer to in this annual report with the understanding that our actual future
results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements. Other sections of this annual report include additional factors which could adversely impact our
business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we
assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.

PART I



|ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
|------- | -----------------------------------------------------

Not Applicable.



|ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE
|------- | ---------------------------------------

Not
Applicable.



|ITEM 3. | KEY INFORMATION
|------- | ---------------

A. Selected Financial Data

Our Selected Consolidated Financial Data

You should
read the following information in conjunction with our consolidated financial statements and related notes included elsewhere in this annual report.

The following table presents our selected consolidated financial information. The selected consolidated statement of operations data for the years ended December 31, 2005, 2006 and 2007 and the selected
consolidated balance sheet data as of December 31, 2006 and 2007 have been derived from our consolidated financial statements included elsewhere in this annual report. Our consolidated statement of operations data for the years ended
December 31, 2003, 2004, 2005, 2006 and 2007 and our consolidated balance sheet data as of December 31, 2004, 2005, 2006 and 2007 have been derived from our consolidated financial statements for the relevant periods which have been audited
by PricewaterhouseCoopers Zhong Tian CPAs Limited Company, an independent registered public accounting firm, and are prepared and presented in accordance with U.S. GAAP, and reflect our current corporate structure as if it had been in existence
throughout the relevant periods. Our consolidated balance sheet data as of December 31, 2003 have been derived from our unaudited consolidated financial statements which are not included in this annual report. We have prepared the unaudited
consolidated financial information on the same basis as our audited consolidated financial statements. The unaudited consolidated financial information includes all adjustments, consisting only of normal and recurring adjustments, that we consider
necessary for a fair presentation of our financial position and operating results for the periods presented. Our historical results do not necessarily indicate results expected for any future periods.

We have been actively managing Home Inns Beijing since its inception. Home Inns Hong Kongs ownership in Home Inns Beijing was accounted for under
the equity method since Home Inns Beijings inception until April 2004, because during this



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period of time, BTG had substantive participation rights that enabled it to veto significant decisions made by Home Inns Hong Kong. In April 2004, Home Inns
Hong Kong and Beijing Capital Travel, a subsidiary of BTG, entered into a revised joint venture agreement, under which Home Inns Hong Kong obtained control of Home Inns Beijing. As a result, Home Inns Beijing has been our consolidated subsidiary
since then.



|                                                                                                        |  |                                                          |   |  |         |   |  |          |   |  |          |   |  |           |   |  |          |  
|------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------- | - |  | ------- | - |  | -------- | - |  | -------- | - |  | --------- | - |  | -------- | -
|                                                                                                        |  | For the Year Ended December 31,                          |  
|                                                                                                        |  | 2003                                                     |   |  | 2004    |   |  | 2005     |   |  | 2006     |   |  | 2007      |  
|                                                                                                        |  | RMB                                                      |   |  | RMB     |   |  | RMB      |   |  | RMB      |   |  | RMB       |   |  | US$      |  
|                                                                                                        |  | (in thousands, except share, per share and per ADS data) |  
|Consolidated Statement of Operations Data                                                               |  |                                                          |   |  |         |   |  |          |   |  |          |   |  |           |   |  |          |  
|Revenues:                                                                                               |  |                                                          |   |  |         |   |  |          |   |  |          |   |  |           |   |  |          |  
|Leased-and-operated hotels                                                                              |  |                                                         |   |  | 93,687  |   |  | 279,948  |   |  | 567,895  |   |  | 963,051   |   |  | 132,023  |  
|Franchised-and-managed hotels                                                                           |  |                                                         |   |  | 2,313   |   |  | 5,913    |   |  | 20,605   |   |  | 46,265    |   |  | 6,342    |  
|                                                                                                        |  |                                                          |   |  |         |   |  |          |   |  |          |   |  |           |   |  |          |  
|Total revenues                                                                                          |  |                                                         |   |  | 96,000  |   |  | 285,861  |   |  | 588,500  |   |  | 1,009,316 |   |  | 138,365  |  
|Less: Business tax and related surcharges                                                               |  |                                                         |   |  | (5,101  | ) |  | (16,830  | ) |  | (33,977  | ) |  | (60,302   | ) |  | (8,267   | )
|                                                                                                        |  |                                                          |   |  |         |   |  |          |   |  |          |   |  |           |   |  |          |  
|Net revenues                                                                                            |  |                                                         |   |  | 90,899  |   |  | 269,031  |   |  | 554,523  |   |  | 949,014   |   |  | 130,098  |  
|                                                                                                        |  |                                                          |   |  |         |   |  |          |   |  |          |   |  |           |   |  |          |  
|Operating costs and expenses(1):                                                                        |  |                                                          |   |  |         |   |  |          |   |  |          |   |  |           |   |  |          |  
|Leased-and-operated hotel costs:                                                                        |  |                                                          |   |  |         |   |  |          |   |  |          |   |  |           |   |  |          |  
|Rents and utilities                                                                                     |  |                                                         |   |  | (30,703 | ) |  | (94,784  | ) |  | (171,576 | ) |  | (299,792  | ) |  | (41,098  | )
|Personnel costs                                                                                         |  |                                                         |   |  | (12,949 | ) |  | (41,225  | ) |  | (87,980  | ) |  | (155,611  | ) |  | (21,332  | )
|Depreciation and amortization                                                                           |  |                                                         |   |  | (5,681  | ) |  | (23,335  | ) |  | (44,620  | ) |  | (85,600   | ) |  | (11,735  | )
|Consumables, food and beverage                                                                          |  |                                                         |   |  | (6,441  | ) |  | (20,765  | ) |  | (43,482  | ) |  | (84,053   | ) |  | (11,523  | )
|Others                                                                                                  |  |                                                         |   |  | (8,162  | ) |  | (26,100  | ) |  | (56,019  | ) |  | (98,644   | ) |  | (13,523  | )
|                                                                                                        |  |                                                          |   |  |         |   |  |          |   |  |          |   |  |           |   |  |          |  
|Total leased-and-operated hotel costs                                                                   |  |                                                         |   |  | (63,936 | ) |  | (206,209 | ) |  | (403,677 | ) |  | (723,700  | ) |  | (99,211  | )
|Sales and marketing expenses                                                                            |  |                                                         |   |  | (2,113  | ) |  | (7,691   | ) |  | (11,488  | ) |  | (19,632   | ) |  | (2,691   | )
|General and administrative expenses                                                                     |  | (365                                                     | ) |  | (16,127 | ) |  | (24,789  | ) |  | (64,792  | ) |  | (99,026   | ) |  | (13,575  | )
|                                                                                                        |  |                                                          |   |  |         |   |  |          |   |  |          |   |  |           |   |  |          |  
|Total operating costs and expenses                                                                      |  | (365                                                     | ) |  | (82,176 | ) |  | (238,689 | ) |  | (479,957 | ) |  | (842,358  | ) |  | (115,477 | )
|                                                                                                        |  |                                                          |   |  |         |   |  |          |   |  |          |   |  |           |   |  |          |  
|Income (loss) from operations                                                                           |  | (365                                                     | ) |  | 8,723   |   |  | 30,342   |   |  | 74,566   |   |  | 106,656   |   |  | 14,621   |  
|Interest income                                                                                         |  | 1                                                        |   |  | 89      |   |  | 223      |   |  | 6,578    |   |  | 31,717    |   |  | 4,348    |  
|Interest expense                                                                                        |  |                                                         |   |  | (98     | ) |  | (709     | ) |  | (6,143   | ) |  | (7,168    | ) |  | (983     | )
|Other non-operating income                                                                              |  |                                                         |   |  | 325     |   |  | 2,146    |   |  | 5,309    |   |  | 8,435     |   |  | 1,156    |  
|Foreign exchange gain (loss), net                                                                       |  |                                                          |   |  | 144     |   |  | 254      |   |  | (6,990   | ) |  | (53,222   | ) |  | (7,295   | )
|                                                                                                        |  |                                                          |   |  |         |   |  |          |   |  |          |   |  |           |   |  |          |  
|Income (loss) before income tax expense, minority interests and share of income of affiliated companies |  | (364                                                     | ) |  | 9,183   |   |  | 32,256   |   |  | 73,320   |   |  | 86,418    |   |  | 11,847   |  
|Income tax expense                                                                                      |  |                                                         |   |  | (5,738  | ) |  | (6,526   | ) |  | (21,391  | ) |  | (45,036   | ) |  | (6,174   | )
|Minority interests                                                                                      |  |                                                         |   |  | 552     |   |  | (4,797   | ) |  | (5,034   | ) |  | (5,626    | ) |  | (771     | )
|Share of income of affiliated companies                                                                 |  | 1,878                                                    |   |  | 1,972   |   |  |         |   |  |         |   |  |          |   |  |         |  
|                                                                                                        |  |                                                          |   |  |         |   |  |          |   |  |          |   |  |           |   |  |          |  
|Net income                                                                                              |  | 1,514                                                    |   |  | 5,969   |   |  | 20,933   |   |  | 46,895   |   |  | 35,756    |   |  | 4,902    |  
|                                                                                                        |  |                                                          |   |  |         |   |  |          |   |  |          |   |  |           |   |  |          |  
|Amount allocated to participating preferred shareholders                                                |  | (868                                                     | ) |  | (2,960  | ) |  | (9,487   | ) |  | (16,174  | ) |  |          |   |  |         |  
|                                                                                                        |  |                                                          |   |  |         |   |  |          |   |  |          |   |  |           |   |  |          |  
|Net income available to ordinary shareholders                                                           |  | 646                                                      |   |  | 3,009   |   |  | 11,446   |   |  | 30,721   |   |  | 35,756    |   |  | 4,902    |  
|                                                                                                        |  |                                                          |   |  |         |   |  |          |   |  |          |   |  |           |   |  |          |  



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|                                              |  |                                                          |  |            |  |            |  |            |  |            |  |           
|--------------------------------------------- |  | -------------------------------------------------------- |  | ---------- |  | ---------- |  | ---------- |  | ---------- |  | ----------
|                                              |  | For the Year Ended December 31,                         
|                                              |  | 2003                                                     |  | 2004       |  | 2005       |  | 2006       |  | 2007      
|                                              |  | RMB                                                      |  | RMB        |  | RMB        |  | RMB        |  | RMB        |  | US$       
|                                              |  | (in thousands, except share, per share and per ADS data)
|Earnings per share:                           |  |                                                          |  |            |  |            |  |            |  |            |  |           
|Basic                                         |  | 0.06                                                     |  | 0.15       |  | 0.42       |  | 0.86       |  | 0.52       |  | 0.07      
|Diluted                                       |  | 0.06                                                     |  | 0.15       |  | 0.40       |  | 0.82       |  | 0.47       |  | 0.06      
|Earnings per ADS(2):                          |  |                                                          |  |            |  |            |  |            |  |            |  |           
|Basic                                         |  | 0.12                                                     |  | 0.30       |  | 0.84       |  | 1.73       |  | 1.05       |  | 0.14      
|Diluted                                       |  | 0.12                                                     |  | 0.30       |  | 0.80       |  | 1.64       |  | 0.93       |  | 0.13      
|Weighted average ordinary shares outstanding: |  |                                                          |  |            |  |            |  |            |  |            |  |           
|Basic                                         |  | 11,000,000                                               |  | 19,981,424 |  | 27,399,140 |  | 35,550,114 |  | 68,323,370 |  | 68,323,370
|Diluted                                       |  | 11,000,000                                               |  | 20,315,681 |  | 28,713,188 |  | 37,530,332 |  | 76,883,995 |  | 76,883,995



|(1) | Share-based compensation expenses are included in the consolidated statement of operations data as follows:
|--- | -----------------------------------------------------------------------------------------------------------



|                                                |  |                                 |  |      |  |      |  |        |  |        |  |      
|----------------------------------------------- |  | ------------------------------- |  | ---- |  | ---- |  | ------ |  | ------ |  | -----
|                                                |  | For the Year Ended December 31,
|                                                |  | 2003                            |  | 2004 |  | 2005 |  | 2006   |  | 2007  
|                                                |  | RMB                             |  | RMB  |  | RMB  |  | RMB    |  | RMB    |  | US$  
|                                                |  | (in thousands)                 
|Leased-and-operated hotel costspersonnel costs |  |                                |  | 8    |  | 8    |  | 12     |  | 11     |  | 2    
|General and administrative expenses             |  |                                |  | 141  |  | 952  |  | 16,283 |  | 15,060 |  | 2,065



|(2) | Each ADS represents two ordinary shares.
|--- | ----------------------------------------

The following
table presents a summary of our consolidated balance sheet data as of December 31, 2003, 2004, 2005, 2006 and 2007:



|                                                       |  |                    |  |         |  |         |  |           |  |           |  |        
|------------------------------------------------------ |  | ------------------ |  | ------- |  | ------- |  | --------- |  | --------- |  | -------
|                                                       |  | As of December 31,
|                                                       |  | 2003               |  | 2004    |  | 2005    |  | 2006      |  | 2007     
|                                                       |  | RMB                |  | RMB     |  | RMB     |  | RMB       |  | RMB       |  | US$    
|                                                       |  | (in thousands)    
|Consolidated Balance Sheet Data:                       |  |                    |  |         |  |         |  |           |  |           |  |        
|Cash and cash equivalents                              |  | 11,342             |  | 26,292  |  | 37,727  |  | 758,004   |  | 1,562,600 |  | 214,213
|Total assets                                           |  | 47,466             |  | 174,304 |  | 375,002 |  | 1,320,019 |  | 3,558,349 |  | 487,806
|Current portion of long-term loan from a related party |  |                   |  |        |  |        |  | 10,000    |  |          |  |       
|Total current liabilities                              |  | 2,193              |  | 39,768  |  | 119,187 |  | 323,229   |  | 804,922   |  | 110,345
|Deferred rental                                        |  |                   |  | 11,890  |  | 26,534  |  | 44,103    |  | 94,226    |  | 12,917 
|Long-term loan from a related party                    |  |                   |  |        |  | 40,000  |  | 50,000    |  |          |  |       
|Convertible bond                                       |  |                   |  |        |  |        |  |          |  | 1,110,308 |  | 152,210
|Convertible preferred shares                           |  | 813                |  | 813     |  | 949     |  |          |  |          |  |       
|Ordinary shares                                        |  | 455                |  | 1,134   |  | 1,134   |  | 2,691     |  | 2,874     |  | 394    
|Additional paid-in capital                             |  | 43,062             |  | 110,687 |  | 152,878 |  | 813,222   |  | 1,362,942 |  | 186,843
|Total shareholders equity                             |  | 45,273             |  | 116,861 |  | 179,083 |  | 889,739   |  | 1,475,397 |  | 202,259

Home Inns Beijings Selected Consolidated Financial Data

Home Inns Beijings consolidated statement of operations data and consolidated balance sheet data for the year ended December 31, 2004 and as of
December 31, 2004 have been derived from its consolidated financial statements for the relevant periods which have been audited by PricewaterhouseCoopers Zhong Tian CPAs Limited Company, an independent registered public accounting firm, and are
prepared and presented in accordance with U.S. GAAP.



4



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##### Table of Contents

|                                                        |  |                                    |  
|------------------------------------------------------- |  | ---------------------------------- | -
|                                                        |  | For the Year EndedDecember 31,2004 |  
|                                                        |  | RMB (in thousands)                 |  
|Consolidated Statement of Operations Data:              |  |                                    |  
|Revenues:                                               |  |                                    |  
|Leased-and-operated hotels                              |  | 112,914                            |  
|Franchised-and-managed hotels                           |  | 2,364                              |  
|Total revenues                                          |  | 115,278                            |  
|Less: Business tax and related surcharges               |  | (6,150                             | )
|Net revenues                                            |  | 109,128                            |  
|Operating costs and expenses(1):                        |  |                                    |  
|Leased-and-operated hotel costs:                        |  |                                    |  
|Rents and utilities                                     |  | (36,463                            | )
|Personnel costs                                         |  | (15,653                            | )
|Consumables, food and beverage                          |  | (8,149                             | )
|Depreciation and amortization                           |  | (6,685                             | )
|Others                                                  |  | (10,019                            | )
|Total leased-and-operated hotel costs                   |  | (76,969                            | )
|Sales and marketing expenses                            |  | (2,563                             | )
|General and administrative expenses                     |  | (16,607                            | )
|Total operating costs and expenses                      |  | (96,139                            | )
|Income from operations                                  |  | 12,989                             |  
|Interest income                                         |  | 110                                |  
|Interest expense                                        |  | (125                               | )
|Other non-operating income                              |  | 328                                |  
|Income before income tax expense and minority interests |  | 13,302                             |  
|Income tax expense                                      |  | (6,861                             | )
|Minority interests                                      |  | 1,294                              |  
|Share of income of affiliated companies                 |  |                                   |  
|Net income                                              |  | 7,735                              |  



|(1) | Includes share-based compensation expenses are included in the statement of operations data as follows:
|--- | -------------------------------------------------------------------------------------------------------



|                                                |  |                                  
|----------------------------------------------- |  | ---------------------------------
|                                                |  | For the Year EndedDecember 312004
|                                                |  | RMB (in thousands)               
|Leased-and-operated hotel costspersonnel costs |  | 8                                
|General and administrative expenses             |  | 141                              



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##### Table of Contents

The following table presents a summary of Home Inns Beijings consolidated balance sheet data as of
December 31, 2004:



|                                 |  |                       
|-------------------------------- |  | ----------------------
|                                 |  | As of December 31,2004
|                                 |  | RMB (in thousands)    
|Consolidated Balance Sheet Data: |  |                       
|Cash and cash equivalents        |  | 16,710                
|Total assets                     |  | 130,562               
|Total current liabilities        |  | 39,900                
|Deferred rental                  |  | 11,890                
|Paid-in capital                  |  | 68,945                
|Additional paid-in capital       |  | 150                   
|Total shareholders equity       |  | 78,346                

Exchange Rate Information

Our business is conducted in China and substantially all of our revenues are denominated in RMB. However, periodic reports made to shareholders will be expressed in U.S. dollars using the then current exchange rates.
This annual report contains translations of RMB amounts into U.S. dollars at specific rates solely for the convenience of the reader. The conversion of RMB into U.S. dollars in this annual report is based on the noon buying rate in The City of New
York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, all translations of financial data from RMB to U.S. dollars in this annual report were made at a rate of RMB 7.2946 to
US$1.00, the noon buying rate in effect as of December 31, 2007. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, the
rates stated below, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. On April 17, 2008
the noon buying rate was RMB 6.9840 to US$1.00.

The following table sets forth information concerning exchange rates between the RMB and
the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this annual report or will use in the preparation of our periodic reports or any other
information to be provided to you. The source of these rates is the Federal Reserve Bank of New York.



|                         |  |                  |  |            |  |        |  |       
|------------------------ |  | ---------------- |  | ---------- |  | ------ |  | ------
|                         |  | Noon Buying Rate
|Period                   |  | PeriodEnd        |  | Average(1) |  | Low    |  | High  
|2002                     |  | 8.2800           |  | 8.2770     |  | 8.2800 |  | 8.2669
|2003                     |  | 8.2767           |  | 8.2772     |  | 8.2800 |  | 8.2765
|2004                     |  | 8.2765           |  | 8.2768     |  | 8.2774 |  | 8.2764
|2005                     |  | 8.0702           |  | 8.1940     |  | 8.2765 |  | 8.0702
|2006                     |  | 7.8041           |  | 7.9723     |  | 8.0702 |  | 7.8041
|2007                     |  | 7.2946           |  | 7.5806     |  | 7.8127 |  | 7.2946
|October                  |  | 7.4682           |  | 7.5016     |  | 7.5158 |  | 7.4682
|November                 |  | 7.3850           |  | 7.4212     |  | 7.4582 |  | 7.3800
|December                 |  | 7.2946           |  | 7.3682     |  | 7.4120 |  | 7.2946
|2008                     |  |                  |  |            |  |        |  |       
|January                  |  | 7.1818           |  | 7.2405     |  | 7.2946 |  | 7.1818
|February                 |  | 7.1115           |  | 7.1644     |  | 7.1973 |  | 7.1100
|March                    |  | 7.0120           |  | 7.0722     |  | 7.1110 |  | 7.0105
|April (through April 17) |  | 6.9840           |  | 7.0023     |  | 7.0185 |  | 6.9840



|(1) | Annual averages are calculated from month-end rates. Monthly averages are calculated using the average of the daily rates during the relevant period.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

B. Capitalization and Indebtedness

Not Applicable.

C. Reasons for the Offer and Use of Proceeds

Not Applicable.



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D. Risk Factors

Risks Related to Our Business

Our operating results are subject to conditions typically affecting the lodging industry.

Our operating results are subject to conditions typically affecting the lodging industry, including the following:



| |  |  | changes in the national, regional or local economic conditions;
| | - |  | ---------------------------------------------------------------



| |  |  | natural disasters or travelers fears of exposure to serious contagious diseases;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | the attractiveness of our hotels to customers and competition from other hotels;
| | - |  | --------------------------------------------------------------------------------



| |  |  | local market conditions such as an oversupply of, or a reduction in demand for, hotel rooms;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | the performance of managerial and other employees of our hotels; and
| | - |  | --------------------------------------------------------------------



| |  |  | increases in operating costs and expenses due to inflation and other factors.
| | - |  | -----------------------------------------------------------------------------

Changes in any of these conditions could adversely affect our occupancy rates, average daily rates and RevPAR or otherwise adversely affect our results
of operations and financial condition.

We may not be able to manage our expected growth, which could adversely affect our operating results.

Since our inception, we have experienced substantial growth. We have increased the number of our hotels in operation in China from
five in 2002 to 266 (with another 115 hotels under development) as of December 31, 2007. We intend to continue to develop or acquire additional hotels in different geographic locations in China and increase our number of hotels in operation.

Our expansion has placed, and will continue to place, substantial demands on our managerial, operational, technological and other
resources. Our planned expansion will also require us to maintain the consistency of our product and the quality of our services to ensure that our brand does not suffer as a result of any deviations, whether actual or perceived, in the consistency
of our product and the quality of our services. In order to manage and support our growth, we must continue to improve our existing operational, administrative and technological systems and our financial and management controls, and recruit, train
and retain qualified hotel management personnel as well as other administrative and sales and marketing personnel, particularly as we expand into new markets. We cannot assure you that we will be able to effectively and efficiently manage the growth
of our operations, recruit and retain qualified personnel and integrate new hotels into our operations. Any failure to effectively and efficiently manage our expansion may materially and adversely affect our ability to capitalize on new business
opportunities, which in turn may have a material adverse effect on our results of operation.

Expansion into new markets may present
operating and marketing challenges that are different from those that we currently encounter in our existing markets. In addition, our expansion within existing markets may adversely affect the financial performance of our existing hotels in those
markets and, as a result, negatively affect our overall results of operations. Our inability to anticipate the changing demands that expanding 18 operations will impose on our management and information and operational systems, or our failure to
quickly adapt our systems and procedures to the new markets could result in lost revenue and increased expenses and otherwise harm our results of operations and financial condition.

We have committed significant resources to the acquisition of Top Star, and if we cannot successfully integrate Top Stars operations and personnel with our own, our results of operations and return on
capital may be materially adversely affected.

We acquired the Top Star hotel chain in October 2007. The addition of Top
Stars hotels expanded our holding by an additional 26 economy hotels with about 4,200 rooms located in 18 cities across China. Our consideration for the Top Star acquisition included assumptions of approximately RMB 192 million in debt,
which was repaid shortly after completion of the acquisition, and the issuance of 655,831 of our ordinary shares, or the equivalent of 327,916 ADSs; there was also a cash payment of RMB 68 million. The total consideration amounted to approximately
RMB 370 million, or about RMB 88,095 per room. The acquisition of Top Star exposes us to potential risks, including risks associated with unforeseen or hidden liabilities, the diversion of management attention and resources from our existing
business and the inability to generate sufficient revenues to offset the costs and expenses of the acquisition.



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Integration of Top Stars hotels with our own involves a consideration of current Top Star
employees. We have completed the process of evaluating these employees qualifications and we have hired those who we feel are sufficiently qualified. If we are not successful in identifying the best candidates from among the employees of Top
Star, the consistency and quality of the services that we offer to our guests may decline, which could affect the value of our brand or image.

In addition, two of Top Stars hotels currently do not possess proper licenses for their operation. The government may shut down hotels that operate without the required licenses, confiscate the revenues from unlicensed operation, and
impose penalties and fines. We are in the process of securing these two licenses. If we are unable to secure such licenses, the terms of our acquisition of Top Star include provisions that would allow us to decline the transfer of the unlicensed
hotels without penalty or payment of consideration to the former shareholders of Top Star. However, we cannot assure you that exercising these provisions would adequately compensate us for any inability to secure such licenses.

Historically, Top Star hotels have not been profitable. As such, the consolidation of Top Star with our financial results had a negative impact on our
financial condition and results of operations for the quarter and year ended December 31, 2007, and may possibly have a negative impact on our financial condition and results of operations in 2008.

If we are presented with appropriate opportunities in the future, we may acquire additional businesses or assets that are complementary to our business.
Difficulties encountered in the acquisition and integration process may have an adverse effect on our ability to manage our business.

If the value
of our brand or image diminishes, it could have a material and adverse effect on our business and results of operations.

Our
Home Inn brand is associated with a leading economy hotel chain offering cleanness, convenience and comfort with consistent, high-quality service among value-conscious individual business and leisure travelers in China. Our continued
success in maintaining and enhancing our brand and image depends, to a large extent, on our ability to satisfy customer needs by further developing and maintaining our innovative and distinctive product and maintaining consistent quality of services
across our hotel chain, as well as our ability to respond to competitive pressures. If we are unable to do so, our occupancy rates may decline, which could in turn adversely affect our results of operations. Our business may also be adversely
affected if our public image or reputation were to be diminished by the operations of any of our hotels, whether due to unsatisfactory service, accidents or otherwise. Our brand is integral to our sales and marketing efforts. If the value of our
brand or image is diminished or if our brand does not continue to be attractive to customers, our business and results of operations may be materially and adversely affected.

If we are not able to hire, train and retain qualified managerial and other employees, our brand and our business may be materially and adversely affected.

Our managerial and other employees manage our hotels and interact with our customers on a daily basis. They are critical to maintaining the quality and
consistency of our services as well as our established brand and reputation. It is important for us to attract qualified managerial and other employees who have experience in lodging or other consumer-service industries and are committed to our
customer-first approach. There may be a limited supply of such qualified individuals in some of the cities in China where we have operations and other cities into which we intend to expand. In addition, criteria such as dedication are
difficult to ascertain during the recruitment process. We must hire and train qualified managerial and other employees on a timely basis to keep pace with our rapid growth while maintaining consistent quality of services across our hotels in various
geographic locations. We must also provide continuous training to our managerial and other employees so that they are equipped with up-to-date knowledge of various aspects of our hotel operations and can meet our demand for high-quality services. If
we fail to do so, the quality of our services may decrease in one or more of the markets where we operate, which in turn may have a material and adverse effect on our brand and our business.

We may not be able to successfully identify or secure additional hotel properties.

We plan to open more hotels in targeted markets to further grow our business. We may not be successful in identifying and leasing or franchising
additional hotel properties at desirable locations and on commercially reasonable terms or at all. Some cities in China have undergone economic development and expansion for several decades while others are still at an early stage of development. In
more developed cities, it may be difficult to increase the number of hotels because we or our competitors already have operations in such cities. In less developed cities, demand for our hotels may not increase as rapidly as we expect. Even if we
are able to successfully identify and acquire new hotel properties via lease or franchise arrangements, new hotels may not generate the returns we expect. We also may incur costs in connection with evaluating hotel properties and negotiating with
property owners, including ones that we are subsequently unable to lease or franchise. If we fail to successfully identify or compete for additional hotel properties, our ability to execute our growth strategy could be impaired and our business and
prospects may be materially and adversely affected.



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Future acquisitions may have an adverse effect on our ability to manage our business.

If we are presented with appropriate opportunities, we may acquire businesses or assets that are complementary to our business. Future acquisitions would
expose us to potential risks, including risks associated with unforeseen or hidden liabilities, the diversion of management attention and resources from our existing business and the inability to generate sufficient revenues to offset the costs and
expenses of acquisitions. Any difficulties encountered in the acquisition and integration process may have an adverse effect on our ability to manage our business.

Our financial and operating performance may be adversely affected by epidemics, natural disasters and other catastrophes.

Our financial and operating performance may be adversely affected by epidemics, natural disasters and other catastrophes, particularly in locations where we operate a large number of hotels. In early 2003, several economies in Asia,
including China, were affected by the outbreak of severe acute respiratory syndrome, or SARS. During May and June of 2003, many businesses in China were closed by the PRC government to prevent transmission of SARS. Our business and results of
operations were materially and adversely affected by the outbreak of SARS. In addition, some Asian countries, including China, have recently encountered incidents of the H5N1 strain of bird flu, or avian flu. This disease, which originally spread
through poultry populations, is capable in some circumstances of being transmitted to humans and is often fatal. Losses caused by epidemics, natural disasters and other catastrophes, including SARS, avian flu, earthquakes or typhoons, are either
uninsurable or too expensive to justify insuring against in China. In the event an uninsured loss or a loss in excess of insured limits occurs, we could lose all or a portion of the capital we have invested in a hotel, as well as the anticipated
future revenue from the hotel. In that event, we might nevertheless remain obligated for any financial obligations related to the hotel. Similarly, war (including the potential for war) and terrorist activity (including threats of terrorist
activity), travel-related accidents, as well as geopolitical uncertainty and international conflict, will affect travel and may in turn have a material adverse effect on our business and results of operation. In addition, we may not be adequately
prepared in contingency planning or recovery capability in relation to a major incident or crisis, and as a result our operational continuity may be adversely affected and our reputation may be harmed.

Our legal right to lease certain properties could be challenged by property owners or other third parties, which could prevent us from continuing to operate the
affected hotels or increase the costs associated with operating these hotels.

Except for two properties in Chongqing and Luoyang,
we do not hold any land-use rights with respect to the land on which our hotels are located nor do we own any of the hotel properties we operate. Instead, our business model relies on leases with third parties who either own the properties or lease
the properties from the ultimate property owner. As of December 31, 2007, title certificates for eight of the properties operated by us had not been obtained. We cannot assure you that title to properties we currently lease or franchise will
not be challenged. There may be challenges to the title of the properties which, if successful, could impair the development or operations of our hotels on such properties. In addition, we are subject to the risk of potential disputes with property
owners. Such disputes, whether resolved in our favor or not, may divert management attention, harm our reputation or otherwise disrupt our business.

Where our immediate lessors are not the ultimate owners of hotel properties, in several instances no consent was obtained from the owners to sublease the hotel properties to us. A lessors failure to duly obtain
the title to the property or to receive any necessary approvals from the ultimate owner or the primary lease holder, as applicable, could potentially invalidate our lease or result in the renegotiation of such lease leading to less favorable terms.
Moreover, we cannot assure you that the building ownership or leasehold in connection with our franchised-and-managed hotels will not be subject to similar third-party challenges. Some of the properties we or our franchisees lease from third parties
were subject to mortgages at the time the leases were signed. In such circumstances and where consent to the lease was not obtained from the mortgage holder, the lease may not be binding on the transferee of the property if the mortgage holders
foreclose on the mortgage and transfer the property, which could in turn materially and adversely affect our ability to operate the hotel facility.

If we are unable to compete successfully, our financial condition and results of operations may be harmed.

The
lodging industry in China is highly competitive. Competition in the industry is primarily based on room rates, quality of accommodations, brand name recognition, convenience of location, geographic coverage, service quality, range of services, and
guest amenities. We compete primarily with other economy hotel chains as well as various regional and local economy hotels. We also compete with two- and three-star hotels, as we offer rooms with standards comparable to many of those hotels while
maintaining competitive pricing. In addition, we may also face competition from new entrants in the economy hotel segment in China. As compared to developing four- or five-star hotels, developing economy hotels does not require significant capital
commitments or



9



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human resources. This relatively low barrier to entry potentially allows new competitors to enter our markets quickly to compete with our business.
Furthermore, we compete with all other hotels for guests in each market in which we operate, as our typical business and leisure traveler customers may change their travel, spending and consumption patterns and choose to stay in hotels in different
segments. New and existing competitors may offer competitive rates, greater convenience, services or amenities or superior facilities, which could attract customers away from our hotels, resulting in a decrease in occupancy and average daily rates
for our hotels. Any of these factors may have an adverse effect on our competitive position, results of operations and financial condition.

Our
limited operating history makes it difficult to evaluate our future prospects and results of operations.

We believe that our
future success depends on our ability to significantly increase revenue and profitability from our operations. We have a limited operating history, having only commenced operations in 2002. Accordingly, you should consider our future prospects in
light of the risks and challenges encountered by a company with a limited operating history. These risks and challenges include:



| |  |  | the uncertainties associated with our ability to continue our growth while maintaining our profitability;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | preserving our competitive position in the economy hotel segment of the lodging industry in China;
| | - |  | --------------------------------------------------------------------------------------------------



| |  |  | offering an innovative product to attract recurring and new customers;
| | - |  | ----------------------------------------------------------------------



| |  |  | implementing our strategy and modifying it from time to time to respond effectively to competition and changes in customer preferences and needs;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | increasing awareness of our Home Inn brand and continuing to develop customer loyalty; and
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | attracting, training, retaining and motivating qualified personnel.
| | - |  | -------------------------------------------------------------------

If we are unsuccessful in addressing any of these risks or challenges, our business may be materially and adversely affected.

Failure to retain our senior management could harm our business.

We place substantial reliance on the lodging and
other consumer-service industry experience and the institutional knowledge of members of our senior management team. Mr. David Jian Sun, our chief executive officer, Ms. May Wu, our chief financial officer, Mr. Jason Zong, our chief
operating officer, and Ms. Rixin Liang, our chief branding officer, are particularly important to our future success due to their substantial experience in the lodging and other consumer service industries. We do not carry key person insurance
on any of our senior management team. The loss of the services of one or more of these members of our senior management team due to their departure or otherwise could hinder our ability to effectively manage our business and implement our growth
strategies. Finding suitable replacements for Mr. Sun, Ms. Wu, Mr. Zong and Ms. Liang could be difficult, and competition for such personnel of similar experience is intense. If we lose the services of any of them, our business
may be adversely affected.

Interruption or failure of our information and operational systems could impair our ability to effectively provide our
services, which could damage our reputation.

Our ability to provide consistent and high-quality services throughout our hotel
chain depends on the continued operation of our proprietary information and operational systems, including our property management, central reservation, customer relationship management and management reporting systems. Any damage to, or failure of,
our systems could interrupt our service. Our systems are vulnerable to damage or interruption as a result of power loss, telecommunications failures, computer viruses, fires, floods, earthquakes, interruptions in access to our toll-free numbers,
hacking or other attempts to harm our systems, and similar events. Our servers, which are maintained in Shanghai, may also be vulnerable to break-ins, sabotage and vandalism. Some of our systems are not fully redundant, and our disaster recovery
planning does not account for all possible scenarios. In addition, our systems and technologies may become outdated and we may not be able to replace or introduce upgraded systems as quickly as our competitors or within budgeted costs for such
upgrades. If we experience frequent or persistent system failures, our quality of services and our reputation could be harmed. The steps we need to take to increase the reliability and redundancy of our systems may be costly, which could reduce our
operating margin, and may not be successful in reducing the frequency or duration of system failures and service interruptions.

Any failure to
protect our trademarks and other intellectual property rights could have a negative impact on our business.

We believe our brand,
trade name, trademarks and other intellectual property are critical to our success. Home Inn is a highly recognized brand in the economy hotel segment of Chinas lodging industry. The success of our business depends in part upon our
continued ability to use our brand, trade names and trademarks to increase brand awareness and to further develop our brand. The unauthorized reproduction of our trademarks could diminish the value of our brand and its market acceptance, competitive
advantages or goodwill. In addition, our proprietary information and operational systems, which have not been patented or otherwise registered as our property, are a key component of our competitive advantage and our growth strategy.



10



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Monitoring and preventing the unauthorized use of our intellectual property is difficult. The measures we
take to protect our brand, trade names, trademarks and other intellectual property rights may not be adequate to prevent their unauthorized use by third parties. Furthermore, the application of laws governing intellectual property rights in China
and abroad is uncertain and evolving, and could involve substantial risks to us. If we are unable to adequately protect our brand, trade names, trademarks and other intellectual property rights, we may lose these rights and our business may suffer
materially.

Accidents or injuries in our hotels may adversely affect our reputation and subject us to liability.

There are inherent risks of accidents or injuries in hotels. One or more accidents or injuries at any of our hotels could adversely affect our safety
reputation among customers and potential customers, decrease our overall occupancy rates and increase our costs by requiring us to take additional measures to make our safety precautions even more visible and effective. If accidents or injuries
occur at any of our hotels, we may be held liable for costs related to the injuries. Our current property and liability insurance policies may not provide adequate coverage and we may be unable to renew our insurance policies or obtain new insurance
policies without increases in cost or decreases in coverage levels.

We may not be able to develop hotel properties on a timely or cost-efficient
basis, which may adversely affect our growth strategy and business.

We develop all of our leased-and-operated hotels directly. Our
involvement in the development of properties presents a number of risks, including construction delays or cost overruns, which may result in increased project costs or forgone revenue. We may be unable to recover development costs we incur for
projects that are not pursued to completion. Properties that we develop could become less attractive due to market saturation or oversupply, with the result that we may not be able to recover development costs at the expected rate, or at all. In
addition, we may not have available cash to complete projects that have commenced, or we may be unable to obtain financings for development of future properties on favorable terms, if at all. If we are unable to successfully manage our hotel
development to minimize these risks, our growth strategy and business prospects may be adversely affected.

Our costs and expenses may remain
constant or increase even if our revenues decline.

A significant portion of our operating costs, including rent, is fixed.
Accordingly, a decrease in our revenues could result in a disproportionately higher decrease in our earnings because our operating costs and expenses are unlikely to decrease proportionately. For example, the period during which Chinas Spring
Festival holiday falls generally accounts for a lower portion of our annual revenues than the other periods, but our expenses do not vary as significantly as changes in occupancy and revenues, since we need to continue to pay rent and salary, make
regular repairs, maintenance and renovations and invest in other capital improvements throughout the year to maintain the attractiveness of our hotels. Our property development and renovation costs may increase as a result of increasing costs of
materials. However, we have a limited ability to pass increased costs to customers through room rate increases. Therefore, our costs and expenses may remain constant or increase even if our revenues decline.

Our lessors failure to comply with lease registration and other compliance requirements under PRC law may subject these lessors or us to fines or other
penalties that may negatively affect our ability to operate our hotels.

As an operator and manager of hotel properties, we, our
franchisees and those from whom we lease properties, are subject to a number of land- and property-related legal requirements. For instance, under PRC law, all lease agreements are required to be registered with the local housing bureau. Our
standard lease agreement generally requires the lessor to make such registrations. However, as of December 31, 2007, lessors of 131 out of the 195 hotels in operation that we lease and operate had not obtained registrations of their leases from
the relevant authorities as required. We continue to remind these lessors to obtain registrations under our lease agreements with them. In addition, based on the specific land use right certificates and property ownership certificates currently held
by some of our lessors, certain hotel properties we lease are restricted to industrial and other uses, rather than for commercial service use. The failure of our lessors to register lease agreements as required by law or to ensure that the hotel
properties are operated in compliance with their designated use may subject these lessors or us to fines or other penalties which may negatively affect our ability to operate the hotels covered under those leases.



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We have limited insurance coverage.

We carry property insurance that covers the assets that we own at our hotels, but not the buildings or any other assets owned by our lessors. Although we
require our lessors to purchase customary insurance policies, we cannot guarantee that they will adhere to such requirements. If we were held liable for amounts and claims exceeding the limits of our insurance coverage or outside the scope of our
insurance coverage, our business, results of operations and financial condition may be materially and adversely affected. In addition, we do not have any business disruption insurance coverage for our operations to cover losses that may be caused by
natural disasters or catastrophic events, such as SARS or avian flu. Any business disruption or natural disaster may result in our incurring substantial costs and diversion of our resources.

If we are unable to maintain our hotels good condition and attractive appearance, our hotel occupancy rates may decline.

In order to maintain our hotels good condition and attractive appearance, our hotels require ongoing renovations and other leasehold improvements,
including periodic replacement of furniture, fixtures and equipment. If we and our franchisees do not make needed leasehold investments and improvements, we could lose our market share to our competitors and our hotel occupancy rates may decline.

The growth of on-line and other hotel reservation intermediaries and travel consolidators may adversely affect our margins and profitability.

Some of our hotel rooms are booked through travel intermediaries and consolidators to whom we pay commissions for such services.
If these intermediaries and consolidators become the primary channel through which our customers make their bookings, they may be able to negotiate higher commissions, reduced room rates, or other significant concessions from us. We believe that the
aim of such intermediaries and consolidators is to have consumers develop loyalties to their reservation systems rather than to our brand. The operations of these travel intermediaries and consolidators may adversely affect our ability to control
the supply and price of our room inventory, which would in turn adversely affect our margins and profitability.

If we fail to maintain an effective
system of internal controls over financial reporting, we may not be able to accurately report our financial results or prevent fraud.

We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, adopted rules requiring every public company to include a
management report on such companys internal controls over financial reporting in its annual report, which contains managements assessment of the effectiveness of our internal controls over financial reporting. In addition, an independent
registered public accounting firm must attest to and report on managements assessment of the effectiveness of the companys internal controls over financial reporting. These requirements first applies to this annual report on Form 20-F
for the fiscal year ending on December 31, 2007. Although our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still decline to attest to our
managements assessment or may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements
differently from us.

When our independent registered public accounting firm audited our consolidated financial statements for the three
years ended December 31, 2005, they identified certain control deficiencies, including two material weaknesses in our internal control over financial reporting, as defined in Audit Standard No. 2 of the Public Company Accounting Standards
Board. Specifically, the two material weaknesses identified by our independent registered public accounting firm consisted of (i) our lack of adequate review and monitoring over the financial reporting and disclosure process, as well as our
lack of sufficient control over our financial closing and reporting procedures; and (ii) the lack of sufficient U.S. GAAP knowledge of our accounting staff. We have taken measures to remediate these material weaknesses and other control
deficiencies, including implementing additional control procedures, reinforcing the existing controls and recruiting additional finance and accounting personnel.

When our independent registered public accounting firm audited our consolidated financial statements for the year ended December 31, 2006, they noted that most of the factors causing the above two material
weaknesses had been remediated or improved. A lack of control over timely recording of fixed asset acquisitions was the primary remaining factor causing our material weaknesses as of December 31, 2006. This remaining factor has been remediated
in 2007 by implementing additional control procedures and reinforcing existing control. As a result, our independent registered public accounting firm concluded that the company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2007.

In connection with our acquisition of Top Star, we plan to integrate Top Stars internal
controls over financial reporting with our own. Pursuant to the rules governing compliance with Section 404 of the Sarbanes- Oxley Act, acquisitions may be excluded from managements assessment of the effectiveness of internal control over
financial reporting required by Section 404 for up to one year from the date of the closing of an acquisition. We believe that Top Stars current financial reporting system is insufficient to meet our specific future needs, and we are in
the process of integrating it with our own internal control over financial reporting as soon as practicable.



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Failure to maintain effective internal controls over financial reporting could result in the loss of
investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our ADSs and the value of our ordinary shares. Furthermore, we anticipate that we will incur
considerable costs and devote significant management time and efforts and other resources to remain compliant with Section 404 of the Sarbanes-Oxley Act.

We incur increased costs as a result of being a public company.

Our reporting obligations as a public company have
placed strain on our management, operational and financial resources and systems . As a public company, we incur significant legal, accounting and other expenses that we did not incur as a private company prior to our initial public offering in
October 2006. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the SEC and Nasdaq, have required changes in corporate governance practices of public companies. These new rules and regulations have
increased our legal, accounting and financial compliance costs and made certain corporate activities more time-consuming and costly. In addition, we incur ongoing additional costs associated with our public company reporting requirements. We are
currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

The new M&A rule sets forth complex procedures for acquisitions conducted by foreign investors which could make it more difficult to pursue growth through
acquisitions.

On August 8, 2006, six PRC regulatory agencies, namely, the PRC Ministry of Commerce, the State Assets
Supervision and Administration Commission, or SASAC, the State Administration for Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission, or the CSRC, and the PRC State Administration of Foreign
Exchange, or SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule, which became effective on September 8, 2006. The New M&A Rule sets forth complex
procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex, including requirements in some instances that the Ministry of Commerce be notified in advance of any
change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. We may grow our business in part by acquiring complementary businesses or assets in China. Complying with the requirements of the New M&A Rule
to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to
expand our business or maintain our market share.

Risks Related to Doing Business in China

Adverse changes in economic and political policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could
adversely affect our business.

We conduct substantially all of our business operations in China. As the travel industry is highly
sensitive to business and personal discretionary spending levels, it tends to decline during general economic downturns. Accordingly, our results of operations, financial condition and prospects are subject to a significant degree to economic
developments in China. Chinas economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and
allocation of resources. While the PRC economy has experienced significant growth in the past 20 years, growth has been uneven across different regions and among various economic sectors of China. The PRC government has implemented various measures
to encourage economic development and guide the allocation of resources. While some of these measures benefit the overall PRC economy, they may also have a negative effect on us. For example, our results of operations and financial condition may be
adversely affected by government control over capital investments or changes in environmental, health, labor or tax regulations that are applicable to us.

The PRC government also exercises significant control over Chinas economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and
providing preferential treatment to particular industries or companies. Since late 2003, the PRC government implemented a number of measures, such as increasing the Peoples Bank of Chinas statutory deposit reserve ratio and imposing
commercial bank lending guidelines that had the effect of restricting loans to certain industries. These actions, as well as future actions and policies of the PRC government, could materially affect our liquidity and access to capital and our
ability to operate our business.



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Uncertainties with respect to the Chinese legal system could adversely affect us.

We conduct our business primarily through our subsidiaries in China. Our operations in China are governed by PRC laws and regulations. Our subsidiaries
are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to foreign-invested enterprises. The PRC legal system is based on written statutes. Prior court decisions may be cited for
reference but have limited precedential value. Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated
legal system and recently-enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published court
decisions and their nonbinding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and
management attention.

Governmental control of currency conversion may affect the value of your investment.

The PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of China.
We receive substantially all of our revenues in RMB. Under our current structure, our income will be primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of
our PRC subsidiaries and our affiliated entity to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency dominated obligations. Under existing PRC foreign exchange regulations,
payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from SAFE, by complying with certain procedural
requirements. However, for most capital account items, approval from appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank
loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient
foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.

Fluctuation in the value of the RMB may have a material adverse effect on your investment.

The value of the RMB
against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB
to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a managed band based on market supply and demand and by reference to a basket of certain foreign currencies. This change in policy has resulted in an approximately
11.9% appreciation of the RMB against the U.S. dollar between July 21, 2005 and December 31, 2007. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the
PRC government to adopt an even more flexible currency policy, which may result in a further and more significant appreciation of the RMB against the U.S. dollar. In May 2007, Chinas central bank widened the RMB trading band from 0.3% daily
movement against the U.S. dollar to 0.5%. Our revenues and costs are mostly denominated in the RMB, and a significant portion of our financial assets are also denominated in the RMB. We rely entirely on dividends paid to us by our subsidiaries in
China. Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. For example, an appreciation of
the RMB against the U.S. dollar would make any new RMB-denominated investments or expenditures more costly to us, to the extent that we need to convert U.S. dollars into the RMB for such purposes. An appreciation of the RMB against the U.S. dollar
would also result in foreign currency translation losses for financial reporting purposes when we translate our U.S. dollar denominated financial assets into the RMB, as the RMB is our reporting currency. As of December 31, 2007, our U.S.
dollar denominated financial assets consisted of a cash balance of approximately US$232 million.

PRC regulations relating to the establishment of
offshore special purpose companies by PRC residents may subject our PRC resident shareholders to personal liability and limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries ability to distribute profits to
us, or otherwise adversely affect us.

SAFE issued a public notice in October 2005 along with related procedural guidance in
January 2007 requiring PRC residents to register with the local SAFE branch before establishing or controlling any company outside of China for the purpose of capital financing with assets or equity of PRC companies, referred to in the notice as an
offshore special purpose company. Under this public notice, PRC residents who are shareholders and/or beneficial owners of such offshore special purpose companies were required to register with the local SAFE branch before March 31,
2006. We have requested our shareholders and/or beneficial owners who are subject to the registration requirements under the SAFE notice to register with the local SAFE branch. Failure of these shareholders



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and/or beneficial owners to register with the local SAFE branch as required by the SAFE notice or failure of future shareholders of our company who are PRC
residents to comply with the registration procedures set forth in the SAFE notice may subject such shareholders and/or beneficial owners to fines and other government actions and may also limit our ability to fund our PRC subsidiaries, limit our PRC
subsidiaries ability to distribute dividends to our company or otherwise adversely affect our business.

We rely principally on dividends and
other distributions on equity paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our subsidiaries entities to make payments to us could have a material adverse effect on our ability
to conduct our business.

We are a holding company, and we rely principally on dividends from our subsidiaries in China for our
cash requirements, including any debt we may incur. Current PRC regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In
addition, each of our subsidiaries in China are required to set aside a certain amount of its after-tax profits each year, if any, to fund certain statutory reserves. These reserves are not distributable as cash dividends. As of December 31,
2007, aggregate net assets of RMB 824.7 million (US$113.1 million) were not distributable in the form of dividends to us due to these PRC regulations. Furthermore, if our subsidiaries in China incur debt on their own behalf in the future, the
instruments governing the debt may restrict their ability to pay dividends or make other payments to us. In addition, the PRC tax authorities may require us to adjust our taxable income under the contractual arrangements we currently have in place
in a manner that would materially and adversely affect our subsidiaries ability to pay dividends and other distributions to us. Any limitation on the ability of our subsidiaries to distribute dividends or other payments to us could materially
and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends, or otherwise fund and conduct our business.

We have benefited from certain financial subsidies and preferential tax treatments in China. Reduction or elimination of these subsidies or preferential tax treatments may have an adverse effect on our income
tax expense and net income. Our foreign ADS holders may be subject to PRC withholding tax on the dividends payable by us and upon gains realized on their sales of our ADSs if we are classified as a PRC resident enterprise.

Various local tax authorities in China have provided financial subsidies in the form of certain tax refunds to us. However, these
tax authorities may reduce or eliminate any or all of these financial subsidies at any time in the future. There is no assurance that we will continue to receive any financial subsidies in the form of tax refunds or otherwise as the grant of such
subsidies is within the discretion of relevant local government authorities. In addition, some of our subsidiaries are subject to lower enterprise income tax rates or tax exemptions due to the preferential tax treatments granted by the local tax
authorities. For example, our wholly owned subsidiary, Hemei Hotel Management Company, enjoys a 18% enterprise income tax rate due to its place of incorporation and operation in the Pudong New District of Shanghai. If such preferential tax
treatments granted by local tax authorities are deemed to be in violation of national laws and regulations or are abolished or altered, our subsidiaries will be subject to the standard enterprise income tax rate, which currently is 25%. Under
current PRC regulations, if it is determined that a taxpayer has underpaid tax due to prior advice from relevant tax authorities, the taxpayer may still be required to pay the full amount of unpaid tax within three years after such determination but
the taxpayer will not be subject to any penalty or late payment fee. On March 16, 2007, the National Peoples Congress, the Chinese legislature, passed the Enterprise Income Tax Law, and on December 6, 2007, the PRC State Council
issued the Implementation Regulations of the Enterprise Income Tax Law, both of which became effective on January 1, 2008. The Enterprise Income Tax Law and its Implementation Regulations, or the new EIT law, applies a uniform 25% enterprise
income tax rate to both foreign-invested enterprises and domestic enterprises. There is a transition period for enterprises, whether foreign-invested or domestic, which currently receive preferential tax treatments granted by relevant tax
authorities. Enterprises that are subject to an enterprise income tax rate lower than 25% may continue to enjoy the lower rate and gradually transfer to the new tax rate within five years after the effective date of the new law. Enterprises that are
currently entitled to exemptions or reductions from the standard income tax rate for a fixed term may continue to enjoy such treatment until the fixed term expires. Preferential tax treatments will continue to be granted to industries and projects
that are strongly supported and encouraged by the state, and enterprises classified as new and high technology enterprises strongly supported by the state are entitled to a 15% enterprise income tax rate. The new EIT law also provides
that enterprises established outside of China whose de facto management bodies are located in China are considered resident enterprises and will generally be subject to the uniform 25% enterprise income tax rate on their
global income. The de facto management body is defined as the organizational body that effectively exercises overall management and control over production and business operations, personnel, finance and accounting, and properties of the
enterprise. Moreover, under the new EIT law, foreign ADS holders may be subject to a 10% withholding tax upon dividends payable by us and gains realized on their sales or other dispositions of our ADSs or ordinary shares, if such income is sourced
from within the PRC. Although Home Inns & Hotels Management Inc. is incorporated in the Cayman Islands, it remains unclear whether the gains our foreign ADS holders may realize will be regarded as income from sources within the PRC if we
are classified as a PRC resident enterprise. Any such tax will reduce the returns on your investment in our ADSs.



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Risks Related to Our ADSs

The market price for our ADSs may be volatile.

The market price for our ADSs has been and may continue to be
volatile and subject to wide fluctuations in response to factors including the following:



| |  |  | revisions to our projected financial or operations targets;
| | - |  | -----------------------------------------------------------



| |  |  | actual or anticipated fluctuations in our quarterly operating results;
| | - |  | ----------------------------------------------------------------------



| |  |  | changes in projections or estimates relating to our financial or operational performance by securities research analysts;
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | conditions in the travel and lodging industries;
| | - |  | ------------------------------------------------



| |  |  | changes in the economic performance or market valuations of other lodging companies;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | announcements by us or our competitors of new products, acquisitions, strategic partnerships, joint ventures or capital commitments;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | addition or departure of key personnel;
| | - |  | ---------------------------------------



| |  |  | fluctuations of exchange rates between the RMB and U.S. dollar or other foreign currencies;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | potential litigation or administrative investigations;
| | - |  | ------------------------------------------------------



| |  |  | release of lock-up or other transfer restrictions on our outstanding ADSs or ordinary shares or sales of additional ADSs; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | general economic or political conditions in China.
| | - |  | --------------------------------------------------

In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may
also materially and adversely affect the market price of our ADSs.

We may need additional capital, and the sale of additional ADSs or other equity
securities could result in additional dilution to our shareholders.

We believe that our current cash and cash equivalents,
anticipated cash flow from operations and the proceeds from our initial public offering in October 2006, from the second public offering in May 2007 and from our sale of convertible bonds in December 2007 will be sufficient to meet our anticipated
cash needs for the foreseeable future. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are
insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities could result in additional dilution to our shareholders. The incurrence of
indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us,
if at all.

Substantial future sales of our ADSs in the public market, or the perception that these sales could occur, could cause the price of our
ADSs to decline.

Additional sales of our ordinary shares in the public market, or the perception that these sales could occur,
could cause the market price of our ADSs to decline. In addition, certain holders of our ordinary shares have the right to cause us to register the sale of a certain number of our shares under the Securities Act. Registration of these shares under
the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in the public market could cause the price
of our ADSs to decline.

Our corporate actions are substantially controlled by our officers, directors and principal shareholders.

Our current directors and officers beneficially own a total of 10,079,859 ordinary shares, or 14.2% of our outstanding voting
securities. In addition, BTG, through its affiliate, Poly Victory, currently owns 18.8% of our outstanding voting securities and has the right to appoint, and has appointed, two directors of our company. If our officers, directors and principal
shareholders choose to act in



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concert, they could exert substantial influence over matters requiring approval by our shareholders, including electing directors and approving mergers or
other business combination transactions. The concentration of our share ownership may discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as
part of a sale of our company and might reduce the price of our ADSs or the value of our ordinary shares. These actions may be taken even if they are opposed by our other shareholders.

You may not have the same voting rights as the holders of our ordinary shares and may not receive voting materials in time to be able to exercise your right to vote.

Except as described in this annual report and in the deposit agreement, holders of our ADSs will not be able to exercise voting rights attaching to the
shares evidenced by our ADSs on an individual basis. Holders of our ADSs have appointed the depositary or its nominee as their representative to exercise the voting rights attaching to the shares represented by the ADSs. You may not receive voting
materials in time to instruct the depositary to vote, and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote.

You may not be able to participate in rights offerings and may experience dilution of your holdings as a result.

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement for the ADSs, the
depositary will not offer those rights to ADS holders unless both the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act or exempt from registration under the Securities Act with
respect to all holders of ADSs. We are under no obligation to file a registration statement with respect to any such rights or underlying securities or to endeavor to cause such a registration statement to be declared effective. In addition, we may
not be able to take advantage of any exemptions from registration under the Securities Act. Accordingly, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution in their holdings as a result.

You may be subject to limitations on transfer of your ADSs.

Your ADSs represented by the ADRs 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 deem 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.

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

We are incorporated in the Cayman Islands,
and conduct substantially all of our operations in China through our wholly owned subsidiaries in China. Most of our officers reside outside the United States and some or all of the assets of those persons are located outside of the United States.
As a result, it may be difficult or impossible for you to bring an action against us or against these individuals 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.

Our corporate affairs are governed by our memorandum and articles of association and by the Companies Law (2007 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.



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As a result of all of the above, our public shareholders 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.

Our articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and ADSs.

Our articles of association contain provisions limiting the ability of others to acquire control of our company or cause us to enter into
change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of
our company in a tender offer or similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers,
preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or
all of which may be greater than the rights associated with our ordinary shares, in the form of ADS or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal
of management more difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our common shares and ADSs may be materially and adversely affected.

We may be classified as a passive foreign investment company, which could result in adverse United States federal income tax consequences for U.S.
Holders.

Based on the price of our ADSs and ordinary shares and the composition of our income and assets, we believe that we were
not a passive foreign investment company, or PFIC, for United States federal income tax purposes for our taxable year ending December 31, 2007, and we expect to operate in such a manner so as not to become a PFIC in the future.
However, we must make a separate determination each year as to whether we are a PFIC (after the close of each taxable year). Accordingly, we cannot assure you that we will not be a PFIC for our current taxable year ending December 31, 2008 or
any future taxable year. A non-U.S. corporation will be considered a PFIC 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 value of our assets generally will be determined by reference to the market price of our ADSs and
ordinary shares, which may fluctuate considerably. In addition, the composition of our income and assets will be affected by how, and how quickly, we spend the cash we raise in any equity offering. If we were treated as a PFIC for any taxable year
during which a U.S. Holder held an ADS or an ordinary share, certain adverse United States federal income tax consequences could apply to the U.S. Holder. For the definition of U.S. Holder and a more detailed discussion of United States
federal income tax consequences to U.S. Holders, see  Item 10. Additional InformationE. TaxationUnited States Federal Income TaxationPassive Foreign Investment Company.



|ITEM 4. | INFORMATION ON THE COMPANY
|------- | --------------------------

A. History and
Development of the Company

Home Inns & Hotels Management (Hong Kong) Limited, or Home Inns Hong Kong, was incorporated in
Hong Kong in May 2001 by its individual founders and Ctrip.com International, Ltd., or Ctrip, a leading China-based travel consolidator. Through a series of transactions, Ctrip disposed of all of its ownership interest in Home Inns Hong Kong in
August 2003 to focus on its core business of travel consolidation and to prepare for Ctrips initial public offering, which was completed in December 2003.

In April 2002, Home Inns Hong Kong and Beijing Capital Travel International Hotel Group Co., Ltd., or Beijing Capital Travel, entered into a joint venture agreement to form Home Inns & Hotels Management
(Beijing) Co, Ltd., or Home Inns Beijing, to operate branded economy hotels in China. Beijing Capital Travel is a subsidiary of Beijing Tourism Group, or BTG. Home Inns Hong Kong and BTG owned 55% and 45%, respectively, of Home Inns Beijing when it
commenced operations in July 2002. Subsequently, Home Inns Hong Kong gradually increased its ownership interest in Home Inns Beijing by contributing additional funds to the registered capital of Home Inns Beijing. Home Inns Hong Kongs
ownership interest in Home Inns Beijing was increased to 95.59% as of February 2005. In July 2007, we acquired the remaining 4.41% stake in Home Inns Beijing from BTG, making Home Inns Beijing our wholly-owned subsidiary. We paid a total
consideration consisting of RMB 60 million and 441,669 of our ordinary shares to BTG for the acquisition.

We have been actively
managing Home Inns Beijing since its inception. Home Inns Hong Kongs ownership in Home Inns Beijing was accounted for under the equity method since Home Inns Beijings inception until April 2004, because during this period of time, BTG
had substantive participation rights that enabled it to veto significant decisions made by Home Inns Hong Kong. In



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April 2004, Home Inns Hong Kong and Beijing Capital Travel entered into a revised joint venture agreement, under which Home Inns Hong Kong obtained control
of Home Inns Beijing. As a result, Home Inns Beijing has been our consolidated subsidiary since then.

In May 2006, we incorporated Home
Inns & Hotels Management Inc. in the Cayman Islands in preparation for our initial public offering. In June 2006, all of the then-existing shareholders of Home Inns Hong Kong exchanged their respective shares of Home Inns Hong Kong for an
equivalent number of shares of Home Inns & Hotels Management Inc. of equivalent classes. As a result, Home Inns Hong Kong became our wholly owned subsidiary in June 2006. Our consolidated financial statements reflect the share exchange in
June 2006 and have been prepared as if our current corporate structure had been in existence throughout the relevant periods. On October 31, 2006, we completed our initial public offering, in which we issued and sold 5,874,237 ADSs,
representing 11,748,474 of our ordinary shares, and certain of our then shareholders sold 3,210,763 ADSs, representing 6,421,526 of our ordinary shares, in each case at a public offering price of US$13.80 per ADS. On May 4, 2007, we completed
the second public offering, in which we issued and sold 1,478,155 ADSs, representing 2,956,310 of our ordinary shares, and certain of our shareholders sold 2,021,845 ADSs, representing 4,043,690 of our ordinary shares, in each case at a public
offering price of US$34.27 per ADS.

Our principal executive offices are located at Lane No. 421, Chang Ping Road, Jing An District,
Shanghai 200041, Peoples Republic of China. Our telephone number at this address is +(8621) 3218-9988. Our registered office in the Cayman Islands is located at the offices of Maples Corporate Services Limited, P.O Box 309, Ugland House, Grand
Cayman, KY1-1104, Cayman Islands. In addition, we have two branch offices in China. Our agent for service of process in the United States is CT Corporation System, located at 111 Eighth Avenue, New York, New York 10011.

Recent Developments

Acquisitions

In October 2007, as part of our strategy to expand our geographic coverage and increase our market penetration, we acquired the Top Star hotel chain. Top
Stars holdings include 26 economy hotels with about 4,200 rooms located in 18 cities across China. Established in 2005, Top Star rapidly became the eighth largest economy hotel chain in China and a popular economy hotel brand among domestic
business and leisure travelers.

Top Star operated on a business model similar to ours and, for this reason, fits well into our growth
plan: Top Star hotels are conveniently located in the more developed second-tier cities in China and are priced in the same range as ours. Top Stars hotels have on average 160 rooms, making them slightly larger than our average hotel. The
addition of Top Stars hotels has expanded our network to 326 hotels (including 98 hotels under development) located in more than 80 cities across China, as of December 31, 2007, and will allow us to leverage both our own and Top
Stars customer bases.

We have retained the Top Star brand while adding our own Home Inn logo to the acquired hotels. We
took control over the operation of the Top Star hotels beginning November 1, 2007 and expect to fully integrated its operations by the second quarter of 2008. The closing of the acquisition occurred around the end of 2007.

Our consideration for the Top Star acquisition includes assumptions of approximately RMB 192 million in debt, which will be repaid shortly after
completion of the acquisition, and the issuance of 655,831 of our ordinary shares, or the equivalent of 327,916 ADSs; there was also a cash payment of RMB 68 million. The total consideration amounted to approximately RMB 370 million, or about RMB
88,095 per room.

We acquired Beijing City Sunshine in its entirety in July 2007. Beijing City Sunshine is a hotel management company
with two leased-and-operated economy hotels in operation and an additional hotel under development, all located in Beijing.

In July 2007,
we acquired the remaining 4.41% stake in Home Inns Beijing from BTG, making Home Inns Beijing our wholly-owned subsidiary. We paid a total consideration consisting of RMB 60 million and 441,669 of our ordinary shares to BTG for the acquisition.

Convertible Bond Offering

In
December 2007, we issued and sold RMB 1,110 million aggregate principal amount of our US$ settled zero coupon convertible senior bonds due 2012 to non-US investors under Regulation S of the Securities Act. The bonds have a conversion price of
US$26.545 per ordinary share (equal to US$53.09 per ADS). The bond holders have the option to put the bonds after three years, and we can call the bonds after three years if the price of our ADSs reaches a certain hurdle. The bonds have a yield to
maturity or yield to put of 0.50%. Proceeds from the sale of the bonds is expected to be used to fund further expansion through developing new hotels as well as through acquisitions of other hotels.



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B. Business Overview

We are a leading economy hotel chain in China, based on the number of our hotels, the number of our hotel rooms, as well as the geographic coverage of our
hotel chain. We develop and operate economy hotels across China under our award-winning Home Inn brand. Since we commenced operations in 2002, we have become one of the best-known economy hotel brands in China. We offer a consistent
product and high-quality services to primarily serve the fast growing population of value-conscious individual business and leisure travelers who demand clean, comfortable and convenient lodging.

We have achieved our growth by utilizing two business models. We either lease real estate properties on which we develop and operate hotels, or we
franchise our brand to hotel owners and manage these hotel properties. We refer to the former type of hotels as leased-and-operated hotels and to the latter type of hotels as franchised-and-managed hotels. As of
December 31, 2007, our Home Inns hotel chain consisted of 195 leased-and-operated hotels in operation with an additional 78 leased-and-operated hotels under development and 71 franchised-and-managed hotels in operation with an additional 37
franchised-and-managed hotels under development, covering 82 cities in China. We have received many awards and accolades for our innovative, consistent and high-quality product and services across our hotel chain, including the 2006 Leading
Brand in Economy Hotels in China from the Chinese Hotel Industry Association, the Golden Pillow Award for best brand in economy hotels in China in both 2006 and 2007 from the 21st Century Business Herald, a nationwide economic
journal in China, earning a place among the 2006 Top 10 Leading Consumer Brands by the China Enterprise Culture Improvement Association, and also being named as one of the 2007 China Top Employers by the Corporate Research
Foundation.

We have experienced substantial growth while maintaining profitability since 2003. Our Home Inns hotels in operation grew
rapidly from 10 hotels in four cities as of the end of 2003 to 266 hotels in 66 cities as of the end of 2007, and our net income grew from RMB 1.5 million in 2003 to RMB 35.8 million (US$4.9 million) in 2007, representing a CAGR of 121%.

Our Home Inns Hotel Chain

We are dedicated to providing a consistent and high-quality product to our customers, allowing them to enjoy the comforts of home while staying at any Home Inns hotel. Our Home Inns hotel chain is a leading economy hotel chain in China
offering cleanness, convenience, comfort and value to individual business and leisure travelers.

As of December 31, 2007, our Home
Inns hotel chain consisted of 266 hotels in operation and an additional 115 hotels under development, covering 82 cities in China.

Our
Home Inns hotel chain covers most major metropolitan areas in China. We intend to further penetrate the existing metropolitan markets where we have a presence and also expand into additional cities in China with a population of over four million,
annual GDP of over RMB 80 billion (US$10.0 billion), or both. We believe cities meeting these criteria generally have the potential for sustainable economic growth and increasing demand for hotel accommodation services.

A typical Home Inns hotel has 80 to 150 guest rooms. Each hotel has a standardized design, appearance, decor, color scheme, lighting scheme and set of
guest amenities in each room, including a bedding package featuring mattresses meeting the standards of four-star hotels in China, free in-room broadband Internet access, a comfortable work space, air-conditioning and a supply of cold and hot
drinking water. Home Inns hotels are strategically located to provide our guests with convenient access to major business districts, ground transportation hubs, major highways, shopping centers, industrial development zones, colleges and
universities, and/or large residential neighborhoods.

The following table sets forth a complete listing of all of our hotels as of
December 31, 2007.



|         |  |                          |  |                              |  |                          |  |                             
|-------- |  | ------------------------ |  | ---------------------------- |  | ------------------------ |  | ----------------------------
|         |  | Hotels in Operation      |  | Hotels Contracted(1)        
|         |  | Leased-andOperatedHotels |  | Franchised-and-ManagedHotels |  | Leased-andOperatedHotels |  | Franchised-and-ManagedHotels
|Beijing  |  | 15                       |  | 25                           |  | 5                        |  | 8                           
|Shanghai |  | 17                       |  | 10                           |  | 6                        |  | 7                           
|Fuzhou   |  | 3                        |  |                              |  |                          |  |                             
|Hangzhou |  | 3                        |  | 6                            |  |                          |  | 1                           



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|             |  |                          |  |                              |  |                          |  |                             
|------------ |  | ------------------------ |  | ---------------------------- |  | ------------------------ |  | ----------------------------
|             |  | Hotels in Operation      |  | Hotels Contracted(1)        
|             |  | Leased-andOperatedHotels |  | Franchised-and-ManagedHotels |  | Leased-andOperatedHotels |  | Franchised-and-ManagedHotels
|Suzhou       |  | 6                        |  | 4                            |  |                          |  | 1                           
|Tianjin      |  | 9                        |  | 7                            |  | 4                        |  | 4                           
|Wuxi         |  | 3                        |  |                              |  |                          |  | 1                           
|Changzhou    |  | 4                        |  |                              |  |                          |  |                             
|Ningbo       |  | 2                        |  | 1                            |  |                          |  |                             
|Shenzhen     |  | 6                        |  |                              |  | 1                        |  |                             
|Xiamen       |  | 1                        |  | 1                            |  | 1                        |  | 1                           
|Nantong      |  | 1                        |  |                              |  |                          |  |                             
|Chengdu      |  | 7                        |  |                              |  | 1                        |  | 1                           
|Chongqing    |  | 4                        |  |                              |  | 1                        |  |                             
|Guangzhou    |  | 3                        |  | 1                            |  | 1                        |  |                             
|Wuhan        |  | 7                        |  | 1                            |  | 3                        |  | 1                           
|Shaoxing     |  | 2                        |  |                              |  |                          |  |                             
|Hefei        |  | 3                        |  |                              |  |                          |  |                             
|Jiangyin     |  | 1                        |  |                              |  |                          |  |                             
|Nanjing      |  | 8                        |  | 2                            |  | 2                        |  |                             
|Dalian       |  | 4                        |  |                              |  | 1                        |  |                             
|Zhengzhou    |  | 6                        |  | 2                            |  | 3                        |  | 1                           
|Shenyang     |  | 5                        |  | 2                            |  | 2                        |  | 1                           
|Shijiazhuang |  | 4                        |  | 1                            |  | 1                        |  | 2                           
|Zhuhai       |  | 2                        |  |                              |  |                          |  |                             
|Qingdao      |  | 4                        |  |                              |  | 4                        |  |                             
|Zhangjiajie  |  |                          |  | 1                            |  |                          |  |                             
|Zibo         |  | 2                        |  |                              |  |                          |  |                             
|Jilin        |  | 1                        |  |                              |  | 2                        |  |                             
|Baoding      |  | 1                        |  |                              |  |                          |  |                             
|Luoyang      |  | 1                        |  |                              |  |                          |  |                             
|Zhongshan    |  | 1                        |  |                              |  |                          |  |                             
|Haerbin      |  | 5                        |  |                              |  | 4                        |  |                             
|Yangzhou     |  | 1                        |  |                              |  | 1                        |  |                             
|Xian        |  | 3                        |  | 2                            |  | 5                        |  | 3                           
|Yantai       |  | 1                        |  |                              |  | 2                        |  |                             
|Bengbu       |  | 1                        |  |                              |  |                          |  |                             
|Nanchang     |  | 2                        |  | 1                            |  |                          |  |                             
|Baotou       |  | 2                        |  | 1                            |  |                          |  |                             
|Huhehaote    |  |                          |  |                              |  | 4                        |  | 1                           
|Foshan       |  | 2                        |  |                              |  |                          |  |                             
|Weihai       |  | 1                        |  |                              |  |                          |  |                             
|Jinan        |  | 6                        |  |                              |  | 1                        |  |                             
|Weifang      |  | 2                        |  |                              |  |                          |  |                             
|Changchun    |  | 3                        |  | 1                            |  | 2                        |  |                             
|Nanning      |  | 4                        |  |                              |  |                          |  |                             
|Dezhou       |  | 1                        |  |                              |  | 1                        |  |                             
|Taiyuan      |  | 1                        |  |                              |  | 1                        |  | 1                           
|Changshu     |  |                          |  | 1                            |  |                          |  |                             
|Xuzhou       |  | 1                        |  |                              |  |                          |  |                             
|Guiyang      |  | 2                        |  |                              |  |                          |  |                             
|Changsha     |  | 2                        |  |                              |  |                          |  | 1                           
|Guilin       |  | 1                        |  |                              |  | 1                        |  | 1                           
|Yixing       |  | 3                        |  |                              |  | 1                        |  |                             
|Yinchuan     |  | 1                        |  |                              |  |                          |  |                             
|Yueyang      |  | 1                        |  |                              |  |                          |  |                             
|Lanzhou      |  | 1                        |  |                              |  |                          |  |                             
|Qiqihaer     |  | 2                        |  |                              |  |                          |  |                             
|Jiaxing      |  | 1                        |  |                              |  |                          |  |                             
|Yanji        |  | 1                        |  |                              |  |                          |  |                             
|Wuhu         |  | 1                        |  |                              |  |                          |  | 1                           
|Datong       |  |                          |  |                              |  | 2                        |  |                             
|Tangshan     |  |                          |  |                              |  | 1                        |  |                             



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|          |  |                          |  |                              |  |                          |  |                             
|--------- |  | ------------------------ |  | ---------------------------- |  | ------------------------ |  | ----------------------------
|          |  | Hotels in Operation      |  | Hotels Contracted(1)        
|          |  | Leased-andOperatedHotels |  | Franchised-and-ManagedHotels |  | Leased-andOperatedHotels |  | Franchised-and-ManagedHotels
|Taian    |  | 1                        |  |                              |  |                          |  |                             
|Maanshan |  |                          |  |                              |  | 1                        |  |                             
|Wulumuqi  |  | 3                        |  |                              |  |                          |  |                             
|Heze      |  | 1                        |  |                              |  |                          |  |                             
|Yingkou   |  |                          |  |                              |  | 1                        |  |                             
|Dongying  |  | 1                        |  |                              |  |                          |  |                             
|Shunde    |  |                          |  |                              |  | 1                        |  |                             
|Rizhao    |  |                          |  |                              |  | 1                        |  |                             
|Dandong   |  |                          |  | 1                            |  |                          |  |                             
|Fushun    |  |                          |  |                              |  | 1                        |  |                             
|Dongguan  |  |                          |  |                              |  | 2                        |  |                             
|Liaocheng |  |                          |  |                              |  | 1                        |  |                             
|Binzhou   |  |                          |  |                              |  | 1                        |  |                             
|Langfang  |  |                          |  |                              |  | 1                        |  |                             
|Yichang   |  |                          |  |                              |  | 1                        |  |                             
|Kunming   |  |                          |  |                              |  | 1                        |  |                             
|Tonghua   |  |                          |  |                              |  | 1                        |  |                             
|Zhenjiang |  | 1                        |  |                              |  |                          |  |                             
|Haikou    |  |                          |  |                              |  | 1                        |  |                             
|Total     |  | 195                      |  | 71                           |  | 78                       |  | 37                          



|(1) | Contracted hotels include hotels which have not commenced operations but for which we have entered into binding leases or franchise agreements with the respective lessors or
franchisees.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Leased-and-operated Hotels. For our leased-and-operated hotels, we lease properties from real
estate owners or lessors and we are responsible for hotel development and customization to conform to the standards of Home Inns, as well as repairs and maintenance and operating expenses of properties over the term of the lease. We are also
responsible for all aspects of hotel operations and management, including hiring, training and supervising the managers and employees required to operate our hotels and purchasing supplies. We typically pay fixed rent on a quarterly basis for the
first three or five years of the lease term, after which we may be subject to a 3% to 5% increase every three to five years. We generally have a right of first refusal to extend the lease after the initial term expires. The annual rent for each of
our leased-and-operated hotels ranges from RMB 0.27 million (US$0.04 million) to RMB 5.0 million (US$ 0.7 million), depending on the location, size and condition of each hotel property. The terms of our leases range from 6 to 21 years,
most of which are 15 years. In general, upon expiration of these leases, we may dispose of the removable facilities, equipment and appliances installed by us while leasehold improvements and fixtures may be kept by the lessor on the premises.

In the case of early termination of a lease due to the lessors default, we are generally entitled to take all removable items
installed by us and may also be compensated for the amount we spent in connection with the leasehold improvements. In the case of early termination of a lease due to our default, we are generally entitled to take all removable items installed by us
and the lessor is entitled to the leasehold improvements which result from our investments.

Franchised-and-managed Hotels.
For our franchised-and-managed hotels, we franchise our Home Inn brand to franchisees who are property owners, lessors or existing hotel operators, and we are generally responsible for managing these hotels, typically including the hiring and
appointing of the general managers of these hotels. Under a typical franchise agreement between us and a franchisee, the franchisee is generally required to pay us an initial franchise fee of RMB 0.2 million (US$0.03 million) to RMB
0.3 million (US$0.04 million), annual franchise fees of 3% of the revenues of the hotel, as well as an annual management fee of 3% of the revenues of the hotel. The franchisee is responsible for the costs of hotel development and customization
to conform to the standards of Home Inns, as well as for repairs and maintenance and operating expenses of the hotel. In general, we enter into franchise arrangements in markets where we have established leased-and-operated hotels and are able to
leverage our local knowledge and experience as well as marketing and administrative resources to better assist our franchised-and-managed hotels in these localities. The typical term for our franchise agreements is five to eight years.



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The following table sets forth the number of our hotels in operation as of December 31, 2007.



|                              |  |                      |  |                                          |  |                                                  |  |                                 |  |                           
|----------------------------- |  | -------------------- |  | ---------------------------------------- |  | ------------------------------------------------ |  | ------------------------------- |  | --------------------------
|                              |  | TotalNumberof Hotels |  | Number ofHotels Openedfor Over SixMonths |  | Number of HotelsOpened for NoMore Than SixMonths |  | Average Numberof Rooms perHotel |  | TypicalLease/FranchiseTerm
|Leased-and-operated Hotels    |  | 195                  |  | 117                                      |  | 78                                               |  | 125                             |  | 15 years                  
|Franchised-and-managed Hotels |  | 71                   |  | 54                                       |  | 17                                               |  | 118                             |  | 5 years                   

We also operate five leased-and-operated hotels through separate joint ventures with third
parties. Home Inns Shanghai owns 75% of one joint venture, 70% of another joint venture and 51% of each of the other three joint ventures.

We set the room rates of our hotels based on local market conditions with reference to room rates set by our competitors. As we primarily target individual business and leisure travelers, January or February, the month during which the
Chinese New Year falls, generally accounts for a lower portion of our annual revenues than other months. The following table presents certain selected operating data as of and for the dates and periods indicated. Our results of operations have been
and will continue to be significantly affected by changes in these operating measures which are widely used in the hospitality industry.



|                                 |  |                                          |  |        |  |       
|-------------------------------- |  | ---------------------------------------- |  | ------ |  | ------
|                                 |  | As of and for the Year EndedDecember 31,
|                                 |  | 2005                                     |  | 2006   |  | 2007  
|Operating Data:                  |  |                                          |  |        |  |       
|Total hotels in operation(1):    |  |                                          |  |        |  |       
|Leased-and-operated hotels(2)    |  | 54                                       |  | 94     |  | 195   
|Franchised-and-managed hotels    |  | 14                                       |  | 40     |  | 71    
|Total rooms(1)                   |  | 8,197                                    |  | 16,162 |  | 32,726
|Geographic coverage(1):          |  |                                          |  |        |  |       
|Number of cities                 |  | 22                                       |  | 39     |  | 66    
|Occupancy rate (as a percentage) |  | 89.8                                     |  | 92.8   |  | 91.1  
|Average daily rate (in RMB)      |  | 182                                      |  | 182    |  | 179   
|RevPAR (in RMB)                  |  | 163                                      |  | 169    |  | 163   



|(1) | As of the end of each period.
|--- | -----------------------------

|(2) | Includes five hotels operated through separate joint ventures with third parties.
|--- | ---------------------------------------------------------------------------------

Hotel Development

We follow a structured and systematic development and construction process with respect to our
development of new hotel properties. Our multi-step development process starts with planning and site identification. We have staff based in our head office in Shanghai focusing on identifying potential new markets and performing a comprehensive
study of each new market by conducting site visits and gathering background information such as the regional economic conditions and availability of existing hotel accommodation services in the prospective new market. After the development team at
our head office decides to pursue opportunities in a new market, we assign our regional development staff and the city general manager in each region to select ideal hotel locations in the chosen market. Once a site has been selected, we negotiate
with the property owner while concurrently conducting due diligence investigations with respect to a number of major legal and regulatory aspects, including the owners land title and relevant zoning regulations. For our leased-and-operated
hotels, we lease properties from real estate owners or lessors and we convert the properties into standardized Home Inns hotels. Our lease term negotiations are guided by a comprehensive set of criteria, including certain financial return
requirements. All new hotel leases are subject to the final approval of four designated directors of Home Inns Beijing, including our chief executive officer, David Jian Sun. As a leading branded economy hotel chain in China, we are generally able
to establish credibility with property owners and secure desirable properties on reasonable terms. We commence constructing a standardized Home Inns hotel after definitive agreements with the owner have been executed. A majority of the construction
materials and supplies for the new hotel are purchased through our centralized procurement system. For our franchised-and-managed hotels, we assist franchisees in refurbishing, renovating or constructing their properties after they join our branded
hotel chain, and in meeting our brand specifications by providing technical expertise and cost-savings suggestions. Before completion of



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construction, we carry out a series of pre-opening activities, such as identifying and appointing the general manager and other members of the hotel
management team, and hiring and training hotel staff in anticipation of the hotel opening. It typically takes four to six months from execution of a lease or franchise agreement to hotel opening.

We have incurred capital expenditures primarily in connection with leasehold improvements and investments in furniture, fixtures and equipment,
technology and information and operational systems. Our capital expenditures totaled RMB 193.2 million, RMB 237.9 million and RMB 581.6 million (US$79.7 million) in 2005, 2006 and 2007, respectively. We will continue to make capital
expenditures to meet the expected growth of our operations. We expect to meet our capital expenditure needs in the foreseeable future with cash generated from our operating activities and financing activities. We have not had any material
divestiture during the past three years.

We seek to lease or franchise properties that meet the following market- and hotel-specific
criteria:

General Market Criteria

Economic Growth.We focus on cities that are approaching, or have already entered into, periods of significant economic growth. Such cities generally show growth in certain business activities as measured by
employment opportunities, population growth rates, tourism and convention activities, air traffic volume, local commercial real estate occupancy, and retail sales volume. Markets that exhibit growth in these metrics typically have strong demand for
hotel facilities and services. We have identified over 100 such cities in China, including cities each with a population of over four million, annual GDP of over RMB 80 billion (US$10.0 billion) or both, and provincial capitals. We intend to focus
more on these cities going forward.

Geographic Diversification. We seek to maintain a geographically diverse portfolio of hotels to
offset the effects of regional economic cycles. We will continue to expand into new urban business centers as opportunities arise that meet our investment criteria.

Favorable Development Environment. We seek lodging markets with favorable hotel development environment, including an absence of or minimal zoning constraints, an absence of lengthy local development approval
and registration processes, as well as the availability of suitable sites and construction contractors.

Specific Hotel Criteria

Location and Market Appeal. We seek to invest in hotels situated near both business and leisure centers that tend to
generate a broad base of demand for hotel accommodations and facilities. These demand drivers include transportation hubs, convention centers, business parks, shopping centers and other retail areas, major highways, tourist destinations, major
universities and cultural and entertainment centers. The confluence of nearby business and leisure centers will enable us to attract both weekday business travelers and weekend leisure guests.

Size and Facilities. We seek to develop and operate economy hotels with 80 to 150 guest rooms, which include amenities that are attractive to key
demand segments such as individual business and leisure travelers. We believe operating economy hotels with 80 to 150 rooms allows us to best leverage our competitive strengths and maximize our profitability.

Financial Return Requirements.We require our development team, marketing team and city general managers to assess the potential financial return
of every proposed new hotel. We will only develop hotels that exhibit a potential for meeting our internal financial return objectives both in the near term and over the term of the lease agreement.

Hotel Management

We believe that skilled management
is a critical element in maximizing revenues and profitability of our hotel operations. A majority of our senior hotel management team has extensive experience in the hospitality and other consumer-services industries. Personnel at our corporate
office perform strategic planning, finance, project development, sales and marketing, training and other functions and guide, support and monitor our on-site hotel operations and executives. Each of our departments, including hotel operations, sales
and marketing, human resources, training, information technology, development, legal, and accounting and finance, is staffed by an experienced team with significant expertise in their respective area. These departments support each hotel and its
management in day-to-day activities by providing operating statistics, accounting and budgeting services, sales and revenue management, marketing and promotion support, cost controls, property management tools and other resources that we develop,
maintain and deliver efficiently and effectively using our centralized corporate office resources. Key elements of our centralized hotel management programs include the following:



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Budgeting and Monitoring.Our corporate office personnel work with the general
manager of each hotel to set a detailed annual budget for revenues and cost categories of the hotel. The annual budget is based on historical operating performance of the hotel, planned targeted marketing, planned renovations, operational
efficiencies and local market conditions. Through the use of our online property management and management reporting systems, we are able to track each hotels daily occupancy, average daily rates, RevPAR and other operating data. As a result,
we can effectively and timely monitor the actual performance of each hotel. By having current hotel operating information available on a timely basis, we can adjust sales efforts and other resources in time to take advantage of changes in the market
and to maximize our profitability.

Quality Assurance and Training.We are dedicated to providing value and consistent
quality standards to our customers. We have established quality standards for all aspects of our hotel operations that cover, among other areas, housekeeping, hotel maintenance and renovation, and service offering. To ensure compliance with our
quality standards, we have developed a comprehensive set of procedural manuals relating to all aspects of our hotel operations to ensure that our employees follow the same standards. We have implemented comprehensive training programs to ensure the
effectiveness and uniformity of our employee training through our centralized human resources department at our corporate office as well as through our dedicated training facility, Home Inns Academy.

The compliance of our hotels with quality standards is monitored through both scheduled and unannounced visits and reviews conducted periodically at each
hotel. We require most of our employees to take periodic tests in order to monitor compliance with our quality standards. In addition, our practice of tracking customer comments through guest comment cards, and the direct solicitation of guest
opinions regarding specific items, allows us to improve services and amenities at each hotel across our hotel chain.

Strategic
Capital Improvements. To maintain our competitiveness and enhance our hotels appeal to targeted market segments, we require each of our hotels to allocate a fixed percentage of its revenue for periodic renovation and replacement of
furnishings and equipment to maintain the quality and standards of our facilities. We base recommendations on capital spending decisions on customer feedback, strategic needs, and our targeted financial return on a given capital investment.

Centralized Procurement. We have implemented a centralized procurement system to allow us to obtain the best pricing
available for the quality of goods sourced to our hotels in order to minimize the operating expenses of our hotels. As a leading branded economy hotel chain in China with nationwide scale, we are able to exert leverage over our suppliers of
commodity goods and services.

Targeted Sales. We support each hotels local sales efforts with corporate office sales
executives who develop and implement new marketing programs, and monitor and respond to specific market needs and preferences. We use a property management system, or PMS, to manage each propertys use of the various distribution channels in
the lodging industry. Those channels include our central reservation system and toll-free numbers, third-party travel agents and other travel intermediaries, corporate travel offices and office managers. Based on market conditions, we adjust the
number of rooms allocated to each of our sales channels on a daily basis in order to optimize our profitability.

Hotel Information and Operational
Systems

The principal objectives of our hotel operations are to generate higher RevPAR, control costs and increase the net operating
income of our hotels, while providing our customers with high-quality services and value. Our integrated proprietary information and operational systems are designed to distinguish us in the marketplace, operate efficiently and cost-effectively and
accommodate future growth. Our investment in our sophisticated system infrastructure has several key benefits: better customer service, simplification of the storage and processing of large amounts of data, facilitation of the large-scale operation
and automation of the administration of our business and generating financial and operational information for each hotel to assist our corporate management in adjusting business strategies on a timely basis.

Our key hotel information and operational systems include the following:

Property Management System (PMS).Our proprietary PMS is designed to help our hotels maximize profitability and compete more effectively by managing their room inventory, rates and reservations. The PMS
synchronizes each hotels room inventory with our reservation system, giving our reservation agents the capability to sell available rooms at our hotels. The PMS also includes a revenue management feature that calculates and suggests optimum
rates based on each hotels past performance and projected occupancy. These tools enhance our ability to effectively manage our hotel operations and maximize RevPAR.

Central Reservation System (CRS).Approximately 14.4% of our total hotel room nights are booked through our proprietary CRS, which primarily consists of our toll-free telephone reservation system. As of
December 31, 2007, we employed 96 reservation



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agents to serve customers who make hotel reservations by phone. Our trained reservation agents can match each caller with a Home Inns hotel that meets the
callers needs. Our CRS provides a data link to all of our hotels so that confirmations are transmitted automatically to the hotel for which the reservations are made.

Customer Relationship Management System (CRM).Our proprietary CRM system tracks the consumption patterns and accumulated and redeemed
points of the active members of our Home Inns membership rewards program. This information enables us to analyze customer data on a company-wide basis as well as to develop a more specific and targeted marketing strategy.

Management Reporting System.We have designed a proprietary web-based management reporting system at each of our hotels and at our
corporate office to monitor the daily financial and operating performance of each of our hotels. This system allows us to track each hotels daily occupancy, average daily rates, RevPAR and other operating and financial data. One of our ongoing
primary objectives is to maintain reliable information, management and operational systems. We have implemented performance monitoring for all key systems to enable us to respond quickly to potential problems. Our computers and servers are hosted at
a facility in Shanghai. This facility provides redundant utility systems, a backup electric generator and 24-hour server support. All servers have uninterrupted power supplies and redundant file systems to maximize system and data availability. We
regularly back up our data to minimize the impact of data loss due to system failure.

Sales and Marketing

Our core targeted customers consist of value-oriented individual SME business travelers and leisure travelers seeking comfortable and convenient lodging
at an affordable price. We review our hotel pricing twice a year and typically adjust room rates annually based on the local market conditions of the city and the specific location of each hotel. Our head office team and our city and hotel managers
jointly develop tailored marketing plans to drive sales for each hotel and in each city. We use management and operational systems to manage each hotels use of the various distribution channels in the lodging industry. Those channels include
our centralized reservation system and toll-free numbers, third-party travel agents and other travel intermediaries and corporate travel offices. Our access to these channels allows us to further enhance occupancy rates of our hotels on a day-to-day
basis.

The following table presents the approximate percentage of room nights stayed in 2007 by customer channel:



|                                                                                   |  |                                                          
|---------------------------------------------------------------------------------- |  | ---------------------------------------------------------
|Customer Channel                                                                   |  | Approximate Percentage of TotalRoom Nights Stayed in 2007
|CRS bookings by members of our Home Inns membership network                        |  | 13.5                                                     
|CRS bookings by non-members of our Home Inns membership network                    |  | 0.9                                                      
|Reservations not booked through CRS by members of our Home Inns membership network |  | 36.6                                                     
|Walk-ins                                                                           |  | 18.3                                                     
|Corporate account                                                                  |  | 9.3                                                      
|Travel agencies and consolidators                                                  |  | 7.0                                                      
|Others                                                                             |  | 14.4                                                     
|                                                                                   |  |                                                          
|Total                                                                              |  | 100.0                                                    

Our centralized reservation center is located in Shanghai, China and is operated daily from 9:00
A.M. to 9:30 P.M., seven days a week. Customers can call our nationwide toll free number to consult with our reservation agents, receive real-time hotel information and make hotel bookings. As of December 31, 2007, we employed 96 reservation
agents, all of whom participated in a formal training program before commencing work. We believe we have sufficient capacity to meet the currently anticipated increases in call volume. Nevertheless, if we exceed this capacity, we believe we can add,
within a reasonable time and at a reasonable cost, additional phone lines, computer systems and reservation agents to handle increasing call volumes without the need to undertake system redesign to our existing systems.

Our corporate marketing and advertising programs are designed to enhance consumer awareness and preference for the Home Inn brand as offering the
greatest value, convenience and comfort in the economy hotel segment of the Chinese lodging industry, and to encourage customers use of our centralized reservation system. Marketing and advertising efforts include outdoor advertisements,
distribution of flyers and other marketing materials on our hotel properties, television, internet and radio advertising, print advertising in consumer media and promotional events, special holiday promotions and joint promotional activities.

Since 2004, we have operated a Home Inns membership reward program to attract travelers by rewarding frequent stays with points towards
free hotel stays, discounts on room rates, priority in hotel reservations and other rewards. As of December 31, 2007,



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our membership reward program had approximately 522,000 active members as compared to approximately 58,000, 105,000, 130,000, 200,000 and 337,000 active
members as of June 30, 2005, December 31, 2005, June 30, 2006, December 31, 2006 and June 30, 2007, respectively. This program allows us to build customer loyalty as well as conduct lower cost, more targeted marketing
campaigns.

Employees and Training

We
believe that developing and maintaining a team of capable and motivated managerial and other employees are critical to our success. Because our managerial and other employees manage our hotels and interact with our customers on a daily basis, they
are critical to maintaining the quality and consistency of our services as well as our brand and reputation. We seek to hire managerial employees with background and experience in hotel and other consumer services industries with a customer-first
mentality. We aim to recruit, train and retain the best talent through a multi-step recruiting and training process while offering competitive performance-linked compensation packages and career advancement opportunities.

We have implemented extensive training programs and periodic tests for managerial and other hotel-based staff primarily through our training facility,
Home Inns Academy. New general managers of our hotels and executive assistants to general managers are required to undergo a two-month training period, during which they receive training in managing all core aspects of our hotel
operations, as well as our company culture and philosophy. We also require our hotel general managers and city managers to participate in annual training programs so that they can stay abreast of changes in our hotel operations and consumer
preferences and demands. In addition, all employees of a new hotel are required to undergo an approximately 25-day job training prior to commencing their duties. We also have trained on-site managers in many of our hotels to provide continuous
training to our hotel staff. In addition to training, we have implemented periodic tests to assess the relevant knowledge and skills of our managerial and other employees.

To ensure that all of our hotels have optimal and satisfactory performance, we have established an effective and clearly-defined performance evaluation
system based on a comprehensive set of key performance indicators that are aligned with a corresponding compensation structure. In addition, we provide capable and experienced hotel staff with opportunities to be promoted to management positions. We
believe our performance-linked compensation structure, career-oriented training and career advancement opportunities are the key drivers that motivate our employees. As a result, we have experienced a very low attrition rate among our managerial
staff since our inception. We were included in the Corporate Research Foundations list of 2007 China Top Employers.

Excluding employees of our franchised-and-managed hotels, we had 2,352, 4,593 and 8,309 employees as of December 31, 2005, 2006 and 2007, respectively. As of December 31, 2007, our employees consisted of 7,649 hotel-based
employees, 96 reservation agents at our centralized reservation center, and 564 corporate staff. None of our employees is represented by a labor union. We consider our relations with our employees to be good.

Competition

The lodging industry in China is highly
fragmented and competitive, and we expect competition to persist and intensify. Hotels in China are not required to, but may, apply for star ratings as approved by tourism bureaus of local governments or the National Tourist Administration based on
the star rating regulations in China. This standard defines five distinct star ratings, i.e., 1-Star, 2-Star, 3-Star, 4-Star and 5-Star, including Platinum 5-star. In order to obtain a particular star rating, a hotel must meet certain defined
standards for the availability and quality of hotel facilities and public area, availability and quality of amenities in guest rooms, food and beverage facility, scope of guest services, and scope and quality of management infrastructure, etc. We
have not applied for star ratings because we do not consider obtaining a star rating as necessary and our business has not been affected as we focus on meeting individual business and leisure travelers basic accommodation needs with affordable
pricing, a comfortable lodging experience, high-quality services and standardized hotel rooms and amenities across our hotel chain.

We
compete with other hotels for guests in each of the markets in which we operate. Competition in the industry is primarily based on room rates, quality of accommodations, brand name recognition, convenience of location, geographic coverage, service
quality, range of services, and guest amenities. We compete primarily with other economy hotel chains, such as Jinjiang Star, Motel 168, Super 8 and Ibis, as well as various regional and local economy hotel chains. We also compete with two-and
three-star hotels, as we offer rooms with standards comparable to many of those hotels and many of the amenities available at those hotels while maintaining competitive pricing and high-quality services tailored to individual business and leisure
travelers. In addition, we may also face competition from new players in the economy hotel segment in China. As compared to four-or five-star hotels, developing an economy hotel requires a smaller commitment of capital and human resources. This
relatively lower barrier of entry permits new competitors to enter our markets quickly and compete with our business. Furthermore, we may face competition from all other hotels for guests in each of our markets, as our typical business and leisure
traveler customers may change their travel and spending patterns and choose to stay in hotels in different segments.



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Intellectual Property

Our brand, trade names, trademarks, trade secrets and other intellectual property rights distinguish and protect our technology platforms, services and products from those of our competitors, and contribute to our
competitive advantage in the economy hotel segment of the lodging industry in China. To protect our brand and other intellectual property, we rely on a combination of trademark, trade secret and copyright laws as well as imposing confidentiality
obligations on our employees, contractors and others. We have a total of ten registered trademarks in China, including 

LOGO, and are applying for registration of 37 new trademarks in China, which includes 10 trademarks for which Top Star is applying. We have registered our domain name www.homeinns.com with the Internet Corporation
for Assigned Names and Numbers.

We cannot assure you that our efforts to protect our intellectual property rights will be adequate or that
third parties will not infringe or misappropriate these rights. If others are able to copy and use our proprietary information and operational system and other proprietary technology platform without spending time and resources to develop their own,
we may not be able to maintain our competitive position. Furthermore, the application of laws governing intellectual property rights in China is uncertain and evolving and could involve substantial risks to us. If litigation is necessary to enforce
our intellectual property rights or determine the scope of the proprietary rights of others, we may have to incur substantial costs or divert other resources, which could harm our business and prospects.

Insurance

We believe that our hotels are covered by
adequate property and liability insurance policies with coverage features and insured limits that we believe are customary for similar companies in China. We carry property insurance that covers the assets that we own at our hotels, but not the
buildings or any other assets owned by our lessors. Although we require our lessors to purchase customary insurance policies, we cannot guarantee that they will adhere to such requirements. If we were held liable for amounts and claims exceeding the
limits of our insurance coverage or outside the scope of our insurance coverage, our business, results of operations and financial condition may be materially and adversely affected.

REGULATION

The hotel industry in China is subject to a number of laws and
regulations, including laws and regulations relating specifically to hotel operation and management and commercial franchising, as well as those relating to environmental and consumer protection. The principal regulation governing foreign ownership
of hotel businesses in the PRC is the Foreign Investment Industrial Guidance Catalogue, which became effective as of December 1, 2007. Under the regulation, the hotel industry belongs to the category of permitted foreign investment industry and
there is no restriction on foreign investment in hotel businesses in China, other than regular business license and other permits that must be possessed by every lodging business in China. There are no regulatory ceilings on room rates in China. The
market-based pricing is permissible for the hotel industry and room rates may be determined at the sole discretion of hotel management. Relative to other industries in China, regulation of the hotel industry in China is still developing and
evolving. As a result, most legislative action has consisted of general measures such as industry standards, rules or circulars issued by different ministries rather than detailed legislation. Many of these standards, rules and circulars date from
the late 1990s, and it is expected that they may be amended, revised or expanded in the coming years as the hotel industry in China matures. This section summarizes the principal PRC regulations currently relevant to our business and
operations.

Regulations on Hotel Operation

In November 1987, the Ministry of Public Security issued the Measures for the Control of Security in the Hotel Industry,and in June 2004, the State Council promulgated Decision of the State Council on Establishing Administrative
License for the Administrative Examination and Approval Items Really Necessary To Be Retained.Under these two regulations, anyone who applies to operate a hotel is subject to examination and approval by the local public security authority and
must obtain a Special Industry License. The Measures for the Control of Security in the Hotel Industryimpose certain security control obligations on the operators. For example, the hotel must examine the identification card of any guest to
whom accommodation is provided and make an accurate registration. The hotel must also report to the local public security authority if it discovers anyone violating the law, behaving suspiciously or an offender wanted by the public security
authority.

In April 1987, the State Council promulgated the Public Area Hygiene Administration Regulations, according to which, a
hotel must obtain a public area hygiene license before opening for business. In October 1995, the Standing Committee of the National



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Peoples Congress, or the SCNPC, enacted the PRC Law on Food Hygiene, according to which any hotel that provides food must obtain a food hygiene
license. In April 1998, SCNPC enacted the Fire Prevention Law. The Fire Prevention Law requires that public gathering places such as hotels pass a fire prevention safety inspection by the local public security fire-fighting department prior
to opening for business. In January 2006, the State Council promulgated the Regulations for Administration of Entertainment Places, In March 2006, the Ministry of Culture issued the Circular on Carrying out the Regulations for
Administration of Entertainment Places, under these regulations, hotels that provide entertainment facilities, such as discos or ballrooms, are required to obtain a license for entertainment business operations. The above regulations also set
forth obligations concerning public security, hygiene, fire prevention, and other standards relating to the operation of public facilities. The relevant administrative authorities may impose penalties and even shut down hotels that violate the
provisions.

In 2003, the National Tourist Administration, or the NTA, promulgated the Regulations on the Assessment of the Star Rating
of Tourist Hotels, or the Star Rating Regulations. Under the Star Rating Regulations, all hotels with operations of over one year are eligible to apply for a star rating assessment. There are five ratings from one star to five stars for tourist
hotels, assessed based on the level of facilities, management standards and quality of service. A star rating, once granted, is valid for five years.

Regulations on Consumer Protection

In October 1993, the SCNPC promulgated the Law on the Protection of the Rights and
Interests of Consumers,or the Consumer Protection Law. Under the Consumer Protection Law, a business operator providing a commodity or service to a consumer is subject to a number of requirements, including the following:

(1) to ensure that commodities and services meet with certain safety requirements;

(2) to disclose serious defects of a commodity or a service and adopt preventive measures against damage occurrence;

(3) to provide consumers with true information and to refrain from conducting false advertising;

(4) not to set unreasonable or unfair terms for consumers or alleviate or release itself from civil liability for harming the legal rights and interests
of consumers by means of standard contracts, circulars, announcements, shop notices or other means; and

(5) not to insult or slander
consumers or to search the person of, or articles carried by, a consumer or to infringe upon the personal freedom of a consumer.

Business
operators may be subject to civil liabilities for failing to fulfill the obligations discussed above. These liabilities include restoring the consumers reputation, eliminating the adverse effects suffered by the consumer, and offering an
apology and compensation for any losses incurred. The following penalties may also be imposed upon business operators for the infraction of these obligations: issuance of a warning, confiscation of any illegal income, imposition of a fine, an order
to cease business operation, revocation of its business license or imposition of criminal liabilities under circumstances that are specified in laws and statutory regulations.

In December 2003, the Supreme Peoples Court enacted the Interpretation of Some Issues concerning the Application of Law for the Trial of Cases
on Compensation for Personal Injury,which further increases the liabilities of a business operator engaged in the operation of hotels, restaurants, or entertainment facilities and subjects such operators to compensatory liability for failing to
fulfill their statutory obligation to a reasonable extent or to guarantee the personal safety of others.

Regulations on Environmental Protection

In June 2002, the SCNPC issued the Law on Promoting Clean Productionwhich regulates service enterprises such as restaurants,
entertainment establishments and hotels and requires them to use technologies and equipment that conserve energy and water, serve other environmental protection purposes, and reduce or stop the use of consumer goods that waste resources or pollute
the environment.

Regulations on Commercial Franchising

Franchise operations are subject to the supervision and administration of the Ministry of Commerce, or the MOC, and its regional counterparts. The MOC promulgated the Administrative Measures on Commercial Franchise
Operationsor Commercial Franchise Measures on December 30, 2004.



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Under the Commercial Franchise Measures, a franchiser must satisfy certain requirements including having:
sufficient business resources such as relevant trademarks, trade names and business models which it has been duly authorized to use; the capability to provide long-term business guidance and training services to franchisees; and ownership of at
least two self-operated shops that have been in operation for at least one year within China and which were set up by itself or its subsidiaries or holding company. In January of each year, franchisers are required to file franchise contracts
executed the previous year with the local commerce administrative authorities with jurisdiction over the franchisers locale and the franchisees locale.

The franchiser is also required to provide the franchisee with true and accurate basic information relating to the franchise 20 days prior to the execution of a franchise agreement, including:

(1) the name, domiciles, registered capital, scope of business and term of franchise of the franchiser, basic information relating to financial statements
audited by an accounting firm and tax payments;

(2) the number, location, business status and investment budget for all franchise outlets
of the franchisee, and the ratio of terminated franchisees to the total number of franchisees;

(3) information on the registration and
license of trademarks and details of trade name, business model and other business resources, and details of any lawsuits relating to the trademarks or trade names;

(4) the type, amount and method of payment of franchise fees and the method of refund of deposit;

(5)
information on any lawsuit in which the franchiser has been involved in the previous five years;

(6) goods or services that the franchiser
can provide to the franchisee and any conditions or restrictions on their provision;

(7) a certification of its ability to provide
training and guidance and specific details on training or guidance to be provided;

(8) basic information regarding the legal
representative and other primary responsible persons, and whether they have any criminal record and whether they are personally liable for the bankruptcy of any enterprise; and

(9) other information and materials required to be disclosed by a franchiser upon the request of the franchisee.

Failure to disclose information in accordance with the provisions may result in the imposition of fines on the franchiser or the revocation of its
business license. In addition, where a franchisee suffers any economic loss due to the provision of incomplete or false information by the franchiser, the franchiser shall be liable for compensatory damages.

The Commercial Franchising Measures also contain special provisions regarding franchising undertaken by foreign invested enterprises, or FIEs. Under the
Commercial Franchising Measures, if an existing FIE wishes to operate a franchise in China it must apply to its original examination and approval authority to expand its business scope to include engaging in commercial activities by way of
franchise. In addition, franchise contracts executed in the previous year are required to be filed with its original examination and approval authority and the commerce administrative authorities at the place where the franchisee is located.

Regulations on Trademarks

Both the
PRC Trademark Law, adopted in 1982 and revised in 2001, and the Implementation Regulation of the PRC Trademark Lawadopted by State Council in 2002, give protection to the holders of registered trademarks and trade names. The Trademark
Office under the State Administration for Industry and Commerce handles trademark registrations and grants a term of ten years to registered trademarks. Trademark license agreement must be filed with the Trademark Office or its regional counterpart.

Regulations on Foreign Currency Exchange

Under the Foreign Currency Administration Rulespromulgated in 1996 and revised in 1997 and various regulations issued by State Administration of Foreign Exchange, or SAFE, and other relevant PRC government authorities, the Renminbi
is convertible for current account items, such as trade related receipts and payments, interest and dividend. Capital account items, such as direct equity investments, loans and repatriation of investment, require the prior approval from SAFE or its
local counterpart for conversion of Renminbi into a foreign currency, such as U.S. dollars, and remittance of the foreign currency outside the PRC.



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Payments for transactions that take place within the PRC must be made in RMB. Unless otherwise approved,
PRC companies must repatriate foreign currency payments received from abroad. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks subject to a cap set by SAFE or its local counterpart. Unless
otherwise approved, domestic enterprises must convert all of their foreign currency receipts into RMB.

Regulations on Dividend Distribution

The principal regulations governing dividend distributions by wholly foreign owned enterprises and Sino- foreign equity joint ventures
include:



| |  |  | the Wholly Foreign Owned Enterprise Law (1986), as amended;
| | - |  | -----------------------------------------------------------



| |  |  | the Wholly Foreign Owned Enterprise Law Implementing Rules (1990), as amended;
| | - |  | ------------------------------------------------------------------------------



| |  |  | the Sino-foreign Equity Joint Venture Enterprise Law (1979), as amended; and
| | - |  | ----------------------------------------------------------------------------



| |  |  | the Sino-foreign Equity Joint Venture Enterprise Law Implementing Rules (1983), as amended.
| | - |  | -------------------------------------------------------------------------------------------

Under these regulations, wholly foreign owned enterprises and Sino-foreign equity joint ventures in the PRC may pay dividends only out of their
accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. Additionally, these foreign-invested enterprises are required to set aside certain amounts of their accumulated profits each year, if any, to fund
certain reserve funds. These reserves are not distributable as cash dividends except in the event of liquidation and cannot be used for working capital purposes.

Regulation on Mergers and Acquisitions

On August 8, 2006, six PRC regulatory agencies, namely, the PRC Ministry of
Commerce, SASAC, the State Administration for Taxation, the State Administration for Industry and Commerce, the CSRC, and the SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New
M&A Rule, which became effective on September 8, 2006. The New M&A Rule sets forth complex procedures and requirements, including requirements in some instances that the Ministry of Commerce be notified in advance of any
change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise.

Tax

On March 16, 2007, the National Peoples Congress, the Chinese legislature, passed the Enterprise Income Tax Law, and on December 6, 2007,
the PRC State Council is sued the Implementation Regulations of the Enterprise Income Tax Law, both of which become effective on January 1, 2008. The Enterprise Income Tax Law and its Implementation Regulations, or the new EIT law, applies a
uniform 25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises. There is a transition period for the enterprises, whether foreign-invested or domestic, which currently receive preferential tax treatments granted
by relevant tax authorities. Enterprises that are subject to an enterprise income tax rate lower than 25% may continue to enjoy the lower rate and gradually transfer to the new tax rate within five years after the effective date of the new law.
Enterprises that are currently entitled to exemptions or reductions from the standard income tax rate for a fixed term may continue to enjoy such treatment until the fixed term expires. Preferential tax treatments will continue to be granted to
industries and projects that are strongly supported and encouraged by the state, and enterprises classified as new and high technology enterprises strongly supported by the state are entitled to a 15% enterprise income tax rate. The new
EIT law also provides that enterprises established outside of China whose de facto management bodies are located in China are considered resident enterprises and will generally be subject to the uniform 25% enterprise income
tax rate on their global income. Moreover, under the new EIT law, foreign ADS holders may be subject to a 10% withholding tax upon dividends payable by us and gains realized on the sale or other disposition of ADSs or ordinary shares, if such income
is sourced from within the PRC. Reduction or elimination of the financial subsidies or preferential tax treatments we currently enjoy or imposition of additional taxes on us or our subsidiaries in China may have a material adverse effect on our
income tax expense and net income. See Item 3. Key InformationD. Risk FactorsRisk FactorsRisks Related to Doing Business in ChinaWe have benefited from certain financial subsidies and preferential tax treatments in
China. Reduction or elimination of these subsidies or preferential tax treatments may have an adverse effect on our income tax expense and net income.

C. Organizational Structure

The following diagram illustrates our companys organizational structure, and the place
of formation, ownership interest and affiliation of each of our subsidiaries.



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LOGO



|* | Home Inns Shanghai owns 75% of one joint venture, 70% of another joint venture and 51% of each of the other three joint ventures.
|- | ---------------------------------------------------------------------------------------------------------------------------------

D. Property, Plant and Equipment

Our
headquarters are located in Shanghai, China, where we lease approximately 967 square meters of office space. As of December 31, 2007, we leased 195 out of our 266 hotel facilities with an aggregate size of 1,084,442 square meters. For detailed
information about the locations of our hotels, see Item 4. Information About the CompanyB. Business OverviewOur Home Inns Hotel Chain.



|ITEM 4A. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



|ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|------- | --------------------------------------------

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form
20-F. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of
various factors, including those set forth under Item 3. Key InformationD. Risk Factors or in other parts of this annual report on Form 20-F.



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A. Operating Results

Key Performance Indicators

We utilize a set of non-financial and financial key performance indicators which our senior
management reviews frequently. The review of these indicators facilitates timely evaluation of the performance of our business and effective communication of results and key decisions, allowing us to react promptly to changing customer demands and
market conditions.

Our non-financial key performance indicators consist of the increase in the total number of hotels and hotel rooms in
our Home Inns hotel chain as well as the RevPAR achieved by our hotels. The increase in the number of hotels in our hotel chain is largely affected by the demand for our hotels in various cities and our ability to successfully identify and secure
new properties and develop new hotels at desirable locations. RevPAR is a commonly used operating measure in the hospitality industry and is defined as the product of average occupancy rates and average daily rates achieved. Occupancy rates of our
hotels mainly depend on the locations of our hotels, the effectiveness of our sales and brand promotion efforts, our ability to maintain the consistency and quality of our facilities and service, the performance of managerial and other employees of
our hotels, as well as our ability to respond to competitive pressure. We set room rates of our hotels primarily based on the location of a hotel and room rates charged by our competitors within the same locality. Changes in RevPAR primarily due to
changes in average occupancy rates achieved have different implications on our total revenues and profitability than changes in RevPAR primarily due to changes in average daily rates achieved. For example, increases in occupancy at our hotels would
generally lead to increases in room revenues as well as additional incremental costs, such as housekeeping services, utilities and room amenity costs. However, RevPAR increases due to higher room rates generally would not result in these additional
room-related costs. As a result, RevPAR increases due to higher room rates would have a greater positive effect on our profitability.

Our
financial key performance indicators consist of our revenue and cost structure, which are discussed in greater details in the following paragraphs. In addition, we use EBITDA, a non-GAAP financial measure, as a key financial performance indicator to
assess our operating results before the impact of interest, income taxes, depreciation and amortization. Given the significant investments that we have made in leasehold improvements, depreciation and amortization expense comprises a significant
portion of our cost structure. We believe that EBITDA is widely used by other companies in the lodging industry and may be used by investors as a measure of our financial performance.

Revenues.In 2007, we generated total revenues of RMB 1,009.3 million (US$138.4 million). Our revenues are significantly affected by
the following operating measures, which are widely used in the hospitality industry and appear throughout this annual report:



| |  |  | the total number of hotels in our hotel chain;
| | - |  | ----------------------------------------------



| |  |  | the total number of hotel rooms in our hotel chain;
| | - |  | ---------------------------------------------------



| |  |  | occupancy rates achieved by our hotels;
| | - |  | ---------------------------------------



| |  |  | average daily rates achieved by our hotels; and
| | - |  | -----------------------------------------------



| |  |  | the RevPAR achieved by our hotels, which represents the product of average daily rates and occupancy rates.
| | - |  | -----------------------------------------------------------------------------------------------------------

Our future revenue growth will depend significantly upon our ability to expand our hotel chain into new markets in China and maintain and further
increase occupancy rates, average daily rates and RevPAR at existing hotels. As of December 31, 2007, we had entered into binding contracts with lessors of 78 properties for our leased-and-operated hotels which are currently under development.
We expect to incur an additional RMB 197.4 million (US$27.1 million) in capital expenditures in connection with the completion of the leasehold improvements of these hotels. We intend to fund this planned expansion with our operating cash flow
and existing cash balance.

The following table sets forth the revenues generated by our leased and-operated hotels and
franchised-and-managed hotels, both in absolute amount and as a percentage of total revenues for the periods indicated.



|                                          |  |                                                          |   |  |       |   |  |         |   |  |       |   |  |           |   |  |         |   |  |       |  
|----------------------------------------- |  | -------------------------------------------------------- | - |  | ----- | - |  | ------- | - |  | ----- | - |  | --------- | - |  | ------- | - |  | ----- | -
|                                          |  | For the Year Ended December 31,                          |  
|                                          |  | 2005                                                     |   |  | 2006  |   |  | 2007    |  
|                                          |  | RMB                                                      |   |  | %     |   |  | RMB     |   |  | %     |   |  | RMB       |   |  | US$     |   |  | %     |  
|                                          |  | (in thousands, except share, per share and per ADS data) |  
|Consolidated Statement of Operations Data |  |                                                          |   |  |       |   |  |         |   |  |       |   |  |           |   |  |         |   |  |       |  
|Revenues:                                 |  |                                                          |   |  |       |   |  |         |   |  |       |   |  |           |   |  |         |   |  |       |  
|Leased-and-operated hotels                |  | 279,948                                                  |   |  | 97.9  |   |  | 567,895 |   |  | 96.5  |   |  | 963,051   |   |  | 132,023 |   |  | 95.4  |  
|Franchised-and-managed hotels             |  | 5,913                                                    |   |  | 2.1   |   |  | 20,605  |   |  | 3.5   |   |  | 46,265    |   |  | 6,342   |   |  | 4.6   |  
|Total revenues                            |  | 285,861                                                  |   |  | 100.0 |   |  | 588,500 |   |  | 100.0 |   |  | 1,009,316 |   |  | 138,365 |   |  | 100.0 |  
|Less: Business tax and related surcharges |  | (16,830                                                  | ) |  | (5.9  | ) |  | (33,977 | ) |  | (5.8  | ) |  | (60,302   | ) |  | (8,267  | ) |  | (6.0  | )
|Net revenues                              |  | 269,031                                                  |   |  | 94.1  |   |  | 554,523 |   |  | 94.2  |   |  | 949,014   |   |  | 130,098 |   |  | 94.0  |  



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Leased-and-operated Hotels.In 2007, we generated revenues of RMB 963.1 million (US$132.0
million) from our leased-and-operated hotels, which accounted for 95.4% of our total revenues for the year. We expect that revenues from our leased-and-operated hotels will continue to constitute a substantial majority of our total revenues in the
foreseeable future.

For our leased-and-operated hotels, we lease properties from real estate owners or lessors and we are responsible for
hotel development and customization to conform to the standards of Home Inns, as well as for repairs and maintenance and operating costs and expenses of properties over the term of the lease. We are also responsible for all aspects of hotel
operations and management, including hiring, training and supervising the managers and employees required to operate our hotels and purchasing supplies. We typically pay fixed rent on a quarterly basis for the first three or five years of the lease
term, after which we are generally subject to a 3% to 5% increase every three to five years.

Revenues from our leased-and-operated hotels
primarily consist of revenues from sales of room stays and, to a much lesser extent, revenues from sales of food and beverage at our hotels and other services. We recognize revenues from sales of room stays, food and beverage when our services are
rendered.

Franchised-and-managed Hotels.In 2007, we generated revenues of RMB 46.3 million (US$6.3 million) from our
franchised-and-managed hotels, which accounted for 4.6% of our total revenues for the year. We expect that revenues from our franchised-and-managed hotels will increase in the foreseeable future as we add more franchised-and-managed hotels in our
hotel chain.

For our franchised-and-managed hotels, we franchise our Home Inn brand to franchisees who are property owners,
lessors or existing hotel operators, and we are generally responsible for managing these hotels. Under a typical franchise agreement between us and a franchisee, the franchisee is generally required to pay us an initial franchise fee of RMB
3,000 per room, annual franchise fees of 3% of the revenues of the hotel, as well as annual supporting service fees of 3% of the revenues of the hotel. The franchisee is responsible for the costs of hotel development and customization to
conform to the standards of Home Inns, as well as for repairs and maintenance and operating expenses of the hotel. We assist the franchisee in property design, construction, systems installation, and hotel personnel recruiting and training before
the franchised-and-managed hotel commences operations. We allow our franchisees to utilize our integrated hotel information and operational systems, such as central reservation system, and charge them an annual or variable fee for such use.

We recognize the initial franchise fee as revenue when the franchised-and-managed hotel opens for business, the fee becomes
non-refundable, and we have fulfilled all our commitments and obligations. We recognize ongoing franchise and management fees as revenues when the franchised-and-managed hotel recognizes revenues from which we derive the fees. We recognize fees
received from franchisees for system usage, maintenance and support as revenues when our services are rendered.

Operating Costs and
Expenses.Our operating costs and expenses consist of costs for our leased-and-operated hotels, sales and marketing expenses, general and administrative expenses and other operating expenses. The following table sets forth the
components of our operating costs and expenses, both in absolute amount and as a percentage of total revenues for the periods indicated.



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|                                          |  |                                   |   |  |       |   |  |          |   |  |       |   |  |           |   |  |          |   |  |       |  
|----------------------------------------- |  | --------------------------------- | - |  | ----- | - |  | -------- | - |  | ----- | - |  | --------- | - |  | -------- | - |  | ----- | -
|                                          |  | For the Year Ended December 31,   |  
|                                          |  | 2005                              |   |  | 2006  |   |  | 2007     |  
|                                          |  | RMB                               |   |  | %     |   |  | RMB      |   |  | %     |   |  | RMB       |   |  | US$      |   |  | %     |  
|                                          |  | (in thousands except percentages) |  
|Total revenues                            |  | 285,861                           |   |  | 100.0 |   |  | 588,500  |   |  | 100.0 |   |  | 1,009,316 |   |  | 138,365  |   |  | 100.0 |  
|Less: Business tax and related surcharges |  | (16,830                           | ) |  | (5.9  | ) |  | (33,977  | ) |  | (5.8  | ) |  | (60,302   | ) |  | (8,267   | ) |  | (6.0  | )
|Net revenues                              |  | 269,031                           |   |  | 94.1  |   |  | 554,523  |   |  | 94.2  |   |  | 949,014   |   |  | 130,098  |   |  | 94.0  |  
|                                          |  |                                   |   |  |       |   | 
|Leased-and-operated hotel costs:          |  |                                   |   |  |       |   |  |          |   |  |       |   |  |           |   |  |          |   |  |       |  
|Rents and utilities                       |  | (94,784                           | ) |  | (33.1 | ) |  | (171,576 | ) |  | (29.2 | ) |  | (299,792  | ) |  | (41,098  | ) |  | (29.7 | )
|Personnel costs                           |  | (41,225                           | ) |  | (14.4 | ) |  | (87,980  | ) |  | (14.9 | ) |  | (155,611  | ) |  | (21,332  | ) |  | (15.4 | )
|Depreciation and amortization             |  | (23,335                           | ) |  | (8.2  | ) |  | (44,620  | ) |  | (7.6  | ) |  | (85,600   | ) |  | (11,735  | ) |  | (8.5  | )
|Consumables, food and beverage            |  | (20,765                           | ) |  | (7.3  | ) |  | (43,482  | ) |  | (7.4  | ) |  | (84,053   | ) |  | (11,523  | ) |  | (8.3  | )
|Others                                    |  | (26,100                           | ) |  | (9.1  | ) |  | (56,019  | ) |  | (9.5  | ) |  | (98,644   | ) |  | (13,523  | ) |  | (9.8  | )
|Total leased-and-operated hotel costs     |  | (206,209                          | ) |  | (72.1 | ) |  | (403,677 | ) |  | (68.6 | ) |  | (723,700  | ) |  | (99,211  | ) |  | (71.7 | )
|Sales and marketing expenses              |  | (7,691                            | ) |  | (2.7  | ) |  | (11,488  | ) |  | (2.0  | ) |  | (19,632   | ) |  | (2,691   | ) |  | (1.9  | )
|General and administrative expenses       |  | (24,789                           | ) |  | (8.7  | ) |  | (64,792  | ) |  | (11.0 | ) |  | (99,026   | ) |  | (13,575  | ) |  | (9.9  | )
|Total operating costs and expenses        |  | (238,689                          | ) |  | (83.5 | ) |  | (479,957 | ) |  | (81.6 | ) |  | (842,358  | ) |  | (115,477 | ) |  | (83.5 | )

Leased-and-operated Hotel Costs. Our leased-and-operated hotel costs consist of costs and
expenses directly attributable to our operation of leased-and-operated hotels, primarily including rental payments and utility costs for hotel properties, compensation and benefits for our hotel-based employees, costs of hotel room consumable
products, depreciation and amortization of leasehold improvements, and commissions to travel intermediaries and consolidators. We anticipate that our leased-and-operated hotel costs will increase as we continue to open new leased-and-operated hotels
and hire additional hotel-based employees.

Sales and Marketing Expenses.Our sales and marketing expenses primarily consist of
advertising expenses, production costs of marketing materials, expenses associated with our membership reward program, and compensation and benefits for our sales and marketing personnel, including personnel at our centralized reservation center. We
expect that our sales and marketing expenses will increase as we further expand into new geographic locations and promote our brand.

General and Administrative Expenses.Our general and administrative expenses primarily consist of compensation and benefits for our corporate office employees and other employees who are not sales and marketing or hotel-based
employees, costs of third-party professional services, and rental payments relating to office and administrative functions. We expect that our general and administrative expenses will increase in the near term as we hire additional personnel and
incur additional costs in connection with the expansion of our business and with being a publicly traded company, including costs of enhancing our internal control.

Our leased-and-operated hotel costs and general and administrative expenses include share-based compensation expenses. The following table sets forth the allocation of our share-based compensation expenses both in
absolute amount and as a percentage of total share-based compensation expenses, among the cost and expense items set forth below. Share-based compensation expenses are allocated among these items based on the nature of the work our employees were
assigned to perform.



|                                                |  |                                   |  |       |  |        |  |       |  |        |  |       |  |      
|----------------------------------------------- |  | --------------------------------- |  | ----- |  | ------ |  | ----- |  | ------ |  | ----- |  | -----
|                                                |  | For the Year Ended December 31,  
|                                                |  | 2005                              |  | 2006  |  | 2007  
|                                                |  | RMB                               |  | %     |  | RMB    |  | %     |  | RMB    |  | US$   |  | %    
|                                                |  | (in thousands except percentages)
|Leased-and-operated hotel costspersonnel costs |  | 8                                 |  | 0.8   |  | 12     |  | 0.1   |  | 11     |  | 1     |  | 0.1  
|General and administrative expenses             |  | 952                               |  | 99.2  |  | 16,283 |  | 99.9  |  | 15,060 |  | 2,065 |  | 99.9 
|Total share-based compensation expenses         |  | 960                               |  | 100.0 |  | 16,295 |  | 100.0 |  | 15,071 |  | 2,066 |  | 100.0



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We adopted an Employees Stock Option Plan, or the Option Plan, in 2003 and have granted options and
stock purchase rights under the Option Plan since 2003. Prior to December 31, 2005, we accounted for share-based compensation arrangements in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued
to Employees, or APB No. 25, and complied with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation, or SFAS No. 123. Under APB No. 25, compensation cost is recognized
based on the difference, if any, between the estimated fair value of our ordinary shares and the amount an employee is required to pay to acquire the ordinary shares, as determined on the date the option is granted. Total compensation cost is
recorded in shareholders equity as additional paid-in capital and deferred share-based compensation. Deferred share-based compensation is amortized on a straight-line basis and charged to expense over the vesting period of the underlying
options.

We adopted a 2006 Share Incentive Plan, or the 2006 Plan, in 2006 and have granted options under the 2006 Plan. Beginning on
January 1, 2006, we adopted SFAS No. 123 (revised 2004), Share-Based Payment, or SFAS No. 123 (R), under which share-based compensation expenses have been recognized generally over the vesting period of the award based on
the fair value of the award on the grant date. The adoption of SFAS No. 123(R) in 2006 resulted in the recognition of incremental share-based compensation costs in 2006 of RMB 684,295 (US$87,684) and a reduction in net income of RMB 684,295
(US$87,684).

Taxation

We are
incorporated in the Cayman Islands. Under the current law of the Cayman Islands, we are not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands.

Home Inns Hong Kong was subject to a profit tax at the rate of 17.5% on assessable profit determined under relevant Hong Kong tax regulations. To date,
Home Inns Hong Kong has not been required to pay profit tax as it had no assessable profit.

Our subsidiaries and affiliated entities in
China are subject to a business tax at a rate of approximately 6% on revenues generated from providing services and related surcharges by various local tax authorities. In addition, our subsidiaries and affiliated entities in China were generally
subject to the standard enterprise income tax rate, which was 33% prior to January 1, 2008. However, some of our subsidiaries are subject to lower enterprise income tax rates due to the preferential tax treatments granted by the local tax
authorities. For example, our wholly owned subsidiary, Hemei Hotel Management Company, enjoys a reduced 15% enterprise income tax rate due to its place of incorporation and operation in the Pudong New District of Shanghai.

Various local tax authorities in China have provided financial subsidies in the form of certain tax refunds to us. However, these tax authorities could
reduce or eliminate any or all of these financial subsidies at any time in the future. Reduction or elimination of the financial subsidies we currently enjoy may have an adverse effect on our results of operations.

On March 16, 2007, the National Peoples Congress, the Chinese legislature, passed a new tax law, which will take effect on January 1,
2008. The new law applies a uniform 25% enterprise income tax rate to both foreign-invested enterprises and domestic enterprises. There will be a transition period for the enterprises, whether foreign-invested or domestic, which currently receive
preferential tax treatments granted by relevant tax authorities. Enterprises that are subject to an enterprise income tax rate lower than 25% may continue to enjoy the lower rate and gradually transfer to the new tax rate within five years after the
effective date of the new law. Enterprises that are currently entitled to exemptions or reductions from the standard income tax rate for a fixed term may continue to enjoy such treatment until the fixed term expires. Preferential tax treatments will
continue to be granted to industries and projects that are strongly supported and encouraged by the state, and enterprises classified as new and high technology enterprises strongly supported by the state are entitled to a 15% enterprise
income tax rate. However, the new tax law does not define this term. The new tax law also provides that enterprises established outside of China whose de facto management bodies are located in China are considered resident
enterprises and will generally be subject to the uniform 25% enterprise income tax rate on their global income. Moreover, under the new EIT law, foreign ADS holders may be subject to a 10% withholding tax upon dividends payable by us and gains
realized on the sale or other disposition of ADSs or ordinary shares, if such income is sourced from within the PRC. Reduction or elimination of the financial subsidies or preferential tax treatments we currently enjoy or imposition of additional
taxes on us or our subsidiaries in China may have a material adverse effect on our income tax expense and net income. See Item 3. Key Information D. Risk FactorsRisks Related to Doing Business in ChinaWe have benefited from
certain financial subsidies and preferential tax treatments in China. Reduction or elimination of these subsidies or preferential tax treatments may have an adverse effect on our income tax expense and net income.



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Critical Accounting Policies

We prepare financial statements in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect the reported amounts of our assets and liabilities and the disclosure of our
contingent assets and liabilities at the end of each fiscal period and the reported amounts of revenues and expenses during each fiscal period. We continually evaluate these judgments and estimates based on our own historical experience, knowledge
and assessment of current business and other conditions, our expectations regarding the future based on available information and assumptions that we believe to be reasonable, which together form our basis for making judgments about matters that are
not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, our actual results could differ from those estimates. Some of our accounting policies require a higher degree of
judgment than others in their application.

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 that should be considered when reviewing our financial statements. We believe the following accounting policies involve the
most significant judgments and estimates used in the preparation of our financial statements.

Basis of Consolidation

Our consolidated financial statements included elsewhere in this annual report include the financial statements of Home Inns & Hotels Management
Inc., its subsidiaries and variable interest entity, or VIE, subsidiaries.

We applied the provisions of Financial Accounting Standards
Board, or FASB, Interpretation No. 46 (Revised 2003), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,or FIN46(R), to account for certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support.

Under FIN46(R), a company is required to consolidate a VIE if that company has a variable interest that will absorb a majority of the expected losses,
receives a majority of the entitys expected residual returns, or both. The company that absorbs a majority of the VIEs expected losses and receives a majority of the VIEs expected residual returns is a primary beneficiary.

We are the primary beneficiary of five VIEs, Home Inns & Hotels Management (Xiamen) Co., Ltd, or Home Inns Xiamen, Home
Inns & Hotels Management (Fuzhou) Co., Ltd, or Home Inns Fuzhou, Home Inns & Hotels Management (Caoxi) Co., Ltd, or Home Inns Caoxi, Home Inns & Hotels Management (Caobao) Co., Ltd, or Home Inns Caobao, and Home
Inns & Hotels Kuaijie (Fuzhou) Co., Ltd, or Home Inns Kuaijie Fuzhou. The principal activity of these VIEs generally relates to hotel management. The total registered capital of the five VIEs was RMB 5.0 million (US$0.7 million) as of
December 31, 2007. The entities were considered variable interest entities because the equity at risk of each entity was not sufficient to finance its intended activities without additional financial support. We have a 51% ownership interest in
Home Inns Xiamen, Home Inns Fuzhou and Home Inns Caoxi , a 70% ownership interest in Home Inns Kuaijie Fuzhou and a 75% ownership interest in Home Inns Caobao, and we are considered the primary beneficiary of these entities because we absorb a
majority of the entities expected losses and receive a majority of the entities expected residual returns. As a result, the operations of the VIEs are included in our consolidated financial statements since their incorporation in 2004.

The entities that operate the franchised-and-managed hotels are considered variable interest entities as the franchisees do not have the
ability to make decisions that have a significant impact on the success of the franchise arrangement. However, as the franchisees provide all necessary capital to finance the operation of the franchised properties and absorb a majority of the
expected losses, we are not considered the primary beneficiary of those entities.

Property and Equipment

We state property and equipment at cost less accumulated depreciation and accumulated impairment losses, if any. We depreciate property and equipment to
write off their cost less expected residual value, on a straight line basis over their expected useful lives.

At each balance sheet date,
we consider both internal and external sources of information to assess whether there is any indication that assets included in property and equipment are impaired. If any such indication exists, we estimate the recoverable amount of assets and, if
less than carrying value, an impairment loss is recognized to reduce the carrying value of the assets to their recoverable amount. We recognize such impairment losses in the consolidated profit and loss account. The gain or loss on disposal of
property and equipment is the difference between the net sales proceeds and the carrying amount of the underlying asset, and is recognized in the consolidated profit and loss account.



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Goodwill

Goodwill represents the excess of the cost of an acquired entity over the appropriate share of the fair value of the identifiable assets, including separately identifiable intangible assets, and liabilities acquired.
The provisions of SFAS No. 142, Goodwill and Other Intangible Assets,or SFAS 142, require that a two-step impairment test be performed annually or whenever events or changes in circumstances indicate that the carrying value
of an asset may not be recoverable. The first step of the test for impairment compares the book value of our reporting unit under which goodwill is recorded to its estimated fair value. The second step of the goodwill impairment test, which is only
required when the net book value of the reporting unit exceeds the fair value, measures impairment as the difference between the implied fair value of goodwill and its book value. Goodwill is not amortized. We recognized no impairment for the
periods presented in this annual report.

Intangible Assets

Intangible assets consist primarily of intangible assets acquired in business combinations. We apply the criteria specified in SFAS No. 141 Business Combinations, or SFAS 141, to determine
whether an intangible asset should be recognized separately from goodwill. We recognize intangible assets acquired through business acquisitions as assets separate from goodwill if they satisfy either the contractual-legal or
separability criterion. We recognize and measure intangible assets, including favorable lease agreements and certain franchise agreements existing as of the date of acquisition, at fair value upon acquisition. Intangible assets from such
business combination transactions are amortized over the remaining operating lease term or the franchise agreement term, as appropriate. We state purchased software at cost, which comprises purchase price less accumulated amortization and
impairment, if any.

Impairment of Long-lived Assets and Definite-lived Intangible Assets

We review long-lived assets and definite-lived intangible assets for impairment whenever events or changes in circumstances indicate that carrying amount
of an asset may not be recoverable in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets, or SFAS 144. We assess the recoverability of the long-lived assets and definite-lived
intangible assets (other than goodwill) by comparing the carrying amount to the estimated future undiscounted cash flow associated with the related assets. If the estimated future undiscounted cash flows are less than the carrying value, an
indication of impairment is present and we recognize a loss for the difference between fair value, using the expected discounted cash flows, and the carrying value of the assets. We use estimates and judgments in these impairment tests, and if
different estimates or judgments had been utilized, the timing or the amount of the impairment charges could be different. We recognised no impairment for the periods presented.

Accruals for Customer Reward Program

We invite our customers to participate in a customer
reward program. Prior to November 14, 2004, membership was free of charge. We commenced charging a one-time membership fee after that date for new members. Members enjoy discounts on room rates, priority in hotel reservation, and accumulate
membership points for their paid stays, which can be redeemed for membership upgrades, room night awards and other gifts. The estimated incremental costs to provide membership upgrades, room night awards and other gifts are accrued and recorded as a
provision for customer reward program as members accumulate points and recognized as sales and marketing expense in the accompanying statement of operations. As members redeem awards or their entitlements expire, the provision is reduced
correspondingly. As of December 31, 2005, 2006 and 2007, we made provisions of RMB 776,645, RMB 2,743,366, and RMB 5,438,922 (US$ 745,609), respectively, based on the estimated liabilities under the customer reward program.

Revenue Recognition

Revenue from
leased-and-operated hotels represents primarily room rentals and food and beverage sales from the leased-and-operated hotels. We recognize such revenues when goods and services are delivered.

Revenues from franchised-and-managed hotels are derived from franchise agreements where the franchisees are required to pay (i) an initial one-time
franchise fee and (ii) on-going management and service fees based on a percentage of revenue, which approximate 5% to 6% of the room revenues of the franchised hotels. The one-time franchise fee is recognized when the franchised hotel opens for
business, the fee becomes non-refundable, and we have fulfilled all of our commitments and obligations, including having provided the assistance to the franchisees in property design, leasehold improvement construction project management, systems
installation, personnel recruiting and training. On-going management and service fees are recognized when the underlying service revenue is recognized by the franchisees operations. Other revenues generated from franchise agreements include
system maintenance and support fee and central reservation system usage fee, which are recognized when services are provided.



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Revenues from the one-time membership fees are recognized over the estimated average customer
relationship period. Prior to 2006, given the limited history in operating our customer reward program, all one-time membership fees were recognized as deferred revenue when received. In 2006, our management made an analysis on the historic pattern
of the activities of membership cards and noted that membership cards with no activities for more than one year are most likely to expire in the future and therefore we recognized revenue from one-time membership fees when membership records show
lack of usage activity for a year. For the year ended December 31, 2006 and 2007, we recognized revenues of RMB 1,802,462 and RMB 3,380,863 (US$463,475), respectively, from one-time membership fees.

Share-based Compensation

Prior to
December 31, 2005, we accounted for share-based compensation arrangements in accordance with APB No. 25, and complied with the disclosure provisions of SFAS No. 123. Under APB No. 25, compensation cost is recognized based on the
difference, if any, between the estimated fair value of our ordinary shares and the amount an employee is required to pay to acquire the ordinary shares, as determined on the date the option is granted. Total compensation cost is recorded in
shareholders equity as additional paid-in capital and deferred share-based compensation. Deferred share-based compensation is amortized on a straight-line basis and charged to expense over the vesting period of the underlying options.

Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123(R), which revises SFAS No. 123,
and supersedes APB No. 25. Under the fair value recognition provisions of SFAS No. 123(R), we applied the prospective transition method and measured share-based compensation at fair value on the awards grant date based on the
estimated number of awards that are expected to vest. Under the prospective transition method, we continued to account for non-vested awards outstanding under the provisions of APB No. 25. Only awards granted (or modified, repurchased, or
cancelled) after the adoption of SFAS No. 123(R) were accounted for under the provisions of SFAS No. 123(R). The deferred share-based compensation line on our consolidated balance sheet, a contra-equity line representing the
amount of unrecognized share-based compensation costs, was eliminated as of January 1, 2006.

We have granted options to our
directors, officers and other employees under our option plans. The following table sets forth a summary of our option grants since the beginning of 2004 as of December 31, 2007.



|              |  |                                                    |  |                                    |  |                                            |  |                  |  
|------------- |  | -------------------------------------------------- |  | ---------------------------------- |  | ------------------------------------------ |  | ---------------- | -
|Date of Grant |  | Number of OrdinaryShares UnderlyingOptions
Granted |  | Option ExercisePrice(in US$/Share) |  | Fair Value ofOrdinary Shares(in US$/Share) |  | Type ofValuation |  
|03/01/2004    |  | 604,182                                            |  | 0.3309                             |  | 0.1239                                     |  | (1               | )
|09/01/2004    |  | 542,428                                            |  | 0.3309                             |  | 0.7589                                     |  | (1               | )
|01/01/2005    |  | 461,589                                            |  | 0.3309                             |  | 0.9324                                     |  | (1               | )
|07/01/2005    |  | 180,000                                            |  | 1.5310                             |  | 1.3327                                     |  | (1               | )
|12/01/2005    |  | 586,483                                            |  | 2.2500                             |  | 1.9730                                     |  | (1               | )
|03/01/2006    |  | 300,000                                            |  | 1.5310                             |  | 2.7170                                     |  | (2               | )
|03/17/2006    |  | 510,000                                            |  | 2.7170                             |  | 2.7170                                     |  | (2               | )
|07/04/2006    |  | 302,000                                            |  | 3.2020                             |  | 3.2020                                     |  | (2               | )
|10/02/2006    |  | 659,000                                            |  | 5.5000                             |  | 5.5000                                     |  | (3               | )
|12/26/2006    |  | 156,000                                            |  | 16.6400                            |  | 16.6400                                    |  | (4               | )
|04/20/2007    |  | 1,443,600                                          |  | 17.3950                            |  | 17.3950                                    |  | (4               | )
|12/21/2007    |  | 270,000                                            |  | 17.5000                            |  | 17.5000                                    |  | (4               | )



|(1) | Retrospective valuation by the independent appraiser.
|--- | -----------------------------------------------------

|(2) | Contemporaneous valuation by the independent appraiser.
|--- | -------------------------------------------------------

|(3) | Good faith determination by our board of directors based on the midpoint of the then-estimated price range for our initial public offering.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Closing price on the Nasdaq Global Market on the grant date.
|--- | ------------------------------------------------------------

Determination of the amount of share-based compensation expense to be recognized requires significant judgment, including, most importantly, the estimated fair value of our ordinary shares underlying the options as of each date of grant. We
engaged an independent appraiser to assist in the determination of the fair value of our ordinary shares underlying options as of each date of grant since January 1, 2004 until July 4, 2006. Determining the fair value of ordinary shares
requires making complex and subjective judgments regarding projected financial and operating results, our unique business risks, the liquidity of our shares and our operating history and prospects at the time of grant.



39



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##### Table of Contents

The determination of the fair value of stock options on the date of grant using an option-pricing model
is affected by assumptions regarding a number of complex and subjective variables, including our expected stock price volatility over the vesting period, risk-free interest rate, expected dividend yield, and actual and projected employee stock
option exercise behaviors. Furthermore, we are required to estimate forfeitures for options granted or modified after January 1, 2006 at the time of grant and recognize stock-based compensation expense only for those awards that are expected to
vest. If actual forfeitures differ from those estimates, we may need to revise those estimates used in subsequent periods.

Share-based
compensation expense recognized for the years ended December 31, 2005, 2006 and 2007 amounted to RMB 959,826, RMB 16,295,324 and RMB 15,071,107 (US$2,066,064), respectively.

Taxation

Income tax expenses are recorded using the liability method. Deferred tax assets or
liabilities are recognized for the estimated future tax effects attributable to temporary differences and tax loss carry forwards. Deferred tax assets and liabilities are measured using enacted income 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 taxes of a change in tax rates is recognized in statements of operations in the period that includes the enactment date. A valuation
allowance is recorded to reduce the amount of deferred tax assets if it is considered more likely than not that such assets will not be realized. In doing so, management must make judgments and estimates as to whether we have future taxable income
available to utilize the deferred tax assets. As of December 31, 2006 and 2007, we had deferred tax assets of RMB 32,091,738 and RMB 65,597,631 (US$8,992,629), respectively. As of December 31, 2007, a valuation allowance of RMB
37,352,514 (US$ 5,120,571) was made against deferred tax assets of RMB 40,541,299 (US$ 5,557,714) recognized by Top Star. This valuation allowance was made because we considered it more than likely that such assets will not be realized because Top
Star has not historically been profitable.

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes an Interpretation of FASB Statement No. 109, or FIN 48. This interpretation, among other things, creates a two step approach for evaluating uncertain tax positions. Recognition (step one) occurs when an enterprise
concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that more-likely-than-not will be realized upon settlement.
Derecognition of a tax position that was previously recognized would occur when a company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. FIN 48 specifically prohibits the use of a
valuation allowance as a substitute for derecognition of tax positions, and it has expanded disclosure requirements. The provisions of FIN 48 became effective on January 1, 2007, with the cumulative effect of the change in accounting principle,
if any, recorded as an adjustment to opening retained earnings. The adoption of FIN 48 did not have a significant impact on our consolidated financial statements.

Selected Operating Data

The following table presents certain selected operating data of our company as of and for the dates
and periods indicated. Our revenues have been and will continue to be significantly affected by these operating measures which are widely used in the hospitality industry.



|                                 |  |                                          |  |        |  |       
|-------------------------------- |  | ---------------------------------------- |  | ------ |  | ------
|                                 |  | As of and for the YearEnded December 31,
|                                 |  | 2005                                     |  | 2006   |  | 2007  
|Operating Data:                  |  |                                          |  |        |  |       
|Total hotels in operation:       |  |                                          |  |        |  |       
|Leased-and-operated hotels(1)    |  | 54                                       |  | 94     |  | 195   
|Franchised-and-managed hotels    |  | 14                                       |  | 40     |  | 71    
|Total rooms                      |  | 8,197                                    |  | 16,162 |  | 32,726
|Geographic coverage:             |  |                                          |  |        |  |       
|Number of cities                 |  | 22                                       |  | 39     |  | 66    
|Occupancy rate (as a percentage) |  | 89.8                                     |  | 92.8   |  | 91.1  
|Average daily rate (in RMB)      |  | 182                                      |  | 182    |  | 179   
|RevPAR (in RMB)                  |  | 163                                      |  | 169    |  | 163   



|(1) | Includes five hotels operated through separate joint ventures with third parties. We own 75% of one joint venture, 70% of another joint venture and 51% of each of the other three
joint ventures.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



40



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##### Table of Contents

Results of Operations

The following table sets forth a summary of our consolidated results of operations, both in absolute amount and as a percentage of total revenues for the periods indicated. This information should be read together
with our consolidated financial statements and related notes included at the end of this annual report. Our business has grown rapidly and substantially since we commenced operations in July 2002. Our limited operating history makes it difficult to
predict future operating results. We believe that the period-to-period comparison of operating results should not be relied upon as being indicative of future performance.



|                                           |  |                                   |   |  |       |   |  |          |   |  |       |   |  |           |   |  |          |   |  |       |  
|------------------------------------------ |  | --------------------------------- | - |  | ----- | - |  | -------- | - |  | ----- | - |  | --------- | - |  | -------- | - |  | ----- | -
|                                           |  | For the Year Ended December 31,   |  
|                                           |  | 2005                              |   |  | 2006  |   |  | 2007     |  
|                                           |  | RMB                               |   |  | %     |   |  | RMB      |   |  | %     |   |  | RMB       |   |  | US$      |   |  | %     |  
|                                           |  | (in thousands except percentages) |  
|Consolidated Statement of Operations Data: |  |                                   |   |  |       |   |  |          |   |  |       |   |  |           |   |  |          |   |  |       |  
|Revenues:                                  |  |                                   |   |  |       |   |  |          |   |  |       |   |  |           |   |  |          |   |  |       |  
|Leased-and-operated hotels                 |  | 279,948                           |   |  | 97.9  |   |  | 567,895  |   |  | 96.5  |   |  | 963,051   |   |  | 132,023  |   |  | 95.4  |  
|Franchised-and-managed hotels              |  | 5,913                             |   |  | 2.1   |   |  | 20,605   |   |  | 3.5   |   |  | 46,265    |   |  | 6,342    |   |  | 4.6   |  
|                                           |  |                                   |   |  |       |   |  |          |   |  |       |   |  |           |   |  |          |   |  |       |  
|Total revenues                             |  | 285,861                           |   |  | 100.0 |   |  | 588,500  |   |  | 100.0 |   |  | 1,009,316 |   |  | 138,365  |   |  | 100.0 |  
|Less: Business tax and related surcharges  |  | (16,830                           | ) |  | (5.9  | ) |  | (33,977  | ) |  | (5.8  | ) |  | (60,302   | ) |  | (8,267   | ) |  | (6.0  | )
|                                           |  |                                   |   |  |       |   |  |          |   |  |       |   |  |           |   |  |          |   |  |       |  
|Net revenues                               |  | 269,031                           |   |  | 94.1  |   |  | 554,523  |   |  | 94.2  |   |  | 949,014   |   |  | 130,098  |   |  | 94.0  |  
|                                           |  |                                   |   |  |       |   |  |          |   |  |       |   |  |           |   |  |          |   |  |       |  
|Operating costs and expenses:              |  |                                   |   |  |       |   |  |          |   |  |       |   |  |           |   |  |          |   |  |       |  
|Leased-and-operated hotel costs:           |  |                                   |   |  |       |   |  |          |   |  |       |   |  |           |   |  |          |   |  |       |  
|Rents and utilities                        |  | (94,784                           | ) |  | (33.1 | ) |  | (171,576 | ) |  | (29.2 | ) |  | (299,792  | ) |  | (41,098  | ) |  | (29.7 | )
|Personnel costs                            |  | (41,225                           | ) |  | (14.4 | ) |  | (87,980  | ) |  | (14.9 | ) |  | (155,611  | ) |  | (21,332  | ) |  | (15.4 | )
|Depreciation and amortization              |  | (23,335                           | ) |  | (8.2  | ) |  | (44,620  | ) |  | (7.6  | ) |  | (85,600   | ) |  | (11,735  | ) |  | (8.5  | )
|Consumables, food and beverage             |  | (20,765                           | ) |  | (7.3  | ) |  | (43,482  | ) |  | (7.4  | ) |  | (84,053   | ) |  | (11,523  | ) |  | (8.3  | )
|Others                                     |  | (26,100                           | ) |  | (9.1  | ) |  | (56,019  | ) |  | (9.5  | ) |  | (98,644   | ) |  | (13,523  | ) |  | (9.8  | )
|                                           |  |                                   |   |  |       |   |  |          |   |  |       |   |  |           |   |  |          |   |  |       |  
|Total leased-and-operated hotel costs      |  | (206,209                          | ) |  | (72.1 | ) |  | (403,677 | ) |  | (68.6 | ) |  | (723,700  | ) |  | (99,211  | ) |  | (71.7 | )
|Sales and marketing expenses               |  | (7,691                            | ) |  | (2.7  | ) |  | (11,488  | ) |  | (2.0  | ) |  | (19,632   | ) |  | (2,691   | ) |  | (1.9  | )
|General and administrative expenses        |  | (24,789                           | ) |  | (8.7  | ) |  | (64,792  | ) |  | (11.0 | ) |  | (99,026   | ) |  | (13,575  | ) |  | (9.9  | )
|                                           |  |                                   |   |  |       |   |  |          |   |  |       |   |  |           |   |  |          |   |  |       |  
|                                           |  |                                   |   |  |       |   | 
|Total operating costs and expenses         |  | (238,689                          | ) |  | (83.5 | ) |  | (479,957 | ) |  | (81.6 | ) |  | (842,358  | ) |  | (115,477 | ) |  | (83.5 | )
|                                           |  |                                   |   |  |       |   |  |          |   |  |       |   |  |           |   |  |          |   |  |       |  
|Income from operations                     |  | 30,342                            |   |  | 10.6  |   |  | 74,566   |   |  | 12.6  |   |  | 106,656   |   |  | 14,621   |   |  | 10.5  |  
|                                           |  |                                   |   |  |       |   |  |          |   |  |       |   |  |           |   |  |          |   |  |       |  
|                                           |  |                                   |   |  |       |   | 
|Interest income (expense), net             |  | (486                              | ) |  | (0.2  | ) |  | 435      |   |  | 0.1   |   |  | 24,549    |   |  | 3,365    |   |  | 2.4   |  
|Other non-operating income                 |  | 2,146                             |   |  | 0.8   |   |  | 5,308    |   |  | 0.9   |   |  | 8,435     |   |  | 1,156    |   |  | 0.8   |  
|Foreign exchange gain (loss), net          |  | 254                               |   |  | 0.1   |   |  | (6,990   | ) |  | (1.2  | ) |  | (53,222   | ) |  | (7,295   | ) |  | (5.2  | )
|Income tax expense                         |  | (6,526                            | ) |  | (2.3  | ) |  | (21,391  | ) |  | (3.6  | ) |  | (45,036   | ) |  | (6,174   | ) |  | (4.4  | )
|Minority interests                         |  | (4,797                            | ) |  | (1.7  | ) |  | (5,034   | ) |  | (0.9  | ) |  | (5,626    | ) |  | (771     | ) |  | (0.6  | )
|Share of income of affiliated companies    |  |                                  |   |  |      |   |  |         |   |  |      |   |  |          |   |  |         |   |  |      |  
|                                           |  |                                   |   |  |       |   |  |          |   |  |       |   |  |           |   |  |          |   |  |       |  
|                                           |  |                                   |   |  |       |   | 
|Net income                                 |  | 20,933                            |   |  | 7.3   |   |  | 46,894   |   |  | 7.9   |   |  | 35,756    |   |  | 4,902    |   |  | 3.5   |  
|                                           |  |                                   |   |  |       |   |  |          |   |  |       |   |  |           |   |  |          |   |  |       |  

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

Revenues. Our total revenues increased by 71.5% from RMB 588.5 million in 2006 to RMB 1,009.3 million (US$138.4 million) in 2007.



| |  |  | Leased-and-operated Hotels. Revenues from our leased-and-operated hotels increased by 69.6% from RMB 567.9 million in 2006 to RMB 963.1 million
(US$132.0 million) in 2007. This increase was primarily due to our substantial expansion of leased-and-operated hotels in operation from 94 hotels and 11,395 rooms as of December 31, 2006 to 195 hotels and 24,336 rooms as of December 31,
2007.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Franchised-and-managed Hotels. Revenues from our franchised-and-managed hotels increased substantially by 124.5% from RMB 20.6 million in 2006 to RMB
46.3 million (US$6.3 million) in 2007. This growth was primarily due to an increase in the number of franchised-and-managed hotels in operation from 40 hotels with 4,767 rooms as of December 31, 2006 to 71 hotels with 8,390 rooms as of
December 31, 2007.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



41



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##### Table of Contents

Operating Costs and Expenses. Our total operating costs and expenses increased substantially from
RMB 480.0 million in 2006 to RMB 842.4 million (US$115.5 million) in 2007. This increase resulted from increases in all of our cost and expense line items as we substantially expanded our operations in 2007.



| |  |  | Leased-and-operated Hotel Costs. Our leased-and-operated hotel costs increased substantially from RMB 403.7 million in 2006 to RMB 723.7 million
(US$99.2 million) in 2007. This increase was primarily because all items comprising our leased-and-operated hotel costs increased substantially as we expanded our leased-and-operated hotels from 94 hotels and 11,395 rooms as of December 31,
2006 to 195 hotels and 24,336 rooms as of December 31, 2007.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sales and Marketing Expenses. Our sales and marketing expenses increased substantially from RMB 11.5 million in 2006 to RMB 19.6 million (US$2.7
million) in 2007. This increase was primarily due to increased marketing and promotional expenses in connection with 101 new hotels that opened in 2007.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | General and Administrative Expenses. Our general and administrative expenses increased by 52.8% from RMB 64.8 million in 2006 to RMB 99.0 million
(US$13.6 million) in 2007, primarily due to an increase in the total compensation and benefits for our administrative staff as a result of our hiring of over 280 new employees in the areas of finance and accounting, human resources and general
administration to support our expanded operations in 2007.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Income from Operations.Our income from operations
increased by 43.0% from RMB 74.6 million in 2006 to RMB 106.7 million (US$14.6 million) in 2007 as a cumulative result of the above factors. Our income from operations in 2007 was negatively impacted by our acquisition and consolidation of
Top Star as, historically, the Top Star hotels have not been profitable. The Top Star hotels may possibly continue to have a negative impact on our financial.

Interest Income (Expense), Net. Our net interest income increased substantially from RMB 0.4 million in 2006 to RMB 24.5 million (US$3.4 million) in 2007, primarily due to interest income from
proceeds of our initial public offering and our additional public offering.

Foreign Exchange Gain (Loss), Net. Our net foreign
exchange loss increased substantially from RMB 7.0 million in 2006 to RMB 53.2 million (US$7.3 million) in 2007, primarily due to the U.S. dollar net proceeds we received from both our initial public offering in October 2006, our
additional public offering in May 2007 and the convertible bonds we issued in December 2007 as well as the RMB appreciation since then until the end of 2007.

Income Tax Expenses. Our income tax expenses increased by 110.5% from RMB 21.4 million in 2006 to RMB 45.0 million (US$6.2 million) in 2007, primarily because of the increased income of our operating
subsidiaries in China.

Minority Interest.Minority interest represents BTGs share of our net income based on its equity
interest in Home Inns Beijing and our joint venture partners share of the net income of the four leased-and-operated hotels owned by the joint ventures. Minority interest increased to RMB 5.6 million (US$0.8 million) in 2007 compared to
RMB 5.0 million in 2006, due to our increased net income in 2007 partially offset by the fact that we purchased the remaining stake in Home Inns Beijing from BTG in July 2007.

Net Income. As a result of the foregoing, we had net income of RMB 35.8 million (US$4.9 million) in 2007, a
decrease of 23.8% from net income of RMB 46.9 million in 2006. Our net income in 2007 was negatively impacted by foreign exchange loss and our acquisition and consolidation of Top Star as, historically, the Top Star hotels have not been
profitable. The Top Star hotels may possibly continue to have a negative impact on our financial condition and results of operations in the first half of 2008 as we continue our initiatives with the Top Star hotels to create comparable metrics to
Home Inns existing hotels.

Year Ended December 31, 2006 Compared to Year Ended December 31, 2005

Revenues. Our total revenues increased by 105.9% from RMB 285.9 million in 2005 to RMB 588.5 million in 2006.



| |  |  | Leased-and-operated Hotels. Revenues from our leased-and-operated hotels increased by 102.9% from RMB 279.9 million in 2005 to RMB 567.9 million in
2006. This increase was primarily due to our substantial expansion of leased-and-operated hotels from 54 hotels and 6,555 rooms as of December 31, 2005 to 94 hotels and 11,395 rooms as of December 31, 2006.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Franchised-and-managed Hotels. Revenues from our franchised-and-managed hotels increased substantially by 249.1% from RMB 5.9 million in 2005 to RMB
20.6 million in 2006. This growth was primarily due to an increase in the number of franchised-and-managed hotels from 14 hotels with 1,642 rooms as of December 31, 2005 to 40 hotels with 4,767 rooms as of December 31, 2006.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



42



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##### Table of Contents

Operating Costs and Expenses. Our total operating costs and expenses increased substantially from
RMB 238.7 million in 2005 to RMB 480.0 million in 2006. This increase resulted from increases in all of our cost and expense line items as we substantially expanded our operations in 2006.



| |  |  | Leased-and-operated Hotel Costs. Our leased-and-operated hotel costs increased substantially from RMB 206.2 million in 2005 to RMB 403.7 million in
2006. This increase was primarily because all items comprising our leased-and-operated hotel costs increased substantially as we expanded our leased-and-operated hotels from 54 hotels and 6,555 rooms as of December 31, 2005 to 94 hotels and
11,395 rooms as of December 31, 2006.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sales and Marketing Expenses. Our sales and marketing expenses increased substantially from RMB 7.7 million in 2005 to RMB 11.5 million in 2006.
This increase was primarily due to increased marketing and promotional expenses in connection with 66 new hotels that opened in 2006.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | General and Administrative Expenses. Our general and administrative expenses increased by 161.4% from RMB 24.8 million in 2005 to RMB 64.8 million
in 2006, primarily due to an increase in the total compensation and benefits for our administrative staff as a result of our hiring of over 80 new employees in the areas of finance and accounting, human resources and general administration to
support our expanded operations in 2006.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Income from Operations.Our income from operations increased by 146.2%
from RMB 30.3 million in 2005 to RMB 74.6 million in 2006 as a cumulative result of the above factors.

Interest Income
(Expense), Net. We incurred net interest expense of RMB 0.5 million in 2005 due to our then outstanding loans. We recorded net interest income of RMB 0.4 million in 2006, primarily due to interest income from proceeds of our initial
public offering.

Foreign Exchange Gain (Loss), Net. We incurred a net foreign exchange loss of RMB 7.0 million in 2006, as
compared to a net foreign exchange gain of RMB 0.3 million, primarily due to the U.S. dollar net proceeds we received from our initial public offering in October 2006 and the RMB appreciation since then until the end of 2006.

Income Tax Expenses. Our income tax expenses increased by 229.2% from RMB 6.5 million in 2005 to RMB 21.4 million in 2006, primarily
because of the increased income of our operating subsidiaries in China.

Minority Interest.Minority interest represents BTGs
share of our net income based on its equity interest in Home Inns Beijing and our joint venture partners share of the net income of the four leased-and-operated hotels owned by the joint ventures. Minority interest increased substantially to
RMB 5.0 million in 2006, due to our increased net income in 2006.

Net Income. As a result of the foregoing, we had net income
of RMB 46.9 million in 2006, an increase of 124.4% from net income of RMB 20.9 million in 2005.

B. Liquidity and Capital Resources

Our principal sources of liquidity have been cash generated from operating activities, our sale of ordinary shares and preferred shares
through private placements, borrowings from BTG and third-party lenders as well as the proceeds we received from our public offerings of ordinary shares and our offering of convertible bonds. Our cash and cash equivalents consist of cash on hand and
liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less that are placed with banks and other financial institutions. As of December 31, 2007, we had entered into binding
contracts with lessors of 78 properties for our leased-and-operated hotels under development. We expect to incur an additional RMB 468 million (US$64.2 million) in capital expenditures in connection with the completion of the leasehold
improvements of these hotels. We intend to fund this planned expansion with our operating cash flow and existing cash balance.

We have
been able to meet our working capital needs, and we believe that we will be able to meet our working capital needs in the foreseeable future, with our operating cash flow and existing cash balance.



43



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##### Table of Contents

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



|                                                                     |  |                                 |   |  |          |   |  |           |   |  |         |  
|-------------------------------------------------------------------- |  | ------------------------------- | - |  | -------- | - |  | --------- | - |  | ------- | -
|                                                                     |  | For the Year Ended December 31, |  
|                                                                     |  | 2005                            |   |  | 2006     |   |  | 2007      |  
|                                                                     |  | RMB                             |   |  | RMB      |   |  | RMB       |   |  | US$     |  
|                                                                     |  | (in thousands)                  |  
|Net cash provided by operating activities                            |  | 70,604                          |   |  | 161,973  |   |  | 214,632   |   |  | 29,422  |  
|Net cash used in investing activities                                |  | (159,339                        | ) |  | (213,795 | ) |  | (613,419  | ) |  | (84,092 | )
|Net cash provided by financing activities                            |  | 100,170                         |   |  | 779,089  |   |  | 1,256,605 |   |  | 172,265 |  
|Effect of foreign exchange rate changes on cash and cash equivalents |  |                                |   |  | (6,990   | ) |  | (53,222   | ) |  | (7,295  | )
|                                                                     |  |                                 |   | 
|Net increase in cash and cash equivalents                            |  | 11,435                          |   |  | 720,277  |   |  | 804,596   |   |  | 110,300 |  
|Cash and cash equivalents at beginning of period                     |  | 26,292                          |   |  | 37,727   |   |  | 758,004   |   |  | 103,913 |  
|                                                                     |  |                                 |   | 
|Cash and cash equivalents at end of the period                       |  | 37,727                          |   |  | 758,004  |   |  | 1,562,600 |   |  | 214,213 |  

Operating Activities

We have financed our operating activities primarily through cash generated from operations. We currently anticipate that we will be able to meet our needs to fund operations beyond the next twelve months with
operating cash flow and existing cash balances.

Net cash provided by operating activities increased substantially to RMB
214.6 million (US$29.4 million) in 2007. The increase resulted from our expanded operations in 2007. These changes were primarily attributable to the expansion of the Home Inns hotel chain from 134 hotels in operation with 16,162 hotel rooms as
of December 31, 2006 to 266 hotels in operation with 32,726 hotel rooms as of December 31, 2007.

Net cash provided by operating
activities increased substantially to RMB 162.0 million in 2006 from RMB70.6 million in 2005. These changes were primarily attributable to the expansion of the Home Inns hotel chain from 68 hotels with 8,197 hotel rooms as of December 31,
2005 to 134 hotels with 16,162 hotel rooms as of December 31, 2006.

Investing Activities

Our cash used in investing activities is primarily related to our leasehold improvements and purchase of equipment and fixtures used in
leased-and-operated hotels. Net cash used in investing activities increased from RMB 213.8 million in 2006 to RMB 613.4 million (US$84.1 million) in 2007, primarily due capital expenditures for new hotels opened, our acquisition of the
remaining equity interest of Home Inns Beijing and our acquisition of Top Star. Net cash used in investing activities increased from RMB 159.3 million in 2005 to RMB 213.8 million in 2006, primarily due to an increase in our leasehold
improvements and purchase of furniture, fixture and equipment used in an increased number of leased-and-operated hotels in 2006.

Financing
Activities

Our financing activities consist of issuance and sale of our shares to investors and related parties and borrowings from
third-party lenders and our public offerings. The following table sets forth a summary of our outstanding indebtedness as of March 31, 2008:



|                                     |  |                        |  |            |  |                   |  |                   |  |              |  
|------------------------------------ |  | ---------------------- |  | ---------- |  | ----------------- |  | ----------------- |  | ------------ | -
|Lender                               |  | Date of LoanInitiation |  | Due Date   |  | Principal(in RMB) |  | Principal(in US$) |  | InterestRate |  
|China Construction Bank              |  | 04/13/2007             |  | 04/12/2009 |  | 18,000,000        |  | 2,467,579         |  | 6.570        | %
|China Industrial and Commercial Bank |  | 08/17/2007             |  | 05/16/2008 |  | 1,000,000         |  | 137,088           |  | 6.840        | %
|China Industrial and Commercial Bank |  | 08/17/2007             |  | 08/16/2008 |  | 17,000,000        |  | 2,330,491         |  | 6.840        | %
|China Merchants Bank                 |  | 01/10/2008             |  | 07/10/2008 |  | 50,000,000        |  | 6,854,385         |  | 6.570        | %
|China Merchants Bank                 |  | 01/24/2008             |  | 07/24/2008 |  | 50,000,000        |  | 6,854,385         |  | 7.227        | %
|China Merchants Bank                 |  | 03/31/2008             |  | 06/30/2008 |  | 60,000,000        |  | 8,225,263         |  | 6.570        | %

All loans above are denominated in RMB.



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We are required under each loan or financing transaction agreement to notify the lender in advance before
we enter into a material merger and acquisition, spin-off, corporate reorganization, new joint venture or sale of material assets transaction. None of our lenders have the right to prevent us from entering into any of these transactions. As of
December 31, 2007, the remaining funds available under our credit facilities in the aggregate amounted to approximately RMB 250 million (US$ 34.3 million). Our loans from China Merchants Bank were drawn under a revolving credit facility
which allows us to renew each loan for additional six-month terms at the same interest rate upon expiration of the initial term.

Net cash
provided by financing activities in 2007 amounted to RMB 1,256.6 million (US$172.3 million) and was primarily attributable to the net proceeds from our additional public offering as well as our sale of convertible bonds, offset in part by the
amount of debt we repaid during the period. Net cash provided by financing activities in 2006 amounted to RMB 779.1 million and was primarily attributable to the net proceeds from our initial public offering, offset in part by the amount of
debt we repaid during the period. Net cash provided by financing activities amounted to RMB 100.2 million in 2005. Cash provided by financing activities in 2005 consisted of a total of RMB 60.0 million borrowings from a related party and
third-party lenders and the RMB 40.3 million proceeds from our issuance and sale of preferred shares in the year.

Capital Expenditures

Our capital expenditures were incurred primarily in connection with leasehold improvements, investments in furniture, fixtures and
equipment and technology, information and operational software. Our capital expenditures totaled RMB 193.2 million, RMB 237.9 million and RMB 581.6 million (US$ 79.7 million) in 2005, 2006 and 2007, respectively. We will continue to
make capital expenditures to meet the expected growth of our operations and expect cash generated from our operating activities and financing activities will meet our capital expenditure needs in the foreseeable future.

C. Research and Development, Patents and Licenses, Etc.

Intellectual Property

Our brand, trade names, trademarks, trade secrets and other intellectual property rights distinguish
and protect our technology platforms, services and products from those of our competitors, and contribute to our competitive advantage in the economy hotel segment of the lodging industry in China. To protect our brand and other intellectual
property, we rely on a combination of trademark, trade secret and copyright laws as well as imposing confidentiality obligations on our employees, contractors and others. We have a total of ten registered trademarks in China, including LOGO, and are applying for registration of 37 new trademarks in China, which includes 10 trademarks for which Top Star is applying. We have registered our domain name www.homeinns.com with the Internet
Corporation for Assigned Names and Numbers.

We cannot assure you that our efforts to protect our intellectual property rights will be
adequate or that third parties will not infringe or misappropriate these rights. If others are able to copy and use our proprietary information and operational system and other proprietary information and operational system and other proprietary
technology platform without spending time and resources to develop their own, we may not be able to maintain our competitive position. Furthermore, the application of laws governing intellectual property rights in China is uncertain and evolving and
could involve substantial risks to us. If litigation is necessary to enforce our intellectual property rights or determine the scope of the proprietary rights of others, we may have to incur substantial costs or divert other resources, which could
harm our business and prospects.



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D. Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the year 2007 that are reasonably likely to have a material adverse effect on
our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.

E. Off-balance Sheet Arrangements

Other than
operating lease obligations set forth in the table below in Item 5. Operating and Financial Review and Prospects  F. Tabular Disclosure of Contractual Obligations,  we have not entered into any financial guarantees or other
commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholders equity, or that are not reflected in our consolidated
financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in
any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

F. Tabular Disclosure of Contractual Obligations

The following table sets forth our contractual
obligations as of December 31, 2007:



|                                               |  |                       |  |                 |  |          |  |          |  |                 
|---------------------------------------------- |  | --------------------- |  | --------------- |  | -------- |  | -------- |  | ----------------
|                                               |  | Payment Due by Period
|                                               |  | Total                 |  | Less than1 year |  | 1-3years |  | 3-5years |  | More than5 years
|                                               |  | (in RMB millions)    
|Convertible bonds                              |  | 1,110                 |  |                |  |         |  | 1,110    |  |                
|Long-term debt obligations, including interest |  | 19                    |  | 1               |  | 18       |  |         |  |                
|Operating lease obligations                    |  | 6,143                 |  | 407             |  | 1,380    |  | 1,416    |  | 2,940           
|Purchase obligations                           |  | 197                   |  | 197             |  |         |  |         |  |                
|Total                                          |  | 7,469                 |  | 605             |  | 1,398    |  | 2,526    |  | 2,940           

Our convertible bonds will mature in December 2012, unless previously converted into our ordinary
shares at a conversion price of US$26,545 (equal to US$53.09 per ADS), subject to adjustments upon the occurrence of certain events. Our operating lease obligations related to our obligations under lease agreements with lessors of our
leased-and-operated hotels. Our purchase obligations primarily consisted of our contractual commitments relating to leasehold improvements and installation of equipment for our leased-and-operated hotels.

G. Safe Harbor

This annual report on Form 20-F
contains forward-looking statements that relate to future events, including our future operating results and conditions, our prospects and our future financial performance and condition, all of which are largely based on our current expectations and
projections. The forward-looking statements are contained principally in the sections entitled Item 3. Key InformationD. Risk Factors, Item 4. Information on the Company and Item 5. Operating and Financial Review
and Prospects. These statements are made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as may,
will, expect, anticipate, future, intend, plan, believe, estimate, is/are likely to or other and similar expressions. Forward-looking
statements involve inherent risks and uncertainties.

We have based these forward-looking statements largely on our current expectations
and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include:



| |  |  | our anticipated growth strategies;
| | - |  | ----------------------------------



| |  |  | our future business development, results of operations and financial condition;
| | - |  | -------------------------------------------------------------------------------



| |  |  | expected changes in our revenues and certain cost or expense items;
| | - |  | -------------------------------------------------------------------



| |  |  | our ability to attract customers and leverage our brand;
| | - |  | --------------------------------------------------------



| |  |  | trends and competition in the lodging industry; and
| | - |  | ---------------------------------------------------



| |  |  | our ability to develop new hotels at desirable locations in a timely and cost-effective manner.
| | - |  | -----------------------------------------------------------------------------------------------



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You should read thoroughly this annual report and the documents that we refer to in this annual report
with the understanding that our actual future results may be materially different from and worse than what we expect. We qualify all of our forward-looking statements by these cautionary statements. Other sections of this annual report include
additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict
all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statements. You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.



|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|------- | ------------------------------------------

A. Directors and
Senior Management

The following table sets forth information regarding our executive officers and directors as of the date of this
annual report.



|                      |  |     |  |                                                  
|--------------------- |  | --- |  | -------------------------------------------------
|Name                  |  | Age |  | Position/Title                                   
|Yunxin Mei            |  | 59  |  | Co-Chairman of the Board of Directors            
|Neil Nanpeng Shen     |  | 40  |  | Co-Founder, Co-Chairman of the Board of Directors
|David Jian Sun        |  | 42  |  | Chief Executive Officer, Director                
|May Wu                |  | 40  |  | Chief Financial Officer                          
|Jason Zong            |  | 43  |  | Chief Operating Officer                          
|Rixin Liang           |  | 53  |  | Chief Branding Officer                           
|Min Bao               |  | 47  |  | Independent Director                             
|James Jianzhang Liang |  | 38  |  | Co-Founder, Independent Director                 
|Kenneth Gaw           |  | 37  |  | Independent Director                             
|Terry Yongmin Hu      |  | 38  |  | Independent Director                             

Yunxin Mei has served as our director since May 2004. Since 2000, Mr. Mei has been the
vice chairman and president of BTG responsible for the overall operations and management as well as executing BTGs mid- and long-term development plans. He also serves on the boards of several other companies, including Poly Victory
Investments Limited, Viobright International Investments Ltd. and Profit Act Investment Ltd., all of which are holding companies investing in the hotel business in China.

Neil Nanpeng Shenis one of the co-founders of our company and has been our companys director since our inception. Mr. Shen is the founding managing partner of Sequoia Capital China. Mr. Shen
co-founded Ctrip, the largest travel consolidator in China, and served as its chief financial officer from 2000 to October 2005 and as president from August 2003 to October 2005. Prior to founding Ctrip, Mr. Shen had worked for more than eight
years in the investment banking industry in New York and Hong Kong. Currently, Mr. Shen is a director of Ctrip and also an independent director, the chairman of the audit committee of Focus Media Holding Limited, a Nasdaq-listed media
advertising company based in China and a director of a number of privately-owned companies based in china. Mr. Shen received his bachelors degree from Shanghai Jiao Tong University in China and his masters degree from the School of
Management at Yale University.

David Jian Sun has served as our director and chief executive officer since December 2004.
Mr. Sun has over ten years of consumer industry experience. From 2003 to December 2004, Mr. Sun served as a vice president of operations for B&Q (China) Ltd., a subsidiary of Kingfisher plc, the third largest home improvement retail
group in the world, overseeing the operation of 15 B&Q superstores in China. From 2000 to 2003, Mr. Sun served as a vice president of marketing for B&Q (China) Ltd., leading B&Qs market positioning and branding efforts in
China. Mr. Sun holds a bachelors degree from Shanghai Medical University in China.

May Wu has served as our chief
financial officer since May 2006. She served as our senior vice president of finance from March 2006 to May 2006. Prior to joining Home Inns, Ms. Wu was a first vice president at Schroder Investment Management, North America Inc. from 2005 to
March 2006, and a vice president from 2003 to 2004. She was responsible for investment research and management for various funds, specializing in consumer and services sectors. From 1998 to 2002, Ms. Wu was an equity research analyst at JP
Morgan Asset Management where she also served as a vice president from 2000 to 2002. Ms. Wu holds a bachelors degree from Fudan University in China, a masters degree from Brooklyn College at the City University of New York and an
MBA degree from the J.L. Kellogg Graduate School of Management at Northwestern University.



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Jason Zong has served as our chief operating officer since January 2008. He served as our senior
vice president of operations from December 2006 to December 2007. Mr. Zong has more than 10 years of consumer industry experience. From December 2004 to December 2006, Mr. Zong served as vice president of operations and east region
general manager for B&Q (China) Ltd., a subsidiary of Kingfisher plc, the third largest home improvement retail group in the world. From June 2001 to December 2004, Mr. Zong served as vice president of operations for Lotus Supermarket Chain
Store Co., Ltd. Mr. Zong holds a bachelors degree from Fudan University.

Rixin Liang has served as our chief branding
officer since January 2008. She served as our chief operating officer since the formation of Home Inns Beijing in April 2002 to December 2007. Prior to joining Home Inns, Ms. Liang was the vice president of the International Hotel Group, a
subsidiary of BTG, from 1999 to 2002, during which she co-founded Jian Guo Inns, one of the earliest economy hotel brands in China, in 2000, and served as the general manager of Jian Guo Inns Beijing Ltd. from 2000 to 2002. Ms. Liang has worked
in the hotel industry in China since 1972. She is a member of the Expert Committee of the China Hotel Association. Ms. Liang holds a bachelors degree from Capital Economics and Business University in China. She also attended the MBA
program at Tsing-Hua University in China.

Min Bao has served as our director since March 2006. Mr. Bao is the general manager
of BTG Hotel & Resorts Co., Ltd., where he has worked since February 2006. From 2002 to February 2006, he was the general manager of Beijing Chang Fu Gong Center Co., Ltd., a holding company that owns a hotel and residential and commercial
properties. Prior to that, he served as the general manager of Beijing Xin Qiao Hotel Co., Ltd. He currently serves on the boards of several companies, including BTG Hotel & Resorts Co., Ltd., Beijing Jian Guo Hotel Co., Ltd., Beijing Peace
Hotel Co., Ltd. and Yue Xiu Hotel Co., Ltd, all of which are China-based hotel companies.

James Jianzhang Liang is one of the
co-founders of our company. He has served as our director since our inception. Mr. Liang co-founded Ctrip and served as its chief executive officer from 2000 to January 2006. Mr. Liang has been chairman of Ctrips board of directors
since August 2003 and has been a director of Ctrip since its inception. Prior to founding Ctrip, Mr. Liang held a number of technical and managerial positions with Oracle Corporation from 1991 to 1999 in the United States and China, including
the head of the ERP consulting division of Oracle China from 1997 to 1999. Mr. Liang received his masters and bachelors degrees from Georgia Institute of Technology. He also attended an undergraduate program at Fudan University in
China.

Mr. Kenneth Gaw has served as our independent director since October 2006. Since 1999, Mr. Gaw has been a managing
director of Pioneer Global Group Limited, a company listed on the Hong Kong Stock Exchange that primarily focuses on real estate and hotel investments in Hong Kong, Macau, China and South East Asia. Mr. Gaw is also a co-founder and the managing
director of Gateway Capital, a real estate investment and management company. Mr. Gaw currently serves on the boards of Dusit Thani Public Company Limited, a company that owns and operates hotels in Thailand, Siam Food Products Public Company
Limited, a pineapple producer listed on the Stock Exchange of Thailand, and Japan Opportunities Fund II, a real estate fund investing in Japan. Mr. Gaw received a bachelors degree in applied mathematics and economics from Brown University
in the United States.

Mr. Terry Yongmin Hu has served as our independent director since October 2006. Mr. Hu is a
managing director of Temasek Holdings (HK) Limited, an investment company that focuses on private equity investments in China. Prior to joining Temasek Holdings in May 2005, Mr. Hu was a director at Credit Suisse (HK) Limited where he was
responsible for its technology, media and telecommunications investment banking efforts in China. Before joining Credit Suisse in August 2004, Mr. Hu worked for a number of years at Bear Stearns Asia Limited where he last served as a vice
president of investment banking and the chief representative of its Shanghai office. Mr. Hu currently serves on the board of Hopson Development Holdings Limited, a company listed on the Hong Kong Stock Exchange that engages in property
development business in China. Mr. Hu received a bachelors degree in English language and literature from Fudan University in China.

Employment Agreements

We have entered into an employment agreement with each of our senior executive officers. We may
terminate a senior executive officers employment for cause, at any time, without notice or remuneration, for certain acts of the officer, including, but not limited to, a conviction or plea of guilty to a felony, willful misconduct to our
detriment or a failure to perform agreed duties. A senior executive officer may terminate his or her employment at any time without penalty if there is a material reduction in his or her authority, duties and responsibilities or if there is a
material breach by us, provided that we are allowed to correct or cure within 30



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days upon receipt of his or her written notice of intent to terminate on such basis. Furthermore, either we or an executive officer may terminate employment
at any time without cause upon advance written notice to the other party. Each senior executive officer is entitled to certain benefits upon termination, including a severance pay equal to three months salary, if he or she resigns for certain
specified good reasons or if we terminate his or her employment due to his or her incapacitation. We will indemnify an executive officer for his losses based on or related to his or her acts and decisions made in the course of his or her performance
of duties within the scope of his or her employment.

Each senior executive officer has agreed to hold in strict confidence any trade
secrets or technical secrets of our company. Each officer also agrees to comply with all material applicable laws and regulations related to his or her responsibilities at our company as well as all material written corporate and business policies
and procedures of our company.

B. Compensation of Directors and Executive Officers

For the fiscal year ended December 31, 2007, we paid an aggregate of approximately RMB 1.6 million (US$0.2 million) in cash to our senior
executive officers, and we did not pay any cash compensation to our non-executive directors.

Share Incentives

Employees Stock Option Plan.We have adopted an Employees Stock Option Plan, or the Option Plan, to attract and retain the best
available personnel, provide additional incentives to employees, directors and consultants, and promote the success of our business. Our board of directors has authorized the issuance of up to 4,784,226 ordinary shares upon exercise of awards
granted under our Option Plan. We no longer grant options or other awards under this Option Plan as we now grant options and/or other awards under our 2006 share incentive plan.

Plan Administration. Our board of directors, or a committee designated by our board or directors, will administer the Option Plan. The committee
or the full board of directors, as appropriate, will determine the provisions and terms and conditions of each option grant.

Stock
Option and Stock Purchase Right Agreements. Options and stock purchase rights granted under our Option Plan are evidenced by a stock option agreement or a stock purchase right agreement, as applicable, that sets forth the terms, conditions and
limitations for each grant. In addition, the stock option agreement and the stock purchase right agreement also provide that securities granted are subject to a 180-day lock-up period following the effective date of a registration statement filed by
us under the Security Act, if so requested by us or any representative of the underwriters in connection with any registration of the offering of any of our securities.

Eligibility. We may grant awards to employees, directors and consultants of our company or any of our related entities, which include our subsidiaries or any entities in which we hold a substantial ownership
interest.

Acceleration of Options upon Corporate Transactions. The outstanding options will terminate and accelerate upon
occurrence of a change-of-control corporate transaction where the successor entity does not assume our outstanding options under the Option Plan. In such event, each outstanding option will become fully vested and immediately exercisable, and the
transfer restrictions on the awards will be released and the repurchase or forfeiture rights will terminate immediately before the date of the change-of-control transaction provided that the grantees continuous service with us shall not be
terminated before that date.

Term of the Options. The term of each option grant shall be stated in the stock option agreement,
provided that the term shall not exceed 10 years from the date of the grant.

Vesting Schedule. In general, the plan administrator
determines, or the stock option agreement specifies, the vesting schedule.

Transfer Restrictions. Options to purchase our ordinary
shares may not be transferred in any manner by the optionee other than by will or the laws of succession and may be exercised during the lifetime of the optionee only by the optionee.

Termination of the Option Plan. Unless terminated earlier, the Option Plan will terminate automatically in 2013. Our board of directors has the
authority to amend or terminate the Option Plan subject to shareholder approval to the extent necessary to comply with applicable law. However, no such action may (i) impair the rights of any optionee unless agreed by the optionee and the
Option Plan administrator or (ii) affect the Option Plan administrators ability to exercise the powers granted to it under our Option Plan.



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2006 Share Incentive Plan.Our board of directors and shareholders adopted a 2006 share
incentive plan, or the 2006 plan. The number of shares which may be issued upon exercise of awards granted under our 2006 plan equals the number of shares reserved but not issued or issuable as part of outstanding options, stock purchase rights or
other awards granted under the Option Plan as of the date of completion of our initial public offering. After the completion of our initial public offering, such number of shares will be increased by that number of shares equal to 6% of our total
outstanding shares (excluding shares issued upon exercise of options or otherwise pursuant to any of our share incentive plans) from time to time. Except for the foregoing, the total number of shares which may be issued under our 2006 plan will not
be increased for a period of three years after the completion of our initial public offering. As of December 31, 2007, 2,429,601 shares may be issued upon exercise of awards granted under our 2006 plan.

Types of Awards. The types of awards we may grant under our 2006 plan include the following:



| |  |  | options to purchase our ordinary shares;
| | - |  | ----------------------------------------



| |  |  | restricted shares, which represent non-transferable ordinary shares, that may be subject to forfeiture;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | restricted share units, which represent the right to receive our ordinary shares at a specified date in the future, which may be subject to forfeiture;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | share appreciation rights, which provide for payment to the grantee based upon increases in the price of our ordinary shares over a set base price; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | dividend equivalent rights, which represent the value of the dividends per share that we pay.
| | - |  | ---------------------------------------------------------------------------------------------

Awards may be designated in the form of ADSs instead of ordinary shares. If we designate an award in the form of ADSs, the number of shares issuable
under the 2006 plan will be adjusted to reflect a ratio of one ADS to two ordinary shares.

Eligibility. We may grant awards to
employees, directors and consultants of our company or any of our related entities, which include our subsidiaries or any entities in which we hold a substantial ownership interest. However, we may grant options that are intended to qualify as
incentive stock options, or ISOs, only to our employees and employees of our majority-owned subsidiaries.

Plan Administration. The
compensation committee of our board of directors, or a committee designated by the compensation committee, will administer the 2006 plan. However, with respect to awards made to our independent directors and executive officers, the entire board of
directors will administer the 2006 plan. The compensation committee or the full board of directors, as appropriate, will determine the individuals who will receive grants, the types of awards to be granted and terms and conditions of each award
grant, including any vesting or forfeiture restrictions.

Award Agreement. Awards granted under our 2006 plan will be evidenced by
an award agreement that will set forth the terms, conditions and limitations for each award. In addition, in the case of options, the award agreement will also specify whether the option constitutes an ISO or a non-qualifying stock option.

Acceleration of Awards upon Corporate Transactions. The outstanding awards will accelerate upon occurrence of a change-of-control
corporate transaction where the successor entity does not assume our outstanding awards under the 2006 plan. In such event, each outstanding award will become fully vested and immediately exercisable, and the transfer restrictions on the awards will
be released and any forfeiture provisions will terminate immediately before the date of the change-of-control transaction. If the successor entity assumes our outstanding awards and later terminates the grantees service without cause within 12
months of the change-of-control transaction, the outstanding awards will automatically become fully vested and exercisable.

Exercise
Price and Term of Awards. In general, the plan administrator determines the exercise price of an award and sets forth the price in the award agreement. The exercise price may be fixed or variable price related to the fair market value of our
ordinary shares. However, ISOs may be granted to any individual if the fair market value of the shares underlying such ISOs that are exercisable in any calendar year exceeds US$100,000 or other limitations imposed by law. Also, if we grant an ISO to
an employee, who, at the time of that grant, owns shares representing more than 10% of the voting power of all classes of our share capital, the exercise price cannot be less than 110% of the fair market value of our ordinary shares on the date of
that grant.

The term of each award will be stated in the award agreement. The term of an award shall not exceed 10 years from the date of
the grant, except that five years is maximum term of an ISO granted to an employee who holds more than 10% of the voting power of our share capital.



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Amendment and Termination. Our board of directors may at any time amend, suspend or terminate the
2006 plan. Amendments to the 2006 plan are subject to shareholder approval to the extent required by law, or stock exchange rules or regulations. Additionally, shareholder approval will be specifically required to increase the number of shares
available for issuance under the 2006 plan or to extend the term of an option beyond ten years. Unless terminated earlier, the 2006 plan will expire and no further awards may be granted after the tenth anniversary of the shareholder approval of the
2006 plan.

The following table summarizes the options granted to our directors and executive officers and other individuals as a group as
of March 31, 2008, without giving effect to options that were exercised or terminated.



|                             |  |                |  |                           |  |              |  |                  
|---------------------------- |  | -------------- |  | ------------------------- |  | ------------ |  | -----------------
|Name                         |  | OptionsAwarded |  | Exercise Price(US$/Share) |  | Date ofGrant |  | Date ofExpiration
|Yunxin Mei                   |  | 150,000        |  | 2.72                      |  | 3/17/2006    |  | 3/16/2011        
|                             |  | 50,000         |  | 5.50                      |  | 10/2/2006    |  | 10/1/2011        
|                             |  | 30,000         |  | 17.395                    |  | 4/20/2007    |  | 4/19/2012        
|                             |  | 24,000         |  | 9.69                      |  | 3/27/2008    |  | 3/26/2013        
|Neil Nanpeng Shen            |  | 100,000        |  | 0.3309                    |  | 1/1/2005     |  | 12/31/2009       
|                             |  | 150,000        |  | 2.72                      |  | 3/17/2006    |  | 3/16/2011        
|                             |  | 50,000         |  | 5.50                      |  | 10/2/2006    |  | 10/1/2011        
|                             |  | 30,000         |  | 17.395                    |  | 4/20/2007    |  | 4/19/2012        
|                             |  | 24,000         |  | 9.69                      |  | 3/27/2008    |  | 3/26/2013        
|David Jian Sun               |  | 271,000        |  | 0.3309                    |  | 1/1/2005     |  | 12/31/2009       
|                             |  | 109,000        |  | 2.25                      |  | 12/1/2005    |  | 11/30/2010       
|                             |  | 70,000         |  | 2.72                      |  | 3/17/2006    |  | 3/16/2011        
|                             |  | 142,500        |  | 5.50                      |  | 10/2/2006    |  | 10/1/2011        
|                             |  | 120,000        |  | 17.395                    |  | 4/20/2007    |  | 4/19/2012        
|                             |  | 80,000         |  | 9.69                      |  | 3/27/2008    |  | 3/26/2013        
|May Wu                       |  | 300,000        |  | 1.53                      |  | 3/1/2006     |  | 2/28/2011        
|                             |  | 142,500        |  | 5.50                      |  | 10/2/2006    |  | 10/1/2011        
|                             |  | 104,000        |  | 17.395                    |  | 4/20/2007    |  | 4/19/2012        
|                             |  | 72,000         |  | 9.69                      |  | 3/27/2008    |  | 3/26/2013        
|Rixin Liang                  |  | 158,858        |  | 0.232                     |  | 3/1/2003     |  | 2/28/2008        
|                             |  | 105,844        |  | 0.3309                    |  | 3/1/2004     |  | 2/28/2009        
|                             |  | 75,298         |  | 2.25                      |  | 12/1/2005    |  | 11/30/2010       
|                             |  | 40,000         |  | 16.64                     |  | 12/26/2006   |  | 12/25/2011       
|                             |  | 70,000         |  | 17.395                    |  | 4/20/2007    |  | 4/19/2012        
|                             |  | 48,000         |  | 9.69                      |  | 3/27/2008    |  | 3/26/2013        
|James Jianzhang Liang        |  | 70,000         |  | 2.72                      |  | 3/17/2006    |  | 3/16/2011        
|                             |  | 16,000         |  | 17.395                    |  | 4/20/2007    |  | 4/19/2012        
|                             |  | 12,000         |  | 9.69                      |  | 3/27/2008    |  | 3/26/2013        
|Min Bao                      |  | 70,000         |  | 2.72                      |  | 3/17/2006    |  | 3/16/2011        
|                             |  | 16,000         |  | 17.395                    |  | 4/20/2007    |  | 4/19/2012        
|                             |  | 12,000         |  | 9.69                      |  | 3/27/2008    |  | 3/26/2013        
|Terry Yongmin Hu             |  | 70,000         |  | 3.202                     |  | 7/4/2006     |  | 7/3/2011         
|                             |  | 16,000         |  | 17.395                    |  | 4/20/2007    |  | 4/19/2012        
|                             |  | 12,000         |  | 9.69                      |  | 3/27/2008    |  | 3/26/2013        
|Kenneth Gaw                  |  | 70,000         |  | 3.202                     |  | 7/4/2006     |  | 7/3/2011         
|                             |  | 16,000         |  | 17.395                    |  | 4/20/2007    |  | 4/19/2012        
|                             |  | 12,000         |  | 9.69                      |  | 3/27/2008    |  | 3/26/2013        
|Jason Zong                   |  | 200,000        |  | 5.50                      |  | 10/2/2006    |  | 10/1/2011        
|                             |  | 50,000         |  | 17.395                    |  | 4/20/2007    |  | 4/19/2012        
|                             |  | 64,000         |  | 9.69                      |  | 3/27/2008    |  | 3/26/2013        
|Other individuals as a group |  | 4,131,965      |  |                           |  |              |  |                  

C. Board Practices

Our board of directors currently consists of seven directors. A director is not required to hold any shares in the company by way of qualification. A director may vote with respect to any contract, proposed contract
or arrangement in which he is materially interested. A director may exercise all the powers of the company to borrow money, mortgage its undertaking, property and uncalled capital, and issue debentures or other securities whenever money is borrowed
or as security for any obligation of the company or of any third party.

In 2007, our board held meetings or passed resolutions by
unanimous written consent four times.



51



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Committees of the Board of Directors

We have established two committees under the board of directors: the audit committee and the compensation committee. We currently do not plan to establish a nominating committee. The independent directors of our
company will select and recommend to the board for nomination by the board such candidates as the directors, in the exercise of their judgment, have found to be well qualified and willing and available to serve as our directors prior to each annual
meeting of our shareholders at which meeting directors are to be elected or re-elected. In addition, our board of directors has resolved that director nomination be approved by a majority of the board as well as a majority of the independent
directors of the board. In compliance with Rule 4350 of the Nasdaq Stock Market, Marketplace Rules, a majority of the members of each of our board committees will be independent directors during the one-year transition period after our ADSs are
listed on the Nasdaq Global Market and all of the committee members will be independent directors thereafter. We have adopted a charter for each of the board committees. Each committees members and functions are described below.

Audit Committee. Our audit committee consists of Messrs. James Jianzhang Liang, Kenneth Gaw and Terry Yongmin Hu. We have determined that all the
members of our audit committee satisfy the independence requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as amended, and Rule 4350 of Nasdaq Stock Market, Marketplace Rules and all the members of our audit committee
are financial experts as defined under Rule 4350 of Nasdaq Stock Market, Marketplace Rules. The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company. The
audit committee will be responsible for, among other things:



| |  |  | selecting the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | reviewing with the independent auditors any audit problems or difficulties and managements response;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | discussing the annual audited financial statements with management and the independent auditors;
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | reviewing major issues as to the adequacy of our internal control; and
| | - |  | ----------------------------------------------------------------------



| |  |  | meeting separately and periodically with management and the independent auditors.
| | - |  | ---------------------------------------------------------------------------------

In 2007, our audit committee held meetings or passed resolutions by unanimous written consent five times.

Compensation Committee.Our compensation committee consists of Messrs. Neil Nanpeng Shen, Kenneth Gaw and Terry Yongmin Hu. We have determined
that all the members of our compensation committee satisfy the independence requirements of Rule 4350 of Nasdaq Stock Market, Marketplace Rules. The compensation committee assists the board in reviewing and approving the compensation
structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee will
be responsible for, among other things:



| |  |  | reviewing and approving the total compensation package for our three most senior executives;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | reviewing and recommending to the board with respect to the compensation of our directors; and
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | reviewing periodically and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and
welfare benefit plans.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In 2007, our compensation committee held meetings or passed resolutions by unanimous written
consent four times.

Duties of Directors

Under Cayman Islands law, our directors have a duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a
reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association.

Terms of Directors and Officers

Our officers are
elected by and serve at the discretion of the board of directors. Our directors are not subject to a term of office and hold office until such time as they are removed from office by special resolution or the unanimous written resolution of all
shareholders. A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; or (ii) dies or is found by our company to be or
becomes of unsound mind.



52



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##### Table of Contents

D. Employees

Excluding employees of our franchised-and-managed hotels, we had 2,352, 4,593 and 8,309 employees as of December 31, 2005, 2006 and 2007, respectively. As of December 31, 2007, our employees consisted of 7,649 hotel-based
employees, 96 reservation agents at our centralized reservation center, and 564 corporate staff. None of our employees is represented by a labor union. We consider our relations with our employees to be good.

E. Share Ownership

The following table sets forth
information with respect to the beneficial ownership of our ordinary shares as of March 31, 2008 by:



| |  |  | each of our directors and executive officers; and
| | - |  | -------------------------------------------------



| |  |  | each person known to us to own beneficially more than 5% of our ordinary shares.
| | - |  | --------------------------------------------------------------------------------



|                                                    |  |                           |  |     
|--------------------------------------------------- |  | ------------------------- |  | ----
|                                                    |  | Shares Beneficially Owned
|                                                    |  | Number(1)                 |  | %(2)
|Directors and Executive Officers:                   |  |                           |  |     
|Neil Nanpeng Shen(3)                                |  | 4,825,389                 |  | 6.8 
|James Jianzhang Liang(4)                            |  | 3,954,750                 |  | 5.6 
|Rixin Liang(5)                                      |  | 698,543                   |  | *   
|David Jian Sun(6)                                   |  | 622,181                   |  | *   
|May Wu(7)                                           |  | 336,396                   |  | *   
|Yunxin Mei(8)                                       |  | 104,125                   |  | *   
|Min Bao(9)                                          |  | 41,100                    |  | *   
|Kenneth Gaw(10)                                     |  | 21,500                    |  | *   
|Terry Yongmin Hu(11)                                |  | 21,500                    |  | *   
|Jason Zong(12)                                      |  | 62,500                    |  | *   
|All Directors and Executive Officers as a Group(13) |  | 10,687,484                |  | 15.0
|                                                    |  |                          
|Principal Shareholders:                             |  |                           |  |     
|Poly Victory Investments Limited(14)                |  | 13,805,809                |  | 19.4
|FMR LLC(15)                                         |  | 4,586,728                 |  | 6.5 
|Maverick Capital, Ltd.(16)                          |  | 5,500,456                 |  | 7.7 
|Chung Lau(17)                                       |  | 3,915,750                 |  | 5.5 



|* | Less than 1%.
|- | -------------

|(1) | Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment owner with respect to the securities.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | For each person and group included in this table, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of
71,026,899, being the number of ordinary shares outstanding as of March 31, 2008, and the number of ordinary shares underlying share options held by such person or group that are exercisable within 60 days after March 31, 2008.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Includes 3,955,389 ordinary shares and 350,000 ADSs representing 700,000 ordinary shares held by Max Wealth Enterprise Limited, a British Virgin Islands company solely owned and
controlled Mr. Shen, and 170,000 ordinary shares issuable upon exercise of options held by Mr. Shen that are exercisable within 60 days after March 31, 2008. The business address of Mr. Shen is Suite 2215, Two Pacific Place, 88
Queensway Road, Hong Kong.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Includes 3,915,750 ordinary shares held by Chung Lau, Mr. Liangs wife, and 39,000 ordinary shares issuable upon exercise of options held by Mr. Liang that are
exercisable within 60 days after March 31, 2008. Mr. Liang disclaims the beneficial ownership of all the shares held by his wife. The business address of Mr. Liang is Lane No. 421, Chang Ping Road, Jing An District, Shanghai 200041,
Peoples Republic of China.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Includes 632,894 ordinary shares and 37,649 restricted shares held by Ms. Liang as well as 27,500 ordinary shares issuable upon exercise of options held by Ms. Liang that are
exercisable within 60 days after March 31, 2008. The business address of Ms. Liang is Lane No. 421, Chang Ping Road, Jing An District, Shanghai 200041, Peoples Republic of China.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Includes 339,306 ordinary shares and 122,250 restricted shares held by Peace Unity Investments Limited, a company solely owned and controlled by Mr. Sun, as well as 100,625
ordinary shares issuable upon exercise of options held by Mr. Sun that are exercisable within 60 days after March 31, 2008. The business address of Mr. Sun is Lane No. 421, Chang Ping Road, Jing An District, Shanghai 200041, Peoples
Republic of China.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Includes 49,771 ordinary shares and 135,000 restricted shares held by Ms. Wu, 75,000 ordinary shares and 15,000 restricted shares held by Ms. Wus mother, Ruiwen Jin, as well
as 61,625 ordinary shares issuable upon exercise of options held by Ms. Wu that are exercisable within 60 days after March 31, 2008. The business address of Ms. Wu is Lane No. 421, Chang Ping Road, Jing An District, Shanghai 200041,
Peoples Republic of China.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(8) | Includes 31,000 ordinary shares held by Mr. Mei and 73,125 ordinary shares issuable upon exercise of options held by Mr. Mei that are exercisable within 60 days after March 31,
2008. The business address of Mr. Mei is No.10 Yabao Road, Chaoyang District, Beijing 100020, Peoples Republic of China.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Includes 10,850 ordinary shares held by Mr. Bao and 30,250 ordinary shares issuable upon exercise of options held by Mr. Bao that are exercisable within 60 days after March 31,
2008. The business address of Mr. Bao is Novotel Peace Hotel, No.3 Jinyu Hutong, Wangfujing, Beijing 100006, Peoples Republic of China.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | Includes 21,500 ordinary shares issuable upon exercise of options held by Mr. Gaw that are exercisable within 60 days after March 31, 2008. The business address of Mr. Gaw is Suite
1808-11, 18/F Great Eagle Centre, 23 Harbour Road, Wanchai, Hong Kong.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | Includes 21,500 ordinary shares issuable upon exercise of options held by Mr. Hu that are exercisable within 60 days after March 31, 2008. The business address of Mr. Hu is
Suite 906 ICBC Tower, 3 Garden Road, Central, Hong Kong.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) | Includes 62,500 ordinary shares issuable upon exercise of options held by Mr. Zong that are exercisable within 60 days after March 31, 2008. The business address of Mr. Zong is Lane
No. 421, Chang Ping Road, Jing An District, Shanghai 200041.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) | Includes ordinary shares, restricted shares and ordinary shares issuable upon exercise of all of the options that are exercisable within 60 days after March 31, 2008 held by all of
our directors and senior executive officers as a group.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) | Includes 13,364,141 ordinary shares and 220,834 ADSs representing 441,668 ordinary shares. Poly Victory Investments Limited, a company incorporated in the British Virgin Islands, is
beneficially owned by Beijing Tourism Group (HK) Holdings Co. Ltd., which in turn is wholly owned by BTG. BTG is a state-owned enterprise in China. Poly Victory Investment Limiteds registered office is at Palm Grove House, P.O. Box 432, Road
Town, Tortola, British Virgin Islands.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(15) | Based on the Schedule 13G filed with the U.S. Securities and Exchange Commission on February 14, 2008.
|---- | ------------------------------------------------------------------------------------------------------

|(16) | Based on the Schedule 13G filed with the U.S. Securities and Exchange Commission on February 14, 2008.
|---- | ------------------------------------------------------------------------------------------------------

|(17) | Includes 3,915,750 ordinary shares held by Ms. Lau. Ms. Lau is the wife of our director, James Jianzhang Liang. The address of Ms. Lau is c/o James Jianzhang Liang,
3F, Building 63-64, No. 421, Hong Cao Road, Shanghai, Peoples Republic of China.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

None of our existing
shareholders have different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.



|ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|------- | -------------------------------------------------

A. Major
Shareholders

Please refer to Item 6. Directors, Senior Management and Employees  E. Share Ownership.

B. Related Party Transactions

Private Placements

In February 2003, Home Inns Hong Kong sold 86,207 shares of Series A convertible preferred shares in a private placement at a price of US$46.40 per
share. The investors in the Series A preferred share private placement consisted of AsiaStar IT Fund L.P., which purchased 53,879 shares, and IDG Technology Venture Investments, L.P., which purchased 32,328 shares. In April 2003, Home Inns Hong
Kongs shareholders and board of directors authorized a 1:200 subdivision of its outstanding shares. Upon the effecting of the subdivision, AsiaStar IT Fund L.P. held 10,775,800 Series A preferred shares and IDG Technology Venture Investments,
L.P. held 6,465,600 Series A preferred shares. Each of the purchasers of the Series A preferred shares was an unrelated third party prior to the issuance and sale of the Series A preferred shares. The value of the Series A preferred shares was
determined based on arms-length negotiations between Home Inns Hong Kong and the purchasers and approved by Home Inns Hong Kongs board of directors. Each Series A preferred share automatically converted into one ordinary share upon the
closing of our initial public offering.

In November 2003, Home Inns Hong Kong sold 2,417,605 shares of Series B convertible preferred
shares in a private placement at a price of US$0.3309 per share. The investors in the Series B preferred share private placement consisted of AsiaStar IT Fund L.P., which purchased 1,511,028 shares, and IDG Technology Venture Investments, L.P.,
which purchased 906,617 shares. Each Series B preferred share automatically converted into one ordinary share upon the closing of our initial public offering.

In May 2004, Home Inns Hong Kong sold 13,219,140 ordinary shares in a private placement at a price of HK$1.57 per share to Poly Victory. In addition, Poly Victory transferred a 12.45% interest in Home Inns Beijing to
Home Inns Hong Kong. Poly Victory is a wholly owned subsidiary of BTG. This transaction was approved by Home Inns Hong Kongs board of directors and shareholders.

In September 2004, Home Inns Hong Kong sold 3,035,000 ordinary shares in a private placement at a price of US$0.3425 per share to Top Sterling International Limited, which was then owned by four individuals, including
two directors and the spouse of one other director of our company at that time. This transaction was approved by Home Inns Hong Kongs board of directors and shareholders. In May 2006, Top Sterling International Limited dissolved and
distributed to its shareholders on a pro rata basis its shares of Home Inns Hong Kong.

In September 2004, Home Inns Hong Kong issued an
additional 145,000 ordinary shares to Poly Victory Investments Limited at par value. This transaction was approved by Home Inns Hong Kongs board of directors and shareholders.



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In January 2005, Home Inns Hong Kong sold 3,265,841 shares of Series C convertible preferred shares in a
private placement at a price of US$1.531 per share. The investors in the Series C preferred share private placement consisted of Susquehanna China Investment HI, which purchased 2,873,940 shares; Kangaroo Investments LLC, which purchased 130,633
shares; Fortune Hero Limited, which purchased 65,317 shares; Soon Yan Seen, who purchased 65,317 shares; Hiroko Nishikawa, who purchased 65,317 shares; and Beihai Capital Limited, which purchased 65,317 shares. Each of the purchasers of the Series C
preferred shares was an unrelated third party prior to the issuance and sale of the Series C preferred shares. The value of the Series C preferred shares was determined based on arms-length negotiations between Home Inns Hong Kong and the
purchasers and approved by Home Inns Hong Kongs shareholders and board of directors. Each Series C preferred share automatically converted into one ordinary share upon the closing of our initial public offering.

In June 2006, all of the then-existing shareholders of Home Inns Hong Kong exchanged their respective shares of Home Inns Hong Kong for an equivalent
number of shares of Home Inns & Hotels Management Inc. of equivalent classes. As a result, Home Inns Hong Kong has become our wholly owned subsidiary.

In July 2006, we sold 2,834,037 ordinary shares in a private placement at a price of US$2.77 per share. The purchasers consisted of the following individuals: Neil Nanpeng Shen, one of our directors, who purchased
1,444,095 shares; Chung Lau, the spouse of one of our directors, James Jianzhang Liang, who purchased 722,048 shares; Min Fan, who purchased 361,024 shares; David Jian Sun, our chief executive officer, who purchased 111,556 shares; May Wu, our chief
financial officer, who purchased 144,771 shares; and Rixin Liang, our then chief operating officer and current chief branding officer, who purchased 50,543 shares. The sale was approved by our board of directors and shareholders.

In conjunction with the transaction above, the purchasers and Qi Ji entered into an acting-in-concert agreement in July 2006, whereby they have agreed to
act together on all matters requiring shareholder approval and to appoint one representative to vote on behalf of all of them at our shareholder meetings. These shareholders currently hold a total of 10,038,009 ordinary shares, or 14.1% of our
outstanding voting securities. This agreement expired in July 2007.

Shareholders Agreement

In connection with our reorganization in June 2006, we and our existing shareholders entered into a shareholders agreement, which incorporates the
principal terms of the previous shareholders agreements between Home Inns Hong Kong and our shareholders. Under this agreement, our preferred shareholders are entitled to certain registration rights, including demand registration and Form F-3 or
Form S-3 registration.

Transactions with BTG

BTG is the parent company of Beijing Capital Travel, which was a minority equity interest holder of Home Inns Beijing. It is also the parent company of Poly Victory, which is one of our principal shareholders. In addition to the
transactions with BTG involving shares of Home Inns Hong Kong and Hong Inns Beijing as described above under Private Placements, we have entered into the following transactions with BTG during the past three years.

Financing Transactions with BTG.In June 2005, Home Inns Hong Kong, Home Inns Beijing and BTG entered into a financing transaction
agreement whereby BTG agreed to provide up to RMB 80 million (US$10 million) financing to Home Inns Beijing in the form of loans through a third-party commercial bank to facilitate the anticipated rapid expansion of the Home Inns hotel chain
throughout China. We repayed all the indebtedness to BTG in the first quarter of 2007.

Rental Payments to Jian Guo Inns.
Jian Guo Inns Beijing Ltd., or Jian Guo Inns, is a subsidiary of BTG. Jian Guo Inns was the lessor of four leased-and-operated Home Inns hotels in 2003. Since 2004, Jian Guo Inns has been the lessor of three leased-and-operated Home Inns hotels. In
2005, 2006 and 2007, we paid RMB 3.5 million, RMB 3.5 million and RMB 2.8 million (US$ 0.38 million), respectively, to Jian Guo Inns as rental payments.

Transactions with Ctrip

Two of Ctrips directors, Neil Nanpeng Shen and James Jianzhang Liang,
are also our directors. In addition, one of Ctrips directors, Qi Ji, was our director and chief executive officer from 2002 to January 2005, and another of Ctrips directors, Suyang Zhang, was our director from 2001 to 2006. Some of our
customers book our hotel rooms through Ctrip and we pay sales commissions to Ctrip for such bookings. In 2005, 2006 and 2007, we paid RMB 2.4 million, RMB 6.0 million and RMB 8.9 million (US$ 1.2 million), respectively, to Ctrip as
sales commissions.

Employment Agreements

See Item 6. Directors, Senior Management and Employee  A. Directors and Senior Management for a description of the employment agreements we have entered into with our senior executive officers.



55



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##### Table of Contents

Share Incentives

See Item 6. Directors, Senior Management and Employee  B. Compensation of Directors and Executive Officers for a description of share options and stock purchase rights we have granted to our
directors, officers and other individuals as a group.

C. Interests of Experts and Counsel

Not applicable.



|ITEM 8. | FINANCIAL INFORMATION
|------- | ---------------------

A. Consolidated Statements and Other
Financial Information

We have appended consolidated financial statements filed as part of this annual report.

Legal and Administrative Proceedings

We are subject
to legal proceedings, investigations and claims incidental to the conduct of our business from time to time. We are not currently a party to, nor are we aware of, any legal proceeding, investigation or claim which, in the opinion of our management,
is likely to have a material adverse effect on our business, financial condition or results of operations.

Dividend Policy

We have no present plan to declare and pay any dividends on our shares or ADSs in the near future. We currently intend to retain most, if not all, of our
available funds and any future earnings to operate and expand our business.

We are a holding company incorporated in the Cayman Islands.
We rely on dividends from our subsidiaries in China. Current PRC regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In
addition, each of our subsidiaries in China is required to set aside a certain amount of its accumulated after-tax profits each year, if any, to fund certain statutory reserves. These reserves may not be distributed as cash dividends. Further, if
our subsidiaries in China incur debt on their own behalf, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us.

Our board of directors has complete discretion as to whether to distribute dividends, subject to the approval of our shareholders. Even if our board of directors decides to pay dividends, the form, frequency and
amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends, we will pay
our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder.

B. Significant Changes

Except as disclosed elsewhere in this annual report, we have not experienced
any significant changes since the date of our audited consolidated financial statements included in this annual report.



|ITEM 9. | THE OFFER AND LISTING
|------- | ---------------------

A. Offering and Listing Details

Market Price Information for our American Depositary Shares

Our ADSs, each representing two of our ordinary shares, have been listed on the Nasdaq Global Market since October 26, 2006. Our ADSs trade under the
symbol HMIN. For the period from October 26, 2006 to April 17, 2008 the trading price of our ADSs on the Nasdaq Global Market has ranged from US$17.79 to US$50.08 per ADS. The following table provides the high and low trading
prices for our ADSs on the Nasdaq Global Market for each of the months since our initial public offering.



56



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##### Table of Contents

|                                             |  |               |  |      
|-------------------------------------------- |  | ------------- |  | -----
|                                             |  | Trading Price
|                                             |  | High          |  | Low  
|                                             |  | US$           |  | US$  
|Monthly Highs and Lows 2006(from October 26) |  |               |  |      
|October (from October 26)                    |  | 26.77         |  | 21.50
|November                                     |  | 34.80         |  | 23.65
|December                                     |  | 39.02         |  | 30.11
|2007                                         |  |               |  |      
|January                                      |  | 47.49         |  | 36.05
|February                                     |  | 49.50         |  | 39.20
|March                                        |  | 40.79         |  | 33.74
|April                                        |  | 37.39         |  | 30.83
|May                                          |  | 36.50         |  | 28.80
|June                                         |  | 34.30         |  | 28.26
|July                                         |  | 36.96         |  | 27.17
|August                                       |  | 30.76         |  | 24.00
|September                                    |  | 36.38         |  | 28.40
|October                                      |  | 50.08         |  | 33.72
|November                                     |  | 43.44         |  | 30.63
|December                                     |  | 40.00         |  | 34.26
|2008                                         |  |               |  |      
|January                                      |  | 36.00         |  | 24.30
|February                                     |  | 31.16         |  | 26.05
|March                                        |  | 28.50         |  | 17.79
|April (through April 17)                     |  | 23.56         |  | 19.63

B. Plan of Distribution

Not applicable.

C. Markets

Not applicable.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.



|ITEM 10. | ADDITIONAL INFORMATION
|-------- | ----------------------

A. Share Capital

Not applicable.



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##### Table of Contents

B. Memorandum and Articles of Association

We incorporate by reference into this annual report our amended and restated memorandum and articles of association filed as Exhibit 3.2 to our F-1
registration statement (File No. 333-137800), as amended, initially filed with the Securities and Exchange Commission on October 4, 2006.

C.
Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other than
those described in Item 4. Information on the Company or elsewhere in this annual report on Form 20-F.

D. Exchange Controls

See Item 4. Information on the Company  Business Overview  Regulation  Regulations on Foreign Currency
Exchange.

E. Taxation

The
following summary of the material Cayman Islands and United States federal income tax consequences of an investment in our ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this annual
report, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the tax consequences under state, local and other tax laws.

Cayman Islands Taxation

The Cayman Islands currently
levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the Government
of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties. There are no exchange control
regulations or currency restrictions in the Cayman Islands.

Peoples Republic of China Taxation

Under the former Income Tax Law for Enterprises with Foreign Investment and Foreign Enterprises, any dividends payable by foreign-invested enterprises to
non-PRC investors were exempt from any PRC withholding tax. In addition, any dividends payable, or distributions made, by us to holders or beneficial owners of our ADSs would not have been subject to any PRC tax, provided that such holders or
beneficial owners, including individuals and enterprises, were not deemed to be PRC residents under the PRC tax law and had not become subject to PRC tax.

Under the new EIT Law which became effective on January 1, 2008, enterprises established outside of China but whose de facto management body is located in China are considered resident
enterprises for PRC tax purposes. Under the implementation regulations issued by the State Council relating to the new EIT Law, de facto management bodies is defined as the bodies that have material and overall management control
over the business, personnel, accounts and properties of an enterprise. Substantially all of our management is currently based in China, and may remain in China in the future. If we are treated as a resident enterprise for PRC tax
purposes, we will be subject to PRC income tax on our worldwide income at a uniform tax rate of 25%. In addition, the new EIT Law provides that dividend income between qualified resident enterprises is exempted from income tax.

Moreover, the EIT Law provides that an income tax rate of 10% is normally applicable to dividends payable to non-PRC investors who are
non-resident enterprises, to the extent such dividends are derived from sources within China. We are a Cayman Islands holding company and substantially all of our income is derived from sources within China. Thus, dividends paid to us by
our subsidiaries in China may be subject to the 10% income tax if we are considered as a non-resident enterprise under the new EIT Law.

Under the existing implementation regulations of the new EIT Law, foreign ADS holders may be subject to a 10% withholding tax upon dividends payable by us and gains realized on their sales or other dispositions of our ADSs or ordinary
shares, if such income is sources from within China. Although Home Inns & Hotels Management Inc. is incorporated in the Cayman Islands, it remains unclear whether the gains our foreign ADS holders may realize will be regarded as income from
sources within the PRC if we are classified as a PRC resident enterprise. In addition, it is possible that these rules may change in the future, possibly with retroactive effect.

United States Federal Income Taxation

The following discussion describes the material U.S. federal
income tax consequences to U.S. Holders (defined below) under present law of an investment in the ADSs or ordinary shares. This summary applies only to investors that hold the ADSs or ordinary



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shares as capital assets and that have the U.S. dollar as their functional currency. This discussion is based on the tax laws of the United States as in
effect on the date of this annual report and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report, as well as judicial and administrative interpretations thereof available on or before such date.
All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below.

The following discussion does not deal with the tax consequences to any particular investor or to persons in special tax situations such as:



| |  |  | banks;
| | - |  | ------



| |  |  | certain financial institutions;
| | - |  | -------------------------------



| |  |  | regulated investment companies;
| | - |  | -------------------------------



| |  |  | real estate investment trusts;
| | - |  | ------------------------------



| |  |  | insurance companies;
| | - |  | --------------------



| |  |  | broker dealers;
| | - |  | ---------------



| |  |  | U.S. expatriates;
| | - |  | -----------------



| |  |  | traders that elect to mark to market;
| | - |  | -------------------------------------



| |  |  | tax-exempt entities;
| | - |  | --------------------



| |  |  | persons liable for alternative minimum tax;
| | - |  | -------------------------------------------



| |  |  | persons holding an ADS or ordinary share as part of a straddle, hedging, constructive sale, conversion or integrated transaction;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | persons that actually or constructively own 10.0% or more of our voting stock;
| | - |  | ------------------------------------------------------------------------------



| |  |  | persons who acquired ADSs or ordinary shares pursuant to the exercise of any employee share option or otherwise as compensation; or
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | persons holding ADSs or ordinary shares through partnerships or other pass-through entities for U.S. federal income tax purposes.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------

U.S. HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS ABOUT THE APPLICATION OF THE U.S. FEDERAL TAX RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE STATE AND
LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF ADSs OR ORDINARY SHARES.

The discussion below
of the U.S. federal income tax consequences to U.S. Holders will apply if you are a beneficial owner of ADSs or ordinary shares and you are, for U.S. federal income tax purposes,



| |  |  | an individual who is a citizen or resident of the United States;
| | - |  | ----------------------------------------------------------------



| |  |  | a corporation (or other entity taxable as a corporation) organized under the laws of the United States, any State or the District of Columbia;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | an estate whose income is subject to U.S. federal income taxation regardless of its source; or
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | a trust that (1) is subject to the supervision of a court within the United States and the control of one or more U.S. persons or (2) has a valid election
in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

If you are a partner in partnership
or other entity taxable as a partnership that holds ADSs or ordinary shares, your tax treatment generally will depend on your status and the activities of the partnership.

The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in the deposit agreement and
any related agreement will be complied with in accordance with their terms. If you hold ADSs, you should be treated as the holder of the underlying ordinary shares represented by those ADSs for U.S. federal income tax purposes. Accordingly, deposits
or withdrawals of ordinary shares for ADSs will not be subject to U.S. federal income tax.

The U.S. Treasury has expressed concerns that
parties to whom ADSs are pre-released may be taking actions that are inconsistent with the claiming, by U.S. Holders of ADSs, of foreign tax credits for U.S. federal income tax purposes. Such actions would also be inconsistent with the claiming of
the reduced rate of tax applicable to dividends received by certain non-corporate U.S. Holders, as described below. Accordingly, the availability of the reduced tax rate for dividends received by certain non-corporate U.S. Holders could be affected
by future actions that may be taken by the U.S. Treasury or parties to whom ADSs are pre-released.



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Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares

Subject to the passive foreign investment company rules discussed below, the gross amount of all our distributions to you with respect to the ADSs or
ordinary shares generally will be included in your gross income as ordinary dividend income on the date of actual or constructive receipt by the depositary, in the case of ADSs, or by you, in the case of ordinary shares, but only to the extent that
the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits, it
will be treated first as a tax-free return of your tax basis in your ADSs or ordinary shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. As we do not maintain records of
earnings and profits in accordance with U.S. Federal income tax principles, U.S. Holders should expect that the full amount of any distribution will be reported as dividend. The dividends will not be eligible for the dividends-received deduction
allowed to corporations in respect of dividends received from other U.S. corporations.

With respect to non-corporate U.S. Holders
including individual U.S. Holders, for taxable years beginning before January 1, 2011, dividends may constitute qualified dividend income that is taxed at the lower applicable capital gains rate provided that (1) the ADSs or
ordinary shares, as applicable, are readily tradable on an established securities market in the United States, (2) we are not a passive foreign investment company (as discussed below) for either our taxable year in which the dividend was paid
or the preceding taxable year, and (3) certain holding period requirements are met. Under Internal Revenue Service authority, ordinary shares, or ADSs representing such shares, are considered for the purpose of clause (1) above to be
readily tradable on an established securities market in the United States if they are listed on the Nasdaq Global Market, as our ADSs are (but not our ordinary shares). Thus, we do not believe that dividends that we pay on our ordinary shares that
are not backed by ADSs currently meet the conditions required for these reduced tax rates. There can be no assurance that our ADSs will be considered readily tradable on an established securities market in later years. You should consult your tax
advisors regarding the availability of the lower rate for dividends paid with respect to our ADSs or ordinary shares.

Dividends will
constitute foreign source income for foreign tax credit limitation purposes. If the dividends are qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit
limitation generally will be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated
separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to the ADSs or ordinary shares generally will constitute passive category income or, in the case of certain U.S. Holders,
constitute general category income. Subject to certain conditions and limitations, any PRC withholding taxes on dividends may be treated as foreign taxes eligible for credit against your U.S. federal income tax liability. U.S. Holders
should consult their tax advisors regarding the creditability of any PRC tax.

Taxation of Disposition of ADSs or Ordinary Shares

Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale,
exchange or other taxable disposition of an ADS or ordinary share equal to the difference between the amount realized for the ADS or ordinary share and your tax basis in the ADS or ordinary share. The gain or loss generally will be capital gain or
loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the ADS or ordinary share for more than one year, you will be eligible for reduced tax rates. The deductibility of capital losses is subject to
limitations. Any such gain or loss that you recognize generally will be treated as U.S. source income or loss for foreign tax credit limitation purposes. However, in the event we are deemed to be a Chinese resident enterprise under PRC tax law, we
may be eligible for the benefits of the income tax treaty between the United States and the PRC. In such event, if PRC tax were to be imposed on any gain from the disposition of the ADSs or ordinary shares, a U.S. Holder that is eligible for the
benefits of the income tax treaty between the United States and the PRC may elect to treat such gain as PRC source income. U.S. Holders should consult their tax advisors regarding the creditability of any PRC tax.

Passive Foreign Investment Company

Based on the price of our ADSs and ordinary shares and the composition of our income and assets, we believe that we were not a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for our taxable year ending
December 31, 2007, and we expect to separate in such a manner so as not to become a PFIC in the future, However, we must make a separate determination each year as to whether we are a PFIC (after the close of each taxable year). Accordingly, we
cannot assure you that we will not be a PFIC for our current taxable year ending December 31, 2008 or any future taxable year. A non-U.S. corporation is considered to be a PFIC for any taxable year if either:



| |  |  | at least 75% of its gross income is passive income (the income test), or
| | - |  | --------------------------------------------------------------------------



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| |  |  | 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 asset test).
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We will be treated as owning our
proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the stock.

We must make a separate determination each year as to whether we are a PFIC. As a result, our PFIC status may change. In particular, because the total
value of our assets for purposes of the asset test generally will be calculated using the market price of our ADSs and ordinary shares, our PFIC status will depend in large part on the market price of our ADSs and ordinary shares, which may
fluctuate considerably. Accordingly, fluctuations in the market price of the ADSs and ordinary shares may result in our being a PFIC for any year. In addition, the composition of an income or assets will be affected by how, and how quickly, we spend
the cash we raise in any equity offering. If we are a PFIC for any year during which you hold ADSs or ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which you hold ADSs or ordinary shares.
However, if we cease to be a PFIC, you may avoid some of the adverse effects of the PFIC regime by making a deemed sale election with respect to the ADSs or ordinary shares, as applicable. If we are a PFIC for any taxable year and any of our foreign
subsidiaries is also a PFIC, a U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. You are urged to consult your tax advisors about the
application of the PFIC rules to any of our subsidiaries.

If we are a PFIC for any taxable year during which you hold ADSs or ordinary
shares, you will be subject to special tax rules with respect to any excess distribution that you receive and any gain you realize from a sale or other disposition (including a pledge) of the ADSs or ordinary shares, unless you make a
mark-to-market election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding
period for the ADSs or ordinary shares will be treated as an excess distribution. Under these special tax rules:



| |  |  | the excess distribution or gain will be allocated ratably over your holding period for the ADSs or ordinary shares,
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we became a PFIC, will be treated as ordinary
income, and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to
underpayments of tax will be imposed on the resulting tax attributable to each such year.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The tax liability for amounts
allocated to years prior to the year of disposition or excess distribution cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the ADSs or ordinary shares cannot be treated as
capital, even if you hold the ADSs or ordinary shares as capital assets.

If a company that is a PFIC provides certain information to U.S.
Holders, a U.S. Holder can then avoid certain adverse tax consequences described above by making a qualified electing fund election to be taxed currently on its proportionate share of the PFICs ordinary income and net capital
gains. However, we do not intend to prepare or provide the information that would enable you to make a qualified electing fund election.

Alternatively, a U.S. Holder of marketable stock (as defined below) in a PFIC may make a mark-to-market election with respect to such stock to elect out of the tax treatment discussed above. If you make a valid mark-to-market
election for the ADSs or ordinary shares, you will include in income each year an amount equal to the excess, if any, of the fair market value of the ADSs or ordinary shares as of the close of your taxable year over your adjusted basis in such ADSs
or ordinary shares. You are allowed a deduction for the excess, if any, of the adjusted basis of the ADSs or ordinary shares over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of
any net mark-to-market gains on the ADSs or ordinary shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ADSs or
ordinary shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the ADSs or ordinary shares, as well as to any loss realized on the actual sale or disposition of the ADSs
or ordinary shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such ADSs or ordinary shares. Your basis in the ADSs or ordinary shares will be adjusted to reflect any such income
or loss amounts. If you make such an election, the tax rules that apply to distributions by corporations that are not PFICs would apply to distributions by us, except that the lower applicable capital gains rate discussed above under
Taxation of Dividends and Other Distributions on the ADSs and Ordinary Shares would not apply.



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The mark-to-market election is available only for marketable stock, which is stock that is
traded in other than de minimis quantities on at least 15 days during each calendar quarter (regularly traded) on a qualified exchange or other market, as defined in applicable U.S. Treasury regulations. The Nasdaq Global Market is a
qualified exchange and, consequently, provided that the ADSs continue to be listed on the Nasdaq Global Market and are regularly traded, if you are a holder of ADSs, the mark-to-market election would be available to you were we to be a PFIC.

If you hold ADSs or ordinary shares in any year in which we are a PFIC, you will be required to file Internal Revenue Service Form 8621
regarding distributions received on the ADSs or ordinary shares and any gain realized on the disposition of the ADSs or ordinary shares.

You are urged to consult your tax advisor regarding the application of the PFIC rules to your investment in ADSs or ordinary shares.

Information Reporting and Backup Withholding

Dividend payments with respect to ADSs or ordinary shares and proceeds
from the sale, exchange or redemption of ADSs or ordinary shares may be subject to information reporting to the Internal Revenue Service and possible U.S. backup withholding at a current rate of 28%. Backup withholding will not apply, however, to a
U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide
such certification on Internal Revenue Service Form W-9. U.S. Holders should consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and
you may obtain a refund of any excess amounts withheld under the backup withholding rules by timely filing the appropriate claim for refund with the Internal Revenue Service and furnishing any required information.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not
applicable.

H. Documents on Display

We have filed with the SEC registration statements on Form F-1, including relevant exhibits and securities under the Securities Act with respect to underlying ordinary shares represented by the ADSs.

We are subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F no later than six months after the close of each fiscal year, which is December 31. Copies of
reports and other information, when so filed, may be inspected without charge and may be obtained at prescribed rates at the public reference facilities maintained by the Securities and Exchange Commission at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. The public may obtain information regarding the Washington, D.C. Public Reference Room by calling the Commission at 1-800-SEC-0330. The SEC also maintains a web site at www.sec.gov that contains reports, proxy and
information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules under the Exchange Act prescribing the furnishing and
content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

We will furnish The Bank of New York, the depositary of our ADSs, with our annual reports, which will include a review of operations and annual audited
consolidated financial statements prepared in conformity with U.S. GAAP, and all notices of shareholders meetings and other reports and communications that are made generally available to our shareholders. The depositary will make such
notices, reports and communications available to holders of ADSs and, upon our request, will mail to all record holders of ADSs the information contained in any notice of a shareholders meeting received by the depositary from us.



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I. Subsidiary Information

For a listing of our subsidiaries, see Item 4. Information on the Company  C. Organizational Structure.



|ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

Interest Rate Risk

Our exposure to interest rate risk primarily relates to the interest rates for our outstanding
debt and the interest income generated by excess cash invested in liquid investments with original maturities of three months or less. As of December 31, 2007, our total outstanding loans amounted to RMB 287 million (US$ 39.3 million) with
interest rates varying from 6.48% to 6.84%. We have not used any derivative financial instruments to manage our interest risk exposure. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed to material risks due
to changes in interest rates. However, our future interest income may be lower than expected due to changes in market interest rates.

The
fair market value of the zero coupon convertible bonds issued by us in December 2007 and due in 2012 is subject to interest rate risk due to the convertible feature of the bonds. Generally, the fair market value of fixed interest rate debt will
increase as interest rates fall and decrease as interest rates rise. The interest rate changes affect the fair market value of the bonds but do not impact our consolidated financial position, cash flows, or results of operations.

Foreign Exchange Risk

Substantially all of
our revenues and most of our expenses are denominated in RMB. Our exposure to foreign exchange risk primarily relates to cash and cash equivalent denominated in U.S. dollars as a result of our proceeds from our public offerings and our convertible
bond offering. We have not hedged exposures denominated in foreign currencies or any other derivative financial instruments. Although in general, our exposure to foreign exchange risks should be limited, the value of your investment in our ADSs will
be affected by the foreign exchange rate between U.S. dollars and RMB because the value of our business is effectively denominated in RMB, while the ADSs will be traded in U.S. dollars.

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in Chinas political
and economic conditions. The conversion of RMB into foreign currencies, including U.S. dollars, has been based on rates set by the Peoples Bank of China. On July 21, 2005, the PRC government changed its decade-old policy of pegging the
value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in an approximately 11.9% appreciation
of the RMB against the U.S. dollar by December 31, 2007. There remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of
the RMB against the U.S. dollar. We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency exchange risk.

Inflation

Inflation in China has not materially impacted our results of operations in recent years. According to the
National Bureau of Statistics of China, the change of consumer price index in China was 1.8%, 1.5% and 4.8% in 2005, 2006 and 2007, respectively.



|ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|-------- | ------------------------------------------------------

Not Applicable.

PART II



|ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|-------- | -----------------------------------------------

None.



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|ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|-------- | ----------------------------------------------------------------------------

None.



|ITEM 15. | CONTROLS AND PROCEDURES
|-------- | -----------------------

Evaluation of Disclosure Controls and
Procedures

Our management, with the participation of our chief executive officer and chief financial officer, has performed an
evaluation of the effectiveness of our disclosure controls and procedures within the meaning of Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report. Based on such evaluation, our management has
concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective.

Managements
Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Rules 13a-15(f) under the Exchange Act. Our management evaluated the effectiveness of our internal control over financial reporting based on criteria established in the framework in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of
December 31, 2007.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. In addition, projections of any evaluation of effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies and procedures may deteriorate.

Because our acquisition of Top Star was completed in November 2007,
Top Star was excluded from the scope of our management assessment and auditor attestation requirements for the fiscal year ended December 31, 2007. The companies comprising Top Star are wholly-owned subsidiaries whose aggregated total assets and
total revenues represent approximately 6% and 2%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2007.

Our independent registered public accounting firm, PricewaterhouseCoopers Zhong Tian CPAs Limited Company, has audited the effectiveness of our internal control over financial reporting as of December 31, 2007,
as stated in its report, which appears on page F-2 of this annual report on Form 20-F.

Changes in Internal Control

A lack of control over timely recording of fixed asset acquisitions was the primary remaining factor causing our material weaknesses in our internal
control identified by our independent registered public accounting firm as of December 31, 2006. We have taken measures and improved interrelated internal control to remediate these material weaknesses and other control deficiencies, including
implementing additional control procedures, reinforcing the existing control procedures, establishing financial review and monitoring function and recruiting additional finance and accounting personnel. As a result, the independent registered public
accounting firm has concluded that the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007.



|ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT
|--------- | --------------------------------

Our board
of directors has determined that James Jianzhang Liang, Kenneth Gaw and Terry Yongmin Hu, all of whom are members of our audit committee and independent directors, are audit committee financial experts.



|ITEM 16B. | CODE OF ETHICS
|--------- | --------------

Our board of directors has
adopted a code of ethics that applies to our directors, officers, employees and agents, including certain provisions that specifically apply to our chief executive officer, chief financial officer, chief operating officer, chief technology officer,
vice presidents and any other persons who perform similar functions for us. We have filed our code of business conduct and ethics as an exhibit to our registration statement on Form F-1 (No. 333-137800).



|ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|--------- | --------------------------------------

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by PriceWaterhouseCoopers Zhong Tian CPAs Limited
Company, our principal external auditors, for the periods indicated. We did not pay any other fees to our auditors during the periods indicated below.



|                      |  |                                 |  |            |  |          
|--------------------- |  | ------------------------------- |  | ---------- |  | ---------
|                      |  | For the Year Ended December 31,
|                      |  | 2005                            |  | 2006       |  | 2007     
|Audit fees(1)         |  | 756,746                         |  | 10,309,715 |  | 7,202,153
|Audit-related fees(2) |  |                                |  | 3,245,752  |  | 4,546,084



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|(1) | Audit fees means the aggregate fees billed for professional services rendered by our principal auditors for the audit of our annual financial statements and the review
of our comparative interim financial statements.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Audit related fees represents aggregate fees billed for professional services rendered by our principal auditors for the assurance and related services, which mainly
included the review of registration documents in connection with our initial public offering in 2006, our additional public offering and our convertible bond offering in 2007.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The policy of our audit committee is to pre-approve all audit and non-audit services provided by PriceWaterhouseCoopers Zhong Tian CPAs Limited Company,
including audit services, audit-related services, tax services and other services as described above, other than those for de minimus services which are approved by the Audit Committee prior to the completion of the audit.



|ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|--------- | ----------------------------------------------------------

None.



|ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.
|--------- | -----------------------------------------------------------------------

None.

PART III



|ITEM 17. | FINANCIAL STATEMENTS
|-------- | --------------------

We have elected to provide
financial statements pursuant to Item 18.



|ITEM 18. | FINANCIAL STATEMENTS
|-------- | --------------------

The consolidated financial
statements of Home Inns & Hotels Management Inc. are included at the end of this annual report.



|ITEM 19. | EXHIBITS
|-------- | --------



|              |  |                                                                                                                                                                                                                                    
|------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Document                                                                                                                                                                                                            
|1.1           |  | Amended and Restated Memorandum and Articles of Association (incorporated by reference to Exhibit 3.2 from our F-1 registration statement (File No. 333-142190), as amended, initially filed
with the Commission on April 18, 2007)
|              | 
|4.1*          |  | Employment Agreement between the Registrant and James Zong.                                                                                                                                                                        
|              | 
|4.2*          |  | Agreement for the Sale and Purchase of Hong Kong AI Home Hotel Investment Limited dated October 21, 2007                                                                                                                           
|              | 
|4.3*          |  | English translation of Agreement for the Sale and Purchase of Shanghai Chuwen Holding Investment Ltd. dated October 21, 2007                                                                                                       
|              | 
|8.1*          |  | Subsidiaries of the Registrant                                                                                                                                                                                                     
|              | 
|9.1           |  | Shareholders agreement, dated June 29, 2006 (incorporated by reference to Exhibit 4.8 from our F-1 registration statement (File No. 333-142190), as amended, initially filed with the Commission
on April 18, 2007)                
|              | 
|11.1          |  | Code of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 from our F-1 registration statement (File No. 333-137800), as amended, initially filed with
the Commission on October 4, 2006)    
|              | 
|12.1*         |  | CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                        
|              | 
|12.2*         |  | CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                        
|              | 
|13.1*         |  | CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                        
|              | 
|13.2*         |  | CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                        



|* | Filed with this Annual Report on Form 20-F
|- | ------------------------------------------



65



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##### Table of Contents

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.



|                     |  |                                    |  |                                     
|-------------------- |  | ---------------------------------- |  | ------------------------------------
|                     |  | HOME INNS & HOTELS MANAGEMENT INC.
|                     |  |                                   
|                     |  | By:                                |  | /s/ David Jian Sun                  
|                     |  | Name:                              |  | David Jian Sun                      
|                     |  | Title:                             |  | Director and Chief Executive Officer
|                     |  |                                   
|Date: April 18, 2008 |  |                                    |  |                                     



66



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##### Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

HOME INNS & HOTELS MANAGEMENT INC.



|                                                                                                     |  |     
|---------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                     |  | Page
|Consolidated Financial Statements                                                                    |  |     
|Report of Independent Registered Public Accounting Firm                                              |  | F-2 
|Consolidated Statements of Operations for the Years Ended December 31, 2005, 2006 and 2007           |  | F-4 
|Consolidated Balance Sheets as of December 31, 2006 and 2007                                         |  | F-5 
|Consolidated Statements of Shareholders Equity for the Years Ended December 31, 2005, 2006 and 2007 |  | F-7 
|Consolidated Statements of Cash Flows for the Years Ended December 31, 2005, 2006 and 2007           |  | F-9 
|Notes to the Consolidated Financial Statements                                                       |  | F-11

INDEX TO COMBINED FINANCIAL STATEMENTS

Shanghai Chuwen Investment Holding Co., Ltd.

and

Hong Kong Ai Home Investment Company.



|                                                                                           |  |     
|------------------------------------------------------------------------------------------ |  | ----
|                                                                                           |  | Page
|Combined Financial Statements                                                              |  |     
|Report of Independent Registered Public Accounting Firm                                    |  | F-39
|Combined Statements of Operations for the Years Ended December 31, 2005 and 2006           |  | F-40
|Combined Balance Sheets as of December 31, 2005 and 2006                                   |  | F-41
|Combined Statements of Shareholders Equity for the Years Ended December 31, 2005 and 2006 |  | F-42
|Combined Statements of Cash Flows for the Years Ended December 31, 2005 and 2006           |  | F-43
|Notes to the Combined Financial Statements                                                 |  | F-44

INDEX TO COMBINED UNAUDITED TEN-MONTHS FINANCIAL STATEMENTS

Shanghai Chuwen Investment Holding Co., Ltd.

and

Hong Kong Ai Home Investment Company



|                                                                                                         |  |     
|-------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                         |  | Page
|Condensed Combined Unaudited Financial Statements                                                        |  |     
|Condensed Combined Statements of Operations for the Ten Months Ended October 31, 2006 and 2007           |  | F-53
|Condensed Combined Balance Sheets as of December 31, 2006 and October 31, 2007                           |  | F-54
|Condensed Combined Statements of Shareholders Equity for the Ten Months Ended October 31, 2006 and 2007 |  | F-55
|Condensed Combined Statements of Cash Flows for the Ten Months Ended October 31, 2006 and 2007           |  | F-56
|Notes to the Condensed Combined Financial Statements                                                     |  | F-57

INDEX TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS

HOME INNS & HOTELS MANAGEMENT INC.



|                                                                                              |  |     
|--------------------------------------------------------------------------------------------- |  | ----
|                                                                                              |  | Page
|Consolidated Unaudited Pro Forma Financial Statements                                         |  |     
|Introduction to the Unaudited Pro Forma Consolidated Financial Statements                     |  | F-64
|Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 2007 |  | F-65
|Notes to the Unaudited Pro Forma Consolidated Financial Statements                            |  | F-66



F-1



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##### Table of Contents

|     |  |  |  |                              
|---- |  |  |  | -----------------------------
|LOGO |  |  |  |                              
|     |  | 
|     |  |  |  | LOGO                         
|     |  |  |  | 11th Floor                   
|     |  |  |  | PricewaterhouseCoopers Center
|     |  |  |  | 202 Hu Bin Road              
|     |  |  |  | Shanghai 200021, PRC         
|     |  |  |  | Telephone +86 (21) 6123 8888 
|     |  |  |  | Facsimile +86 (21) 6123 8800 
|     |  |  |  | pwccn.com                    

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Home Inns &
Hotels Management Inc.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations,
shareholders equity and cash flows present fairly, in all material respects, the financial position of Home Inns & Hotels Management Inc. (the Company) and its subsidiaries as of December 31, 2007 and 2006, and the
results of their operations and their cash flows for each of the three years in the period ended December 31, 2007, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The Companys management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included under item 15 of the accompanying Form 20-F. Our responsibility is to express opinions on these financial statements and on the Companys internal control over financial reporting based on our audits
(which was an integrated audit in 2007). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on
a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit
of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 2(u) to the consolidated financial statements, the Company changed the manner in which it accounts for share-based compensation in 2006.







F-2



---

##### Table of Contents

LOGO

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial
statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in item 15 of the accompanying Form 20-F, management has excluded Shanghai Chuwen Investment Holding Co., Ltd., Hong Kong Ai Home Investment Company and
their subsidiaries (collectively, the Top Star Hotel Chain) from its assessment of internal control over financial reporting as of December 31, 2007 because they were acquired by the Company in a purchase business combination on
November 1, 2007. We have also excluded the Top Star Hotel Chain from our audit of internal control over financial reporting. The companies comprising the Top Star Hotel Chain are wholly-owned subsidiaries whose aggregated total assets and
total revenues represent 6% and 2%, respectively, of the related consolidated financial statement amounts of the Company as of and for the year ended December 31, 2007.



|                                                          
|----------------------------------------------------------
|/s/ PricewaterhouseCoopers Zhong Tian CPAs Limited Company
|                                                          
|Shanghai, the Peoples Republic of China                  
|                                                          
|April 18, 2008                                            



F-3



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##### Table of Contents

HOME INNS & HOTELS MANAGEMENT INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007



|                                                                                         |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
|---------------------------------------------------------------------------------------- |  | ---- | --- |  | ------------ | - |  | ------------ | - |  | ------------- | - |  | ------------ | -
|                                                                                         |  | Note |     |  | 2005         |   |  | 2006         |   |  | 2007          |   |  | 2007         |  
|                                                                                         |  |      |     |  | RMB          |   |  | RMB          |   |  | RMB           |   |  | US$          |  
|                                                                                         |  |      |     |  |              |   |  |              |   |  |               |   |  | (Note 2(d))  |  
|Revenues:                                                                                |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
|Leased-and-operated hotels                                                               |  |      |     |  | 279,948,268  |   |  | 567,894,885  |   |  | 963,050,569   |   |  | 132,022,396  |  
|Franchised-and-managed hotels                                                            |  |      |     |  | 5,913,244    |   |  | 20,604,785   |   |  | 46,265,583    |   |  | 6,342,443    |  
|                                                                                         |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
|Total revenues                                                                           |  |      |     |  | 285,861,512  |   |  | 588,499,670  |   |  | 1,009,316,152 |   |  | 138,364,839  |  
|Less: Business tax and related surcharges                                                |  |      |     |  | (16,830,380  | ) |  | (33,976,564  | ) |  | (60,302,441   | ) |  | (8,266,723   | )
|Net revenues                                                                             |  |      |     |  | 269,031,132  |   |  | 554,523,106  |   |  | 949,013,711   |   |  | 130,098,116  |  
|Operating costs and expenses:                                                            |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
|Leased-and-operated hotel costs                                                         |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
|Rents and utilities                                                                      |  |      |     |  | (94,783,918  | ) |  | (171,576,396 | ) |  | (299,791,891  | ) |  | (41,097,783  | )
|Personnel costs                                                                          |  |      |     |  | (41,225,106  | ) |  | (87,980,536  | ) |  | (155,611,203  | ) |  | (21,332,383  | )
|Depreciation and amortization                                                            |  |      |     |  | (23,334,691  | ) |  | (44,619,561  | ) |  | (85,600,192   | ) |  | (11,734,734  | )
|Consumables, food and beverage                                                           |  |      |     |  | (20,765,412  | ) |  | (43,481,710  | ) |  | (84,053,059   | ) |  | (11,522,641  | )
|Others                                                                                   |  |      |     |  | (26,099,998  | ) |  | (56,018,938  | ) |  | (98,643,735   | ) |  | (13,522,844  | )
|                                                                                         |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
|Total leased-and-operated hotel costs                                                    |  |      |     |  | (206,209,125 | ) |  | (403,677,141 | ) |  | (723,700,080  | ) |  | (99,210,385  | )
|Sales and marketing expenses                                                             |  |      |     |  | (7,691,002   | ) |  | (11,487,529  | ) |  | (19,631,772   | ) |  | (2,691,275   | )
|General and administrative expenses                                                      |  |      |     |  | (24,789,241  | ) |  | (64,792,672  | ) |  | (99,025,878   | ) |  | (13,575,231  | )
|                                                                                         |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
|Total operating costs and expenses                                                       |  |      |     |  | (238,689,368 | ) |  | (479,957,342 | ) |  | (842,357,730  | ) |  | (115,476,891 | )
|                                                                                         |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
|Income from operations                                                                   |  |      |     |  | 30,341,764   |   |  | 74,565,764   |   |  | 106,655,981   |   |  | 14,621,225   |  
|                                                                                         |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
|Interest income                                                                          |  |      |     |  | 223,208      |   |  | 6,577,804    |   |  | 31,717,134    |   |  | 4,348,029    |  
|Interest expense                                                                         |  |      |     |  | (709,455     | ) |  | (6,142,593   | ) |  | (7,168,401    | ) |  | (982,700     | )
|Other non-operating income                                                               |  | 2    | (z) |  | 2,145,832    |   |  | 5,308,611    |   |  | 8,434,516     |   |  | 1,156,268    |  
|Foreign exchange gain (loss), net                                                        |  | 2    | (c) |  | 254,111      |   |  | (6,990,362   | ) |  | (53,220,796   | ) |  | (7,295,917   | )
|                                                                                         |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
|Income before income tax expense, minority interests                                     |  |      |     |  | 32,255,460   |   |  | 73,319,224   |   |  | 86,418,434    |   |  | 11,846,905   |  
|Income tax expense                                                                       |  | 7    |     |  | (6,525,978   | ) |  | (21,390,611  | ) |  | (45,035,530   | ) |  | (6,173,818   | )
|Minority interests                                                                       |  |      |     |  | (4,796,810   | ) |  | (5,034,255   | ) |  | (5,626,894    | ) |  | (771,378     | )
|                                                                                         |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
|Net income                                                                               |  |      |     |  | 20,932,672   |   |  | 46,894,358   |   |  | 35,756,010    |   |  | 4,901,709    |  
|                                                                                         |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
|Amount allocated to participating preference shareholders                                |  |      |     |  | (9,486,945   | ) |  | (16,173,962  | ) |  |              |   |  |             |  
|                                                                                         |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
|Net income available to ordinary shareholders                                            |  |      |     |  | 11,445,727   |   |  | 30,720,396   |   |  | 35,756,010    |   |  | 4,901,709    |  
|                                                                                         |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
|Earnings per share                                                                       |  | 14   |     |  |              |   |  |              |   |  |               |   |  |              |  
| Basic                                                                                  |  |      |     |  | 0.42         |   |  | 0.86         |   |  | 0.52          |   |  | 0.07         |  
|                                                                                         |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
| Diluted                                                                                |  |      |     |  | 0.40         |   |  | 0.82         |   |  | 0.47          |   |  | 0.06         |  
|                                                                                         |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
|Weighted average ordinary shares outstanding                                             |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
| Basic                                                                                  |  |      |     |  | 27,399,140   |   |  | 35,550,114   |   |  | 68,323,370    |   |  | 68,323,370   |  
|                                                                                         |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
| Diluted                                                                                |  |      |     |  | 28,713,188   |   |  | 37,530,332   |   |  | 76,883,995    |   |  | 76,883,995   |  
|                                                                                         |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
|Share-based compensation expense was included in the statement of operations as follows: |  |      |     |  |              |   |  |              |   |  |               |   |  |              |  
|Leased-and-operated hotel costs  Personnel costs                                        |  |      |     |  | 8,124        |   |  | 11,980       |   |  | 11,031        |   |  | 1,512        |  
|General and administrative expenses                                                      |  |      |     |  | 951,702      |   |  | 16,283,344   |   |  | 15,060,076    |   |  | 2,064,551    |  

The accompanying notes are an integral part of these consolidated financial statements.



F-4



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##### Table of Contents

HOME INNS & HOTELS MANAGEMENT INC.

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2006 AND 2007



|                                                       |  |      |     |  |               |  |               |  |            
|------------------------------------------------------ |  | ---- | --- |  | ------------- |  | ------------- |  | -----------
|                                                       |  | Note |     |  | 2006          |  | 2007          |  | 2007       
|                                                       |  |      |     |  | RMB           |  | RMB           |  | US$        
|                                                       |  |      |     |  |               |  |               |  | (Note 2(d))
|ASSETS                                                 |  |      |     |  |               |  |               |  |            
|Current assets:                                        |  |      |     |  |               |  |               |  |            
|Cash and cash equivalents                              |  |      |     |  | 758,003,839   |  | 1,562,600,475 |  | 214,213,319
|Restricted cash                                        |  |      |     |  |              |  | 173,849,480   |  | 23,832,627 
|Accounts receivable                                    |  |      |     |  | 8,902,565     |  | 16,913,361    |  | 2,318,614  
|Receivables from related parties                       |  | 13   |     |  | 197,788       |  | 1,372,000     |  | 188,084    
|Consumables                                            |  |      |     |  | 12,131,304    |  | 18,991,558    |  | 2,603,509  
|Prepayments and other current assets                   |  | 3    |     |  | 10,529,624    |  | 61,926,482    |  | 8,489,360  
|Deferred tax assets, current                           |  | 7    |     |  | 5,670,939     |  | 16,573,837    |  | 2,272,069  
|                                                       |  |      |     |  |               |  |               |  |            
|Total current assets                                   |  |      |     |  | 795,436,059   |  | 1,852,227,193 |  | 253,917,582
|                                                       |  |      |     |  |               |  |               |  |            
|Property and equipment, net                            |  | 4    |     |  | 458,058,608   |  | 1,147,681,463 |  | 157,333,022
|Goodwill                                               |  | 6    |     |  | 32,906,112    |  | 397,777,954   |  | 54,530,468 
|Intangible assets, net                                 |  | 5    |     |  | 3,021,795     |  | 46,739,393    |  | 6,407,396  
|Other assets                                           |  |      |     |  | 4,175,804     |  | 68,088,285    |  | 9,334,067  
|Deferred tax assets, non-current                       |  | 7    |     |  | 26,420,799    |  | 49,023,794    |  | 6,720,560  
|                                                       |  |      |     |  |               |  |               |  |            
|Total assets                                           |  |      |     |  | 1,320,019,177 |  | 3,561,538,082 |  | 488,243,095
|                                                       |  |      |     |  |               |  |               |  |            
|LIABILITIES                                            |  |      |     |  |               |  |               |  |            
|Current liabilities:                                   |  |      |     |  |               |  |               |  |            
|Accounts payable                                       |  |      |     |  | 8,919,148     |  | 13,007,122    |  | 1,783,117  
|Payables to related parties                            |  | 13   |     |  | 7,389,990     |  | 6,650,636     |  | 911,720    
|Short-term borrowings                                  |  | 8    |     |  | 124,000,000   |  | 269,000,000   |  | 36,876,594 
|Current portion of long-term loan from a related party |  | 13   |     |  | 10,000,000    |  |              |  |           
|Salaries and welfare payable                           |  |      |     |  | 22,496,135    |  | 48,260,370    |  | 6,615,904  
|Income tax payable                                     |  |      |     |  | 18,399,704    |  | 43,082,914    |  | 5,906,138  
|Other taxes payable                                    |  |      |     |  | 4,548,918     |  | 8,901,421     |  | 1,220,275  
|Deferred revenues                                      |  |      |     |  | 18,612,207    |  | 23,806,650    |  | 3,263,599  
|Accruals for customer reward program                   |  | 2    | (o) |  | 2,743,366     |  | 5,438,922     |  | 745,609    
|Other unpaid and accruals                              |  | 12   |     |  | 22,501,485    |  | 36,570,169    |  | 5,013,319  
|Other payables                                         |  | 12   |     |  | 83,618,354    |  | 350,203,843   |  | 48,008,643 
|                                                       |  |      |     |  |               |  |               |  |            
|Total current liabilities                              |  |      |     |  | 323,229,307   |  | 804,922,047   |  | 110,344,918
|                                                       |  |      |     |  |               |  |               |  |            

The accompanying notes are an integral part of these consolidated financial statements.



F-5



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##### Table of Contents

HOME INNS & HOTELS MANAGEMENT INC.

CONSOLIDATED BALANCE SHEETS (Continued)

AS OF DECEMBER 31, 2006 AND 2007



|                                                                                                                                                                                            |  |      |  |               |  |               |  |            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- |  | ------------- |  | ------------- |  | -----------
|                                                                                                                                                                                            |  | Note |  | 2006          |  | 2007          |  | 2007       
|                                                                                                                                                                                            |  |      |  | RMB           |  | RMB           |  | US$        
|                                                                                                                                                                                            |  |      |  |               |  |               |  | (Note 2(d))
|Deferred rental                                                                                                                                                                             |  |      |  | 44,103,281    |  | 94,225,813    |  | 12,917,201 
|Deferred revenues, non-current                                                                                                                                                              |  |      |  |              |  | 14,030,657    |  | 1,923,431  
|Long-term loan                                                                                                                                                                              |  | 8    |  |              |  | 18,036,135    |  | 2,472,532  
|Long-term loan from a related party                                                                                                                                                         |  | 13   |  | 50,000,000    |  |              |  |           
|Unfavorable lease liability                                                                                                                                                                 |  |      |  |              |  | 19,894,416    |  | 2,727,280  
|Convertible bond                                                                                                                                                                            |  | 9    |  |              |  | 1,110,308,333 |  | 152,209,625
|Deferred tax liability, non-current                                                                                                                                                         |  | 7    |  | 165,074       |  | 13,636,670    |  | 1,869,420  
|                                                                                                                                                                                            |  |      |  |               |  |               |  |            
|Total liabilities                                                                                                                                                                           |  |      |  | 417,497,662   |  | 2,075,054,071 |  | 284,464,407
|                                                                                                                                                                                            |  |      |  |               |  |               |  |            
|Minority interest                                                                                                                                                                           |  |      |  | 12,782,963    |  | 11,086,574    |  | 1,519,833  
|Commitments and contingencies                                                                                                                                                               |  | 15   |  |               |  |               |  |            
|Shareholders equity                                                                                                                                                                        |  |      |  |               |  |               |  |            
|Ordinary shares (US$0.005 par value; 177,075,114 and 200,000,000 shares authorized, 65,712,839 and 70,487,385 shares issued and outstanding as
of December 31, 2006 and 2007, respectively) |  | 10   |  | 2,690,943     |  | 2,873,597     |  | 393,935    
|Additional paid-in capital                                                                                                                                                                  |  |      |  | 813,222,265   |  | 1,362,942,486 |  | 186,842,663
|Statutory reserves                                                                                                                                                                          |  |      |  | 23,414,541    |  | 41,333,581    |  | 5,666,326  
|Retained earnings                                                                                                                                                                           |  |      |  | 50,410,803    |  | 68,247,773    |  | 9,355,931  
|                                                                                                                                                                                            |  |      |  |               |  |               |  |            
|Total shareholders equity                                                                                                                                                                  |  |      |  | 889,738,552   |  | 1,475,397,437 |  | 202,258,855
|                                                                                                                                                                                            |  |      |  |               |  |               |  |            
|Total liabilities and shareholders equity                                                                                                                                                  |  |      |  | 1,320,019,177 |  | 3,561,538,082 |  | 488,243,095
|                                                                                                                                                                                            |  |      |  |               |  |               |  |            

The accompanying notes are an integral part of these consolidated financial statements.



F-6



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##### Table of Contents

HOME INNS & HOTELS MANAGEMENT INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007



|                                                                        |          |                  |   |          |                 |   |                          |            |   |                   |          |                                 |        |            |                  |        |          |                          |        |            |        |           |  |             |   |  |            |  |            |   |  |             |   |  |            
|----------------------------------------------------------------------- | -------- | ---------------- | - | -------- | --------------- | - | ------------------------ | ---------- | - | ----------------- | -------- | ------------------------------- | ------ | ---------- | ---------------- | ------ | -------- | ------------------------ | ------ | ---------- | ------ | --------- |  | ----------- | - |  | ---------- |  | ---------- | - |  | ----------- | - |  | -----------
|                                                                        |          | Preferred Shares |   |          | Ordinary shares |   | Additionalpaid-incapital |            |   | Statutoryreserves |          | Deferredshare-basedcompensation |        |            | Retainedearnings |        |          | Totalshareholdersequity
|                                                                        | Series A |                  |   | Series B |                 |   | Series C                 |            |   |                   |          |                                 |        |           
|                                                                        | Shares   |                  |   | Amount   |                 |   | Shares                   |            |   | Amount            |          |                                 | Shares |            |                  | Amount |          |                          | Shares |            | Amount |           |  |             |   | 
|Balance as of January 1, 2005                                           |          | 17,241,400       |   |          | 713,541         |   |                          | 2,417,645  |   |                   | 100,055  |                                 |        |           |                  |        |         |                          |        | 27,399,140 |        | 1,133,911 |  | 110,687,306 |   |  | 3,323,064  |  | (1,771,759 | ) |  | 2,675,250   |   |  | 116,861,368
|                                                                        |          |                  |   |          |                 |   |                          |            |   |                   |          |                                 |        |            |                  |        |          |                          |        |            |        |           |  |             |   |  |            |  |            |   |  |             |   |  |            
|Issuance of Series C preferred Share                                    |          |                 |   |          |                |   |                          |           |   |                   |         |                                 |        | 3,265,841  |                  |        | 135,149  |                          |        |           |        |          |  | 40,193,499  |   |  |           |  |           |   |  |            |   |  | 40,328,648 
|Net income                                                              |          |                 |   |          |                |   |                          |           |   |                   |         |                                 |        |           |                  |        |         |                          |        |           |        |          |  |            |   |  |           |  |           |   |  | 20,932,672  |   |  | 20,932,672 
|Recognition of share-based compensation costs                           |          |                 |   |          |                |   |                          |           |   |                   |         |                                 |        |           |                  |        |         |                          |        |           |        |          |  | 1,997,780   |   |  |           |  | (1,037,954 | ) |  |            |   |  | 959,826    
|Appropriations to statutory reserves                                    |          |                 |   |          |                |   |                          |           |   |                   |         |                                 |        |           |                  |        |         |                          |        |           |        |          |  |            |   |  | 8,036,956  |  |           |   |  | (8,036,956  | ) |  |           
|                                                                        |          |                  |   |          |                 |   |                          |            |   |                   |          |                                 |        |            |                  |        |          |                          |        |            |        |           |  |             |   |  |            |  |            |   |  |             |   |  |            
|Balance as of December 31, 2005                                         |          | 17,241,400       |   |          | 713,541         |   |                          | 2,417,645  |   |                   | 100,055  |                                 |        | 3,265,841  |                  |        | 135,149  |                          |        | 27,399,140 |        | 1,133,911 |  | 152,878,585 |   |  | 11,360,020 |  | (2,809,713 | ) |  | 15,570,966  |   |  | 179,082,514
|                                                                        |          |                  |   |          |                 |   |                          |            |   |                   |          |                                 |        |            |                  |        |          |                          |        |            |        |           |  |             |   |  |            |  |            |   |  |             |   |  |            
|Adjustment as a result of adoption of SFAS No.123(R) (Note 2(u))        |          |                 |   |          |                |   |                          |           |   |                   |         |                                 |        |           |                  |        |         |                          |        |           |        |          |  | (2,809,713  | ) |  |           |  | 2,809,713  |   |  |            |   |  |           
|Issuance of ordinary shares in a private placement (Note10)             |          |                 |   |          |                |   |                          |           |   |                   |         |                                 |        |           |                  |        |         |                          |        | 2,834,037  |        | 113,254   |  | 72,369,169  |   |  |           |  |           |   |  |            |   |  | 72,482,423 
|Issuance of ordinary shares in an initial public offering (Note 10)     |          |                 |   |          |                |   |                          |           |   |                   |         |                                 |        |           |                  |        |         |                          |        | 11,748,474 |        | 462,843   |  | 580,788,631 |   |  |           |  |           |   |  |            |   |  | 581,251,474
|Conversion of convertible preferred shares to ordinary shares (Note 10) |          | (17,241,400      | ) |          | (713,541        | ) |                          | (2,417,645 | ) |                   | (100,055 | )                               |        | (3,265,841 | )                |        | (135,149 | )                        |        | 22,924,886 |        | 948,745   |  |            |   |  |           |  |           |   |  |            |   |  |           
|Exercise of stock purchase right (Note 10)                              |          |                 |   |          |                |   |                          |           |   |                   |         |                                 |        |           |                  |        |         |                          |        | 806,302    |        | 32,190    |  | 6,579,205   |   |  |           |  |           |   |  |            |   |  | 6,611,395  
|Net income                                                              |          |                 |   |          |                |   |                          |           |   |                   |         |                                 |        |           |                  |        |         |                          |        |           |        |          |  |            |   |  |           |  |           |   |  | 46,894,358  |   |  | 46,894,358 
|Recognition of share-based compensation costs                           |          |                 |   |          |                |   |                          |           |   |                   |         |                                 |        |           |                  |        |         |                          |        |           |        |          |  | 3,416,388   |   |  |           |  |           |   |  |            |   |  | 3,416,388  
|Appropriations to statutory reserves                                    |          |                 |   |          |                |   |                          |           |   |                   |         |                                 |        |           |                  |        |         |                          |        |           |        |          |  |            |   |  | 12,054,521 |  |           |   |  | (12,054,521 | ) |  |           
|                                                                        |          |                  |   |          |                 |   |                          |            |   |                   |          |                                 |        |            |                  |        |          |                          |        |            |        |           |  |             |   |  |            |  |            |   |  |             |   |  |            
|Balance as of December 31, 2006                                         |          |                 |   |          |                |   |                          |           |   |                   |         |                                 |        |           |                  |        |         |                          |        | 65,712,839 |        | 2,690,943 |  | 813,222,265 |   |  | 23,414,541 |  |           |   |  | 50,410,803  |   |  | 889,738,552
|                                                                        |          |                  |   |          |                 |   |                          |            |   |                   |          |                                 |        |            |                  |        |          |                          |        |            |        |           |  |             |   |  |            |  |            |   |  |             |   |  |            

The accompanying notes are an integral part of these consolidated financial statements.



F-7



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##### Table of Contents

HOME INNS & HOTELS MANAGEMENT INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007



|                                                                                          |  |                  |  |          |  |                          |  |                   |  |                                 |  |                  |  |            |                          |           |  |               |  |            |  |   |  |             |   |  |              
|----------------------------------------------------------------------------------------- |  | ---------------- |  | -------- |  | ------------------------ |  | ----------------- |  | ------------------------------- |  | ---------------- |  | ---------- | ------------------------ | --------- |  | ------------- |  | ---------- |  | - |  | ----------- | - |  | -------------
|                                                                                          |  | Preferred Shares |  |          |  | Additionalpaid-incapital |  | Statutoryreserves |  | Deferredshare-basedcompensation |  | Retainedearnings |  |            | Totalshareholdersequity
|                                                                                          |  | Series A         |  | Series B |  | Series C                 |  | Ordinary shares   |  |                                 |  |                  | 
|                                                                                          |  | Shares           |  | Amount   |  | Shares                   |  | Amount            |  | Shares                          |  | Amount           |  | Shares     |                          | Amount    |  |               |  |            | 
|Balance as of December 31, 2006                                                           |  |                 |  |         |  |                         |  |                  |  |                                |  |                 |  | 65,712,839 |                          | 2,690,943 |  | 813,222,265   |  | 23,414,541 |  |  |  | 50,410,803  |   |  | 889,738,552  
|                                                                                          |  |                  |  |          |  |                          |  |                   |  |                                 |  |                  |  |            |                          |           |  |               |  |            |  |   |  |             |   |  |              
|Issuance of ordinary shares to acquire additional shares of Home Inns Beijing (Note 6(c)) |  |                 |  |         |  |                         |  |                  |  |                                |  |                 |  | 441,669    |                          | 16,824    |  | 53,187,569    |  |           |  |  |  |            |   |  | 53,204,393   
|Issuance of ordinary shares in the acquisition of TopStar (Note 6(d))                     |  |                 |  |         |  |                         |  |                  |  |                                |  |                 |  | 655,831    |                          | 24,612    |  | 105,997,660   |  |           |  |  |  |            |   |  | 106,022,272  
|Issuance of ordinary shares in a secondary offering (Note 10)                             |  |                 |  |         |  |                         |  |                  |  |                                |  |                 |  | 2,956,310  |                          | 113,899   |  | 370,264,808   |  |           |  |  |  |            |   |  | 370,378,707  
|Exercise of stock purchase right (Note 11)                                                |  |                 |  |         |  |                         |  |                  |  |                                |  |                 |  | 255,000    |                          | 9,818     |  | 2,316,190     |  |           |  |  |  |            |   |  | 2,326,008    
|Exercise of stock option (Note 11)                                                        |  |                 |  |         |  |                         |  |                  |  |                                |  |                 |  | 465,736    |                          | 17,501    |  | 2,882,887     |  |           |  |  |  |            |   |  | 2,900,388    
|Recognition of share-based compensation costs                                             |  |                 |  |         |  |                         |  |                  |  |                                |  |                 |  |           |                          |          |  | 15,071,107    |  |           |  |  |  |            |   |  | 15,071,107   
|Net income                                                                                |  |                 |  |         |  |                         |  |                  |  |                                |  |                 |  |           |                          |          |  |              |  |           |  |  |  | 35,756,010  |   |  | 35,756,010   
|Appropriations to statutory reserves                                                      |  |                 |  |         |  |                         |  |                  |  |                                |  |                 |  |           |                          |          |  |              |  | 17,919,040 |  |  |  | (17,919,040 | ) |  |             
|                                                                                          |  |                  |  |          |  |                          |  |                   |  |                                 |  |                  |  |            |                          |           |  |               |  |            |  |   |  |             |   |  |              
|Balance as of December 31, 2007                                                           |  |                 |  |         |  |                         |  |                  |  |                                |  |                 |  | 70,487,385 |                          | 2,873,597 |  | 1,362,942,486 |  | 41,333,581 |  |  |  | 68,247,773  |   |  | 1,475,397,437
|                                                                                          |  |                  |  |          |  |                          |  |                   |  |                                 |  |                  |  |            |                          |           |  |               |  |            |  |   |  |             |   |  |              

The accompanying notes are an integral part of these consolidated financial statements.



F-8



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##### Table of Contents

HOME INNS & HOTELS MANAGEMENT INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2005, 2006 AND 2007



|                                                                                   |  |            |   |  |             |   |  |             |   |  |             |  
|---------------------------------------------------------------------------------- |  | ---------- | - |  | ----------- | - |  | ----------- | - |  | ----------- | -
|                                                                                   |  | 2005       |   |  | 2006        |   |  | 2007        |   |  | 2007        |  
|                                                                                   |  | RMB        |   |  | RMB         |   |  | RMB         |   |  | US$         |  
|                                                                                   |  |            |   |  |             |   |  |             |   |  | (Note 2(d)) |  
|Cash flows from operating activities:                                              |  |            |   |  |             |   |  |             |   |  |             |  
|Net income                                                                         |  | 20,932,672 |   |  | 46,894,358  |   |  | 35,756,010  |   |  | 4,901,709   |  
|Adjustments to reconcile net income to net cash provided by operating activities : |  |            |   |  |             |   |  |             |   |  |             |  
|Share-based compensation                                                           |  | 959,826    |   |  | 16,295,324  |   |  | 15,071,108  |   |  | 2,066,064   |  
|Depreciation and amortization                                                      |  | 23,845,499 |   |  | 46,602,636  |   |  | 87,618,420  |   |  | 12,011,408  |  
|Foreign exchange loss, net                                                         |  |           |   |  | 6,990,362   |   |  | 53,220,796  |   |  | 7,295,917   |  
|Minority interests                                                                 |  | 4,796,810  |   |  | 5,034,255   |   |  | 5,626,894   |   |  | 771,378     |  
|Loss from disposal of property and equipment                                       |  | 126,326    |   |  | 192,177     |   |  | 4,029,652   |   |  | 552,416     |  
|Provision for doubtful accounts                                                    |  |           |   |  |            |   |  | 362,500     |   |  | 49,694      |  
|Deferred income tax                                                                |  | (9,927,633 | ) |  | (17,345,568 | ) |  | (23,632,753 | ) |  | (3,239,760  | )
|Change in assets and liabilities, net of effects of acquisitions:                  |  |            |   |  |             |   |  |             |   |  |             |  
|(Increase) decrease in restricted cash                                             |  | (1,900,000 | ) |  | 1,900,000   |   |  |            |   |  |            |  
|Increase in accounts receivable                                                    |  | (1,919,852 | ) |  | (5,772,414  | ) |  | (6,125,443  | ) |  | (839,723    | )
|Increase in receivables from related parties                                       |  | (6,033     | ) |  | (182,059    | ) |  | (1,174,212  | ) |  | (160,970    | )
|Increase in consumables                                                            |  | (3,673,177 | ) |  | (6,601,396  | ) |  | (2,878,457  | ) |  | (394,601    | )
|Increase in prepayments and other current assets                                   |  | (761,702   | ) |  | (5,045,544  | ) |  | (22,461,254 | ) |  | (3,079,162  | )
|Increase in other assets                                                           |  | (1,712,400 | ) |  | (1,206,975  | ) |  | (10,120,988 | ) |  | (1,387,463  | )
|Increase (decrease) in accounts payable                                            |  | 1,392,615  |   |  | 5,528,133   |   |  | (9,051,344  | ) |  | (1,240,828  | )
|Increase (decrease) in payables to related parties                                 |  | 910,989    |   |  | 25,498      |   |  | (739,354    | ) |  | (101,356    | )
|Increase in salary and welfare payable                                             |  | 2,997,182  |   |  | 14,203,213  |   |  | 21,309,378  |   |  | 2,921,254   |  
|Increase in income tax payable                                                     |  | 7,620,146  |   |  | 7,009,966   |   |  | 22,421,183  |   |  | 3,073,669   |  
|Increase in other taxes payable                                                    |  | 1,287,795  |   |  | 2,532,593   |   |  | 4,352,503   |   |  | 596,675     |  
|Increase in accruals for customer reward program                                   |  | 708,370    |   |  | 1,966,721   |   |  | 2,695,556   |   |  | 369,528     |  
|Increase (decrease) in other payables and accruals                                 |  | 4,394,738  |   |  | 13,211,428  |   |  | (6,985,149  | ) |  | (957,578    | )
|Increase in deferred revenues                                                      |  | 5,888,315  |   |  | 12,170,072  |   |  | 18,752,518  |   |  | 2,570,740   |  
|Increase in deferred rental                                                        |  | 14,643,467 |   |  | 17,569,733  |   |  | 26,274,841  |   |  | 3,601,958   |  
|Increase in interest accruals for convertible bond                                 |  |           |   |  |            |   |  | 308,333     |   |  | 42,269      |  
|                                                                                   |  |            |   |  |             |   |  |             |   |  |             |  
|Net cash provided by operating activities                                          |  | 70,603,953 |   |  | 161,972,513 |   |  | 214,630,738 |   |  | 29,423,238  |  
|                                                                                   |  |            |   |  |             |   |  |             |   |  |             |  

The accompanying notes are an integral part of these consolidated financial statements.



F-9



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##### Table of Contents

|                                                                                  |  |              |   |  |              |   |  |               |   |  |             |  
|--------------------------------------------------------------------------------- |  | ------------ | - |  | ------------ | - |  | ------------- | - |  | ----------- | -
|                                                                                  |  | 2005         |   |  | 2006         |   |  | 2007          |   |  | 2007        |  
|                                                                                  |  | RMB          |   |  | RMB          |   |  | RMB           |   |  | US$         |  
|                                                                                  |  |              |   |  |              |   |  |               |   |  | (Note 2(d)) |  
|Cash flows from investing activities:                                             |  |              |   |  |              |   |  |               |   |  |             |  
|Proceeds from sale of fixed assets                                                |  | 112,069      |   |  | 70,831       |   |  | 858,872       |   |  | 117,741     |  
|Purchase of property and equipment                                                |  | (158,432,612 | ) |  | (212,624,518 | ) |  | (462,294,509  | ) |  | (63,374,896 | )
|Purchase of intangible assets                                                     |  | (1,018,286   | ) |  | (1,241,071   | ) |  | (5,236,188    | ) |  | (717,817    | )
|Net cash used for the acquisition of subsidiaries (Note 6)                        |  |             |   |  |             |   |  | (146,746,963  | ) |  | (20,117,205 | )
|                                                                                  |  |              |   |  |              |   |  |               |   |  |             |  
|Net cash used in investing activities                                             |  | (159,338,829 | ) |  | (213,794,758 | ) |  | (613,418,788  | ) |  | (84,092,177 | )
|                                                                                  |  |              |   |  |              |   |  |               |   |  |             |  
|Cash flows from financing activities:                                             |  |              |   |  |              |   |  |               |   |  |             |  
|Proceeds from issuance of preferred shares                                        |  | 40,328,648   |   |  |             |   |  |              |   |  |            |  
|Net proceeds from issuance of ordinary shares                                     |  |             |   |  | 650,588,236  |   |  | 366,866,077   |   |  | 50,292,830  |  
|Proceeds from share option exercise                                               |  |             |   |  |             |   |  | 1,917,444     |   |  | 262,858     |  
|Net proceeds from issuance of convertible bond                                    |  |             |   |  |             |   |  | 1,082,267,625 |   |  | 148,365,589 |  
|Repayment of Topstars debt to original shareholder                               |  |             |   |  |             |   |  | (84,000,000   | ) |  | (11,515,368 | )
|Restricted cash paid for short-term borrowing                                     |  |             |   |  |             |   |  | (173,849,480  | ) |  | (23,832,627 | )
|Capital contribution from a minority shareholder                                  |  |             |   |  |             |   |  | 280,503       |   |  | 38,454      |  
|Proceeds from short-term borrowings                                               |  | 20,000,000   |   |  | 190,000,000  |   |  | 768,000,000   |   |  | 105,283,360 |  
|Proceeds from long-term loans from a related party                                |  | 40,000,000   |   |  | 20,000,000   |   |  |              |   |  |            |  
|Advance from a related party                                                      |  |             |   |  | 6,746,592    |   |  |              |   |  |            |  
|Repayment of short-term borrowings                                                |  |             |   |  | (86,000,000  | ) |  | (643,000,000  | ) |  | (88,147,397 | )
|Repayment of long-term borrowings                                                 |  |             |   |  |             |   |  | (60,000,000   | ) |  | (8,225,263  | )
|Dividend paid by VIE subsidiaries to minority shareholders                        |  | (158,108     | ) |  | (2,245,613   | ) |  | (1,876,687    | ) |  | (257,271    | )
|                                                                                  |  |              |   |  |              |   |  |               |   |  |             |  
|Net cash provided by financing activities                                         |  | 100,170,540  |   |  | 779,089,215  |   |  | 1,256,605,482 |   |  | 172,265,165 |  
|                                                                                  |  |              |   |  |              |   |  |               |   |  |             |  
|Effect of foreign exchange rate changes on cash and cash equivalents              |  |             |   |  | (6,990,362   | ) |  | (53,220,796   | ) |  | (7,295,916  | )
|Net increase in cash                                                              |  | 11,435,664   |   |  | 720,276,608  |   |  | 804,596,636   |   |  | 110,300,310 |  
|Cash, beginning of year                                                           |  | 26,291,567   |   |  | 37,727,231   |   |  | 758,003,839   |   |  | 103,913,009 |  
|                                                                                  |  |              |   |  |              |   |  |               |   |  |             |  
|Cash, end of year                                                                 |  | 37,727,231   |   |  | 758,003,839  |   |  | 1,562,600,475 |   |  | 214,213,319 |  
|                                                                                  |  |              |   |  |              |   |  |               |   |  |             |  
|Supplemental disclosure of cash flow information                                  |  |              |   |  |              |   |  |               |   |  |             |  
|Cash paid during the year for income taxes                                        |  | (8,833,465   | ) |  | (31,726,213  | ) |  | (45,976,932   | ) |  | (6,302,872  | )
|Cash paid during the year for interest                                            |  | (709,455     | ) |  | (6,142,593   | ) |  | (7,168,401    | ) |  | (956,423    | )
|                                                                                  |  |              |   | 
|Supplemental schedule of non-cash investing and financing activities:             |  |              |   |  |              |   |  |               |   |  |             |  
|Increase in payables for property and equipment                                   |  | 33,793,261   |   |  | 24,035,411   |   |  | 113,677,260   |   |  | 15,583,755  |  
|Increase in accruals for share issuance costs                                     |  |             |   |  | 3,763,389    |   |  |              |   |  |            |  
|Decrease in advance from related parties on issuance of ordinary shares           |  |             |   |  | 641,509      |   |  |              |   |  |            |  
|Issuance of ordinary shares related to acquisition of 4.412% in Home Inns Beijing |  |             |   |  |             |   |  | 53,204,393    |   |  | 7,293,668   |  
|Issuance of ordinary shares related to acquisition of Top Star                    |  |             |   |  |             |   |  | 106,022,272   |   |  | 14,534,350  |  

The accompanying notes are an integral part of these consolidated financial statements.



F-10



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##### Table of Contents

HOME INNS & HOTELS MANAGEMENT INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts expressed in RMB unless otherwise stated)

1. ORGANIZATION AND NATURE OF OPERATIONS

The consolidated financial statements include the financial statements of Home
Inns & Hotels Management Inc. (the Company), its subsidiaries, and variable interest entities (VIEs) for which the Company is the primary beneficiary (VIE subsidiary). The Company and its consolidated
subsidiaries and VIE subsidiaries are collectively referred to as the Group.

The Company was established in Cayman Islands on May 30,
2006. In June 2006, all the then existing shareholders of Home Inns & Hotels Management (Hong Kong) Limited (Home Inns HK), the Companys predecessor, exchanged their respective shares in Home Inns HK for an equivalent
number of shares in the Company. As a result, Home Inns HK became a wholly-owned subsidiary of the Company. Home Inns HK did not have any operations until April 2002 when Home Inns & Hotels Management (Beijing) Co., Ltd. (Home Inns
Beijing), a hotel operation and management company, was established as a joint venture of Home Inns HK and Beijing Capital Travel International Hotel Group Co., Ltd. (Beijing Capital Travel), a subsidiary of Beijing Tourism Group
(BTG). At inception, Home Inns HK and BTG, through Beijing Capital Travel, owned 55% and 45% interest in Home Inns Beijing, respectively. Through a series of financing activities and acquisitions, Home Inns Beijing has become a
wholly-owned subsidiary in July 2007 (Note 6).

In October 2006, the Company completed an initial public offering of American Depositary
Shares (ADSs). ADSs of the Company are traded from October 26, 2006 on Nasdaq Global Market under the symbol HMIN in the United States.

The principal activities of the Group are to develop, lease, operate, franchise, and manage economy hotels under the Home Inn brand in the Peoples Republic of China (PRC). The Group either leases
real estate properties on which it develops and operates hotels or it franchises the Home Inn brand to hotel owners and manages these hotels. The former type of hotels is referred to as leased-and-operated hotels and the latter type of
hotels as franchised-and-managed hotels.

Leased-and-operated hotels

The Group leases hotel properties from property owners and develops these hotels directly, by hiring, training and supervising the managers and employees
to operate the hotels. The Group is responsible for hotel development and customization to conform to the standards of Home Inns, as well as repairs and maintenance, operating expenses and management of properties over the term of the lease. Under
the lease arrangements, the Group typically pays fixed rent on a quarterly basis for the first three or five years of the lease term, after which the rental payments may be subject to an increase every three to five years.



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Franchised-and-managed hotels

The Group enters into certain franchise arrangements with property owners for which the Group is responsible for managing the hotels, including hiring and appointment of the general manager of each
franchised-and-managed hotel. Under a typical franchise agreement, the franchisee is required to pay an initial franchise fee and ongoing management service fees equal to a certain percentage of the revenues of the hotel. The franchisee is
responsible for the costs of hotel development and customization and the costs of its operations. The term of the franchise agreement is typically 5 years and is renewable only upon mutual agreement between the Group and the franchisee.

2. ACCOUNTING POLICIES

The principal accounting
policies adopted in the preparation of these consolidated financial statements are set out below:

a. Basis of presentation and use of estimates

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles
in the United States of America (US GAAP).

The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ materially from those estimates.

Certain accounts from prior years have been reclassified
with no effect on net income or retained earnings to conform to the 2007 financial statement presentation.

b. Basis of consolidation and accounting
for investments

The consolidated financial statements include the financial statements of the Company, its subsidiaries and VIE
subsidiaries.

The Group applies the provisions of Financial Accounting Standards Board (FASB) Interpretation No. 46
(Revised 2003), Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51(FIN 46(R)) to account for certain entities in which equity investors do not have the characteristics of a controlling
financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support.

Under FIN 46(R), a company consolidates a VIE if that company has a variable interest that will absorb a majority of the expected losses, receives a majority of the entitys expected residual returns, or both.
The company that absorbs a majority of the VIEs expected losses and receives a majority of the VIEs expected residual returns is a primary beneficiary.

The Group is the primary beneficiary of five variable interest entities, Home Inns & Hotels Management (Xiamen) Co., Ltd (Home Inns Xiamen), Home Inns & Hotels Management (Fuzhou) Co.,
Ltd (Home Inns Fuzhou), Home Inns & Hotels Management (Caoxi) Co., Ltd (Home Inns Caoxi), Home Inns & Hotels Management (Caobao) Co., Ltd (Home Inns Caobao), and Home Inns & Hotels
Kuaijie (Fuzhou) Co., Ltd (Home Inns Fuzhou Kuaijie), of which the principal activity generally relates to hotel management.



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The total registered capital of the five VIEs was RMB 5,010,000 as of December 31, 2007. The
entities were considered variable interest entities because the equity at risk of each entity was not sufficient to finance its intended activities without additional financial support. The Company has 51% ownership interest in Home Inns Xiamen,
Home Inns Fuzhou and Home Inns Caoxi, 70% ownership interest in Home Inns Fuzhou Kuaijie and 75% ownership interest in Home Inns Caobao, and the Company is considered the primary beneficiary of these entities because it absorbs a majority of the
entities expected losses and receives a majority of the entities expected residual returns. As a result, the operations of the VIEs are included in the consolidated financial statements since their incorporation.

The entities that operate the franchised-and-managed hotels (Note 1) are considered variable interest entities as the franchisees do not have the ability
to make decisions that have a significant impact on the success of the franchise arrangement. However, as the franchisees provide all necessary capital to finance the operation of the franchised hotels and absorb a majority of any expected losses,
the Company is not considered the primary beneficiary of those entities.

Subsidiaries are those consolidated entities in which the Company
directly or indirectly controls more than one half of the voting power; has the power to govern the financial and operating policies; to appoint or remove the majority of the members of the board of directors; to cast majority of votes at the
meetings of the board of directors; or to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.

All inter-company transactions and balances within the Group are eliminated upon consolidation. Minority interests represent the interests of outside
minority shareholders in the operating results and net assets of certain consolidated subsidiaries.

Investments in businesses that the
Company does not control, but has the ability to exercise significant influence over operating and financial matters are accounted for using the equity method. Unrealized gains on transactions between the Group and its affiliated companies are
eliminated to the extent of the Groups interest in the unconsolidated affiliated companies.

c. Foreign currencies

The Groups functional currency and reporting currency is Renminbi (RMB). Transactions denominated in currencies other than RMB are
translated into RMB at the exchange rates quoted by the Peoples Bank of China (the PBOC) prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into RMB using
the applicable exchange rates quoted by the PBOC at the balance sheet dates. All such exchange gains and losses resulting from foreign currency transactions are included in the consolidated statements of operations.

The RMB is not a freely convertible currency. The PRC State Administration for Foreign Exchange, under the authority of the Peoples Bank of China,
controls the conversion of RMB into foreign currencies. The value of the RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China foreign exchange
trading system market.

d. Convenience translation

Translations of balances in the statements of operations, balance sheet and statement of cash flows from RMB into United States dollars (US$) as of and for the year ended December 31, 2007 are solely for
the convenience of the reader and were calculated at



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the rate of US$1.00 = RMB 7.2946, on December 31, 2007, representing the noon buying rate in The City of New York for cable transfers of RMB, as
certified for customs purposes by the Federal Reserve Bank of New York. No representation is intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2007, or at
any other rate.

e. Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less that are placed with banks or other
financial institutions. Cash balance as of December 31, 2006 consists of RMB 113,135,507, US$82,488,096 and HK$738,890. Cash balance as of December 31, 2007 consists of RMB 38,185,717, US$ 208,422,581 and HK$ 2,105,053.

f. Restricted cash

Restricted cash is
securities provided for short-term loans.

g. Allowance for doubtful accounts

Provision is made against receivables to the extent collection is considered to be doubtful. Accounts receivable in the balance sheet are stated net of
such provision, if any. As of December 31, 2006 and 2007, allowance provided for other receivables were RMB nil and RMB 362,500, respectively.

h. Consumables

The Group purchases consumables mainly for the operation of leased-and-operated hotels. Consumables
are amortized over their useful lives, generally one year or less, from the time they are put into use and are stated at purchase price less accumulated amortization.

i. Property and equipment, net

Property and equipment are stated at cost less accumulated
depreciation and amortization and impairment losses, if any. The cost of property and equipment comprises its purchase price and any directly attributable costs, including interest cost capitalized in accordance with SFAS No. 34,
Capitalization of Interest Costs (SFAS No. 34), during the period the asset is brought to its working condition and location for its intended use.

Depreciation and amortization of property and equipment is provided using the straight line method over their expected useful lives. The expected useful
lives are as follows:



|                                         |  |                                                                 
|---------------------------------------- |  | ----------------------------------------------------------------
|Buildings                                |  | 40 years                                                        
|                                         | 
|Leasehold improvements                   |  | Over the shorter of the economic useful life or the lease period
|                                         | 
|Machinery and equipment                  |  | 5 to 10 years                                                   
|                                         | 
|Furniture, fixtures and office equipment |  | 3 to 5 years                                                    

Construction in progress represents leasehold improvements under construction or installation is
stated at cost. Cost comprises original cost of property and equipment, installation, construction and other direct costs. Construction in progress is transferred to leasehold improvements and amortization commences when the asset is ready for its
intended use.

Expenditures for repairs and maintenance are expensed as incurred. Gain or loss on disposal of property and equipment, if
any, is recognized in the statements of operations as the difference between the net sales proceeds and the carrying amount of the underlying asset.



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j. Goodwill

Goodwill represents the excess of the cost of an acquired entity over the appropriate share of the fair value of the identifiable assets and liabilities acquired including separately identifiable intangible assets.
The provisions of SFAS No. 142, Goodwill and Other Intangible Assets(SFAS No. 142) require that a two-step impairment test be performed annually or whenever events or changes in circumstances indicate that
the carrying value of the goodwill may not be recoverable. The first step of the test for impairment compares the book value of the Groups reporting unit under which goodwill is recorded to its estimated fair value. The second step of the
goodwill impairment test, which is only required when the net book value of the reporting unit exceeds the fair value, measures the impairment as the difference between the implied fair value of goodwill and its book value. Goodwill is not
amortized. No impairment was recognized for the years ended December 31, 2005, 2006, and 2007.

k. Intangible assets, net

Intangible assets consist primarily of intangible assets acquired in business combinations. The Group applies the criteria specified in SFAS No. 141
Business Combinations (SFAS No. 141) to determine whether an intangible asset should be recognized separately from goodwill. Intangible assets acquired through business combinations are recognized as assets separate
from goodwill if they satisfy either the contractual-legal or separability criterion. Intangible assets, including favorable lease agreements and certain franchise agreements existing as of the date of acquisition, are
recognized and measured at fair value upon acquisition. Intangible assets from such business combination transactions are amortized over the remaining operating lease term or the franchise agreement term, as appropriate. Unfavorable lease acquired
through business combinations is recognized as a liability.

Purchased software is stated at cost less accumulated amortization and
impairment, if any.

l. Impairment of long-lived assets and definite-lived intangible assets

Long-lived assets and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that carrying
amount of an asset may not be recoverable in accordance with SFAS No.144, Accounting for the Impairment or Disposal of Long-lived Assets (SFAS No. 144). If the total of the expected future undiscounted cash flows
is less than the carrying value, an indication of impairment is present and a loss is recognized in the statements of operations for the difference between the fair value, using the expected future discounted cash flows, and the carrying value of
the assets. No impairment was recognized for the years ended December 31, 2005, 2006, and 2007.

m. Fair value of financial instruments

Financial instruments of the Group primarily comprise of cash and cash equivalents, restricted cash, receivables, payables, accruals,
borrowings and convertible bonds. As of December 31, 2006 and 2007, carrying values of these financial instruments approximated their fair values.

n. Employee benefits

The employees of the Companys PRC subsidiaries and VIE subsidiaries are entitled to staff
welfare benefits including medical care, housing fund, unemployment insurance and pension benefits. These entities are required to accrue for these benefits based on certain percentages of the employees salaries, subject to certain ceilings,
in accordance with the relevant PRC regulations and make



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contributions to the government-sponsored plans out of the amounts accrued. Amounts accrued and included in salaries and welfare payable and other unpaid and
accruals in the accompanying balance sheets were RMB 1,230,005 and RMB 3,062,797 for the years ended December 31, 2006 and 2007, respectively.

o. Accruals for customer reward program

The Group invites its customers to participate in a customer reward program.
Prior to November 14, 2004, membership was free of charge. A one-time membership fee was charged after that date for new members. Members enjoy discounts on room rates, priority in hotel reservation, and accumulate membership points for their
paid stays, which can be redeemed for membership upgrades, room night awards and other gifts. The estimated incremental costs to provide membership upgrades, room night awards and other gifts are accrued and recorded as accruals for customer reward
program as members accumulate points and recognized as sales and marketing expense in the accompanying statements of operations. As members redeem awards or their entitlements expire, the provision is reduced correspondingly. As of December 31,
2006 and 2007, the accruals for customer reward program amounted to RMB 2,743,366 and RMB 5,438,922 , respectively, based on the estimated liabilities under the customer reward program.

p. Deferred Revenue

Deferred revenue generally consists of advances received from customers
for room stays, initial franchise fees paid prior to the Group fulfilling its commitments to the franchisee, and cash received from sale of membership programs. Deferred revenue, non-current represents cash received from sales of membership
programs, which should be recognised after one year from the balance sheet date.

q. Revenue recognition

Revenues from leased-and-operated hotels represent primarily room rentals and food and beverage sales from the leased-and-operated hotels. Such revenues
are recognized when goods and services are delivered.

Revenues from franchised-and-managed hotels are derived from franchise agreements
where the franchisees are required to pay (i) an initial one-time franchise fee and (ii) on-going management and service fees based on a percentage of revenue, which approximate 6% to 7% of the room revenues of the franchised hotels. The
one-time franchise fee is recognized when the franchised hotel opens for business, the fee becomes non-refundable, and the Group has fulfilled all its commitments and obligations, including the assistance to the franchisees in property design,
leasehold improvement construction project management, systems installation, personnel recruiting and training. On-going management and service fees are recognized when the underlying service revenue is recognized by the franchisees
operations. Other revenues generated from franchise agreements include system maintenance and support fee and central reservation system (CRS) usage fee, which are recognized when services are provided.

Revenues from the one-time membership fees are recognized over the estimated average customer relationship period. Prior to 2006, given the limited
history in operating the Groups customer reward program (Note 2(o)), all one-time membership fees were recognized as deferred revenue when received. In 2006, management made an analysis on the historic pattern of the activities of membership
cards and noted that membership cards with no activities for more than a year are most likely to expire in the future and therefore the Group recognized revenue from one-time membership fees when membership records show no activity within a year.
For the years ended December 31, 2005, 2006 and 2007, the Company recognized revenue of RMB nil, RMB 1,802,462 and RMB 3,380,863 from one-time membership fees.



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r. Business tax and related surcharge

The Group is subject to business tax and related surcharges on the services provided in the PRC. Such tax is levied based on turnover at an applicable
rate of approximately 5.5% and is recorded as a reduction of revenues.

s. Leased-and-operated hotel costs

Leased-and-operated hotel costs include all direct costs incurred in the operation of the leased-and-operated hotels and consist primarily of property
rentals and related expenses, utility costs, personnel compensation, amortization of guest room consumables, amortization of leasehold improvements, depreciation of equipment, costs of consumables, food and beverage.

t. Sales and marketing

Sales and marketing
expenses consist primarily of advertising related expenses, expenses associated with the Companys membership reward program and payroll and related compensation for the Groups sales and marketing personnel. Advertising related expenses,
including promotion expenses and production costs of marketing materials, are charged to the statements of operations as incurred, and amounted to RMB 4,668,580, RMB 5,334,465 and RMB 10,433,627 for the years ended December 31, 2005, 2006 and
2007, respectively.

u. Share-based compensation

Prior to December 31, 2005, the Group accounted for share-based compensation arrangements in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees (APB No. 25), and complied with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). Under APB No. 25, compensation cost
is recognized based on the difference, if any, between the estimated fair value of the Groups ordinary shares and the amount an employee is required to pay to acquire the ordinary shares, as determined on the date the option is granted. Total
compensation cost is recorded in shareholders equity as additional paid-in capital and deferred share-based compensation. Deferred share-based compensation is amortized on a straight-line basis and charged to expense over the vesting period of
the underlying options.

Effective January 1, 2006, the Group adopted the fair value recognition provisions of SFAS No. 123 (revised 2004),
Share-Based Payment(SFAS No. 123(R)), which revises SFAS No. 123, and supersedes APB No. 25. Under the fair value recognition provisions of SFAS No. 123(R), the Group applied the prospective transition
method and measured share-based compensation at fair value on the awards grant date based on the estimated number of awards that are expected to vest. Under the prospective transition method, the Group continued to account for non-vested
awards outstanding under the provisions of APB No. 25. Only awards granted (or modified, repurchased, or cancelled) after the adoption of SFAS No. 123(R) were accounted for under the provisions of SFAS No. 123(R). The Deferred share-based
compensation line on the Consolidated Balance Sheet, a contra-equity line representing the amount of unrecognized share-based compensation costs, was eliminated as of January 1, 2006.

In conjunction with the adoption of SFAS No. 123(R), the Group was required to estimate forfeitures at the time of grant and revise in subsequent
periods if actual forfeitures differ from those estimates. Compensation expense was recognized on a straight-line basis over the requisite service period of the award based on the fair value of the award on grant date. The requisite service period
is the vesting period, which is generally 4 years.



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If the compensation cost for the year ended December 31, 2005 had been determined based on the fair
value at the grant dates for the share option awards as prescribed by SFAS No. 123, the Groups net income attributable to ordinary shareholders and earnings per share would have resulted in the pro forma amounts disclosed below.



|                                                                |  |            |  
|--------------------------------------------------------------- |  | ---------- | -
|                                                                |  | 2005       |  
|Net income, as reported                                         |  | 20,932,672 |  
|Add: Compensation expense under APB No. 25                      |  | 959,826    |  
|Less: Compensation expense under SFAS No. 123                   |  | (1,049,442 | )
|                                                                |  |            |  
|Pro forma net income                                            |  | 20,843,056 |  
|                                                                |  |            |  
|Less: Amount allocated to participating preference shareholders |  | (9,446,330 | )
|                                                                |  |            |  
|Pro forma net income attributable to ordinary shareholders      |  | 11,396,726 |  
|                                                                |  |            |  
|Basic earnings per share                                        |  |            |  
| As reported                                                   |  | 0.42       |  
|                                                                |  |            |  
| Pro forma                                                     |  | 0.42       |  
|                                                                |  |            |  
|Diluted earnings per share                                      |  |            |  
| As reported                                                   |  | 0.40       |  
|                                                                |  |            |  
| Pro forma                                                     |  | 0.40       |  
|                                                                |  |            |  

v. Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases net of any incentives received from the
lessor are charged to the consolidated statements of operations on a straight-line basis over the terms of the underlying lease.

w. Borrowing costs

Interest costs are capitalized for qualifying assets in accordance with SFAS No. 34, Capitalization of Interest
Cost. For the years ended December 31, 2005, 2006, and 2007, total interest capitalized was RMB 264,659, RMB 966,310 and RMB 1,558,069 , respectively.

x. Pre-operating expenditure

Pre-operating expenditure represents start-up costs, other than
amounts capitalized as leasehold improvements, for leased-and-operated hotels is charged to the consolidated statements of operations in the period in which it is incurred.

y. Taxation

Income tax expenses are recorded using the liability method. Deferred tax assets
or liabilities are recognized for the estimated future tax effects attributable to temporary differences and tax loss carry forwards. Deferred tax assets and liabilities are measured



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using enacted income 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 taxes of a change in tax rates is recognized in statements of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the amount of deferred tax assets if it is considered more
likely than not that such assets will not be realized.

z. Other non-operating income

Other non-operating income primarily consists of financial subsidies received from provincial and local governments for operating a business in their jurisdictions and
compliance with specific policies promoted by the local governments. During the years ended December 31, 2005 , 2006 and 2007, the Group received financial subsidies of RMB 1,983,546, RMB 4,934,311 and RMB 6,854,234, respectively, from various local
PRC government authorities. There are no defined rules and regulations to govern the criteria necessary for companies to receive such benefits, and the amount of financial subsidy are determined at the discretion of the relevant government
authorities. Such amounts are recorded as other non-operating income when received.

aa. Statutory reserves

Based on the legal formation of the entities, appropriation of statutory reserves may be different. The Groups PRC subsidiaries and VIE
subsidiaries, except for Home Inns Beijing, Hemei Hotel Management (Shanghai) Limited (Hemei), Shanghai Huiju Hotel Equipment Lease Co., Ltd. (Huiju) and Hong Kong Ai Home Investment Company (Ai Home) are required
to set aside 10% of its net income as reported in its statutory accounts on an annual basis to the Statutory Surplus Reserve Fund. Once the total Statutory Surplus Reserve reaches 50% of the registered capital of the respective subsidiaries, further
appropriations are discretionary. The Statutory Surplus Reserve can be used to increase the registered capital and eliminate future losses of the respective companies under PRC GAAP. The Groups Statutory Surplus Reserve is not distributable to
shareholders except in the event of liquidation. Before January 1, 2006, the above subsidiaries were also required on an annual basis to set aside at least 5% of after-tax profit, calculated in accordance with PRC accounting standards and
regulations, to the Statutory Surplus Welfare Fund, which can be used for staff welfare of the Group. Effective from January 1, 2006, the appropriation to the Statutory Surplus Welfare Fund is no longer required.

Hemei, Huiju, Ai Home and Home Inns Beijing, wholly foreign owned enterprises, are required to set aside at least a 10% of their net income as reported in their PRC
statutory accounts on an annual basis to the Reserve Fund. Once the total Reserve Fund reaches 50% of the registered capital , further appropriations are discretionary. Hemei, Huiju, Ai Home and Home Inns Beijing are also required to set aside a
portion of their net income as reported in their PRC statutory accounts, at the discretion of their board of directors, on an annual basis to Workers Bonus and Welfare Fund.

Appropriations to the Workers Bonus and Welfare Fund are recognized as general and administrative expenses and charged to the consolidated
statements of operations. During the years ended December 31, 2005, 2006, and 2007, no appropriations were made to the Workers Bonus and Welfare Fund.



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Appropriations to the Statutory Surplus Reserves and Reserve Fund are accounted for as a transfer from
retained earnings to statutory reserves. During the years ended December 31, 2005, 2006 and 2007, the Group made total appropriations to these statutory reserves of RMB 8,036,956, RMB 12,054,521 and RMB 17,919,040, respectively.

There are no legal requirements in the PRC to fund these statutory reserves by transfer of cash to any restricted accounts, and the Group does not do so.
These reserves are not distributable as cash dividends.

ab. Dividends

Dividends are recognized when declared. The Company has not declared or paid any dividends.

The Company relies principally on dividends from its subsidiaries and VIE subsidiaries in the PRC for its cash requirements. Current PRC regulations
permit PRC companies to pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. Additionally, the Companys PRC subsidiaries and VIE subsidiaries can only distribute
dividends after they have met the PRC requirements for appropriation to statutory reserves (Note 2aa). Restricted net asset of the Companys PRC subsidiaries and VIE subsidiaries not distributable in the form of dividends to the parent as a
result of the aforesaid PRC regulations was RMB 824,662,699 as of December 31, 2007.

ac. Earnings per share

In accordance with SFAS No. 128, Computation of Earnings Per Share(SFAS No. 128) and EITF No. 03-6,
Participating Securities and the Two-Class Method under FASB Statement No. 128(EITF No. 03- 6), basic earnings per share is computed by dividing net income attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during the year using the two-class method. Under the two class method, net income is allocated between ordinary shares and other participating securities based on their respective participating
rights. The Companys convertible preferred shares are participating securities. Diluted earnings per share is calculated by dividing net income attributable to ordinary shareholders as adjusted for the effect of dilutive ordinary equivalent
shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalent shares outstanding during the year. Ordinary equivalent shares consist of the ordinary shares issuable upon the conversion of the convertible redeemable
preferred shares and convertible bond (using the if-converted method) and restricted stock and ordinary shares issuable upon the exercise of outstanding share options (using the treasury stock method).

ad. Segment reporting

The Company follows
SFAS No. 131, Disclosures about Segment of an Enterprise and Related Information for its segment reporting.

The
Company operates and manages its business as a single segment. The Company primarily generates its revenues from customers in the PRC. Accordingly, no geographical segments are presented.



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ae. Recent accounting pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157), which defines fair
value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No 157 does not require any new fair value measurements, but provides guidance on how to
measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. However, on February 12, 2008, the FASB issued FSP
FAS 157-2 which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least
annually). This FSP partially defers the effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. Effective for 2008, the
Company will adopt SFAS No. 157 except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in FSP FAS 157-2. The partial adoption of SFAS No.157 is not expected to have a material impact on the Companys
consolidated financial position, cash flows, or results of operations.

In February 2007, the FASB issued SFAS No. 159, The Fair
Value Option for Financial Assets and Financial Liabilities (SFAS No. 159) which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be
measured at fair value. SFAS No. 159 will be effective for the Company on January 1, 2008. The adoption of SFAS No. 159 is not expected to have a material impact on the Companys consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141R) and SFAS
No. 160, Accounting and Reporting of Noncontrolling Interest in Consolidated Financial Statements, an amendment of ARB 51 (SFAS No. 160), which will change the accounting for and reporting of business
combination transactions and noncontrolling interests in consolidated financial statements. SFAS No.141R and SFAS No.160 will be effective for the Company on January 1, 2009. The Company is currently evaluating the impact of adopting SFAS
No.141R and SFAS No.160 on its consolidated financial statements.

af. Certain risks and concentration

Financial instruments that potentially subject the Group to significant concentrations of credit risk consist primarily of cash and accounts receivable.
As of December 31, 2006 and 2007, substantially all of the Companys cash was held in major financial institutions located in the PRC, Hong Kong and the United States of America, which management considers to be of high credit quality. Accounts
receivable are typically not collateralized and are denominated in RMB, and are derived from revenues earned from operations arising in the PRC. No individual customer accounted for more than 10% of net revenues for the years ended December 31,
2005, 2006 and 2007.No individual customer accounted for more than 10% of accounts receivable as of December 31, 2006 and 2007.

3.
PREPAYMENTS AND OTHER CURRENT ASSETS

Components of prepayments and other current assets as of December 31 are as follows:



|                          |  |            |  |            |  
|------------------------- |  | ---------- |  | ---------- | -
|                          |  | 2006       |  | 2007       |  
|Prepaid expenses          |  | 7,257,126  |  | 40,560,280 |  
|Rental and other deposits |  | 561,606    |  | 1,251,154  |  
|Other current assets      |  | 2,710,892  |  | 20,477,548 |  
|Allowance                 |  |           |  | (362,500   | )
|                          |  |            |  |            |  
|Total                     |  | 10,529,624 |  | 61,926,482 |  
|                          |  |            |  |            |  

Prepaid expenses consist of prepaid rental expenses and prepaid utility expenses. Other current assets consist of
interest receivables and receivables related to acquisition of Top Star hotel chain.



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##### Table of Contents

4. PROPERTY AND EQUIPMENT

The components of property and equipment are as follows:



|                                                |  |             |   |  |               |  
|----------------------------------------------- |  | ----------- | - |  | ------------- | -
|                                                |  | 2006        |   |  | 2007          |  
|Buildings                                       |  |            |   |  | 9,813,600     |  
|Leasehold improvements                          |  | 390,111,963 |   |  | 895,414,247   |  
|Machinery and equipment                         |  | 30,371,182  |   |  | 68,875,608    |  
|Furniture, fixtures and office equipment        |  | 87,971,890  |   |  | 193,403,238   |  
|Construction in progress                        |  | 28,010,120  |   |  | 161,583,261   |  
|                                                |  |             |   |  |               |  
|                                                |  | 536,465,155 |   |  | 1,329,089,954 |  
|Less: Accumulated depreciation and amortization |  | (78,406,547 | ) |  | (181,408,491  | )
|                                                |  |             |   |  |               |  
|Property and equipment, net                     |  | 458,058,608 |   |  | 1,147,681,463 |  
|                                                |  |             |   |  |               |  

Depreciation and amortization expenses incurred for the years ended December 31, 2005, 2006
and 2007 are RMB 23,481,563, RMB 46,013,889 and RMB 85,404,871 respectively.

Included in leasehold improvements and construction in
progress is accumulated capitalized interest of RMB 264,659, RMB 1,230,969 and RMB 2,789,038 as of December 31, 2005, 2006 and 2007, respectively.

5. INTANGIBLE ASSETS AND UNFAVORABLE LEASE

Intangible assets and unfavorable lease as of December 31 are as follows:



|                                 |  |            |   |  |            |  
|-------------------------------- |  | ---------- | - |  | ---------- | -
|                                 |  | 2006       |   |  | 2007       |  
|Intangible assets               |  |            |   |  |            |  
|Favorable lease agreements       |  | 803,683    |   |  | 41,762,505 |  
|Franchise agreements             |  | 730,548    |   |  | 730,548    |  
|Customer relationship            |  |           |   |  | 83,458     |  
|Purchased software               |  | 2,655,243  |   |  | 7,896,396  |  
|                                 |  |            |   |  |            |  
|                                 |  | 4,189,474  |   |  | 50,472,907 |  
|                                 |  |            |   |  |            |  
|Less: Accumulated amortization  |  |            |   |  |            |  
|Favorable lease agreements       |  | (444,387   | ) |  | (1,794,563 | )
|Franchise agreements             |  | (146,609   | ) |  | (318,604   | )
|Customer relationship            |  |           |   |  | (2,317     | )
|Purchased software               |  | (576,683   | ) |  | (1,618,030 | )
|                                 |  |            |   |  |            |  
|                                 |  | (1,167,679 | ) |  | (3,733,514 | )
|                                 |  |            |   |  |            |  
|Intangible assets, net           |  | 3,021,795  |   |  | 46,739,393 |  
|                                 |  |            |   |  |            |  
|                                 |  |           
|Unfavorable lease liability     |  |            |   |  |            |  
|                                 |  | 2006       |   |  | 2007       |  
|Unfavorable lease agreements     |  |           |   |  | 20,246,703 |  
|Less: Accumulated amortization   |  |           |   |  | (352,287   | )
|                                 |  |            |   |  |            |  
|Unfavorable lease liability, net |  |           |   |  | 19,894,416 |  
|                                 |  |            |   |  |            |  



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##### Table of Contents

Franchise agreements, favorable and unfavorable leases agreements were acquired in the purchase of
minority interests in Home Inns Beijing, equity of Top Star hotel chain and other acquisitions (Note 6). The values of favorable lease agreements were determined based on the estimated present value of the amount the company has avoided paying as a
result of entering into the lease agreements. Unfavorable lease agreements were determined based on the estimated present value of the acquired leases that are additional to the market prices. Unfavorable lease is recognised as a liability.
Franchise agreements were determined at the estimated present value of net cash flows expected to be received over the remaining terms of the franchise agreements. The value of favorable and unfavorable lease agreements is amortized using the
straight-line method over the remaining lease term. The value of franchise agreements is amortized using the straight-line method over the remaining terms of the franchise agreements.

Amortization expense of intangible assets for the years ended December 31, 2005, 2006, and 2007 amounted to RMB 363,936, RMB 588,747 and RMB
2,565,835, respectively.

The annual estimated amortization expense for the above intangible assets and unfavorable lease liability for the
following years is as follows:



|     |  |                                   |  |                                    |   |  |                
|---- |  | --------------------------------- |  | ---------------------------------- | - |  | ---------------
|     |  | Amortization forIntangible Assets |  | Amortization forUnfavourable Lease |   |  | NetAmortization
|2008 |  | 5,031,682                         |  | (1,664,288                         | ) |  | 3,367,394      
|2009 |  | 4,831,935                         |  | (1,651,458                         | ) |  | 3,180,477      
|2010 |  | 4,735,270                         |  | (1,645,033                         | ) |  | 3,090,237      
|2011 |  | 4,570,282                         |  | (1,637,708                         | ) |  | 2,932,574      
|2012 |  | 4,579,390                         |  | (1,637,631                         | ) |  | 2,941,759      
|     |  |                                   |  |                                    |   |  |                
|     |  | 23,748,559                        |  | (8,236,118                         | ) |  | 15,512,441     
|     |  |                                   |  |                                    |   |  |                

6. ACQUISITION

a. Acquisition of Beijing Huidong Milinde Investment Management Co. Ltd.

The Group and Beijing Yikang Meilin Network
Technology Ltd., (Yikang) entered into an equity transfer agreement in March 2007 for the Group to acquire 100% equity of Beijing Huidong Milinde Investment Management Co. Ltd., (Huidong), a subsidiary of Yikang. Huidongs primary assets
included a leased-and-operated hotel, which was previously under franchise agreement with the Company. Accordingly, Huidong has been consolidated by the Group as of April 2007. The acquisition resulted in the recognition of goodwill and intangible
assets (favorable leases) amounting to RMB 32.32 million and RMB 8.24 million, respectively.

b. Acquisition of Beijing City Sunshine Hotel
Management Inc.

The Group and Yousheng Fanya (Beijing) Investment Co. Ltd., entered into an equity transfer agreement in June 2007
for the Group to acquire 100% equity of Beijing City Sunshine Hotel Management Inc (City Sunshine). City Sunshine has been consolidated by the Group as of July 2007. The acquisition resulted in the recognition of goodwill and intangible assets
(favorable leases) estimated at approximately RMB 29.77 million and RMB 4.95 million, respectively, subject to final consideration payment adjustments.

c. Acquisition of the remaining 4.412% stake in Home Inns Beijing

The Group and Poly Victory Investments Ltd, the
minority shareholder of Home Inns Beijing, entered into an equity transfer agreement in July 2007 for the Group to acquire the remaining 4.412% minority interest of Home Inns Beijing, with the total consideration consisting of RMB 60 million
and 441,669 ordinary shares of Home Inns (a total of RMB 113,782,174). Home Inns Beijing has been fully consolidated by the Group as of August 2007. The following table summarizes the estimated fair values of the assets acquired and liabilities
assumed at the date of acquisition:



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##### Table of Contents

Allocation of purchase price (in RMB):



|                                           |  |             |  
|------------------------------------------ |  | ----------- | -
|Fair value of net tangible assets acquired |  | 5,062,513   |  
|Intangible assets-favorable lease          |  | 9,419,074   |  
|Intangible assets-customer relationship    |  | 83,458      |  
|Unfavorable lease liability                |  | (4,048,703  | )
|Goodwill                                   |  | 104,165,714 |  
|Net deferred tax liability, non-current    |  | (899,882    | )
|                                           |  |             |  
|Total purchase price                       |  | 113,782,174 |  
|                                           |  |             |  

d. Acquisition of Top Star hotel chain

The Group, Hong Kong Ai Home Hotel Investment Company and Shanghai Chuwen Investment Co., Ltd., collectively the Top Star hotel chain (Top Star), entered
into an equity transfer agreement in October 2007 for the Group to acquire 100% equity of Top Star. The cost of the acquisition was based on the sum of (i) the estimated fair value of the 655,831 shares issued, (ii) cash consideration of
RMB 68 million, and (iii) the assumption of debts for RMB 192 million. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

Allocation of purchase price (in RMB):



|                                           |  |             |  
|------------------------------------------ |  | ----------- | -
|Fair value of net tangible assets acquired |  | 170,404,069 |  
|Intangible assets-favorable lease          |  | 18,345,000  |  
|Unfavorable lease liability                |  | (16,198,000 | )
|Goodwill                                   |  | 198,263,889 |  
|Deferred tax liability, non-current        |  | (354,255    | )
|                                           |  |             |  
|Total purchase price                       |  | 370,460,703 |  
|                                           |  |             |  

e. Unaudited Pro forma Financial Information

The following unaudited consolidated pro forma information presents information of the Group as if all acquisitions above occurred on January 1, 2006.



|                       |  |                                     |  |                                     |  
|---------------------- |  | ----------------------------------- |  | ----------------------------------- | -
|(in RMB)               |  | For the year endedDecember 31, 2006 |  | For the year endedDecember 31, 2007 |  
|                       |  | (unaudited)                         |  | (unaudited)                         |  
|Net revenues           |  | 578,446,023                         |  | 1,018,658,311                       |  
|Income from operations |  | 32,527,191                          |  | 28,231,557                          |  
|Net income/(loss)      |  | 3,387,731                           |  | (42,304,342                         | )
|Earnings per share     |  |                                     |  |                                     |  
|Basic                  |  | 0.09                                |  | (0.60                               | )
|Diluted                |  | 0.09                                |  | (0.60                               | )

The unaudited pro forma financial information includes RMB 1,424,898 and RMB 716,245 in 2006 and
2007, respectively for the amortization of identifiable intangible assets. The information presented above is for illustrative purposes only and does not purport to be indicative of results that would have been achieved if the acquisition had
occurred as of January 1, 2006.



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##### Table of Contents

7. INCOME TAXES

Cayman Islands

Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain.
In addition, upon payments of dividends by the Company to its shareholders, no Cayman Islands withholding tax will be imposed.

Hong Kong

Home Inns HK was subject to Hong Kong profit tax at a rate of 17.5% on its assessable profit. No Hong Kong profit tax has been provided
as the Group did not have assessable profit that was earned in or derived from Hong Kong during the years presented.

PRC

The Companys subsidiaries and its VIE subsidiaries incorporated in the PRC are subject to PRC Enterprise Income Tax (EIT) on the taxable income as
reported in their respective statutory financial statements adjusted in accordance with relevant PRC income tax laws. Normally, the applicable EIT rates of these entities, are 30% plus a local income tax of 3%. Five of the Groups subsidiaries
and VIE subsidiaries enjoy a preferential income tax rate of 15%.

Certain other subsidiaries of the Group were granted by local tax authorities a one-year
to three-year EIT exemption on their taxable income, respectively, commencing from their establishment, which began in 2005, 2006 and 2007, respectively. For the years ended December 31, 2005, 2006 and 2007, total tax benefits recognized by these
subsidiaries as a result of the tax exemption were RMB 4,227,738, RMB 1,821,440 and RMB 1,771,185.

The aggregate and per share effect of the tax
exemptions available to the Group are as follows:



|                         |  |           |  |           |  |          
|------------------------ |  | --------- |  | --------- |  | ---------
|                         |  | 2005      |  | 2006      |  | 2007     
|Aggregate effect         |  | 4,227,738 |  | 1,821,440 |  | 1,771,185
|Per share effectbasic   |  | 0.08      |  | 0.03      |  | 0.03     
|Per share effectdiluted |  | 0.08      |  | 0.03      |  | 0.02     
|                         |  |           |  |           |  |          

Effective from January 1, 2008, the Companys subsidiaries and its VIE subsidiaries should determine and
pay the corporate income tax in accordance with the Corporate Income Tax Law of the Peoples Republic of China (hereinafter the new CIT Law) as approved by the National Peoples Congress on March 16, 2007. Under the new
CIT Law, the corporate income tax rate applicable to most of the Groups PRC entities has been decreased from 33% to 25% from 2008. Due to the change, the Company recognised a non-recurring provision of RMB 6,096,529 for deferred tax for the
year ended December 31, 2007.

Additionally, according to the newly issued tax law, 10% withholding income tax (WHT) will be levied on the
foreign investor for dividend arises from foreign investment enterprises (FIEs) profit earned after January 1, 2008. Where FIEs declare dividend in 2008 and beyond out of the cumulative retained earnings as of December 31,
2007, such dividends earned by the foreign investors shall be exempt from WHT. For certain treaty jurisdictions such as Hong Kong which has signed tax treaties with the PRC, the WHT rate is 5%. The Company does not expect that the new tax rule will
have a material impact to the Companys financial statements.



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##### Table of Contents

Composition of income tax expense

The current and deferred portion of income tax expense (benefit) included in the consolidated statements of operations for the years ended December 31 is as follows:



|                            |  |            |   |  |             |   |  |             |  
|--------------------------- |  | ---------- | - |  | ----------- | - |  | ----------- | -
|                            |  | 2005       |   |  | 2006        |   |  | 2007        |  
|Current income tax expense  |  | 16,453,611 |   |  | 38,736,179  |   |  | 68,668,284  |  
|Deferred income tax benefit |  | (9,927,633 | ) |  | (17,345,568 | ) |  | (23,632,754 | )
|                            |  |            |   |  |             |   |  |             |  
|Income tax expense          |  | 6,525,978  |   |  | 21,390,611  |   |  | 45,035,530  |  
|                            |  |            |   |  |             |   |  |             |  

Reconciliation of the differences between statutory tax rate and the effective tax rate

A reconciliation between the statutory EIT rate and the Groups effective tax rate for the years ended December 31 is as follows:



|                                                                           |  |      |    |  |      |    |  |      |   
|-------------------------------------------------------------------------- |  | ---- | -- |  | ---- | -- |  | ---- | --
|                                                                           |  | 2005 |    |  | 2006 |    |  | 2007 |   
|Statutory EIT rate                                                         |  | 33   | %  |  | 33   | %  |  | 33   | % 
|                                                                           |  |      |   
|Tax differential from statutory rate applicable to subsidiaries in the PRC |  | (30  | )% |  | (18  | )% |  | (27  | )%
|Impacts from changed EIT rate from 33% to 25%                              |  |     |    |  |     |    |  | 18   | % 
|Non-deductible expenses under tax laws                                     |  | 7    | %  |  | 4    | %  |  | 17   | % 
|Permanent difference                                                       |  | 10   | %  |  | 10   | %  |  | 11   | % 
|                                                                           |  |      |    |  |      |    |  |      |   
|Effective EIT rate                                                         |  | 20   | %  |  | 29   | %  |  | 52   | % 
|                                                                           |  |      |    |  |      |    |  |      |   



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##### Table of Contents

Deferred tax assets and liabilities comprised:



|                                                                                      |  |            |  |             |  
|------------------------------------------------------------------------------------- |  | ---------- |  | ----------- | -
|                                                                                      |  | 2006       |  | 2007        |  
|Deferred tax assets, current:                                                         |  |            |  |             |  
|Tax loss carry forwards                                                               |  | 3,129,732  |  | 10,812,486  |  
|Deductible temporary differences related to:                                          |  |            |  |             |  
|-pre-operating expenses                                                               |  | 1,220,353  |  | 4,002,397   |  
|-rental expenses                                                                      |  | 129,383    |  | 479,329     |  
|-accruals for customer reward program                                                 |  | 905,311    |  | 1,374,121   |  
|-others                                                                               |  | 286,160    |  | 956,076     |  
|Valuation allowance                                                                   |  |           |  | (1,050,572  | )
|                                                                                      |  |            |  |             |  
|                                                                                      |  | 5,670,939  |  | 16,573,837  |  
|                                                                                      |  |            |  |             |  
|Deferred tax assets, non-current:                                                     |  |            |  |             |  
|Tax loss carry forwards                                                               |  |           |  | 30,372,697  |  
|Deductible temporary differences related to:                                          |  |            |  |             |  
|-rental expenses                                                                      |  | 16,813,502 |  | 28,735,486  |  
|-pre-operating expenses                                                               |  | 4,612,108  |  | 15,108,117  |  
|-deferred revenue                                                                     |  | 4,275,789  |  | 7,389,835   |  
|-unfavorable lease                                                                    |  |           |  | 3,282,578   |  
|-Others                                                                               |  | 719,400    |  | 437,023     |  
|Valuation allowance                                                                   |  |           |  | (36,301,942 | )
|                                                                                      |  |            |  |             |  
|                                                                                      |  | 26,420,799 |  | 49,023,794  |  
|                                                                                      |  |            |  |             |  
|Total deferred tax assets                                                             |  | 32,091,738 |  | 65,597,631  |  
|                                                                                      |  |            |  |             |  
|                                                                                      |  |           
|Deferred tax liabilities, non-current:                                                |  |            |  |             |  
|Taxable temporary differences related to intangible assets and other GAAP differences |  | 165,074    |  | 13,636,670  |  
|                                                                                      |  |            |  |             |  
|Total deferred tax liabilities                                                        |  | 165,074    |  | 13,636,670  |  
|                                                                                      |  |            |  |             |  

The Group had tax loss carryforward of RMB164,740,732 as of December 31, 2007 which contained Top Stars
tax loss carryforward of RMB121,490,790. The realization of Top Stars tax loss carryforward has reduced goodwill at the date of acquisition (October 2007). The Groups remaining tax loss carryforward will be net against future taxable
income. These tax losses will expire on January 1, 2013.

8. BORROWINGS



|                                                                                                                                                    |  |             |  |            
|--------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- |  | -----------
|                                                                                                                                                    |  | 2006        |  | 2007       
|Short-term bank loans                                                                                                                               |  | 124,000,000 |  | 269,000,000
|                                                                                                                                                    |  |             |  |            
|Short-term bank loans bear interests at the
rate ranging from 6.48% to 6.84% for 2007 (2006: 5.022% to 5.580%) per annum and are repayable in 2008.
|                                                                                                                                                    |  | 2006        |  | 2007       
|Long-term bank loans                                                                                                                                |  |            |  | 18,036,135 
|                                                                                                                                                    |  |             |  |            

Long-term bank loans bear interests at the rate of 6.57% for 2007, and are repayable in 2009.



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##### Table of Contents

9. CONVERTIBLE BOND

In December 2007, the Company issued RMB1,110 million of USD settled zero coupon convertible bonds (the Bonds) due 2012. The bonds will mature on December 10, 2012.

Each Bond will, at the option of the holder, be convertible (unless previously redeemed, converted or purchased and cancelled) on or after March 9, 2008
into fully paid ordinary shares with a par value of US$0.005 each of the Company at the USD equivalent of its RMB principal amount. The conversion price is subject to adjustment upon the occurrence of certain events.

Unless previously redeemed, converted or purchased and cancelled, the Bonds will be redeemed on December 10, 2012 at an amount equal to the USD
equivalent of their RMB principal amount multiplied by 102.53%. At any time after December 10, 2010 and prior to December 10, 2012, the Company may redeem all but not some only of the Bonds at a redemption price equal to the USD equivalent of their
redemption amount (represents for the bondholder a gross yield to maturity of 0.5% per annum calculated on a semi-annual basis) on the redemption date if the closing price of the ADSs for each of 20 out of 30 consecutive trading days prior to the
date upon which notice of such redemption is given, was at least 125% of the convention price then in effect translated into RMB at the fixed exchange rate of US$1.00 to RMB7.40. The Company may redeem all and not some only of the Bonds at a
redemption price equal to the USD of their early redemption amount on the redemption date if at any time at least 90% in principal amount of the Bonds has already been converted, redeemed or purchased and cancelled.

The Bonds may also be redeemed at the option of the holders at a redemption price equal to the USD equivalent of their early redemption amount upon the
ADSs ceasing to be listed on the Nasdaq Global Market or the occurrence of a change of control. All and not some only of the Bonds may be redeemed at any time at a redemption price equal to the USD of their early redemption amount in the event of
certain changes relating to Cayman Islands or PRC taxation, subject to the non-redemption option of each bondholder after the exercise by the Company of its tax redemption option.

The Bonds were recorded as a long-term liability. Its embedded redemption and conversion features were not bifurcated under SFAS 133, Accounting
for Derivative Instruments and Hedging Activities. The issuance cost related to the Bonds offering amounted to approximately US$4.3 million and was recorded as deferred financing charges in other assets.

As of December 31, 2007, the fair value of the Bonds approximated its carrying value based on quoted market price. The shares issuable upon
conversion of the Bonds have been included in the computation of diluted earning per share since the Bonds were issued.

10. SHARE CAPITAL

As of December 31, 2007, the authorized share capital of the Company was US$1,000,000, divided into 200,000,000 ordinary shares.

(a) Ordinary Shares

In July
2006, the Company issued 2,834,037 ordinary shares in a private placement to certain individuals including certain executives and directors of the Company, for RMB 62,918,287 or US$2.77 per share, pursuant to a financing arrangement agreed amongst
the shareholders and the Companys board of directors in July 2006. The issuance price per ordinary share of US$2.77 was lower than the fair value of the Companys ordinary shares as of the date of the agreement and the difference of RMB
9,564,136 was recognized as share-based compensation expenses.



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##### Table of Contents

On October 31, 2006, upon the completion of the initial public offering, the Company issued 5,874,237
ADSs or 11,748,474 shares, which were priced at US$13.8 per ADS. Each ADS represents two ordinary shares. Total proceeds, net of issuance costs paid and payable from the offering, amounted to RMB 581,251,474. Upon completion of the Companys
initial public offering, all convertible preferred shares were automatically converted into 22,924,886 ordinary shares. The Companys authorized shares became 200,000,000 shares of US$0.005 par value per ordinary share.

In May 2007, the Company completed a secondary offering, during which it issued 1,478,155 ADSs or 2,956,310 shares, which were priced at US$
34.27 per ADS, or US$ 17.135 per share. Each ADS represents two ordinary shares. Total proceeds, net of issuance costs paid and payable from the offering, amounted to approximately RMB 370.38 million.

(b) Convertible preferred shares

In 2003,
the Company issued 17,241,400 and 2,417,605 of Series A and Series B convertible preferred shares at issuance prices of US$ 0.232 and US$ 0.3309, respectively.

On January 24, 2005, the Company also entered into a Series C Preferred Share Subscription Agreement, whereby the Company authorized and issued 3,265,841 shares of the Companys Series C convertible preferred
shares at an issue price of US$1.531 per share. On October 31, 2006, upon completion of the Companys initial public offering, convertible preferred shares were automatically converted into ordinary shares.

11. SHARE BASED COMPENSATION

On February 28, 2003,
the Company adopted a share option plan (2003 Option Plan) under which the directors of the Company may, at their discretion, grant options to acquire ordinary shares to any senior executives (including directors) and employees of the
Company and/or its subsidiaries. Share options vest annually over a period of 4 years and once vested can be exercised within 5 years from the date of grant. The 2003 Option Plan provides for the issuance of options of the Companys ordinary
shares in the amount of up to 5% of total ordinary and preferred shares outstanding. On May 30, 2005, the Company adopted a board resolution to increase shares reserved under the share option plan to 6% of total ordinary and preferred shares
outstanding. At the end of 2005, this represents 3,019,442 options based on the then outstanding ordinary and preferred shares outstanding. On March 30, 2006, the Company adopted a shareholders resolution to increase shares reserved for the share
options plan to 9% of total ordinary and preferred shares outstanding. At the end of December 31, 2007, this represented 4,784,226 options based on the then outstanding ordinary shares, which have been fully issued.

In July 2006, the Company also issued 1,020,000 shares of restricted stocks to certain current senior managers to replace the option awards previously
granted under the 2003 Option Plan. The restricted stocks were exercisable immediately upon issuance. However, the vesting and other requirements imposed on these restricted stocks were identical to the terms under the original option awards, and
therefore, the modification did not result in any incremental compensation cost. At December 31, 2007, there was approximately RMB 2,093,009 in deferred compensation costs related to restricted stocks. Share-based compensation expenses associated
with restricted stocks were RMB 583,520 and RMB 1,037,547 during the years ended December 31, 2006 and 2007, respectively. The weighted average remaining contractual life was 2.7 years for restricted stock grants outstanding at
December 31, 2007.



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##### Table of Contents

Changes in the restricted stock grants in 2007 were as follows:



|                                                |  |                           |   |  |                                           |       
|----------------------------------------------- |  | ------------------------- | - |  | ----------------------------------------- | ------
|                                                |  | Number ofRestrictedStocks |   |  | WeightedAverageGrant-DateFair Value (US$)
|Outstanding at the beginning of the year        |  | 734,110                   |   |  | US$                                       | 1.7501
|Granted                                         |  |                          |   |  |                                           |      
|Vested                                          |  | (255,000                  | ) |  | US$                                       | 1.4171
|Forfeited                                       |  |                          |   |  |                                           |      
|                                                |  |                           |   |  |                                           |       
|Outstanding and unvested at the end of the year |  | 479,110                   |   |  | US$                                       | 1.9274
|                                                |  |                           |   |  |                                           |       

On October 2, 2006, the Company adopted a share incentive plan (2006 Share Incentive
Plan) under which the directors of the Company may, at their discretion, grant awards to employees, directors and consultants of our company or any of our related entities, which include our subsidiaries or any entities in which we hold a
substantial ownership interest. Such awards include 1) share options; 2) restricted shares, which represent non-transferable ordinary shares, that may be subject to forfeiture; 3) restricted share units, which represent the right to receive the
Companys ordinary shares at a specified date in the future, which may be subject to forfeiture; 4) share appreciation rights, which provide for payment to the grantee based upon increases in the price of our ordinary shares over a set base
price; and 5) dividend equivalent rights, which represent the value of the dividends per share that the Company pay. The term of an award shall not exceed 10 years from the date of the grant, except that 10 years is the maximum term of share option
granted. The term of each award will be stated in the award agreement. The number of ordinary shares that may be issued under the 2006 Share Incentive Plan is up to 6% of the total outstanding ordinary shares (excluding ordinary shares issued upon
exercise of awards pursuant to the 2003 Option Plan and 2006 Share Incentive Plan) from time to time. As of December 31, 2007, this represented 2,429,601 options. The 2006 Share Incentive Plan will expire in 2016. The characteristics of the
awards granted during 2006 under this plan are similar to the awards granted under the 2003 Option Plan.

In April and December 2007, the
Company granted 1,443,600 and 270,000 share options to its employees and directors under 2006 Share Incentive Plan, with the fair value at US$17.395 and US$17.5 in the recognition provisions of SFAS No. 123.

The following summarizes the Companys share option activity under the 2003 Option Plan and 2006 Share

Incentive Plan as of and for the year ended December 31, 2007:



|                                              |  |           |   |  |                                    |         |                                                  |     |                                        |      |     
|--------------------------------------------- |  | --------- | - |  | ---------------------------------- | ------- | ------------------------------------------------ | --- | -------------------------------------- | ---- | ----
|                                              |  | Options   |   |  | WeightedAverageExercisePrice (US$) |         | Weighted-averageremainingcontractuallife (years) |     | AggregateIntrinsic Value(US$ millions)
|Outstanding at the beginning of the year      |  | 3,198,886 |   |  | US$                                | 3.1092  |                                                  | 3.7 |                                        | US $ | 50.1
|Granted                                       |  | 1,713,600 |   |  | US$                                | 17.4115 |                                                  |     |                                        |      |     
|Exercised                                     |  | (465,736  | ) |  | US$                                | 0.8340  |                                                  |     |                                        |      |     
|Forfeited                                     |  | (117,848  | ) |  | US$                                | 9.9779  |                                                  |     |                                        |      |     
|Cancelled                                     |  | (500      | ) |  | US$                                | 3.2000  |                                                  |     |                                        |      |     
|                                              |  |           |   |  |                                    |         |                                                  |     |                                        |      |     
|Outstanding at the end of the year            |  | 4,328,402 |   |  | US$                                | 8.8284  |                                                  | 3.5 |                                        | US $ | 38.9
|                                              |  |           |   |  |                                    |         |                                                  |     |                                        |      |     
|Vested and exercisable at the end of the year |  | 1,545,083 |   |  | US$                                | 4.8080  |                                                  | 2.9 |                                        | US $ | 20.1
|                                              |  |           |   |  |                                    |         |                                                  |     |                                        |      |     

The aggregate intrinsic value represents the total intrinsic value based on the Companys
closing stock price of US$ 17.81 per share as of December 31, 2007.



F-30



---

##### Table of Contents

The following is information relating to options outstanding as of December 31, 2007:



|               |  |                                                       |        |                 |           |                                                  |      |                 |           |                                                  |     
|-------------- |  | ----------------------------------------------------- | ------ | --------------- | --------- | ------------------------------------------------ | ---- | --------------- | --------- | ------------------------------------------------ | ----
|               |  |                                                       |        | Outstanding     |           | Exercisable                                     
|Exercise price |  | Weighted-average grantdate fairvalue ofordinaryshares |        | Number ofshares |           | Weighted-averageremainingcontractuallife (years) |      | Number ofshares |           | Weighted-averageremainingcontractuallife
(years)
|US$ 0.3309     |  | US$                                                   | 0.5701 |                 | 676,360   |                                                  | 1.65 |                 | 538,399   |                                                  | 1.62
|US$ 1.531      |  | US$                                                   | 1.3327 |                 | 153,600   |                                                  | 2.52 |                 | 85,267    |                                                  | 2.51
|US$ 2.25       |  | US$                                                   | 1.9730 |                 | 305,392   |                                                  | 2.92 |                 | 143,108   |                                                  | 2.92
|US$ 2.72       |  | US$                                                   | 2.720  |                 | 484,350   |                                                  | 3.21 |                 | 202,788   |                                                  | 3.21
|US$ 3.20       |  | US$                                                   | 3.200  |                 | 284,600   |                                                  | 3.51 |                 | 103,767   |                                                  | 3.51
|US$ 5.50       |  | US$                                                   | 5.500  |                 | 609,000   |                                                  | 3.75 |                 | 190,311   |                                                  | 3.75
|US$ 16.64      |  | US$                                                   | 16.64  |                 | 149,500   |                                                  | 3.99 |                 | 37,375    |                                                  | 3.99
|US$ 17.39      |  | US$                                                   | 17.39  |                 | 1,395,600 |                                                  | 4.30 |                 | 242,195   |                                                  | 4.30
|US$ 17.50      |  | US$                                                   | 17.50  |                 | 270,000   |                                                  | 4.97 |                 | 1,873     |                                                  | 4.97
|               |  |                                                       |        |                 |           |                                                  |      |                 |           |                                                  |     
|               |  |                                                       |        |                 | 4,328,402 |                                                  |      |                 | 1,545,083 |                                                  |     
|               |  |                                                       |        |                 |           |                                                  |      |                 |           |                                                  |     

In connection with the share options granted during the years ended December 31, 2005, 2006
and 2007, the Company recognized share-based compensation expense of RMB 959,826, RMB 2,832,868 and RMB 14,033,560, respectively. As of December 31, 2007, there was RMB 62,372,412 of unrecognized share-based compensation cost related to
unvested share options which is expected to be recognized over a weighted average period of 2.86 years.

The Company calculated the
estimated fair value of share options on the date of grant using the Black- Scholes pricing model with the following assumptions:



|                           |  |                 |  |                  |  |              
|-------------------------- |  | --------------- |  | ---------------- |  | -------------
|                           |  | 2005            |  | 2006             |  | 2007         
|Risk-free interest rate(1) |  | 2.51% to 4.788% |  | 4.983% to 5.204% |  | 3.2% to 3.58%
|Expected life (years)(2)   |  | 3 to 4.5        |  | 3 to 4.5         |  | 3 to 4.5     
|Expected dividend yield(3) |  |                |  |                 |  |             
|Expected Volatility(4)     |  |                |  | 28.6% to 34.3%   |  | 36.8%        



|(1) | The risk-free interest rate is based on the US Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | The expected life of share options granted under the 2003 Option Plan and the 2006 Share Incentive Plan is generally based on the average between the vesting period and the
contractual term for each grant.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | The Company has no history or expectation of paying dividends on its ordinary share.
|--- | ------------------------------------------------------------------------------------

|(4) | For the year ended December 31, 2007, the Company estimates the volatility of its ordinary shares at the date of grant based on the historical volatility and implied volatility
of comparable companies and itself for a period equal to time from the grant date to the assumed exercised date of the respective options in accordance with the vesting schedule.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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---

##### Table of Contents

12. OTHER PAYABLES AND ACCRUALS



|                                                        |  |             |  |            
|------------------------------------------------------- |  | ----------- |  | -----------
|                                                        |  | 2006        |  | 2007       
|Accrued expenses                                        |  | 21,271,480  |  | 34,424,329 
|Others                                                  |  | 1,230,005   |  | 2,145,840  
|                                                        |  |             |  |            
|Other unpaid and accruals-subtotal                      |  | 22,501,485  |  | 36,570,169 
|                                                        |  |             |  |            
|Payables on construction cost of leasehold improvements |  | 72,127,148  |  | 185,826,658
|Payables related to acquisition                         |  |            |  | 122,278,304
|Payables to employees for exercised options             |  |            |  | 17,692,549 
|Deposit from franchised-and-managed hotels              |  | 4,050,675   |  | 7,355,996  
|Others                                                  |  | 7,440,531   |  | 17,050,336 
|                                                        |  |             |  |            
|Others payables-subtotal                                |  | 83,618,354  |  | 350,203,843
|                                                        |  |             |  |            
|Total                                                   |  | 106,119,839 |  | 386,774,012
|                                                        |  |             |  |            

13. RELATED PARTY TRANSACTIONS

Related Party Transactions



|                                             |  |                                            
|-------------------------------------------- |  | -------------------------------------------
|Name of related parties                      |  | Relationships with the Company             
|Top Sterling International Limited           |  | Former principal shareholder of the Company
|                                             | 
|Poly Investment                              |  | Principal shareholder of the Company       
|                                             | 
|BTG                                          |  | Parent company of Poly Investments         
|                                             | 
|Ctrip.com International, Ltd.                |  | Common directors                           
|                                             | 
|Jian Guo Inns Beijing Ltd. (Jian Guo Inns) |  | Subsidiary of BTG                          
|                                             | 
|Shanghai Xin Zhi Trading Co., Ltd.           |  | Minority interest of subsidiary            
|                                             | 
|Fujian Yun Tong Co., Ltd.                    |  | Minority interest of subsidiary            
|                                             | 
|Ji Qi                                        |  | Former director of the Company             
|                                             | 
|Sun Jian                                     |  | Director of the Company                    
|                                             | 
|May Wu                                       |  | Senior management of the Company           
|                                             | 
|Liang Rixin                                  |  | Senior management of the Company           

Related party transactions during the years ended December 31 are as follows:



|                                                        |  |            |  |            |  |          
|------------------------------------------------------- |  | ---------- |  | ---------- |  | ---------
|                                                        |  | 2005       |  | 2006       |  | 2007     
|Sales commissions paid to Ctrip.com International, Ltd. |  | 2,381,554  |  | 5,996,578  |  | 8,936,554
|Rental fees paid to Jian Guo Inns                       |  | 3,500,000  |  | 3,500,000  |  | 2,800,000
|Other income from Ctrip.com International, Ltd.         |  | 136,000    |  | 18,000     |  |         
|Long-term loan obtained from BTG                        |  | 40,000,000 |  | 20,000,000 |  |         

As of December 31, significant balances with related parties are as follows:

Due from related parties:



|                                      |  |         |  |          
|------------------------------------- |  | ------- |  | ---------
|                                      |  | 2006    |  | 2007     
|Sun Jian (a)                          |  | 83,453  |  |         
|Liang Rixin (a)                       |  | 114,335 |  |         
|Shanghai Xin Zhi Trading Co., Ltd.(b) |  |        |  | 1,372,000
|                                      |  |         |  |          
|                                      |  | 197,788 |  | 1,372,000
|                                      |  |         |  |          



F-32



---

##### Table of Contents



|(a) | The amounts due from Sun Jian and Liang Rixin arose from their individual income tax withheld by the Company in connection with the issuance of restricted stocks in July 2006 (Note
11). These amounts were subsequently collected from Sun Jian and Liang Rixin in March 2007.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(b) | The amounts due from Shanghai Xin Zhi Trading Co., Ltd. represented the advance payment for dividends.
|--- | ------------------------------------------------------------------------------------------------------

Due to related parties:



|                                                                                                                                                                            |  |            |  |          
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------- |  | ---------
|                                                                                                                                                                            |  | 2006       |  | 2007     
|Ctrip.com International, Ltd.                                                                                                                                               |  | 508,331    |  | 1,298,361
|Top Sterling International Limited                                                                                                                                          |  | 129,677    |  |         
|Jian Guo Inns                                                                                                                                                               |  | 5,390      |  | 31,690   
|Fujian Yun Tong Co., Ltd.                                                                                                                                                   |  |           |  | 900,000  
|Sun Jian (c)                                                                                                                                                                |  | 1,961,490  |  | 1,223,243
|Liang Rixin (c)                                                                                                                                                             |  | 1,200,908  |  | 682,733  
|May Wu (c)                                                                                                                                                                  |  | 3,584,194  |  | 2,514,609
|                                                                                                                                                                            |  |            |  |          
|                                                                                                                                                                            |  | 7,389,990  |  | 6,650,636
|                                                                                                                                                                            |  |            |  |          
|(c)    The amounts due to Sun Jian, Liang Rixin and May Wu represented the consideration paid by them in July 2006 for restricted shares with repurchase feature (Note 11).
|                                                                                                                                                                            |  |           
|                                                                                                                                                                            |  | 2006       |  | 2007     
|Current portion of long-term loan from BTG (d)                                                                                                                              |  | 10,000,000 |  |         
|Long-term loan from BTG (d)                                                                                                                                                 |  | 50,000,000 |  |         
|                                                                                                                                                                            |  |            |  |          
|                                                                                                                                                                            |  | 60,000,000 |  |         
|                                                                                                                                                                            |  |            |  |          





|(d) | In June 2005, Home Inns Beijing and the Company entered into a financing transaction agreement to obtain financing from BTG. By this agreement, BTG agreed to extend a loan facility
to Home Inns Beijing in an amount of RMB 80,000,000 for hotel development and operations. Each loan drawn down under the facility is repayable after 3 years and bears an interest rate at 6.1747%. According to the financing transaction agreement, if
Home Inns Beijing defaults, and the parties of the agreement fail to reach consensus on an extension of the loan agreement, BTG can choose one of three options: 1) request liquidation of Home Inns Beijing or the Company and obtain repayment via
legal proceedings; 2) if the net assets of the Company on such date exceed those on the agreement date, BTG may convert the loan principal amount into 11.15% of equity shares in the Company; or 3) if the net assets of Home Inns Beijing exceed RMB
663,477,155, BTG may convert the outstanding loan principal amount into a percentage of equity shares in Home Inns Beijing determined by dividing the outstanding loan principal amount by RMB 663,477,155. On March 28, 2007, the long-term loan
was fully repaid in advance.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The amounts due from and due to related parties as of December 31, 2006 and 2007 mainly
arose from the above transactions and payments made by the Company and related parties on behalf of each other. Except for the long-term loan from BTG, these amounts are not collateralized, free of interest and receivable or payable on demand.



F-33



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##### Table of Contents

14. EARNINGS PER SHARE

Basic earnings per share and diluted earnings per share have been calculated in accordance with SFAS No. 128 as follows:



|                                                                                      |  |            |   |  |             |   |  |           
|------------------------------------------------------------------------------------- |  | ---------- | - |  | ----------- | - |  | ----------
|                                                                                      |  | 2005       |   |  | 2006        |   |  | 2007      
|Numerator:                                                                            |  |            |   |  |             |   |  |           
|Net income for the year                                                               |  | 20,932,672 |   |  | 46,894,358  |   |  | 35,756,010
|Amount allocated to participating preference shareholders                             |  | (9,486,945 | ) |  | (16,173,962 | ) |  |          
|                                                                                      |  |            |   |  |             |   |  |           
|Net income available to ordinary shareholders                                         |  | 11,445,727 |   |  | 30,720,396  |   |  | 35,756,010
|                                                                                      |  |            |   |  |             |   |  |           
|Dilutive effect of convertible bond                                                   |  |           |   |  |            |   |  | 308,333   
|Numerator for diluted earnings per share                                              |  | 11,445,727 |   |  | 30,720,396  |   |  | 36,064,343
|                                                                                      |  |            |   |  |             |   |  |           
|Denominator:                                                                          |  |            |   |  |             |   |  |           
|Denominator for basic earnings per shareweighted average ordinary shares outstanding |  | 27,399,140 |   |  | 35,550,114  |   |  | 68,323,370
|Dilutive effect of share options                                                      |  | 1,314,048  |   |  | 1,980,218   |   |  | 2,909,845 
|Dilutive effect of convertible bond                                                   |  |           |   |  |            |   |  | 5,650,780 
|                                                                                      |  |            |   |  |             |   |  |           
|Denominator for diluted earnings per share                                            |  | 28,713,188 |   |  | 37,530,332  |   |  | 76,883,995
|                                                                                      |  |            |   |  |             |   |  |           
|Basic earnings per share                                                              |  | 0.42       |   |  | 0.86        |   |  | 0.52      
|                                                                                      |  |            |   |  |             |   |  |           
|Diluted earnings per share                                                            |  | 0.40       |   |  | 0.82        |   |  | 0.47      
|                                                                                      |  |            |   |  |             |   |  |           



F-34



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##### Table of Contents

Net income for the year has been allocated to the common share and preference share based on their
respective rights to share in dividends in 2005 and 2006.

15. COMMITMENTS AND CONTINGENCIES

(a) Capital commitments

As of December 31,
2007, the Groups commitments related to leasehold improvements, installation of machinery and equipment for the hotel operations amounting to RMB 197,410,967.

(b) Commitments under operating leases

The Group has entered into lease agreements relating
to leased-and-operated hotels that are classified as operating leases.

Future minimum lease payments for non-cancelable operating leases
at December 31 are as follows:



|           |  |               |  |                   |  |              
|---------- |  | ------------- |  | ----------------- |  | -------------
|           |  | Related-party |  | Non-related party |  | Total        
|           |  | RMB           |  | RMB               |  | RMB          
|2008       |  | 2,800,000     |  | 402,745,198       |  | 405,545,198  
|2009       |  | 2,800,000     |  | 452,757,649       |  | 455,557,649  
|2010       |  | 2,800,000     |  | 457,588,927       |  | 460,388,927  
|2011       |  | 2,800,000     |  | 461,890,950       |  | 464,690,950  
|2012       |  | 2,800,000     |  | 465,459,751       |  | 468,259,751  
|Thereafter |  | 11,966,667    |  | 3,876,830,695     |  | 3,888,797,362
|           |  |               |  |                   |  |              
|Total      |  | 25,966,667    |  | 6,117,273,170     |  | 6,143,239,837
|           |  |               |  |                   |  |              

Rental expenses amounted to RMB 75,166,291, RMB 129,533,864 and RMB 223,311,310 during the years
ended December 31, 2005, 2006 and 2007, respectively.



F-35



---

##### Table of Contents

(c) Contingencies

As of December 31, 2007 the Group had no significant outstanding contingency.

16. SUBSEQUENT EVENTS

In March 2008, the Company granted 1,093,200 share options to some of its employees and directors under the 2006 share Incentive Plan,
with an exercise price of US$19.38 per ADS.

17. ADDITIONAL INFORMATION-CONDENSED FINANCIAL STATEMENTS OF THE COMPANY

The separate condensed financial statements of the Company as presented below have been prepared in accordance Securities and Exchange Commission
Regulation S-X Rule 5-04 and Rule 12-04 and present the Companys investments in its subsidiaries under the equity method of accounting as prescribed in APB No.18. Such investment is presented on the separate condensed balance sheets of the
Company as Investments in subsidiaries. The condensed statement of operations and cash flows for the year ended December 31, 2005 were presented as if Home Inns HK was the parent company. Subsidiaries income or loss is included as the
Companys Share of income from affiliated companies and subsidiaries on the statement of operations. The Company was incorporated in May 2006 and immediately became the parent company of Home Inns Hong Kong and its operating
subsidiaries. The condensed financial statements have been prepared as if the Company had been in existence since January 1, 2006. The subsidiaries did not pay any dividend to the Company for the periods presented.

The Company did not have any significant commitment, long term obligation, or guarantee as of December 31, 2006 and 2007.



|                                                           |  |            |   |  |             |   |  |             |   |  |             |  
|---------------------------------------------------------- |  | ---------- | - |  | ----------- | - |  | ----------- | - |  | ----------- | -
|                                                           |  | 2005       |   |  | 2006        |   |  | 2007        |   |  | 2007        |  
|                                                           |  | RMB        |   |  | RMB         |   |  | RMB         |   |  | US$         |  
|                                                           |  |            |   |  |             |   |  |             |   |  | (Note 2(d)) |  
|Condensed statements of operations:                        |  |           |   |  |            |   |  |            |   |  |            |  
|Net revenues                                               |  |           |   |  |            |   |  |            |   |  |            |  
|Total operating expenses                                   |  | (1,834,455 | ) |  | (899,944    | ) |  | (2,502,607  | ) |  | (343,077    | )
|                                                           |  |            |   |  |             |   |  |             |   |  |             |  
|Loss form operations                                       |  | (1,834,455 | ) |  | (899,944    | ) |  | (2,502,607  | ) |  | (343,077    | )
|                                                           |  |            |   | 
|Share of income from affiliated companies and subsidiaries |  | 22,439,715 |   |  | 52,532,219  |   |  | 78,027,394  |   |  | 10,696,597  |  
|Interest income                                            |  | 327,412    |   |  | 264,874     |   |  | 27,249,738  |   |  | 3,735,604   |  
|Interest expense                                           |  |           |   |  |            |   |  | (309,694    | ) |  | (42,455     | )
|Foreign exchange loss                                      |  |           |   |  | (5,002,792  | ) |  | (66,708,821 | ) |  | (9,144,960  | )
|                                                           |  |            |   |  |             |   |  |             |   |  |             |  
|Income before income tax expenses                          |  | 20,932,672 |   |  | 46,894,357  |   |  | 35,756,010  |   |  | 4,901,709   |  
|                                                           |  |            |   |  |             |   |  |             |   |  |             |  
|Income tax expenses                                        |  |           |   |  |            |   |  |            |   |  |            |  
|Net income for the year                                    |  | 20,932,672 |   |  | 46,894,357  |   |  | 35,756,010  |   |  | 4,901,709   |  
|                                                           |  |            |   |  |             |   |  |             |   |  |             |  
|                                                           |  |            |   | 
|Amount allocated to participating preference shareholders  |  | (9,486,945 | ) |  | (16,173,962 | ) |  |            |   |  |            |  
|                                                           |  |            |   |  |             |   |  |             |   |  |             |  
|Net income available to ordinary shareholders              |  | 11,445,727 |   |  | 30,720,395  |   |  | 35,756,010  |   |  | 4,901,709   |  
|                                                           |  |            |   |  |             |   |  |             |   |  |             |  



F-36



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##### Table of Contents

|                                                                                                                                                                                            |  |             |  |               |  |            
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- |  | ------------- |  | -----------
|                                                                                                                                                                                            |  | 2006        |  | 2007          |  | 2007       
|                                                                                                                                                                                            |  | RMB         |  | RMB           |  | US$        
|                                                                                                                                                                                            |  |             |  |               |  | (Note 2(d))
|Condensed balance sheet:                                                                                                                                                                    |  |             |  |               |  |            
|Assets                                                                                                                                                                                      |  |             |  |               |  |            
|Current assets:                                                                                                                                                                             |  |             |  |               |  |            
|Cash and cash equivalents                                                                                                                                                                   |  | 610,748,971 |  | 1,115,934,461 |  | 152,980,898
|Restricted cash                                                                                                                                                                             |  |            |  | 173,849,480   |  | 23,832,627 
|Prepaid expensed and other receivables                                                                                                                                                      |  |            |  | 8,100,072     |  | 1,110,420  
|Due from related parties                                                                                                                                                                    |  |            |  | 879,897,035   |  | 120,623,068
|                                                                                                                                                                                            |  |             |  |               |  |            
|Total current assets                                                                                                                                                                        |  | 610,748,971 |  | 2,177,781,048 |  | 298,547,013
|                                                                                                                                                                                            |  |             |  |               |  |            
|Investments in subsidiaries                                                                                                                                                                 |  | 310,271,151 |  | 403,369,652   |  | 55,297,021 
|Other assets                                                                                                                                                                                |  |            |  | 30,474,562    |  | 4,177,688  
|Total assets                                                                                                                                                                                |  | 921,020,122 |  | 2,611,625,262 |  | 358,021,722
|                                                                                                                                                                                            |  |             |  |               |  |            
|                                                                                                                                                                                            |  |             | 
|Liabilities                                                                                                                                                                                 |  |             |  |               |  |            
|Current liabilities                                                                                                                                                                         |  |             |  |               |  |            
|Due to related parties                                                                                                                                                                      |  | 27,518,181  |  | 7,017,186     |  | 961,970    
|Other payables and accruals                                                                                                                                                                 |  | 3,763,389   |  | 18,902,306    |  | 2,591,272  
|                                                                                                                                                                                            |  |             |  |               |  |            
|Total current liabilities                                                                                                                                                                   |  | 31,281,570  |  | 25,919,492    |  | 3,553,242  
|                                                                                                                                                                                            |  |             |  |               |  |            
|Non-current liabilities                                                                                                                                                                     |  |             |  |               |  |            
|Convertible bond                                                                                                                                                                            |  |            |  | 1,110,308,333 |  | 152,209,625
|                                                                                                                                                                                            |  |             |  |               |  |            
|Total liabilities                                                                                                                                                                           |  | 31,281,570  |  | 1,136,227,825 |  | 155,762,867
|                                                                                                                                                                                            |  |             |  |               |  |            
|                                                                                                                                                                                            |  |             | 
|Shareholders equity                                                                                                                                                                        |  |             |  |               |  |            
|Ordinary shares (US$0.005 par value; 177,075,114 and 200,000,000 shares authorized, 65,712,839 and 70,487,385 shares issued and outstanding as
of December 31, 2006 and 2007, respectively) |  | 2,690,943   |  | 2,873,597     |  | 393,935    
|Additional paid-in capital                                                                                                                                                                  |  | 813,222,265 |  | 1,362,942,486 |  | 186,842,663
|Retained earnings                                                                                                                                                                           |  | 73,825,344  |  | 109,581,354   |  | 15,022,257 
|                                                                                                                                                                                            |  |             |  |               |  |            
|Total shareholders equity                                                                                                                                                                  |  | 889,738,552 |  | 1,475,397,437 |  | 202,258,855
|                                                                                                                                                                                            |  |             |  |               |  |            
|Total liabilities and shareholders equity                                                                                                                                                  |  | 921,020,122 |  | 2,611,625,262 |  | 358,021,722
|                                                                                                                                                                                            |  |             |  |               |  |            



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|                                                                                             |  |             |   |  |             |   |  |               |   |  |             |  
|-------------------------------------------------------------------------------------------- |  | ----------- | - |  | ----------- | - |  | ------------- | - |  | ----------- | -
|                                                                                             |  | 2005        |   |  | 2006        |   |  | 2007          |   |  | 2007        |  
|                                                                                             |  | RMB         |   |  | RMB         |   |  | RMB           |   |  | USD         |  
|                                                                                             |  |             |   |  |             |   |  |               |   |  | (Note 2(d)) |  
|Condensed statements of cash flows:                                                          |  |             |   |  |             |   |  |               |   |  |             |  
|Cash flows from operating activities:                                                        |  |             |   |  |             |   |  |               |   |  |             |  
|Net income                                                                                   |  | 20,932,672  |   |  | 46,894,358  |   |  | 35,756,010    |   |  | 4,901,709   |  
|Adjustments to reconcile net income to net cash (used in) provided by operating activities : |  |             |   |  |             |   |  |               |   |  |             |  
|Share-based compensation                                                                     |  | 959,826     |   |  |            |   |  |              |   |  |            |  
|Amortisation                                                                                 |  |            |   |  |            |   |  | 1,324,981     |   |  | 181,639     |  
|Share of income from affiliated companies and subsidiaries                                   |  | (22,439,715 | ) |  | (52,532,219 | ) |  | (78,027,394   | ) |  | (10,696,597 | )
|Interest expense                                                                             |  |            |   |  |            |   |  | 309,694       |   |  | 42,455      |  
|Foreign exchange loss                                                                        |  |            |   |  | 5,002,792   |   |  | 66,708,821    |   |  | 9,144,959   |  
|(Increase) decrease in due from related parties                                              |  | 6,885       |   |  |            |   |  | (700,580,690  | ) |  | (96,041,002 | )
|Increase in prepayments and other current assets                                             |  |            |   |  |            |   |  | (7,117,127    | ) |  | (975,671    | )
|Increase (decrease) in payables to related parties                                           |  | 617,893     |   |  | (37,964,793 | ) |  | (18,174,987   | ) |  | (2,491,567  | )
|Increase in salary and welfare payable                                                       |  | 279,967     |   |  |            |   |  |              |   |  |            |  
|Increase (decrease) in other payables and accruals                                           |  | (160,454    | ) |  | 3,763,389   |   |  | 14,583,017    |   |  | 1,999,153   |  
|                                                                                             |  |             |   |  |             |   |  |               |   |  |             |  
|Net cash (used in) provided by operating activities                                          |  | 197,074     |   |  | (34,836,473 | ) |  | (685,217,675  | ) |  | (93,934,922 | )
|                                                                                             |  |             |   |  |             |   |  |               |   |  |             |  
|                                                                                             |  |             |   | 
|Cash flows from investing activities:                                                        |  |             |   |  |             |   |  |               |   |  |             |  
|Investments in subsidiaries                                                                  |  | (45,451,150 | ) |  |            |   |  |              |   |  |            |  
|Borrowings to a related party                                                                |  |            |   |  |            |   |  | (20,089,680   | ) |  | (2,754,048  | )
|                                                                                             |  |             |   |  |             |   |  |               |   |  |             |  
|Net cash used in investing activities                                                        |  | (45,451,150 | ) |  |            |   |  | (20,089,680   | ) |  | (2,754,048  | )
|                                                                                             |  |             |   |  |             |   |  |               |   |  |             |  
|                                                                                             |  |             |   | 
|Cash flows from financing activities:                                                        |  |             |   |  |             |   |  |               |   |  |             |  
|Net proceeds from issuance of ordinary shares                                                |  |            |   |  | 650,588,236 |   |  | 366,866,077   |   |  | 50,292,830  |  
|Proceeds from issuance of preferred shares                                                   |  | 40,328,648  |   |  |            |   |  | 1,917,444     |   |  | 262,858     |  
|Restricted cash paid for short-term borrowing                                                |  |            |   |  |            |   |  | (173,849,480  | ) |  | (23,832,627 | )
|Net proceeds from convertible bonds                                                          |  |            |   |  |            |   |  | 1,082,267,625 |   |  | 148,365,589 |  
|                                                                                             |  |             |   |  |             |   |  |               |   |  |             |  
|Net cash provided by financing activities                                                    |  | 40,328,648  |   |  | 650,588,236 |   |  | 1,277,201,666 |   |  | 175,088,650 |  
|                                                                                             |  |             |   |  |             |   |  |               |   |  |             |  
|                                                                                             |  |             |   | 
|Effect of foreign exchange rate changes on cash and cash equivalents                         |  |            |   |  | (5,002,792  | ) |  | (66,708,821   | ) |  | (9,144,959  | )
|Net increase in cash                                                                         |  | (4,925,428  | ) |  | 610,748,971 |   |  | 505,185,490   |   |  | 69,254,721  |  
|Cash, beginning of year                                                                      |  | 9,581,398   |   |  |            |   |  | 610,748,971   |   |  | 83,726,177  |  
|                                                                                             |  |             |   |  |             |   |  |               |   |  |             |  
|Cash, end of the year                                                                        |  | 4,655,970   |   |  | 610,748,971 |   |  | 1,115,934,461 |   |  | 152,980,898 |  
|                                                                                             |  |             |   |  |             |   |  |               |   |  |             |  



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LOGO



| |  |                              
| |  | -----------------------------
| | 
| |  | LOGO                         
| |  | 11th Floor                   
| |  | PricewaterhouseCoopers Center
| |  | 202 Hu Bin Road              
| |  | Shanghai 200021, PRC         
| |  | Telephone +86 (21) 6123 8888 
| |  | Facsimile +86 (21) 6123 8800 
| |  | pwccn.com                    

Report of Independent Registered Public Accounting Firm

To the shareholders of

Shanghai Chuwen Investment Holding Co., Ltd.

and Hong Kong Ai Home
Investment Company:

In our opinion, the accompanying combined financial statements of Shanghai Chuwen Investment Holding Co., Ltd. and Hong Kong Ai Home
Investment Company (collectively the Company) and their subsidiaries comprising the combined balance sheets and the related combined statements of operations, shareholders equity and cash flows present fairly, in all material
respects, the financial position of the Company as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2006, in conformity with accounting
principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers Zhong Tian CPAs Limited Company

Shanghai, the Peoples Republic of China

April 18, 2008



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Shanghai Chuwen Investment Holding Co., Ltd. and

Hong Kong Ai Home Investment Company

COMBINED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2006



|                                                      |  |      |  |            |   |  |             |  
|----------------------------------------------------- |  | ---- |  | ---------- | - |  | ----------- | -
|                                                      |  | Note |  | 2005       |   |  | 2006        |  
|                                                      |  |      |  | RMB        |   |  | RMB         |  
|Revenues:                                             |  |      |  |            |   |  |             |  
|Leased-and-operated hotels                            |  |      |  |           |   |  | 4,995,699   |  
|Less: Business tax and related surcharges             |  |      |  |           |   |  | (263,314    | )
|                                                      |  |      |  |            |   |  |             |  
|Net revenues                                          |  |      |  |           |   |  | 4,732,385   |  
|                                                      |  |      |  |            |   |  |             |  
|Operating costs and expenses:                         |  |      |  |            |   |  |             |  
|Leased-and-operated hotel costs                      |  |      |  |            |   |  |             |  
|Rents and utilities                                   |  |      |  |           |   |  | (20,859,598 | )
|Personnel costs                                       |  |      |  |           |   |  | (3,262,526  | )
|Depreciation and amortization                         |  |      |  |           |   |  | (1,268,382  | )
|Consumables, food and beverage                        |  |      |  |           |   |  | (1,698,411  | )
|Others                                                |  |      |  | (538,681   | ) |  | (1,291,373  | )
|                                                      |  |      |  |            |   |  |             |  
|Total leased-and-operated hotel costs                 |  |      |  | (538,681   | ) |  | (28,380,290 | )
|Sales and marketing expenses                          |  |      |  |           |   |  | (2,614,091  | )
|General and administrative expenses                   |  |      |  | (807,887   | ) |  | (16,478,594 | )
|                                                      |  |      |  |            |   |  |             |  
|Total operating costs and expenses                    |  |      |  | (1,346,568 | ) |  | (47,472,975 | )
|                                                      |  |      |  |            |   |  |             |  
|Loss from operations                                  |  |      |  | (1,346,568 | ) |  | (42,740,590 | )
|                                                      |  |      |  |            |   |  |             |  
|Interest income                                       |  |      |  | 5,385      |   |  | 54,968      |  
|Other non-operating income                            |  |      |  |           |   |  | 553,669     |  
|                                                      |  |      |  |            |   |  |             |  
|Loss before income tax expense and minority interests |  |      |  | (1,341,183 | ) |  | (42,131,953 | )
|Minority interests                                    |  |      |  |           |   |  |            |  
|Income tax expense                                    |  | 7    |  |           |   |  |            |  
|                                                      |  |      |  |            |   |  |             |  
|Net Loss                                              |  |      |  | (1,341,183 | ) |  | (42,131,953 | )
|                                                      |  |      |  |            |   |  |             |  

The accompanying notes are an integral part of these combined financial statements.



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##### Table of Contents

Shanghai Chuwen Investment Holding Co., Ltd. and

Hong Kong Ai Home Investment Company

COMBINED BALANCE SHEETS

AS OF
DECEMBER 31, 2005 AND 2006



|                                               |  |      |  |              |   |  |              |  
|---------------------------------------------- |  | ---- |  | ------------ | - |  | ------------ | -
|                                               |  | Note |  | 2005         |   |  | 2006         |  
|                                               |  |      |  | RMB          |   |  | RMB          |  
|ASSETS                                         |  |      |  |              |   |  |              |  
|Current assets:                                |  |      |  |              |   |  |              |  
|Cash                                           |  |      |  | 5,611,176    |   |  | 5,856,017    |  
|Accounts receivable                            |  |      |  |             |   |  | 117,552      |  
|Consumables                                    |  |      |  |             |   |  | 6,226,558    |  
|Prepayments and other current assets           |  | 3    |  | 364,129      |   |  | 10,600,294   |  
|                                               |  |      |  |              |   |  |              |  
|Total current assets                           |  |      |  | 5,975,305    |   |  | 22,800,421   |  
|                                               |  |      |  |              |   |  |              |  
|Property and equipment, net                    |  | 4    |  | 774,784      |   |  | 107,323,936  |  
|Intangible assets, net                         |  | 5    |  | 1,040,000    |   |  | 2,493,447    |  
|Other assets                                   |  | 6    |  |             |   |  | 9,598,617    |  
|                                               |  |      |  |              |   |  |              |  
|Total assets                                   |  |      |  | 7,790,089    |   |  | 142,216,421  |  
|                                               |  |      |  |              |   |  |              |  
|                                               |  |      | 
|LIABILITIES                                    |  |      |  |              |   |  |              |  
|Current liabilities:                           |  |      |  |              |   |  |              |  
|Accounts payable                               |  |      |  |             |   |  | 2,240,011    |  
|Borrowings from related parties                |  | 9    |  | 8,000,000    |   |  | 93,400,000   |  
|Payables on construction costs                 |  |      |  |             |   |  | 29,972,048   |  
|Accrued expenses and other current liabilities |  | 8    |  | 131,271      |   |  | 16,020,984   |  
|                                               |  |      |  |              |   |  |              |  
|Total current liabilities                      |  |      |  | 8,131,271    |   |  | 141,633,043  |  
|                                               |  |      |  |              |   |  |              |  
|Deferred rental                                |  |      |  |             |   |  | 7,122,224    |  
|Borrowings from related parties, non-current   |  | 9    |  | 14,000,000   |   |  | 49,929,289   |  
|                                               |  |      |  |              |   |  |              |  
|Total liabilities                              |  |      |  | 22,131,271   |   |  | 198,684,556  |  
|                                               |  |      |  |              |   |  |              |  
|Minority interest                              |  |      |  |             |   |  | 5,000        |  
|                                               |  |      |  |              |   |  |              |  
|Commitments and contingencies                  |  | 10   |  |              |   |  |              |  
|                                               |  |      | 
|Shareholders equity                           |  |      |  |              |   |  |              |  
|Capital stock                                  |  |      |  | 100,000,001  |   |  | 100,000,001  |  
|Less: Receivables from affiliates              |  | 9    |  | (113,000,000 | ) |  | (113,000,000 | )
|Retained earnings                              |  |      |  | (1,341,183   | ) |  | (43,473,136  | )
|                                               |  |      |  |              |   |  |              |  
|Total shareholders equity                     |  |      |  | (14,341,182  | ) |  | (56,473,135  | )
|                                               |  |      |  |              |   |  |              |  
|Total liabilities and shareholders equity     |  |      |  | 7,790,089    |   |  | 142,216,421  |  
|                                               |  |      |  |              |   |  |              |  

The accompanying notes are an integral part of these combined financial statements.



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Shanghai Chuwen Investment Holding Co., Ltd. and

Hong Kong Ai Home Investment Company

COMBINED STATEMENTS OF SHAREHOLDERS EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2006



|                                                              |  |               |  |                  |   |  |                             |   |  |                           |  
|------------------------------------------------------------- |  | ------------- |  | ---------------- | - |  | --------------------------- | - |  | ------------------------- | -
|                                                              |  | Capital Stock |  | Retainedearnings |   |  | Receivables from affiliates |   |  | Total shareholdersequity |  
|Balance as of January 1, 2005                                 |  |              |  |                 |   |  |                            |   |  |                          |  
|Capital stock of Shanghai Chuwen Investment Holding Co., Ltd. |  | 100,000,000   |  |                 |   |  |                            |   |  | 100,000,000               |  
|Capital stock of Hong Kong Ai Home Investment Company         |  | 1             |  |                 |   |  |                            |   |  | 1                         |  
|Lending to affiliates                                         |  |              |  |                 |   |  | (113,000,000                | ) |  | (113,000,000              | )
|Net loss                                                      |  |              |  | (1,341,183       | ) |  |                            |   |  | (1,341,183                | )
|                                                              |  |               |  |                  |   |  |                             |   |  |                           |  
|Balance as of December 31, 2005                               |  | 100,000,001   |  | (1,341,183       | ) |  | (113,000,000                | ) |  | (14,341,182               | )
|Net loss                                                      |  |              |  | (42,131,953      | ) |  |                            |   |  | (42,131,953               | )
|                                                              |  |               |  |                  |   |  |                             |   |  |                           |  
|Balance as of December 31, 2006                               |  | 100,000,001   |  | (43,473,136      | ) |  | (113,000,000                | ) |  | (56,473,135               | )
|                                                              |  |               |  |                  |   |  |                             |   |  |                           |  

The accompanying notes are an integral part of these combined financial statements.



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Shanghai Chuwen Investment Holding Co., Ltd. and

Hong Kong Ai Home Investment Company

COMBINED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2005 AND 2006



|                                                                             |  |              |   |  |             |  
|---------------------------------------------------------------------------- |  | ------------ | - |  | ----------- | -
|                                                                             |  | 2005         |   |  | 2006        |  
|                                                                             |  | RMB          |   |  | RMB         |  
|Cash flows from operating activities:                                        |  |              |   |  |             |  
|Net loss                                                                     |  | (1,341,183   | ) |  | (42,131,953 | )
|Adjustments to reconcile net loss to net cash used in operating activities : |  |              |   |  |             |  
|Depreciation and amortization                                                |  | 1,272        |   |  | 2,049,310   |  
|Provision for doubtful accounts                                              |  |             |   |  | 587,500     |  
|Increase in accounts receivable                                              |  |             |   |  | (117,552    | )
|Increase in consumables                                                      |  |             |   |  | (6,226,558  | )
|Increase in prepayments and other current assets                             |  | (364,129     | ) |  | (10,823,665 | )
|Increase in other assets                                                     |  |             |   |  | (9,598,617  | )
|Increase in accounts payable                                                 |  |             |   |  | 2,240,011   |  
|Increase in accrued expenses and other current liabilities                   |  | 131,271      |   |  | 15,889,713  |  
|Increase in deferred rental                                                  |  |             |   |  | 7,122,224   |  
|                                                                             |  |              |   |  |             |  
|Net cash used in operating activities                                        |  | (1,572,769   | ) |  | (41,009,587 | )
|                                                                             |  |              |   |  |             |  
|                                                                             |  |             
|Cash flows from investing activities:                                        |  |              |   |  |             |  
|Purchase of property and equipment                                           |  | (776,056     | ) |  | (78,384,409 | )
|Purchase of intangible assets                                                |  | (1,040,000   | ) |  | (1,695,452  | )
|                                                                             |  |              |   |  |             |  
|Net cash used in investing activities                                        |  | (1,816,056   | ) |  | (80,079,861 | )
|                                                                             |  |              |   |  |             |  
|                                                                             |  |             
|Cash flows from financing activities:                                        |  |              |   |  |             |  
|Capital contribution from shareholders                                       |  | 100,000,001  |   |  |            |  
|Capital contribution from minority shareholder                               |  |             |   |  | 5,000       |  
|Borrowing from related parties                                               |  | 22,000,000   |   |  | 129,329,289 |  
|Repayment of borrowing from related parties                                  |  |             |   |  | (8,000,000  | )
|Lending to affiliates                                                        |  | (113,000,000 | ) |  |            |  
|                                                                             |  |              |   |  |             |  
|Net cash provided by financing activities                                    |  | 9,000,001    |   |  | 121,334,289 |  
|                                                                             |  |              |   |  |             |  
|Net increase in cash                                                         |  | 5,611,176    |   |  | 244,841     |  
|Cash, beginning of year                                                      |  |             |   |  | 5,611,176   |  
|                                                                             |  |              |   |  |             |  
|Cash, end of year                                                            |  | 5,611,176    |   |  | 5,856,017   |  
|                                                                             |  |              |   |  |             |  
|                                                                             |  |             
|Supplemental disclosure of cash flow information                             |  |              |   |  |             |  
|Cash paid during the year for income taxes                                   |  |             |   |  |            |  
|Cash paid during the year for interest                                       |  |             |   |  |            |  
|                                                                             |  |             
|Supplemental schedule of non-cash investing and financing activities:        |  |              |   |  |             |  
|Increase in payables for property and equipment                              |  |             |   |  | 29,972,048  |  

The accompanying notes are an integral part of these combined financial statements.



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Shanghai Chuwen Investment Holding Co., Ltd. and

Hong Kong Ai Home Investment Company

NOTES TO THE COMBINED FINANCIAL STATEMENTS

(Amounts expressed in RMB unless otherwise stated)

1. ORGANIZATION AND NATURE OF OPERATIONS

Shanghai Chuwen Holding Investment Co., Ltd. (Chuwen) was incorporated in Shanghai on January 18, 2005. The shareholders were two PRC citizens who owned
90% and 10% of Chuwen, respectively.

Hong Kong Ai Home Investment Company (Ai Home) was incorporated under the laws of Hong Kong Special
Administration Region on September 30, 2005. The shareholder of Ai Home was Alphaport International Limited, a corporation incorporated by one of the shareholders of Chuwen.

Shanghai Top Star Hotel Management Co., Ltd. (Shanghai Top Star) was a Chinese-foreign joint venture enterprise incorporated in Shanghai on November 7, 2005. Chuwen and Ai Home held 20% and 80% of
Shanghai Top Star, respectively.

Chuwen also held 100% of the equity of Nanning Top Star Hotel Management Co., Ltd. (Nanning Top Star) and 95%
of the equity of Chengdu Top Star Marrica Hotel Management Co., Ltd. (Chengdu Top Star).

Chuwen, Ai Home and their subsidiaries together
leased and operated hotels mainly through Shanghai Top Star, and used the name of Top Star Hotel, since Chuwen and Ai Home were under common control and held investment in hotel business together through Shanghai Top Star, the financial
statements were combined for financial reporting purposes. Chuwen, Ai Home and their subsidiaries collectively referred to as Top Star ( the Company).

Top Star was responsible for all aspects of hotel operations and management, including hiring, training and supervising the managers and employees required to operate the hotels. In addition, Top Star was responsible
for hotel development and customization to conform to the standards of Top Star at the beginning of the lease, as well as repairs and maintenance, operating expenses and management of properties over the term of the lease.

2. ACCOUNTING POLICIES

The principal accounting policies adopted in
the preparation of these combined financial statements are set out below:

a. Basis of presentation and use of estimates

The accompanying combined financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (US
GAAP).

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the balance sheet dates and the reported amounts of revenues and expenses during the reporting periods. Actual results could materially differ from those
estimates.



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b. Basis of consolidation and accounting for investments

The combined financial statements include the financial statements of Chuwen and Ai Home and their subsidiaries.

Subsidiaries are those consolidated entities in which the Company directly or indirectly controls more than one half of the voting power; has the power to govern the
financial and operating policies; to appoint or remove the majority of the members of the board of directors; to cast majority of votes at the meetings of the board of directors; or to govern the financial and operating policies of the investee
under a statute or agreement among the shareholders or equity holders.

All inter-company transactions and balances within the Company have been
eliminated. Minority interests represent the interests of outside minority shareholders in the operating results and net assets of certain consolidated subsidiaries.

c. Foreign currencies

The Companys functional currency is Renminbi (RMB). Transactions
denominated in currencies other than RMB are translated into RMB at the exchange rates quoted by the Peoples Bank of China (the PBOC) prevailing at the dates of the transactions. Gains and losses resulting from foreign currency
transactions are included in the combined statements of operations. Monetary assets and liabilities denominated in foreign currencies are translated into RMB using the applicable exchange rates quoted by the PBOC at the balance sheet dates. All such
exchange gains and losses resulting from foreign currency transactions are included in the combined statements of operations.

d. Allowance for
doubtful accounts

Provision is made against accounts receivable and other receivables to the extent collection is considered to be doubtful.
Receivables in the balance sheet are stated net of such provision, if any. As of December 31, 2005 and 2006, the provision of other receivable is nil and RMB 587,500, respectively. Other receivables are included in prepayment and other current
assets.

e. Consumables

The Company has
purchased consumables mainly for the operation of leased-and-operated hotels. Consumables are amortized over their useful lives, generally one year or less, from the time they are put into use and are stated at purchase price less accumulated
amortization.

f. Property and equipment

Property and equipment are stated at cost less accumulated depreciation and amortization and impairment losses, if any. The cost of property and equipment comprises its purchase price and any directly attributable costs, including interest
cost capitalized in accordance with SFAS No. 34, Capitalization of Interest Costs (SFAS No. 34), during the period the asset is brought to its working condition and location for its intended use.

Depreciation and amortization of property and equipment is provided using the straight-line method over their expected useful lives. The expected useful lives are as
follows:



|                                                                 |  |                                                                 
|---------------------------------------------------------------- |  | ----------------------------------------------------------------
|Leasehold improvements                                           |  | Over the shorter of the economic useful life or the lease period
|Machinery and equipment Furniture, fixtures and office
equipment |  | 5 to 10 years 3 to 5 years                                      

Construction in progress represents leasehold improvements under construction or being installed and is stated at
cost. Cost comprises original cost of property and equipment, installation, construction and other direct costs. Construction in progress is transferred to leasehold improvements and amortization commences when the asset is ready for its intended
use.

Expenditures for repairs and maintenance are expensed as incurred. Gain or loss on disposal of property and equipment, if any, is recognized in the
statements of operations as the difference between the net sales proceeds and the carrying amount of the underlying asset.



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g. Intangible assets

Purchased software is stated at cost less accumulated amortization and impairment, if any. Amortization of software is provided using the straight-line method over its expected useful life of 5 years.

h. Impairment of long-lived assets and definite-lived intangible assets

Long-lived assets and definite-lived intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with
SFAS No.144, Accounting for the Impairment or Disposal of Long-lived Assets (SFAS No. 144). If the total of the expected future undiscounted cash flows is less than the carrying value, an indication of impairment
is present and a loss is recognized in the statements of operations for the difference between the fair value, using the expected future discounted cash flows, and the carrying value of the assets. No impairment was recognized for the years ended
December 31, 2005 and 2006.

i. Financial instruments

Financial instruments of the Company primarily comprise of cash, accounts receivable, related party receivables and payables, accounts payable and other payables and accruals. As of December 31, 2005 and 2006,
carrying values of these financial instruments approximated their fair values.

j. Employee benefits

The employees of the Company and subsidiaries are entitled to staff welfare benefits including medical care, housing fund, unemployment insurance and pension benefits.
These entities are required to accrue for these benefits based on certain percentages of the employees salaries, subject to certain ceilings, in accordance with the relevant PRC regulations and make contributions to the government-sponsored
plans out of the amounts accrued.

k. Revenue recognition

Revenues from leased-and-operated hotels represent primarily room rentals and food and beverage sales from the leased-and-operated hotels. Such revenues are recognized when goods and services are delivered.

l. Business tax and related surcharge

The
Company is subject to business tax and related surcharges on the services provided in the PRC. Such tax is levied based on turnover at an applicable rate of approximately 5.5% and is recorded as a reduction of revenues.

m. Leased-and-operated hotel costs

Leased-and-operated hotel
costs include all direct costs incurred in the operation of the leased-and-operated hotels and consist primarily of property rentals and related expenses, utility costs, personnel compensation, amortization of guest room consumables, amortization of
leasehold improvements, depreciation of equipment, costs of consumables, and food and beverage costs.



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n. Sales and marketing

Sales and marketing expenses consist primarily of advertising related expenses, payroll and related compensation for the Companys sales and marketing personnel. Advertising related expenses, which include promotion expenses and
production costs of marketing materials, are charged to the statements of operations as incurred, and amounted to nil and RMB 2,006,302 for the years ended December 31, 2005 and 2006, respectively.

o. Operating leases

Leases where substantially all the risks
and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases net of any incentives received from the lessor are charged to the combined statements of operations on a
straight-line basis over the terms of the underlying lease.

p. Pre-operating expenditure

Pre-operating expenditure represents start-up costs, other than amounts capitalized as leasehold improvements, for leased-and-operated hotels are charged to the combined
statements of operations in the period in which it is incurred.

q. Taxation

Income tax expenses are recorded using the liability method. Deferred tax assets or liabilities are recognized for the estimated future tax effects attributable to temporary differences and tax loss carry forwards.
Deferred tax assets and liabilities are measured using enacted income 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 taxes of a change
in tax rates is recognized in the statement of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the amount of deferred tax assets if it is considered more likely than not that such assets will
not be realized. As of December 31, 2005 and 2006, the Company has provided a full valuation allowance against its deferred tax assets.

r.
Other non-operating income

Other non-operating income is comprised of primarily sublease income for hotel buildings to third parties.

s. Recent accounting pronouncements

In September 2006, the
FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about
fair value measurements. SFAS No 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007. However, on February 12, 2008, the FASB issued FSP FAS 157-2 which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities,
except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). This FSP partially defers the effective date of SFAS No. 157 to fiscal years beginning after November 15,
2008, and interim periods within those fiscal years for items within the scope of this FSP. Effective for 2008, the Company will adopt SFAS No. 157 except as it applies to those nonfinancial assets and nonfinancial liabilities as noted in FSP
FAS 157-2. The partial adoption of SFAS No.157 is not expected to have a material impact on the Companys combined financial position, cash flows, or results of operations.



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In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities (SFAS No. 159) which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 will be
effective for the Company on January 1, 2008. The adoption of SFAS No. 159 is not expected to have a material impact on the Companys combined financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141R) and SFAS No. 160, Accounting and Reporting of Noncontrolling Interest
in Consolidated Financial Statements, an amendment of ARB 51 (SFAS No. 160), which will change the accounting for and reporting of business combination transactions and noncontrolling interests in consolidated financial
statements. SFAS No.141R and SFAS No.160 will be effective for the Company on January 1, 2009. The Company is currently evaluating the impact of adopting SFAS No.141R and SFAS No.160 on its combined financial statements.

t. Certain risk and concentration risk

Financial instruments
that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and accounts receivable. As of December 31, 2005 and 2006, substantially all of the Companys cash was held in major financial
institutions located in the PRC, which management considers to be of high credit quality. Accounts receivable are typically not collateralized and are denominated in RMB, and are derived from revenues earned from operations arising in the PRC. No
individual customer accounted for more than 10% of net revenues for the years ended December 31, 2005 and 2006.



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3. PREPAYMENTS AND OTHER CURRENT ASSETS

Components of prepayments and other current assets as of December 31 are as follows:



|                                     |  |         |  |            |  
|------------------------------------ |  | ------- |  | ---------- | -
|                                     |  | 2005    |  | 2006       |  
|Prepayment for consumables           |  |        |  | 801,629    |  
|Rental deposit                       |  | 100,000 |  | 1,750,000  |  
|Advance to employees                 |  | 184,895 |  | 398,842    |  
|Prepaid rental expense               |  |        |  | 7,661,831  |  
|Others                               |  | 79,234  |  | 575,492    |  
|Less: Allowance for doubtful account |  |        |  | (587,500   | )
|                                     |  |         |  |            |  
|Total                                |  | 364,129 |  | 10,600,294 |  
|                                     |  |         |  |            |  

4. PROPERTY AND EQUIPMENT

The components of property and equipment are as follows:



|                                         |  |         |   |  |             |  
|---------------------------------------- |  | ------- | - |  | ----------- | -
|                                         |  | 2005    |   |  | 2006        |  
|Leasehold improvements                   |  | 14,625  |   |  | 60,481,072  |  
|Machinery and equipment                  |  | 262,999 |   |  | 3,055,026   |  
|Furniture, fixtures and office equipment |  | 318,432 |   |  | 11,223,945  |  
|Construction in progress                 |  | 180,000 |   |  | 34,372,470  |  
|                                         |  |         |   |  |             |  
|                                         |  | 776,056 |   |  | 109,132,513 |  
|Less: Accumulated depreciation           |  | (1,272  | ) |  | (1,808,577  | )
|                                         |  |         |   |  |             |  
|Property and equipment, net              |  | 774,784 |   |  | 107,323,936 |  
|                                         |  |         |   |  |             |  

Depreciation expenses incurred for the years ended December 31, 2005 and 2006 were RMB 1,272 and RMB
1,807,305, respectively.

5. INTANGIBLE ASSETS

Intangible assets as of December 31 are as follows:



|                               |  |           |  |           |  
|------------------------------ |  | --------- |  | --------- | -
|                               |  | 2005      |  | 2006      |  
|Intangible assets              |  |           |  |           |  
|Purchased software             |  | 1,040,000 |  | 2,735,452 |  
|Less: Accumulated amortization |  |          |  | (242,005  | )
|                               |  |           |  |           |  
|Intangible assets, net         |  | 1,040,000 |  | 2,493,447 |  
|                               |  |           |  |           |  

6. OTHER ASSETS

Other assets consisted of rental deposit to be refunded over one year.

7. INCOME TAXES

Chuwen and its subsidiaries are subject to PRC Enterprise Income Tax (EIT) on the taxable income as reported in their respective statutory financial
statements adjusted in accordance with relevant PRC income tax laws. The applicable EIT rates of these entities are 30% plus a local income tax of 3%.

Ai
Home was subject to Hong Kong profit tax at a rate of 17.5% on its assessable profit. No Hong Kong profit tax has been provided as the Company did not have assessable profit that was earned in or derived from Hong Kong during the years presented.



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Shanghai Top Star is registered in Pudong New Area of Shanghai, and therefore enjoys a preferential income tax rate of
15%.

Deferred tax assets and liabilities comprised:



|                                            |  |          |   |  |            |  
|------------------------------------------- |  | -------- | - |  | ---------- | -
|                                            |  | 2005     |   |  | 2006       |  
|Deferred tax assets, current:               |  |          |   |  |            |  
|Deductible temporary differences related to |  |          |   |  |            |  
|pre-operating expenses                     |  | 62,092   |   |  | 221,354    |  
|rental expenses                            |  |         |   |  | 9,902      |  
|Others                                      |  |         |   |  | 229,205    |  
|                                            |  |          |   |  |            |  
|                                            |  | 62,092   |   |  | 460,461    |  
|                                            |  |          |   |  |            |  
|Less: Valuation allowance                   |  | (62,092  | ) |  | (460,461   | )
|                                            |  |          |   |  |            |  
|Deferred tax assets, current, net           |  |         |   |  |           |  
|                                            |  |          |   |  |            |  
|                                            |  |         
|Deferred tax assets, non-current:           |  |          |   |  |            |  
|Tax loss carry forwards                     |  |         |   |  | 4,672,197  |  
|Deductible temporary differences related to |  |          |   |  |            |  
|rental expenses                            |  |         |   |  | 1,903,352  |  
|pre-operating expenses                     |  | 199,270  |   |  | 761,905    |  
|                                            |  |          |   |  |            |  
|                                            |  | 199,270  |   |  | 7,337,454  |  
|                                            |  |          |   |  |            |  
|Less: Valuation allowance                   |  | (199,270 | ) |  | (7,337,454 | )
|                                            |  |          |   |  |            |  
|Deferred tax assets, non-current, net       |  |         |   |  |           |  
|                                            |  |          |   |  |            |  
|Deferred income tax liabilities             |  |         |   |  |           |  
|                                            |  |          |   |  |            |  

The Companys tax losses carry forward of RMB 24,386,379 will expire on December 31, 2011.

8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES



|                                                                 |  |         |  |           
|---------------------------------------------------------------- |  | ------- |  | ----------
|                                                                 |  | 2005    |  | 2006      
|Bidding deposits received from contractors                       |  |        |  | 4,259,800 
|Accrued advertising expenses                                     |  |        |  | 704,612   
|Advanced payment from Huida for investment in a potential JV (1) |  |        |  | 6,000,000 
|Others                                                           |  | 131,271 |  | 5,056,572 
|                                                                 |  |         |  |           
|Total                                                            |  | 131,271 |  | 16,020,984
|                                                                 |  |         |  |           



|(1) | The advanced payment from Shanghai Huida Knitting Group Co., Ltd. (Huida) was for the purpose of establishing a hotel jointly with the Company. In August 19, 2007, however, the
arrangement was terminated. Subsequently in 2007, the Company has repaid the amount back to Huida.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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9. RELATED PARTY TRANSACTIONS

Related Party Transactions



|                                                |  |                                                                                      
|----------------------------------------------- |  | -------------------------------------------------------------------------------------
|Name of related party                           |  | Relationship to the Company                                                          
|Alphaport International Limited                 |  | Shareholder of the Company                                                           
|Shanghai Wenlei Investment Management Co., Ltd. |  | Under certain common directors who are also shareholders and founders of each company
|Shanghai Tuofeng Advertisement Co,. Ltd.        |  | Under certain common directors who are also shareholders and founders of each company
|Shanghai Changbai Real Estate Company           |  | Under certain common directors who are also shareholders and founders of each company
|Hou Bing                                        |  | Shareholder of Chuwen                                                                

Related party transactions for the years ended December 31 are as follows:



|                                                                         |  |             |  |            |  
|------------------------------------------------------------------------ |  | ----------- |  | ---------- | -
|                                                                         |  | 2005        |  | 2006       |  
|Long-term borrowing obtained from Alphaport International Limited        |  |            |  | 8,329,289  |  
|Long-term borrowing obtained from Shanghai Changbai Real Estate Company  |  | 14,000,000  |  | 27,600,000 |  
|Short-term borrowing obtained from Shanghai Changbai Real Estate Company |  |            |  | 93,400,000 |  
|Short-term borrowing obtained from Hou Bing                              |  | 8,000,000   |  |           |  
|Repayment of borrowing from Hou Bing                                     |  |            |  | (8,000,000 | )
|Lending to Shanghai Wenlei Investment Management Co., Ltd.               |  | 5,000,000   |  |           |  
|Lending to Shanghai Tuofeng Advertisement Co,. Ltd.                      |  | 108,000,000 |  |           |  

Significant balances with related parties as of December 31 are as follows:

Due from related parties:



|                                                |  |             |  |            
|----------------------------------------------- |  | ----------- |  | -----------
|                                                |  | 2005        |  | 2006       
|Shanghai Tuofeng Advertisement Co,. Ltd.        |  | 108,000,000 |  | 108,000,000
|Shanghai Wenlei Investment Management Co., Ltd. |  | 5,000,000   |  | 5,000,000  
|                                                |  |             |  |            
|                                                |  | 113,000,000 |  | 113,000,000
|                                                |  |             |  |            

Due to related parties:



|                                      |  |            |  |            
|------------------------------------- |  | ---------- |  | -----------
|                                      |  | 2005       |  | 2006       
|Shanghai Changbai Real Estate Company |  | 14,000,000 |  | 135,000,000
|Alphaport International Limited       |  |           |  | 8,329,289  
|Hou Bing                              |  | 8,000,000  |  |           
|                                      |  |            |  |            
|                                      |  | 22,000,000 |  | 143,329,289
|                                      |  |            |  |            

10. COMMITMENTS AND CONTINGENCIES

(a) Capital commitments

As of December 31, 2006, the Companys commitments related to leasehold
improvements and installation of machinery and equipment for the hotel operations amounting to RMB 23,135,663.

(b) Commitments under operating
leases

The Company entered into lease agreements relating to leased-and-operated hotels that are classified as operating leases.



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Future minimum lease payments for non-cancelable operating leases at December 31 are as follows:



|           |  |            
|---------- |  | -----------
|2007       |  | 48,671,435 
|2008       |  | 55,075,052 
|2009       |  | 55,748,712 
|2010       |  | 55,759,206 
|2011       |  | 56,395,690 
|Thereafter |  | 481,451,976
|           |  |            
|total      |  | 753,102,071
|           |  |            

Rental expenses amounted to RMB nil and RMB 19,862,697 during the years ended December 31, 2005 and 2006,
respectively.

(c) Contingencies

As of
December 31, 2006, the Company had no significant outstanding contingency.

11. SUBSEQUENT EVENTS

(a) Sale to Home Inns

On October 21, 2007, the
shareholders of Chuwen entered into an agreement with Home Inns & Hotels Management (Shanghai) Co., Limited to sell the 100% equity interest of Chuwen. On the same date, Alphaport International Limited also entered into an equity transfer
agreement with Home Inns & Hotels Management (Hong Kong) Limited to transfer the 100% equity of Ai Home.

The total consideration of above two
agreements amounted to approximately RMB 370 million which consisted of RMB 68 million of cash, the estimated fair value of the 655,831 ordinary shares of Home Inns & Hotels Management Inc and assumption of debts for RMB 192
million.

The historical carrying values of the Companys assets and liabilities have not been adjusted herein to reflect this transaction.

(b) Acquisition of 5% minority interest in Chengdu Top Star

In October 2007, Chuwen entered into an agreement with the minority shareholder of Chengdu Top Star to acquire the remaining 5% equity interest of Chengdu Top Star.

(c) Establishment of Guoding Top Star

Chuwen set up a new
subsidiary, Guoding Top Star Hotel Co., Ltd. , in Shanghai on July 7, 2007.



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##### Table of Contents

Shanghai Chuwen Investment Holding Co., Ltd. and

Hong Kong Ai Home Investment Company

CONDENSED COMBINED STATEMENTS OF OPERATIONS

FOR THE TEN MONTHS ENDED OCTOBER 31, 2006 AND 2007

(Unaudited)



|                                                      |  |      |  |                                  |   |  |                                  |  
|----------------------------------------------------- |  | ---- |  | -------------------------------- | - |  | -------------------------------- | -
|                                                      |  | Note |  | Ten Months EndedOctober 31, 2006 |   |  | Ten Months EndedOctober 31, 2007 |  
|                                                      |  |      |  | RMB                              |   |  | RMB                              |  
|Revenues:                                             |  |      |  |                                  |   |  |                                  |  
|Leased-and-operated hotels                            |  |      |  | 1,854,945                        |   |  | 62,708,351                       |  
|Less: Business tax and related surcharges             |  |      |  | (99,022                          | ) |  | (3,275,275                       | )
|                                                      |  |      |  |                                  |   |  |                                  |  
|Net revenues                                          |  |      |  | 1,755,923                        |   |  | 59,433,076                       |  
|                                                      |  |      |  |                                  |   |  |                                  |  
|Operating costs and expenses:                         |  |      |  |                                  |   |  |                                  |  
|Leased-and-operated hotel costs                      |  |      |  |                                  |   |  |                                  |  
|Rents and utilities                                   |  |      |  | (12,463,119                      | ) |  | (51,419,829                      | )
|Personnel costs                                       |  |      |  | (1,335,753                       | ) |  | (16,487,357                      | )
|Depreciation and amortization                         |  |      |  | (631,814                         | ) |  | (19,797,800                      | )
|Consumables, food and beverage                        |  |      |  | (523,122                         | ) |  | (9,826,952                       | )
|Others                                                |  |      |  | (580,529                         | ) |  | (12,934,684                      | )
|                                                      |  |      |  |                                  |   |  |                                  |  
|Total leased-and-operated hotel costs                 |  |      |  | (15,534,337                      | ) |  | (110,466,622                     | )
|Sales and marketing expenses                          |  |      |  | (381,882                         | ) |  | (7,896,404                       | )
|General and administrative expenses                   |  |      |  | (10,296,896                      | ) |  | (18,303,133                      | )
|                                                      |  |      |  |                                  |   |  |                                  |  
|Total operating costs and expenses                    |  |      |  | (26,213,115                      | ) |  | (136,666,159                     | )
|                                                      |  |      |  |                                  |   |  |                                  |  
|Loss from operations                                  |  |      |  | (24,457,192                      | ) |  | (77,233,083                      | )
|                                                      |  |      |  |                                  |   |  |                                  |  
|Interest income                                       |  |      |  | 45,081                           |   |  | 36,674                           |  
|Interest expense                                      |  |      |  |                                 |   |  | (917,910                         | )
|Other non-operating income                            |  |      |  | 368,739                          |   |  | 1,139,517                        |  
|                                                      |  |      |  |                                  |   |  |                                  |  
|Loss before income tax expense and minority interests |  |      |  | (24,043,372                      | ) |  | (76,974,802                      | )
|Minority interests                                    |  |      |  |                                 |   |  |                                 |  
|Income tax expense                                    |  | 6    |  |                                 |   |  |                                 |  
|Net Loss                                              |  |      |  | (24,043,372                      | ) |  | (76,974,802                      | )
|                                                      |  |      |  |                                  |   |  |                                  |  

The accompanying notes are an integral part of these unaudited interim condensed combined
financial statements.



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##### Table of Contents

Shanghai Chuwen Investment Holding Co., Ltd. and

Hong Kong Ai Home Investment Company

CONDENSED COMBINED BALANCE SHEETS

AS OF DECEMBER 31, 2006 AND OCTOBER 31, 2007

(Unaudited)



|                                               |  |      |  |                  |   |  |                 |  
|---------------------------------------------- |  | ---- |  | ---------------- | - |  | --------------- | -
|                                               |  | Note |  | December 31,2006 |   |  | October 31,2007 |  
|                                               |  |      |  | RMB              |   |  | RMB             |  
|ASSETS                                         |  |      |  |                  |   |  |                 |  
|Current assets:                                |  |      |  |                  |   |  |                 |  
|Cash                                           |  |      |  | 5,856,017        |   |  | 4,457,646       |  
|Accounts receivable                            |  |      |  | 117,552          |   |  | 1,604,059       |  
|Consumables                                    |  |      |  | 6,226,558        |   |  | 3,905,246       |  
|Prepayments and other current assets           |  | 3    |  | 10,600,294       |   |  | 8,136,830       |  
|                                               |  |      |  |                  |   |  |                 |  
|Total current assets                           |  |      |  | 22,800,421       |   |  | 18,103,781      |  
|                                               |  |      |  |                  |   |  |                 |  
|Property and equipment, net                    |  | 4    |  | 107,323,936      |   |  | 172,425,253     |  
|Intangible assets, net                         |  | 5    |  | 2,493,447        |   |  | 3,871,548       |  
|Other assets                                   |  |      |  | 9,598,617        |   |  | 9,391,950       |  
|                                               |  |      |  |                  |   |  |                 |  
|Total assets                                   |  |      |  | 142,216,421      |   |  | 203,792,532     |  
|                                               |  |      |  |                  |   |  |                 |  
|                                               |  |      | 
|LIABILITIES                                    |  |      |  |                  |   |  |                 |  
|Current liabilities:                           |  |      |  |                  |   |  |                 |  
|Accounts payable                               |  |      |  | 2,240,011        |   |  | 2,476,468       |  
|Borrowings from related parties                |  | 9    |  | 93,400,000       |   |  | 133,937,448     |  
|Short-term borrowings                          |  | 7    |  |                 |   |  | 20,000,000      |  
|Payables on construction costs                 |  |      |  | 29,972,048       |   |  | 20,671,151      |  
|Accrued expenses and other current liabilities |  | 8    |  | 16,020,984       |   |  | 13,586,956      |  
|                                               |  |      |  |                  |   |  |                 |  
|Total current liabilities                      |  |      |  | 141,633,043      |   |  | 190,672,023     |  
|                                               |  |      |  |                  |   |  |                 |  
|Deferred rental                                |  |      |  | 7,122,224        |   |  | 20,030,221      |  
|Borrowings from related parties, non-current   |  | 9    |  | 49,929,289       |   |  |                |  
|Long-term loan                                 |  | 7    |  |                 |   |  | 18,038,225      |  
|                                               |  |      |  |                  |   |  |                 |  
|Total liabilities                              |  |      |  | 198,684,556      |   |  | 228,740,469     |  
|                                               |  |      |  |                  |   |  |                 |  
|Minority interest                              |  |      |  | 5,000            |   |  |                |  
|                                               |  |      |  |                  |   |  |                 |  
|Commitments and contingencies                  |  | 10   |  |                  |   |  |                 |  
|Shareholders equity                           |  |      |  |                  |   |  |                 |  
|Capital stock                                  |  |      |  | 100,000,001      |   |  | 100,000,001     |  
|Less: Receivables from affiliates              |  | 9    |  | (113,000,000     | ) |  | (4,500,000      | )
|Retained earnings                              |  |      |  | (43,473,136      | ) |  | (120,447,938    | )
|                                               |  |      |  |                  |   |  |                 |  
|Total shareholders equity                     |  |      |  | (56,473,135      | ) |  | (24,947,937     | )
|                                               |  |      |  |                  |   |  |                 |  
|Total liabilities and shareholders equity     |  |      |  | 142,216,421      |   |  | 203,792,532     |  
|                                               |  |      |  |                  |   |  |                 |  

The accompanying notes are an integral part of these unaudited interim condensed combined financial
statements.



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CONDENSED COMBINED STATEMENTS OF SHAREHOLDERS EQUITY

FOR TEN MONTHS ENDED OCTOBER 31 2006 AND 2007

(Unaudited)



|                                            |  |               |  |                  |   |  |                            |   |  |                            |  
|------------------------------------------- |  | ------------- |  | ---------------- | - |  | -------------------------- | - |  | -------------------------- | -
|                                            |  | Capital stock |  | Retainedearnings |   |  | Receivables from affiliate |   |  | Total share-holdersequity |  
|Balance as of January 1, 2006               |  | 100,000,001   |  | (1,341,183       | ) |  | (113,000,000               | ) |  | (14,341,182                | )
|Net loss                                    |  |              |  | (24,043,372      | ) |  |                           |   |  | (24,043,372                | )
|                                            |  |               |  |                  |   |  |                            |   |  |                            |  
|Balance as of October 31, 2006              |  | 100,000,001   |  | (25,384,555      | ) |  | (113,000,000               | ) |  | (38,384,554                | )
|                                            |  |               |  |                  |   |  |                            |   |  |                            |  
|Balance as of January 1, 2007               |  | 100,000,001   |  | (43,473,136      | ) |  | (113,000,000               | ) |  | (56,473,135                | )
|Payment received from lending to affiliates |  |              |  |                 |   |  | 108,500,000                |   |  | 108,500,000                |  
|Net loss                                    |  |              |  | (76,974,802      | ) |  |                           |   |  | (76,974,802                | )
|                                            |  |               |  |                  |   |  |                            |   |  |                            |  
|Balance as of October 31, 2007              |  | 100,000,001   |  | (120,447,938     | ) |  | (4,500,000                 | ) |  | (24,947,937                | )
|                                            |  |               |  |                  |   |  |                            |   |  |                            |  

The accompanying notes are an integral part of these unaudited interim condensed combined financial
statements.



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CONDENSED COMBINED STATEMENTS OF CASH FLOWS

FOR TEN MONTHS ENDED OCTOBER 31 2006 AND 2007

(Unaudited)



|                                                                             |  |                                  |   |  |                                  |  
|---------------------------------------------------------------------------- |  | -------------------------------- | - |  | -------------------------------- | -
|                                                                             |  | Ten Months EndedOctober 31, 2006 |   |  | Ten Months EndedOctober 31, 2007 |  
|                                                                             |  | RMB                              |   |  | RMB                              |  
|Cash flows from operating activities:                                        |  |                                  |   |  |                                  |  
|Net loss                                                                     |  | (24,043,372                      | ) |  | (76,974,802                      | )
|Adjustments to reconcile net loss to net cash used in operating activities : |  |                                  |   |  |                                  |  
|Depreciation and amortization                                                |  | 1,070,739                        |   |  | 13,752,143                       |  
|Increase in accounts receivable                                              |  | (164,225                         | ) |  | (1,486,507                       | )
|(Increase) decrease in consumables                                           |  | (4,241,443                       | ) |  | 2,321,312                        |  
|(Increase) decrease in prepayments and other current assets                  |  | (7,767,711                       | ) |  | 2,463,464                        |  
|(Increase) decrease in other assets                                          |  | (9,258,617                       | ) |  | 206,667                          |  
|Increase in accounts payable                                                 |  | 1,096,391                        |   |  | 236,457                          |  
|Increase (decrease) in accrued expenses and other current liabilities        |  | 3,370,061                        |   |  | (2,395,803                       | )
|Increase in deferred rental                                                  |  | 5,264,727                        |   |  | 12,907,997                       |  
|                                                                             |  |                                  |   |  |                                  |  
|Net cash used in operating activities                                        |  | (34,673,450                      | ) |  | (48,969,072                      | )
|                                                                             |  |                                  |   |  |                                  |  
|Cash flows from investing activities:                                        |  |                                  |   |  |                                  |  
|Purchase of property and equipment                                           |  | (43,662,600                      | ) |  | (87,579,275                      | )
|Purchase of intangible assets                                                |  | (1,008,567                       | ) |  | (1,953,183                       | )
|Purchase of minority interest                                                |  |                                 |   |  | (5,000                           | )
|                                                                             |  |                                  |   |  |                                  |  
|Net cash used in investing activities                                        |  | (44,671,167                      | ) |  | (89,537,458                      | )
|                                                                             |  |                                  |   |  |                                  |  
|Cash flows from financing activities:                                        |  |                                  |   |  |                                  |  
|Proceeds from short-term borrowings                                          |  |                                 |   |  | 20,000,000                       |  
|Proceeds from long-term loans                                                |  |                                 |   |  | 18,000,000                       |  
|Capital contribution from minority shareholder                               |  | 5,000                            |   |  |                                 |  
|Proceeds of borrowing from related parties                                   |  | 84,329,290                       |   |  | 8,159                            |  
|Repayment of borrowing from related parties                                  |  | (8,000,000                       | ) |  | (9,400,000                       | )
|Decrease in due from related parties under common control                    |  |                                 |   |  | 108,500,000                      |  
|                                                                             |  |                                  |   |  |                                  |  
|Net cash provided by financing activities                                    |  | 76,334,290                       |   |  | 137,108,159                      |  
|                                                                             |  |                                  |   |  |                                  |  
|Net decrease in cash                                                         |  | (3,010,327                       | ) |  | (1,398,371                       | )
|Cash, beginning of year                                                      |  | 5,611,176                        |   |  | 5,856,017                        |  
|                                                                             |  |                                  |   |  |                                  |  
|Cash, end of year                                                            |  | 2,600,849                        |   |  | 4,457,646                        |  
|                                                                             |  |                                  |   |  |                                  |  
|Supplemental disclosure of cash flow information                             |  |                                  |   |  |                                  |  
|Cash paid during the year for interest                                       |  |                                 |   |  | 917,910                          |  
|Supplemental schedule of non-cash investing and financing activities:        |  |                                  |   |  |                                  |  
|Increase (decrease) in payables for property and equipment                   |  | 19,777,805                       |   |  | (9,300,897                       | )

The accompanying notes are an integral part of these unaudited interim condensed combined financial
statements.



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1. ORGANIZATION AND NATURE OF OPERATIONS

The interim condensed combined financial statements include the financial statements
of Shanghai Chuwen Investment Holding Co., Ltd. (Chuwen) and Hong Kong Ai Home Investment Company (Ai Home) and their subsidiaries. Chuwen, Ai Home and their subsidiaries are collectively referred to as Top Star
or the Company.

The principal activities of the Company are to develop, lease, operate and manage economy hotels in Peoples Republic of
China (PRC). The Company leases real estate properties on which it develops and operates hotels, referred to as the leased-and-operated hotels.

2. ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these condensed combined
financial statements are set out below:

a. Basis of presentation and use of estimates

The accompanying unaudited interim condensed combined financial statements have been prepared in accordance with generally accepted accounting principles in the United
States of America (US GAAP), on the same basis as the Companys audited US GAAP financial statements for the year ended December 31, 2006. The December 31, 2006 balance sheet financial data was derived from such
audited financial statements.

The interim condensed combined financial information is unaudited but include all adjustments, consisting only of normal and
recurring adjustments, which are, in the opinion of management, necessary to provide fair condensed combined balance sheets, condensed combined statements of operations, condensed combined statements of shareholders equity and condensed
combined statements of cash flows for the interim periods presented. The interim condensed combined financial statements do not include all disclosures required by US GAAP. You should read these interim condensed combined financial statements in
conjunction with the audited financial statements for the year ended December 31, 2006, including the notes thereto.

The preparation of interim
condensed combined financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the balance
sheet dates and the reported amounts of revenues and expenses during the reporting periods. Actual results could materially differ from those estimates.



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b. Recent accounting pronouncements

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS No. 157), which defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair value measurements. SFAS No 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to
classify the source of the information. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. However, on February 12, 2008, the FASB issued FSP FAS 157-2 which delays the effective date of SFAS No. 157
for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). This FSP partially defers the effective date of SFAS
No. 157 to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years for items within the scope of this FSP. Effective for 2008, the Company will adopt SFAS No. 157 except as it applies to those
nonfinancial assets and nonfinancial liabilities as noted in FSP FAS 157-2. The partial adoption of SFAS No. 157 is not expected to have a material impact on the Companys condensed combined financial position, cash flows, or results of
operations.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (SFAS
No. 159) which permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. SFAS No. 159 will be effective for the Company on
January 1, 2008. The adoption of SFAS No. 159 is not expected to have a material impact on the Companys condensed combined financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS No. 141R) and SFAS No. 160, Accounting and Reporting of Noncontrolling Interest in Consolidated
Financial Statements, an amendment of ARB 51 (SFAS No. 160), which will change the accounting for and reporting of business combination transactions and noncontrolling interests in consolidated financial statements. SFAS No.
141R and SFAS No. 160 will be effective for the Company on January 1, 2009. The Company is currently evaluating the impact of adopting SFAS No. 141R and SFAS No. 160 on its condensed combined financial statements.

3. PREPAYMENTS AND OTHER CURRENT ASSETS

Components of prepayments
and other current assets are as follows:



|                                     |  |                   |   |  |                  |  
|------------------------------------ |  | ----------------- | - |  | ---------------- | -
|                                     |  | December 31, 2006 |   |  | October 31, 2007 |  
|Prepayment for consumables           |  | 801,629           |   |  | 959,897          |  
|Rental deposit                       |  | 1,750,000         |   |  | 2,757,527        |  
|Advance to employees                 |  | 398,842           |   |  | 904,401          |  
|Prepaid rental expense               |  | 7,661,831         |   |  | 2,920,055        |  
|Others                               |  | 575,492           |   |  | 1,182,450        |  
|Less: Allowance for doubtful account |  | (587,500          | ) |  | (587,500         | )
|                                     |  |                   |   |  |                  |  
|Total                                |  | 10,600,294        |   |  | 8,136,830        |  
|                                     |  |                   |   |  |                  |  



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4. PROPERTY AND EQUIPMENT

The components of property and equipment are as follows:



|                                         |  |                   |   |  |                  |  
|---------------------------------------- |  | ----------------- | - |  | ---------------- | -
|                                         |  | December 31, 2006 |   |  | October 31, 2007 |  
|Leasehold improvements                   |  | 60,481,072        |   |  | 146,496,911      |  
|Machinery and equipment                  |  | 3,055,026         |   |  | 7,942,253        |  
|Furniture, fixtures and office equipment |  | 11,223,945        |   |  | 28,333,237       |  
|Construction in progress                 |  | 34,372,470        |   |  | 4,638,490        |  
|                                         |  |                   |   |  |                  |  
|                                         |  | 109,132,513       |   |  | 187,410,891      |  
|Less: Accumulated depreciation           |  | (1,808,577        | ) |  | (14,985,638      | )
|                                         |  |                   |   |  |                  |  
|Property and equipment, net              |  | 107,323,936       |   |  | 172,425,253      |  
|                                         |  |                   |   |  |                  |  

Depreciation expenses incurred for the year ended December 31 2006 and the ten months ended October 31,
2007 were RMB 1,807,305 and RMB 13,177,061, respectively.

5. INTANGIBLE ASSETS

The components of Intangible assets are as follows:



|                               |  |                   |   |  |                  |  
|------------------------------ |  | ----------------- | - |  | ---------------- | -
|Intangible assets              |  | December 31, 2006 |   |  | October 31, 2007 |  
|Purchased software             |  | 2,735,452         |   |  | 4,688,635        |  
|Less: Accumulated amortization |  | (242,005          | ) |  | (817,087         | )
|                               |  |                   |   |  |                  |  
|Intangible assets, net         |  | 2,493,447         |   |  | 3,871,548        |  
|                               |  |                   |   |  |                  |  

6. INCOME TAXES

Chuwen and its subsidiaries are subject to PRC Enterprise Income Tax (EIT) on taxable income as reported in their respective statutory financial statements adjusted in accordance with relevant PRC income tax laws. The applicable
EIT rates of these entities are 30% plus a local income tax of 3%.

Ai Home was subject to Hong Kong profit tax at a rate of 17.5% on its assessable
profit. No Hong Kong profit tax has been provided as the Company did not have assessable profit that was earned in or derived from Hong Kong during the years presented.

Shanghai Top Star Hotel Management Co., Ltd., a subsidiary of the Company, is registered in Pudong New Area of Shanghai, and therefore enjoys a preferential income tax rate of 15%.



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Effective from 1 January 2008, the Company shall determine and pay the corporate income tax in accordance
with the Corporate Income Tax Law of the Peoples Republic of China (hereinafter the new CIT Law) as approved by the National Peoples Congress on 16 March 2007. Under the new CIT Law, the corporate income tax rate
applicable to the Company became 25% in 2008.

Deferred tax assets and liabilities comprised:



|                                                                           |  |                   |   |  |                  |  
|-------------------------------------------------------------------------- |  | ----------------- | - |  | ---------------- | -
|                                                                           |  | December 31, 2006 |   |  | October 31, 2007 |  
|Deferred tax assets, current:                                              |  |                   |   |  |                  |  
|Deductible temporary differences related to                                |  |                   |   |  |                  |  
|pre-operating expenses                                                    |  | 221,354           |   |  | 943,664          |  
|rental expenses                                                           |  | 9,902             |   |  | 12,079           |  
|Others                                                                     |  | 229,205           |   |  | 330,210          |  
|                                                                           |  |                   |   |  |                  |  
|                                                                           |  | 460,461           |   |  | 1,285,953        |  
|                                                                           |  |                   |   |  |                  |  
|Less: Valuation allowance                                                  |  | (460,461          | ) |  | (1,285,953       | )
|                                                                           |  |                   |   |  |                  |  
|Deferred tax assets, current, net                                          |  |                  |   |  |                 |  
|                                                                           |  |                   |   |  |                  |  
|                                                                           |  |                  
|Deferred tax assets, non-current:                                          |  |                   |   |  |                  |  
|Tax loss carry forwards                                                    |  | 4,672,197         |   |  | 29,464,371       |  
|Deductible temporary differences related to                                |  |                   |   |  |                  |  
|rental expenses                                                           |  | 1,903,352         |   |  | 5,510,089        |  
|pre-operating expenses                                                    |  | 761,905           |   |  | 3,023,218        |  
|                                                                           |  |                   |   |  |                  |  
|                                                                           |  | 7,337,454         |   |  | 37,997,678       |  
|                                                                           |  |                   |   |  |                  |  
|Less: Valuation allowance                                                  |  | (7,337,454        | ) |  | (35,557,248      | )
|                                                                           |  |                   |   |  |                  |  
|Deferred income tax assets, non-current, net                               |  |                  |   |  | 2,440,430        |  
|                                                                           |  |                   |   |  |                  |  
|Deferred tax liabilities, non-current:                                     |  |                   |   |  |                  |  
|Taxable temporary differences resulting from depreciation and amortization |  |                  |   |  | (2,440,430       | )
|                                                                           |  |                   |   |  |                  |  
|Net deferred tax income, non-current                                       |  |                  |   |  |                 |  
|                                                                           |  |                   |   |  |                  |  



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7. BORROWINGS



|                      |  |                   |  |                 
|--------------------- |  | ----------------- |  | ----------------
|                      |  | December 31, 2006 |  | October 31, 2007
|Short-term bank loans |  |                  |  | 20,000,000      
|Long-term bank loans  |  |                  |  | 18,038,225      

Short-term bank loans bear interest at a rate of 6.84% per annum and are repayable in 2007 and 2008.

Long-term bank loans bear interests at the rate of 6.57% for 2007, and are repayable in 2009.

8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES



|                                                                 |  |                   |  |                 
|---------------------------------------------------------------- |  | ----------------- |  | ----------------
|                                                                 |  | December 31, 2006 |  | October 31, 2007
|Bidding deposits received from contractors                       |  | 4,259,800         |  | 1,255,525       
|Accrued advertising expenses                                     |  | 704,612           |  | 1,053,838       
|Advanced payment from Huida for Investment in a potential JV (1) |  | 6,000,000         |  |                
|Salaries and welfare payable                                     |  | 1,034,887         |  | 3,869,264       
|Others                                                           |  | 4,021,685         |  | 7,408,329       
|                                                                 |  |                   |  |                 
|Total                                                            |  | 16,020,984        |  | 13,586,956      
|                                                                 |  |                   |  |                 



|(1) | The advanced payment from Shanghai Huida Knitting Group Co., Ltd. (Huida) was for the purpose of establishing a hotel jointly with the Company. In August 19, 2007, however, the
arrangement was terminated. In September 2007, the Company has repaid the amount back to Huida.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9. RELATED PARTY TRANSACTIONS

Related Party Transactions



|                                               |  |                                                                                      
|---------------------------------------------- |  | -------------------------------------------------------------------------------------
|Name of related parties                        |  | Relationship to the Company                                                          
|Alphaport International Limited                |  | Shareholder of the Company                                                           
|                                               | 
|Shanghai Wenlei Investment Management Co., Ltd |  | Under certain common directors who are also shareholders and founders of each company
|                                               | 
|Shanghai Tuofeng Advertisement Co,. Ltd.       |  | Under certain common directors who are also shareholders and founders of each company
|                                               | 
|Shanghai Changbai Real Estate Company          |  | Under certain common directors who are also shareholders and founders of each company
|                                               | 
|Hou Bing                                       |  | Shareholder of Chuwen                                                                



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Related party transactions are as follows:



|                                                                               |  |                                  |   |  |                                  |  
|------------------------------------------------------------------------------ |  | -------------------------------- | - |  | -------------------------------- | -
|                                                                               |  | Ten Months EndedOctober 31, 2006 |   |  | Ten Months EndedOctober 31, 2007 |  
|Short-term borrowing obtained from Alphaport International Limited             |  | 8,329,289                        |   |  | 8,159                            |  
|Short-term borrowing obtained from Shanghai Changbai Real Estate Company       |  | 76,000,000                       |   |  |                                  |  
|Repayment of borrowing from Shanghai Changbai Real Estate Company              |  |                                  |   |  | (9,400,000                       | )
|Repayment of borrowing from Hou Bing                                           |  | (8,000,000                       | ) |  |                                  |  
|Payment received from lending to Shanghai Wenlei Investment Management Co.,Ltd |  |                                 |   |  | (500,000                         | )
|Payment received from lending to Shanghai Tuofeng Advertisement Co,.Ltd        |  |                                 |   |  | (108,000,000                     | )

Significant balances with related parties are as follows:

Due from related parties:



|                                                |  |                   |  |                 
|----------------------------------------------- |  | ----------------- |  | ----------------
|                                                |  | December 31, 2006 |  | October 31, 2007
|Shanghai Tuofeng Advertisement Co,. Ltd.        |  | 108,000,000       |  |                
|Shanghai Wenlei Investment Management Co., Ltd. |  | 5,000,000         |  | 4,500,000       
|                                                |  |                   |  |                 
|Total                                           |  | 113,000,000       |  | 4,500,000       
|                                                |  |                   |  |                 

Due to related parties:



|                                      |  |                   |  |                 
|------------------------------------- |  | ----------------- |  | ----------------
|                                      |  | December 31, 2006 |  | October 31, 2007
|Shanghai Changbai Real Estate Company |  | 135,000,000       |  | 125,600,000     
|Alphaport International Limited       |  | 8,329,289         |  | 8,337,448       
|                                      |  |                   |  |                 
|Total                                 |  | 143,329,289       |  | 133,937,448     
|                                      |  |                   |  |                 

10. COMMITMENTS AND CONTINGENCIES

(a) Capital commitments

As of October 31, 2007, the Company has no commitments related to leasehold
improvements and installation of machinery and equipment for the hotel operations.

(b) Commitments under operating leases

The Company entered into lease agreements relating to leased-and-operated hotels that are classified as operating leases.



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Future minimum lease payments for non-cancelable operating leases at October 31 are as follows:



|           |  |            
|---------- |  | -----------
|2008       |  | 53,960,162 
|2009       |  | 55,071,594 
|2010       |  | 55,759,206 
|2011       |  | 56,395,690 
|2012       |  | 57,296,089 
|Thereafter |  | 424,155,887
|           |  |            
|total      |  | 702,638,628
|           |  |            

Rental expenses amounted to RMB 12,397,103 and RMB 44,705,165 during the ten months ended October 31, 2006
and 2007, respectively.

(c) Contingencies

As
of October 31, 2007, the Company had no significant outstanding contingency.

11. SUBSEQUENT EVENTS

(a) Sale to Home Inns

On October 21, 2007, the
shareholders of Chuwen entered into an agreement with Home Inns & Hotels Management (Shanghai) Co., Limited to sell the 100% equity interest of Chuwen. On the same date, Alphaport International Limited also entered into an equity transfer
agreement with Home Inns & Hotels Management (Hong Kong) Limited to transfer the 100% equity of Ai Home.

The total consideration of above two
agreements amounted to approximately RMB 370 million which consisted of RMB 68 million of cash, the estimated fair value of the 655,831 ordinary shares of Home Inns & Hotels Management Inc and assumption of debts for RMB 192
million.

The historical carrying values of the Companys assets and liabilities have not been adjusted herein to reflect this transaction.

(b) Acquisition of 5% minority interest in Chengdu Top Star

In October 2007, Chuwen entered into an agreement with the minority shareholder of Chengdu Top Star to acquire the remaining 5% of Chengdu Top Star.

(c) Establishment of Guoding Top Star

Chuwen set up a new subsidiary, Guoding Top Star Hotel Co., Ltd. , in
Shanghai on July 7, 2007.



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HOME INNS & HOTELS MANAGEMENT INC.

INTRODUCTION TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL

STATEMENTS

The
following unaudited pro forma consolidated statement of operations is based on the historical consolidated statement of operations of Home Inns & Hotels Management Inc. (Home Inns or the Company) and its subsidiaries
(collectively the Group), contained elsewhere in this prospectus, after giving effects to the combined results of operations of Shanghai Chuwen Investment Holding Co., Ltd. (Chuwen) and Hong Kong Ai Home Investment Company
(Ai Home) (collectively Top Star) as if the Company acquired Top Star on January 1, 2007, and the pro forma adjustments described in the notes hereto.

The unaudited pro forma consolidated statement of operation should be read in conjunction with the consolidated financial statements of the Group and Top
Star, including the notes thereto, and other financial information included elsewhere in Form 20-F.



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HOME INNS & HOTELS MANAGEMENT INC.

UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2007



|                                                        |  |                                          |   |  |                                                  |   |  |                              |   |  |           |  |                                             |   |  |                                             |  
|------------------------------------------------------- |  | ---------------------------------------- | - |  | ------------------------------------------------ | - |  | ---------------------------- | - |  | --------- |  | ------------------------------------------- | - |  | ------------------------------------------- | -
|                                                        |  | Actual for theyear endedDecember 31,2007 |   |  | Top StarTen-months EndedOctober 31, 2007(Note 1) |   |  | Pro formaadjustments(Note 2) |   |  |           |  | Pro forma for theyear endedDecember 31,2007 |   |  | Pro forma for theyear endedDecember 31,2007 |  
|                                                        |  | RMB                                      |   |  | RMB                                              |   |  | RMB                          |   |  |           |  | RMB (Unaudited)                             |   |  | USD (Unaudited) (Note 3)                    |  
|Revenues:                                               |  |                                          |   |  |                                                  |   |  |                              |   |  |           |  |                                             |   |  |                                             |  
|Leased-and-operated hotels                              |  | 963,050,569                              |   |  | 62,708,351                                       |   |  |                             |   |  |           |  | 1,025,758,920                               |   |  | 140,618,940                                 |  
|Franchised-and-managed hotels                           |  | 46,265,583                               |   |  |                                                 |   |  |                             |   |  |           |  | 46,265,583                                  |   |  | 6,342,443                                   |  
|Total revenues                                          |  | 1,009,316,152                            |   |  | 62,708,351                                       |   |  |                             |   |  |           |  | 1,072,024,503                               |   |  | 146,961,383                                 |  
|Less: Business tax and related surcharges               |  | (60,302,441                              | ) |  | (3,275,275                                       | ) |  |                             |   |  |           |  | (63,577,716                                 | ) |  | (8,715,723                                  | )
|Net revenues                                            |  | 949,013,711                              |   |  | 59,433,076                                       |   |  |                             |   |  |           |  | 1,008,446,787                               |   |  | 138,245,660                                 |  
|Operating costs and expenses:                           |  |                                          |   |  |                                                  |   |  |                              |   |  |           |  |                                             |   |  |                                             |  
|Leased-and-operated hotel costs                        |  |                                          |   |  |                                                  |   |  |                              |   |  |           |  |                                             |   |  |                                             |  
|Rents and utilities                                     |  | (299,791,891                             | ) |  | (51,419,829                                      | ) |  |                             |   |  |           |  | (351,211,720                                | ) |  | (48,146,810                                 | )
|Personnel costs*                                        |  | (155,611,203                             | ) |  | (16,487,357                                      | ) |  |                             |   |  |           |  | (172,098,560                                | ) |  | (23,592,597                                 | )
|Depreciation and amortization                           |  | (85,600,192                              | ) |  | (19,797,800                                      | ) |  | (217,472                     | ) |  | Note 2(a) |  | (105,615,464                                | ) |  | (14,478,582                                 | )
|Consumables, food and beverage                          |  | (84,053,059                              | ) |  | (9,826,952                                       | ) |  |                             |   |  |           |  | (93,880,011                                 | ) |  | (12,869,796                                 | )
|Others                                                  |  | (98,643,735                              | ) |  | (12,934,684                                      | ) |  |                             |   |  |           |  | (111,578,419                                | ) |  | (15,296,030                                 | )
|                                                        |  |                                          |   |  |                                                  |   |  |                              |   |  |           |  |                                             |   |  |                                             |  
|Total leased-and-operated hotel costs                   |  | (723,700,080                             | ) |  | (110,466,622                                     | ) |  | (217,472                     | ) |  |           |  | (834,384,174                                | ) |  | (114,383,815                                | )
|Sales and marketing expenses                            |  | (19,631,772                              | ) |  | (7,896,404                                       | ) |  |                             |   |  |           |  | (27,528,176                                 | ) |  | (3,773,775                                  | )
|General and administrative expenses                     |  | (99,025,878                              | ) |  | (18,303,133                                      | ) |  |                             |   |  |           |  | (117,329,011                                | ) |  | (16,084,365                                 | )
|                                                        |  |                                          |   |  |                                                  |   |  |                              |   |  |           |  |                                             |   |  |                                             |  
|Total operating costs and expenses                      |  | (842,357,730                             | ) |  | (136,666,159                                     | ) |  | (217,472                     | ) |  |           |  | (979,241,361                                | ) |  | (134,241,955                                | )
|                                                        |  |                                          |   |  |                                                  |   |  |                              |   |  |           |  |                                             |   |  |                                             |  
|Income/(loss) from operations                           |  | 106,655,981                              |   |  | (77,233,083                                      | ) |  | (217,472                     | ) |  |           |  | 29,205,426                                  |   |  | 4,003,705                                   |  
|                                                        |  |                                          |   |  |                                                  |   |  |                              |   |  |           |  |                                             |   |  |                                             |  
|Interest income                                         |  | 31,717,134                               |   |  | 36,674                                           |   |  |                             |   |  |           |  | 31,753,808                                  |   |  | 4,353,057                                   |  
|Interest expense                                        |  | (7,168,401                               | ) |  | (917,910                                         | ) |  |                             |   |  |           |  | (8,086,311                                  | ) |  | (1,108,534                                  | )
|Other non-operating income                              |  | 8,434,516                                |   |  | 1,139,517                                        |   |  |                             |   |  |           |  | 9,574,033                                   |   |  | 1,312,482                                   |  
|Foreign exchange gain or loss, net                      |  | (53,220,796                              | ) |  |                                                 |   |  |                             |   |  |           |  | (53,220,796                                 | ) |  | (7,295,917                                  | )
|                                                        |  |                                          |   |  |                                                  |   |  |                              |   |  |           |  |                                             |   |  |                                             |  
|Income before income tax expense and minority interests |  | 86,418,434                               |   |  | (76,974,802                                      | ) |  | (217,472                     | ) |  |           |  | 9,226,160                                   |   |  | 1,264,793                                   |  
|Income tax expense                                      |  | (45,035,530                              | ) |  |                                                 |   |  |                             |   |  | Note 2(b) |  | (45,035,530                                 | ) |  | (6,173,818                                  | )
|Minority interests                                      |  | (5,626,894                               | ) |  |                                                 |   |  |                             |   |  |           |  | (5,626,894                                  | ) |  | (771,378                                    | )
|                                                        |  |                                          |   |  |                                                  |   |  |                              |   |  |           |  |                                             |   |  |                                             |  
|Net income/(loss)                                       |  | 35,756,010                               |   |  | (76,974,802                                      | ) |  | (217,472                     | ) |  |           |  | (41,436,264                                 | ) |  | (5,680,403                                  | )
|                                                        |  |                                          |   |  |                                                  |   |  |                              |   |  |           |  |                                             |   |  |                                             |  
|                                                        |  |                                          |   |  |                                                  |   |  |                              |   |  |           |  |                                             |   |  |                                             |  
|Earnings per share                                      |  |                                          |   |  |                                                  |   |  |                              |   |  |           |  |                                             |   |  |                                             |  
| Basic (Note 4)                                        |  | 0.52                                     |   |  |                                                 |   |  |                             |   |  |           |  | (0.60                                       | ) |  | (0.08                                       | )
| Diluted                                               |  | 0.47                                     |   |  |                                                 |   |  |                             |   |  |           |  | (0.60                                       | ) |  | (0.08                                       | )
|Weighted average ordinary shares outstanding            |  |                                          |   |  |                                                  |   |  |                              |   |  |           |  |                                             |   |  |                                             |  
| Basic                                                 |  | 68,323,370                               |   |  |                                                 |   |  |                             |   |  |           |  | 68,851,628                                  |   |  | 68,851,628                                  |  
| Diluted                                               |  | 76,883,995                               |   |  |                                                 |   |  |                             |   |  |           |  | 68,851,628                                  |   |  | 68,851,628                                  |  

See accompanying notes to Unaudited Pro Forma Consolidated Financial Statements



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##### Table of Contents

HOME INNS & HOTELS MANAGEMENT INC.

NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL
STATEMENTS

1. BASIS OF PRO FORMA PRESENTATION

On October 31, 2007, Home Inns and its subsidiary entered into the following transactions (the Transaction):



| |  |  | Home Inns acquired 100% equity interest of Chuwen which held 20% equity interest of Shanghai Top Star Hotel Management Co., Ltd., 100% equity interest of Nanning
Top Star Hotel Management Co., Ltd. and Chengdu Ma Ruika Hotel Management Co., Ltd. ;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Home Inns & Hotels Management (Hong Kong) Limited, a subsidiary of Home Inns acquired 100% equity interest of Ai Home which held 80% equity interest of Shanghai
Top Star Hotel Management Co., Ltd.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The above companies, namely Chuwen, Ai Home, Shanghai Top Star Hotel Management Co.,
Ltd., Nanning Top Star Hotel Management and Chengdu Ma Ruika Hotel Management Co., Ltd. comprise the whole business of Top Star Hotels Chain.

The unaudited pro forma consolidated statement of operations for the year ended December 31, 2007 reflects the acquisition of Top Star by Home Inns for an aggregate price of RMB 370.46 million, which consists of RMB
67.91 million cash, 655,831 ordinary shares of Home Inns and the assumption of debt of RMB 192.43 million.

2. PRO FORMA ADJUSTMENTS

As a result of the acquisition of Top Star, the pro forma adjustments included in the unaudited pro forma statement of operations are
as follows:



|(a) | Assuming Top Star acquisition had occurred on January 1, 2007, the initial purchase price of RMB 370.46 million and direct cost related to the acquisition would have been
allocated as follows:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                           |  |             |  
|------------------------------------------ |  | ----------- | -
|Fair value of net tangible assets acquired |  | 170,404,069 |  
|Intangible assets - favorable lease        |  | 18,345,000  |  
|Unfavorable lease liability                |  | (16,198,000 | )
|Goodwill                                   |  | 198,263,889 |  
|Net deferred tax liability, non-current    |  | (354,255    | )
|                                           |  |             |  
|Purchase price                             |  | 370,460,703 |  

The pro forma adjustment of RMB 217,472 reflects the additional amortization expense for the net
identifiable intangible assets for the ten-months ended October 31, 2007.



|(b) | As additional amortization expense would have resulted from the acquisition if it had occurred on January 1, 2007, deferred tax expense would also have incurred. However, given
significant negative evidence, full valuation allowance would have been provided. As a result, the net effect of the pro forma adjustment on income tax expense became zero.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The information presented above is for illustrative purposes only and does not purport to be indicative of results that would have been achieved if the acquisition had occurred as of January 1, 2007.



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##### Table of Contents

3. CONVENIENCE TRANSLATION

Translations of balances in the pro forma statement of operations from RMB into United States dollars (US$) for the year ended December 31, 2007 are solely for the convenience of the reader and were
calculated at the rate of US$1.00 = RMB 7.2946, on December 31, 2007, representing the noon buying rate in The City of New York for cable transfers of RMB, as certified for customs purposes by the Federal Reserve Bank of New York. No
representation is intended to imply that the RMB amounts could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2007, or at any other rate.

4. PRO FORMA EARNINGS PER SHARE

The unaudited pro
forma earnings per share for the year ended December 31, 2007, giving effect to the 655,831 ordinary shares which is part of purchase price as if these shares had been issued on January 1, 2007, is as follows:



|                                                                                        |  |                                   |   |  |                                   |  
|--------------------------------------------------------------------------------------- |  | --------------------------------- | - |  | --------------------------------- | -
|                                                                                        |  | For theyear endedDecember 31,2007 |   |  | For theyear endedDecember 31,2007 |  
|                                                                                        |  | RMB (Unaudited)                   |   |  | US$ (Unaudited)                   |  
|Numerator:                                                                              |  |                                   |   |  |                                   |  
|Numerator for pro forma basic earnings per share                                        |  | (41,436,264                       | ) |  | (5,680,403                        | )
|                                                                                        |  |                                   |   |  |                                   |  
|                                                                                        |  |                                  
|Denominator:                                                                            |  |                                   |   |  |                                   |  
|Denominator for basic earnings per share weighted-average shares outstanding, actual    |  | 68,323,370                        |   |  | 68,323,370                        |  
|Weighted-average of additional shares issued if acquisition occurred on January 1, 2007 |  | 528,258                           |   |  | 528,258                           |  
|                                                                                        |  |                                   |   |  |                                   |  
|Denominator for pro forma basic earnings per share                                      |  | 68,851,628                        |   |  | 68,851,628                        |  
|                                                                                        |  |                                   |   |  |                                   |  
|Pro forma (loss) per share                                                              |  |                                   |   |  |                                   |  
|- Basic                                                                                 |  | (0.60                             | ) |  | (0.08                             | )
|                                                                                        |  |                                   |   |  |                                   |  
|- Diluted (a)                                                                           |  | (0.60                             | ) |  | (0.08                             | )
|                                                                                        |  |                                   |   |  |                                   |  



|(a) | The pro forma diluted loss per share excluded the effects of the shares which would be issued upon the exercise of the options and the conversion of the convertible bonds as they
would be anti-dilutive.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-67