<PAGE>
 
                       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, 1998

                                       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 0-27360
                                        
                                 _____________
                                        
                          EXTENDED STAY AMERICA, INC.
             (Exact name of Registrant as specified in its charter)

                Delaware                                 36-3996573
     (State or other jurisdiction of                  (I.R.S. Employer
     incorporation or organization)                Identification Number)


            450 EAST LAS OLAS BOULEVARD, FORT LAUDERDALE, FL  33301
              (Address of Principal Executive Offices)      (Zip Code)


      Registrant's telephone number, including area code:  (954) 713-1600
                                        
                                 _____________

  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 July 31, 1998, the registrant had issued and outstanding an aggregate of
96,060,458 shares of Common Stock.
<PAGE>
 
                                     PART I

                             FINANCIAL INFORMATION

Item 1. Financial Statements

                          EXTENDED STAY AMERICA, INC.

               Condensed Consolidated Balance Sheets (Unaudited)
                       (In thousands, except share data)
<TABLE>
<CAPTION>
                       ASSETS
                       ------            
                                                         June  30,  December 31
                                                            1998      1997(1)
                                                         ---------- -----------
<S>                                                      <C>        <C>
Current assets:                                                     
 Cash and cash equivalents.............................  $   64,651  $    3,213
 Accounts receivable...................................       6,348       3,651
 Prepaid expenses......................................       4,861       3,869
 Deferred income taxes.................................       3,508       6,895
 Other current assets..................................         630         866
                                                         ----------  ----------
     Total current assets..............................      79,998      18,494
Property and equipment, net............................   1,332,077   1,042,741
Deferred loan costs....................................      17,414       8,167
Other assets...........................................       1,544       1,489
                                                         ----------  ----------
                                                         $1,431,033  $1,070,891
                                                         ==========  ==========
 
      LIABILITIES AND STOCKHOLDERS' EQUITY
      ------------------------------------
 
Current liabilities:
 Accounts payable......................................  $   50,445  $   51,309
 Accrued retainage.....................................      18,605      19,951
 Accrued property taxes................................       9,362       3,417
 Accrued interest......................................       7,897         356
 Accrued salaries and related expenses.................       2,387       2,707
 Other accrued expenses................................      15,617       5,099
                                                         ----------  ----------
     Total current liabilities.........................     104,313      82,839
                                                         ----------  ----------
Deferred income taxes..................................      22,408      18,393
                                                         ----------  ----------
Long-term debt.........................................     450,000     135,000
                                                         ----------  ----------
 
Commitments
 
Stockholders' equity:
 Preferred stock, $.01 par value, 10,000,000 shares 
  authorized; no shares issued and outstanding.........
 Common stock, $.01 par value, 500,000,000 shares 
  authorized; 96,045,476 and 95,604,208 shares issued 
  and outstanding, respectively........................         960         956
 Additional paid-in capital............................     827,792     823,060
 Retained earnings.....................................      25,560      10,643
                                                         ----------  ----------
     Total stockholders' equity........................     854,312     834,659
                                                         ----------  ----------
                                                         $1,431,033  $1,070,891
                                                         ==========  ==========
</TABLE>
--------
(1)  Derived from audited financial statements


     See notes to the unaudited condensed consolidated financial statements

                                       1
<PAGE>
 
                          EXTENDED STAY AMERICA, INC.

            Condensed Consolidated Statements of Income (Unaudited)
                     (In thousands, except per share data)

<TABLE>
<CAPTION>
                                        Three Months Ended    Six Months Ended
                                        ------------------   ------------------
                                        June 30,  June 30,   June 30,  June 30,
                                          1998      1997       1998      1997
                                        --------  --------   --------  --------
<S>                                     <C>       <C>        <C>       <C>
 
Revenue...............................   $70,044  $ 29,028   $124,274  $ 48,791
                                         -------  --------   --------  --------
Property operating expenses...........    28,893    12,307     55,175    22,487
Corporate operating and property
 management expenses..................     9,715     6,989     19,108    12,744
Merger, financing and other charges...              19,895               19,895
Depreciation and amortization.........    10,015     4,358     19,445     8,070
                                         -------  --------   --------  --------
    Total costs and expenses..........    48,623    43,549     93,728    63,196
                                         -------  --------   --------  --------
Income (loss) from operations.........    21,421   (14,521)    30,546   (14,405)
Interest expense (income), net........     4,561    (3,447)     5,682    (7,434)
                                         -------  --------   --------  --------
Income (loss) before income taxes.....    16,860   (11,074)    24,864    (6,971)
Provision (benefit) for income taxes..     6,744    (1,981)     9,946      (348)
                                         -------  --------   --------  --------
Net income (loss).....................   $10,116  $ (9,093)  $ 14,918  $ (6,623)
                                         =======  ========   ========  ========
Net income (loss) per common share:
 Basic................................     $0.11    $(0.10)     $0.16    $(0.07)
                                         =======  ========   ========  ========
 Diluted..............................     $0.10    $(0.10)     $0.15    $(0.07)
                                         =======  ========   ========  ========
Weighted average shares:
 Basic................................    95,897    95,306     95,798    92,991
 Effect of dilutive options...........     1,221                1,303
                                         -------             --------
 Diluted..............................    97,118    95,306     97,101    92,991
                                         =======  ========   ========  ========
</TABLE>

     See notes to the unaudited condensed consolidated financial statements

                                       2
<PAGE>
 
                          EXTENDED STAY AMERICA, INC.

          Condensed Consolidated Statements of Cash Flows (Unaudited)
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                          Six Months Ended
                                                                       ---------------------
                                                                        June 30,    June 30,
                                                                          1998        1997
                                                                       ---------   ---------
<S>                                                                    <C>         <C>
Cash flows from operating activities:
 Net income (loss)...................................................  $  14,918   $  (6,623)
 Adjustments to reconcile net income (loss) to net cash provided by
  operating activities:
   Depreciation and amortization.....................................     19,445       8,070
   Merger expenses...................................................                    938
   Deferred loan costs...............................................        837       9,667
   Write-offs and reserve adjustments................................      1,691       1,970
   Deferred income taxes.............................................      3,791       2,974
   Changes in operating assets and liabilities.......................     (3,688)     (2,965)
                                                                       ---------   ---------
     Net cash provided by operating activities.......................     36,994      14,031
                                                                       ---------   ---------
Cash flows from investing activities:
 Additions to property and equipment.................................   (284,200)   (262,248)
 Other assets........................................................        (55)       (244)
                                                                       ---------   ---------
     Net cash used in investing activities...........................   (284,255)   (262,492)
                                                                       ---------   ---------
Cash flows from financing activities:
 Proceeds from long-term debt........................................    343,500
 Repayments of revolving credit facility.............................    (28,500)
 Proceeds from issuance of common stock..............................      4,185     199,282
 Additions to deferred loan costs....................................    (10,486)       (148)
                                                                       ---------   ---------
     Net cash provided by financing activities.......................    308,699     199,134
                                                                       ---------   ---------
Increase (decrease) in cash and cash equivalents.....................     61,438     (49,327)
Cash and cash equivalents at beginning of period.....................      3,213     224,325
                                                                       ---------   ---------
Cash and cash equivalents at end of period...........................  $  64,651   $ 174,998
                                                                       =========   =========
 
Noncash investing and financing transactions:
 Capitalized or deferred items included in accounts payable
  and accrued liabilities............................................  $  67,358   $  25,410
                                                                       =========   =========
 Conversion of amounts due under revolving credit facility
  to term loan.......................................................  $ 100,000   $
                                                                       =========   =========
 Capitalization of amortized deferred loan costs.....................  $     511   $
                                                                       =========   =========
Supplemental cash flow disclosures:
 Cash paid for:
  Income taxes, net of refunds of $411 in 1998.......................  $   2,663   $   1,000
                                                                       =========   =========
  Interest expense, net of amounts capitalized.......................  $   7,056   $
                                                                       =========   =========
 </TABLE>

     See notes to the unaudited condensed consolidated financial statements

                                       3
<PAGE>
 
                          EXTENDED STAY AMERICA, INC.

        NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                                 June 30, 1998


NOTE 1 -- BASIS OF PRESENTATION

     Extended Stay America, Inc. ("ESA") was organized on January 9, 1995 as a
Delaware corporation to develop, own and manage extended stay lodging
facilities.

     On April 11, 1997, ESA, ESA Merger Sub, Inc. ("Merger Sub"), a wholly-owned
subsidiary of ESA, and Studio Plus Hotels, Inc. ("SPH") consummated a merger
(the "Merger") pursuant to which SPH was merged with and into Merger Sub and the
12,557,786 shares of SPH common stock issued and outstanding on such date were
converted into 15,410,915 shares of common stock, par value $.01 per share, of
ESA ("Common Stock") and options to purchase 1,072,565 shares of SPH common
stock were converted into options to purchase 1,316,252 shares of Common Stock.
The Merger was accounted for using the pooling of interests method of
accounting. The accompanying unaudited condensed consolidated financial
statements of ESA and SPH (together, the "Company") give effect to the Merger as
if it had been consummated as of the beginning of the periods presented. All
significant intercompany accounts and transactions have been eliminated in
consolidation. These financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
the instructions of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included.

     The condensed consolidated balance sheet data at December 31, 1997 was
derived from audited financial statements of the Company but does not include
all disclosures required by generally accepted accounting principles.

     Operating results for the three-month and six-month periods ended June 30,
1998 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1998. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1997.

     In April, 1998, the Accounting Standards Executive Committee released
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities"
("SOP 98-5"). SOP 98-5 requires that start-up costs, including pre-opening and
organizational costs be expensed as incurred and is effective for financial
statements issued for periods beginning after December 15, 1998. At June 30,
1998, the Company had unamortized pre-opening and organization costs of
approximately $1.1 million. Under SOP 98-5, the Company would have reported a
reduction of expenses of approximately $213,000 for the six months ended June
30, 1998.

     For the six months ended June 30, 1998 and 1997, the computation of diluted
earnings per share does not include approximately 6,187,000 and 3,126,000
weighted average shares, respectively, of Common Stock represented by
outstanding options because the exercise price of the options was greater than
the average market price of Common Stock during the period.

     Certain previously reported amounts have been reclassified to conform with
the current period's presentation.


                                       4
<PAGE>
 
NOTE 2 -- INCOME TAXES

     Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their respective tax
bases and for operating loss and tax carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

     Income tax expense for the three-month and six-month periods ended June 30,
1998 differed from the amounts computed by applying the U.S. Federal income tax
rate of 35 % primarily as a result of the impact of state and local income
taxes. The benefit from income taxes for the three-month and six-month period
ended June 30, 1997 differed from the amounts computed by applying the U.S.
Federal income tax rate of 35% primarily as a result of the impact of
nondeductible expenses associated with the Merger and state and local taxes.

NOTE 3 -- LONG-TERM DEBT

     Effective March 10, 1998, the Company issued $200 million Senior
Subordinated Notes (the "Notes"). The Notes contain certain redemption features,
bear interest at an annual rate of 9.15% and mature on March 15, 2008. The Notes
are uncollateralized and are subordinated to all senior indebtedness of the
Company and contain certain covenants for the benefit of the holders of the
Notes. These convenants, among other things, restrict under certain
circumstances the Company's ability to incur additional indebtedness, pay
dividends and make investments and other restricted payments, enter into
transactions with 5% stockholders or affiliates, create liens, and sell assets.

     Effective March 10, 1998, the Company amended its existing credit facility
("the Amended Credit Facility"). The Amended Credit Facility provides for up to
$350 million in term loans (the "Term Loans") and $350 million in a revolving
loan facility (the "Revolving Facility"). The Revolving Facility and up to $150
million of the Term Loans mature December 31, 2002 and bear interest, at the
Company's option, at either the Base Rate (as defined) or the Eurodollar rate,
plus an applicable margin which will be between .875% and 0% for Base Rate loans
and 1.875% and 1% for Eurodollar loans. Up to $200 million of the Term Loans
mature December 31, 2003, subject to maximum principal amortization of 1% in
each of the years 1999 through 2002 and payment of the balance in four equal
quarterly payments in 2003, and bear interest, at the Company's option, at
either the Base Rate plus 1.75% or the Eurodollar rate plus 2.75%. At June 30,
1998, $250 million was borrowed and $450 million remained available and
committed under the Amended Credit Facility.

     Availability under the Amended Credit Facility is dependent upon the
Company satisfying certain financial ratios of debt and interest compared to
earnings before interest, taxes, depreciation and amortization, with such
amounts being calculated pursuant to definitions contained in the Amended Credit
Facility. In no event, however, is availability under the Amended Credit
Facility less than $200 million at any time.

     The Amended Credit Facility contains a number of covenants, including,
among others, covenants limiting under certain circumstances the ability of the
Company and its subsidiaries to incur debt, make investments, pay dividends,
prepay other indebtedness, engage in transactions with affiliates, enter into
sale-leaseback transactions, create liens, make capital expenditures, acquire or
dispose of assets, or engage in mergers or acquisitions. In addition, the
Amended Credit Facility contains affirmative covenants, including, among others,
covenants requiring maintenance of corporate existence, compliance with laws,
maintenance of properties and insurance, and the delivery of financial and other
information. The Amended Credit Facility also specifies events of default,
including a change of control, and requires the Company to comply with certain
financial tests and to maintain certain financial ratios on a consolidated
basis. The Company's obligations under the Amended Credit Facility are
guaranteed by each of the Company's subsidiaries and are collateralized by a
first priority lien on all stock of such subsidiaries owned by the Company and
all other current and future assets of the Company and its subsidiaries (other
than mortgages on the Company's and its subsidiaries' real property).


                                       5
<PAGE>
 
Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations

General

     Extended Stay America, Inc. ("ESA"), was organized on January 9, 1995, as a
Delaware corporation to develop, own, and manage extended stay lodging
facilities. Studio Plus Hotels, Inc. ("SPH") was formed in December 1994 and
acquired (through merger and exchange of SPH common stock for partnership
interests immediately prior to completion of the SPH initial public offering in
June 1995) all of the assets of Studio Plus, Inc. and the SPH predecessor
entities, which owned and operated StudioPLUS(TM) extended stay facilities since
1986. The acquisition of the interests of the controlling shareholder or partner
and affiliates of the predecessor entities was accounted for as a pooling of
interests.

     On April 11, 1997, ESA, ESA Merger Sub, Inc. ("Merger Sub"), a wholly-owned
subsidiary of ESA, and SPH consummated a merger pursuant to which SPH was merged
with and into Merger Sub (the "Merger") and the 12,557,786 shares of SPH common
stock that were outstanding on the closing date were converted into 15,410,915
shares of common stock, par value $.01 per share, of ESA ("Common Stock") and
options to purchase 1,072,565 shares of SPH common stock were converted into
options to purchase 1,316,252 shares of Common Stock. The Merger was accounted
for using the pooling of interests method of accounting. The accompanying
unaudited condensed consolidated financial statements of ESA and SPH (together,
the "Company") give effect to the Merger as if it had been consummated at the
beginning of the periods presented.

     The Company owns and operates three brands in the extended stay lodging
market--StudioPLUS/TM/ Deluxe Studios (''StudioPLUS''), EXTENDED STAYAMERICA
Efficiency Studios (''EXTENDED STAY''), and Crossland Economy Studios/SM/
(''Crossland''), each designed to appeal to different price points below $500
per week. All three brands offer the same core components: a living/sleeping
area; a fully-equipped kitchen or kitchenette; and a bathroom. EXTENDED STAY
rooms are designed to compete in the economy category. Crossland guestrooms are
typically smaller than EXTENDED STAY rooms and are targeted for the budget
category, while StudioPLUS facilities serve the mid-price category and generally
feature larger guestrooms, an exercise facility, and a swimming pool.

     The following is a summary of the Company's selected development and
operational results for the three months and six months ended June 30, 1998 and
1997.

<TABLE>
<CAPTION>
                                             Three Months        Six Months
                                            Ended June 30,     Ended June 30,
                                           ----------------   ----------------
                                             1998     1997      1998     1997
                                            ------   ------    ------   ------
<S>                                         <C>      <C>       <C>      <C>
Total Facilities Open (at Period End)....     239      116       239      116
Total Facilities Developed...............      21       23        54       41
Average Occupancy Rate...................      76%      78%       72%      72%
Average Weekly Room Rate.................   $ 288    $ 264     $ 284    $ 261
</TABLE>

     Average occupancy rates are determined by dividing the guestrooms occupied
on a daily basis by the total number of guestrooms. Due to the Company's rapid
expansion, its overall average occupancy rate has been negatively impacted by
the lower occupancy typically experienced during the pre-stabilization period
for newly opened facilities. This negative impact on overall average occupancy
is expected to diminish as the ratio of newly opened facilities to total
facilities in operation at the end of the period decreases. Average weekly room
rates are determined by dividing room revenue by the number of rooms occupied on
a daily basis for the applicable period and multiplying by seven. The average
weekly room rates vary from standard room rates due primarily to (i) stays of
less than one week, which are charged at a higher nightly rate, (ii) higher
weekly rates for rooms which are larger than the standard rooms, and (iii)
additional charges for more than one person per room. Future occupancy and room
rates may be impacted by a number of factors including the number and geographic
location of new facilities as well as the season in which such facilities
commence operations. There can be no assurance that the foregoing occupancy and
room rates can be maintained.


                                       6
<PAGE>
 
     The following is a summary of the Company's development status as of June
30, 1998, by brand. The Company expects to complete the construction of the
facilities currently under construction generally within the next twelve months
and, subject to obtaining adequate financing, to commence construction on the
majority of the sites under option at various dates in the future. There can be
no assurance, however, that the Company will obtain adequate financing, complete
the acquisition of the sites under option, or, if acquired, commence and
complete construction within time periods historically experienced by the
Company. The Company's ability to complete development of sites under
construction and under option may be materially impacted by various factors
including zoning, permitting and environmental issues as well as weather-induced
construction delays.

<TABLE>
<CAPTION>
                                                EXTENDED
                                    Crossland     STAY     StudioPLUS   Total
                                    ---------   --------   ----------   -----
<S>                                 <C>         <C>        <C>          <C>
Operating Facilities..............     14         148          77        239
Facilities Under Construction.....     24          53          19         96
Sites Under Option................     11          84          51        146
</TABLE>
Results of Operations

  For the Three Months Ended June 30, 1998 and 1997

  Property Operations

     The following is a summary of the properties operated during the specified
periods and the related average occupancy and weekly room rates:

<TABLE>
<CAPTION>
                                            For the Three Months Ended
                 --------------------------------------------------------------------------------
                              June 30, 1998                             June 30, 1997
                 ---------------------------------------     ------------------------------------
                               Average         Average                     Average      Average
                 Facilities   Occupancy      Weekly Room     Facilities   Occupancy   Weekly Room
                    Open         Rate           Rate            Open         Rate        Rate
                 ----------   ------------   -----------     ----------   ---------   -----------
<S>              <C>          <C>            <C>             <C>          <C>         <C>
Crossland......      14           61%           $194              1           97%        $180
EXTENDED STAY..     148           77             283             74           76          249
StudioPLUS.....      77           77             319             41           84          308
                    ---           --            ----            ---           --         ----
  Total........     239           76%           $288            116           78%        $264
                    ===           ==            ====            ===           ==         ====
</TABLE>

     Because newly opened properties typically experience lower occupancies
during their pre-stabilization period, average occupancy rates are impacted by
the ratio of newly opened properties to total properties. For the EXTENDED STAY
brand, occupancy rates increased for the second quarter of 1998 as compared to
the second quarter of 1997 primarily due to a decrease in the ratio of newly
opened properties to total properties for that brand. Occupancy rates decreased
for the Crossland and StudioPLUS brands primarily due to an increase in the
number of newly opened properties for these brands. The average occupancy rate
in the second quarter of 1998 for the 93 properties that were owned and operated
by the Company as of March 31, 1997 was 84%.

     The increase in overall average weekly room rates for the second quarter of
1998 as compared to the second quarter of 1997 reflects the geographic
dispersion of properties opened since June 30, 1997 and the higher standard
weekly room rates in certain of those markets, in addition to increases in rates
charged at previously opened properties. These increases were partially offset
by an increase in the percentage of total facilities (as of the end of the
quarter) represented by lower priced EXTENDED STAY and Crossland facilities from
65% for 1997 to 68% for 1998. The Company expects that its average weekly room
rate will continue to be impacted as EXTENDED STAY and Crossland facilities
increase as a percentage of the Company's total facilities. The average weekly
room rate for the 93 properties that were owned and operated throughout both
periods increased by 2% in the second quarter of 1998.

     The Company recognized total revenues for the three months ended June 30,
1998 and 1997 of $70.0 million and $29.0 million, respectively, an increase of
$41.0 million. Approximately $39.5 million of the increased revenue was
attributable to properties opened subsequent to March 31, 1997 and approximately
$1.5 million was attributable to an increase in revenue for the 93 properties
that were owned and operated throughout both periods.

                                       7
<PAGE>
 
     Property operating expenses, consisting of all expenses directly allocable
to the operation of the facilities but excluding any allocation of corporate
operating and property management expenses, depreciation or interest were $28.9
million (41% of total revenue) for the second quarter of 1998, compared to $12.3
million (42% of total revenue) for the second quarter of 1997. The decrease in
property operating expenses as a percentage of total revenue for the second
quarter of 1998 as compared to the second quarter of 1997 was primarily a result
of a decrease in the ratio of newly opened properties to total properties. As a
result of the foregoing, the Company realized property operating margins of 59%
and 58% for the second quarter of 1998 and 1997, respectively.

     The provision for depreciation and amortization for the lodging facilities
of $9.7 million and $4.1 million for the second quarter of 1998 and 1997,
respectively, was provided using the straight-line method over the estimated
useful lives of the assets. These provisions reflect a pro rata allocation of
the annual depreciation and amortization charge for the periods for which the
facilities were in operation. The increase in depreciation and amortization for
the second quarter of 1998 as compared to the second quarter of 1997 is due to
the operation of 123 additional facilities in 1998.

  Corporate Operations

     Corporate operating and property management expenses include all expenses
not directly related to the development or operation of lodging facilities.
These expenses consist primarily of personnel expenses, professional and
consulting fees, and related travel expenses including costs that are not
directly related to a site that will be developed by the Company. The Company
incurred corporate operating and property management expenses of $9.7 million
(14% of total revenue) and $7.0 million (24% of total revenue) in the second
quarter of 1998 and 1997, respectively. The increase in the amount of these
expenses for the second quarter of 1998 as compared to 1997 reflects the impact
of additional personnel and related expenses in connection with the Company's
increased level of operating facilities and site development. Management expects
these expenses to increase in total amount but to continue to decline as a
percentage of revenue with the development of additional facilities in the
future.

     Depreciation and amortization in the amount of $324,000 and $213,000 for
the second quarter of 1998 and 1997, respectively, were provided using the
straight-line method over the estimated useful lives of the assets for assets
not directly related to the operation of the facilities, including primarily
office furniture and equipment.

     The Company realized $3.4 million of interest income during the second
quarter of 1997, which was primarily attributable to the investment of funds
received from an offering of Common Stock. Approximately $1.0 million of
interest income was realized in the second quarter of 1998 primarily resulting
from the temporary investment of funds drawn under the Company's credit
facilities. The Company incurred interest charges of $9.7 million during the
second quarter of 1998, $4.1 million of which was capitalized and included in
the cost of buildings and improvements.

     The Company recognized income tax expense of $6.7 million and an income tax
benefit of $2.0 million for the second quarter of 1998 and 1997, respectively.
Income tax expense or benefit for these periods differs from the federal income
tax rate of 35% primarily due to state and local income taxes and, in 1997, due
to permanent tax differences relating to non-deductible merger expenses.

  Merger, Financing, and Other Charges

     During the three months ended June 30, 1997, the Company recorded merger,
financing, and other charges totaling $19.9 million. These one-time, pre-tax
charges consisted of (i) $9.7 million of merger expenses and costs associated
with the integration of SPH's operations following the Merger, (ii) the write-
off of $9.7 million of deferred costs associated with the Company's $400 million
mortgage facilities which were terminated upon execution of a revolving credit
agreement with various banks, and (iii) a charge of $500,000 in connection with
moving the listing of the Company's Common Stock to the New York Stock Exchange,
Inc. from the Nasdaq National Market. Management believes that these charges are
non-recurring in nature and will not affect the future results of operations.


                                       8
<PAGE>
 
  For the Six Months Ended June 30, 1998 and 1997

  Property Operations

     The following is a summary of the properties operated during the specified
periods and the related average occupancy and weekly room rates:

<TABLE>
<CAPTION>
                                                   For the Six Months Ended
                      ----------------------------------------------------------------------------------
                                 June 30, 1998                               June 30, 1997
                      ------------------------------------     -----------------------------------------
                                    Average      Average                       Average         Average
                      Facilities   Occupancy   Weekly Room     Facilities     Occupancy      Weekly Room
                         Open         Rate        Rate            Open           Rate           Rate
                      ----------   ---------   -----------     ----------   --------------   -----------
<S>                   <C>          <C>         <C>             <C>          <C>              <C>
Crossland...........      14           60%        $193              1             85%           $176
EXTENDED STAY.......     148           74          278             74             69             246
StudioPLUS..........      77           70          318             41             80             300
                         ---           --         ----            ---             --            ----
  Total.............     239           72%        $284            116             72%           $261
                         ===           ==         ====            ===             ==            ====
</TABLE>
 
     For the EXTENDED STAY brand, occupancy rates increased for the six-month
period ended June 30, 1998 as compared to the same period in 1997 primarily due
to a decrease in the ratio of newly opened properties to total properties for
that brand. Occupancy rates decreased for the Crossland and StudioPLUS brands
primarily due to an increase in the number of newly opened properties for these
brands. The average occupancy rate in the six months ended June 30, 1998 for the
75 properties that were owned and operated by the Company as of December 31,
1996 was 80%.

     The increase in average weekly room rates for the six months ended June 30,
1998 as compared to the same period of 1997 reflects the geographic dispersion
of properties opened since June 30, 1997 and the higher standard weekly room
rates in certain of those markets, in addition to increases in rates charged at
previously opened properties. These increases were partially offset by an
increase in the percentage of total facilities (as of the end of the six-month
period) represented by lower priced EXTENDED STAY and Crossland facilities from
65% for 1997 to 68% for 1998. The average weekly room rate for the 75 properties
that were owned and operated throughout both periods increased less than 1% in
the first six months of 1998.

     The Company recognized total revenues for the six months ended June 30,
1998 and 1997 of $124.3 million and $48.8 million, respectively, an increase of
$75.5 million. Approximately $73.0 million of the increased revenue was
attributable to properties opened subsequent to December 31, 1996 and
approximately $2.5 million was attributable to an increase in revenue for the 75
properties that were owned and operated throughout both periods.

     Property operating expenses for the six months ended June 30, 1998 were
$55.2 million (44% of total revenue) compared to $22.5 million (46% of total
revenue) for the six months ended June 30 1997. The decrease in property
operating expenses as a percentage of total revenue for the six months ended
June 30, 1998 as compared to the same period of 1997 was primarily a result of
improved occupancies and revenues for the facilities that were in their pre-
stabilization periods during the first six months of 1997. As a result of the
foregoing, the Company realized property operating margins of 56% and 54% for
the six months ended June 30, 1998 and 1997, respectively.

     The provision for depreciation and amortization for the lodging facilities
was $18.7 million and $7.6 million for the six months ended June 30, 1998 and
1997, respectively. The increase in depreciation and amortization for the six
months ended June 30, 1998 as compared to the same period in 1997 is due to the
operation of 123 additional facilities in 1998.

  Corporate Operations

     Corporate operating and property management expenses for the six months
ended June 30, 1998 and 1997 were $19.1 million and $12.7 million, respectively,
or 15% and 26% of total revenue, respectively. The increases in the amount of
these expenses for the six-month period ended June 30, 1998 as compared to the
same period of 1997 reflect the impact of additional personnel and related
expenses in connection with the Company's increased level of operating
facilities and site development. Management expects these expenses to increase
in total amount but to continue to decline as a percentage of revenue with the
development of additional facilities in the future.


                                       9
<PAGE>
 
     Depreciation and amortization for assets not directly related to operation
of the facilities was $727,000 and $422,000 for the six months ended June 30,
1998 and 1997, respectively.

     The Company realized $8.9 million of interest income during the six-month
period ended June 30, 1997, which was primarily attributable to the investment
of funds received from an offering of Common Stock. Approximately $1.4 million
of interest income was realized in the six-month period ended June 30, 1998
primarily resulting from the temporary investment of funds drawn under the
Company's credit facilities. The Company incurred interest charges of $15.0
million during the six-month period ended June 30, 1998, $7.9 million of which
was capitalized and included in the cost of buildings and improvements.

     The Company recognized income tax expense of $9.9 million and an income tax
benefit of $348,000 for the six-month periods ended June 30, 1998 and 1997
respectively. Income tax expense or benefit for these periods differs from the
federal income tax rate of 35% primarily due to state and local income taxes
and, in 1997, due to permanent tax differences relating to non-deductible merger
expenses. Management expects that the annualized effective income tax rate for
1998 will be approximately 40%.

Liquidity and Capital Resources

     The Company had cash and cash equivalents of $64.7 million and $3.2 million
as of June 30, 1998 and December 31, 1997, respectively. At June 30, 1998,
substantially all of the cash balances were invested, utilizing domestic
commercial banks and other financial institutions, in short-term commercial
paper and other securities having credit ratings of A1/P1 or equivalent. The
market value of the securities held approximates the carrying amount. In
addition, at June 30, 1998 and December 31, 1997, the Company invested excess
funds in an overnight sweep account with a commercial bank which invested in
short-term, interest-bearing reverse repurchase agreements. Due to the short-
term nature of these investments, the Company did not take possession of the
securities, which were instead held by the financial institution. The market
value of the securities held pursuant to the agreements approximates the
carrying amount. Deposits in excess of $100,000 are not insured by the Federal
Deposit Insurance Corporation.

     During the six months ended June 30, 1998, and 1997 the Company generated
cash from operating activities of $37.0 million and $14.0 million, respectively.

     The Company used $284.2 million and $262.2 million to acquire land and
develop and furnish a total of 150 and 139 sites, respectively, in the six
months ended June 30, 1998 and 1997.

     On February 6, 1997, the Company completed a private placement of 11.5
million shares of its Common Stock at a purchase price of $17.625 per share, for
an aggregate amount of approximately $203 million. Net proceeds received by the
Company from that private placement were approximately $198 million. In
addition, the Company received net proceeds from the exercise of Company stock
options totaling $4.2 million and $1.2 million in the six months ended June 30,
1998 and 1997, respectively.

     Effective September 26, 1997, the Company executed an agreement with
various banks establishing a revolving credit facility (the "Credit Facility")
for $500 million to be used for general corporate purposes, including the
construction and acquisition of extended stay hotel properties. The Credit
Facility had a maturity of December 31, 2002. Upon execution of the agreement
establishing the Credit Facility, the Company terminated two mortgage loan
facilities, which provided for an aggregate of $400 million in available
mortgage loans.

     On March 10, 1998 (the "Effective Date"), the Company amended the Credit
Facility (the "Amended Credit Facility"). The Amended Credit Facility converted
$150 million of the amounts available under the Credit Facility into a term loan
facility (the "Converted Term Loans"), with the $350 million balance of the
amounts available under the Credit Facility remaining as a revolving loan
facility (the "Revolving Facility" and, together with the Converted Term Loans,
the "Converted Facilities"). With respect to the Converted Term Loans, $100
million was drawn on the Effective Date and the balance was drawn on July 31, 
1998.

                                      10
<PAGE>
 
     The Amended Credit Facility also provides for up to $300 million in
additional term loans (the "Additional Term Loans"), $200 million of which were
committed as of the Effective Date and drawn prior to July 10, 1998 (as drawn,
the "Committed Loans"). Additional Term Loans in excess of Committed Loans may
be borrowed at any time after the Effective Date, provided that the total
Additional Term Loans cannot exceed $200 million before January 1, 1999.
Further, to the extent that the Additional Term Loans exceed $200 million, at
least $275 million must be outstanding under the Revolving Facility on the date
the Additional Term Loans are incurred.

     The Company is required to repay indebtedness outstanding under the Amended
Credit Facility with the net cash proceeds from certain sales of assets, from
issuances of debt or equity by the Company, and from insurance recovery events
(subject to certain reinvestment rights). The Company is also required to repay
indebtedness outstanding under the Amended Credit Facility annually in an amount
equal to 50% of the Company's excess cash flow (as defined).

     Amounts drawn under the Converted Facilities bear interest, at the
Company's option, at either the Base Rate (as defined) or the Eurodollar rate,
plus an applicable margin. The applicable margin is an annual rate which
fluctuates based on the Company's ratio of consolidated debt to consolidated
EBITDA and which will be between .875% and 0% for Base Rate loans and 1.875% and
1% for Eurodollar loans.

     Committed Loans will bear interest, at the Company's option, at either the
Base Rate plus 1.75% or the Eurodollar rate plus 2.75%. Additional Term Loans
that are not Committed Loans will bear interest at rates to be agreed upon.

     The Converted Facilities mature on December 31, 2002. Additional Term Loans
will mature no earlier than December 31, 2003, subject to maximum principal
amortization of 1% of the initially funded amounts in each of the years 1999
through 2002 and payment of the balance due in four equal quarterly payments in
2003.

     Availability under the Amended Credit Facility is dependent upon the
Company satisfying certain financial ratios of debt and interest compared to
earnings before interest, taxes, depreciation and amortization, with such
amounts being calculated pursuant to definitions contained in the Amended Credit
Facility. In no event, however, is availability under the Amended Credit 
Facility less than $200 million at any time.

     The Company's obligations under the Converted Facilities are guaranteed by
each of the Company's subsidiaries (the "Guarantors") and are collateralized by
a first priority lien on all stock owned by the Company and the Guarantors and
all other current and future assets of the Company and the Guarantors (other
than mortgages on the Company's and the Guarantors' real property). The
obligations of the Company and the Guarantors under the Additional Term Loans
are collateralized on a pari passu basis by way of perfected first priority
security interest in the assets securing the Converted Facilities.

     The Amended Credit Facility contains a number of covenants, including,
among others, covenants limiting under certain circumstances the ability of the
Company and its subsidiaries to incur debt, make investments, pay dividends,
prepay other indebtedness, engage in transactions with affiliates, enter into
sale-leaseback transactions, create liens, make capital expenditures, acquire or
dispose of assets, or engage in mergers or acquisitions. In addition, the
Amended Credit Facility contains affirmative covenants, including, among others,
covenants requiring maintenance of corporate existence, compliance with laws,
maintenance of properties and insurance, and the delivery of financial and other
information. The Amended Credit Facility also specifies events of default,
including a change of control, and requires the Company to comply with certain
financial tests and to maintain certain financial ratios on a consolidated
basis.

     At June 30, 1998, $250 million was borrowed and $450 million remained
available and committed under the Amended Credit Facility.

                                      11
<PAGE>
 
     Effective March 10, 1998, the Company issued $200 million Senior
Subordinated Notes, (the "Notes"). The Notes bear interest at an annual rate of
9.15%, payable semiannually on March 15 and September 15 of each year,
commencing September 15, 1998, and mature on March 15, 2008. The Notes are
redeemable, in whole or in part, any time on or after March 15, 2003, initially
at 104.575% of their principal amount, plus accrued interest, declining ratably
to 100% of their principal amount, plus accrued interest, on or after March 15,
2006. Additionally, at any time prior to March 15, 2001, the Company may redeem
up to 35% of the principal amount of the Notes with the proceeds of one or more
public equity offerings by the Company of its Common Stock, at a redemption
price of 109.15% of their principal amount, plus accrued interest, provided that
at least $130 million aggregate principal amount of Notes remains outstanding
after each such redemption.

     The Notes are uncollateralized and are subordinated to all senior
indebtedness of the Company and contain certain covenants for the benefit of the
holders of the Notes. These covenants, among other things, restrict under
certain circumstances the Company's ability to incur additional indebtedness,
pay dividends and make investments and other restricted payments, enter into
transactions with 5% stockholders or affiliates, create liens, and sell assets.

     In connection with the Amended Credit Facility and the Notes, the Company
incurred additions to deferred loan costs of $10.5 million during the six months
ended June 30, 1998.

     The Company expects to continue to rapidly expand its operations. The
Company had commitments totalling approximately $288 million to complete
construction of extended stay properties at June 30, 1998. The Company believes
that the remaining availability under the Amended Credit Facility, together with
cash on hand and cash flows from operations, will provide sufficient funds for
the Company to develop the properties currently planned to open in 1998 and to
fund its operating expenses through 1998. The Company expects it will require
additional funding to continue development through 1999. The timing and amount
of financing needed will depend on a number of factors, including the number of
properties the Company constructs or acquires, the timing of such development,
and the cash flow generated by its properties. In the event that the capital
markets provide favorable opportunities, the Company's plans or assumptions
change or prove to be inaccurate, or the foregoing sources of funds prove to be
insufficient to fund the Company's growth and operations, or if the Company
consummates acquisitions, the Company may seek additional capital sooner than
currently anticipated. Sources of financing may include public or private debt
or equity financing. There can be no assurance that such additional financing
will be available to the Company or, if available, that it can be obtained on
acceptable terms or within the limitations contained in the Company's financing
arrangements. Failure to obtain such financing could result in the delay or
abandonment of some or all of the Company's development and expansion plans and
expenditures and could have a material adverse effect on the Company.

Impact of the Year 2000 Issue and Accounting Releases

     The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Based on its
assessment, management of the Company does not anticipate that any significant
modification or replacement of the Company's software will be necessary for its
computer systems to properly utilize dates beyond December 31, 1999 or that the
Company will incur significant operating expenses to make any such computer
system improvements. The Company is undertaking an assessment as to whether any
of its significant suppliers, lenders, or service providers will need to make
any such software modifications or replacements. Management does not expect the
failure of any such third parties to address the Year 2000 Issue to have a
material adverse effect on the Company's business, operations, or financial
condition, although there can be no assurance to that effect.

     In April, 1998, the Accounting Standards Executive Committee released
Statement of Position 98-5, "Reporting on the Costs of Start-up Activities"
("SOP 98-5").  SOP 98-5 requires that start-up costs, including pre-opening and
organizational costs be expensed as incurred and is effective for financial
statements issued for periods beginning after December 15, 1998.  At June 30,
1998, the Company had unamortized pre-opening and organization costs of
approximately $1.1 million.  Under SOP 98-5, the Company would have reported a
reduction of expenses of approximately $213,000 for the six months ended June
30, 1998.

                                      12
<PAGE>

Seasonality and Inflation

     Based upon the operating history of the Company's facilities, management
believes that extended stay lodging facilities are not as seasonal in nature as
the overall lodging industry. Management does expect, however, that occupancy
and revenues may be lower than average during the first and fourth quarters of
each calendar year. Because many of the Company's expenses do not fluctuate with
occupancy, such declines in occupancy may cause fluctuations or decreases in the
Company's quarterly earnings.

     The rate of inflation as measured by changes in the average consumer price
index has not had a material effect on the revenue or operating results of the
Company during any of the periods presented.  There can be no assurance,
however, that inflation will not affect future operating or construction costs.

Special Note on Forward-Looking Statements

     Certain statements in this Form 10-Q constitute "forward-looking
statements." Such forward-looking 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, among other things, the Company's
limited operating history and uncertainty as to the Company's future
profitability; the ability to meet construction and development schedules and
budgets; the ability to develop and implement operational and financial systems
to manage rapidly growing operations; the uncertainty as to the consumer demand
for extended stay lodging; increasing competition in the extended stay lodging
market; the ability to integrate and successfully operate acquired properties
and the risks associated with such properties; the ability to obtain financing
on acceptable terms to finance the Company's growth strategy; the ability of the
Company to operate within the limitations imposed by financing arrangements; and
general economic conditions as they may impact the overall lodging industry.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. The Company undertakes no
obligations to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, or otherwise.

                                      13
<PAGE>
 
                                    PART II
                                        
                               OTHER INFORMATION

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

     The following summarizes the votes of the Annual Meeting of the Company's
stockholders held on May 21, 1998:

<TABLE>
<CAPTION>
               Matter                    For       Against    Abstain  Non-Vote   Shares Voted
               ------                    ---       -------    -------  --------   ------------
Election of Directors:
<S>                                   <C>          <C>        <C>      <C>        <C>
H. Wayne Huizenga...................  81,320,419     --       107,163     --        81,427,582
George D. Johnson, Jr...............  81,320,619     --       106,963     --        81,427,582
Donald F. Flynn.....................  81,320,105     --       107,477     --        81,427,582
Stewart H. Johnson..................  81,320,619     --       106,963     --        81,427,582
John J. Melk........................  81,320,619     --       106,963     --        81,427,582
Peer Pederson.......................  81,320,105     --       107,477     --        81,427,582

Ratification of the appointment of
PricewaterhouseCoopers LLP as
Independent Auditors for the
Company for 1998....................  81,386,330      19,527   21,725     --        81,427,582

Approval of the Extended Stay
America, Inc. 1998 Employee Stock
Option Plan.........................  55,476,259  17,899,525   46,034  8,005,764    81,427,582
</TABLE>

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

       Exhibit
       Number                    Description of Exhibit
       ------                    ----------------------

        10.1   Aircraft Dry Sub-Lease Agreement, dated as of July 2, 1998,
               between the Company and Advance America Cash Advance Centers,
               Inc.

        27.1   Financial Data Schedule (for EDGAR filings only)

(b)  Reports on Form 8-K

     None

                                      14
<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, on August 12, 1998.


                            EXTENDED STAY AMERICA, INC.

                             /s/ Robert A. Brannon
                            ----------------------------------------------------
                                 Robert A. Brannon
                                 Senior Vice President, Chief Financial Officer,
                                 Secretary, and Treasurer
                                 (Principal Financial Officer)


                             /s/ Gregory R. Moxley
                            ----------------------------------------------------
                                 Gregory R. Moxley
                                 Vice President Finance
                                 (Principal Accounting Officer)

                                      15