<PAGE>


                                  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 June 30, 2001

                                       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)

              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)

                                 (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 August 1, 2001, there were outstanding 12,666,678 shares of common
stock, no par value, of the registrant.

<PAGE>

                               APPLE SUITES, INC.
                                    FORM 10-Q

                                      INDEX

                                                                    Page Number
                                                                    -----------

PART I.   FINANCIAL INFORMATION

  Item 1.    Financial Statements (Unaudited)

                 Consolidated Balance Sheets -As of                      3
                 June 30, 2001 and December 31, 2000

                 Consolidated Statement of Operations -                  4
                 Three months ended June 30, 2001 and
                 June 30, 2000
                 Six months ended June 30, 2001 and June 30, 2000

                 Consolidated Statement of Shareholders'                 5
                 Equity - Six months ended June 30, 2001

                 Consolidated Statement of Cash Flows -                  6
                 Six months ended June 30, 2001 and June 30, 2000

                 Notes to Consolidated Financial Statements              7

  Item 2.    Management's Discussion and Analysis                       12
             of Financial Condition and Results of
             Operations

  Item 3.    Quantitative and Qualitative Disclosures                   17
             about Market Risk

PART II.  OTHER INFORMATION:

  Item 1.    Legal Proceedings (not applicable).
  Item 2.    Changes in Securities and Use of Proceeds                  18
  Item 3.    Defaults Upon Senior Securities
             (not applicable).
  Item 4.    Submission of Matters to a Vote of
             Security Holders (not applicable).                         19
  Item 5.    Other Information (not applicable)
  Item 6.    Exhibits and Reports on Form 8-K                           20



                                       2

<PAGE>

APPLE SUITES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)


<TABLE>
<CAPTION>

                                                                         June 30,                December 31,
                                                                           2001                      2000
                                                                   ---------------------     ---------------------

ASSETS


<S>                                                                 <C>                       <C>
Investment in hotel -net of accumulated depreciation of
                $5,633,285 and $3,486,590, respectively                   $ 171,373,615             $ 124,576,257
Cash and cash equivalents                                                    11,042,239                 2,653,058
Restricted cash                                                                  75,971                   263,686
Rent receivable from Apple Suites Management, Inc.                                    -                 1,872,832
Notes and other receivables  from Apple Suites Management, Inc.                       -                 1,774,684
Accounts receivable, net                                                      2,191,941                         -
Inventories                                                                     145,300                         -
Capital improvement reserve                                                   1,694,119                   504,413
Prepaid expenses                                                                412,626                   256,773
Deferred financing costs, net                                                 1,273,874                 1,265,107
Deferred franchise fees, net                                                    821,808                         -
Other assets                                                                    706,724                   907,038
                                                                   ---------------------     ---------------------

Total Assets                                                              $ 189,738,217             $ 134,073,848
                                                                   =====================     =====================


LIABILITIES and SHAREHOLDERS' EQUITY

Liabilities
Notes payable-secured                                                      $ 76,814,214              $ 57,670,866
Interest payable                                                                 58,438                    19,988
Accounts payable                                                                132,264                   118,576
Accrued expenses                                                              2,424,884                 1,451,796
Due to third party manager                                                    1,301,320                         -
Account payable-affiliate                                                        78,127                         -
Distributions payable                                                                 -                 1,848,000
                                                                   ---------------------     ---------------------

Total Liabilities                                                            80,809,247                61,109,226

Shareholders' equity
Common stock, no par value, authorized 200,000,000
   shares; issued and outstanding 12,666,678 shares
   and 8,666,348, respectively                                              111,156,521                75,223,218
Class B convertible stock, no par value, authorized
   240,000 shares; issued and outstanding 240,000 shares                         24,000                    24,000
Distributions greater than net income                                        (2,251,551)               (2,282,596)
                                                                   ---------------------     ---------------------

Total Shareholders' Equity                                                  108,928,970                72,964,622
                                                                   ---------------------     ---------------------

Total Liabilities and Shareholders' Equity                                $ 189,738,217             $ 134,073,848
                                                                   =====================     =====================

</TABLE>


See accompanying notes to consolidated financial statements.

                                        3



<PAGE>




APPLE SUITES INC.
CONSOLIDATED STATEMENT  OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>



                                                          Three Months Ended                          Six Months Ended
                                                   June 30,              June 30,              June 30,                June 30,
                                                     2001                  2000                  2001                   2000
                                               ------------------   -------------------    ------------------  -------------------
REVENUES:
<S>                                            <C>                  <C>                     <C>                <C>
           Suite revenue                            $ 10,857,055                     -          $ 20,919,569                    -
           Lease revenue                                       -           $ 3,836,053                     -          $ 7,242,731
           Other revenue                                 524,519                     -             1,019,711                    -
           Interest income                               214,401                98,682               308,440              146,689

EXPENSES:
           Operating expenses                          3,171,595                     -             6,255,114                    -
           Hotel administrative expenses                 850,247                     -             1,653,452                    -
           Advertising and promotion                     977,535                     -             1,946,376                    -
           Utilities                                     388,779                     -               843,675                    -
           Franchise fees                                430,182                     -               832,683                    -
           Management fees                               412,496                     -               823,556                    -
           Taxes, insurance and other                    502,482               712,866               885,774            1,404,441
           General and administrative                    191,101               255,500               507,507              510,236
           Depreciation  of real estate owned          1,147,185               670,045             2,146,695            1,219,246
           Interest                                    1,248,728             1,606,628             2,419,026            3,059,738
           Ground lease                                   25,000                     -                50,000                    -
           Management termination fees                    43,430                     -             1,413,520                    -
                                               ------------------   -------------------    ------------------   ------------------

                               Total expenses          9,388,760             3,245,039            19,777,378            6,193,661
                                               ------------------   -------------------    ------------------   ------------------

Net income                                           $ 2,207,215             $ 689,696           $ 2,470,342          $ 1,195,759
                                               ==================   ===================    ==================   ==================

Basic and diluted earnings per common share               $ 0.18                $ 0.16                $ 0.23               $ 0.31
                                               ==================   ===================    ==================   ==================

Distributions per common share                            $ 0.26                $ 0.25                $ 0.26                 0.25
                                               ==================   ===================    ==================   ==================

</TABLE>


See accompanying notes to consolidated financial statements.

                                        4




<PAGE>



APPLE SUITES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>

                                          Common Stock           Class B Convertible Stock     Distributions
                                     -----------------------------------------------------        Greater           Total
                                        Number                       Number                        Than          Shareholders'
                                      of Shares        Amount      of Shares     Amount          Net Income         Equity
                                     -----------------------------------------------------------------------------------------

<S>                                  <C>          <C>            <C>           <C>            <C>              <C>
Balance at December 31, 2000          8,666,348    $ 75,223,218     240,000     $ 24,000        $(2,282,596)     $ 72,964,622

Net proceeds from the sale
  of common shares                    3,806,801      34,191,539           -            -                  -        34,191,539
Net income                                    -               -           -            -          2,470,342         2,470,342
Cash distributions declared
 to shareholders ($.26 per share)             -               -           -            -         (2,439,297)       (2,439,297)
Common stock issued through
 reinvestment of distributions          193,529       1,741,764           -            -                  -         1,741,764
                                     -----------------------------------------------------------------------------------------

Balance at June 30, 2001             12,666,678   $ 111,156,521     240,000     $ 24,000        $(2,251,551)    $ 108,928,970
                                     =========================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                        5



<PAGE>





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


<TABLE>
<CAPTION>
                                                                                                   Six Months Ended
                                                                                                 June 30,      June 30,
                                                                                                   2001          2000
                                                                                               -----------   -----------
Cash flow from operating activities:
<S>                                                                                             <C>           <C>
   Net income                                                                                   $2,470,342    $1,195,759
   Adjustments to reconcile net income to net cash
   provided by operating activities
   Depreciation of real estate owned                                                             2,146,695     1,219,246
   Amortization of deferred financing costs                                                         70,716             -
   Amortization of deferred franchise fees                                                          16,228             -
   Management termination fees (non-cash portion)                                                  470,090             -
   Changes in operating assets and liabilities (excludes amounts
           acquired from Apple Suites Management, Inc.)
       Prepaid expenses                                                                           (155,853)       76,044
       Rent and notes receivable from Apple Suites Management, Inc.                                      -      (830,930)
       Receivables                                                                              (1,070,569)            -
       Other assets                                                                                105,037       (11,769)
       Accounts payable                                                                           (137,316)      290,536
       Accounts payable-affiliates                                                                  78,127      (597,112)
       Due to third party manager                                                                  600,972             -
       Accrued expenses                                                                            199,329       317,168
       Interest payable                                                                             38,450       110,033
                                                                                               -----------   -----------

                              Net cash provided by (used in) operating activities                4,832,248     1,768,975

Cash flow from investing activities:

    Cash paid for acquisitions of hotels                                                       (31,099,671)   (8,712,253)
   Cash assumed in the acquisition of Apple Suites Management, Inc.                              2,793,106             -
   Net (increase) decrease in cash restricted for Property Improvement Plan
       and capital improvement reserve held with third party                                    (1,001,991)      580,030
   Capital improvements                                                                         (1,344,382)   (1,237,085)
   Payments received on notes receivable                                                                 -        32,732
                                                                                               -----------   -----------

                             Net cash provided by (used in) investing activities               (30,652,938)   (9,336,576)

Cash flow from financing activities:
   Repayment of secured notes payable                                                           (8,056,652)            -
   Proceeds from secured notes payable                                                          10,700,000
   Payment of financing costs                                                                      (79,483)   (1,245,000)
   Net proceeds from issuance of common stock                                                   35,933,303    13,294,035
   Cash distributions paid to shareholders                                                      (4,287,297)   (1,617,653)
                                                                                               -----------   -----------

                              Net cash provided by financing activities                         34,209,871    10,431,382

                              Increase  in cash and cash equivalents                             8,389,181     2,863,781

Cash and cash equivalents, beginning of period                                                   2,653,058       581,344
                                                                                               -----------   -----------
Cash and cash equivalents, end of period                                                       $11,042,239    $3,445,125
                                                                                               ===========   ===========


Supplemental Information:
Non-cash transactions:
   Apple Suites Management, Inc. acquisition
       Operating assets acquired                                                               $ 2,009,431             -
       Operating liabilities acquired                                                            5,272,627             -
   Notes payable-secured issued to seller in connection
       with hotel acqusitions                                                                   16,500,000    22,780,500
</TABLE>



See accompanying notes to consolidated financial statements.

                                        6


<PAGE>

                                APPLE SUITES, INC

             Notes to Consolidated Financial Statements (Unaudited)
                                  June 30, 2001

(1)    General Information and Summary of Significant Accounting Policies
       ------------------------------------------------------------------

       Basis of Presentation
       ---------------------

       The accompanying unaudited consolidated financial statements of Apple
       Suites, Inc, (the "Company") 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 six months
       ended June 30, 2001 are not necessarily indicative of the results that
       may be expected for the period ended December 31, 2001. These
       consolidated financial statements should be read in conjunction with the
       Company's December 31, 2000 Annual Report on Form 10-K.

       The REIT Modernization Act, effective January 1, 2001, permits REIT's to
       establish taxable businesses to conduct certain previously disallowed
       business activities. The Act also reduces the REIT distribution
       requirement from 95% to 90% of its taxable income.

       Effective January 1, 2001 (the effective date for the recently passed
       REIT Modernization Act), the Company acquired Apple Suites Management,
       Inc. and its subsidiaries (the "Lessee"). In 2000, the Company paid Mr.
       Glade M. Knight, the Company's President and Chairman, a deposit of
       $900,000 in exchange for all of the issued and outstanding stock of the
       Lessee. For financial reporting purposes, the Company recorded the
       $900,000 of cash plus the fair value of net liabilities of $513,520 in
       the Lessee as a management termination fee (total of $1,413,520) in 2001,
       as the Lessee's only business is its lease with the Company. Effective
       January 1, 2001, all intercompany transactions, including lease revenue
       and rental expenses, between the Company and the Lessee are eliminated in
       consolidation.

       The Company leases to the Lessee all of its hotels acquired to date. Each
       hotel is leased by the Company to the Lessee under a master hotel lease
       agreement ("Percentage Lease"). The Lessee now operates as a taxable REIT
       subsidiary under the same percentage lease agreements in place before the
       management termination transaction.

       Promus Hotels, Inc. ("Promus"), a wholly owned subsidiary of Hilton
       Hotels Corporation ("Hilton") manages the Company's hotels under the
       terms of a management agreement.

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

       Financial Accounting Standards Board Statement No. 138, "Accounting for
       Derivative Instruments and Hedging Activities" (Statement 138) became
       effective January 1, 2001. The Company currently does not have any
       derivatives subject to this Statement.

                                       7

<PAGE>

(2)    Investment in Hotels
       --------------------

       At June 30, 2001, the Company owned 17 hotels. Investment in hotels
consisted of the following:

                                             June 30,       December 31,
                                               2001             2000
                                               ----             ----

       Land                               $ 29,842,407      $18,374,917
       Building                            137,756,475      101,314,421
       Furniture and equipment               9,408,018        8,373,509
                                          ------------     ------------
                                          $177,006,900     $128,062,847
       Less accumulated depreciation       (5,633,285)      (3,486,590)
                                          -----------      ------------
                                          $171,373,615      124,576,257
                                          ------------     ------------

       Using proceeds from the sale of common shares and executing two
       short-term notes totaling $16,500,000, the Company acquired 4 hotels for
       an aggregate purchase price of $47,550,000 during 2001. These
       acquisitions brought the total number of hotels to 17 and total suites to
       1,922. The hotels are located in Atlanta, Georgia; St. Louis, Missouri;
       Portland, Oregon; and Herndon, Virginia. These hotels will be leased by
       the Lessee and managed by Promus in substantially the same manner as the
       other 13 Homewood Suites(R) hotels owned at March 31, 2001.

(3)    Notes Payable
       -------------

       On June 1, 2001, the Company placed $10.7 million of secured debt. The
       loan bears interest at a fixed interest rate of 8.15% per annum with a
       maturity date of June 2011. The loan is payable in monthly installments,
       including principal and interest, and is secured by one hotel. At June
       30, 2001, the outstanding balance was $10,689,020.

       In connection with the purchase of 2 hotels, notes were executed by the
       Company payable to the order of Hilton in the amount of $16,500,000. The
       notes are secured by our two hotels in Missouri and Oregon and bears a
       fixed interest rate of 8.5% per annum. Interest payments are due monthly.
       The notes mature December 28, 2001.

       As of January 1, 2001, the Company's outstanding note payable to Hilton,
       secured by our property in Boulder, Colorado, totaled $7,780,500 and bore
       a fixed interest rate of 8.5%. During January and February 2001, the
       Company paid Hilton the outstanding balance on the note from net equity
       proceeds.

(4)    Shareholders' Equity
       --------------------

       On April 17, 2001, the Company closed its "best-efforts" offering of
       shares. The Company received gross proceeds of $40,003,301 and
       $15,161,377 from the sale of 4,000,330 and 1,516,138 shares,
       respectively, including shares sold through the reinvestment of
       distributions for the six month periods ended June 30, 2001 and 2000,
       respectively. The total gross proceeds raised for the "best efforts"
       offering were $125,000,000. The net proceeds of the offering, after
       deducting selling commissions and other offering costs for the six month
       periods ended June 30, 2001 and 2000 were $35,933,303 and $13,294,035,
       respectively.

                                       8

<PAGE>



(5)    Commitments and Related Parties
       -------------------------------

       Prior to January 1, 2001, the Lessee operated as a separate entity and
       the Company received rental income from the Lessee which incurred rent
       expense under the Percentage Leases. Percentage rent is calculated by
       multiplying fixed percentages by the total 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 changes in the Consumer Price Index ("CPI"). The
       Lessee now operates as a taxable REIT subsidiary under the same
       percentage lease agreements in place before the management termination
       transaction.

       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
       management agreements to fund up to 5% of gross revenues for capital
       expenditures to include periodic replacement or refurbishment of
       furniture, fixtures, and equipment. At June 30, 2001 and 2000, $1,694,119
       and $653,149, respectively, were held by Promus for these capital
       improvement reserves. In addition, in accordance with the franchise
       agreements, at June 30, 2001 and 2000, $75,971 and $544,469,
       respectively, were held for the Property Improvement Plan with a
       financial institution and treated as restricted cash.

       There are license agreements with Promus to operate the hotels as
       Homewood Suites(R) by Hilton properties. These agreements remain
       unchanged as a result of the Company's acquisition of the Lessee. These
       agreements have terms of 20 years and expire in 2019 through 2021. These
       agreements require, among other things, payment of 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. Promus
       charges 4% of suite revenue for advertising and promotion fees. For the
       hotels acquired prior to 2001, Promus charges 4% of total revenue for
       management fees. For the 4 hotels acquired in 2001, Promus charges a base
       management fee of 2% of total revenue for 2 of the hotels. For the other
       2 hotels, Promus charges 2% in the first year which increases to 3% in
       the second year and to 4% in the third year and thereafter.

       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 six
       months ended June 30, 2001 and 2000, ASRG paid $696,000 and $607,480,
       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 six months ended June 30, 2001
       and 2000, ASA earned $142,022 and $50,032, respectively, under this
       agreement.

       ASRG and ASA are 100% owned by Glade M. Knight, Chairman and President
       of the Company.

                                      9

<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          Six          Three           Six
                                                       Months       Months        Months         Months
                                                       Ended         Ended         Ended          Ended
                                                      6/30/01       6/30/01       6/30/00        6/30/00
                                                      -------       -------       -------        -------

Numerator:
<S>                                                 <C>           <C>             <C>           <C>
Net Income                                          $ 2,207,215   $2,470,342      $  689,696    $1,195,759
   Numerator for basic and
   Diluted earnings                                   2,207,215    2,470,342      $  689,696   $ 1,195,759
Denominator:
Denominator for basic
   earnings per share-weighted-average shares        12,276,506   10,861,590       4,225,582     3,916,520
Effect of dilutive securities:
Stock options                                             2,200        2,200           2,200         2,200
--------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings
   per share-adjusted weighted-
   average shares and assumed
   conversions                                       12,278,706   10,863,790       4,227,782     3,918,720
--------------------------------------------------------------------------------------------------------------
Basic and diluted earnings per
  common share                                             $.18         $.23        $    .16       $   .31
--------------------------------------------------------------------------------------------------------------
</TABLE>


(7)    Acquisitions
       ------------

       The following unaudited pro forma information for the six months ended
       June 30, 2001 and 2000 is presented as if the acquisition of the 5
       hotels occurred on January 1, 2000. 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, 2000, nor does it purport to represent the results of
       operations for future periods.

                                               Six            Six
                                              Months         Months
                                               Ended          Ended
                                              6/30/01        6/30/00
                                              -------        -------
Hotel revenues                              $26,346,328    $25,189,928

Net income                                    4,398,458      2,040,896

Net income per share-basic and diluted             $.32           $.27



                                       10

<PAGE>



       The pro forma information reflects adjustments for actual revenues and
       expenses of the 2 hotels acquired in 2000 and 3 hotels acquired 2001 for
       the respective period in 2000 prior to acquisition by the Company. Net
       income 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; (3)
       interest expense has been adjusted to reflect the acquisition as of
       January 1, 2000; (4) common stock raised during 2000 and 2001 to purchase
       these hotels has been adjusted to reflect issuances as of January 1,
       2000; and (5) the acquisition of the Lessee was effective January 1,
       2000 and the management termination fees have been eliminated in 2001
       since it will not have an on-going impact.

(8)    Income Taxes
       ------------

       The taxable REIT subsidiary is subject to federal and state income taxes.
       The taxable REIT subsidiary incurred a loss during 2001 and as such has
       no income tax liability at June 30, 2001. No operating loss benefit has
       been recorded in the consolidated balance sheet since realization is
       uncertain. At June 30, 2001, the taxable REIT subsidiary has $400,000 of
       net operating loss carryforwards which expire in 2020.

(9)   Subsequent Events
      -----------------

       The Company expects to close $7.5 million of secured debt on 1 hotel by
       the end of the month, however, no assurances can be given. The loan will
       bear interest at a fixed rate of 8.14% per annum with a maturity date of
       September 2011. Proceeds from the secured debt will be used to reduce the
       outstanding balance of the Hilton notes.

                                       11

<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 achievements 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 hotel industry; the ability to repay or
  refinance debt as it becomes due; and the possibility that the acquisition of
  Apple Suites Management, Inc. will not have the effects anticipated by the
  Company. 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
  -------

  The REIT Modernization Act, effective January 1, 2001, permits REIT's to
  establish taxable businesses to conduct certain previously disallowed business
  activities. The Act also reduces the REIT distribution requirement from 95% to
  90% of its taxable income.

  Effective January 1, 2001 (the effective date for the recently passed REIT
  Modernization Act), the Company acquired Apple Suites Management, Inc. and its
  subsidiaries (the "Lessee"). In 2000, the Company paid Mr. Glade M. Knight,
  the Company's President and Chairman, a deposit of $900,000 in exchange for
  all of the issued and outstanding stock of the Lessee. For financial reporting
  purposes, the Company recorded the $900,000 of cash plus the fair value of net
  liabilities of $513,520 in the Lessee as a management termination fee (total
  of $1,413,520) in 2001, as the Lessee's only business is its lease with the
  Company. Effective January 1, 2001, all intercompany transactions including
  lease revenue and rental expenses, between the Company and the Lessee are
  eliminated in consolidation.

  The Company has acquired 17 hotels with 1,922 suites which are managed by
  Promus Hotels, Inc. ("Promus"), a wholly-owned subsidiary of Hilton Hotels
  Corporation ("Hilton").

  We, through our taxable REIT subsidiary, hold the franchise and market
  reservation agreement for each of the hotels, which are operated as Homewood
  Suites(R) by Hilton. We, through our taxable REIT subsidiary, engage a third-
  party manager, Promus, to operate the hotels. The Company is externally
  advised and has contracted with Apple Suites Advisors, Inc. ("ASA") to manage
  its day- to-day operations and make investment decisions. The Company has
  contracted with Apple Suites Realty Group, Inc. ("ASRG") to provide brokerage
  and acquisition services in connection with its hotel acquisitions. ASA, and
  ASRG are all owned by Mr. Glade Knight, the Company's Chairman. (See Note 5
  to the unaudited consolidated financial statements of the Company for further

                                       12

<PAGE>

  information on related-party transactions).

  Results of Operations
  ---------------------

  As discussed earlier, the Company purchased Apple Suites Management, Inc. on
  January 1, 2001. The sole business of the Lessee was with the Company.
  Therefore, for purposes of a meaningful comparison, we have compared revenue
  and hotel operating expenses for the six and three months ended June 30, 2001
  with those of the Lessee for the six and three months ended June 30, 2000.

  Revenues
  --------
  In 2001, operations of the hotels are included in the Company's consolidated
  operations. Prior to January 1, 2001, the operations of the hotels were
  included in the Lessee's operations. Total revenues consist primarily of suite
  revenue. During the six months ended June 30, 2001, the Company had suite and
  other revenues of $20,919,569 and $1,019,711, respectively. For the same
  period in 2000, the Lessee had suite and other revenues of $16,162,186 and
  $891,551, respectively. During the three months ended June 30, 2001, the
  Company had suite and other revenues of $10,857,055 and $524,519,
  respectively. The Lessee had suite and other revenues of $8,479,831 and
  $470,735, respectively, for the same period in 2000. The increases are
  primarily due to a full quarter of operations in 2001 of the two 2000 hotel
  acquisitions and the operations of the 4 hotels acquired in 2001 since their
  acquisition dates. In 2000, the Company's lease revenue was derived from the
  Percentage Leases covering the hotels in operations with the Lessee. The lease
  revenue earned by the Company and the rent expense incurred by the Lessee are
  eliminated in consolidation in 2001.

  For the six months ended June 30, 2001 and 2000 average occupancy rate was 76%
  and 78%, average daily rate ("ADR") was $101 and $91, and revenue per
  available room ("REVPAR") was $76 and $71, respectively. For the three months
  ended June 30, 2001 and 2000 average occupancy rate was 76% and 79%, ADR was
  $100 and $92, and REVPAR was $76 and $72, respectively. The decrease in
  average occupancy is primarily due to the increases in daily rental rates to
  maximize revenues in 2001. The increases in ADR and REVPAR are due to a
  combination of significant increases in daily rental rates, and the full two
  quarters effect of the 2000 hotel acquisitions and the 2001 hotel acquisitions
  since their acquisition dates which had higher ADRs.

  The Company's interest income consists of $308,440 and $101,161 earned from
  the investments of its cash and cash reserves for the six months ended June
  30, 2001 and 2000, respectively. The Company's interest income consists of
  $214,401 and $68,429 for the three months ended June 30, 2001 and 2000,
  respectively. The increases are due to the investment of the offering
  proceeds pending acquisition closings in 2001. In 2000, interest income of
  $45,528 and $30,253 for the six and three months ended June 30, 2000,
  respectively, was earned from the promissory notes with the Lessee for
  franchise and hotel supplies. The interest income to the Company and the
  interest expense to the Lessee relating to the franchise, hotel supplies
  and working capital notes are eliminated in consolidation in 2001.

  Comparable Hotel Results
  ------------------------
  The Company's comparable hotels consist of 11 Homewood Suites(R) by Hilton,
  containing 1,218 suites that the Company has owned since January 1, 2000. For
  the six months ended June 30, 2001, the hotels had a 5% increase in REVPAR and
  a 7% increase in ADR over the same period in 2000. Average occupancy for the
  first two quarters of 2001 for these hotels decreased 1% from the first


                                       13

<PAGE>


  two quarters of 2000. For the three months ended June 30, 2001, the hotels had
  a 2% increase in REVPAR and a 5% increase in ADR over the same period in 2000.
  Average occupancy for the second quarter of 2001 for these hotels decreased 2%
  from the second quarter of 2000.These fluctuations are due to the factors
  described above.

  Expenses
  --------

  Interest expense was $2,419,026 and $3,059,738 for the six months ended June
  30, 2001 and 2000, respectively. For the second quarter of 2001 and 2000,
  interest expense was $1,248,728 and $1,606,628, respectively. Interest in 2000
  related to short-term notes payable to Hilton at an interest rate of 8.5% and
  amortization of deferred financing costs. Interest in 2001 represented
  interest on short-term notes with Hilton, $60.7 million in secured debt (see
  Notes Payable below), and amortization of deferred financing cost. Interest
  expense has decreased due to a lower outstanding debt balance and decreasing
  interest rates in 2001 compared to 2000.

  Depreciation expense for the first six months increased to $2,146,695 in 2001
  from $1,219,246 in 2000. For the second quarter of 2001 and 2000 depreciation
  expense was $1,147,185 and $670,045, respectively. The increase is directly
  attributable to the acquisition of hotels in 2000 and 2001 and the capital
  improvements made during 2000 and 2001.

  Taxes, insurance, and other expenses for the first six months were $885,774 or
  4% of the Company's suite revenue in 2001 and $1,404,441 or 9% of the Lessee's
  suite revenue in 2000. For the second quarter of 2001 these expenses were
  $502,482 or 5% of the Company's suite revenue. These expenses were $712,866 or
  8% of the Lessee's suite revenue for the same period in 2000. The decrease is
  due to the Company's efforts to reduce tax assessments. As a result, the
  expenses were lower than anticipated.

  General and administrative expenses for the first six months were $507,507 or
  2% of the Company's suite revenue in 2001 and $510,236 or 3% of the Lessee's
  suite revenue in 2000. For the second quarter of 2001, these expenses were
  $191,101 or 2% of the Company's suite revenue. For the same period in 2000
  these expenses were $255,500 or 3% of the Lessee's suite revenue. These
  expenses represent the administrative expenses of the Company as distinquished
  from the hotel operations.

  Hotel operating expenses totaled $12,354,856 and $6,230,834 for the six and
  three months ended June 30, 2001, respectively. For the six and three months
  ended June 30, 2000, hotel operating expenses incurred by the Lessee,
  excluding rent expense and interest expense for the franchise, hotel supplies
  and working capital promissory notes, totaled $9,781,848 and $5,143,331,
  respectively. The increases are primarily due to a full two quarters of
  operations in 2001 of the two 2000 hotel acquisitions and the 4 hotels
  acquired in 2001 since their acquisition dates. The rent and interest expense
  are excluded from 2000 since the expenses are eliminated in consolidation in
  2001.

  Promus manages the day-to-day operations of the hotels. Promus charges fees of
  4% of total revenue for these functions for the hotels acquired prior to 2001.
  For the 4 hotels acquired in 2001, Promus charges a base management fee of 2%
  of total revenue for 2 of the hotels. For the other 2 hotels, Promus charges
  2% in the first year which increases to 3% in the second year and to 4% in the
  third year and thereafter. Promus also charges a fee of 4% of suite revenue
  for franchise licenses to operate as a Homewood Suites(R) by Hilton and to
  participate in its reservation system. Total expenses for these services were
  $2,488,922 and $1,970,316 for the six months ended June 30, 2001 and 2000,
  respectively. For the second quarter of 2001 and 2000 these expenses were
  $1,272,860 and $1,032,962. These expenses are included in the hotel operating
  expenses above.


                                       14

<PAGE>



  Liquidity and Capital Resources
  -------------------------------

  On April 17, 2001, the Company closed its "best-efforts" offering of shares.
  The Company received gross proceeds of $40,003,301 and $15,161,377 from the
  sale of 4,000,330 and 1,516,138 shares, including shares sold through the
  reinvestment of distributions for the six month periods ended June 30, 2001
  and 2000, respectively. The total gross proceeds raised for the "best efforts"
  offering were $125,000,000. The net proceeds of the offering, after deducting
  selling commissions and other offering costs for the six month periods ended
  June 30, 2001 and 2000 were $35,933,303 and $13,294,035, respectively.

  Notes payable
  -------------
  On June 1, 2001, the Company placed $10.7 million of secured debt. The loan
  bears interest at a fixed interest rate of 8.15% per annum with a maturity
  date of June 2011. The loan is payable in monthly installments, including
  principal and interest, and is secured by one hotel. At June 30, 2001, the
  outstanding balance was $10,689,020.

  In connection with the purchase of 2 hotels, notes were executed by the
  Company payable to the order of Hilton in the amount of $16,500,000. The notes
  are secured by our two hotels in Missouri and Oregon and bears a fixed
  interest rate of 8.5% per annum. Interest payments are due monthly. The notes
  mature December 2001. The Company plans to pay the principal amounts of
  the notes by obtaining secured financings on the hotels. The Company is
  currently holding discussions with lenders to obtain financing.

  As of January 1, 2001, the Company's outstanding note payable to Hilton,
  secured by our property in Boulder, Colorado, totaled $7,780,500 and bore a
  fixed interest rate of 8.5%. During January and February 2001, the Company
  paid Hilton the outstanding balance on the note from net equity proceeds.

  Cash and cash equivalents
  -------------------------
  Cash and cash equivalents totaled $11,042,239 at June 30, 2001.

  Capital requirements
  --------------------
  The Company has an ongoing capital commitment to fund its capital
  improvements. The Company through the Lessee is required under the management
  agreements with Promus to make available to the Lessee for the repair,
  replacement, or refurbishing of furniture, fixtures, and equipment an amount
  up to 5% of gross revenue provided that such amount may be used for capital
  expenditures made by the Company with respect to the hotels. The Company
  expects that this amount will be adequate to fund the required repair,
  replacement, and refurbishments and to maintain its hotels in a competitive
  condition.

  At June 30, 2001, $1,694,119 was held by Hilton for these capital improvement
  reserves. In addition, in accordance with the franchise agreements $75,971 was
  held for Property Improvement Plans with a financial institution and treated
  as restricted cash. The Company capitalized improvements of $1,344,382 for the
  first six months of 2001. The Company has one hotel undergoing renovations at
  June 30, 2001. The Company plans to spend approximately $1 million in 2001.

  It is anticipated that the equity funds will be used to make principal


                                       15

<PAGE>



  payments on the notes incurred in conjunction with the 2001 acquisitions. The
  Company will seek to obtain additional financing to meet its objectives.

  Approximately 41% of the 2001 common stock dividend distribution, or
  $1,741,764, was reinvested in additional common shares. In general, the
  Company's liquidity and capital resources are believed to be more than
  adequate to meet its cash requirements during 2001, given current and
  anticipated financing arrangements.

  Acquisitions
  ------------
  Using proceeds from the sale of common shares and executing two short-term
  notes totaling $16,500,000, the Company acquired 4 hotels for an aggregate
  purchase price of $47,550,000 during 2001. These acquisitions brought the
  total number of hotels to 17 and total suites to 1,922. The hotels are located
  in Atlanta, Georgia; St. Louis, Missouri; Portland, Oregon; and Herndon,
  Virginia. These hotels will be leased by the Lessee and managed by Promus in
  substantially the same manner as the other 13 Homewood Suites(R) hotels owned
  at March 31, 2001.

  Inflation
  ---------
  Operators of hotels, in general, possess the ability to adjust room rates
  daily to reflect the effects of inflation. Competitive pressures may, however,
  limit the operator's ability to raise room rates.

  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 the Company's hotels may cause quarterly
  fluctuations in the Company's revenues, particularly during the fourth
  quarter. To the extent that cash flow from operations is insufficient during
  any quarter, due to temporary or seasonal fluctuations in revenue, the Company
  expects to utilize cash on hand to make distributions.

  Recent Accounting Pronouncements
  --------------------------------
  On January 1, 2001, Financial Accounting Standards Board Statement No. 138,
  "Accounting for Derivative Instruments and Hedging Activities" became
  effective. The Company currently does not have any financial instruments
  subject to this statement.

                                       16

<PAGE>

Item 3.  Quantitative And Qualitative Disclosures About Market Risk

   In connection with the acquisition of 2 hotels, the Company incurred
   $16,500,000 of short-term borrowings at a fixed interest rate of 8.15%.

   In addition, the Company secured 1 hotel with $10.7 million of secured debt
   with a fixed interest rate of 8.15%.

   Since these borrowings are at a fixed rate of interest, changes in market
   rate will not have a direct impact on the Company's results of operations.

   There have been no other material changes since December 31, 2000. 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.

                                       17

<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 June 30, 2001:


<TABLE>
<CAPTION>


<S>                       <C>                              <C>                              <C>
Common Shares Registered:

                            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
                           -------------                                                         ------------
                                                                                                 $300,000,000

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

Common Shares Sold:
                            1,666,666.67  Common Shares     $9 per Common Share                  $ 15,000,000
                           11,000,011.00  Common Shares     $10 per Common Share                  110,000,000
                           -------------                                                         ------------

Totals:                    12,666,677.67  Common Shares                                          $125,000,000
                           -------------

Expenses of  Issuance  and  Distribution of Common
Shares                                                                                             12,500,000

         1.  Underwriting discounts and commissions                                                        --
         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                                                            --
                                                                                                    1,343,479
                                                                                                 ------------

         Total Expenses of Issuance and
         Distribution of Common Shares                                                             13,843,479


         Net Proceeds to the Company                                                             $111,156,521

         1.   Purchase of real estate (including repayment of
              Indebtedness incurred to purchase real estate)                                     $ 92,535,786

         2.   Interest on indebtedness                                                             10,275,786
         3.   Working capital                                                                       4,912,774
         4.   Fees to the following (all affiliates of officers of the Company):
              a.  Apple Suites Advisors, Inc.                                                         300,175
              b.  Apple Suites Realty Group, Inc.                                                   3,132,000

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

         6.   Other (specify ________________)
                                                                                                           --
                                                                                                 ------------
         Total of Application of Net Proceeds to the Company                                     $111,156,521

</TABLE>


                                      18

<PAGE>

Item 4.  Submission of Matters to a Vote of Security Holders.


On May 16, 2001, the Company held an Annual Meeting of Shareholders for the
purpose of electing two directors to the Company's Board of Directors. The two
nominees to the Company's Board of Directors were Bruce H. Matson and Robert M.
Wiley. Each nominee was a current director of the Company and was nominated for
an additional three-year term on the Board of Directors. The election of
directors was uncontested and both nominees were elected.

The total number of votes represented at the Annual Meeting of Shareholders was
10,255,481. The voting results are summarized below:

                  Votes For:        10,249,596       Votes Withheld:   5,885
                                    ----------                         -----


                                       19

<PAGE>

Part II, Item 6. Exhibits and Reports on Form 8-K

   (a) Exhibits -- None

   (b) Reports on Form 8-K

        The following table lists the reports on Form 8-K filed by the Company
        during the quarter ended June 30, 2001, the items reported and the
        financial statements included in such filings.

         Type and Date
         of Reports                  Items Reported  Financials Statements Filed

         Form 8-K dated              2,7(c)          None
         April 26, 2001 and filed
         June 18, 2001

         Form 8-K/A dated            2,7(c)          None
         June 18, 2001 and filed
         June 28, 2001





                                       20

<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:   8-14-01                BY: /s/ Glade M. Knight
      ----------                  -------------------------------------
                               Glade M. Knight
                               President

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


                                       21