<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 March 31, 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 May 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

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

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

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

                    Consolidated Statement of Operations -               4
                    Three months ended March 31, 2001 and
                    March 31, 2000

                    Consolidated Statement of Shareholders'              5
                    Equity - Three months ended March 31, 2001

                    Consolidated Statement of Cash Flows -               6
                    Three months ended March 31, 2001 and
                    March 31, 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).

     Item 5.   Other Information (not applicable)

     Item 6.   Exhibits and Reports on Form 8-K                         19
</TABLE>

                                      2
<PAGE>

APPLE SUITES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                         March 31,              December 31,
                                                                                           2001                     2000
                                                                                      --------------           --------------
<S>                                                                                   <C>                      <C>
ASSETS

Investment in hotel -net of accumulated depreciation of
          $4,486,100 and $3,486,590, respectively                                     $  123,892,804           $  124,576,257

Cash and cash equivalents                                                                 21,039,709                2,653,058
Restricted cash                                                                              104,937                  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                                                                   1,671,550                        -
Inventories                                                                                  145,300                        -
Capital improvement reserve                                                                1,800,854                  504,413
Prepaid expenses                                                                             191,100                  256,773
Deferred financing costs, net                                                              1,233,555                1,265,107
Deferred franchise fees                                                                      628,622                        -
Other assets                                                                                 252,550                  907,038
                                                                                      --------------           --------------

Total Assets                                                                          $  150,960,981           $  134,073,848
                                                                                      ==============           ==============

LIABILITIES and SHAREHOLDERS' EQUITY

Liabilities
Notes payable-secured                                                                 $   49,753,072           $   57,670,866
Interest payable                                                                                   -                   19,988
Accounts payable                                                                              70,494                  118,576
Accrued expenses                                                                           1,889,099                1,451,796
Due to third party manager                                                                   536,192                        -
Account payable-affiliate                                                                     45,147                        -
Distributions payable                                                                              -                1,848,000
                                                                                      --------------           --------------

Total Liabilities                                                                         52,294,004               61,109,226

Shareholders' equity
Common stock, no par value, authorized 200,000,000
   shares; issued and outstanding 11,496,163 shares and 8,666,348, respectively          100,662,447               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)  less than net income                                             (2,019,470)              (2,282,596)
                                                                                      --------------           --------------

Total Shareholders' Equity                                                                98,666,977               72,964,622
                                                                                      --------------           --------------

Total Liabilities and Shareholders' Equity                                            $  150,960,981           $  134,073,848
                                                                                      ==============           ==============
</TABLE>

See accompanying notes to consolidated financial statements.


                                       3
<PAGE>

APPLE SUITES INC.
CONSOLIDATED STATEMENTS  OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                     Three Months Ended
                                                                March 31,              March 31,
                                                                  2001                   2000
                                                              -------------          ------------
<S>                                                           <C>                    <C>
REVENUES:
          Suite revenue                                       $  10,062,514                     -
          Lease revenue                                                   -          $  3,406,678
          Other revenue                                             495,191                     -
          Interest income                                            94,039                48,007
                                                              -------------          ------------
                    Total revenues                               10,651,744             3,454,685

EXPENSES:
          Operating expenses                                      3,083,519                     -
          Hotel administrative expenses                             803,205                     -
          Advertising and promotion                                 968,841                     -
          Utilities                                                 454,896                     -
          Franchise fees                                            402,501                     -
          Management fees                                           411,060                     -
          Taxes, insurance and other                                383,292               691,575
          General and administrative                                316,406               254,736
          Depreciation of real estate owned                         999,510               549,201
          Interest                                                1,170,298             1,453,110
          Ground lease                                               25,000                     -
          Management termination fees                             1,370,090                     -
                                                              -------------          ------------
                    Total expenses                               10,388,618             2,948,622
                                                              -------------          ------------

Net income                                                    $     263,126          $    506,063
                                                              =============          ============
Basic and diluted earnings per common share                   $        0.03          $       0.14
                                                              =============          ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                Distributions
                                         Common Stock           Class B Convertible Stock          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                      2,745,450     24,679,940           -                -                   -      24,679,940
Net income                                  -              -           -                -             263,126         263,126
Common stock issued  through
 reinvestment of distributions         84,365        759,289           -                -                   -         759,289
                                 --------------------------------------------------------------------------------------------

Balance at March 31, 2001          11,496,163   $100,662,447     240,000          $24,000         $(2,019,470)    $98,666,977
                                 ============================================================================================
</TABLE>





See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                             Three Months Ended
                                                                                   March 31,
                                                                          2001                 2000
                                                                   -----------------     ------------------
<S>                                                                <C>                    <C>
Cash flow from operating activities:

   Net income                                                              $   263,126           $  506,063
   Adjustments to reconcile net income to net cash
   provided by operating activities
   Depreciation of real estate owned                                           999,510              549,201
   Amortization of deferred financing costs                                     34,744                    -
   Amortization of deferred franchise fees                                       9,414                    -
   Management termination fees (non-cash portion)                              470,090                    -
   Changes in operating assets and liabilities
     (excluding amounts acquired from Apple Suites
      Management, Inc.):
       Prepaid expenses                                                         65,673                6,448
       Rent and notes receivable from Apple Suites                                   -             (509,566)
        Management, Inc.
       Receivables                                                            (550,178)                   -
       Other assets                                                          1,059,212              (31,395)
       Accounts payable                                                       (199,086)              96,044
       Accounts payable-affiliates                                              45,147             (177,466)
       Due to third party manager                                             (164,156)                   -
       Accrued expenses                                                       (336,917)            (313,691)
       Interest payable                                                        (19,988)            (466,140)
                                                                           --------------     -----------------

        Net cash provided by (used in) operating activities                  1,676,591             (340,502)

Cash flow from investing activities:

   Cash assumed in the acquisition of Apple Suites                           2,793,106                    -
    Management, Inc.
   Net (increase) decrease in cash restricted for Property
       and capital improvement reserve held with third party                (1,137,692)             326,852
   Capital improvements                                                       (316,057)            (280,532)
   Payments received on notes receivable                                             -               13,739
   Payments for pending acquisitions                                          (300,000)            (200,000)
                                                                           --------------      ----------------

      Net cash provided by (used in) investing activities                    1,039,357             (139,941)

Cash flow from financing activities:

   Repayment of secured notes payable                                       (7,917,794)                   -
   Payment of financing costs                                                   (3,192)                   -
   Net proceeds from issuance of common stock                               25,439,229            4,394,265
   Cash distributions paid to shareholders                                  (1,847,540)            (713,244)
                                                                           --------------      ----------------

        Net cash provided by financing activities                           15,670,703            3,681,021


        Increase in cash and cash equivalents                               18,386,651            3,200,578


Cash and cash equivalents, beginning of period                               2,653,058              581,344
                                                                           -------------       ----------------

Cash and cash equivalents, end of period                                   $21,039,709           $3,781,922
                                                                           =============       ================


Supplemental Information:
Non-cash transactions:
   Apple Suites Management, Inc. acquisition
       Operating assets acquired                                           $ 2,009,431                    -
       Operating liabilities acquired                                        5,272,627                    -
</TABLE>

See accompanying notes to consolidated financial statements.


                                       6
<PAGE>

                              APPLE  SUITES, INC
            Notes to Consolidated Financial Statements (Unaudited)
                                March 31, 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 three months
     ended March 31, 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 $470,090 in the Lessee as a
     management termination fee (total of  $1,370,090) 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>

     Significant Account Policies of Lessee
     --------------------------------------

     The Company has not changed the accounting policies of the Lessee as
     previously reported  in the Lessee's financial statements included in the
     Company's December 31, 2000 Annual Report of Form 10K.

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

     At March 31, 2001, the Company owned 13 hotels.  Investment in hotels
     consisted of the following:


<TABLE>
<CAPTION>

                                                 March 31,      December 31,
                                                    2001           2000
                                                 ------------   ------------
<S>                                              <C>            <C>
     Land                                        $ 18,349,021   $ 18,374,917
     Building                                     101,529,793    101,314,421
     Furniture and equipment                        8,500,090      8,373,509
                                                 ------------   ------------
                                                  128,378,904   $128,062,847
     Less accumulated depreciation                 (4,486,100)    (3,486,590)
                                                 ------------   ------------
                                                 $123,892,804   $124,576,257
                                                 ------------   ------------
</TABLE>


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

     The Company placed a $50 million secured loan with a term of 10 years in
     September 2000.  The $50 million loan bears a fixed interest rate of 9% per
     annum and is secured by 11 hotels.  Prepayment penalties apply for early
     retirement.  Repayment will be made in monthly principal and interest
     installments over the next 10 years.  At March 31, 2001, the outstanding
     balance was $49,753,072.

     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
     --------------------

     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
     $28,298,153 and $4,935,083 from the sale of 2,829,815 and 493,509 shares,
     including shares sold through the reinvestment of distributions for the
     three month periods ended March 31, 2001 and 2000, respectively.  The net
     proceeds of the offering, after deducting selling commissions and other
     offering costs for the three month periods ended March 31, 2001 and 2000
     were $25,439,229 and $4,393,756, 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 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 March 31, 2001 and 2000, $1,800,854
     and $753,927, respectively, were held by Promus for these capital
     improvement reserves.  In addition, in accordance with the franchise
     agreements, at March 31, 2001 and 2000, $104,937 and  $696,869,
     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 and 2020.  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 total revenue for
     management fees and 4% of suite revenue for advertising and promotion fees.

     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.   No acquisitions were made in
     the first quarter of 2001 and 2000.

     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 three months ended March 31,
     2001 and 2000, ASA earned $63,896 and $22,533, respectively, under this

                                       9
<PAGE>

     agreement.

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

(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  Three Months
                                                                                                     Ended        Ended
                                                                                                    3/31/01      3/31/00
                                                                                                   ----------   ----------
<S>                                                                                               <C>          <C>
Numerator:
 Net Income                                                                                        $  263,126    $  506,063
  Numerator for basic and
  Diluted earnings                                                                                 $  263,126    $  506,063
Denominator:
  Denominator for basic
  earnings per share-weighted-
  average shares                                                                                    9,446,674     3,607,458
Effect of dilutive securities:
  Stock options                                                                                         2,200         2,200
---------------------------------------------------------------------------------------------------------------------------
Denominator for diluted earnings
  per share-adjusted weighted-
  average shares and assumed
  conversions                                                                                       9,448,874     3,609,658
Basic and diluted earnings per
---------------------------------------------------------------------------------------------------------------------------
  common share                                                                                     $      .03    $     0.14
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

     The following unaudited pro forma information for the three months ended
     March 31, 2000 is presented as if the acquisition of the 2 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.

<TABLE>
<S>                                                        <C>
                                                           Three Months
                                                              Ended
                                                             3/31/00
                                                           -----------
Revenues                                                    $10,038,257

Net income                                                      835,494

Net income per share-basic and diluted                      $       .17
</TABLE>

                                       10
<PAGE>

     The pro forma information reflects adjustments for actual revenues and
     expenses of the 2 hotels acquired in 2000 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 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.

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

     The taxable REIT subsidiary is subject to federal and state income taxes.
     The taxable REIT subsidiary incurred a loss during the period and as such
     has no income tax liability at March 31, 2001.  No operating loss benefit
     has been recorded in the consolidated balance sheet since realization is
     uncertain. At March 31, 2001, the taxable REIT subsidiary has $400,000 of
     net operating loss carryforwards which expire in 2020.

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

     In April, 2001 the Company distributed to its shareholders approximately
     $2,439,757  ($.26 per share) of which approximately $1,091,639 was
     reinvested in the purchase of additional shares. On April 17, 2001, the
     Company closed its "best offering" upon the closing of  the sale to
     investors of 1,170,515 shares at $10 per share (including 109,164 common
     shares through distributions reinvestment) representing net proceeds to the
     Company of $10,534,633.  The total gross proceeds raised were $125,000,000.

     On April 26, 2001, the Company acquired a hotel in Buckhead (a suburb of
     Atlanta), Georgia. The hotel was purchased for $12.8 million in cash. This
     hotel 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.

     On April 19, 2001, the Company deposited $115,000 with First Union National
     Bank which guarantees the Company a fixed interest rate at 8.15% on a $11.5
     million mortgage loan with regard to one hotel until June 18, 2001.

                                       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 $470,090 in the Lessee as a management termination
 fee (total of $1,370,090) 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 13 hotels with 1,453 suites from 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

                                       12
<PAGE>

 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
 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 three months ended March 31, 2001 with
 those of the Lessee for the three months ended March 31, 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 three months ended March 31, 2001, the Company had suite
 and other revenues of $10,062,514 and $495,191, respectively. In 2000, the
 Lessee had suite and other revenues of $7,682,355 and $420,816, respectively.
 The increase is primarily due to a full quarter of operations in 2001 of the
 two 2000 hotel acquisitions (in Colorado and Pennsylvania). 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 three months ended March 31, 2001 and 2000 average occupancy rate was
 75% and 78%, average daily rate ("ADR") was $102 and $89, and revenue per
 available room ("REVPAR") was $77 and $69, 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 for the three months
 ended March 31, 2001 over the same period in 2000 are due to a combination of
 significant increases in daily rental rates and the full quarter effect of the
 2000 hotel acquisition which had higher ADRs.

 The Company's interest income consists of $94,039 and $32,732 earned from the
 investments of its cash and cash reserves for the three months ended March 31,
 2001 and 2000, respectively. In 2000, interest income 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 three months ended March 31, 2001, the hotels had a 8.7% increase in REVPAR
 and a 10.1% increase in ADR  over the same period in 2000. Average occupancy
 for the first quarter of 2001 for these hotels decreased 1% from the first
 quarter of 2000. These fluctuations are due to the factors described above.

                                       13
<PAGE>

 Expenses
 --------

 Interest expense was $1,170,298 and $1,453,110 for the three months ended March
 31, 2001 and 2000, respectively, and represented interest on short-term notes
 payable to Hilton at an interest rate of 8.5% and amortization of deferred
 financing costs in 2000 and 2001 and the $50 million secured debt in 2001.

 Depreciation expense increased to $999,510 in 2001 from $549,201 in 2000, and
 is directly attributable to a full quarter of depreciation of hotels acquired
 in 2000 and the capital improvements made during 2000 and 2001.

 Taxes, insurance, and other expenses were $383,292 or 4% of the Company's suite
 revenue for the three months ended March 31, 2001.  These expenses were
 $691,575 or 9% 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 were $316,406 or 3% of the Company's suite
 revenue  in 2001.  For the same period in 2000, these expenses were $254,736 or
 3% of the Lessee's suite revenue.  These expenses represent the administrative
 expenses of the Company.

 Hotel operating expenses totaled $6,124,022 for the three months ended March
 31, 2001. For the three months ended March 31, 2000, hotel operating expenses,
 excluding rent expense and interest expense for the franchise, hotel supplies
 and working capital promissory notes, totaled $4,638,517. The increase is
 primarily due to a full quarter of operations in 2001 of the two 2000
 acquisitions. 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. 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 $1,238,694 and $937,354 for the three months ended March 31, 2001
 and 2000, respectively. These expenses are included in the hotel operating
 expenses above.

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

 During the first quarter of 2001, the Company sold 2,829,815 shares of its
 common stock to its investors (including 84,365 common shares sold through
 distribution reinvestment), bringing the total number of shares outstanding to
 11,496,163.    The total gross proceeds from the shares sold were $28,298,153,
 which netted $25,439,229 to the Company after the payment of selling
 commissions and other offering costs.

 On April 17, 2001, the Company closed its "best offering" upon the closing of
 the sale to investors of 1,170,515 shares at $10 per share (including 109,164
 common shares through distributions reinvestment) representing net proceeds to
 the Company of $10,534,633.  The total gross proceeds raised were $125,000,000.


                                       14
<PAGE>

 Notes payable
 -------------

 The Company placed a $50 million secured loan with a term of 10 years in
 September 2000.  The $50 million loan bears a fixed interest rate of 9% per
 annum and is secured by 11 of our hotels.  Prepayment penalties apply for early
 retirement.  Repayment will be made in monthly principal and interest
 installments over the next 10 years.  At March 31, 2001, the outstanding
 balance was $49,753,072.

 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 $21,039,709 at March 31, 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 March 31, 2001, $1,800,854 was held by Hilton for these capital improvement
 reserves.  In addition, in accordance with the franchise agreements $104,937
 was held for Property Improvement Plans with a financial institution and
 treated as restricted cash. The Company capitalized improvements of $316,057 in
 2001.  The Company has one hotel undergoing renovations at March 31, 2001.  The
 Company plans to spend an additional $1.4 million in 2001.

 The Company expects to acquire additional hotels during 2001.  However, no
 material commitments existed on May 1, 2001 for the purchase of additional
 hotels.  The Company had monthly equity closings through April 2001, when the
 Company closed the offering.  It is anticipated that the equity funds will be
 invested in additional hotels and used to make principal payments on the notes
 incurred in conjunction with the existing acquisitions.

 Capital resources are expected to grow with the future sale of the Company's
 common shares through the reinvestment of dividends. Approximately 41% of the
 2001 common stock dividend distribution, or $759,289 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.

 Acquisition
 -----------
 On April 26, 2001, the Company acquired a hotel in Buckhead (a suburb of
 Atlanta), Georgia. The hotel was purchased for $12.8 million in cash. This
 hotel will be leased by the Lessee
                                       15
<PAGE>

 and managed by Promus in substantially the same manner as the other 13 Homewood
 Suites(R) hotels owned at March 31, 2001. This acquisition brought the total
 number of hotels to 14 and total suites owned to 1,545.

 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

  There have been no 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 March 31, 2001:

<TABLE>
<CAPTION>
Common Shares Registered:
<S>           <C>               <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
                  9,829,496     Common Shares  $10 per Common Share                               98,294,852
              -------------

Totals:       11,496,162.67     Common Shares                                                   $113,294,852
              -------------

<CAPTION>
Expenses of Issuance and Distribution of Common Shares
    <S>                                                                                        <C>
    1.   Underwriting discounts and commissions                                                   11,329,485
    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                                                        1,302,920
                                                                                                ------------
    Total Expenses of Issuance and Distribution of
         Common Shares                                                                            12,632,405

    Net Proceeds to the Company                                                                 $100,662,447

    1.   Purchase of real estate (including repayment of
         Indebtedness incurred to purchase real estate)                                         $ 64,129,134
    2.   Interest on indebtedness                                                                  9,027,058
    3.   Working capital                                                                          24,848,206
    4.   Fees to the following (all affiliates of officers of the Company):
         a.  Apple Suites Advisors, Inc.                                                             222,049
         b. Apple Suites Realty Group, Inc.                                                        2,436,000

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

    6.   Other (specify ________________)                                                                  -
                                                                                                ------------
    Total of Application of Net Proceeds to the Company                                         $100,662,447
</TABLE>


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

 (a) Exhibits - Exhibit 27- Financial Data Schedule

                                       18
<PAGE>

 (b) Reports on Form 8-K

     The following table lists the reports on Form 8-K filed by the Company
     during the quarter ended March 31, 2001, the items reported and the
     financial statements included in such filings.

     None

                                       19
<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:        5-14-01                         BY: /s/ Glade M. Knight
     -----------------------                     ------------------------------
                                             Glade M. Knight
                                             President

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

                                       20