<PAGE>
 
                                   FORM 10-Q

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

(Mark One)

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

For the quarterly period ended July 3, 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 1-13486


                         John Q. Hammons Hotels, Inc.
            (Exact name of registrant as specified in its charter)

            Delaware                                            43-1695093
(State or other jurisdiction of                                (IRS Employer
 incorporation or organization)                              Identification No.)

                          300 John Q. Hammons Parkway
                                   Suite 900
                            Springfield, MO  65806
                   (Address of principal executive offices)
                                  (Zip Code)

                                (417) 864-4300
             (Registrant's telephone number, including area code)

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

Number of shares of Registrant's Class A Common Stock outstanding as of August
10, 1998:  6,042,000

<PAGE>
 
PART I - FINANCIAL INFORMATION
         Item 1.  Financial Statements

                         JOHN Q. HAMMONS HOTELS, INC.
                                AND COMPANIES 
                         CONSOLIDATED BALANCE SHEETS 
                               (OOO's omitted)

                                    ASSETS

<TABLE>
<CAPTION>
                                                   July 3, 1998  January 2, 1998
                                                   ------------  ---------------
                                                    (Unaudited)     (Audited)
<S>                                                <C>           <C>
CURRENT ASSETS:
  Cash and equivalents                              $  59,374      $  41,961
  Marketable securities                                11,767         12,742
  Receivables
    Trade, less allowance for doubtful accounts of 
     $188                                               8,066          7,652
    Construction reimbursements and other               2,607          3,739
    Management fees                                        76             50
  Inventories                                           1,099          1,206
  Prepaid expenses and other                              710          1,386
                                                     ---------     ---------
    Total current assets                                83,699        68,736
PROPERTY AND EQUIPMENT, at cost:
  Land and improvements                                 44,270        40,511
  Buildings and improvements                           576,110       527,856
  Furniture, fixtures and equipment                    212,737       197,177
  Construction in progress                              77,394        78,946
                                                     ---------     ---------
                                                       910,511       844,490
  Less-accumulated depreciation and amortization      (184,950)     (166,125)
                                                     ---------     ---------
                                                       725,561       678,365
  Property and equipment available for sale                 --        38,791
                                                     ---------     ---------
                                                       725,561       717,156
RESTRICTED CASH FROM PROPERTY DISPOSITION               27,261            --
DEFERRED FINANCING COSTS, FRANCHISE FEES
 AND OTHER, net                                         28,465        30,841
                                                     ---------     ---------
                                                     $ 864,986     $ 816,733
                                                     =========     =========
</TABLE>

                See Notes to Consolidated Financial Statements

                                       2
<PAGE>
 
                  JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES

                          CONSOLIDATED BALANCE SHEETS

                      (000's omitted, except share data)

                            LIABILITIES AND EQUITY

<TABLE>
<CAPTION>
                                                          July 3, 1998   January 2, 1998
                                                          ------------   ---------------
                                                           (Unaudited)      (Audited)
<S>                                                       <C>            <C>
LIABILITIES:
    Current portion of long-term debt                       $ 33,863        $ 61,517
    Accounts payable                                          10,455          11,232
    Accrued expenses
        Payroll and related benefits                           5,338           5,529
        Sales and property taxes                              10,461           8,676
        Insurance                                             12,530          11,242
        Interest                                              12,956          12,603
        Utilities, franchise fees and other                    6,099           5,852
                                                            --------        --------
            Total current liabilities                         91,702         116,651
Long-term debt                                               710,407         634,274
Other obligations and deferred revenue                        10,931           7,901
                                                            --------        --------
            Total liabilities                                813,040         758,826
                                                            --------        --------

COMMITMENTS AND CONTINGENCIES:

MINORITY INTEREST OF HOLDERS OF LIMITED PARTNER UNITS:        34,774          39,399

STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 shares
  authorized, none outstanding                                    --              --
Class A common stock, $.01 par value, 40,000,000 shares
  authorized, 6,042,000 shares issued and outstanding             60              60
Class B common stock, $.01 par value, 1,000,000 shares
  authorized, 294,100 shares issued and outstanding                3               3
Paid-in capital                                               96,373          96,373
Retained deficit, net                                        (79,264)        (77,928)
                                                            --------        --------
            Total stockholders' equity                        17,172          18,508
                                                            --------        --------
                                                            $864,986        $816,733
                                                            ========        ========
</TABLE>


                See Notes to Consolidated Financial Statements


                                        3

<PAGE>
 
                  JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                       (000's omitted, except share data)

<TABLE>
<CAPTION>
                                                                Three Months Ended             Six Months Ended
                                                            ---------------------------   ---------------------------
                                                            July 3, 1998   July 4, 1997   July 3, 1998   July 4, 1997
                                                            ------------   ------------   ------------   ------------
                                                                    (Unaudited)                   (Unaudited)
<S>                                                         <C>            <C>            <C>            <C>
REVENUES:
    Rooms                                                    $   54,110     $   50,582     $  105,388     $   95,979
    Food and beverage                                            22,255         20,841         44,193         41,238
    Meeting room rental and other                                 5,446          4,796         11,182          9,544
                                                             ----------     ----------     ----------     ----------
            Total revenues                                       81,811         76,219        160,763        146,761

OPERATING EXPENSES:
    Direct operating costs and expenses
        Rooms                                                    13,873         12,573         27,068         23,842
        Food and beverage                                        16,094         15,100         31,545         29,938
        Other                                                       913            829          1,789          1,579
    General, administrative and sales expenses                   23,591         20,279         47,575         40,352
    Repairs and maintenance                                       3,276          3,189          6,513          6,094
    Depreciation and amortization                                11,276          8,104         22,353         15,037
                                                             ----------     ----------     ----------     ----------
            Total operating expenses                             69,023         60,074        136,843        116,842
                                                             ----------     ----------     ----------     ----------
INCOME FROM OPERATIONS                                           12,788         16,145         23,920         29,919
OTHER INCOME (EXPENSE)
    Gain on property disposition                                     --             --            238             --
    Interest income                                                 507            130          1,395            489
    Interest expense and amortization of deferred
      financing fees                                            (14,241)       (10,168)       (28,698)       (19,886)
                                                             ----------     ----------     ----------     ----------
INCOME (LOSS) BEFORE MINORITY INTEREST, PROVISION FOR
  INCOME TAXES AND EXTRAORDINARY ITEM                              (946)         6,107         (3,145)        10,522
    Minority interest in (earnings) losses of partnership           678         (4,378)         2,254         (7,543)
                                                             ----------     ----------     ----------     ----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND
  EXTRAORDINARY ITEM                                               (268)         1,729           (891)         2,979
    Provision for income taxes                                      (45)           (86)           (75)          (149)
                                                             ----------     ----------     ----------     ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM                            (313)         1,643           (966)         2,830
                                                             ----------     ----------     ----------     ----------
    Extraordinary item; cost of early extinguishment of
      debt, net of applicable tax benefit                           (54)            --           (370)            --
                                                             ----------     ----------     ----------     ----------
NET INCOME (LOSS)                                            $     (367)    $    1,643     $   (1,336)    $    2,830
                                                             ==========     ==========     ==========     ==========
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
    Per share net income (loss) allocable to Company         $    (0.06)    $     0.26     $    (0.21)         $0.45
                                                             ==========     ==========     ==========     ==========
    Basic and diluted weighted average shares outstanding     6,336,100      6,336,100      6,336,100      6,336,100
                                                             ==========     ==========     ==========     ==========
</TABLE>

                See Notes to Consolidated Financial Statements


                                       4

<PAGE>
 
                  JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES

CONSOLIDATED STATEMENTS OF CHANGES IN MINORITY INTEREST AND STOCKHOLDERS' EQUITY

                                (000's omitted)

<TABLE>
<CAPTION>
                                                                STOCKHOLDERS' EQUITY
                                             -----------------------------------------------------------
                                                        Class A   Class B             Company
                                             Minority   Common    Common    Paid-In   Retained
                                             Interest    Stock     Stock    Capital   Deficit     Total
                                             --------   -------   -------   -------   --------   -------
<S>                                          <C>        <C>       <C>       <C>       <C>        <C>
BALANCE, January 2, 1998 (audited)           $39,399      $60       $ 3     $96,373   $(77,928)  $18,508
Distribution for income taxes                 (1,433)      --        --          --         --        --
Net loss allocable to the Company                 --       --        --          --     (1,336)   (1,336)
Minority interest in losses of partnership
  after extraordinary item of $938            (3,192)      --        --          --         --        --
                                             -------      ---       ---     -------   --------   -------
BALANCE, July 3, 1998 (unaudited)            $34,774      $60       $ 3     $96,373   $(79,264)  $17,172
                                             =======      ===       ===     =======   ========   =======
</TABLE>


                 See Notes to Consolidated Financial Statements


                                        5

<PAGE>

                          JOHN Q. HAMMONS HOTELS, INC.
                                 AND COMPANIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (000's omitted)

<TABLE>
<CAPTION>
                                                                                               Six Months Ended
                                                                                               -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:                                                 July 3, 1998       July 4, 1997
                                                                                      -------------      ------------
<S>                                                                                   <C>                <C>
                                                                                                 (Unaudited)
 Net income (loss)                                                                    $      (1,336)     $      2,830
 Adjustments to reconcile net income (loss) to cash used in operating activities-
  Depreciation, amortization, and loan cost amortization                                     23,498            15,996
  Minority interest in earnings (losses) of partnership                                      (2,254)            7,543
  Extraordinary item, net of tax benefit                                                        370                --
  Gain on property disposition                                                                 (238)               --
 Changes in certain assets and liabilities
  Receivables                                                                                   692            (1,709)
  Inventories                                                                                    (6)              (35)
  Prepaid expenses and other                                                                    676               200
  Accounts payable                                                                             (777)           (9,219)
  Accrued expenses                                                                            3,497             3,902
  Other obligations and deferred revenue                                                      3,015             2,407
                                                                                      -------------      ------------
     Net cash provided by operating activities                                               27,137            21,915
                                                                                      -------------      ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
 Additions to property and equipment, net                                                   (65,700)          (99,542)
 Proceeds from disposition of property                                                       39,387                --
 Restricted cash remaining from property disposition                                        (27,261)               --
 Franchise fees and other                                                                    (4,171)           (3,810)
 Sale (purchase) of marketable securities, net                                                  975            (2,754)
                                                                                      -------------      ------------
     Net cash used in investing activities                                                  (56,770)         (106,106)
                                                                                      -------------      ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
 Proceeds from borrowings                                                                   177,027            66,831
 Repayments of debt                                                                        (128,548)           (1,778)
 Distributions                                                                               (1,433)           (1,815)
                                                                                      -------------      ------------
     Net cash provided by financing activities                                               47,046            63,238
                                                                                      -------------      ------------
Increase (decrease) in cash and equivalents                                                  17,413           (20,953)
CASH AND EQUIVALENTS, beginning of period                                                    41,961         $  46,449
                                                                                      -------------      ------------
CASH AND EQUIVALENTS, end of period                                                   $      59,374      $     25,496
                                                                                      =============      ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
CASH PAID FOR INTEREST, net of amounts capitalized                                    $      27,855      $     18,918
                                                                                      =============      ============
</TABLE>
                                          
                   See Notes to Consolidated Financial Statements

                                          6                        
<PAGE>
 
JOHN Q. HAMMONS HOTELS, INC. AND COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.   ENTITY MATTERS

The accompanying consolidated financial statements include the accounts of John
Q. Hammons Hotels, Inc. and John Q. Hammons Hotels, L.P. and subsidiaries.
(Collectively the Company or, as the context may require, John Q. Hammons
Hotels, Inc. only).

The Company was formed in September 1994 and had no operations or assets prior
to its initial public offering of Class A common stock in November 1994.
Immediately prior to the initial public offering, Mr. John Q. Hammons (JQH)
contributed approximately $5 million in cash to the Company in exchange for
294,100 shares of Class B common stock (which represents approximately 72% of
the voting control of the Company).  The Company contributed the approximate $96
million of net proceeds from the Class A and Class B common stock offerings to
John Q. Hammons Hotels, L.P. (the "Partnership") in exchange for a 28.31%
general partnership interest.

All significant balances and transactions between the entities and properties
have been eliminated.

2.   GENERAL

The accompanying unaudited interim financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
for reporting on Form 10-Q. Accordingly, certain information and footnotes
required by generally accepted accounting principles (GAAP) for complete
financial statements have been omitted. These interim statements should be read
in conjunction with the financial statements and notes thereto included in the
Company's Form 10-K for the fiscal year ended January 2, 1998 which included
financial statements for the fiscal years ended January 2, 1998, and January 3,
1997.

The information contained herein reflects all normal and recurring adjustments
which, in the opinion of management, are necessary for a fair presentation of
the results of operations and financial position for the interim periods.

The Company considers all operating cash accounts and money market investments
with an original maturity of three months or less to be cash equivalents.
Marketable securities consist of available-for-sale commercial paper and
governmental agency obligations which mature or will be available for use in
operations in 1998.  These securities are valued at current market value, which
approximates cost.

The provision for income taxes was determined using an effective income tax rate
of approximately 5%, to provide for estimated state, local and franchise taxes.

                                       7
<PAGE>
 
3.   EARNINGS (LOSS) PER SHARE

In 1997, the Company adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share" (SFAS 128).  In accordance with SFAS 128, basic earnings
per share are computed by dividing net income by the weighted average number of
common shares outstanding during the year.  Diluted earnings per share are
computed similar to basic except the denominator is increased to include the
number of additional common shares that would have been outstanding if dilutive
potential common shares had been issued.

In June 1998, options to purchase 829,100 shares of common stock were issued at
a price of $7 3/8 per share and were not included in the computation of diluted
earnings (loss) per share since the options' exercise price was greater than the
average market price of the common shares. Additionally, inclusion of options in
the 1998 period would have been anti-dilutive. The issuance of the stock options
dated June 5, 1998, terminated and canceled all outstanding unexercised options
regardless of whether such options were vested.

Since there are no dilutive securities, basic and diluted earnings (loss) per
share are identical, thus a reconciliation of the numerator and denominator is
not necessary.

Basic and diluted loss per share before extraordinary item was $.05 for the
three months ended July 3, 1998 and $.15 for the six months ended July 3, 1998.
The basic and diluted loss per share impact of the extraordinary item was $.01
for the three-month period and  $.06 for the six-month period.

SFAS 128 required the Company to restate reported earnings (loss) per share for
all periods presented.   This accounting change had no effect on previously
reported earnings per share.

4.   NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS No. 130), which requires comprehensive income and the associated income
tax expense or benefit be reported in a financial statement that is displayed
with the same prominence as other financial statements with an aggregate amount
of comprehensive income reported in that same financial statement.  "Other
Comprehensive Income" refers to revenues, expenses, gains and losses that under
generally accepted accounting principles are included in comprehensive income
but not in net income.  The Company adopted this statement in the first quarter
of fiscal 1998 with no impact on the Company's reported consolidated financial
position, results of operations, cash flows or related disclosures.

Also in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
(SFAS 131), which requires disclosure for each segment in which the chief
operating decision maker organizes these segments within a company for making
operating decisions and assessing performance.  Reportable segments are based on
products and services, geography, legal structure, management structure and any
manner in which management disaggregates a company.  The Company intends to
adopt SFAS 131 during fiscal 1998.  This statement, which requires 

                                       8
<PAGE>
 
expansion or modification to existing disclosures, will have no impact on the
Company's reported financial position, results of operation or cash flows.

In April 1998, the American Institute of Certified Public Accountants released
Statement of Position (SOP) 98-5 "Reporting on the Costs of Start-Up
Activities."  The SOP requires costs of start-up activities, including
preopening expenses, to be expenses as incurred.  The Company's current practice
is to defer these expenses until a hotel has commenced operations, at which time
the costs, other than advertising costs that are expensed upon opening, are
amortized over a one-year period.  The Company is required to adopt the
provisions of this statement no later than the first quarter of fiscal 1999 and,
consistent with the guidance of the SOP, then existing cumulative unamortized
preopening costs will be charged to expense.

In June 1998, the Financial Accounting Standards Board issued Statement of 
Financial Accounting Standards No. 133, "Accounting for Derivate Instruments and
Hedging Activities" ("SFAS 133").  SFAS 133 establishes accounting and reporting
standards requiring that every derivative instrument (including certain 
derivative instruments embedded in other contracts) be recorded in the balance 
sheet as either an asset or liability measured at its fair value.  SFAS 133 
requires that changes in the derivative's fair value be recognized currently in 
earnings unless specific hedge accounting criteria are met.

SFAS 133 is effective for fiscal years beginning after June 15, 1999.  Upon 
adoption of this statement, the Company anticipates no impact on its reported 
consolidated financial position, results of operations, cash flows or related 
disclosures.

5.   PROPERTY DISPOSITION

Effective February 6, 1998, the Company completed the sale of six hotels to an
unrelated party for $40 million, resulting in a gain of approximately $0.2
million.  Certain of these hotels served as collateral under the 1994 and 1995
first mortgage notes.  Under the terms of these indentures the Company must
provide replacement collateral of equivalent value or apply the net proceeds
from the sale to amounts outstanding.  The Company has provided, or is in the
process of providing, replacement collateral in accordance with the indenture
provisions.  As of July 3, 1998, $27.3 million of cash was restricted for this
purpose and is classified as non-current restricted cash in the accompanying
balance sheet.

Item 2.

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

General.  For purposes of this discussion, the Company classifies new hotels
(New Hotels) as those hotels opened during the current year and the prior year,
and defines all other hotels as mature hotels (Mature Hotels).

The Company has opened two New Hotels in the past six months, and has an
additional six hotels under construction.  The Company's development activity
limits its ability to grow per share income.  Fixed charges for New Hotels (such
as depreciation and amortization expense and interest expense) exceed New Hotel
operating cash flow in the first one to three years of operations.  As New
Hotels mature, the Company expects, but there can be no assurance, that the
operating expenses for these hotels will decrease as a percentage of revenues.

The Company continues to develop new hotels, including Plaza Hotel, Topeka,
Kansas; Embassy Suites Hotel, Portland Oregon; Hampton Inn and Suites Hotel
adjacent to the Mesquite Championship Rodeo Arena, Mesquite, Texas; Radisson
Plaza Hotel, Coral Springs, Florida; Marriott Renaissance Hotel at the
Charlotte, North Carolina airport; and Embassy Suites Hotel, Grapevine, Texas,
adjacent to the Bass Pro Shop's Outdoor World, near the Dallas-Fort Worth
airport.   While the Company believes its development efforts 

                                       9
<PAGE>
 
represent the best long-term strategy, the continued aggressive New Hotel
development initiatives will continue to have a negative effect on earnings.

Three-Month Period

The following discussion and analysis addresses results of operations for the
three month periods ended July 3, 1998 (the "1998 Quarter") and July 4, 1997
(the "1997 Quarter").

On May 11, 1998, the Company opened the World Golf Resort Hotel in St.
Augustine, Florida.  The opening marked the sixteenth hotel the Company had
developed in less than three years.  The Company expects to open two additional
hotels during the remainder of 1998:  Capitol Plaza Hotel - Topeka, Kansas; and
Embassy Suites hotel - Portland, Oregon.

For the 1998 Quarter, the Company's total earnings before interest expense,
taxes, depreciation and amortization (EBITDA) were $24.1 million, a slight
decrease of 0.4% compared to the 1997 Quarter EBITDA of $24.2 million.  The
Mature Hotels' EBITDA was $18.9 million in the 1998 Quarter, down 11.6% from
$21.4 million in the 1997 Quarter due primarily to the sale of six hotels on
February 6, 1998.  The Company sold six Holiday Inn hotels and recognized a book
gain of $0.2 million on the sale.  Excluding the six hotels sold, the Mature
Hotels EBITDA in the 1998 Quarter was $19.0 million, down 3.6% from $19.7
million in the 1997 Quarter.  As a percentage of total revenues, EBITDA related
to the Mature Hotels (excluding the six hotels sold) decreased to 29.0% in the
1998 Quarter from 30.3% in the 1997 Quarter.  The New Hotels' EBITDA for the
1998 Quarter was $2.9 million compared to $0.7 million in the 1997 Quarter.

Total revenues for the 1998 Quarter were $81.8 million, an increase of $5.6
million, or 7.3%, compared to the 1997 Quarter, primarily as a result of the
continued growth of the New Hotels, including the two hotels opened during 1998,
and, to a lesser extent, revenue growth at the Mature Hotels.  The Company's
Mature Hotels generated total revenues of $65.5 million in the 1998 Quarter, a
decrease of $6.9 million, or 9.5%, compared to the 1997 Quarter due to the sale
of six hotels described above.  The Company's New Hotels generated total
revenues of $15.9 million during the 1998 Quarter compared to $3.7 million in
the 1997 Quarter.

Rooms revenues increased $3.5 million, or 6.9%, from the 1997 Quarter, but
decreased slightly as a percentage of total revenues, to 66.1% from 66.4%.  The
dollar increase was primarily due to increased rooms revenues from the New
Hotels, and the resulting increase in the Company's average room rate to $91.78,
a 12.9% increase compared to the 1997 Quarter average room rate of $81.26.  In
comparison, the average room rate for the hotel industry was $78.30 in the 1998
Quarter, up 4.7% from the 1997 Quarter.  The increased average room rate was
partially offset by a 2.8 percentage point decrease in the Company's occupancy
for the 1998 Quarter to 64.9%. Occupancy for the hotel industry was 67.5%, down
0.7 percentage points from the 1997 Quarter. The Company's Revenue Per Available
Room (RevPAR) was $59.56 in the 1998 Quarter, up 8.4% from $54.97 in the 1997
Quarter. RevPAR for the hotel industry was $52.87, up 4.0% from the 1997
Quarter.

                                       10
<PAGE>
 
Food and beverage revenues increased $1.4 million, or 6.7%, compared to the 1997
Quarter, and remained stable as a percentage of total revenues, at 27.3%.  Sales
at the New Hotels with full food and beverage services accounted for the overall
dollar increase in food and beverage revenues.

Meeting room rental and other revenues increased $0.6 million, or 13.6%, from
the 1997 Quarter, and increased slightly as a percentage of revenues, to 6.7%
from 6.3%.  The majority of the increase was a result of revenues from the New
Hotels as well as increased meeting and convention business in the Mature
Hotels.

Rooms operating expenses increased $1.3 million, or 10.3%, compared to the 1997
Quarter, and remained consistent as a percentage of rooms revenues at 24.9%. The
increase related primarily to expenses for New Hotels. For the Mature Hotels,
excluding the six hotels sold, rooms operating expenses as a percentage of rooms
revenues were 24.6%in the 1998 Quarter, compared to 23.9% in the 1997 Quarter.

Food and beverage operating expenses increased $1.0 million, or 6.6%, compared
to the 1997 Quarter, but decreased slightly as a percentage of food and beverage
revenues, to 72.3% from 72.5%.  The dollar increase was attributable to expenses
associated with food and beverage revenues at the New Hotels.

Other operating expenses increased $0.1 million, or 12.5%, compared to the 1997
Quarter, but decreased as a percentage of meeting room rental and other
revenues, to 16.8% from 17.3%.

General, administrative and sales expenses increased $3.3 million, or 16.3%,
over the 1997 Quarter, and increased as a percentage of revenues to 28.8% from
26.6%.  The increase was primarily attributable to expenses associated with the
New Hotels.  The Company had eight New Hotels in both the 1998 Quarter and the
1997 Quarter.

Repairs and maintenance expenses increased $0.1 million, or 2.7%, compared to
the 1997 Quarter and decreased slightly as a percentage of revenues, to 4.0%
from 4.2% in the 1997 Quarter.

Depreciation and amortization expenses increased $3.2 million, or 39.1%,
compared to the 1997 Quarter, and increased significantly as a percentage of
revenues to 13.8% from 10.6%.  The depreciation and amortization increase
related entirely to the New Hotels, as depreciation and amortization expenses
are higher in the initial years of a new hotel's operation.

Income from operations decreased $3.3 million, or 20.8%, compared to the 1997
Quarter. Expenses related to operating the New Hotels, particularly depreciation
and amortization, increased more rapidly than revenues.

Interest expense, net increased $3.7 million, or 36.8%, from the 1997 Quarter,
and increased as a percentage of total revenues to 16.8% from 13.2%. These
increased costs
                                       11
<PAGE>
 
related to interest expense for the New Hotels.

Income (loss) before minority interest, provision for income taxes and
extraordinary item represented a $0.9 million loss in the 1998 Quarter, compared
to $6.1 million of income in the 1997 Quarter.  The loss was primarily
attributable to higher depreciation and amortization costs as well as interest
expense associated with the Company's New Hotels.

Basic and diluted earnings (loss) per share in the 1998 Quarter was a $0.06
loss, including an extraordinary charge of $0.01, compared to a $0.26 profit in
the 1997 Quarter. The loss was driven by fixed charges associated with the
Company's new hotels opened in 1997 and 1998. The extraordinary charge in the
1998 Quarter related to early retirement of debt.

Six-Month Period

The following discussion addresses results of operations for the six month
periods ended July 3, 1998 (the "1998 Six Months") and July 4, 1997 (the "1997
Six Months").

For the 1998 Six Months the Company's total earnings before interest expense, 
taxes, depreciation and amortization (EBITDA) was $46.3 million, a 2.9% increase
compared to the 1997 Six Months. The Mature Hotels' EBITDA was $37.0 million in 
the 1998 Six Months, down $3.3 million from the 1997 Six Months, primarily due 
to the sale of six hotels on February 6, 1998. Excluding the six hotels sold, 
the Mature Hotels' EBITDA in the 1998 Six Months was $37.2 million, down 1.0% 
from the $37.6 million in the 1997 Six Months.

Total revenues increased to $160.8 million in the 1998 Six Months from $146.8
million in the 1997 Six Months, an increase of $14.0 million or 9.5%.  The
increase is primarily attributed to the continued growth of New Hotels.

Rooms revenues increased to $105.4 million in the 1998 Six Months from $96.0
million in the 1997 Six Months, an increase of $9.4 million or 9.8% as a result
of increases in average room rates and total number of available rooms.  Rooms
revenues as a percentage of total revenues remained relatively stable, at 65.6%,
compared to 65.4% in the 1997 Six Months.  Average room rates of Mature Hotels
increased to $86.57 in the 1998 Six Months from $79.72 in the 1997 Six Months,
an increase of $6.85 or 8.6%.  Occupancy of Mature Hotels decreased to 64.3% in
the 1998 Six Months from 65.8% in the 1997 Six Months, a decrease of 1.5
percentage points.

Food and beverage revenues increased to $44.2 million in the 1998 Six Months
from $41.2 million in the 1997 Six Months, an increase of $3.0 million or 7.3%,
but decreased as a percentage of total revenues to 27.5% from 28.1% in the 1997
Six Months.  The dollar increase in revenues was attributable primarily to sales
at the New Hotels, and to the opening of additional full service hotels, opening
of new restaurant concepts in the existing hotels, and menu pricing adjustments.

Meeting room rental and other revenues increased to $11.2 million in the 1998
Six Months from $9.5 million in the 1997 Six Months, an increase of $1.6 million
or 17.2%.  Meeting room rental and other revenues also increased as a percentage
of total revenues to 7.0% from 6.5% in the 1997 Six Months.

Rooms operating expenses increased to $27.1 million in the 1998 Six Months from
$23.8 million in the 1997 Six Months, an increase of $3.2 million or 13.5%.
This expense represented 25.7% of rooms revenues in the 1998 Six Months and
24.8% in the 1997 Six 

                                       12
<PAGE>
 
Months. The dollar and percentage increases are related to the additional hotels
opened in the last twelve months.

Food and beverage operating expenses increased to $31.5 million in the 1998 Six
Months from $29.9 million in the 1997 Six Months, an increase of $1.7 million or
5.7%.  These expenses decreased as a percentage of food and beverage revenues
in the 1998 Six Months, however, to 71.3%, from 72.6% in the 1997 Six Months.

Other operating expenses increased to $1.8 million in the 1998 Six Months from
$1.6 million in the 1997 Six Months, an increase of $0.2 million or 13.3%, but
declined as a percentage of meeting room rental and other income, to 16.1% in
the 1998 Six Months from 16.5% in the 1997 Six Months.

General, administrative and sales expenses increased to $47.6 million in the
1998 Six Months from $40.4 million in the 1997 Six Months, an increase of $7.2
million or 17.8%, and increased as a percentage of total revenues to 29.6% from
27.5% in the 1997 Six Months.  The increase in these expenses was primarily the
result of expenses associated with the opening of New Hotels.

Repairs and maintenance expenses increased to $6.5 million in the 1998 Six
Months from $6.1 million in the 1997 Six Months, an increase of $0.4 million or
6.9%.  The increase was a result of the increased number of hotels open.

Depreciation and amortization expenses increased to $22.4 million in the 1998
Six Months from $15.0 million in the 1997 Six Months, an increase of $7.3
million or 48.7%.  These expenses represented 13.9% of total revenues in the
1998 Six Months compared to 10.2% of total revenues in the 1997 Six Months.

Income from Operations decreased to $23.9 million in the 1998 Six Months from
$29.9 million in the 1997 Six Months, a decrease of $6.0 million or 20.1%.  The
decrease was due primarily to higher depreciation and amortization and higher
general, administrative and sales expenses.

Interest expense, net increased to $27.3 million in the 1998 Six Months from
$19.4 million in the 1997 Six Months, an increase of $7.9 million or 40.8%.  As
a percentage of total revenues, this expense increased to 17.0% in the 1998 Six
Months from 13.2% in the 1997 Six Months.

Income (Loss) before minority interest, provision for income taxes and
extraordinary item was $3.1 million loss in the 1998 Six Months, compared to
income of $10.5 million in the 1997 Six Months.

Basic and diluted earnings (loss) per share in the 1998 Six Months was a $0.21 
loss, including an extraordinary charge of $0.06, compared to a $0.45 profit in 
the 1997 Six Months. The loss was driven by fixed charges associated with the 
Company's new hotels opened in 1997 and 1998.

                                       13
<PAGE>
 
Liquidity and Capital Resources

In general, the Company has financed its operations through internal cash flow,
loans from financial institutions, the issuance of public debt and equity and
the issuance of industrial revenue bonds.  In addition, in the future the
Company will obtain mortgage financing secured by construction in progress to
provide funding for hotels it develops.  Any funds from sales of hotels that are
not restricted under the terms of the Company's debt documents also would be
available for these purposes.  The Company's principal uses of cash are to pay
operating expenses, to service debt, to fund new hotel development, to fund
capital improvements on existing hotels and to make Partnership distributions to
fund some of the taxes associated with income allocable to the partners.

At July 3, 1998, the Company had $59.4 million of cash and equivalents and $11.8
million of marketable securities, compared to $42.0 million and $12.7 million,
respectively, at the end of 1997.  Total current assets at July 3, 1998,
increased $15.0 million, as the result of an increase in cash and cash 
equivalents. In February 1998 the Company completed the sale of six properties 
for approximately $40 million. That sale consisted of assumption of debt and
other obligations of approximately $5.1 million and cash of approximately $34.9
million. Five of the six hotels sold served as collateral for the 1994 and 1995
Mortgage Notes. The Company intends to provide replacement collateral for these
mortgage notes. As of July 3, 1998, the Company had provided replacement
collateral for one of the five hotels, and held $27.3 million of restricted cash
available for the remaining replacement collateral.

Net cash provided by operating activities was $27.1 million for the 1998 Six
Months compared to $21.9 million for the 1997 Six Months.

The Company's long term debt increased $48.5 million during the 1998 Six Months
to fund new hotel development.  The Company incurred net capital expenditures of
approximately $65.7 million during the 1998 Six Months and $99.5 million during
the 1997 Six Months.  Of the $65.7 million incurred during the 1998 Six Months,
approximately $8.2 million was for capital improvements on existing hotel
properties and approximately $57.5 million was for development of new hotels.
During the remainder of 1998, the Company expects capital expenditures to total
approximately $100.5 million, including approximately $13.6 million for capital
improvements on existing hotels and approximately $78.7 million for continued
new hotel development.

The Company currently has six hotels under construction.  The Company estimates
the remaining building and pre-opening costs of these hotels will require
additional capital expenditures of approximately $112.9 million, including
expenses scheduled during 1998.  Construction in progress at July 3, 1998
included $68.2 million expended for these projects. The Company has received
loans and loan commitments for the six projects under construction in the amount
of $120.3 million, with $90.7 million available, and expects the remaining 1998
capital requirements to be funded by cash, operating income and additional loans
on unencumbered developments.

In addition to capital expenditures for the hotels under construction, the
Company is at various stages in other new hotel development.  Capital
requirements for the new hotels 

                                       14
<PAGE>
 
under development are expected to be provided by (i) construction loans; (ii)
refinancing of certain existing hotels; (iii) contributions from third parties;
and (iv) cash flow from operations.

The Company expects to continue to fund development of new hotels through
limited partnerships in which the Company will be the general partner and an
affiliate of the general partner will be the limited partner.  As permitted by
the indentures relating to the 1994 Notes and the 1995 Notes (the "1994 and 1995
Note Indentures"), each of these entities will be an "Unrestricted Subsidiary"
for purposes thereof, and accordingly, the ability of the Company to fund these
entities is subject to certain limitations contained in the 1994 and 1995 Note
Indentures.  All of the indebtedness of these entities will be non-recourse to
the Company.  The Company believes that funding permitted under the 1994 and
1995 Note Indentures will be sufficient to meet its current hotel development
plans.

Based upon current plans relating to the timing of new hotel development and
loan draw schedules, the Company anticipates that its capital resources will be
adequate to satisfy its 1998 capital requirements for the currently planned
projects and normal recurring capital improvement.

The Company accrued $1.4 million of distributions to the partners during the 
1998 Quarter.  Any distributions by the Partnership to its partners must be made
in accordance with the provisions of the 1994 and 1995 Note Indentures.

On August 14, 1998, the Company was notified that Standard & Poor's has
placed the Company's corporate credit and securities debt ratings on Credit
Watch status. The Company's Management and Board plan to meet and discuss the
Company's financing and development strategies within the next ten days. The
Company plans to meet with Standard & Poor's in September of 1998 to address
and review their issues.

Year 2000. The Company is actively addressing the impact of the Year 2000 as it
relates to the processes of its information technology environment. Potential
problems with internal, external and embedded systems are being addressed.
Capital budget funds have been set aside for software and hardware upgrades
and/or replacements to address Year 2000 issues. Virtually all such upgrades
were anticipated by the Company and would have been implemented within the next
few years even absent a Year 2000 issue.

The Company is requiring vendors and suppliers to certify Year 2000 compliance
of supplied information technology systems and devices. Compliance is defined as
no failures or interruptions occurring due to the processing of date information
or data between the years through 1999 and years beginning with the year 2000.

The Company has reviewed the effects of the upcoming Year 2000 on its computer
systems and operations, as well as on those of the hotels it operates. The
Company does not anticipate any material impact on its corporate operation,
given the current systems used are believed to be Year 2000 compliant .

NOTE:  Certain matters discussed within this report, including statements
regarding the Company's expectations or plans, are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve risks and uncertainties and are based
on current expectations.  Consequently, actual results could differ materially
from the expectations expressed in the forward-looking statements.  Among the
various factors that could cause actual results to differ include a downturn in
the economy (either regionally or nationwide) affecting overall hotel occupancy
rates, revenues at New Hotels not reaching expected levels as quickly as planned
as the result of competitive factors or the Company's inability to obtain
permanent financing for New Hotels on terms similar to those available in the
past.

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

                Not Applicable
 
PART II.  OTHER INFORMATION AND SIGNATURES

Item 1.  Legal Proceedings

                Not Applicable

Item 2.  Changes in Securities and Use of Proceeds

                Not Applicable

                                       15
<PAGE>

Item 3.  Defaults Upon Senior Securities

              Not Applicable

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

     The Company held the annual meeting of its shareholders on Friday,
May 1, 1998.

     The following persons were elected as directors of the Company by the
holders of Class A Common Stock:

<TABLE>
<CAPTION>
                     Robert T. Jones, Jr.    John E. Lopez-Ona    Kenneth J. Weber

<S>                  <C>                     <C>                  <C>
Votes in Favor:
  Class A             4,127,882               5,099,175            5,099,175
  Class B            14,705,000              14,705,000           14,705,000
                     ----------              ----------           ----------
    Total            18,832,882              19,804,175           19,804,175

Votes Against:
  Class A            0                       0                    0
  Class B            0                       0                    0
                     -                       -                    -
    Total            0                       0                    0

Votes Withheld:
  Class A            971,596                 303                  303
  Class B                  0                   0                    0
                     -------                 ---                  ---
    Total            971,596                 303                  303

Abstentions:
  Class A            0                       0                    0
  Class B            0                       0                    0
                     -                       -                    -
    Total            0                       0                    0

Broker Non-votes:
  Class A            0                       0                    0
  Class B            0                       0                    0
                     -                       -                    -
    Total            0                       0                    0
</TABLE>

     The shareholders also ratified the selection of Arthur Andersen LLP, as
outside auditors for the Company and its subsidiaries for fiscal 1998, as
follow:

<TABLE>
<CAPTION>
Votes in Favor:
<S>                  <C>
  Class A            5,098,465
  Class B           14,705,000
                    ----------
   Total            19,803,465
</TABLE>


                                      16
<PAGE>
 
Votes Against:
   Class A           3
   Class B           0
                     -
     Total           3

Votes Withheld:
   Class A           0
   Class B           0
                     -
     Total           0

Abstentions:
   Class A           1,010
   Class B               0
                     -----
     Total           1,010

Broker Non-votes:
   Class A           0
   Class B           0
                     -
     Total           0

Item 5.  Other Information

       Not Applicable

Item 6.  Exhibits and Reports on Form 8-K

  (a)  Exhibits

       See Exhibit Index incorporated by reference.

  (b)  Reports on Form 8-K

       No reports on Form 8-K have been filed during the quarter for which this
       report is filed.


                                      17
<PAGE>
 
SIGNATURES

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

                                JOHN Q. HAMMONS HOTELS, INC.


                                By:  /s/ John Q. Hammons
                                   -----------------------------------
                                         John Q. Hammons
                                         Chairman, Founder, and
                                         Chief Executive Officer


                                By:  /s/ Kenneth J. Weber
                                   -----------------------------------
                                         Kenneth J. Weber
                                         Chief Financial Officer and
                                         Executive Vice President
                                         (Principal Financial Officer)
Dated: August 17, 1998

                                       18