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, 2000

                                       OR

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

         For the transition period from              to
                                        ------------    ---------------

                        Commission File Number 000-30491

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

                   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, 2000, there were  outstanding  5,336,812 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. (The "Company")

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

                           Consolidated Statement of Operations -                5
                           Three months ended June 30, 2000
                           Six months ended June 30, 2000

                           Consolidated Statement of Shareholders'               6
                           Equity - Six months ended June 30, 2000

                           Consolidated Statement of Cash Flows -                7
                           Six months ended June 30, 2000

                           Notes to Consolidated Financial Statements            8

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

                           Consolidated Balance Sheets-                         13
                           June 30, 2000 and December 31, 1999

                           Consolidated Statement of Operations-                14
                           Three months ended June 30, 2000
                           Six months ended June 30, 2000

                           Consolidated Statement of Cash Flows-                15
                           Six months ended June 30, 2000

                           Notes to Consolidated Financial Statements           16

         Item 2.      Management's Discussion and Analysis                      18
                      of  Financial Condition and Results of
                      Operations

         Item 3.      Quantitative and Qualitative Disclosures                  23
                      about  Market Risk


                                       2
<PAGE>

PART II.      OTHER INFORMATION:

         Item 1.      Legal Proceedings (not applicable).

         Item 2.      Changes in Securities and Use of Proceeds                 24

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

         Item 4.      Submission of Matters to a Vote of                        25
                      Security Holders (not applicable).

         Item 5.      Other Information (not applicable)

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

                                       3
<PAGE>

APPLE SUITES, INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)


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

Investment in hotels -net of accumulated depreciation of
   $1,715,455 and $496,209, respectively                                                   $ 125,100,974          $ 93,719,632
Cash and cash equivalents                                                                      3,445,125               581,344
Restricted cash                                                                                  544,469             1,023,721
Rent receivable from Apple Suites Management, Inc.                                             1,996,479             2,123,136
Notes and other receivables from Apple Suites Management, Inc.                                 1,771,124               717,019
Capital improvement reserve                                                                      653,149               753,927
Prepaid expenses                                                                                 194,185               270,229
Other assets                                                                                   1,556,769               300,000
                                                                                           -------------          ------------
Total Assets                                                                               $ 135,262,274          $ 99,489,008
                                                                                           =============          ============


LIABILITIES and SHAREHOLDERS' EQUITY

Liabilities
Notes payable-secured                                                                      $  91,350,000          $ 68,569,500
Interest payable                                                                                 576,173               466,140
Accounts payable                                                                                 355,750                65,214
Accrued expenses                                                                               1,185,836               868,668
Account payable-affiliate                                                                        111,639               708,751
Distributions payable                                                                                 --               712,735
                                                                                           -------------          ------------


Total Liabilities                                                                             93,579,398            71,391,008

Shareholders' equity
Common stock, no par value, authorized 200,000,000 shares;
   issued and outstanding 4,945,552 shares and 3,429,414, respectively                     $  41,885,295          $ 28,591,260
Class B convertible stock, no par value, authorized 240,000 shares;
   issued and outstanding 240,000 shares                                                          24,000                24,000
Distributions greater than net income                                                           (226,419)             (517,260)
                                                                                           -------------          ------------

Total Shareholders' Equity                                                                    41,682,876            28,098,000
                                                                                           -------------          ------------

Total Liabilities and Shareholders' Equity                                                 $ 135,262,274          $ 99,489,008
                                                                                           =============          ============
</TABLE>




See accompanying notes to consolidated financial statements.


                                       4
<PAGE>

APPLE SUITES INC.
CONSOLIDATED STATEMENTS  OF OPERATIONS (UNAUDITED)



<TABLE>
<CAPTION>
                                                                                     Three Months Ended      Six Months Ended
                                                                                          June 30,               June 30,
                                                                                            2000                   2000
                                                                                     ------------------      ----------------
<S>                                                                                      <C>                    <C>
REVENUES:
                    Lease revenue                                                        $3,836,053             $7,242,731
                    Interest income and other revenue                                        98,682                146,689

EXPENSES:
                    Taxes, insurance and other                                              712,866              1,404,441
                    General and administrative                                              255,500                510,236
                    Depreciation  of real estate owned                                      670,045              1,219,246
                    Interest                                                              1,606,628              3,059,738
                                                                                         ----------             ----------

                                             Total expenses                               3,245,039              6,193,661
                                                                                         ----------             ----------

Net income                                                                               $  689,696             $1,195,759
                                                                                         ==========             ==========

Basic and diluted earnings per common share                                              $     0.16             $     0.31
                                                                                         ==========             ==========
</TABLE>





See accompanying notes to consolidated financial statements.


                                       5
<PAGE>

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


<TABLE>
<CAPTION>
                                                                                Class B
                                                       Common Stock         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, 1999                       3,429,414   $28,591,260   240,000   $24,000   $  (517,260)   $ 28,098,000

Net proceeds from the sale of common shares        1,434,638    12,561,043        --        --            --      12,561,043
Net income                                                --            --        --        --     1,195,759       1,195,759
Cash distributions declared and
   paid to shareholders ($.25 per share)                  --            --        --        --      (904,918)       (904,918)
Common stock issued through
   reinvestment of distribution                       81,500       732,992        --        --            --         732,992
----------------------------------------------------------------------------------------------------------------------------

Balance at June 30, 2000                           4,945,552   $41,885,295   240,000   $24,000   $  (226,419)   $ 41,682,876
============================================================================================================================
</TABLE>



See accompanying notes to consolidated financial statements.


                                       6
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                              Six Months Ended
                                                                                                                  June 30,
                                                                                                                    2000
                                                                                                              ----------------
<S>                                                                                                             <C>
Cash flow from operating activities:

   Net income                                                                                                   $  1,195,759
   Adjustments to reconcile net income to net cash
   provided by operating activities
   Depreciation of real estate owned                                                                               1,219,246
     Changes in operating assets and liabilities:
       Prepaid expenses                                                                                               76,044
       Rent and notes receivable from Apple Suites Management, Inc.                                                 (830,930)
       Other assets                                                                                                  (11,769)
       Accounts payable                                                                                              290,536
       Accounts payable-affiliates                                                                                  (597,112)
       Accrued expenses                                                                                              317,168
       Interest payable                                                                                              110,033
                                                                                                                ------------

                              Net cash used in  operating activities                                               1,768,975

Cash flow from investing activities:

   Cash paid for acquisitions of hotels                                                                           (7,422,750)
   Capital improvements                                                                                           (2,526,588)
   Additions to capital improvements reserve held by third-party manager                                            (724,300)
   Reduction of capital improvements reserve held by third-party manager                                           1,203,552
   Reduction in restricted cash for property improvement plan                                                        100,778
   Payments received on notes receivable                                                                              32,732
                                                                                                                ------------

                              Net cash used in investing activities                                               (9,336,576)

Cash flow from financing activities:


   Net proceeds from issuance of common shares                                                                    13,294,035
   Cash distributions paid to shareholders                                                                        (1,617,653)
   Cash payments for deferred financing costs                                                                     (1,245,000)
                                                                                                                ------------

                              Net cash provided by financing activities                                           10,431,382

                              Increase  in cash and cash equivalents                                               2,863,781


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


Cash and cash equivalents, end of period                                                                        $  3,445,125
                                                                                                                ============


Supplemental cash flow information:

Interest paid                                                                                                   $  2,949,705
Non-cash transaction:

                             Notes payable-secured issued by seller in connection with
                                hotel acquisitions                                                              $ 22,780,500
</TABLE>


See accompanying notes to consolidated financial statements.


                                       7
<PAGE>

                                APPLE SUITES, INC
             Notes to Consolidated Financial Statements (Unaudited)
                                  June 30, 2000

(1)      GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

         The  Company  commenced   operations  in  September  1999,   therefore,
         consolidated  statements of operations and cash flows for the three and
         six months period ended June 30, 1999 are not presented.

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

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

         Relationship with Lessee
         ------------------------

         The Company  must rely on the Lessee to generate  sufficient  cash flow
         from the  operation of the hotels to enable the Lessee to meet its rent
         obligation  to the  Company  under the master  hotel  lease  agreements
         ("Percentage  Leases").  At June 30, 2000, the Lessee's rent payable to
         the  Company  amounted  to  $1,996,479.  The  original  terms under the
         Percentage  Leases  allow  monthly  base rent to be paid in arrears and
         quarterly percentage rent to be paid 15 days following the quarter-end.
         Amounts were paid by the Lessee in July 2000.

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


                                       8
<PAGE>

(2)      INVESTMENT IN HOTELS

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

         Land                                               $  19,183,614
         Building                                             104,571,526
         Furniture and equipment                                3,061,289
                                                             ------------
                                                             $126,816,429
         Less accumulated depreciation                         (1,715,455)
                                                             ------------
                                                             $125,100,974
                                                             ------------

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

(3)      NOTES PAYABLE

         In conjunction  with the purchase of 13 hotels,  notes were executed by
         the  Company  made  payable  to the order of  Hilton  in the  amount of
         $91,350,000  ($22,780,500 in 2000 and  $68,569,500 in 1999).  The notes
         bear  a   fixed   interest   rate   of   8.5%   per   annum   and   are
         cross-collateralized  by the 13 hotels owned by the  Company.  Interest
         payments are due monthly.  Notes amounting to $64,185,000 mature during
         the fourth quarter of 2000, $4,384,500 note matures in January 2001 and
         the remaining matures in April 2001.  Principal payments are to be made
         to the  extent  of net  equity  proceeds  from the  offering  of common
         shares.  The Company paid  $2,949,705  in interest for the period ended
         June 30, 2000.  During July 2000, the Company paid a principal  payment
         of $5 million on the notes from net proceeds from the offering.

         The Company is  negotiating  to refinance  these notes on  commercially
         reasonable  terms  and  conditions.  The  Company  has  applied  for  a
         commercial loan from a national bank in the amount of $58 million to be
         secured by the 11 hotels the Company purchased in 1999. There can be no
         assurance that the loan will occur in accordance  with the terms of the
         loan application or at all.

         The Company has made an aggregate  deposit of $1 million in  connection
         with its loan  application.  If the  closing on the loan does not occur
         within 90 days after the date of the  application  (June 9, 2000),  the
         Company  may be  required to forfeit  some or all of our  deposit.  The
         Company also has entered into an  agreement,  dated as of June 5, 2000,
         with the  prospective  lender,  which  guarantees the interest rate and
         provides  for the  Company's  payment  of certain  fees if the  Company
         terminates its loan application.








(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 $14,346,376  from the sale of 1,434,638 shares at $10
         per share  during the six month  period  ended June 30,  2000.  The net
         proceeds of the offering, after deducting selling commissions and other
         offering costs were $12,561,043 for the period.

         The  Company  provides a plan which  allows  shareholders  to  reinvest
         distributions  in the  purchase  of  additional  shares of the  Company
         ("Additional  Share Option").  Of the total proceeds raised from common
         shares during the period ended June 30, 2000,  $815,001 (net  $732,992)
         was provided through the reinvestment of distributions.


(5)      COMMITMENTS AND RELATED PARTIES

         The Company receives rental income from the Lessee under the Percentage
         Leases  which  expire in 2010,  subject to earlier  termination  by the
         Company with 30 days notice.  The Leases contain two optional five-year
         extensions. The rent due under the Percentage Leases


                                       9
<PAGE>

         is the  sum of  base  rent  and  percentage  rent.  Percentage  rent is
         calculated by  multiplying  fixed  percentages  by the total amounts of
         suite revenues with reference to specified threshold amounts.  Both the
         base rent and the revenue thresholds used in computing percentage rents
         are subject to annual  adjustments  based on  increases in the Consumer
         Price Index ("CPI"). The Company earned rents of $7,242,731 for the six
         month period ended June 30, 2000.

         Under the Percentage  Leases, the Company is obligated to pay the costs
         of  real  estate  and  personal  property  taxes,  property  insurance,
         maintenance  of underground  utilities and  structural  elements of the
         hotels. The Company is committed under certain agreements to fund 5% of
         suite revenues per month for capital  expenditures to include  periodic
         replacement or refurbishment of furniture,  fixtures, and equipment. At
         June  30,  2000,   $653,149  was  held  by  Promus  for  these  capital
         improvement  reserves.  In addition,  in accordance  with the franchise
         agreements,  $544,469 was held for the property improvement plan with a
         financial institution and treated as restricted cash.

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

         The Company loaned the Lessee $673,650 for franchise fees, $145,300 for
         hotel supplies and $960,000 for working capital for the 13 hotels.  The
         debt agreements are evidenced by promissory notes bearing interest at a
         rate of 9% per annum.  Principal and interest payments are due monthly.
         The promissory notes have various maturity dates through July 2010.

         The  Company  has  contracted  with Apple  Suites  Realty  Group,  Inc.
         ("ASRG") to acquire and dispose of real estate  assets for the Company.
         In  accordance  with the contract ASRG is to be paid a fee of 2% of the
         purchase price of any acquisitions or sale price of any dispositions of
         real estate  investments,  subject to certain  conditions.  For the six
         months ended June 30, 2000,  ASRG earned $607,480 under this agreement.
         At June 30, 2000, the Company owed ASRG $84,140.

         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, 2000,  ASA earned $50,032 under this agreement and $27,499 was
         payable at June 30, 2000.

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


                                       10
<PAGE>

(6)      EARNINGS PER SHARE

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

<TABLE>
<CAPTION>
                                                                             Three Months      Six Months
                                                                                Ended            Ended
                                                                               6/30/00          6/30/00
                                                                              ---------        ---------
<S>                                                                           <C>              <C>
                Numerator:
                     Net income and
                     numerator for basic and Diluted earnings               $  689,696         $1,195,759
                Denominator:
                     Denominator for basic
                     earnings per share-weighted-
                     average shares                                          4,225,582          3,916,520
                Effect of dilutive securities:
                     Stock options                                               2,200              2,200
                     Class B Convertible Shares*                                    --                 --
              ---------------------------------------------------------------------------------------------
                Denominator for diluted earnings
                     per share-adjusted weighted-
                     average shares and assumed
                     conversions                                              4,227,782         3,918,720
              ---------------------------------------------------------------------------------------------
                Basic and diluted earnings per
                     common share                                            $    0.16         $     0.31
              ---------------------------------------------------------------------------------------------
</TABLE>

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


                                       11
<PAGE>

(7)      ACQUISITIONS

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

<TABLE>
<CAPTION>
                                                                                   Six Months             Six Months
                                                                                      Ended                  Ended
                                                                                     6/30/00                6/30/99
<S>                                                                                 <C>                    <C>
          Lease revenue                                                             $8,891,505             $8,283,740

          Net income                                                                 1,194,774                823,959

          Net income per share-basic and diluted                                    $      .25             $      .21
</TABLE>


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

(8)      SUBSEQUENT EVENTS

         In July, 2000 the Company  declared and distributed to its shareholders
         approximately  $1,086,640  ($.25625  per share) of which  approximately
         $520,676 was reinvested in the purchase of additional  shares.  On July
         20, 2000, the Company closed the sale to investors of 391,261 shares at
         $10 per share representing net proceeds to the Company of $3,521,340.

         During July 2000, the Company paid a principal payment of $5 million on
         the notes from net proceeds from the offering.


                                       12
<PAGE>

APPLE SUITES MANAGEMENT, INC
CONSOLIDATED BALANCE SHEET (UNAUDITED)

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

Cash and cash equivalents                                                           $ 2,819,898            $ 2,395,000
Accounts receivables, net                                                             1,622,830                738,361
Inventories                                                                             145,300                121,801
Other assets                                                                            113,313                  8,142
                                                                                    -----------            -----------

     Total Current Assets                                                             4,701,341              3,263,304

Non-current assets


Deferred franchise fees                                                                 653,943                562,851
                                                                                    -----------            -----------

Total Assets                                                                        $ 5,355,284            $ 3,826,155
                                                                                    ===========            ===========

Liabilities and Shareholders' Deficit

Current liabilities

Account payable                                                                     $   319,732            $    48,586
Rent payable to Apple Suites, Inc.                                                    1,996,479              2,123,136
Due to third party manager                                                              507,542                454,147
Due to Apple Suites, Inc.                                                                26,653                 28,991
Accrued expenses                                                                        917,840                624,346
Current portion of note payable to Apple Suites, Inc.                                    71,028                 56,939
                                                                                    -----------            -----------

     Total Current liabilities                                                        3,839,274              3,336,145

Non-current liabilities


Note payable to Apple Suites, Inc.                                                    1,673,443                631,014
                                                                                    -----------            -----------

Total Liabilities                                                                     5,512,717               3,967,159

Shareholders' deficit

Common Stock, no par value,  5,000 authorized;
  10 shares issued and outstanding                                                          100                    100
Retained deficit                                                                       (157,533)              (141,104)
                                                                                    -----------            -----------


Total Shareholders' deficit                                                            (157,433)              (141,004)
                                                                                    -----------            -----------

Total Liabilities and Shareholders' Deficit                                         $ 5,355,284            $ 3,826,155
                                                                                    ===========            ===========
</TABLE>



See accompanying notes to financial statements.



                                       13
<PAGE>

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


<TABLE>
<CAPTION>
                                                                Three Months              Six Months
                                                                   Ended                    Ended
                                                               June 30, 2000            June 30, 2000
                                                               -------------            -------------
<S>                                                             <C>                      <C>
REVENUE

Suite revenue                                                   $ 8,479,831              $ 16,162,186
Other revenue                                                       470,735                   891,551
                                                                -----------              ------------


   Total revenue                                                  8,950,566                17,053,737

EXPENSES


Operating expense                                                 2,501,943                 4,797,335
General and administrative                                          738,655                 1,409,598
Advertising and promotion                                           773,396                 1,436,043
Utilities                                                           318,158                   601,421
Franchise fees                                                      337,771                   645,065
Management fees                                                     356,606                   679,372
Rent expense-Apple Suites, Inc.                                   3,836,053                 7,242,731
Interest expense                                                     30,312                    45,587
Other                                                               116,802                   213,014
                                                                -----------              ------------


   Total expenses                                                 9,009,696                17,070,166


Income before income taxes                                          (59,130)                  (16,429)


Income tax expense                                                       --                        --
                                                                -----------              ------------

Net loss                                                        $   (59,130)             $    (16,429)
                                                                ===========              ============


Retained deficit, beginning of period                           $   (98,403)             $   (141,104)
                                                                -----------              ------------

Retained deficit, end of period                                 $  (157,533)             $   (157,533)
                                                                ===========              ============
</TABLE>




See accompanying notes to consolidated financial statements.



                                       14
<PAGE>

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


<TABLE>
<CAPTION>
                                                                                                         Six Months Ended
                                                                                                             June 30,
                                                                                                               2000
                                                                                                         ----------------
<S>                                                                                                         <C>
Cash flow from operating activities:

   Net income                                                                                               $   (16,429)
   Adjustments to reconcile net income to net cash
   provided by operating activities

     Amortization of deferred franchise fees                                                                     14,658
     Changes in operating assets and liabilities:
       Receivables                                                                                             (884,469)
       Other assets                                                                                            (105,171)
       Due to  Apple Suites, Inc.                                                                                (2,338)
       Rent payable to Apple Suites, Inc.                                                                       833,268
       Accounts payable                                                                                         271,146
        Due to  third party manager                                                                              53,395
       Accrued expenses                                                                                         293,570
                                                                                                            -----------

                              Net cash used in  operating activities                                            457,630

Cash flow from financing activities:

       Repayments of notes payable                                                                              (32,732)
                                                                                                            -----------

                              Net cash used in financing activities                                             (32,732)

                              Decrease  in cash and cash equivalents                                            424,898


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


Cash and cash equivalents, end of period                                                                    $ 2,819,898
                                                                                                            ===========



Supplemental cash flow information:

Non-cash transactions:
Notes payable-issued by Apple Suites, Inc.                                                                  $ 1,089,250
Payment of working capital by Apple Suites, Inc.                                                                960,000
Payment of deferred franchise fees by Apple Suites, Inc.                                                        105,750
Acquisition of inventory by Apple Suites, Inc.                                                                   23,500
</TABLE>




See accompanying notes to consolidated financial statements.



                                       15
<PAGE>

                          APPLE SUITES MANAGEMENT, INC
             Notes to Consolidated Financial Statements (Unaudited)
                                  June 30, 2000

(1)      GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Organization
         ------------

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

         The  Lessee   commenced   operations  in  September  1999,   therefore,
         consolidated  statements of operations and cash flows for the three and
         six month period ended June 30, 1999 are not presented.

(2)      PERCENTAGE LEASES

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

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


                                       16
<PAGE>

         revenue  for  each of these  functions,  respectively.  Total  expenses
         incurred by the Lessee for franchise  fees,  advertising  and promotion
         fees,  and  management  fees for the six  months  ended  June 30,  2000
         totaled $1,970,316.

(3)      SHAREHOLDER'S EQUITY

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


                                       17
<PAGE>

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

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

General
-------

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

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


                                       18
<PAGE>

RESULTS OF OPERATIONS
---------------------

APPLE SUITES, INC.

Revenues
--------

Because we commenced operations effective September 1, 1999, a comparison to the
same period of 1999 is not possible.  During the three and six months ended June
30, 2000, we had revenues of $3,934,735 and $7,389,420, respectively. All of our
lease revenue is derived from the master hotel lease agreements.

Our other  income for the three and six months  ended June 30, 2000  consists of
$68,429  and  $101,161,   respectively,  of  interest  income  earned  from  the
investments  of our cash and cash  reserves.  For the same  period  in 2000,  we
earned interest of $30,253 and $45,528,  respectively,  on the promissory  notes
payable by the Lessee for our funding of  franchise  fees,  hotel  supplies  and
working capital.

Expenses
--------

Our expenses consist of property taxes,  insurance,  general and  administrative
expenses,  interest on notes  payable  and  depreciation  on the  hotels.  Total
expenses,  exclusive of interest and depreciation,  for the three and six months
ended June 30, 2000 were $968,366 and $1,914,677,  respectively, or 25% and 26%,
respectively, of total revenue.

The interest expense was $1,606,628 and $3,059,738,  respectively, for the three
and six months ended June 30, 2000 and represented  interest on short-term notes
payable to Promus Hotels, Inc. at an interest rate of 8.5%.

The  depreciation  expense was $670,045 and  $1,219,246,  respectively,  for the
three and six months ended June 30, 2000.

Taxes, insurance, and other was $712,866 and $1,404,441,  respectively,  for the
three and six months ended June 30, 2000 or 18% and 19%, respectively,  of total
revenue.

The general and administrative  expense totaled 6.5% and 7%,  respectively,  for
the three and six months ended June 30, 2000 of total  revenues.  These expenses
represent our administrative  expenses.  We expect these percentages to decrease
as our asset base grows.

APPLE SUITES MANAGEMENT, INC.

Revenues
--------

As operations  commenced  effective  September 1, 1999, a comparison to the same
period of 1999 is not  possible.  Total  revenues  for the three and six  months
ended  June 30,  2000  were  $8,950,566  and  $17,053,737,  respectively.  Total
revenues  consist   primarily  of  suite  revenue,   which  was  $8,479,831  and
$16,162,186 for the three and six months ended June 30, 2000

For the three and six months ended June 30, 2000 the average  occupancy rate was
79% and


                                       19
<PAGE>

78%, respectively, average daily rate was $92 and $91, respectively, and revenue
per available room was $72 and $71, respectively.

Expenses
--------

Total expenses for the three and six months ended June 30, 2000 were  $9,009,696
and $17,070,166.  Rent expense  represents  $3,836,053 and $7,242,731 or 43% and
42%,  respectively,  respectively,  for the three and six months  ended June 30,
2000 of total revenue.

The Lessee has agreed to pay Promus  Hotels,  Inc. a fee of 4% of suite  revenue
for  management of the hotels.  The Lessee has also agreed to pay Promus Hotels,
Inc.  fees of 4% of suite  revenue to cover fees for the  Homewood  Suites(R) by
Hilton  franchise and to participate in its reservation  system.  Total expenses
for these services were $1,970,316 during the period.  For the second quarter of
2000, these expenses were $1,032,962.

LIQUIDITY AND CAPITAL RESOURCES

During  2000,  we sold  1,516,138  of our common  shares,  at $10 per share,  to
investors.  The  total  gross  sale  proceeds  were  $15,161,377,  which  netted
$13,294,035  to us after the payment of selling  commissions  and other offering
costs.

The Lessee's  obligations under the master hotel lease agreements are unsecured.
The Lessee has limited capital resources,  and,  accordingly its ability to make
rent  payments  is  substantially  dependent  on the  ability  of the  Lessee to
generate  sufficient  cash flow from  operations of the hotels.  We have certain
rights to cancel a master  hotel lease  agreement if the Lessee does not perform
under the applicable terms.

To  support  the  Lessee's  obligations,  the Lessee has  received  two  funding
commitments of $1 million each from Mr. Knight and ASRG,  respectively (together
"Payor").  The funding  commitments are contractual  obligations of the Payor to
pay funds to the Lessee.  Funds paid to the Lessee under the  commitments are to
be used to satisfy any  capitalization or net worth  requirements  applicable to
the Lessee or the  Lessee's  payment  obligations  under the master  hotel lease
agreements, do not represent indebtedness,  and are not subject to interest. The
funding  commitments  terminate  upon the  expiration  of the master hotel lease
agreements, a written agreement between the Payor and the Lessee, or the payment
of all  commitment  amounts by the Payor to the Lessee.  As of June30,  2000, no
contributions  have  been  made by the Payor to the  Lessee  under  the  funding
commitments.

Notes payable
-------------
In  conjunction  with our purchase of the 13 hotels,  we made  promissory  notes
payable  to the  order  of  Promus  Hotels,  Inc.  in the  aggregate  amount  of
$91,350,000. The notes provide for an effective interest rate of 8.5% per annum.
Interest  payments are due monthly.  Principal  payments are to be made from net
proceeds of our offering of common shares. At June 30, 2000, our borrowings were
$91,350,000.  During July 2000, we paid a principal payment of $5 million on the
promissory notes from net proceeds from the offering.


                                       20
<PAGE>

The promissory  notes have various  maturity dates.  The  approximate  principal
amounts and their due dates are as follows:  $34 million due on October 1, 2000,
$30.2  million due on November 1, 2000,  $4.4 million due on January 1, 2001 and
$22.8  million  due on April 28,  2001.  Our goal is to pay these notes with the
proceeds from our continuous "best efforts" offering of common shares.  Based on
the current rate at which equity is being raised by the offering, we may need to
seek other measures to repay these loans.

We are negotiating to refinance these notes on commercially reasonable terms and
conditions.  We have applied for a commercial  loan from a national  bank in the
amount of $58 million to be secured by the 11 hotels we purchased in 1999. There
can be no assurance that the loan will occur in accordance with the terms of the
loan application or at all.

If the loan occurs in accordance with the  application,  repayment would be made
in monthly  installments over 10 years, on an amortized basis, at a fixed annual
interest  rate of 9.17%.  If the loan  closes,  we expect  the  lender to impose
additional conditions or requirements that are customary for loans of this type.
The loan would  represent a change to our borrowing  policy  because we would no
longer hold our properties over the long-term on an all-cash basis.

We have made an  aggregate  deposit of $1 million  in  connection  with our loan
application.  If the closing on the loan does not occur within 90 days after the
date of the  application  (June 9, 2000),  we may be required to forfeit some or
all of our deposit. We also have entered into an agreement,  dated as of June 5,
2000,  with the  prospective  lender,  which  guarantees  the interest  rate and
provides for our payment of certain fees if we terminate our loan application.

We have entered into a letter agreement,  dated May 8, 2000, with Promus Hotels,
Inc. in regard to  potential  refinancing.  Under this letter  agreement,  if we
obtain refinancing, repay our initial four promissory notes in full, and are not
in default under the other  promissory  notes,  the first 11 hotels we purchased
would be released as collateral. Furthermore, if our refinancing has both senior
and  junior  levels of  priority,  and if the  junior  level does not exceed $13
million,  we would be permitted to apply the net equity  proceeds from our "best
efforts"  to the  principal  amount  of such  junior  debt,  rather  than to our
promissory  notes with  respect to the  Philadelphia/Great  Valley hotel and the
Boulder hotel.

Cash and cash equivalents
-------------------------
Cash and cash equivalents totaled $3,445,125 at June 30, 2000.

Capital requirements
--------------------
We have an ongoing capital commitment to fund our capital  improvements.  We are
required  under the master hotel lease  agreements to make an amount equal to 5%
of suite revenue available monthly to the Lessee for the repair, replacement, or
refurbishing  of  furniture,  fixtures,  and  equipment on a  cumulative  basis,
provided that such amount may be used for capital  expenditures  made by us with
respect to the  hotels.  We expect that this amount will be adequate to fund the
required repair, replacement, and refurbishments and to maintain our hotels in a
competitive  condition.  We capitalized  improvements  of $2,526,588 in 2000. At
June 30, 2000 a total of $653,149 was held for funding of these improvements.



                                       21
<PAGE>

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

Capital  resources  are  expected  to grow with the  future  sale of our  common
shares.  Approximately  45% of the 2000 common share dividend  distribution,  or
$732,992 was reinvested in additional common shares.  In general,  our liquidity
and capital  resources  are  believed to be more than  adequate to meet our cash
requirements during 2000, given current and anticipated financing arrangements.

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


                                       22
<PAGE>

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes since December 31, 1999. 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.


                                       23
<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, 2000:

<TABLE>
<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
             -------------

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


Common Shares Sold:

              1,666,666.67         Common Shares $ 9 per Common Share                         $ 15,000,000
              3,278,885.00         Common Shares $10 per Common Share                         $ 32,788,853
             -------------                                                                    -------------

Totals:       4,945,551.67         Common Shares                                              $ 47,788,853
             -------------


Expenses of Issuance and Distribution of Common Shares

        1.   Underwriting discounts and commissions                                           $  4,778,885
        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                                               $  1,124,673
                                                                                              ------------
        Total Expenses of Issuance and Distribution of
             Common Shares                                                                    $  5,903,558

        Net Proceeds to the Company                                                           $ 41,885,295

        1.   Purchase of real estate (including repayment of
             Indebtedness incurred to purchase real estate)                                   $ 30,450,000
        2.   Interest on indebtedness                                                         $  4,304,782
        3.   Working capital                                                                  $  4,620,907
        4.   Fees to the following (all affiliates of officers of the Company):
             a.   Apple Suites Advisors, Inc.                                                 $     73,606
             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                                   $ 41,885,295
</TABLE>


                                       24
<PAGE>

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


On May 15, 2000,  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
3,922,923. The voting results are summarized below:

            Votes For:        3,897,008        Votes Withheld:   25,915
                              ---------                          ------



                                       25
<PAGE>

         Item 6. Exhibits and Reports on Form 8-K

(a)      Exhibits - Exhibit 27- Financial Data Schedule

(b)      Reports on Form 8-K

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

<TABLE>
<CAPTION>
         Type and Date                         Items
         of Reports                           Reported             Financials Statements Filed
<S>                                           <C>                  <C>
         Form 8-K dated May 8, 2000 and        2 and 7             None
         filed May 23, 2000
</TABLE>


                                       26
<PAGE>

                                   SIGNATURES


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

                                       Apple Suites, Inc.
                                       (Registrant)



DATE:   8/11/00                        BY:   /s/ Glade M. Knight
     -------------------                  -------------------------------------
                                           Glade M. Knight
                                           President

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


                                       27