<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, 1999

                                       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 August 4, 1999, the registrant had issued and outstanding an aggregate
of 96,506,704 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
                                                         1999         1998(1)
                                                      ----------   -----------
<S>                                                   <C>          <C>
Current assets:
  Cash and cash equivalents.......................    $    7,793   $      623
  Accounts receivable.............................         7,571        5,946
  Prepaid expenses................................         2,208        1,743
  Deferred income taxes...........................        32,444       27,735
  Other current assets............................            27          781
                                                      ----------   ----------
     Total current assets.........................        50,043       36,828
Property and equipment, net.......................     1,755,055    1,637,334
Deferred loan costs, net..........................        17,352       19,260
Other assets......................................           554        1,160
                                                      ----------   ----------
                                                      $1,823,003   $1,694,582
                                                      ==========   ==========

</TABLE>
       LIABILITIES AND STOCKHOLDERS' EQUITY
       ------------------------------------
<TABLE>
<CAPTION>

Current liabilities:
<S>                                                  <C>         <C>
  Accounts payable................................    $   27,224  $   62,834
  Income taxes payable............................                     7,079
  Accrued retainage...............................        13,719      25,442
  Accrued property taxes..........................        11,595       6,856
  Accrued salaries and related expenses...........         2,803       1,816
  Accrued interest................................         7,152       7,010
  Other accrued expenses..........................        16,495      15,304
  Current portion of long-term debt...............         2,000       2,000
                                                      ----------  ----------
     Total current liabilities....................        80,988     128,341
                                                      ----------  ----------
Deferred income taxes.............................        60,076      46,490
                                                      ----------  ----------
Long-term debt....................................       788,000     653,000
                                                      ----------  ----------

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; 96,506,704 and 95,968,379 shares
    issued and outstanding, respect...............           965         960
  Additional paid-in capital......................       832,814     827,110
  Retained earnings...............................        60,160      38,681
                                                      ----------  ----------
     Total stockholders' equity...................       893,939     866,751
                                                      ----------  ----------
                                                      $1,823,003  $1,694,582
                                                      ==========  ==========



</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,
                                                               1999       1998      1999       1998
                                                             ---------  --------  ---------  --------
<S>                                                          <C>        <C>       <C>        <C>

Revenue....................................................  $106,487    $70,044  $195,906   $124,274
Property operating expenses................................    44,053     28,893    85,046     55,175
Corporate operating and property
  management expenses......................................    10,448      9,715    20,746     19,108
Reduction in valuation allowance...........................    (1,079)              (1,079)
Depreciation and amortization..............................    14,903     10,015    28,827     19,445
                                                             --------    -------  --------   --------
   Total costs and expenses................................    68,325     48,623   133,540     93,728
                                                             --------    -------  --------   --------
Income from operations before interest, income taxes and
  cumulative effect of accounting change...................    38,162     21,421    62,366     30,546

Interest expense, net......................................    13,817      4,561    25,268      5,682
                                                             --------    -------  --------   --------
Income before income taxes and cumulative effect of
  accounting change.........................................   24,345     16,860    37,098     24,864

Provision for income taxes.................................     9,739      6,744    14,840      9,946
                                                             --------    -------  --------   --------
Net income before cumulative effect of accounting change...    14,606     10,116    22,258     14,918

Cumulative effect of change in accounting for start-up
  activities, net of income tax benefit of $520.............                           779
                                                             --------    -------  --------   --------
Net income.................................................  $ 14,606    $10,116  $ 21,479   $ 14,918
                                                             ========    =======  ========   ========

Net income per common share - Basic:
 Net income before cumulative effect of accounting change..  $   0.15    $  0.11  $   0.23   $   0.16
 Cumulative effect of accounting change....................                          (0.01)
                                                             --------    -------  --------   --------
 Net income................................................  $   0.15    $  0.11  $   0.22   $   0.16
                                                             ========    =======  ========   ========

Net income per common share - Diluted:
 Net income before cumulative effect of accounting change..  $   0.15    $  0.10  $   0.23   $   0.15
 Cumulative effect of accounting change....................                          (0.01)
                                                             --------    -------  --------   --------
Net income.................................................  $   0.15    $  0.10  $   0.22   $   0.15
                                                             ========    =======  ========   ========

Weighted average shares:
 Basic.....................................................    96,278     95,897    96,127     95,798
 Effect of dilutive options................................     1,005      1,221       811      1,303
                                                             --------    -------  --------   --------
 Diluted...................................................    97,283     97,118    96,938     97,101
                                                             ========    =======  ========   ========
</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,
                                                                                1999              1998
                                                                              ---------        ----------
<S>                                                                           <C>              <C>
Cash flows from operating activities:
 Net income..........................................................         $  21,479        $  14,918
 Adjustments to reconcile net income to net cash provided by
  operating activities:
   Depreciation and amortization.....................................            28,827           19,445
   Amortization of deferred loan costs included in interest expense..             1,930              837
   Deferred income taxes.............................................             8,877            3,791
   Cumulative effect of accounting change, net.......................               779
   Changes in operating assets and liabilities.......................           (14,105)          (1,997)
                                                                              ---------        ---------
     Net cash provided by operating activities............................       47,787           36,994
                                                                              ---------        ---------
Cash flows from investing activities:
 Additions to property and equipment.................................          (181,091)        (284,200)
 Other assets........................................................                85              (55)
                                                                              ---------        ---------
      Net cash used in investing activities................................    (181,006)        (284,255)
                                                                              ---------        ---------
Cash flows from financing activities:
 Proceeds from long-term debt........................................           285,000          343,500
 Repayments of revolving credit facility.............................          (150,000)         (28,500)
 Proceeds from issuance of common stock..............................             5,410            4,185
 Additions to deferred loan costs....................................               (21)         (10,486)
                                                                              ---------        ---------
      Net cash provided by financing activities............................     140,389          308,699
                                                                              ---------        ---------
Increase in cash and cash equivalents................................             7,170           61,438
Cash and cash equivalents at beginning of period.....................               623            3,213
                                                                              ---------        ---------
Cash and cash equivalents at end of period...........................         $   7,793        $  64,651
                                                                              =========        =========

Noncash investing and financing transactions:
 Capitalized or deferred items included in accounts payable
  and accrued liabilities............................................         $  29,491        $  67,358
                                                                              =========        =========
 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.......................         $  12,414        $   2,663
                                                                              =========        =========
  Interest expense, net of amounts capitalized.......................         $  23,598        $   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, 1999


NOTE 1 -- BASIS OF PRESENTATION

     The accompanying condensed consolidated financial statements are unaudited
and include the accounts of Extended Stay America, Inc. and subsidiaries (the
"Company"). 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, 1998 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,
1999 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999. 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, 1998.

     Pursuant to the Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" issued by the Accounting Standards Executive Committee,
effective January 1, 1999, the Company changed its method of accounting for
start-up activities, including pre-opening and organizational costs, to expense
them as they are incurred. Accordingly, the Company recorded an expense of
$779,000, net of income tax benefit of $520,000, as the cumulative effect of
this change in accounting.

     In the quarter ended September 30, 1998, unfavorable capital market
conditions resulted in a reduction in the Company's development plans for 1999
and 2000. As a result, a valuation allowance of $12.0 million was established
for the write-off of costs related to sites that would not be developed. The
operating results for the quarter ended June 30, 1999 reflect the reversal of
$1.1 million of this valuation allowance resulting from the renegotiation of the
terms of a number of the optioned sites.

     For the six months ended June 30, 1999 and 1998, the computation of diluted
earnings per share does not include approximately 8,098,000 and 6,187,000
weighted average shares,

                                       4
<PAGE>

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.

                                       5
<PAGE>

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

General

     We own and operate 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
brand is 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. StudioPLUS facilities serve the
mid-price category and generally feature guest rooms that are larger than those
in our other brands, an exercise room, and a swimming pool. EXTENDED STAY rooms
are designed to compete in the economy category. Crossland rooms are typically
smaller than EXTENDED STAY rooms and are targeted for the budget category. In
this Quarterly Report on Form 10-Q, the words "Extended Stay America",
"Company", "we", "our", "ours", and "us" refer to Extended Stay America, Inc.
and its subsidiaries unless the context suggests otherwise.

     During the quarter ended June 30, 1999, 14 StudioPLUS properties were
repositioned as EXTENDED STAY properties. All operating statistics reflect the
repositioning of these properties as EXTENDED STAY properties for the entire
periods presented. The table below provides a summary of our selected
development and operational results for the three months and six months ended
June 30, 1999 and 1998.

<TABLE>
<CAPTION>
                                                Three Months      Six Months
                                               Ended June 30,    Ended June 30,
                                               --------------    --------------
                                               1999     1998     1999     1998
                                               -----    -----    -----    -----
<S>                                            <C>      <C>      <C>      <C>
Total Facilities Open (at Period End)........    347      239      347      239
Total Facilities Developed...................     14       21       42       54
Average Occupancy Rate.......................     76%      76%      73%      72%
Average Weekly Room Rate.....................  $ 294    $ 288    $ 289    $ 284
</TABLE>

     Average occupancy rates are determined by dividing the rooms occupied on a
daily basis by the total number of rooms. Due to our rapid expansion, our
overall average occupancy rate has been negatively impacted by the lower
occupancy typically experienced during the pre-stabilization period for newly-
opened facilities. We expect the negative impact on overall average occupancy to
decline as the ratio of newly-opened properties to total properties in operation
declines. 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 generally will be greater
than standard room rates because of (1) stays of less than one week, which are
charged at a higher nightly rate, (2) higher weekly rates for rooms that are
larger than the standard rooms, and (3) additional charges for more than one
person per room. We expect that our future occupancy and room rates will be
impacted by a number of factors, including the number and geographic location of
our new facilities as well as the season in which we open those facilities. We
also cannot assure you that we can maintain our occupancy and room rates.

                                       6
<PAGE>

     The following is a summary of our development status as of June 30, 1999 by
brand. We expect to complete the construction of the facilities currently under
construction generally within the next twelve months, however, we cannot assure
you that we will complete construction within the time periods we have
historically experienced. Our ability to complete construction may be materially
impacted by various factors including final permitting, inspections and
obtaining certificates of occupancy, as well as weather-induced construction
delays.

<TABLE>
<CAPTION>
                                                    EXTENDED
                                         Crossland    STAY    StudioPLUS  Total
                                         ---------  --------  ----------  -----
<S>                                      <C>        <C>       <C>         <C>
Operating Facilities...................      39        222         86       347
Facilities Under Construction..........       0         18          5        23
</TABLE>


Results of Operations

  For the Three Months Ended June 30, 1999 and 1998

  Property Operations

     The following is a summary of the properties in operation at the end of
each period along with the related average occupancy rates and average weekly
room rates during each period:

<TABLE>
<CAPTION>
                                                                    For the Three Months Ended
                                         -----------------------------------------------------------------------------------
                                                     June 30, 1999                               June 30, 1998
                                         ---------------------------------------     ---------------------------------------
                                                        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..............................       39           68%           $213             14            61%          $194
EXTENDED STAY..........................      222           78             297            162            78            282
StudioPLUS.............................       86           74             339             63            75            332
                                             ---           --            ----            ---            --           ----
   Total...............................      347           76%           $294            239            76%          $288
                                             ===           ==            ====            ===            ==           ====
</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. The average occupancy
rate in the second quarter of 1999 for the 218 properties we owned and operated
as of March 31, 1998 was 80%. Similarly, the average occupancy rate in the
second quarter of 1998 for the 93 properties we owned and operated as of March
31, 1997 was 84%. The decline in the average occupancy rate for properties open
for at least one year at the beginning of the quarter of each year is primarily
attributable to an increase during the last twelve months in the supply of
available rooms in the lodging industry generally and specifically in certain of
the markets in which we operate. We expect that this increase in supply,
particularly in certain markets in Texas and North Carolina, will continue to
impact our occupancies until incremental demand is sufficient to compensate for
the additional supply of available rooms. The impact of the additional supply of
available rooms was offset by the impact of a decline in the ratio of newly
opened properties to total properties, particularly for the Crossland brand,
resulting in overall average occupancy rates of 76% for the second quarter of
each year.

                                       7
<PAGE>

     The increase in overall average weekly room rates for the second quarter of
1999 as compared to the second quarter of 1998 reflects the geographic
dispersion of properties opened since June 30, 1998 and the higher standard
weekly room rates in certain of those markets. The increase also is due in part
to increases in rates charged at previously opened properties. The average
weekly room rate for the 218 properties that we owned and operated throughout
both periods increased by 3% in the second quarter of 1999. The increase in our
overall average weekly room rates for the second quarter of 1999 as compared to
the same period of 1998 are diluted by an increase in the percentage of total
occupied rooms attributable to the lower priced Crossland brand. Occupied rooms
attributable to the Crossland brand were 13% of total occupied room nights for
the second quarter of 1999 compared to 4% for the second quarter of 1998.

     We recognized total revenue of $106.5 million for the second quarter of
1999 and $70.0 million for the second quarter of 1998. This is an increase of
$36.5 million, or 52%. Approximately $33.4 million of the increased revenue was
attributable to properties opened subsequent to March 31, 1998 and approximately
$3.1 million was attributable to an increase in revenue for the 218 properties
that were owned and operated throughout both periods.

     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 $44.1
million (41% of total revenue) for the second quarter of 1999, compared to $28.9
million (41% of total revenue) for the second quarter of 1998. We expect the
ratio of property operating expenses to total revenue to generally fluctuate
inversely relative to occupancy rate increases or decreases because the majority
of these expenses do not vary based on occupancy. Our overall occupancy rates
were 76% for the second quarter of both 1999 and 1998 and our property operating
margins were 59% for both periods.

     The provisions for depreciation and amortization for the lodging facilities
were $14.6 million for the second quarter of 1999 and $9.7 million for the
second quarter of 1998. These provisions were computed 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. Depreciation and
amortization for the second quarter of 1999 increased as compared to the second
quarter of 1998 because we operated 108 additional facilities in 1999 and we
operated for a full quarter the 21 properties that were opened in the second
quarter of 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 and certain marketing costs, as
well as development costs that are not directly related to a site that we will
develop. We incurred corporate operating and property management expenses of
$10.4 million (10% of total revenue) in the second quarter of 1999 and $9.7
million (14% of total revenue) in the second quarter of 1998. The increase in
the amount of these expenses for the second quarter of 1999 as compared to the
same period in 1998 reflects the

                                       8
<PAGE>

impact of additional personnel and related expenses in connection with the
increased number of facilities we operated. We expect these expenses will
continue to increase in total amount but decline as a percentage of revenue as
we develop and operate additional facilities in the future.

     Depreciation and amortization was $337,000 for the quarter ended June 30,
1999 and $324,000 for the comparable period in 1998. These provisions were
computed using the straight-line method over the estimated useful lives of the
assets for assets not directly related to the operation of our facilities. These
assets were primarily office furniture and equipment.

     We realized $222,000 of interest income in the second quarter of 1999 and
$1.0 million in the second quarter of 1998. This interest income was primarily
attributable to the temporary investment of funds drawn under our credit
facilities. We incurred interest charges of $16.4 million during the second
quarter of 1999 and $9.7 million in the second quarter of 1998. Of these
amounts, $2.4 million in the second quarter of 1999 and $4.1 million in the
second quarter of 1998 were capitalized and included in the cost of buildings
and improvements.

     We recognized income tax expense of $9.7 million for the second quarter of
1999 and $6.7 million for the second quarter of 1998 (40% of income before
income taxes and the cumulative effect of an accounting change, in both
periods). Income tax expense differs from the federal income tax rate of 35%
primarily due to state and local income taxes. We expect the annualized
effective income tax rate for 1999 will be approximately 40%.

 Reduction in Valuation Allowance

     In the quarter ended September 30, 1998, unfavorable capital market
conditions resulted in a reduction in our development plans for 1999 and 2000.
As a result, a valuation allowance of $12.0 million was established for the
write-off of costs related to sites that would not be developed. The operating
results for the quarter ended June 30, 1999 reflect the reversal of $1.1 million
of this valuation allowance resulting from the renegotiation of the terms of a
number of the optioned sites.

                                       9
<PAGE>

 For the Six Months Ended June 30, 1999 and 1998

 Property Operations

     The following is a summary of the properties in operation at the end of
each period along with the related average occupancy rates and average weekly
room rates during each period:

<TABLE>
<CAPTION>
                                                 For the Six Months Ended
                    -----------------------------------------------------------------------------------
                                June 30, 1999                               June 30, 1998
                    ---------------------------------------     ---------------------------------------
                                   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..........      39           65%          $209             14            60%           $193
EXTENDED STAY......     222           75            293            162            74             277
StudioPLUS.........      86           72            332             63            68             332
                        ---           --           ----            ---            --            ----
  Total............     347           73%          $289            239            72%           $284
                        ===           ==           ====            ===            ==            ====
</TABLE>

     For each of the brands, occupancy rates increased for the six-month period
ended June 30, 1999 as compared to the same period in 1998 primarily due to a
decrease in the ratio of newly opened properties to total properties for those
brands.  The average occupancy rate in the six months ended June 30, 1999 for
the 185 properties that we owned and operated as of December 31, 1997 was 77%.

     The increase in average weekly room rates for the six months ended June 30,
1999 as compared to the same period of 1998 reflects the geographic dispersion
of properties opened since June 30, 1998 and the higher standard weekly room
rates in certain of those markets. The increase also is due in part to increases
in rates charged at previously opened properties.  The average weekly room rate
for the 185 properties that were owned and operated throughout both periods
increased 2% in the first six months of 1999.  For the StudioPLUS brand, the
average weekly rate also reflects a change in pricing policies instituted in
1998.  The new policies established a standard rate structure based on
competitive rates in the markets served by the properties instead of variable
rates based on actual and anticipated short-term demand factors.  We believe
that the current pricing strategy creates greater value for more customers and
that, as a result, the properties will enjoy long-term benefits of increased
customer retention and loyalty.  This change in pricing strategy resulted in a
decline in average weekly rates for the StudioPLUS brand of approximately 2% for
the six months ended June 30, 1999, which was partially offset by the higher
weekly rates charged in certain markets in which properties have been opened
since June 30, 1998.

     We recognized total revenue of $195.9 million for the six months ended June
30, 1999 and $124.3 million for the six months ended June 30, 1998.  This is an
increase of $71.6 million, or 58%.  Approximately $67.3 million of the increased
revenue was attributable to properties opened subsequent to December 31, 1997
and approximately $4.3 million was attributable to an increase in revenue for
the 185 properties that we owned and operated throughout both periods.

     Property operating expenses for the six months ended June 30, 1999 were
$85.0 million (43% of total revenue) compared to $55.2 million (44% of total
revenue) for the six months ended June 30, 1998.  The decrease in property
operating expenses as a percentage of total revenue for the six months ended
June 30, 1999 as compared to the same period of 1998 was

                                       10
<PAGE>

primarily a result of improved occupancies and revenues for the facilities that
were in their pre-stabilization periods during the first six months of 1998.
Operating expenses as a percentage of revenue generally decline as a newly-
opened property increases its occupancy and revenue because the majority of
these expenses do not vary based on occupancy. As a result of the foregoing, we
realized property operating margins of 57% for the six months ended June 30,
1999 and 56% for the six months ended June 30, 1998.

     The provisions for depreciation and amortization for the lodging facilities
was $28.2 million for the six months ended June 30, 1999 and $18.7 million for
the six months ended June 30, 1998. The increase in depreciation and
amortization for the six months ended June 30, 1999 as compared to the same
period in 1998 is due to the operation of 108 additional facilities in 1999 and
we operated for a full six months the 54 properties that were opened in the
first six months of 1998.


 Corporate Operations

     We incurred corporate operating and property management expenses of $20.7
million (11% of total revenue) in the six months ended June 30, 1999 and $19.1
million (15% of total revenue) in the six months ended June 30, 1998. The
increase in the amount of these expenses for the six-month period ended June 30,
1999 as compared to the same period in 1998 reflects the impact of additional
personnel and related expenses in connection with the increased number of
facilities we operated. We expect these expenses will continue to increase in
total amount but decline as a percentage of revenue as we develop and operate
additional facilities in the future.

     Depreciation and amortization for assets not directly related to operation
of our facilities was $642,000 for the six months ended June 30, 1999 and
$727,000 for the six months ended June 30, 1998.

     We realized $400,000 of interest income in the six months ended June 30,
1999 and $1.4 million in the six months ended June 30, 1998. This interest
income was attributable to the temporary investment of funds drawn under our
credit facilities. We incurred interest charges of $31.5 million in the six
months ended June 30, 1999 and $15.0 million in the six months ended June 30 ,
1998. Of these amounts, $5.9 million in the six months ended June 30, 1999 and
$7.9 million in the six months ended June 30, 1998 were capitalized and included
in the cost of buildings and improvements.

     We recognized income tax expense of $14.8 million for the six-month period
ended June 30, 1999 and $9.9 million for the six-month period ended June 30,
1998 (40% of income before income taxes and the cumulative effect of an
accounting change, in both periods). Income tax expense differs from the federal
income tax rate of 35% primarily due to state and local income taxes.

 Cumulative Effect of a Change in Accounting

     Pursuant to the Statement of Position 98-5, "Reporting on the Costs of
Start-up Activities" issued by the Accounting Standards Executive Committee,
effective January 1, 1999, we

                                      11
<PAGE>

changed our method of accounting for compensation and other training related
costs incurred prior to the opening of a property to expense them as they are
incurred. Accordingly, we recorded an expense of $779,000, net of income tax
benefit of $520,000, as the cumulative effect of this change in accounting.

Liquidity and Capital Resources

     We had net cash and cash equivalents of $7.8 million as of June 30, 1999
and $0.6 million as of December 31, 1998. At June 30, 1999 and December 31,
1998, we had invested substantially all of the cash balances in short-term
demand notes having credit ratings of A1/P1 or the equivalent utilizing domestic
commercial banks and other financial institutions. We also deposited excess
funds during these periods in an overnight sweep account with a commercial bank
which in turn invested these funds in short-term, interest-bearing reverse
repurchase agreements. Due to the short-term nature of these investments, we did
not take possession of the securities, which were instead held by the financial
institution. The market value of the securities held pursuant to these
arrangements approximates the carrying amount. Deposits in excess of $100,000
are not insured by the Federal Deposit Insurance Corporation.

     Our operating activities generated cash of $47.8 million during the six
months ended June 30, 1999 and $37.0 million during the six months ended
June 30, 1998.

     We used $181.1 million to acquire land, develop, or furnish a total of 65
sites opened or under construction in the six months ended June 30, 1999 and
$284.2 million for 150 sites in the six months ended June 30, 1998.

     Our cost to develop a property varies significantly by brand and by
geographic location due to differences in land and labor costs. Similarly, the
average weekly rate charged and the resultant cash flow from these properties
will vary significantly but generally are expected to be in proportion to the
development costs. For the 272 properties we opened from January 1, 1996 through
December 31, 1998, the average development cost was approximately $5.0 million
with an average of 107 rooms. In 1999, we expect to open a number of properties
in the Northeast and West where average development costs are higher.
Accordingly, we expect our average development cost for 1999 to increase to
approximately $6.3 million per property.

     We received net proceeds from the exercise of options to purchase common
stock totaling $5.4 million in the six months ended June 30, 1999 and $4.2
million in the six months ended June 30, 1998.

     In addition to our $200 million 9.15% Senior Subordinated Notes due 2008
(the "Notes"), we have an $800 million credit facility (the "Credit Facility")
which provides for a $350 million revolving loan facility (the "Revolving
Facility"), a $150 million term loan facility (the "Tranche A Facility"), a $200
million term loan facility (the "Tranche B Facility"), and a $100 million term
loan facility (the "Tranche C Facility"). As of June 30, 1999, we had
outstanding loans of $140 million under the Revolving Facility, $150 million
under the Tranche A Facility, $200 million under the Tranche B Facility and $100
million under the Tranche C Facility, leaving $210 million available and
committed under the Credit Facility. Availability of the Revolving Facility is
dependent, however, upon us satisfying certain financial ratios of debt


                                      12
<PAGE>

and interest compared to earnings before interest, taxes, depreciation, and
amortization, with these amounts being calculated pursuant to definitions
contained in the Credit Facility. In April 1999, $100 million in term loans
under the Tranche C Facility were funded and were applied to reduce outstanding
loans under the Revolving Facility.

     Our primary market risk exposures result from the variable nature of the
interest rates on borrowings under the Credit Facility. The Credit Facility was
entered into for purposes other than trading. We do not own derivative financial
instruments or derivative commodity instruments. Based on the levels of
borrowings under the Credit Facility at June 30, 1999, if interest rates changed
by 1.0%, our annual cash flow and net income would change by $3.5 million. We
manage our market risk exposures by periodic evaluation of such exposures
relative to the costs of reducing the exposures by entering into interest rate
swaps or by refinancing the underlying obligations with longer term fixed rate
debt obligations.

     In connection with the Credit Facility and the Notes, we incurred additions
to deferred loan costs of $21,000 during the six months ended June 30, 1999 and
$10.5 million during the six months ended June 30, 1998.

     We had commitments not reflected in our financial statements at June 30,
1999 totaling approximately $75 million to complete construction of extended
stay properties. We expect we will continue to rapidly expand our operations. In
1999 and 2000, we plan to open new properties with total costs of approximately
$350 million per year. We expect to continue an active development program
thereafter. We believe that the remaining availability under the Credit
Facility, together with cash on hand and cash flows from operations, will
provide sufficient funds to continue our expansion as presently planned and to
fund our operating expenses through 2000. We may need additional capital
depending on a number of factors, including the number of properties we
construct or acquire, the timing of that development, and the cash flow
generated by our properties. Also, if capital markets provide favorable
opportunities, our plans or assumptions change or prove to be inaccurate, our
existing sources of funds prove to be insufficient to fund our growth and
operations, or if we consummate acquisitions, we may seek additional capital
sooner than we currently anticipate. Sources of capital may include public or
private debt or equity financing. We cannot assure you that we will be able to
obtain additional capital on acceptable terms, if at all. Our failure to raise
additional capital could result in the delay or abandonment of some or all of
our development and expansion plans, and could have a material adverse effect on
us.

                                       13
<PAGE>

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 our
assessment, we do not anticipate that any significant modification or
replacement of our hardware or software will be necessary for our computer
systems to properly use dates beyond December 31, 1999 or that we will incur
significant operating expenses to make any such computer system improvements. We
are undertaking an assessment as to whether any of our significant suppliers,
lenders, or service providers will need to make any such software modifications
or replacements. While we do not expect the failure of any third parties to
address the Year 2000 Issue to uniquely impact our business, we could be
adversely affected should the availability of electricity, gas, water,
telephone, or banking services be interrupted. In addition, we could be
adversely affected if other businesses are impacted by the Year 2000 Issue to
the extent that business related travel is reduced significantly or in the event
that our employees are unable to fulfill their responsibilities. While we do not
expect these pervasive failures to result from the Year 2000 Issue, we cannot
assure you that these problems will not arise.

Seasonality and Inflation

     Based upon the operating history of our facilities, we believe that
extended stay lodging facilities are not as seasonal in nature as the overall
lodging industry. We do expect, however, that our occupancy rates and revenues
will be lower than average during the first and fourth quarters of each calendar
year. Because many of our expenses do not fluctuate with changes in occupancy
rates, declines in occupancy rates may cause fluctuations or decreases in our
quarterly earnings.

The rate of inflation as measured by changes in the average consumer price index
has not had a material effect on our revenue or operating results during any of
the periods presented. We cannot assure you, however, that inflation will not
affect our future operating or construction costs.

                                       14
<PAGE>

Special Note on Forward-Looking Statements

     This Quarterly Report on Form 10-Q includes forward-looking statements.
Words such as "expects", "intends", "plans", "projects", "believes",
"estimates", and similar expressions are used to identify these forward-looking
statements. We have based these forward-looking statements on our current
expectations and projections about future events. However, these forward-looking
statements are subject to risks, uncertainties, assumptions, and other factors
which may cause our actual results, performance, or achievements to be
materially different. These factors include, among other things:

     .    our limited operating history and uncertainty as to our future
          profitability;

     .    our ability to meet construction and development schedules and
          budgets;

     .    our ability to develop and implement the operational and financial
          systems needed to manage rapidly growing operations;

     .    uncertainty as to the consumer demand for extended stay lodging;

     .    increasing competition in the extended stay lodging market;

     .    our ability to integrate and successfully operate acquired properties
          and the risks associated with such properties;

     .    our ability to obtain financing on acceptable terms to finance our
          growth; and

     .    our ability to operate within the limitations imposed by financing
          arrangements.

     Other matters set forth in this Quarterly Report may also cause our actual
future results to differ materially from these forward-looking statements. We
can not assure you that our expectations will prove to be correct. In addition,
all subsequent written and oral forward-looking statements attributable to us or
persons acting on our behalf are expressly qualified in their entirety by these
cautionary statements mentioned above. You are cautioned not to place undue
reliance on these forward-looking statements. All of these forward-looking
statements are based on our expectations as of the date of this Quarterly
Report. We do not intend to update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

          See Item 2. "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."


                                       15
<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 19, 1999:

<TABLE>
<CAPTION>
               Matter                    For      Against  Abstain  Non-Vote  Shares Voted
------------------------------------  ----------  -------  -------  --------  ------------
Election of Directors:
<S>                                   <C>         <C>      <C>      <C>       <C>
H. Wayne Huizenga...................  89,298,134       --  111,132        --    89,409,266
George D. Johnson, Jr...............  89,298,134       --  111,132        --    89,409,266
Donald F. Flynn.....................  89,298,134       --  111,132        --    89,409,266
Stewart H. Johnson..................  89,298,134       --  111,132        --    89,409,266
John J. Melk........................  89,298,134       --  111,132        --    89,409,266
Peer Pedersen.......................  89,347,134       --   62,132        --    89,409,266

Ratification of the appointment of
PricewaterhouseCoopers LLP as
Independent Auditors for the
Company for 1999....................  89,380,684   20,856    7,726              89,409,266
</TABLE>

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

     Exhibit
     Number                    Description of Exhibit
     ------                    ----------------------
     27.1       Financial Data Schedule (for EDGAR filings only)


(b)  Reports on Form 8-K

     None

                                       16
<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 13, 1999.


                         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)



                                      17