UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
         THE SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2000

                                       OR

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

               For the transition period from ________ to ________

                        Commission File Number 000-30491

                               APPLE SUITES, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                <C>
                   VIRGINIA                            54-1933472
         (State or other jurisdiction                 (IRS Employer
       of incorporation or organization)           Identification No.)

             306 EAST MAIN STREET
              RICHMOND, VIRGINIA                          23219
   (Address of principal executive offices)            (Zip Code)
</TABLE>

                                 (804) 643-1761
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
                 (Former name, former address, and former fiscal
                       year, if changed since last report)

     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
                                             ---

At November 1, 2000, there were outstanding 7,146,032 shares of common stock, no
par value, of the registrant.



                                       1

<PAGE>

                               APPLE SUITES, INC.
                                    FORM 10-Q

                                      INDEX

<TABLE>
<CAPTION>
                                                                        Page Number
                                                                        -----------
<S>              <C>                                                   <C>
PART I.           FINANCIAL INFORMATION

          Item 1. Financial Statements (Unaudited)
                  APPLE SUITES, INC. (The "Company")

                        Consolidated Balance Sheets -                        4
                        September 30, 2000 and December 31, 1999

                        Consolidated Statement of Operations -               5
                        Three months ended September 30, 2000
                        and For the period ended March 26, 1999
                        through September 30, 1999
                        Nine months ended September 30, 2000
                        and For the period ended March 26, 1999
                        through September 30, 1999

                        Consolidated Statement of Shareholders'              6
                        Equity - Nine months ended September 30, 2000

                        Consolidated Statement of Cash Flows -               7
                        Nine months ended September 30, 2000
                        and For the period ended March 26, 1999
                        through September 30, 1999

                        Notes to Consolidated Financial Statements           8

                   APPLE SUITES MANAGEMENT, INC. (The "Lessee")

                        Consolidated Balance Sheets-                        14
                        September 30, 2000 and December 31, 1999

                        Consolidated Statement of Operations-               15
                        Three months ended September 30, 2000
                        and For the period ended September 1, 1999
                        through September 30, 1999
                        Nine months ended September 30, 2000
                        and For the period ended September 1, 1999
                        through September 30, 1999

                        Consolidated Statement of Cash Flows-               16
                        Nine months ended September 30, 2000
                        and For the period ended September 1, 1999
                        through September 30, 1999

                        Notes to Consolidated Financial Statements          17

      Item 2.     Management's Discussion and Analysis                      19
                  of  Financial Condition and Results of
                  Operations
</TABLE>


                                       2

<PAGE>

<TABLE>
<CAPTION>
                                                                        Page Number
                                                                        -----------
<S>              <C>                                                   <C>
      Item 3.     Quantitative and Qualitative Disclosures                  24
                  about Market Risk


PART II.          OTHER INFORMATION:

      Item 1.     Legal Proceedings (not applicable).

      Item 2.     Changes in Securities and Use of Proceeds                 25

      Item 3.     Defaults Upon Senior Securities
                  (not applicable).

      Item 4.     Submission of Matters to a Vote of
                  Security Holders (not applicable).

      Item 5.     Other Information (not applicable)

      Item 6.     Exhibits and Reports on Form 8-K                          26
</TABLE>









                                       3

<PAGE>

APPLE SUITES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                      September 30,             December 31,
                                                                                          2000                      1999
                                                                                   --------------------      --------------------
<S>                                                                                 <C>                        <C>
ASSETS

Investment in hotels -net of accumulated depreciation of
                $2,515,951 and $496,209, respectively                                    $ 124,911,597              $ 93,719,632
Cash and cash equivalents                                                                    2,314,096                   581,344
Restricted cash                                                                                294,873                 1,023,721
Rent receivable from Apple Suites Management, Inc.                                           2,425,809                 2,123,136
Notes and other receivables  from Apple Suites Management, Inc.                              1,805,011                   717,019
Capital improvement reserve                                                                    388,467                   753,927
Prepaid expenses                                                                               255,147                   270,229
Other assets                                                                                 1,312,837                   300,000
                                                                                   --------------------      --------------------

Total Assets                                                                             $ 133,707,837              $ 99,489,008
                                                                                   ====================      ====================


LIABILITIES and SHAREHOLDERS' EQUITY

Liabilities
Notes payable-secured                                                                     $ 72,780,500              $ 68,569,500
Notes payable-unsecured                                                                      3,500,000                         -
Interest payable                                                                               222,542                   466,140
Accounts payable                                                                               255,120                    65,214
Accrued expenses                                                                             1,038,664                   868,668
Account payable-affiliate                                                                      101,091                   708,751
Distributions payable                                                                               --                   712,735
                                                                                   --------------------      --------------------

Total Liabilities                                                                           77,897,917                71,391,008

Shareholders' equity
Common stock, no par value, authorized 200,000,000
   shares; issued and outstanding 6,490,885 shares and 3,429,414, respectively              55,739,856                28,591,260
Class B convertible stock, no par value, authorized 240,000 shares;
   issued and outstanding 240,000  shares                                                       24,000                    24,000
Distributions (greater) less than net income                                                    46,064                  (517,260)
                                                                                   --------------------      --------------------

Total Shareholders' Equity                                                                  55,809,920                28,098,000
                                                                                   --------------------      --------------------

Total Liabilities and Shareholders' Equity                                               $ 133,707,837              $ 99,489,008
                                                                                   ====================      ====================
</TABLE>



See accompanying notes to consolidated financial statements.

                                        4


<PAGE>

APPLE SUITES INC.
CONSOLIDATED STATEMENTS  OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                                    For the period
                                                                                                                    March 26, 1999
                                                   Three Months Ended   Three Months Ended    Nine Months Ended        through
                                                     September 30,        September 30,         September 30,       September 30,
                                                        2000                 1999                    2000               1999
                                                  -----------------------------------------  --------------------------------------
<S>                                                 <C>                  <C>                  <C>                   <C>
REVENUES:
           Lease revenue                             $ 4,587,021           $ 417,306            $ 11,829,752           $ 417,306
           Interest income and other revenue              75,815              64,370                 222,504              64,370

EXPENSES:
           Taxes, insurance and other                    408,385              79,729               1,610,940              79,729
           General and administrative                    131,241              36,028                 843,363              36,028
           Depreciation  of real estate owned            800,496              97,510               2,019,742              97,510
           Interest                                    1,963,591             229,701               5,023,329             229,701
                                                 ------------------------------------       -------------------------------------

                               Total expenses          3,303,713             442,968               9,497,374             442,968
                                                 ------------------------------------       -------------------------------------

Net income                                           $ 1,359,123           $  38,708             $ 2,554,882           $  38,708
                                                 ====================================       =====================================

Basic and diluted earnings per common share          $      0.25           $    0.02             $      0.58           $    0.02
                                                 ====================================       =====================================

Dividends declared per common share                  $      0.26           $      --             $      0.76           $      --
                                                 =======================================    =====================================
</TABLE>





See accompanying notes to consolidated financial statements.


                                        5

<PAGE>

APPLE SUITES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

<TABLE>
<CAPTION>

                                                     Common Stock             Class B Convertible Stock  Distributions
                                             -----------------------------------------------------------   (Greater)      Total
                                                Number                          Number                     Less Than   Shareholders'
                                               of Shares        Amount        of Shares     Amount         Net Income     Equity
                                             ---------------------------------------------------------------------------------------
<S>                                           <C>            <C>             <C>           <C>          <C>           <C>
Balance at December 31, 1999                    3,429,414    $ 28,591,260      240,000      $ 24,000      $(517,260)   $ 28,098,000


Net proceeds from the sale of common shares     2,927,903      25,946,996           --            --             --      25,946,996
Net income                                             --              --           --            --      2,554,882       2,554,882
Cash distributions declared and paid to
  shareholders ($.76 per share)                        --              --           --            --     (1,991,558)     (1,991,558)
Common stock issued through reinvestment
  of distribution                                 133,568       1,201,600           --            --             --       1,201,600
                                             ---------------------------------------------------------------------------------------

Balance at September 30, 2000                   6,490,885    $ 55,739,856      240,000      $ 24,000       $ 46,064    $ 55,809,920
                                             =======================================================================================
</TABLE>








See accompanying notes to consolidated financial statements.

                                        6

<PAGE>

APPLE SUITES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                               For the period
                                                                                                               March 26, 1999
                                                                              Nine Months Ended                   through
                                                                                September 30,                  September 30,
                                                                                     2000                           1999
                                                                            -----------------------         ---------------------
<S>                                                                        <C>                             <C>
Cash flow from operating activities:

   Net income                                                                         $  2,554,882                    $   38,708
   Adjustments to reconcile net income to net cash
   provided by operating activities
   Depreciation of real estate owned                                                     2,019,742                        97,510
    Amortization of deferred financing costs                                                90,983                            --
     Changes in operating assets and liabilities:
       Prepaid expenses                                                                     15,082                        (4,522)
       Rent and notes receivable from Apple Suites Management, Inc.                     (1,326,259)                     (455,592)
       Other assets                                                                        215,499                       (48,577)
       Accounts payable                                                                    189,906                         8,303
       Accounts payable-affiliates                                                        (607,660)                           --
       Accrued expenses                                                                    169,996                        85,076
       Interest payable                                                                   (243,598)                       69,205
                                                                            -----------------------         ---------------------

              Net cash provided by (used in)  operating activities                       3,078,573                      (209,889)

Cash flow from investing activities:

   Cash paid for acquisitions of hotels                                                 (8,741,849)                   (9,254,301)
   Additions to restricted cash for property improvement plan                             (724,300)                           --
   Loan to Apple Suites Management, Inc.                                                        --                      (263,350)
   Payments received on notes receivable                                                    64,845                            --
                                                                            -----------------------         ---------------------

                               Net cash used in investing activities                    (9,401,304)                   (9,517,651)

Cash flow from financing activities:

   Repayment of secured notes payable                                                  (68,569,500)                           --
   Repayment of unsecured notes payable                                                 (6,500,000)                           --
   Proceeds from secured notes payable                                                  60,000,000                            --
   Net proceeds from issuance of common shares                                          27,148,596                    20,629,226
   Payment from officer-shareholder for Class B shares                                          --                        24,000
   Cash distributions paid to shareholders                                              (2,704,293)                           --
   Cash payments for deferred financing costs                                           (1,319,320)                           --
                                                                            -----------------------         ---------------------

                               Net cash provided by financing activities                 8,055,483                    20,653,226

                               Increase  in cash and cash equivalents                    1,732,752                    10,925,686

Cash and cash equivalents, beginning of period                                             581,344                           100
                                                                            -----------------------         ---------------------


Cash and cash equivalents, end of period                                              $  2,314,096                 $  10,925,786
                                                                            =======================         =====================


Supplemental cash flow information:

Interest paid                                                                         $  5,175,944                  $      7,159
Non-cash transaction:

         Notes payable-secured issued by seller in connection with
            hotel acquisitions                                                        $ 22,780,500                  $ 26,625,000
         Capital improvements made from restricted cash and capital
            improvement reserve                                                       $ (1,818,608)                 $         --
         Reduction in capital improvement reserve                                          365,460                            --
         Reduction in restricted cash for property improvement plan                      1,453,148                            --
</TABLE>

See accompanying notes to consolidated financial statements.

                                        7

<PAGE>


                               APPLE SUITES, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                               September 30, 2000


(1)  GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Apple  Suites,  Inc.,  together  with its  subsidiaries,  (the  "Company")  is a
Virginia corporation formed in March of 1999 and commenced operations as a hotel
real estate  investment  trust on September 1, 1999,  the effective  date of its
first  four  hotel  acquisitions.   The  accompanying   consolidated   financial
statements include the accounts of the Company along with its subsidiaries.  All
significant intercompany transactions and balances have been eliminated.

Basis of Presentation

The accompanying  unaudited consolidated financial statements have been prepared
in accordance with the  instructions  for Form 10-Q and Article 10 of Regulation
S-X.  Accordingly,  they  do not  include  all of the  information  required  by
generally  accepted  accounting  principles.  In the opinion of management,  all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation  have been included.  Operating results for the three and nine
months ended  September 30, 2000 are not  necessarily  indicative of the results
that may be expected for the period ended December 31, 2000. These  consolidated
financial  statements should be read in conjunction with the Company's  December
31, 1999 Annual Report on Form 10-K.

Certain  previously  reported amounts have been reclassified to conform with the
current financial statement presentation.

Apple Suites,  Inc., (the "Company") leased to Apple Suites Management,  Inc. or
its subsidiary (the "Lessee") all of its hotels acquired to date.

The Lessee hired Promus Hotels,  Inc.  ("Promus"), a  wholly owned subsidiary of
Hilton Hotels  Corporation  ("Hilton") to manage the Company's  hotels under the
terms of a management agreement between Promus and the Lessee.

Relationship with Lessee

The Company  must rely on the Lessee to generate  sufficient  cash flow from the
operation of the hotels to enable the Lessee to meet its rent  obligation to the
Company  under the  master  hotel  lease  agreement  ("Percentage  Leases").  At
September  30,  2000,  the  Lessee's  rent  payable to the  Company  amounted to
$2,425,809.  The terms under the Percentage  Leases allow  quarterly  percentage
rent to be paid 45 days  following  the  quarter-end.  Amounts  were paid by the
Lessee in November 2000.

The Company did not have any items of comprehensive  income  requiring  separate
reporting and disclosure for the periods presented.


                                       8
<PAGE>


(2)  INVESTMENT IN HOTELS

At September  30, 2000,  the Company  owned 13 hotels.  Investment  in hotels at
September 30, 2000 consists of the following:

<TABLE>
<S>                                          <C>
Land                                          $  20,437,614
Building                                        104,665,801
Furniture and equipment                           2,324,133
                                               ------------
                                               $127,427,548
Less accumulated depreciation                    (2,515,951)
                                               ------------
                                               $124,911,597
                                               ------------
</TABLE>

On May 8,  2000,  the  Company  acquired a 123-room  hotel  located in  Malvern,
Pennsylvania for $15,489,000.  On June 30, 2000, the Company acquired a 112-room
hotel located in Boulder, Colorado for $14,885,000.

(3)  NOTES PAYABLE

In  conjunction  with the  purchase  of 13 hotels,  notes were  executed  by the
Company  made  payable  to the  order of Hilton  in the  amount  of  $91,350,000
($22,780,500 in 2000 and $68,569,500 in 1999). On September 8, 2000, the Company
refinanced  much of this  short-term  debt with loans  from  First  Union in the
amount of $60,000,000.  These loans were used to repay the four promissory notes
the Company executed in 1999 when acquiring 11 of the hotels. Of the $60,000,000
total,  $50,000,000 is repayable over 10 years.  The loan bears a fixed interest
rate of 9% per annum and is secured by 11 of our hotels.  Repayment will be made
in  monthly  principal  and  interest  installments  over the next 10 years.  In
connection  with the loan, the Company  incurred $1.3 million of financing costs
which  will  be  amortized  over a 10 year  period.  The  remaining  $10,000,000
represented  a  short-term  loan  which was  repaid on October  25,  2000,  with
proceeds from the Company's equity  offering.  The loan bore an interest rate of
8.6% per annum.

The  aggregate  maturities  of the  secured  notes  payable  for the five  years
subsequent to September 30, 2000 are as follows:

<TABLE>
<S>              <C>
     2000         $   76,936
     2001            500,565
     2002            548,201
     2003            600,370
     2004            644,604
Therafter         47,629,324
                  ----------
                 $50,000,000
</TABLE>

Two notes (totaling  $22,780,500)  executed in conjunction  with the Boulder and
Philadelphia  acquisitions  remain in place and  mature on April 28,  2001.  The
notes bear a fixed  interest  rate of 8.5% and are  secured  by the two  hotels.
Interest  payments  are due  monthly.  Principal  payments are to be made to the
extent of net equity proceeds from the offering of common


                                       9
<PAGE>


shares.

The Company paid $5,175,944 in interest for the period ended September 30, 2000.
During the quarter,  the Company made a principal  payment of  $6,500,000 on the
$10,000,000 First Union loan.

(4)  SHAREHOLDERS' EQUITY

The  Company is raising  equity  capital  through a  "best-efforts"  offering of
shares by David Lerner  Associates,  Inc. (the  "Managing  Dealer"),  which will
receive selling  commissions and a marketing expense allowance based on proceeds
of the shares sold. The Company  received gross proceeds of $29,279,030 from the
sale of  2,927,903  shares at $10 per share  during the nine month  period ended
September 30, 2000. The net proceeds of the offering,  after  deducting  selling
commissions and other offering costs were $25,946,996 for the period.

The Company provides a plan which allows shareholders to reinvest  distributions
in the purchase of additional shares of the Company ("Additional Share Option").
Of the total  proceeds  raised  from  common  shares  during  the  period  ended
September  30,  2000,  $1,335,677  (net  $1,201,600)  was  provided  through the
reinvestment of distributions.

(5)  COMMITMENTS AND RELATED PARTIES

The Company  receives rental income from the Lessee under the Percentage  Leases
which  expire in 2009 and 2010,  subject to earlier  termination  by the Company
with 30 days notice. The Leases contain two optional five-year  extensions.  The
rent due under  the  Percentage  Leases  is the sum of base rent and  percentage
rent.  Percentage  rent is calculated by  multiplying  fixed  percentages by the
total amounts of suite revenues with reference to specified  threshold  amounts.
Both the base rent and the revenue thresholds used in computing percentage rents
are subject to annual adjustments based on increases in the Consumer Price Index
("CPI"). The Company earned rents of $11,829,752 and $417,306 for the nine month
period ended September 30, 2000 and 1999, respectively.

Under the Percentage  Leases,  the Company is obligated to pay the costs of real
estate  and  personal  property  taxes,   property  insurance,   maintenance  of
underground  utilities  and  structural  elements of the hotels.  The Company is
committed  under certain  agreements to fund 5% of suite  revenues per month for
capital  expenditures  to  include  periodic  replacement  or  refurbishment  of
furniture,  fixtures, and equipment. At September 30, 2000, $388,467 was held by
Promus for these capital improvement  reserves.  In addition, in accordance with
the franchise  agreements,  $294,873 was held for the property  improvement plan
with a financial institution and treated as restricted cash.

The Lessee engages Promus as a third-party  manager to operate the hotels leased
by it and pays the manager  based on a  percentage  fee of 4% of adjusted  gross
revenues.  During the first two years of the management agreement,  a portion of
the management fee equal to 1% of adjusted gross revenues is subordinated to the
Lessee's  receipt of a return  equal to 11% of the  purchase  price of the hotel
(including  property  improvements  required by the franchise  agreements).  The
Lessee pays the manager a franchise fee and a marketing fee, equal to 4%


                                       10
<PAGE>


of gross suite revenues, respectively.

The Company loaned the Lessee  $673,650 for franchise  fees,  $145,300 for hotel
supplies and $1,040,000 for working  capital for the 13 hotels since  inception.
The debt agreements are evidenced by promissory notes bearing interest at a rate
of 9% per annum. Principal and interest payments are due monthly. The promissory
notes have various maturity dates through July 2010.

The Company has  contracted  with Apple Suites  Realty Group,  Inc.  ("ASRG") to
acquire and dispose of real estate assets for the Company.  In  accordance  with
the  contract  ASRG  is to be  paid  a fee of 2% of the  purchase  price  of any
acquisitions  or sale  price of any  dispositions  of real  estate  investments,
subject to certain conditions.  For the nine months ended September 30, 2000 and
1999, ASRG earned $607,480 and $710,000, respectively, under this agreement.

The Company has contracted with Apple Suites  Advisors,  Inc.  ("ASA") to advise
and provide day-to-day  management  services to the Company.  In accordance with
the  contract,  the  Company  will  pay ASA a fee  equal to .1% to .25% of total
equity contributions received by the Company in addition to certain reimbursable
expenses.  For the nine months  ended  September  30, 2000 and 1999,  ASA earned
$86,122 and $4,928, respectively.

The  Lessee,  ASRG and ASA are 100%  owned by  Glade  M.  Knight,  Chairman  and
President  of the  Company.  ASRG and ASA may  purchase  in the  "best  efforts"
offering  up to 2.5% of the total  number of shares of the  Company  sold in the
offering.

Mr.  Knight  also  serves  as  the  Chairman  and  Chief  Executive  Officer  of
Cornerstone   Realty  Income  Trust,  Inc.,  an  apartment  REIT.  During  2000,
Cornerstone  Realty  Income Trust,  Inc.  provided the Company with services and
rental space and was paid approximately $246,000.







                                       11
<PAGE>


(6)  EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share in accordance with FAS 128:

<TABLE>
<CAPTION>
                                               Three Months        Nine Months         Three Months        Nine Months
                                                  Ended               Ended               Ended               Ended
                                                 9/30/00             9/30/00             9/30/99             9/30/99
                                            -----------------  -----------------    ------------------ -------------------
<S>                                         <C>                 <C>                 <C>                 <C>
Numerator:
     Net income
     Numerator for basic  and
     Diluted earnings                         $   1,359,123       $  2,554,882        $    38,708           $   38,708
Denominator:
     Denominator for basic
     Earnings per share-weighted-
     Average shares                               5,426,002          4,419,681          2,286,052            2,286,052
Effect of dilutive securities:
     Stock options                                    2,200              2,200                 --                   --
     Class B Convertible Shares*
--------------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings
     per share-adjusted weighted-
     average shares and assumed
     conversions                                  5,428,202          4,421,881          2,286,052            2,286,052
--------------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per
     Common share                              $       0.25        $      0.58         $     0.02      $          0.02
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

*    Class B  Convertible  Shares are not  included in earnings per common share
     calculation  until such time it becomes  probable  that such  shares can be
     converted to common shares.



                                       12

<PAGE>


(7)  ACQUISITIONS

The  following  unaudited  pro  forma  information  for the  nine  months  ended
September 30, 2000 and 1999 is presented as if the  acquisition of the 13 hotels
occurred  on January  1, 1999.  The pro forma  information  does not  purport to
represent what the Company's  results of operations  would actually have been if
such transactions, in fact, had occurred on January 1, 1999, nor does it purport
to represent the results of operations for future periods.

<TABLE>
<CAPTION>
                                                     Nine Months              Nine Months
                                                        Ended                    Ended
                                                       9/30/00                  9/30/99
                                                    -------------            -------------
<S>                                                 <C>                      <C>
     Lease revenue                                   $13,478,526               $12,456,122

     Net income                                        3,322,365                 2,427,727

     Net income per share-basic and diluted                 $.66                     $ .55
</TABLE>

The pro forma information  applies the Company's  Percentage Lease Agreements to
actual suite revenue and expenses of the 11 hotels acquired in 1999 and 2 hotels
acquired in 2000 for the  respective  period in 1999 prior to acquisition by the
Company. Net income also has been adjusted as follows: (1) depreciation has been
adjusted based on the Company's basis in the hotels;  (2) advisory expenses have
been adjusted based on the Company's contractual arrangements;  and (3) interest
expense has been adjusted to reflect the  acquisition as of the beginning of the
periods;  and (4) common  stock  raised  during 1999 and 2000 to purchase  these
hotels has been adjusted to reflect issuances as of January 1, 1999.

(8)  SUBSEQUENT EVENTS

In  October  2000 the  Company  declared  and  distributed  to its  shareholders
approximately $1,394,865 ($.25625 per share) of which approximately $626,258 was
reinvested  in the  purchase of  additional  shares.  On October 26,  2000,  the
Company  closed  the  sale to  investors  of  655,149  shares  at $10 per  share
representing net proceeds to the Company of $5,896,336.

In October  2000,  the  Company  paid the  remaining  $3,500,000  balance on the
$10,000,000  short-term  loan in addition to $2,000,000 on the Hilton notes with
net proceeds from the offering.


                                       13

<PAGE>

APPLE SUITES MANAGEMENT, INC
CONSOLIDATED BALANCE SHEET (UNAUDITED)

<TABLE>
<CAPTION>
                                                                 September 30,                December 31,
                                                                      2000                         1999
                                                              ---------------------          ------------------
<S>                                                             <C>                          <C>
Current assets

Cash and cash equivalents                                           $    2,983,707               $   2,395,000
Accounts receivables, net                                                1,619,391                     738,361
Inventories                                                                145,300                     121,801
Other assets                                                               243,057                       8,142
                                                              ---------------------          ------------------

     Total Current Assets                                                4,991,455                   3,263,304

Non-current assets

Deferred franchise fees                                                    618,971                     562,851
                                                              ---------------------          ------------------

Total Assets                                                        $    5,610,426               $   3,826,155
                                                              =====================          ==================

Liabilities and Shareholders' Deficit

Current liabilities

Accounts payable                                                    $      299,181               $      48,586
Rent payable to Apple Suites, Inc.                                       2,425,809                   2,123,136
Due to third party manager                                                 461,605                     454,147
Due to Apple Suites, Inc.                                                   13,069                      28,991
Accrued expenses                                                           863,518                     624,346
Current portion of note payable to Apple Suites, Inc.                      141,181                      56,939
                                                              ---------------------          ------------------

     Total Current liabilities                                           4,204,363                   3,336,145

Non-current liabilities

Note payable to Apple Suites, Inc.                                       1,650,761                     631,014
                                                              ---------------------          ------------------

Total Liabilities                                                        5,855,124                   3,967,159

Shareholders' deficit

Common Stock, no par value,  5,000 authorized;
  10 shares issued and outstanding                                             100                         100
Retained deficit                                                          (244,798)                   (141,104)
                                                              ---------------------          ------------------

Total Shareholders' deficit                                               (244,698)                   (141,004)
                                                              ---------------------          ------------------

Total Liabilities and Shareholders' Deficit                         $    5,610,426               $   3,826,155
                                                              =====================          ==================
</TABLE>




See accompanying notes to financial statements.

                                       14

<PAGE>

APPLE SUITES MANAGEMENT, INC
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED DEFICIT (UNAUDITED)

<TABLE>
<CAPTION>
                                                                       For the period                              For the period
                                                  Three Months       September 1, 1999         Nine Months       September 1, 1999
                                                      Ended               through                 Ended               through
                                               September 30, 2000    September 30, 1999     September 30, 2000   September 30, 1999
                                             -------------------------------------------- -----------------------------------------
<S>                                            <C>                   <C>                    <C>                 <C>
REVENUE

Suite revenue                                       $ 10,112,731        $   961,604           $ 26,274,917           $    961,604
Other revenue                                            539,807             59,548              1,431,358                 59,548
                                             ---------------------------------------     -----------------------------------------

   Total revenue                                      10,652,538          1,021,152             27,706,275              1,021,152

EXPENSES

Operating expense                                      3,056,886            259,098              8,010,921                259,098
General and administrative                               791,866             85,676              2,201,464                 85,676
Advertising and promotion                                944,689             93,237              2,380,732                 93,237
Utilities                                                495,993             26,101              1,097,414                 26,101
Franchise fees                                           402,161             38,464              1,047,226                 38,464
Management fees                                          383,954             40,769              1,063,326                 40,769
Rent expense-Apple Suites, Inc.                        4,587,021            417,306             11,829,752                417,306
Interest expense                                          40,055                922                 85,642                    922
Other                                                     37,178             14,503                 93,492                 14,503
                                             ---------------------------------------     -----------------------------------------

   Total expenses                                     10,739,803            976,076             27,809,969                976,076

Income before income taxes                               (87,265)            45,076               (103,694)                45,076

Income taxes                                                  --             18,030                     --                 18,030
                                             ---------------------------------------     -----------------------------------------

Net loss                                            $    (87,265)      $     27,046            $  (103,694)           $    27,046
                                             =======================================     =========================================


Retained deficit, beginning of period               $   (157,533)                --            $  (141,104)                    --
                                             ---------------------------------------     -----------------------------------------

Retained earnings (deficit), end of period          $   (244,798)      $     27,046            $  (244,798)           $    27,046
                                             =======================================       =======================================
</TABLE>


















See accompanying notes to consolidated financial statements.

                                       15
<PAGE>

APPLE SUITES MANAGEMENT, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                       For the period
                                                                           Nine Months Ended         September 1, 1999
                                                                             September 30,                through
                                                                                 2000                September 30, 1999
                                                                         ----------------------     ---------------------
<S>                                                                        <C>                        <C>
Cash flow from operating activities:

   Net (loss) income                                                                $ (103,694)               $   27,046
   Adjustments to reconcile net income to net cash
   provided by operating activities
      Amortization of deferred franchise fees                                           49,630                        --
     Changes in operating assets and liabilities:
       Receivables                                                                    (881,030)                 (454,004)
       Inventories                                                                          --                   (64,164)
       Other assets                                                                   (234,915)                 (216,521)
       Due to  Apple Suites, Inc.                                                      (15,922)                       --
       Rent payable to Apple Suites, Inc.                                            1,342,181                   417,306
       Accounts payable                                                                250,595                    15,915
       Due to  third party manager                                                       7,458                        --
       Accrued expenses                                                                239,248                   851,417
                                                                         ----------------------     ---------------------

                Net cash used in  operating activities                                 653,551                   576,995

Cash flow from financing activities:

        Proceeds from sale of common stock                                                  --                       100
        Proceeds from promissory notes                                                      --                   263,350
        Repayments of notes payable                                                    (64,845)                       --
                                                                         ----------------------     ---------------------

                Net cash provided (used in) financing activities                       (64,845)                  263,450

                Decrease  in cash and cash equivalents                                 588,706                   840,445

Cash and cash equivalents, beginning of period                                       2,395,000                        --
                                                                         ----------------------     ---------------------


Cash and cash equivalents, end of period                                            $2,983,706                $  840,445
                                                                         ======================     =====================



Supplemental cash flow information:

Non-cash transactions:
Notes payable-issued by Apple Suites, Inc.                                          $1,169,250                $  689,700
Payment of working capital by Apple Suites, Inc.                                     1,040,000                        --
Payment of deferred franchise fees by Apple Suites, Inc.                               105,750                   567,900
Acquisition of inventory by Apple Suites, Inc.                                          23,500                   121,800
</TABLE>




See accompanying notes to consolidated financial statements.

                                       16

<PAGE>


                          APPLE SUITES MANAGEMENT, INC
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
                               September 30, 2000


(1)  GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Apple Suites  Management,  Inc. (the "Lessee") operates in one business segment.
Each hotel is leased by the  Company to the Lessee  under a master  hotel  lease
agreement  ("Percentage  Lease") having an initial term of ten years, subject to
earlier  termination at the option of the Company upon 30 days notice. The lease
agreement provides for two optional five-year extensions.  The Percentage Leases
require  base rent  payments  to be made to the  Company on a monthly  basis and
additional  quarterly  payments to be made based upon  percentages  of suite and
sundry  revenue.  Promus  Hotels,  Inc. or an affiliate  ("Promus")  manages the
hotels under a management  agreement with the Lessee.  Promus Hotels,  Inc. is a
wholly-owned subsidiary of Hilton Hotel Corporation  ("Hilton").  The hotels are
located throughout the United States and are licensed with Homewood Suites(R) by
Hilton.

Certain  previously  reported amounts have been reclassified to conform with the
current financial statement presentation.

(2)  COMMITMENTS AND RELATED PARTIES

The Percentage Leases expire in 2009 and 2010, subject to earlier termination by
the Company upon 30 days notice.  The Percentage Leases provide for two optional
five-year extensions.  The rent due for each hotel is the sum of a base rent and
a  percentage  rent.  Percentage  rent is  calculated  on a  quarterly  basis by
multiplying  fixed  percentages  by the  total  amounts  of  year-to-date  suite
revenues with  reference to specified  threshold  amounts known as  breakpoints.
Both the base rent and the breakpoints  used in computing  percentage  rents are
subject to annual  adjustments  based on increases  in the Consumer  Price Index
("CPI").

The Lessee has entered into license agreements with Promus to operate the hotels
as Homewood  Suites(R) by Hilton  properties.  These agreements have terms of 20
years and expire in 2019 and 2020. These agreements require the Lessee to, among
other things,  pay monthly franchise fees equal to 4% of suite revenue.  License
and franchise  agreements  contain specific  standards for, and restrictions and
limitations   on,  the  operation  and  maintenance  of  the  hotels  which  are
established  by  Promus  to  maintain  uniformity  in the  system  for  Homewood
Suites(R) by Hilton.  Such  standards  generally  regulate the appearance of the
hotel,  quality and type of goods and services offered,  signage, and protection
of  marks.  Compliance  with  such  standards  may  from  time to  time  require
significant  expenditures  for capital  improvements  which will be borne by the
Company.  In addition,  the agreements provide that Promus will manage the daily
operations of the hotels and provide advertising and promotion to include access
to the  reservation  system for Homewood  Suites(R)  by Hilton.  The Lessee pays
Promus 4% of monthly  suite  revenue for the  reservation  assessment  and 4% of
total revenue for the


                                       17

<PAGE>


management  fee.  Total  expenses  incurred  by the Lessee for  franchise  fees,
advertising  and promotion  fees, and management  fees for the nine months ended
September 30, 2000 and 1999 totaled $3,157,281 and $117,697, respectively.

During 2000, the Lessee entered into various debt  agreements  with the Company.
In conjunction with the 2000 acquisitions,  the Lessee borrowed from the Company
$105,750 for franchise fees and $23,500 for hotel supplies. In addition, in 2000
the Lessee  borrowed  $1,040,000  for  working  capital.  The  promissory  notes
relating  to these  debt  agreements  bear  interest  at a rate of 9% per annum.
Principal and interest payments are due monthly.

During 2000,  the Lessee  entered into two additional  license  agreements  with
Promus for the 2000 acquisitions to operate the hotels as Homewood Suites(R)  by
Hilton. These agreements have terms of 20 years and expire in 2020.

(3)  SHAREHOLDER'S EQUITY

The Lessee  requires or may require funds to capitalize  its business to satisfy
its  obligations  under  Percentage  Leases  with  the  Company.  To meet  these
objectives,  the Lessee has two funding commitment agreements of $1 million each
from Mr.  Knight and Apple Suites Realty Group,  Inc.,  ("ASRG"),  respectively,
(together  "Payor").  ASRG is owned by Mr. Knight.  The funding  commitments are
contractual  obligations of the Payor to provide funds to the Lessee. Funds paid
to the Lessee under the commitments are to be used to satisfy any capitalization
or net worth  requirements  applicable  to the  Lessee or the  Lessee's  payment
obligations  under the lease agreements and does not represent any indebtedness.
The funding commitments  terminate upon the expiration of the Percentage Leases,
written  agreement  between  the  Payor  and  the  Lessee,  or  payment  of  all
commitments  amounts by the Payor to the Lessee.  As of September  30, 2000,  no
contributions have been made by the Payor to the Lessee.



                                       18


<PAGE>


                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

This report contains  forward-looking  statements  within the meaning of Section
27A of the Securities Act of 1993, as amended, and Section 21E of the Securities
Exchange Act of 1934,  as amended.  Such  statements  involve  known and unknown
risks,  uncertainties,  and other  factors  which may cause the actual  results,
performance,  or achievements of the Company to be materially different from any
future  results,  performance  or  achievement  expressed  or  implied  by  such
forward-looking  statements.  Such factors include the ability of the Company to
implement its acquisition strategy and operating strategy; the Company's ability
to manage planned growth;  changes in economic  cycles;  competitors  within the
extended-stay  industry;  and the liquidity of the Lessee.  Although the Company
believes  that  the  assumptions   underlying  the  forward-looking   statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore  there can be no  assurance  that  such  statements  included  in this
quarterly  report  will  prove  to be  accurate.  In  light  of the  significant
uncertainties  inherent in the  forward-looking  statements included herein, the
inclusion of such information  should not be regarded as a representation by the
Company or any other  person that the results or  conditions  described  in such
statements or the objectives and plans of the Company will be achieved.

General

We  acquired  13 hotels  with 1,453  suites (two hotels with 235 suites in 2000)
from  Promus  Hotels,  Inc.  (or its  affiliates),  which is now a  wholly-owned
subsidiary of Hilton Hotels  Corporation.  All of our hotels are leased to Apple
Suites Management, Inc., or its subsidiary (the "Lessee") pursuant to two master
hotel lease agreements.  Each master hotel lease agreement  obligates the Lessee
to pay rent equal to the sum of an annual base rent, a quarterly percentage rent
and a quarterly sundry rent. The Lessee's ability to make these rent payments to
us is dependent  primarily upon the operations of the hotels.  See Note 5 to our
consolidated financial statements for further lease information.

The hotels  are  licensed  to operate  under the  Homewood  Suites(R)  by Hilton
franchise  pursuant to separate  license  agreements.  The Lessee engages Promus
Hotels,  Inc. to manage and operate the hotels under separate  hotel  management
agreements.  We are  externally  advised and have  contracted  with Apple Suites
Advisors,  Inc. (the "Advisor") to manage our day-to-day  operations and to make
investment  decisions.  We have contracted with Apple Suites Realty Group,  Inc.
("ASRG") to provide  brokerage and  acquisition  services in connection with our
hotel acquisitions. The Lessee, the Advisor, and ASRG are all owned by Mr. Glade
Knight, our Chairman.  See Note 5 to our consolidated  financial  statements for
further information on related-party transactions.



                                       19

<PAGE>


RESULTS OF OPERATIONS

APPLE SUITES, INC.

Revenues

Because we commenced operations effective September 1, 1999, a comparison to the
same period of 1999 is not  meaningful.  During the three and nine months  ended
September  30,  2000,  we had lease  revenues  of  $4,587,021  and  $11,829,752,
respectively.  During September  1999, we had lease revenues of $417,306. All of
our lease revenue is derived from the master hotel lease agreements.

Our other income for the three and nine months ended September 30, 2000 consists
of $35,701  and  $136,862,  respectively,  of  interest  income  earned from the
investments of our cash and cash reserves.  During September 30, 2000, we earned
interest of $40,114 and $85,642,  respectively,  on the promissory notes payable
by the Lessee for our funding of  franchise  fees,  hotel  supplies  and working
capital.  During  September  1999,  we earned  interest  income of $64,370.  The
promissory notes were not in place as of September 30, 1999.

Expenses

Our expenses consist of property taxes,  insurance,  general and  administrative
expenses,  interest on notes  payable  and  depreciation  on the  hotels.  Total
expenses, exclusive of interest and depreciation,  for the three and nine months
ended September 30, 2000 were $539,626 and $2,454,303,  respectively, or 12% and
20%, respectively, of total revenue. During September  1999, these expenses were
$115,757 or 24% of total revenue.

The interest expense was $1,963,591 and $5,023,329,  respectively, for the three
and nine  months  ended  September  30, 2000 or 42% of total  revenues  for both
periods.  Interest expense  represented  interest on short-term notes payable to
Promus  Hotels,  Inc. at a rate of 8.5%,  interest on the  short-term  loan with
First Union at a rate of 8.6% and interest on the secured notes with First Union
at a rate of 9%. We amortized as interest  expense  deferred  financing costs of
$90,983 in the three and nine months ended September 30, 2000.  Interest expense
during  September   1999 was  $229,701 or 48% of total  revenue and  represented
interest on short-term notes payable from Promus Hotels, Inc.

The  depreciation  expense was $800,496 and  $2,019,742,  respectively,  for the
three  and nine  months  ended  September  30,  2000.  During  September   1999,
depreciation expense was $97,510.

Taxes, insurance,  and other was $408,385 and $1,610,940  respectively,  for the
three and nine months ended September 30, 2000 or 9% and 13%,  respectively,  of
total revenue.  During  September   1999,  these expenses were $79,729 or 17% of
total revenue.

The general and administrative expense totaled 3% and 7%, respectively,  for the
three and


                                       20

<PAGE>


nine months ended September 30, 2000 of total revenues. During September   1999,
these  expenses  were  7%  of  total  revenues.  These  expenses  represent  our
administrative  expenses.  We expect these  percentages to decrease as our asset
base grows.

APPLE SUITES MANAGEMENT, INC.

Revenues

As operations commenced effective September 1, 1999, a comparison to 1999 is not
meaningful.  Total  revenues for the three and nine months ended  September  30,
2000 were  $10,652,538 and  $27,706,275,  respectively.  Total revenues  consist
primarily of suite revenue,  which was $10,112,731 and $26,274,917 for the three
and nine months ended September 30, 2000, respectively.  During September  1999,
total  revenue was  $1,021,152,  which  consists  primarily of suite  revenue of
$961,604.

For the three and nine months  ended  September  30, 2000 the average  occupancy
rate  was 78%  and  78%,  respectively,  average  daily  rate  was $96 and  $93,
respectively,  and revenue  per  available  room was $75 and $73,  respectively.
During  September   1999, the average  occupancy rate was 80%, the average daily
rate was $84, and revenue per available room was $67.

Expenses

Total  expenses  for the three and nine  months  ended  September  30, 2000 were
$10,739,803 and $27,809,969.  Rent expense represents $4,587,021 and $11,829,752
for the three and nine months ended  September 30, 2000,  respectively or 43% of
total revenue.  During  September   1999, total expenses were $976,076 or 96% of
total revenues and rent expense represented $417,306 or 41% of total revenues.

The Lessee has agreed to pay Promus  Hotels,  Inc. a fee of 4% of total  revenue
for  management of the hotels.  The Lessee has also agreed to pay Promus Hotels,
Inc.  4% of suite  revenue to cover fees for the  Homewood  Suites(R)  by Hilton
franchise and 4% of suite revenue to participate in its  reservation  system and
benefit from its national  brand  marketing.  Total  expenses for these services
were $1,186,965 and $3,157,281 for the three and nine months ended September 30,
2000, respectively. During September 1999, these expenses were $117,697.

LIQUIDITY AND CAPITAL RESOURCES

During  2000,  we sold  3,061,471  of our common  shares,  at $10 per share,  to
investors  (inclusive of  reinvestment of  distributions).  The total gross sale
proceeds were $30,614,698,  which netted  $27,148,596 to us after the payment of
selling commissions and other offering costs.

The Lessee's  obligations under the master hotel lease agreements are unsecured.
The Lessee has limited capital resources,  and,  accordingly its ability to make
rent  payments  is  substantially  dependent  on the  ability  of the  Lessee to
generate  sufficient  cash flow from  operations of the hotels.  We have certain
rights to cancel a master  hotel lease  agreement if


                                       21
<PAGE>


the Lessee does not perform under the applicable terms.

On May 8,  2000,  the  Company  acquired a 123-room  hotel  located in  Malvern,
Pennsylvania for $15,489,000.  On June 30, 2000, the Company acquired a 112-room
hotel located in Boulder, Colorado for $14,885,000.

To  support  the  Lessee's  obligations,  the Lessee has  received  two  funding
commitments of $1 million each from Mr. Knight and ASRG,  respectively (together
"Payor").  The funding  commitments are contractual  obligations of the Payor to
pay funds to the Lessee.  Funds paid to the Lessee under the  commitments are to
be used to satisfy any  capitalization or net worth  requirements  applicable to
the Lessee or the  Lessee's  payment  obligations  under the master  hotel lease
agreements, do not represent indebtedness,  and are not subject to interest. The
funding  commitments  terminate  upon the  expiration  of the master hotel lease
agreements, a written agreement between the Payor and the Lessee, or the payment
of all commitment  amounts by the Payor to the Lessee. As of September 30, 2000,
no  contributions  have been made by the Payor to the Lessee  under the  funding
commitments.

Notes payable

In  conjunction  with our purchase of the 13 hotels,  we made  promissory  notes
payable  to the  order  of  Promus  Hotels,  Inc.  in the  aggregate  amount  of
$91,350,000. The notes provide for an effective interest rate of 8.5% per annum.
On September 8, 2000, we refinanced much of this short-term debt with loans from
First  Union in the amount of  $60,000,000.  These  loans were used to repay the
four  promissory  notes we executed in 1999 when acquiring 11 of the hotels.  Of
the $60,000,000 total,  $50,000,000 is repayable over 10 years. The loan bears a
fixed  interest  rate  of 9% per  annum  and  is  secured  by 11 of our  hotels.
Repayment will be made in monthly  principal and interest  installments over the
next 10 years. The remaining $10,000,000  represented a short-term loan of which
$6,500,000  was repaid  during the quarter and the remaining was paid on October
25, 2000,  with  proceeds from our equity  offering.  This loan bore an interest
rate of 8.6% per annum.

Two notes (totaling  $22,780,500)  executed in conjunction  with the Boulder and
Philadelphia  acquisitions  remain in place and  mature on April 28,  2001.  The
notes bear a fixed  interest  rate of 8.5% and are  secured  by the two  hotels.
Interest  payments  are due  monthly.  Principal  payments are to be made to the
extent of net equity proceeds from the offering of common shares.

The Company paid $5,175,944 in interest for the period ended September 30, 2000.

Cash and cash equivalents

Cash and cash equivalents totaled $2,314,096 at September 30, 2000.

Capital requirements

We have an ongoing capital commitment to fund our capital  improvements.  We are
required  under the master  lease  agreement to make an amount up to 5% of suite
revenue  available  monthly  to the  Lessee  for  the  repair,  replacement,  or
refurbishing  of  furniture,  fixtures,  and  equipment on a  cumulative  basis,
provided that such amount may be used for capital  expenditures  made by us with
respect to the  hotels.  We expect that this amount will be adequate to fund the
required repair, replacement, and refurbishments and to maintain our hotels in a
competitive condition. At


                                       22
<PAGE>


September 30, 2000,  $388,467 was held by Promus for these  capital  improvement
reserves. In addition, in accordance with the franchise agreements, $294,873 was
held for the property improvement plan with a financial  institution and treated
as restricted cash. We capitalized improvements of $1,818,608 in 2000.

We plan to have  monthly  equity  closings in 2000,  until the offering is fully
funded,  or  until  such  time as we may opt to  discontinue  the  offering.  We
anticipate that the equity funds will be invested in additional  hotels and will
be used to make principal payments on the notes incurred in conjunction with our
current hotels.

Capital  resources  are  expected  to grow with the  future  sale of our  common
shares.  Approximately  44% of the 2000 common share dividend  distribution,  or
$1,201,600 was reinvested in additional common shares. In general, our liquidity
and capital  resources  are  believed to be more than  adequate to meet our cash
requirements during 2000, given current and anticipated financing arrangements.

Seasonality

The hotel industry  historically has been seasonal in nature,  reflecting higher
occupancy rates primarily during the first three quarters of the year.  Seasonal
variations in occupancy at our hotels may cause  quarterly  fluctuations  in our
lease revenues,  particularly  during the fourth quarter,  to the extent that we
receive  percentage  rent.  To the  extent  that cash flow  from  operations  is
insufficient  during any quarter,  due to temporary or seasonal  fluctuations in
lease  revenue,  we expect to utilize  cash on hand or funds from equity  raised
through our "best efforts" offering to make distributions.

Market Risk Disclosures

The  Company is subject to changes in the fair  market  value of its  fixed-rate
secured debt at September 30, 2000.





                                       23
<PAGE>


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See the information  provided in the Company's  Annual Report on Form 10-K under
Item  7-Management's  Discussion and Analysis of Financial Condition and Results
of  Operations.   Also  see  the  Market  Risk  Disclosure  section  under  Item
2-Management's  Discussion  and Analysis of Financial  Condition  and Results of
Operations of this Form 10-Q.




                                       24
<PAGE>


Part II, Item 2. Changes in Securities and Use of Proceeds

The following table set forth information concerning the Offering and the use of
proceeds from the Offering as of September 30, 2000:

<TABLE>
<CAPTION>
Common Shares Registered:
<S>                               <C>                                                    <C>
              1,666,666.67         Common Shares $  9 per Common Share                       $  15,000,000

             28,500,000.00         Common Shares $10 per Common Share                        $ 285,000,000
             -------------

Totals:      30,166,666.67         Common Shares
             -------------


Common Shares Sold:
              1,666,666.67         Common Shares      $ 9 per Common Share                   $  15,000,000

              4,824,218.00         Common Shares     $10 per Common Share                    $  48,241,663
                                                                                                ----------

Totals:       6,490,884.67         Common Shares                                             $  63,241,663
              ------------


Expenses of Issuance and Distribution of Common Shares

        1.   Underwriting discounts and commissions                                          $   6,324,166
        2.   Expenses of underwriter                                                         $          --
        3.   Direct or indirect payments to directors or officers
             of the Company or their associates, to ten percent
             shareholders, or to affiliates of the Company                                   $          --
        4.   Fees and expenses of third parties                                              $   1,177,641
                                                                                              ------------
        Total Expenses of Issuance and Distribution of
             Common Shares                                                                   $   7,501,807

        Net Proceeds to the Company                                                          $  55,739,856

        1.   Purchase of real estate (including repayment of
             indebtedness incurred to purchase real estate)                                  $  45,519,500
        2.   Interest on indebtedness                                                        $   5,023,329
        3.   Working capital                                                                 $   2,651,331
        4.   Fees to the following (all affiliates of officers of the Company):
             a. Apple Suites Advisors, Inc.                                                  $     109,696
             b. Apple Suites Realty Group, Inc.                                              $   2,436,000

        5.   Fees and expenses of third parties:                                             $          --
             a.  Legal                                                                                  --
             b.  Accounting                                                                             --

        6.   Other (                      )                                                  $          --
                    ----------------------                                                    ------------
        Total of Application of Net Proceeds to the Company                                  $  55,739,856
</TABLE>


                                       25
<PAGE>


Item 6. Exhibits and Reports on Form 8-K

(a)  Exhibits - Exhibit 27- Financial Data Schedule

(b)  Reports on Form 8-K

The  following  table lists the reports on Form 8-K filed by the Company  during
the quarter  ended  September  30, 2000,  the items  reported and the  financial
statements included in such filings.

<TABLE>
<CAPTION>
         Type and Date                         Items
         of Reports                           Reported             Financials Statements Filed
       <S>                                   <C>                  <C>
         Form 8-K dated June 30, 2000          2 and 7             None
         and filed July 17, 2000

         Form 8-K/A dated May 8, 2000             7                Historical Balance Sheets of
         and filed July 18, 2000                                   December 31, 1999 and 1998;
                                                                   Historical Income Statements for
                                                                   the year ended December 31, 1999
                                                                   and 1998; Historical Statements of
                                                                   Cash Flows for the year ended December
                                                                   31, 1999 and 1998; and Historical
                                                                   Statements of Shareholders' Equity
                                                                   for the year ended December 31, 1999
                                                                   and 1998 (pertaining to Malvern, Pennsylvania
                                                                   and Boulder, Colorado).

         Form 8-K dated September 8,           2 and 7             None
         2000 and filed September 25,
         2000
</TABLE>




                                       26
<PAGE>


                                   SIGNATURES

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                         Apple Suites, Inc.
                                      -----------------------
                                            (Registrant)



DATE: 11-14-00                           BY:  /s/ Glade M. Knight
     ------------                             ----------------------------------
                                              Glade M. Knight
                                              President

                                         BY:  /s/ Stanley J. Olander
                                              ----------------------------------
                                              Stanley J. Olander
                                              Secretary and Treasurer





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