SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549



                                    FORM 8-K

                                 CURRENT REPORT

     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported):  June 30, 2000



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


     VIRGINIA                   000-30491                   54-1933472
     (State of                  (Commission                 (IRS Employer
     incorporation)             File Number)                Identification No.)


                  9 NORTH THIRD STREET
                  RICHMOND, VIRGINIA                        23219
                  (Address of principal                     (Zip Code)
                  executive offices)



               Registrant's telephone number, including area code:
                                 (804) 643-1761


<PAGE>


                               APPLE SUITES, INC.

                                    FORM 8-K

                                      Index

<TABLE>
<CAPTION>

<S>           <C>




Item 2.        Acquisition or Disposition of Assets

Item 7.        Financial Statements and Exhibits

         a.    Financial Statements

               Malvern, Pennsylvania Homewood Suites(R) by Hilton hotel
               Boulder, Colorado Homewood Suites(R) by Hilton hotel

1.       Property Financial Statements

               Independent Auditors' Report

               Combined Balance Sheets - December 31, 1999 and December 31, 1998

               Combined  Statements  of  Shareholders'   Equity -  Years  ended
               December 31, 1999 and December 31, 1998

               Combined Income Statements - Years ended December 31, 1999 and
               December 31, 1998

               Combined Statements of Cash Flows - Years ended December 31, 1999
               and December 31, 1998

               Notes to the Combined Financial Statements - December 31, 1999 and
               December 31, 1998

                                                      *             *              *

               Combined Balance Sheet - March 31, 2000 (unaudited)

               Combined  Statement  of  Shareholders'  Equity - For the  Period
               January 1, 2000 through March 31, 2000 (unaudited)

               Combined  Income  Statement - For the  Period  January  1,  2000
               through March 31, 2000 (unaudited)

</TABLE>


                                      -2-

<PAGE>

<TABLE>
<CAPTION>


<S>           <C>                                                                                            <C>


               Combined Statement of Cash Flows - For the Period January 1, 2000
               through March 31, 2000 (unaudited)

               Notes  to the  Combined  Financial  Statements - For the  Period
               January 1, 2000 through March 31, 2000 (unaudited)

   2.      Pro Forma Financial Statements (unaudited)

           Apple Suites, Inc.

               Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2000

               Notes to Pro Forma Condensed Consolidated Balance Sheet

               Pro Forma Condensed Consolidated Statements of Operations for the Year Ended
                 December 31, 1999 and the Three Months Ended March 31, 2000

           Apple Suites Management, Inc.

               Pro Forma Condensed Consolidated Statements of Operations for the Year Ended
                 December 31, 1999 and the Three Months Ended March 31, 2000

               Notes to Pro Forma Condensed Consolidated Statements of Operations


</TABLE>

                                      -3-
<PAGE>

b.       Exhibits

          4.1    Note dated June 30, 2000 in the principal amount of $11,163,750
                 made  payable  by Apple  Suites,  Inc.  to the  order of Promus
                 Hotels, Inc.

          4.2    Fee and Leasehold Deed of Trust, Assignment of Leases and Rents
                 and Security  Agreement and Fixture  Filing dated June 30, 2000
                 from Apple Suites,  Inc. and Apple Suites Management,  Inc. for
                 the benefit of Promus Hotels,  Inc.  pertaining to the Boulder,
                 Colorado hotel.

          4.3    Leasehold and Subleasehold  Mortgage,  Assignment of Leases and
                 Rents and  Security  Agreement  dated June 30,  2000 from Apple
                 Suites, Inc., as Trustee for Apple Suites Pennsylvania Business
                 Trust,  and Apple  Suites  Management,  Inc. for the benefit of
                 Promus  Hotels,  Inc.  pertaining to the Malvern,  Pennsylvania
                 hotel.

          4.4    Deed of Trust Modification  Agreement dated June 30, 2000 among
                 Apple  Suites,  Inc.,  Apple Suites  Management,  Inc.,  Promus
                 Hotels,   Inc.  and  Lawyers  Title  Realty   Services,   Inc.,
                 pertaining to the Jackson, Mississippi hotel.

          4.5    Second Deed to Secure Debt  Modification  Agreement  dated June
                 30, 2000,  among Promus Hotels,  Inc.,  Apple Suites,  Inc. and
                 Apple  Suites  Management,  Inc.  pertaining  to the  Atlanta -
                 Peachtree hotel.

          4.6    Third Deed to Secure Debt Modification Agreement dated June 30,
                 2000, among Promus Hotels,  Inc., Apple Suites,  Inc. and Apple
                 Suites   Management,   Inc.   pertaining   to  the   Atlanta  -
                 Galleria/Cumberland hotel.

          4.7    Second  Mortgage  Modification  Agreement  dated June 30,  2000
                 among Apple Suites,  Inc.,  Apple Suites  Management,  Inc. and
                 Promus Hotels, Inc. pertaining to the Detroit - Warren hotel.

          4.8    Second  Deed of Trust  Modification  Agreement  dated  June 30,
                 2000, among Apple Suites, Inc., Apple Suites Management,  Inc.,
                 Promus  Hotels,  Inc. and Lawyers Title Realty  Services,  Inc.
                 pertaining to the Salt Lake City - Midvale hotel.

          4.9    Fourth  Deed of Trust  Modification  Agreement  dated  June 30,
                 2000,  among  Promus  Hotels,  Inc.,  Apple Suites REIT Limited
                 Partnership,  Apple Suites Services  Limited  Partnership and a
                 named Trustee pertaining to the North Dallas - Plano hotel.

          4.10   Fourth  Deed of Trust  Modification  Agreement  dated  June 30,
                 2000,  among  Promus  Hotels,  Inc.,  Apple Suites REIT Limited
                 Partnership,  Apple Suites Services  Limited  Partnership and a
                 named  Trustee  pertaining to the Dallas - Addison and Dallas -
                 Irving/Las Colinas hotels.

                                       -4-

<PAGE>


          10.1   Indemnity dated June 30, 2000 from Apple Suites, Inc. to Promus
                 Hotels, Inc. pertaining to the Boulder, Colorado hotel.

          10.2   Schedules  2.1(i),  3.1(a)-9 and 3.1(b)-9 to Master Hotel Lease
                 Agreement dated September 20, 1999 between Apple Suites,  Inc.,
                 (as lessor) and Apple Suites Management, Inc. (as lessee).

          10.3   Homewood  Suites License  Agreement dated June 30, 2000 between
                 Promus  Hotels,   Inc.  and  Apple  Suites   Management,   Inc.
                 pertaining to the Boulder, Colorado hotel.

          10.4   Management  Agreement  dated June 30, 2000 between Apple Suites
                 Management,  Inc. and Promus  Hotels,  Inc.  pertaining  to the
                 Boulder, Colorado hotel.

          10.5   Letter  dated June 30, 2000 among  Apple  Suites,  Inc.,  Apple
                 Suites  Management,  Inc.,  Hampton Inns,  Inc.,  Promus Hotels
                 Florida,  Inc. and Promus Hotels, Inc. affirming certain letter
                 agreements dated May 8, 2000.

          10.6   Comfort Letter dated June 30, 2000 among Promus  Hotels,  Inc.,
                 Apple Suites, Inc. and Apple Suites Management, Inc. pertaining
                 to the Boulder, Colorado hotel.

          10.7   Negative  Pledge  Agreement  dated June 30, 2000 between  Apple
                 Suites, Inc. and Promus Hotels, Inc.

          10.8   Promissory  Note dated  June 30,  2000 in the amount of $50,400
                 made payable by Apple Suites  Management,  Inc. to the order of
                 Apple Suites, Inc. (Hotel Franchise Fees)

          10.9   Promissory  Note dated  June 30,  2000 in the amount of $11,200
                 made payable by Apple Suites  Management,  Inc. to the order of
                 Apple Suites, Inc. (Hotel Supplies)

          10.10  Note dated July 1, 2000 in the principal amount of $80,000 made
                 payable by Apple Suites Management,  Inc. to the order of Apple
                 Suites, Inc. with respect to the Boulder, Colorado hotel.

          24     Consent of Independent Auditors

                                      -5-
<PAGE>


ITEM 2.  Acquisition or Disposition of Assets

         We purchased an extended-stay hotel in Boulder, Colorado as of June 30,
2000.  The hotel  operates  under a license  granted by  Homewood  Suites(R)  by
Hilton.  The purchase price was  $14,885,000.  We used the net proceeds from our
offering of common shares to pay 25% of this total, or $3,721,250, at closing in
cash.  The  balance of 75%,  or  $11,163,750,  is being  financed by the seller,
Promus Hotels, Inc. This financing is described in more detail below.

Overview of Hotels

         Each of our hotels,  including the Boulder hotel,  is an  extended-stay
hotel,  and is licensed to operate under a franchise with Homewood  Suites(R) by
Hilton. We believe that the majority of the guests at our hotels during the past
12 months have been business travelers. We expect this pattern to continue.

         Each suite  consists of a bedroom and a living  room,  with an adjacent
kitchen area.  The basic suite is known as a "Homewood  Suite," which  generally
has one double or king-size  bed.  Larger  suites,  known as "Master  Suites" or
"Extended  Double  Suites" are also  available.  These suites have larger rooms,
with either one king-size bed or two smaller beds.  The largest  suites  contain
two separate bedrooms. Wheelchair-accessible suites are available at each hotel.

         The suites have many features and amenities in common. Most suites have
ceiling fans and two color televisions (one in the bedroom and one in the living
room).  Some suites have  fireplaces.  Typical living room furniture  includes a
sofa (often a fold-out  sleeper sofa),  coffee table and work/dining  table with
chairs.  Some living rooms contain a recliner and a  videocassette  player.  The
kitchens vary, but generally have a microwave, refrigerator,  dishwasher, coffee
maker and stove, together with basic cookware and utensils.

         The hotel are  marketed,  in part,  through  the web site for  Homewood
Suites(R)  by  Hilton   (http://www.homewood-suites.com),   which  is  generally
available 24 hours a day, seven days a week, around the world.  Reservations may
be made directly  through the web site. The reservation  system and the web site
are linked to, and  cross-marketed  with, the reservation  systems and web sites
for  other  hotel  franchises  that are  owned and  operated  by  Hilton  Hotels
Corporation.  Such  cross-marketing  may  affect  occupancy  at  our  hotels  by
directing travelers toward, or away from, Homewood Suites(R) by Hilton.

         Our hotels were actively  conducting  business at the time of purchase.
We believe that the purchases were conducted without  materially  disrupting any
daily hotel operations.  During the past 12 months, the hotels have been covered
with  property and  liability  insurance,  and we have arranged to continue such
coverage. We believe our hotels are adequately covered by insurance.

                                       -6-

<PAGE>


Description of Boulder Hotel

         The Boulder hotel is located on a 3.0 acre site at 4950 Baseline  Road,
Boulder,  Colorado 80303. The hotel is  approximately  three miles from downtown
Boulder and 52 miles from the Denver International Airport.

         The hotel opened in January 1991. It has wood frame construction,  with
an exterior of brick veneer and stucco.  The hotel  consists of four  buildings,
each with three stories.  The hotel  contains 112 suites,  which have a combined
rentable  area of  57,040  square  feet.  The  following  types  of  suites  are
available:

         Type of  Suite             Number Available    Square Feet per Suite
         --------------             ----------------    ---------------------

         Master Suite                      28                     560
         Homewood Suite                    76                     440
         Two-Bedroom Suite                  8                     990

         The hotel offers a 40-seat  breakfast/lounge  area, a meeting room that
accommodates  25 to 30 people,  and a business center that offers guests the use
of a personal computer, a photocopier and an electric  typewriter.  Recreational
facilities  include an outdoor pool, a whirlpool and an exercise room. The hotel
also  contains  a guest  convenience  store and  laundry.  The hotel has its own
parking lot with 114 spaces.  The hotel provides  complimentary  shuttle service
within a five mile radius.

         We believe that the hotel has been well  maintained and is generally in
very good condition.  We plan to spend approximately  $287,450 on renovations or
improvements  over the  subsequent  12  months.  We  expect  that the  principal
renovations and improvements  will include interior painting and the replacement
of exterior lights,  carpet and kitchen flooring. We expect to pay for the costs
of these  renovations  and  improvements  with the proceeds from our offering of
common shares.

         During  2000  (through  May),  the  average  stay at the hotel has been
approximately 3.2 nights, and approximately  49.6% of the guests have stayed for
five nights or more.  In general,  occupancy at the hotel has  historically  not
been significantly  affected by seasonal  variations.  The following table shows
average daily occupancy rates, expressed as a percentage, since 1995:

                  Average Daily Occupancy Rate (calendar year)

                                                         2000
         1995    1996    1997    1998     1999        through May
         ----    ----    ----    ----     ----        -----------

         79.7%   80.3%   80.4%   79.8%    77.5%          74.9%

         During 2000  (through  May),  the average daily rate per suite has been
$115.32,  and the average  daily net revenue per suite has been $86.38.  As with
our other  properties,  revenue from the hotel,  including lease revenue that is
paid to us under the master hotel lease agreement for the hotel, will be used to
pay interest due under our promissory  notes payable to Promus Hotels,  Inc.

                                       -7-

<PAGE>


Our  goal is to use the  proceeds  of our  offering  of  common  shares  to make
principal  payments.  There can be no  assurance,  however,  the proceeds of the
offering  will be  sufficient  for this  purpose,  and in that case  alternative
financing would be required.

         The hotel's  current rate structure is based on length of stay and type
of suite, as summarized below:

            Length of Stay
            (number of nights)     Homewood      Master           Two Bedroom
            ------------------     --------      ------           -----------

               1  to  4              $159        $169               $235
               5  to 11               144         154                225
               12 to 29               144         154                225
               30 or more             124         134                225

         The hotel offers a weekend  discount.  This discount  varies by type of
suite and  generally  reduces the basic rate by  approximately  30%. The weekend
discount is not available to guests who stay for five nights or more.  The hotel
also offers discounts to guests who stay under certain corporate accounts. These
discounts are often negotiated with the corporate customer and vary from account
to account. We estimate that, through May 2000, approximately 70% of the hotel's
guests received a corporate discount.

         The chief  corporate  accounts (as  designated in the hotel's  records)
include:  IBM,  Micro Motion,  Dieterich  Standard,  Printrak,  SCC,  Valleylab,
NCAR/UCAR,  Ball Aerospace,  Sybase,  Sun  Microsystems,  US West,  Xilinx,  and
Storagetek.  During 2000 (through May), the 10 largest  corporate  accounts were
responsible  for  approximately  37% of the hotel's  occupancy.  There can be no
assurance,  however,  that  the  hotel  will  continue  to  receive  significant
occupancy, or any occupancy, from the corporate accounts identified above.

         The table below shows the average  effective  annual  rental per square
foot since 1995:

                                                                         2000
         1995       1996         1997          1998        1999     (annualized)
         ----       ----         ----          ----        ----     ------------

        $55.80     $62.25       $65.26        $66.84      $63.64      $68.94

         The  depreciable  real property  component of the hotel has a currently
estimated  Federal tax basis of $11,461,450  and will be depreciated by us using
the  straight-line  method over a life of 39 years (or less, as permitted by the
Internal  Revenue  Code).  The basis of the personal  property  component of the
hotel will be  depreciated  in  accordance  with the modified  accelerated  cost
recovery system of the Internal Revenue Code.

                                       -8-

<PAGE>


         The following table  summarizes the hotel's real estate tax information
for 2000:

            Tax                      Assessed       Tax Rate         Amount
            Jurisdiction               Value       (per $1000)       of Tax
            ------------               -----       -----------       ------

            County of Boulder       $2,500,590       75.767       $189,462.20

         We estimate  that the annual tax for 2000 on the expected  improvements
will be approximately $11,000 or less.

         At least five  competing  hotels are located  within three miles of the
hotel.  (The  names  of  the  competing  franchises,  as  listed  below,  may be
registered as service marks or trade names.) Of these competing  hotels,  one is
newer than the hotel.  The newer  competing hotel has a franchise with Marriott.
The other competing hotels have franchises with Courtyard by Marriott, Residence
Inn by  Marriott  and Regal (with the fourth  hotel being a local,  unfranchised
property).  We  believe  that the  rates  charged  by the  hotel  are  generally
competitive  with the rates charged by these other  hotels.  We are not aware of
any ongoing or proposed construction for nearby extended-stay hotels.

         We are not  aware  of any  material  adverse  factors  relating  to the
Boulder  hotel not set  forth in this  report  that  would  cause the  financial
information in this report not to be necessarily  indicative of future operating
results.

         We paid a real  estate  commission  on this  purchase  to Apple  Suites
Realty Group,  Inc., as our real estate  broker.  This  corporation  is owned by
Glade M. Knight,  who is our president and chief  executive  officer.  The total
amount of the real estate commission was $297,700,  which equals 2% of the total
purchase price.

Hotel Supplies, Franchise Fees and Working Capital

         We have  provided  Apple  Suites  Management,  Inc.  with funds for the
purchase of certain hotel supplies (such as sheets, towels and so forth) for the
Boulder hotel.  Apple Suites  Management,  Inc. is obligated to repay us under a
promissory  note made in the principal  amount of $11,200.  This promissory note
provides for an annual interest rate of nine percent (9%),  which would increase
to twelve  percent  (12%) if a default  occurs,  and for  repayment  in  monthly
installments,  consisting  of  principal  and  interest on an  amortized  basis,
beginning on August 1, 2000. The maturity date is July 1, 2005.

         We have also provided Apple Suites Management,  Inc. with funds for the
payment of hotel franchise fees to Promus Hotels,  Inc. Apple Suites Management,
Inc. is  obligated  to repay us under a  promissory  note made in the  principal
amount of $50,400.  This  promissory  note is  substantially  similar to the one
described above, but has a maturity date of July 1, 2010.

         We have  advanced a total of  $1,040,000  to the  lessees of the hotels
under the master hotel lease agreements  (Apple Suites  Management,  Inc. or its
subsidiary).  The purpose of this action

                                       -9-

<PAGE>


is to assist the lessees in satisfying working capital account requirements that
have been established by Promus Hotels, Inc., as licensor with respect to our 13
hotels.  At one time,  the lessees  contemplated  funding  the  working  capital
requirements  with rental income from the hotels.  It was  determined,  however,
that an advance from us would be more administratively convenient.

         The total advance was based on an allocation of $80,000 per hotel.  The
advance  with  respect  to the  Boulder  hotel was made as of July 1,  2000.  To
evidence  the  repayment   obligation  of  the  lessees,  we  have  received  13
substantially  identical promissory notes, each of which relates to a particular
hotel and is made in the principal amount of $80,000.  Each note provides for an
annual  interest  rate  of 9% and  for  repayment  in  monthly  installments  of
principal and interest, on an amortized basis, over a 10-year period.

Description of Financing

         As  indicated  above,  Promus  Hotels,  Inc.  is  financing  75% of the
purchase price for the Boulder hotel. This financing is substantially similar to
the  financing  provided by Promus  Hotels,  Inc.  when we  purchased  our other
hotels. The amounts we owe to Promus Hotels, Inc. are evidenced by the following
promissory notes:

                                  Original
              Month of           Principal       Annual Rate        Date of
          Promissory Note          Amount        of Interest       Maturity
          ---------------        ---------       -----------       --------

         September 1999         $26,625,000         8.5%        October 1, 2000
         October 1999           $ 7,350,000         8.5%        October 1, 2000
         November 1999          $30,210,000         8.5%        December 1, 2000
         December 1999          $ 4,384,500         8.5%        January 1, 2001
         May 2000               $11,616,750         8.5%        April 28, 2001
         June 2000              $11,163,750         8.5%        April 28, 2001
                                 ----------

                      TOTAL     $91,350,000
                                 ==========


         These  promissory  notes are  substantially  similar,  and each of them
provides for the following:

         o    monthly interest payments,  based on the actual number of days per
              month
         o    our delivery of monthly notices to specify the net equity proceeds
              from our offering
         o    our  right to  prepay  the  notes,  in  whole or in part,  without
              premium or penalty
         o    a late  payment  premium of four  percent for any payment not made
              within 10 days of its due date

                                      -10-

<PAGE>


         Revenue  from  the  hotels  will  be  used to pay  interest  under  the
promissory  notes.  This revenue will include lease payments made to us by Apple
Suites  Management,  Inc.  (or  a  subsidiary)  under  the  master  hotel  lease
agreements for our hotels.

Deeds of Trust and Related Documents

         Each of our hotels,  including the Boulder  hotel,  is  encumbered.  In
general,  the  encumbrances  consist of a mortgage on the hotel building and its
underlying real property,  a security  interest in any personal  property and an
assignment of hotel rents and revenues,  all in favor of Promus Hotels, Inc. (As
described  above,   Promus  Hotels,   Inc.  provided  financing  for  our  hotel
purchases).

         These  encumbrances  are  created by  substantially  similar  documents
having a variety of names, many of which depend on state law. For simplicity, we
will refer to each of these documents as a "deed of trust." At each closing on a
purchase with respect to a hotel or group of hotels,  we further  encumbered our
other hotels with  additional  deeds of trust or with  negative  pledges.  These
additional  encumbrances  are  designed to provide  additional  security for the
promissory notes.

         Each deed of trust  corresponds to one of the promissory  notes we made
to Promus Hotels,  Inc., and secures the payment of principal and interest under
that promissory note. The encumbrance created by a particular deed of trust will
terminate  when  its  corresponding  promissory  note  is paid  in  full.  Other
encumbrances  created by additional  deeds of trust or by negative  pledges will
remain in effect until the  promissory  notes to which they  correspond are also
paid in full.

         We are subject to various  requirements  under the deeds of trust.  For
instance,  we must  maintain  adequate  insurance  on the hotels and we must not
grant any  further  encumbrances,  or make any further  assignments  of rents or
leases, with respect to the hotels, except as permitted by Promus Hotels, Inc.

         Each deed of trust  contains  a  substantially  similar  definition  of
events of  default.  In each  case,  the  events  of  default  include  (without
limitation)  any default that occurs under any of the promissory  notes or under
another deed of trust,  and any sale of the secured  property  without the prior
consent of Promus Hotels,  Inc. Upon any event of default,  various remedies are
available  to Promus  Hotels,  Inc.  Those  remedies  include,  for  example (a)
declaring the entire  principal  balance  under the  promissory  notes,  and all
accrued  and unpaid  interest,  to be due and  payable  immediately;  (b) taking
possession of the secured  property,  including the hotels;  and (c)  collecting
hotel  rents and  revenues,  or  foreclosing  on the hotels,  to satisfy  unpaid
amounts under the  promissory  notes.  Each deed of trust requires us to pay any
costs that may be incurred in exercising such remedies.

         Negative  pledges  apply to the three  hotels in Florida,  Maryland and
Virginia.  The negative pledges prohibit any transfer or further  encumbrance of
the hotels,  in whole or in part,

                                      -11-

<PAGE>

without the prior written  consent of Promus Hotels,  Inc. The negative  pledges
will  terminate when our  promissory  notes to Promus  Hotels,  Inc. are paid in
full.

Master Hotel Lease Agreement

         We have leased the Boulder hotel to Apple Suites  Management,  Inc. The
master hotel lease  agreement dated as of September 20, 1999 contains a schedule
that has  been  updated  to  include  the  Boulder  hotel  as one of the  leased
properties.

         The  agreement  provides for an initial term of 10 years.  Apple Suites
Management,  Inc.  has the option to extend  the lease  term for two  additional
five-year periods, provided it is not in default at the end of the prior term or
at the time the option is exercised.  The master hotel lease agreement  provides
that Apple  Suites  Management,  Inc.  will pay an annual base rent, a quarterly
percentage  rent and a quarterly  sundry  rent.  Each type of rent is  explained
below.

         Annual base rent is payable in advance in equal  monthly  installments.
Beginning in 2001, the base rent will be adjusted each year in proportion to the
Consumer Price Index (based on the U.S. City Average).  The annual base rent for
the Boulder hotel is currently $774,052.

         Percentage  rent is payable  quarterly.  Percentage  rent  depends on a
formula that compares fixed "suite revenue breakpoints" with a portion of "suite
revenue," which is equal to gross revenue from suite rentals less sales and room
taxes, credit card fees and sundry rent (as described below). Beginning in 2001,
the suite  revenue  breakpoints  will be adjusted each year in proportion to the
Consumer Price Index (based on the U.S. City Average). Suite revenue breakpoints
have been  determined for the first quarter of each year during the initial term
of  the  master  hotel  lease  agreement.  The  suite  revenue  breakpoints  for
subsequent  quarters are determined by  multiplying  the first quarter values by
two, three or four,  respectively.  The suite revenue  breakpoints for the third
and  fourth  quarters  of 2000 are  $281,754  and  $560,412,  respectively.  The
following  table shows the suite  revenue  breakpoints  for the first quarter of
subsequent years, before any adjustment due to the Consumer Price Index:

                 Suite Revenue Breakpoints for the First Quarter

<TABLE>
<CAPTION>


   2001      2002       2003       2004       2005       2006       2007      2008      2009
   ----      ----       ----       ----       ----       ----       ----      ----      ----
<S>          <C>      <C>        <C>        <C>        <C>        <C>       <C>       <C>

$251,566   $259,306   $270,917   $278,658   $286,398   $294,139   $301,879  $309,620  $317,360

</TABLE>

         Specifically, the percentage rent is equal to the sum of (a) 17% of all
year-to-date suite revenue, up to the applicable suite revenue breakpoint;  plus
(b) 55% of the  year-to-date  suite  revenue in excess of the  applicable  suite
revenue breakpoint, as reduced by base rent and the percentage rent paid year to
date.

         The  sundry  rent is  payable  quarterly  and  equals 55% of all sundry
revenue,  which consists of revenue other than suite revenue, less the amount of
sundry rent paid year-to-date.

                                      -12-

<PAGE>


Other Agreements

         The Boulder  hotel is subject to a license  agreement  and a management
agreement  with  Promus  Hotels,  Inc.  We have  entered  into an  environmental
indemnity  agreement  with  Promus  Hotels,  Inc.,  as well as a comfort  letter
agreement  regarding  the lease with Apple Suites  Management,  Inc. and certain
other issues.  These  agreements are  substantially  similar to agreements  that
exist with respect to our other hotels.

                                      -13-



<PAGE>

ITEM 7.a.1

<TABLE>
<S>                             <C>                            <C>
                                      L.P. MARTIN & COMPANY
                                   A PROFESSIONAL CORPORATION
            MEMBERS               CERTIFIED PUBLIC ACCOUNTANTS                  MEMBERS
        VIRGINIA SOCIETY OF            4132 INNSLAKE DRIVE               AMERICAN INSTITUTE OF
 CERTIFIED PUBLIC ACCOUNTANTS      GLEN ALLEN, VIRGINIA 23060        CERTIFIED PUBLIC ACCOUNTANTS

 LEE P. MARTIN, JR., C.P.A.           PHONE: (804) 345-2626              ROBERT C. JOHNSON, C.P.A.
 WILLIAM L. GRAHAM, C.P.A.             FAX: (804) 346-9311         LEE P. MARTIN, C.P.A. (1948-76)
 BERNARD G. KINZIE, C.P.A.
 W. BARCLAY BRADSHAW, C.P.A.

</TABLE>

                         INDEPENDENT AUDITORS' REPORT


Apple Suites, Inc.
Richmond, Virginia

     We  have  audited  the accompanying combined balance sheets of the Homewood
Suites  Acquisition  Hotels  (described  in  Note 1) as of December 31, 1999 and
1998,  and  the  related combined statements of income, shareholders' equity and
cash  flows  for  the  years  then  ended.  These  financial  statements are the
responsibility  of  the  management  of  the  hotels.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

     We  conducted  our  audits  in  accordance with generally accepted auditing
standards.  Those  standards  require  that  we  plan  and perform the audits to
obtain  reasonable  assurance about whether the financial statements are free of
material  misstatement.  An  audit includes examining, on a test basis, evidence
supporting  the  amounts  and  disclosures in the financial statements. An audit
also   includes   assessing  the  accounting  principles  used  and  significant
estimates  made  by  management,  as  well  as  evaluating the overall financial
statement  presentation.  We  believe that our audits provide a reasonable basis
for  our  opinion.  The  accompanying financial statements were prepared for the
purpose  of  complying  with  the  rules  and  regulations of the Securities and
Exchange  Commission  as described in Note 1 to the financial statements and are
not  intended  to  be a complete presentation of the Homewood Suites Acquisition
Hotels.

     In  our opinion, the financial statements referred to above present fairly,
in  all  material  respects,  the  combined  financial  position of the Homewood
Suites  Acquisition  Hotels  as  of December 31, 1999 and 1998, and the combined
results  of  their  operations  and their cash flows for the years then ended in
conformity with generally accepted accounting principles.


                                        /s/ L.P. Martin & Co, P.C.

Richmond, Virginia
May 31, 2000

                                      -14-
<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                            COMBINED BALANCE SHEETS




 <TABLE>
 <CAPTION>
                                                          DECEMBER 31, 1999   DECEMBER 31, 1998
                                                         ------------------- ------------------
 <S>                                                     <C>                 <C>
 ASSETS
 CURRENT ASSETS
  Cash .................................................    $    231,297        $    142,363
  Accounts Receivable, Net .............................         207,653             157,754
  Prepaids and Other ...................................          85,403              15,751
                                                            ------------        ------------
    Total Current Assets ...............................         524,353             315,868
                                                            ------------        ------------
 INVESTMENT IN HOTEL PROPERTIES
  Land and Improvements ................................       1,911,918           1,911,918
  Buildings and Improvements ...........................      13,078,590          13,078,407
  Furniture, Fixtures and Equipment ....................       4,362,527           4,091,364
                                                            ------------        ------------
    Total ..............................................      19,353,035          19,081,689
  Less: Accumulated Depreciation .......................      (4,170,565)         (3,473,189)
                                                            ------------        ------------
    Net Investment in Hotel Properties .................      15,182,470          15,608,500
                                                            ------------        ------------
    Total Assets .......................................    $ 15,706,823        $ 15,924,368
                                                            ============        ============
 LIABILITIES AND SHAREHOLDERS' EQUITY
 CURRENT LIABILITIES
  Accounts Payable .....................................    $     17,104        $     44,353
  Accrued Taxes ........................................         277,595             358,676
  Accrued Expenses - Other .............................         105,781             109,590
                                                            ------------        ------------
    Total Current Liabilities ..........................         400,480             512,619
                                                            ------------        ------------
 SHAREHOLDERS' EQUITY
  Contributed Capital ..................................       2,364,469           5,303,463
  Retained Earnings ....................................      12,941,874          10,108,286
                                                            ------------        ------------
    Total Shareholders' Equity .........................      15,306,343          15,411,749
                                                            ------------        ------------
    Total Liabilities and Shareholders' Equity .........    $ 15,706,823        $ 15,924,368
                                                            ============        ============

 </TABLE>

The accompanying notes are an integral part of these financial statements.

                                      -15-
<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                  COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY




 <TABLE>
 <CAPTION>
                                                                                TOTAL
                                           CONTRIBUTED        RETAINED      SHAREHOLDERS'
                                             CAPITAL          EARNINGS         EQUITY
                                         ---------------   -------------   --------------
 <S>                                     <C>               <C>             <C>
 Balances, January 1, 1998 ...........    $  6,640,591     $ 7,475,355      $ 14,115,946
 Net Income ..........................              --       2,632,931         2,632,931
 Capital Distributions, Net ..........      (1,337,128)             --        (1,337,128)
                                          ------------     -----------      ------------
 Balances, December 31, 1998 .........       5,303,463      10,108,286        15,411,749
 Net Income ..........................              --       2,833,588         2,833,588
 Capital Distributions, Net ..........      (2,938,994)             --        (2,938,994)
                                          ------------     -----------      ------------
 Balances, December 31, 1999 .........    $  2,364,469     $12,941,874      $ 15,306,343
                                          ============     ===========      ============
 </TABLE>

                          COMBINED INCOME STATEMENTS




 <TABLE>
 <CAPTION>
                                                                             YEARS ENDED DECEMBER 31,
                                                                            ---------------------------
                                                                                 1999          1998
                                                                            ------------- -------------
 <S>                                                                        <C>           <C>
 GROSS OPERATING REVENUE
  Suite Revenue ...........................................................  $7,419,101    $7,173,338
  Other Customer Revenue ..................................................     398,812       437,197
                                                                             ----------    ----------
    Total Revenue .........................................................   7,817,913     7,610,535
                                                                             ----------    ----------
 EXPENSES
  Property and Operating ..................................................   2,491,119     2,400,823
  General and Administrative ..............................................     105,719        95,694
  Advertising and Promotion ...............................................     328,070       325,398
  Utilities ...............................................................     270,080       291,153
  Real Estate and Personal Property Taxes, and Property Insurance .........     444,162       338,054
  Land Rent ...............................................................     100,000       100,000
  Depreciation Expense ....................................................     714,411     1,003,928
  Franchise and Management Fees ...........................................     530,764       286,933
  Pre-Opening Expenses ....................................................          --       135,621
                                                                             ----------    ----------
    Total Expenses ........................................................   4,984,325     4,977,604
                                                                             ----------    ----------
    Net Income ............................................................  $2,833,588    $2,632,931
                                                                             ==========    ==========

 </TABLE>

The accompanying notes are an integral part of these financial statements.

                                      -16-
<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                       COMBINED STATEMENTS OF CASH FLOWS




 <TABLE>
 <CAPTION>
                                                           YEARS ENDED DECEMBER 31,
                                                        -------------------------------
                                                              1999            1998
                                                        --------------- ---------------
 <S>                                                    <C>             <C>
 CASH FLOWS FROM (TO) OPERATING ACTIVITIES
  Net Income ..........................................  $  2,833,588    $  2,632,931
                                                         ------------    ------------
  Adjustments to reconcile net income to net cash
    Provided by operating activities:
    Depreciation ......................................       714,411       1,003,928
    Change In:
     Accounts receivable ..............................       (49,899)        (96,807)
     Prepaids and other current assets ................       (69,652)        (15,751)
     Accounts payable .................................       (27,249)       (491,258)
     Accrued taxes ....................................       (81,081)        158,299
     Accrued expenses - other .........................        (3,809)         46,124
                                                         ------------    ------------
 Net adjustments ......................................       482,721         604,535
                                                         ------------    ------------
       Net cash flows from operating activities .......     3,316,309       3,237,466
                                                         ------------    ------------
 CASH FLOWS TO FINANCING ACTIVITIES
  Capital distributions, net ..........................    (3,227,375)     (3,139,575)
                                                         ------------    ------------
    Net increase in cash ..............................        88,934          97,891
    Cash, beginning of year ...........................       142,363          44,472
                                                         ------------    ------------
    Cash, end of year .................................  $    231,297    $    142,363
                                                         ============    ============

 </TABLE>

SUPPLEMENTAL DISCLOSURES:

NONCASH FINANCING AND INVESTING ACTIVITIES

     Year Ended December 31, 1999

     Investments  in  hotel  properties in  the amount of $288,381 were financed
     with capital contributions.

     Year Ended December 31, 1998

     Investments  in  hotel properties in the amount of $1,802,447 were financed
     with capital contributions.

     Construction  in progress  in  the amount of $7,510,072 was reclassified to
     investment in hotel properties.

The accompanying notes are an integral part of these financial statements.


                                      -17-

<PAGE>

                       HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 AND 1998


NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

     The  Homewood  Suites  Acquisition  Hotels  (the  Hotels)  consist  of  the
following:




 <TABLE>
 <CAPTION>
 PROPERTY                             HOTEL LOCATION       DATE OPENED    # OF SUITES
 ------------------------------  ----------------------- --------------- ------------
 <S>                             <C>                     <C>             <C>
      Boulder                       Boulder, Colorado    January, 1991       112
      Philadelphia/Great Valley   Malvern, Pennsylvania  January, 1998       123

 </TABLE>

     Economic  conditions  in  the localities in which the individual hotels are
located impact revenues and the ability to collect accounts receivable.

     The  Hotels  specialize  in  providing extended stay lodging to business or
leisure  travelers. While customers may rent rooms for a night, terms of up to a
month  or  longer  are  available.  Services  offered,  which  are  particularly
attractive  to  the  extended  stay  traveler, include laundry services, 24 hour
on-site convenience stores and grocery shopping services.

     The  Hotels  were  owned  and  managed by affiliates of Promus Hotels, Inc.
(the  Owner)  through  November 30, 1999. Promus Hotels, Inc. and the affiliated
entities  owning the Hotels were acquired by Hilton Hotels Corporation effective
November  30,  1999. Hilton Hotels Corporation has managed the Hotels since that
date.  The  accompanying  combined  financial statements of the Hotels have been
presented  on  a  combined  basis  because the Owner sold the Philadelphia/Great
Valley  Hotel  to  an  affiliate  of Apple Suites, Inc. on May 8, 2000 and has a
contract  pending  to  sell  the Boulder Hotel property to an affiliate of Apple
Suites,  Inc.  Apple Suites, Inc., is a real estate investment trust established
to  acquire  equity  interests  in  hotel  properties.  The statements have been
prepared  pursuant  to  the rules and regulations of the Securities and Exchange
Commission for inclusion in a filing by Apple Suites, Inc.

     The  corporate  owner pays income taxes on taxable income of the company as
a   whole   and  does  not  allocate  income  taxes  to  individual  properties.
Accordingly,  the  combined financial statements have been presented on a pretax
basis.


NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

     Property  --  The  Hotel  properties  are  recorded  at  cost. Depreciation
through August 1999 has been recorded straight-line using the following lives:




 <TABLE>
 <CAPTION>
                                                      LIFE
                                                  ------------
 <S>                                              <C>
     Land Improvements ..........................  5-12 Years
     Buildings and Improvements ................. 15-35 Years
     Furniture, Fixtures and Equipment ..........  3-10 Years

 </TABLE>

     Major   renewals,  betterments  and  improvements  are  capitalized,  while
ongoing  maintenance  and  repairs  are  expensed  as  incurred.  Building costs
include  interest  capitalized  during  the construction period. Construction in
progress represents Hotel


                                      -18-
<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
                    DECEMBER 31, 1999 AND 1998 - (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

properties  under  construction.  At the point construction is completed and the
Hotels  are  ready  to  be  placed  in  service,  the  costs are reclassified to
investment in Hotel properties for financial statement presentation.

     Estimates  --  The  preparation  of financial statements in accordance with
generally  accepted  accounting principals requires management to make estimates
and  assumptions  that  affect  the  reported  amounts  of  assets, liabilities,
revenues  and  expenses  and  disclosures  related thereto. Actual results could
differ from those estimates.

     Annually,   management  of  the  hotels  reviews  the  carrying  value  and
remaining  depreciable  lives of the Hotel properties and related assets. During
1999,  the  Owner  identified  the  Philadelphia/Great  Valley and Boulder Hotel
properties  as  held  for  disposal.  In  accordance with Statement of Financial
Accounting  Standards  number  121,  management  discontinued  depreciating  the
assets  at this time. Accordingly, the 1999 income statement includes only eight
months   depreciation.   Sales   proceeds   received   from   the  sale  of  the
Philadelphia/Great  Valley  property  on  May  8,  2000  and  anticipated  sales
proceeds  for the pending sale of the Boulder Hotel property both exceed the net
carrying values of the properties reflected in these financial statements.

     Accounts  receivable are recorded net of an allowance for doubtful accounts
based  on management's historical experience in estimating credit losses. Actual
uncollectible  balances  written  off  may  be  more  or less than the allowance
recorded.

     Cash  --  Cash  includes all highly liquid investments with a maturity date
of three months or less when purchased.

     Advertising -- Advertising costs are expensed in the period incurred.

     Pre-Opening  Expenses  -- Pre-opening expenses represent operating expenses
incurred  prior  to initial opening of the hotels. In 1998, pre-opening expenses
of $135,621 were expensed as incurred for the Philadelphia/Great Valley hotel.

     Inventories  --  The  Hotels  maintain supplies of room linens and food and
beverages.  However,  due  to the ongoing routine replacement of these items and
the  difficulty  in establishing market values, management has chosen to expense
these items at point of purchase.


NOTE 3 -- RELATED PARTY TRANSACTIONS

     During  the  years  ended  December  31, 1999 and 1998, the following owner
related fees were expensed.


                                      -19-
<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
                    DECEMBER 31, 1999 AND 1998 - (CONTINUED)
NOTE 3 -- RELATED PARTY TRANSACTIONS - (CONTINUED)


 <TABLE>
 <CAPTION>
                                                                            TOTAL EXPENSE
                                                                       -----------------------
 FEE TYPE                                  BASIS FOR DETERMINATION        1999         1998
 ------------------------------------   ----------------------------   ----------   ----------
 <S>                                    <C>                            <C>          <C>
 Accounting Fees ....................   $1,000 per hotel per month      $ 24,000     $ 24,000
 Corporate Advertising,
  Training and Reservations .........   4% of Net Suite Revenue         $296,764     $286,934
 Franchise Fees .....................   4% of Net Suite Revenue         $296,764     $286,933
 Management Fees ....................   3% of Total Revenue             $234,000     $     --
 </TABLE>

     The  acquisition  cost  of  the  properties  and  related  furnishings  and
equipment  was  financed  by  the  Owner.  The  Owner allocated interest to each
property  on  monies advanced to fund the construction costs. The interest costs
have  been  capitalized  and  depreciated  in accordance with the Hotels' normal
depreciation  policy. Interest capitalized and included in the cost basis of the
hotels totaled $242,065 in 1998.

     On   most   property   and   equipment   purchases,  excluding  base  hotel
construction  contracts,  the  following  fees  paid  to  the  Owner  have  been
capitalized:

       Purchase Fee -- 3.0% to 4.0% of Asset Cost
       Project  Management  Fee  -- 4.0% to 4.5% of labor portion of capitalized
       asset costs


     Each  Hotel  maintains  a  depository  bank  account  into  which  customer
revenues  have  been  deposited. The bulk of each Hotel's operating expenditures
are  paid through the Owner's corporate accounts. Funds are transferred from the
Hotel's  depository  bank  accounts  to the Owner periodically. The transfers to
the  Owner  and  expenditures  made  on  behalf  of  the Hotels by the Owner are
accounted  for  through  various  intercompany  accounts.  No  interest has been
charged  on  these  intercompany  advances  from ongoing operations. There is no
intention  to  repay  any  advances  to  or from the Owner. Accordingly, the net
amounts   have  been  included  in  shareholders'  equity  with  1999  and  1998
intercompany/intracompany    transfers    being   reflected   as   net   capital
distributions.


NOTE 4 -- LAND LEASE

     The  land  on  which  the  Philadelphia/  Great  Valley hotel is located is
leased.  The  lease  is  for  a  30 year term beginning May 1, 1997 and includes
three  10  year renewal options. Scheduled rent is $100,000 annually, payable in
monthly  installments. Rent can be increased but not decreased, every 5 years by
the CPI change, not to exceed 15%.

     Below are scheduled minimum lease payments for each of the next 5 years.




 <TABLE>
 <S>                        <C>
   2000 .................    $100,000
   2001 .................     100,000
   2002 .................     100,000
   2003 .................     100,000
   2004 .................     100,000
                             --------
                             $500,000
                             ========

 </TABLE>

                                      -20-

<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
                    DECEMBER 31, 1999 AND 1998 - (CONTINUED)

NOTE 4 -- LAND LEASE - (CONTINUED)

     Rent expense for each of the years ended December 31, totaled $100,000.


NOTE 5 -- CONCENTRATIONS OF CREDIT RISK

     At  December  31,  1999,  financial instruments that subject the Company to
concentrations  of  credit  risk  consist of cash deposits in a single financial
institution which exceed maximum amounts insurable by FDIC by $52,977.


                                      -21-

<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                      COMBINED BALANCE SHEET (UNAUDITED)




 <TABLE>
 <CAPTION>
                                                          MARCH 31, 2000
                                                         ---------------
 <S>                                                     <C>
 ASSETS
 CURRENT ASSETS
  Cash .................................................  $    154,617
  Accounts receivable, net .............................       334,193
  Prepaids and other ...................................        37,509
                                                          ------------
    Total current assets ...............................       526,319
                                                          ------------
 INVESTMENT IN HOTEL PROPERTIES
  Land and improvements ................................     1,911,918
  Buildings and Improvements ...........................    13,078,590
  Furniture, fixtures and equipment ....................     4,362,527
                                                          ------------
    Total ..............................................    19,353,035
  Less: Accumulated depreciation .......................    (4,170,565)
                                                          ------------
    Net investment in hotel properties .................    15,182,470
                                                          ------------
    Total assets .......................................  $ 15,708,789
                                                          ============
 LIABILITIES AND SHAREHOLDERS' EQUITY
 CURRENT LIABILITIES
  Accounts payable .....................................  $      1,679
  Accrued taxes ........................................       223,311
  Accrued expenses -- Other ............................       101,583
                                                          ------------
    Total current liabilities ..........................       326,573
                                                          ------------
 SHAREHOLDERS' EQUITY
 Contributed capital ...................................     1,595,274
  Retained earnings ....................................    13,786,942
                                                          ------------
    Total Shareholders' Equity .........................    15,382,216
                                                          ------------
    Total Liabilities and Shareholders' Equity .........  $ 15,708,789
                                                          ============

 </TABLE>

The accompanying notes are an integral part of this financial statement.

                                      -22-
<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                  COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
       FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED)




 <TABLE>
 <CAPTION>
                                                                              TOTAL
                                         CONTRIBUTED       RETAINED       SHAREHOLDERS'
                                           CAPITAL         EARNINGS          EQUITY
                                        -------------   --------------   --------------
 <S>                                    <C>             <C>              <C>
 Balances, January 1, 2000 ..........    $2,364,469      $12,941,874      $15,306,343
 Net Income .........................            --          845,068          845,068
 Capital Distributions, Net .........      (769,195)              --         (769,195)
                                         ----------      -----------      -----------
 Balances, March 31, 2000 ...........    $1,595,274      $13,786,942      $15,382,216
                                         ==========      ===========      ===========
 </TABLE>

                           COMBINED INCOME STATEMENT

       FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED)




 <TABLE>
 <S>                                                                          <C>
 GROSS OPERATING REVENUE
  Suite Revenue ...........................................................    $1,841,936
  Other Customer Revenue ..................................................        93,150
                                                                               ----------
    Total Revenue .........................................................     1,935,086
                                                                               ----------
 EXPENSES
  Property and Operating ..................................................       633,274
  General and Administrative ..............................................        33,287
  Advertising and Promotion ...............................................        82,781
  Utilities ...............................................................        65,361
  Real Estate and Personal Property Taxes, and Property Insurance .........       118,585
  Land Rent ...............................................................        25,000
  Franchise and Management Fees ...........................................       131,730
                                                                               ----------
    Total Expenses ........................................................     1,090,018
                                                                               ----------
    Net Income ............................................................    $  845,068
                                                                               ==========

 </TABLE>

The accompanying notes are an integral part of this financial statement.

                                      -23-
<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                       COMBINED STATEMENT OF CASH FLOWS
       FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED)




 <TABLE>
 <S>                                                                                  <C>
 CASH FLOWS FROM (TO) OPERATING ACTIVITIES
  Net Income ......................................................................    $  845,068
                                                                                       ----------
  Adjustments to reconcile net income to net cash provided by operating activities:
    Change in:
     Accounts receivable ..........................................................      (126,540)
     Prepaids and other current assets ............................................        47,894
     Accounts payable .............................................................       (15,425)
     Accrued taxes ................................................................       (54,284)
     Accrued expenses - other .....................................................        (4,198)
                                                                                       ----------
 Net Adjustments ..................................................................      (152,553)
                                                                                       ----------
     Net cash flows from operating activities .....................................       692,515
 CASH FLOWS TO FINANCING ACTIVITIES:
  Net equity distributions ........................................................      (769,195)
                                                                                       ----------
     Net decrease in cash .........................................................       (76,680)
     Cash, January 1, 2000 ........................................................       231,297
                                                                                       ----------
     Cash, March 31, 2000 .........................................................    $  154,617
                                                                                       ==========

 </TABLE>

The accompanying notes are an integral part of this financial statement.

                                      -24-
<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
       FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED)


NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

     The  Homewood  Suites  Acquisition  Hotels  (the  Hotels)  consist  of  the
following:




 <TABLE>
 <CAPTION>
 PROPERTY                              HOTEL LOCATION       DATE OPENED    # OF SUITES
 -------------------------------- ----------------------- --------------- ------------
 <S>                              <C>                     <C>             <C>
      Boulder                        Boulder, Colorado    January, 1991       112
      Philadelphia/Great Valley    Malvern, Pennsylvania  January, 1998       123

 </TABLE>

     Economic  conditions  in  the localities in which the individual hotels are
located impact revenues and the ability to collect accounts receivable.

     The  Hotels  specialize  in  providing extended stay lodging to business or
leisure  travelers. While customers may rent rooms for a night, terms of up to a
month  or  longer  are  available.  Services  offered,  which  are  particularly
attractive  to  the  extended  stay  traveler, include laundry services, 24 hour
on-site convenience stores and grocery shopping services.

     The  Hotels  have  been owned and managed by Hilton Hotels Corporation (the
Owner)  throughout  the  financial  statement  period. The accompanying combined
financial  statements  of  the  Hotels  have  been presented on a combined basis
because  the  Owner  sold the Philadelphia/Great Valley Hotel to an affiliate of
Apple  Suites,  Inc.  on  May  8,  2000  and  has a contract pending to sell the
Boulder  Hotel property to an affiliate of Apple Suites, Inc. Apple Suites, Inc.
is  a  real  estate  investment trust established to acquire equity interests in
hotel  properties.  The  statements have been prepared pursuant to the rules and
regulations  of the Securities and Exchange Commission for inclusion in a filing
by Apple Suites, Inc.

     The  corporate  owner pays income taxes on taxable income of the company as
a   whole   and  does  not  allocate  income  taxes  to  individual  properties.
Accordingly,  the  combined financial statements have been presented on a pretax
basis.


NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

     Property  --  The  Hotel  properties  are  recorded  at  cost. Depreciation
through  August, 1999 has been recorded straight-line using the following lives:





 <TABLE>
 <CAPTION>
                                                     LIFE
                                                 ------------
 <S>                                             <C>
    Land Improvements ..........................  5-12 Years
    Buildings and Improvements ................. 15-35 Years
    Furniture, Fixtures and Equipment ..........  3-10 Years

 </TABLE>



                                      -25-
<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR  THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED) - (CONTINUED)

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

     Major   renewals,  betterments  and  improvements  are  capitalized,  while
ongoing  maintenance  and  repairs  are  expensed  as  incurred.  Building costs
include interest capitalized during the construction period.

     Estimates  --  The  preparation  of financial statements in accordance with
generally  accepted  accounting principals requires management to make estimates
and  assumptions  that  affect  the  reported  amounts  of  assets, liabilities,
revenues  and  expenses  and  disclosures  related thereto. Actual results could
differ from those estimates.

     Annually,   management  of  the  hotels  reviews  the  carrying  value  and
remaining  depreciable  lives of the Hotel properties and related assets. During
1999,  the  Owner  identified  the  Philadelphia/Great  Valley and Boulder Hotel
properties  as  held  for  disposal.  In  accordance with Statement of Financial
Accounting  Standards  number  121,  management  discontinued  depreciating  the
assets  at  this  time.  Accordingly, the January 1, 2000 through March 31, 2000
income  statement does not include depreciation expense. Sales proceeds received
from  the  sale  of  the  Philadelphia/Great  Valley property on May 8, 2000 and
anticipated  sales  proceeds  for the pending sale of the Boulder Hotel property
both  exceed  the  net  carrying  values  of  the  properties reflected in these
financial statements.

     Accounts  receivable are recorded net of an allowance for doubtful accounts
based  on management's historical experience in estimating credit losses. Actual
uncollectible  balances  written  off  may  be  more  or less than the allowance
recorded.

     Cash  --  Cash  includes all highly liquid investments with a maturity date
of three months or less when purchased.

     Advertising -- Advertising costs are expensed in the period incurred.

     Inventories  --  The  Hotels  maintain supplies of room linens and food and
beverages.  However,  due  to the ongoing routine replacement of these items and
the  difficulty  in establishing market values, management has chosen to expense
these items at point of purchase.


                                      -26-
<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE  PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED) - (CONTINUED)


NOTE 3 -- RELATED PARTY TRANSACTIONS

     During  the  period  January  1, 2000 through March 31, 2000, the following
Owner related fees were expensed.




 <TABLE>
 <CAPTION>
 FEE TYPE                             BASIS FOR DETERMINATION      TOTAL EXPENSE
 -------------------------------   ----------------------------   --------------
 <S>                               <C>                            <C>
 Accounting Fees ...............   $1,000 per hotel per month         $ 6,000
 Corporate Advertising, Training
  and Reservations .............   4% of net suite revenue             73,677
 Franchise Fees ................   4% of net suite revenue             73,677
 Management Fees ...............   3% of net suite revenue             58,053
 </TABLE>

     The  acquisition  cost  of  the  properties  and  related  furnishings  and
equipment  was  financed  by  the  Owner.  The  Owner allocated interest to each
property  on  monies advanced to fund the construction costs. The interest costs
have  been  capitalized  and  depreciated  in accordance with the Hotels' normal
depreciation policy.

     On   most   property   and   equipment   purchases,  excluding  base  hotel
construction  contracts,  the  following  fees paid to Hilton Hotels Corporation
have been capitalized:


       Purchase Fee -- 4% of Asset Cost
       Project  Management  Fee -- 4.0 % to 4.5% of labor portion of capitalized
       asset costs

     Each  Hotel  maintains  a  depository  bank  account  into  which  customer
revenues  have  been  deposited. The bulk of each Hotel's operating expenditures
are  paid through the Owner's corporate accounts. Funds are transferred from the
Hotel's  depository  bank  accounts  to the Owner periodically. The transfers to
the  Owner  and  expenditures  made  on  behalf  of  the Hotels by the Owner are
accounted  for  through  various  intercompany  accounts.  No  interest has been
charged  on  these  intercompany  advances  from ongoing operations. There is no
intention  to  repay  any  advances  to  or from the Owner. Accordingly, the net
amounts     have     been     included     in    shareholders'    equity    with
intercompany/intracompany    transfers    being   reflected   as   net   capital
distributions.


                                      -27-
<PAGE>

                      HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR  THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED) - (CONTINUED)


NOTE 4 -- LAND LEASE

     The  land  on  which  the  Philadelphia/Great  Valley  hotel  is located is
leased.  The  lease  is  for  a  30 year term beginning May 1, 1997 and includes
three  10  year renewal options. Scheduled rent is $100,000 annually, payable in
monthly  installments. Rent can be increased but not decreased, every 5 years by
the CPI change, not be exceed 15%.

     Below are scheduled minimum lease payments for each of the next 5 years.




 <TABLE>
 <S>                        <C>
   2000 .................    $100,000
   2001 .................     100,000
   2002 .................     100,000
   2003 .................     100,000
   2004 .................     100,000
                             --------
                             $500,000
                             ========

 </TABLE>

     Rent  expense for the period January 1, 2000 through March 31, 2000 totaled
$25,000.


                                      -28-
<PAGE>

ITEM 7.a.2

                              APPLE SUITES, INC.

                        PRO FORMA CONDENSED CONSOLIDATED
                BALANCE SHEET AS OF MARCH 31, 2000 (UNAUDITED)

     The following unaudited Pro Forma Condensed  Consolidated  Balance Sheet of
Apple Suites,  Inc. (the  "Company") is presented as if the  acquisition  of the
Homewood  Suites -- Malvern,  PA hotel on May 8, 2000 and the acquisition of the
Homewood Suites -- Boulder,  CO hotel on June 30, 2000 from Promus Hotels,  Inc.
or its affiliates ("Promus"),  which is now a wholly-owned  subsidiary of Hilton
Hotels  Corporation,  had occurred on March 31, 2000.  See Note A for individual
hotel  details.   Such   information  is  based  in  part  upon  the  historical
Consolidated  Balance Sheet of the Company as of March 31, 2000. In management's
opinion, all adjustments  necessary to reflect the effects of these transactions
have been made.

     The  following  unaudited Pro Forma Condensed Consolidated Balance Sheet is
not  necessarily  indicative  of  what  the actual financial position would have
been  assuming  such  transactions  had been completed as of March 31, 2000, nor
does it purport to represent the future financial position of the Company.




 <TABLE>
 <CAPTION>
                                                                                       HOMEWOOD
                                                                                        SUITES
                                                                HISTORICAL            ACQUISITION
                                                                  BALANCE               (A IV)                TOTAL
                                                                   SHEET              ADJUSTMENTS           PRO FORMA
                                                             ----------------   ----------------------   ---------------
 <S>                                                         <C>                <C>                      <C>
 ASSETS
  Investment in hotel properties .........................     $ 93,450,963         $  30,981,480 (A)     $124,432,443
  Cash and cash equivalents ..............................        3,781,922            (2,772,886)(D)        1,009,036
  Restricted cash ........................................          696,869                    --              696,869
  Rent receivable from Apple Suites Management, Inc. .....        2,641,141                    --            2,641,141
  Notes and other receivable from Apple Suites
    Management, Inc. .....................................          694,766                    --              694,766
  Capital improvement reserve ............................          753,927                    --              753,927
  Prepaid expenses .......................................          263,781                    --              263,781
  Other assets ...........................................          531,470                    --              531,470
                                                               ------------         -------------         ------------
    Total Assets .........................................     $102,814,839         $  28,208,594         $131,023,433
                                                               ============         =============         ============
 LIABILITIES AND SHAREHOLDERS' EQUITY
 LIABILITIES
  Notes payable-secured ..................................     $ 68,569,500         $  22,780,500 (B)     $ 91,350,000
  Accounts payable .......................................          161,258                    --              161,258
  Accounts payable-affiliate .............................          531,285                    --              531,285
  Distributions payable ..................................               --                    --                   --
  Accrued expenses .......................................          554,977                    --              554,977
                                                               ------------         -------------         ------------
    Total Liabilities ....................................       69,817,020            22,780,500           92,597,520
 SHAREHOLDERS' EQUITY
  Common stock, no par value, authorized 200,000,000
    shares; issued and outstanding 3,922,923 shares ......       32,985,016             5,428,094 (C)       38,413,110
  Class B convertible stock, no par value, authorized
    240,000 shares; issued and outstanding 240,000 shares.           24,000                    --               24,000
  Distributions greater than net income ..................          (11,197)                   --              (11,197)
                                                               ------------         -------------         ------------
    Total Shareholders' Equity ...........................       32,997,819             5,428,094           38,425,913
                                                               ------------         -------------         ------------
    Total Liabilities and Shareholders' Equity ...........     $102,814,839         $  28,208,594         $131,023,433
                                                               ============         =============         ============

 </TABLE>



                                      -29-
<PAGE>

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(A) Increase  represents  the purchase of 2 hotels, including the 2% acquisition
    fee  payable  to  Apple Suites Realty Group, Inc. The hotels acquired are as
    follows:





 <TABLE>
 <CAPTION>
                                                     DATE
                                                   COMMENCED
                       PROPERTY                   OPERATIONS
      ----------------------------------------- --------------
 <S>  <C>                                       <C>
 IV   Homewood Suites -- Malvern, PA .......... January 1998
 IV   Homewood Suites -- Boulder, CO .......... January 1991
 --------------------------------------------------------------




 <CAPTION>
                                         2%
           DATE        PURCHASE     ACQUISITION                      DEBT
         ACQUIRED        PRICE          FEE           TOTAL        INCURRED
      ------------- -------------- ------------- -------------- --------------
 <S>  <C>           <C>            <C>           <C>            <C>
 IV   May 8, 2000    15,489,000     309,780       15,798,780     11,616,750
 IV   June 30, 2000  14,885,000     297,700       15,182,700     11,163,750
 ------------------------------------------------------------------------------

         Total      $30,374,000    $607,480      $30,981,480    $22,780,500
 </TABLE>

(B) Represents  the  debt  incurred  at  acquisition. The notes bear interest of
    8.5%  per  annum.  The  maturity  date  for  the  one  note in the amount of
    $11,616,750  is  May,  2001,  the  maturity  date for the second note in the
    amount of $11,163,750 will be one year from the date of purchase.

(C) Increase  to  common  stock  to  reflect  the  net proceeds from the sale of
    606,491  common  shares  from  the  Company's  continuous  offering,  issued
    subsequent to March 31, 2000.

(D) Reflects the use of cash on hand to purchase the hotels.

                                      -30-
<PAGE>

                              APPLE SUITES, INC.

                        PRO FORMA CONDENSED CONSOLIDATED
                           STATEMENTS OF OPERATIONS
                    FOR THE YEAR ENDED DECEMBER 31, 1999 AND
               THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)

     The  following  unaudited  Pro  Forma  Condensed Consolidated Statements of
Operations  of  the  Company  are  presented  as  if the acquisition and pending
acquisition  of  the  Homewood  Suites  hotels  from  Promus Hotels, Inc. or its
affiliates  ("Promus"),  which is now a wholly-owned subsidiary of Hilton Hotels
Corporation,  had  occurred  at  the  beginning of the periods presented for the
respective  periods  prior  to acquisition by the Company, and all of the hotels
had  been  leased  to  Apple  Suites  Management,  Inc.  or  its subsidiary (the
"Lessee")  pursuant  to  the  master  hotel  lease  agreements.  Such  pro forma
information  is  based in part upon the Consolidated Statements of Operations of
the  Company,  the  Pro  Forma  Statements  of  Operations of the Lessee and the
historical  Statements  of  Operations  of  the acquired hotels. In management's
opinion,  all adjustments necessary to reflect the effects of these transactions
have been made.

     The  following  unaudited  Pro  Forma  Condensed Consolidated Statements of
Operations  for  the  periods  presented  are not necessarily indicative of what
actual  results  of  operations  of  the  Company  would have been assuming such
transactions  had  been  completed as of the beginning of the periods presented,
nor  does  it purport to represent the results of operations for future periods.
The  lease  agreements between the Company and the Lessee were based on economic
conditions  existing at the time of acquisition. Application of these agreements
to periods prior to the acquisition may not be meaningful.

     The  Company's  historical  Statement  of  Operations  for  the  year ended
December  31,  1999  reflect  only  four months of operations, as the first four
hotels were purchased on September 1, 1999.


FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)
 <TABLE>
 <CAPTION>
                                         HISTORICAL
                                        STATEMENT OF
                                         OPERATIONS
                                       --------------
 <S>                                   <C>
 Revenue:
  Lease revenue ......................  $ 2,518,031
  Interest income and other
   revenue ...........................      169,086
 Expenses:
  Taxes, insurance and other .........      426,592
  General and administrative .........      153,807
  Depreciation of real estate
   owned .............................      496,209
  Interest ...........................    1,245,044
  Rent expense .......................           --
                                        -----------
 Total expenses ......................    2,321,652
                                        -----------
 Net income ..........................  $   365,465
                                        ===========
 Earnings per common share:
 Basic and Diluted ...................  $      0.14
                                        ===========
 Basic and diluted weighted average
  common shares outstanding ..........    2,648,196
                                        ===========
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                                    PRO FORMA ADJUSTMENTS
                                       -------------------------------------------------------------------------------
                                             HOMEWOOD            HOMEWOOD            HOMEWOOD            HOMEWOOD
                                              SUITES              SUITES              SUITES              SUITES
                                           ACQUISITION         ACQUISITION         ACQUISITION         ACQUISITION
                                              (A I)               (A II)             (A III)              (A IV)
                                       ------------------- ------------------- ------------------- -------------------
 <S>                                   <C>                 <C>                 <C>                 <C>
 Revenue:
  Lease revenue ......................    $  4,162,371(B)     $  5,480,272(B)     $  1,035,841(B)     $  3,487,608(B)
  Interest income and other
   revenue ...........................              --                  --                  --                  --
 Expenses:
  Taxes, insurance and other .........         822,599(C)          647,225(C)           93,884(C)          444,162(C)
  General and administrative .........         247,028(D)          251,015(D)          230,037(D)          246,594(D)
  Depreciation of real estate
   owned .............................         656,623(E)          821,580(E)          140,664(E)          688,654(E)
  Interest ...........................       1,977,313(F)        2,353,863(F)          372,683(F)        1,936,343(F)
  Rent expense .......................              --                  --                  --             100,000(H)
                                          ------------        ------------        ------------        ------------
 Total expenses ......................       3,703,563           4,073,683             837,268           3,415,753
                                          ------------        ------------        ------------        ------------
 Net income ..........................         458,808           1,406,589             198,573              71,855
                                          ============        ============        ============        ============
 Earnings per common share:
 Basic and Diluted ...................
 Basic and diluted weighted average
  common shares outstanding ..........              --(G)          604,857(G)          176,360(G)          916,311(G)

 <CAPTION>
                                             TOTAL
                                           PRO FORMA
                                       ----------------
 <S>                                   <C>
 Revenue:
  Lease revenue ......................   $ 16,684,123
  Interest income and other
   revenue ...........................        169,086
 Expenses:
  Taxes, insurance and other .........      2,434,462
  General and administrative .........      1,128,481
  Depreciation of real estate
   owned .............................      2,803,730
  Interest ...........................      7,885,246
  Rent expense .......................        100,000
                                         ------------
 Total expenses ......................     14,351,919
                                         ------------
 Net income ..........................      2,501,290
                                         ============
 Earnings per common share:
 Basic and Diluted ...................   $       0.58
                                         ============
 Basic and diluted weighted average
  common shares outstanding ..........      4,345,724
                                         ============
 </TABLE>


                                      -31-
<PAGE>

                              APPLE SUITES, INC.

                        PRO FORMA CONDENSED CONSOLIDATED
                    STATEMENTS OF OPERATIONS -- (CONTINUED)


FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)




 <TABLE>
 <CAPTION>
                                                                  PRO FORMA ADJUSTMENTS
                                                                 ----------------------
                                                                        HOMEWOOD
                                                  HISTORICAL             SUITES
                                                 STATEMENT OF          ACQUISITION             TOTAL
                                                  OPERATIONS             (A IV)              PRO FORMA
                                                --------------   ----------------------   ---------------
 <S>                                            <C>              <C>                      <C>
 Revenue:
  Lease revenue .............................    $ 3,406,678         $   861,236 (B)        $ 4,267,914
  Interest income and other revenue .........         48,007             (19,919) (I)            28,088
 Expenses:
  Taxes, insurance and other ................        691,575             118,585 (C)            810,160
  General and administrative ................        254,736               5,126 (D)            259,862
  Depreciation of real estate owned .........        549,201             244,159 (E)            793,360
  Interest ..................................      1,453,110             484,086 (F)          1,937,196
  Rent expense ..............................             --              25,000 (H)             25,000
                                                 -----------         -----------            -----------
 Total expenses .............................      2,948,622             876,956              3,825,578
 Net income .................................    $   506,063             (35,639)           $   470,424
                                                 ===========         ===========            ===========
 Earnings per common share:
 Basic and Diluted ..........................    $      0.14                                $      0.11
                                                 ===========                                ===========
 Basic and diluted weighted average common
  shares outstanding ........................      3,607,458             738,266 (G)          4,345,724
                                                 ===========         ===========            ===========
 </TABLE>


                                      -32-
<PAGE>

APPLE SUITES, INC.


NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(A) Represents  results  of  operations  for  the hotels acquired on a pro forma
    basis  as  if  the  hotels were owned by the Company at the beginning of the
    periods  presented  for  the  respective periods prior to acquisition by the
    Company. See below.




 <TABLE>
 <CAPTION>
                                                      DATE COMMENCED         DATE
                          PROPERTY                      OPERATIONS         ACQUIRED
       --------------------------------------------- ---------------- ------------------
 <S>   <C>                                           <C>              <C>
 I     Homewood Suites -- Dallas, TX ...............      1990        September 1, 1999
 I     Homewood Suites -- Las Colinas, TX ..........      1990        September 1, 1999
 I     Homewood Suites -- Plano, TX ................      1997        September 1, 1999
 I     Homewood Suites -- Richmond, VA .............    May 1998      September 1, 1999
 I     Homewood Suites -- Atlanta, GA ..............      1990         October 1, 1999
 ---------------------------------------------------------------------------------------

II    Homewood Suites -- Clearwater, FL ...........  February 1998    November 24, 1999
 II    Homewood Suites -- Salt Lake, UT ............      1996        November 24, 1999
 II    Homewood Suites -- Atlanta, GA ..............      1990        November 24, 1999
 II    Homewood Suites -- Detroit, MI ..............      1990        November 24, 1999
 II    Homewood Suites -- Baltimore, MD ............   March 1998     November 24, 1999
 ---------------------------------------------------------------------------------------

 III   Homewood Suites -- Jackson, MS ..............  February 1997   December 22, 1999
 ---------------------------------------------------------------------------------------

 IV    Homewood Suites -- Malvern, PA ..............  January 1998       May 8, 2000
 IV    Homewood Suites -- Boulder, CO ..............  January 1991      June 30, 2000
 </TABLE>

(B) Represents  lease payment from the Lessee to the Company calculated on a pro
    forma  basis  by  applying  the  rent  provisions  in the master hotel lease
    agreement  to  the historical room revenue of the hotels as if the beginning
    of  the  period  was  the beginning of the lease year. The base rent and the
    percentage  rent  will  be  calculated  and  paid  based on the terms of the
    lease agreement.

(C) Represents  historical real estate and personal property taxes and insurance
    which  will  be  paid  by  the  Company  pursuant  to the master hotel lease
    agreement.  Such  amounts  are the historical amounts paid by the respective
    hotels.

(D) Represents  the  advisory  fee  of .25% of accumulated capital contributions
    under  the  "best  efforts" offering for the period of time not owned by the
    Company  (for  the  year  ended December 31, 1999 and the three months ended
    March  31,  2000)  plus  and anticipated legal and accounting fees, employee
    costs,  salaries  and  other costs of operating as a public company (for the
    year ended December 31, 1999).

(E) Represents  the  depreciation  on  the hotels acquired based on the purchase
    price,  excluding  amounts  allocated  to land, of $37,450,320 for the first
    acquisition   group,   $34,954,481   for   the   second  acquisition  group,
    $5,485,886  for  the third acquisition group, and $30,500,611 for the fourth
    acquisition  group  for  the  period  of  time not owned by the Company. The
    weighted   average  life  of  the  depreciable  assets  was  39  years.  The
    estimated   useful   lives  are  based  on  management's  knowledge  of  the
    properties and the hotel industry in general.

(F) Represents  the  interest  expense for the hotel acquisitions for the period
    in  which  the  hotels  were  not  owned.  Interest  was  computed using the
    interest  rates  of  8.5%  on mortgage debt that was incurred at acquisition
    of  $33,975,000  for the first acquisition group, $30,210,000 for the second
    acquisition   group,   $4,384,500  for  the  third  acquisition  group,  and
    $22,780,500 for the fourth acquisition group.

(G) Represents  additional  common  shares assuming the properties were acquired
    at  the  beginning  of  the periods presented with the net proceeds from the
    "best  efforts"  offering  of  $9  per  share  (net $8.06 per share) for the
    first  $15,000,000  and  $10  per  share  (net  $8.95  per  share)  for  the
    remainder.

(H) Represents  rent  expense  on  the  land lease at the Malvern, PA hotel. The
    Company accounts for the land lease as a operating lease.

(I)  Represents  reduction  in  interest income associated with the $1.6 million
     of cash used to purchase hotels at an interest rate of 5%.


                                      -33-
<PAGE>

                         APPLE SUITES MANAGEMENT, INC.

                        PRO FORMA CONDENSED CONSOLIDATED
                           STATEMENTS OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 1999
             AND THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)

     The  following  unaudited  Pro  Forma  Condensed Consolidated Statements of
Operations  of  Apple Suites Management, Inc. (the "Lessee") are presented as if
the  hotels  purchased  or  to  be  purchased  from  Promus  Hotels, Inc. or its
affiliates  ("Promus"),  which is now a wholly-owned subsidiary of Hilton Hotels
Corporation,  had  been  leased from Apple Suites, Inc. (the "Company") pursuant
to  the  master  hotel  lease agreements from the beginning of periods presented
for  the  respective  periods  prior to acquisition by the Company. Further, the
results  of  operations  reflect  the Management Agreement and License Agreement
entered  into  between  Promus  and  the  Lessee  or an affiliate to operate the
acquired  hotels.  The  lease agreements between the Company and the Lessee were
based  on  economic  conditions existing at the time of acquisition. Application
of  these  agreements to periods prior to the acquisition may not be meaningful.
Such  pro  forma  information  is based in part upon the historical Consolidated
Statements  of  Operations  of  the  Lessee  and  the Homewood Suites Hotels and
should  be  read  in conjunction with such financials statement. In management's
opinion,  all adjustments necessary to reflect the effects of these transactions
have been made.

     The  following  unaudited  Pro  Forma  Condensed Consolidated Statements of
Operations  are  not  necessarily  indicative  of  what  the  actual  results of
operations  of  the  Lessee  would have been assuming such transactions had been
completed  as  of the beginning of the periods presented, nor do they purport to
represent the results of operations for future periods.

FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)




 <TABLE>
 <CAPTION>
                                                         HOMEWOOD       HOMEWOOD
                                         HISTORICAL       SUITES         SUITES
                                        STATEMENT OF   ACQUISITIONS   ACQUISITIONS
                                         OPERATIONS        (A I)         (A II)
                                       -------------- -------------- --------------
 <S>                                   <C>            <C>            <C>
 Revenues:
  Suite revenue ......................   $5,335,925     $9,818,797    $12,082,374
  Other income .......................      335,150        560,096        709,240
 Expenses:
  Operating expenses .................    1,656,540      3,794,204      4,870,096
  General and administrative .........      494,377        250,317        300,399

  Advertising and promotion ..........      472,787        438,985        580,564

  Utilities ..........................      199,907        354,113        551,359
  Taxes and insurance ................           --        822,599        647,225
  Depreciation expense ...............           --      1,783,021      2,217,128
  Franchise fees .....................      213,437        392,757        483,295

  Management fees ....................      226,136        311,275        383,599

  Rent expense-Apple Suites, Inc.         2,518,031             --             --
  Other ..............................       30,964             --             --
                                         ----------     ----------    -----------
 Total expenses ......................    5,812,179      8,147,271     10,033,665
 Income before income tax ............     (141,104)     2,231,622      2,757,949
 Income tax expense ..................           --             --             --
                                         ----------     ----------    -----------
 Net income ..........................   $ (141,104)    $2,231,622    $ 2,757,949
                                         ==========     ==========    ===========
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                          HOMEWOOD      HOMEWOOD
                                           SUITES        SUITES
                                        ACQUISITION   ACQUISITION         PRO FORMA             TOTAL
                                          (A III)        (A IV)          ADJUSTMENTS          PRO FORMA
                                       ------------- ------------- ----------------------- --------------
 <S>                                   <C>           <C>           <C>                     <C>
 Revenues:
  Suite revenue ......................  $2,230,952    $7,419,101                   --       $36,887,149
  Other income .......................     168,438       398,812                   --         2,171,736
 Expenses:
  Operating expenses .................     954,102     2,491,119                   --        13,766,061
  General and administrative .........      77,381       105,719      $      (131,000)(B)
                                                                               50,000 (C)     1,147,193
  Advertising and promotion ..........     112,902       328,070           (1,262,049)(D)
                                                                            1,262,049 (E)     1,933,308
  Utilities ..........................      75,639       270,079                   --         1,451,097
  Taxes and insurance ................      93,884       444,161           (2,007,869) (F)           --
  Depreciation expense ...............     426,986       714,411           (5,141,546)(G)            --
  Franchise fees .....................      89,238       296,764           (1,262,049)(H)
                                                                            1,262,049 (I)     1,475,491
  Management fees ....................      71,982       234,000           (1,000,856)(J)
                                                                            1,467,512 (K)     1,693,648
  Rent expense-Apple Suites, Inc.               --            --           14,166,092 (L)    16,684,123
  Other ..............................          --       100,000             (100,000)(M)        30,964
                                        ----------    ----------      ---------------       -----------
 Total expenses ......................   1,902,114     4,984,323            7,302,333        38,181,885
 Income before income tax ............     497,276     2,833,590           (7,302,333)          877,000
 Income tax expense ..................          --            --              350,800 (N)       350,800
                                        ----------    ----------      ---------------       -----------
 Net income ..........................  $  497,276    $2,833,590      $    (7,653,133)      $   526,200
                                        ==========    ==========      ===============       ===========
 </TABLE>



                                      -34-
<PAGE>

                         APPLE SUITES MANAGEMENT, INC.

                        PRO FORMA CONDENSED CONSOLIDATED
                    STATEMENTS OF OPERATIONS -- (CONTINUED)


FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)




 <TABLE>
 <CAPTION>
                                                                  HOMEWOOD
                                                HISTORICAL         SUITES
                                               STATEMENT OF     ACQUISITION         PRO FORMA           TOTAL
                                                OPERATIONS         (A IV)          ADJUSTMENTS        PRO FORMA
                                              --------------   -------------   ------------------   -------------
 <S>                                          <C>              <C>             <C>                  <C>
 Revenues:
  Suite revenue ...........................     $7,682,355      $1,841,936                 --        $9,524,291
  Other income ............................        420,816          93,150                 --           513,966
 Expenses:
  Operating expenses ......................      2,295,392         633,274                 --         2,928,666
  General and administrative ..............        670,943          33,287        $    (6,000)(B)
                                                                                       12,500 (C)       710,730
  Advertising and promotion ...............        662,647          82,781            (73,677)(D)
                                                                                       73,677 (E)       745,428
  Utilities ...............................        283,263          65,361                 --           348,624
  Taxes and insurance .....................             --         118,585           (118,585)(F)            --
  Franchise fees ..........................        307,294          73,677            (73,677)(H)
                                                                                       73,677 (I)       380,971
  Management fees .........................        322,766          58,053            (58,053)(J)
                                                                                       83,403 (K)       406,169
  Rent expense-Apple Suites, Inc. .........      3,406,678              --            861,236 (L)     4,267,914
  Interest expense ........................         15,275              --                 --            15,275
  Other ...................................         96,212          25,000            (25,000)(M)        96,212
                                                ----------      ----------        -----------        ----------
 Total expenses ...........................      8,060,470       1,090,018            749,501         9,899,989
 Income before income tax .................         42,701         845,068           (749,501)          138,268
 Income tax expense .......................             --              --             55,307 (N)        55,307
                                                ----------      ----------        -----------        ----------
 Net income ...............................     $   42,701      $  845,068        $  (804,808)       $   82,961
                                                ==========      ==========        ===========        ==========
 </TABLE>


                                      -35-
<PAGE>

APPLE SUITES MANAGEMENT, INC.


NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(A)  Represents  results  of  operations  for the hotels acquired on a pro forma
     basis  as  if  the  hotels  were  leased  and operated by the Lessee at the
     beginning  of  the  periods  presented  for the respective periods prior to
     acquisition by the Company. See below.





 <TABLE>
 <CAPTION>
                                                      DATE COMMENCED         DATE
                          PROPERTY                      OPERATIONS         ACQUIRED
       --------------------------------------------- ---------------- ------------------
 <S>   <C>                                           <C>              <C>
 I     Homewood Suites -- Dallas, TX ...............      1990        September 1, 1999
 I     Homewood Suites -- Las Colinas, TX ..........      1990        September 1, 1999
 I     Homewood Suites -- Plano, TX ................      1997        September 1, 1999
 I     Homewood Suites -- Richmond. VA .............    May 1998      September 1, 1999
 I     Homewood Suites -- Atlanta, GA ..............      1990         October 1, 1999
 --------------------------------------------------------------------------------

 II    Homewood Suites -- Clearwater, FL ...........  February 1998   November 24, 1999
 II    Homewood Suites -- Salt Lake, UT ............      1996        November 24, 1999
 II    Homewood Suites -- Atlanta, GA ..............      1990        November 24, 1999
 II    Homewood Suites -- Detroit, MI ..............      1990        November 24, 1999
 II    Homewood Suites -- Baltimore, MD ............   March 1998     November 24, 1999
 --------------------------------------------------------------------------------

 III   Homewood Suites -- Jackson, MS ..............  February 1997   December 22, 1999
 --------------------------------------------------------------------------------

 IV    Homewood Suites -- Malvern, PA ..............  January 1998      May 8, 2000
 IV    Homewood Suites -- Boulder, CO ..............  January 1991     June 30, 2000
 </TABLE>

(B)  Represents the  elimination  of the historical  accounting fee allocated to
     the hotels by the prior owner.
(C)  Represents the addition of the  anticipated  legal and accounting and other
     expenses to operate as a stand alone company.
(D)  Represents  the  elimination of the  historical  advertising,  training and
     reservation fee allocated to the hotels by the prior owner.
(E)  Represents  the addition of the marketing fee to be incurred  under the new
     license  agreements.  The marketing fee is calculated based on the terms of
     the license agreements which is 4% of suite revenue.
(F)  Represents the  elimination of the taxes and insurance.  Under the terms of
     the lease these expenses will be incurred by the Company and,  accordingly,
     are reflected in the Company's Pro Forma Condensed  Consolidated  Statement
     of Operations.
(G)  Represents the elimination of the depreciation  expense.  This expense will
     be reflected in the Company's Pro Forma Condensed Consolidated Statement of
     Operations.
(H)  Represents the elimination of the historical franchise fee allocated to the
     hotels by the prior owner.
(I)  Represents the  addition of  franchise  fees to be incurred  under the new
     license agreements. The franchise fees are calculated based on the terms of
     the agreement , which is 4% of suite revenue.
(J)  Represents the  elimination of the historical  management fees allocated to
     the hotels by the prior owner.
(K)  Represents  the  addition of the  management  fees of 4% of suite and other
     revenue  and the  accounting  fee $1,000 per hotel per month to be incurred
     under the new management agreements for the period presented.
(L)  Represents  lease  payments from the Lessee to the Company  calculated on a
     pro forma basis by applying the rent provisions in the Percentage Leases to
     the historical room revenue of the hotels as if the beginning of the period
     was the beginning of the lease year. The base rent and the percentage  rent
     will be calculated and paid based on the terms of the lease agreement.
(M)  Represents  the  elimination  of rent expense for the land lease.  The rent
     expense  related to the land lease will be reflected on the  Company's  Pro
     Forma Condensed Consolidated Statement of Operations.
(N)  Represents the combined state and federal income tax expense estimated on a
     combined rate of 40%.


                                      -36-

<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 hereunto duly authorized.

                                           Apple Suites, Inc.


Date: July 17, 2000                        By:  /s/ Glade M. Knight
                                                --------------------------------
                                                Glade M. Knight,
                                                Chief Executive Officer
                                                of Apple Suites, Inc.









                                      -37-
[{"type": "8-K", "sequence": "1", "filename": "0001.txt", "description": "FORM 8-K", "secsgml_size_bytes": 111108}]
{"company-data": {"conformed-name": "APPLE SUITES INC", "cik": "0001084681", "assigned-sic": "6798", "irs-number": "541933472", "state-of-incorporation": "VA", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "8-K", "act": "34", "file-number": "000-30491", "film-number": "674066"}, "business-address": {"street1": "306 EAST MAIN ST", "city": "RICHMOND", "state": "VA", "zip": "23219", "phone": "8046431761"}, "mail-address": {"street1": "306 EAST MAIN ST", "city": "RICHMOND", "state": "VA", "zip": "23219"}}
SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 8-K

                                 CURRENT REPORT

     Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported):  June 30, 2000

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

     VIRGINIA                   000-30491                   54-1933472
     (State of                  (Commission                 (IRS Employer
     incorporation)             File Number)                Identification No.)

                  9 NORTH THIRD STREET
                  RICHMOND, VIRGINIA                        23219
                  (Address of principal                     (Zip Code)
                  executive offices)

               Registrant's telephone number, including area code:
                                 (804) 643-1761
APPLE SUITES, INC.

                                    FORM 8-K

                                      Index
Item 2.        Acquisition or Disposition of Assets

Item 7.        Financial Statements and Exhibits

         a.    Financial Statements

               Malvern, Pennsylvania Homewood Suites(R) by Hilton hotel
               Boulder, Colorado Homewood Suites(R) by Hilton hotel

1.       Property Financial Statements

               Independent Auditors' Report

               Combined Balance Sheets - December 31, 1999 and December 31, 1998

               Combined  Statements  of  Shareholders'   Equity -  Years  ended
               December 31, 1999 and December 31, 1998

               Combined Income Statements - Years ended December 31, 1999 and
               December 31, 1998

               Combined Statements of Cash Flows - Years ended December 31, 1999
               and December 31, 1998

               Notes to the Combined Financial Statements - December 31, 1999 and
               December 31, 1998

                                                      *             *              *

               Combined Balance Sheet - March 31, 2000 (unaudited)

               Combined  Statement  of  Shareholders'  Equity - For the  Period
               January 1, 2000 through March 31, 2000 (unaudited)

               Combined  Income  Statement - For the  Period  January  1,  2000
               through March 31, 2000 (unaudited)
-2-
Combined Statement of Cash Flows - For the Period January 1, 2000
               through March 31, 2000 (unaudited)

               Notes  to the  Combined  Financial  Statements - For the  Period
               January 1, 2000 through March 31, 2000 (unaudited)

   2.      Pro Forma Financial Statements (unaudited)

           Apple Suites, Inc.

               Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2000

               Notes to Pro Forma Condensed Consolidated Balance Sheet

               Pro Forma Condensed Consolidated Statements of Operations for the Year Ended
                 December 31, 1999 and the Three Months Ended March 31, 2000

           Apple Suites Management, Inc.

               Pro Forma Condensed Consolidated Statements of Operations for the Year Ended
                 December 31, 1999 and the Three Months Ended March 31, 2000

               Notes to Pro Forma Condensed Consolidated Statements of Operations
-3-
b.       Exhibits

          4.1    Note dated June 30, 2000 in the principal amount of $11,163,750
                 made  payable  by Apple  Suites,  Inc.  to the  order of Promus
                 Hotels, Inc.

          4.2    Fee and Leasehold Deed of Trust, Assignment of Leases and Rents
                 and Security  Agreement and Fixture  Filing dated June 30, 2000
                 from Apple Suites,  Inc. and Apple Suites Management,  Inc. for
                 the benefit of Promus Hotels,  Inc.  pertaining to the Boulder,
                 Colorado hotel.

          4.3    Leasehold and Subleasehold  Mortgage,  Assignment of Leases and
                 Rents and  Security  Agreement  dated June 30,  2000 from Apple
                 Suites, Inc., as Trustee for Apple Suites Pennsylvania Business
                 Trust,  and Apple  Suites  Management,  Inc. for the benefit of
                 Promus  Hotels,  Inc.  pertaining to the Malvern,  Pennsylvania
                 hotel.

          4.4    Deed of Trust Modification  Agreement dated June 30, 2000 among
                 Apple  Suites,  Inc.,  Apple Suites  Management,  Inc.,  Promus
                 Hotels,   Inc.  and  Lawyers  Title  Realty   Services,   Inc.,
                 pertaining to the Jackson, Mississippi hotel.

          4.5    Second Deed to Secure Debt  Modification  Agreement  dated June
                 30, 2000,  among Promus Hotels,  Inc.,  Apple Suites,  Inc. and
                 Apple  Suites  Management,  Inc.  pertaining  to the  Atlanta -
                 Peachtree hotel.

          4.6    Third Deed to Secure Debt Modification Agreement dated June 30,
                 2000, among Promus Hotels,  Inc., Apple Suites,  Inc. and Apple
                 Suites   Management,   Inc.   pertaining   to  the   Atlanta  -
                 Galleria/Cumberland hotel.

          4.7    Second  Mortgage  Modification  Agreement  dated June 30,  2000
                 among Apple Suites,  Inc.,  Apple Suites  Management,  Inc. and
                 Promus Hotels, Inc. pertaining to the Detroit - Warren hotel.

          4.8    Second  Deed of Trust  Modification  Agreement  dated  June 30,
                 2000, among Apple Suites, Inc., Apple Suites Management,  Inc.,
                 Promus  Hotels,  Inc. and Lawyers Title Realty  Services,  Inc.
                 pertaining to the Salt Lake City - Midvale hotel.

          4.9    Fourth  Deed of Trust  Modification  Agreement  dated  June 30,
                 2000,  among  Promus  Hotels,  Inc.,  Apple Suites REIT Limited
                 Partnership,  Apple Suites Services  Limited  Partnership and a
                 named Trustee pertaining to the North Dallas - Plano hotel.

          4.10   Fourth  Deed of Trust  Modification  Agreement  dated  June 30,
                 2000,  among  Promus  Hotels,  Inc.,  Apple Suites REIT Limited
                 Partnership,  Apple Suites Services  Limited  Partnership and a
                 named  Trustee  pertaining to the Dallas - Addison and Dallas -
                 Irving/Las Colinas hotels.

                                       -4-
10.1   Indemnity dated June 30, 2000 from Apple Suites, Inc. to Promus
                 Hotels, Inc. pertaining to the Boulder, Colorado hotel.

          10.2   Schedules  2.1(i),  3.1(a)-9 and 3.1(b)-9 to Master Hotel Lease
                 Agreement dated September 20, 1999 between Apple Suites,  Inc.,
                 (as lessor) and Apple Suites Management, Inc. (as lessee).

          10.3   Homewood  Suites License  Agreement dated June 30, 2000 between
                 Promus  Hotels,   Inc.  and  Apple  Suites   Management,   Inc.
                 pertaining to the Boulder, Colorado hotel.

          10.4   Management  Agreement  dated June 30, 2000 between Apple Suites
                 Management,  Inc. and Promus  Hotels,  Inc.  pertaining  to the
                 Boulder, Colorado hotel.

          10.5   Letter  dated June 30, 2000 among  Apple  Suites,  Inc.,  Apple
                 Suites  Management,  Inc.,  Hampton Inns,  Inc.,  Promus Hotels
                 Florida,  Inc. and Promus Hotels, Inc. affirming certain letter
                 agreements dated May 8, 2000.

          10.6   Comfort Letter dated June 30, 2000 among Promus  Hotels,  Inc.,
                 Apple Suites, Inc. and Apple Suites Management, Inc. pertaining
                 to the Boulder, Colorado hotel.

          10.7   Negative  Pledge  Agreement  dated June 30, 2000 between  Apple
                 Suites, Inc. and Promus Hotels, Inc.

          10.8   Promissory  Note dated  June 30,  2000 in the amount of $50,400
                 made payable by Apple Suites  Management,  Inc. to the order of
                 Apple Suites, Inc. (Hotel Franchise Fees)

          10.9   Promissory  Note dated  June 30,  2000 in the amount of $11,200
                 made payable by Apple Suites  Management,  Inc. to the order of
                 Apple Suites, Inc. (Hotel Supplies)

          10.10  Note dated July 1, 2000 in the principal amount of $80,000 made
                 payable by Apple Suites Management,  Inc. to the order of Apple
                 Suites, Inc. with respect to the Boulder, Colorado hotel.

          24     Consent of Independent Auditors

                                      -5-
ITEM 2.  Acquisition or Disposition of Assets

         We purchased an extended-stay hotel in Boulder, Colorado as of June 30,
2000.  The hotel  operates  under a license  granted by  Homewood  Suites(R)  by
Hilton.  The purchase price was  $14,885,000.  We used the net proceeds from our
offering of common shares to pay 25% of this total, or $3,721,250, at closing in
cash.  The  balance of 75%,  or  $11,163,750,  is being  financed by the seller,
Promus Hotels, Inc. This financing is described in more detail below.

Overview of Hotels

         Each of our hotels,  including the Boulder hotel,  is an  extended-stay
hotel,  and is licensed to operate under a franchise with Homewood  Suites(R) by
Hilton. We believe that the majority of the guests at our hotels during the past
12 months have been business travelers. We expect this pattern to continue.

         Each suite  consists of a bedroom and a living  room,  with an adjacent
kitchen area.  The basic suite is known as a "Homewood  Suite," which  generally
has one double or king-size  bed.  Larger  suites,  known as "Master  Suites" or
"Extended  Double  Suites" are also  available.  These suites have larger rooms,
with either one king-size bed or two smaller beds.  The largest  suites  contain
two separate bedrooms. Wheelchair-accessible suites are available at each hotel.

         The suites have many features and amenities in common. Most suites have
ceiling fans and two color televisions (one in the bedroom and one in the living
room).  Some suites have  fireplaces.  Typical living room furniture  includes a
sofa (often a fold-out  sleeper sofa),  coffee table and work/dining  table with
chairs.  Some living rooms contain a recliner and a  videocassette  player.  The
kitchens vary, but generally have a microwave, refrigerator,  dishwasher, coffee
maker and stove, together with basic cookware and utensils.

         The hotel are  marketed,  in part,  through  the web site for  Homewood
Suites(R)  by  Hilton   (http://www.homewood-suites.com),   which  is  generally
available 24 hours a day, seven days a week, around the world.  Reservations may
be made directly  through the web site. The reservation  system and the web site
are linked to, and  cross-marketed  with, the reservation  systems and web sites
for  other  hotel  franchises  that are  owned and  operated  by  Hilton  Hotels
Corporation.  Such  cross-marketing  may  affect  occupancy  at  our  hotels  by
directing travelers toward, or away from, Homewood Suites(R) by Hilton.

         Our hotels were actively  conducting  business at the time of purchase.
We believe that the purchases were conducted without  materially  disrupting any
daily hotel operations.  During the past 12 months, the hotels have been covered
with  property and  liability  insurance,  and we have arranged to continue such
coverage. We believe our hotels are adequately covered by insurance.

                                       -6-
Description of Boulder Hotel

         The Boulder hotel is located on a 3.0 acre site at 4950 Baseline  Road,
Boulder,  Colorado 80303. The hotel is  approximately  three miles from downtown
Boulder and 52 miles from the Denver International Airport.

         The hotel opened in January 1991. It has wood frame construction,  with
an exterior of brick veneer and stucco.  The hotel  consists of four  buildings,
each with three stories.  The hotel  contains 112 suites,  which have a combined
rentable  area of  57,040  square  feet.  The  following  types  of  suites  are
available:

         Type of  Suite             Number Available    Square Feet per Suite
         --------------             ----------------    ---------------------

         Master Suite                      28                     560
         Homewood Suite                    76                     440
         Two-Bedroom Suite                  8                     990

         The hotel offers a 40-seat  breakfast/lounge  area, a meeting room that
accommodates  25 to 30 people,  and a business center that offers guests the use
of a personal computer, a photocopier and an electric  typewriter.  Recreational
facilities  include an outdoor pool, a whirlpool and an exercise room. The hotel
also  contains  a guest  convenience  store and  laundry.  The hotel has its own
parking lot with 114 spaces.  The hotel provides  complimentary  shuttle service
within a five mile radius.

         We believe that the hotel has been well  maintained and is generally in
very good condition.  We plan to spend approximately  $287,450 on renovations or
improvements  over the  subsequent  12  months.  We  expect  that the  principal
renovations and improvements  will include interior painting and the replacement
of exterior lights,  carpet and kitchen flooring. We expect to pay for the costs
of these  renovations  and  improvements  with the proceeds from our offering of
common shares.

         During  2000  (through  May),  the  average  stay at the hotel has been
approximately 3.2 nights, and approximately  49.6% of the guests have stayed for
five nights or more.  In general,  occupancy at the hotel has  historically  not
been significantly  affected by seasonal  variations.  The following table shows
average daily occupancy rates, expressed as a percentage, since 1995:

                  Average Daily Occupancy Rate (calendar year)

                                                         2000
         1995    1996    1997    1998     1999        through May
         ----    ----    ----    ----     ----        -----------

         79.7%   80.3%   80.4%   79.8%    77.5%          74.9%

         During 2000  (through  May),  the average daily rate per suite has been
$115.32,  and the average  daily net revenue per suite has been $86.38.  As with
our other  properties,  revenue from the hotel,  including lease revenue that is
paid to us under the master hotel lease agreement for the hotel, will be used to
pay interest due under our promissory  notes payable to Promus Hotels,  Inc.

                                       -7-
Our  goal is to use the  proceeds  of our  offering  of  common  shares  to make
principal  payments.  There can be no  assurance,  however,  the proceeds of the
offering  will be  sufficient  for this  purpose,  and in that case  alternative
financing would be required.

         The hotel's  current rate structure is based on length of stay and type
of suite, as summarized below:

            Length of Stay
            (number of nights)     Homewood      Master           Two Bedroom
            ------------------     --------      ------           -----------

               1  to  4              $159        $169               $235
               5  to 11               144         154                225
               12 to 29               144         154                225
               30 or more             124         134                225

         The hotel offers a weekend  discount.  This discount  varies by type of
suite and  generally  reduces the basic rate by  approximately  30%. The weekend
discount is not available to guests who stay for five nights or more.  The hotel
also offers discounts to guests who stay under certain corporate accounts. These
discounts are often negotiated with the corporate customer and vary from account
to account. We estimate that, through May 2000, approximately 70% of the hotel's
guests received a corporate discount.

         The chief  corporate  accounts (as  designated in the hotel's  records)
include:  IBM,  Micro Motion,  Dieterich  Standard,  Printrak,  SCC,  Valleylab,
NCAR/UCAR,  Ball Aerospace,  Sybase,  Sun  Microsystems,  US West,  Xilinx,  and
Storagetek.  During 2000 (through May), the 10 largest  corporate  accounts were
responsible  for  approximately  37% of the hotel's  occupancy.  There can be no
assurance,  however,  that  the  hotel  will  continue  to  receive  significant
occupancy, or any occupancy, from the corporate accounts identified above.

         The table below shows the average  effective  annual  rental per square
foot since 1995:

                                                                         2000
         1995       1996         1997          1998        1999     (annualized)
         ----       ----         ----          ----        ----     ------------

        $55.80     $62.25       $65.26        $66.84      $63.64      $68.94

         The  depreciable  real property  component of the hotel has a currently
estimated  Federal tax basis of $11,461,450  and will be depreciated by us using
the  straight-line  method over a life of 39 years (or less, as permitted by the
Internal  Revenue  Code).  The basis of the personal  property  component of the
hotel will be  depreciated  in  accordance  with the modified  accelerated  cost
recovery system of the Internal Revenue Code.

                                       -8-
The following table  summarizes the hotel's real estate tax information
for 2000:

            Tax                      Assessed       Tax Rate         Amount
            Jurisdiction               Value       (per $1000)       of Tax
            ------------               -----       -----------       ------

            County of Boulder       $2,500,590       75.767       $189,462.20

         We estimate  that the annual tax for 2000 on the expected  improvements
will be approximately $11,000 or less.

         At least five  competing  hotels are located  within three miles of the
hotel.  (The  names  of  the  competing  franchises,  as  listed  below,  may be
registered as service marks or trade names.) Of these competing  hotels,  one is
newer than the hotel.  The newer  competing hotel has a franchise with Marriott.
The other competing hotels have franchises with Courtyard by Marriott, Residence
Inn by  Marriott  and Regal (with the fourth  hotel being a local,  unfranchised
property).  We  believe  that the  rates  charged  by the  hotel  are  generally
competitive  with the rates charged by these other  hotels.  We are not aware of
any ongoing or proposed construction for nearby extended-stay hotels.

         We are not  aware  of any  material  adverse  factors  relating  to the
Boulder  hotel not set  forth in this  report  that  would  cause the  financial
information in this report not to be necessarily  indicative of future operating
results.

         We paid a real  estate  commission  on this  purchase  to Apple  Suites
Realty Group,  Inc., as our real estate  broker.  This  corporation  is owned by
Glade M. Knight,  who is our president and chief  executive  officer.  The total
amount of the real estate commission was $297,700,  which equals 2% of the total
purchase price.

Hotel Supplies, Franchise Fees and Working Capital

         We have  provided  Apple  Suites  Management,  Inc.  with funds for the
purchase of certain hotel supplies (such as sheets, towels and so forth) for the
Boulder hotel.  Apple Suites  Management,  Inc. is obligated to repay us under a
promissory  note made in the principal  amount of $11,200.  This promissory note
provides for an annual interest rate of nine percent (9%),  which would increase
to twelve  percent  (12%) if a default  occurs,  and for  repayment  in  monthly
installments,  consisting  of  principal  and  interest on an  amortized  basis,
beginning on August 1, 2000. The maturity date is July 1, 2005.

         We have also provided Apple Suites Management,  Inc. with funds for the
payment of hotel franchise fees to Promus Hotels,  Inc. Apple Suites Management,
Inc. is  obligated  to repay us under a  promissory  note made in the  principal
amount of $50,400.  This  promissory  note is  substantially  similar to the one
described above, but has a maturity date of July 1, 2010.

         We have  advanced a total of  $1,040,000  to the  lessees of the hotels
under the master hotel lease agreements  (Apple Suites  Management,  Inc. or its
subsidiary).  The purpose of this action

                                       -9-
is to assist the lessees in satisfying working capital account requirements that
have been established by Promus Hotels, Inc., as licensor with respect to our 13
hotels.  At one time,  the lessees  contemplated  funding  the  working  capital
requirements  with rental income from the hotels.  It was  determined,  however,
that an advance from us would be more administratively convenient.

         The total advance was based on an allocation of $80,000 per hotel.  The
advance  with  respect  to the  Boulder  hotel was made as of July 1,  2000.  To
evidence  the  repayment   obligation  of  the  lessees,  we  have  received  13
substantially  identical promissory notes, each of which relates to a particular
hotel and is made in the principal amount of $80,000.  Each note provides for an
annual  interest  rate  of 9% and  for  repayment  in  monthly  installments  of
principal and interest, on an amortized basis, over a 10-year period.

Description of Financing

         As  indicated  above,  Promus  Hotels,  Inc.  is  financing  75% of the
purchase price for the Boulder hotel. This financing is substantially similar to
the  financing  provided by Promus  Hotels,  Inc.  when we  purchased  our other
hotels. The amounts we owe to Promus Hotels, Inc. are evidenced by the following
promissory notes:

                                  Original
              Month of           Principal       Annual Rate        Date of
          Promissory Note          Amount        of Interest       Maturity
          ---------------        ---------       -----------       --------

         September 1999         $26,625,000         8.5%        October 1, 2000
         October 1999           $ 7,350,000         8.5%        October 1, 2000
         November 1999          $30,210,000         8.5%        December 1, 2000
         December 1999          $ 4,384,500         8.5%        January 1, 2001
         May 2000               $11,616,750         8.5%        April 28, 2001
         June 2000              $11,163,750         8.5%        April 28, 2001
                                 ----------

                      TOTAL     $91,350,000
                                 ==========

         These  promissory  notes are  substantially  similar,  and each of them
provides for the following:

         o    monthly interest payments,  based on the actual number of days per
              month
         o    our delivery of monthly notices to specify the net equity proceeds
              from our offering
         o    our  right to  prepay  the  notes,  in  whole or in part,  without
              premium or penalty
         o    a late  payment  premium of four  percent for any payment not made
              within 10 days of its due date

                                      -10-
Revenue  from  the  hotels  will  be  used to pay  interest  under  the
promissory  notes.  This revenue will include lease payments made to us by Apple
Suites  Management,  Inc.  (or  a  subsidiary)  under  the  master  hotel  lease
agreements for our hotels.

Deeds of Trust and Related Documents

         Each of our hotels,  including the Boulder  hotel,  is  encumbered.  In
general,  the  encumbrances  consist of a mortgage on the hotel building and its
underlying real property,  a security  interest in any personal  property and an
assignment of hotel rents and revenues,  all in favor of Promus Hotels, Inc. (As
described  above,   Promus  Hotels,   Inc.  provided  financing  for  our  hotel
purchases).

         These  encumbrances  are  created by  substantially  similar  documents
having a variety of names, many of which depend on state law. For simplicity, we
will refer to each of these documents as a "deed of trust." At each closing on a
purchase with respect to a hotel or group of hotels,  we further  encumbered our
other hotels with  additional  deeds of trust or with  negative  pledges.  These
additional  encumbrances  are  designed to provide  additional  security for the
promissory notes.

         Each deed of trust  corresponds to one of the promissory  notes we made
to Promus Hotels,  Inc., and secures the payment of principal and interest under
that promissory note. The encumbrance created by a particular deed of trust will
terminate  when  its  corresponding  promissory  note  is paid  in  full.  Other
encumbrances  created by additional  deeds of trust or by negative  pledges will
remain in effect until the  promissory  notes to which they  correspond are also
paid in full.

         We are subject to various  requirements  under the deeds of trust.  For
instance,  we must  maintain  adequate  insurance  on the hotels and we must not
grant any  further  encumbrances,  or make any further  assignments  of rents or
leases, with respect to the hotels, except as permitted by Promus Hotels, Inc.

         Each deed of trust  contains  a  substantially  similar  definition  of
events of  default.  In each  case,  the  events  of  default  include  (without
limitation)  any default that occurs under any of the promissory  notes or under
another deed of trust,  and any sale of the secured  property  without the prior
consent of Promus Hotels,  Inc. Upon any event of default,  various remedies are
available  to Promus  Hotels,  Inc.  Those  remedies  include,  for  example (a)
declaring the entire  principal  balance  under the  promissory  notes,  and all
accrued  and unpaid  interest,  to be due and  payable  immediately;  (b) taking
possession of the secured  property,  including the hotels;  and (c)  collecting
hotel  rents and  revenues,  or  foreclosing  on the hotels,  to satisfy  unpaid
amounts under the  promissory  notes.  Each deed of trust requires us to pay any
costs that may be incurred in exercising such remedies.

         Negative  pledges  apply to the three  hotels in Florida,  Maryland and
Virginia.  The negative pledges prohibit any transfer or further  encumbrance of
the hotels,  in whole or in part,

                                      -11-
without the prior written  consent of Promus Hotels,  Inc. The negative  pledges
will  terminate when our  promissory  notes to Promus  Hotels,  Inc. are paid in
full.

Master Hotel Lease Agreement

         We have leased the Boulder hotel to Apple Suites  Management,  Inc. The
master hotel lease  agreement dated as of September 20, 1999 contains a schedule
that has  been  updated  to  include  the  Boulder  hotel  as one of the  leased
properties.

         The  agreement  provides for an initial term of 10 years.  Apple Suites
Management,  Inc.  has the option to extend  the lease  term for two  additional
five-year periods, provided it is not in default at the end of the prior term or
at the time the option is exercised.  The master hotel lease agreement  provides
that Apple  Suites  Management,  Inc.  will pay an annual base rent, a quarterly
percentage  rent and a quarterly  sundry  rent.  Each type of rent is  explained
below.

         Annual base rent is payable in advance in equal  monthly  installments.
Beginning in 2001, the base rent will be adjusted each year in proportion to the
Consumer Price Index (based on the U.S. City Average).  The annual base rent for
the Boulder hotel is currently $774,052.

         Percentage  rent is payable  quarterly.  Percentage  rent  depends on a
formula that compares fixed "suite revenue breakpoints" with a portion of "suite
revenue," which is equal to gross revenue from suite rentals less sales and room
taxes, credit card fees and sundry rent (as described below). Beginning in 2001,
the suite  revenue  breakpoints  will be adjusted each year in proportion to the
Consumer Price Index (based on the U.S. City Average). Suite revenue breakpoints
have been  determined for the first quarter of each year during the initial term
of  the  master  hotel  lease  agreement.  The  suite  revenue  breakpoints  for
subsequent  quarters are determined by  multiplying  the first quarter values by
two, three or four,  respectively.  The suite revenue  breakpoints for the third
and  fourth  quarters  of 2000 are  $281,754  and  $560,412,  respectively.  The
following  table shows the suite  revenue  breakpoints  for the first quarter of
subsequent years, before any adjustment due to the Consumer Price Index:

                 Suite Revenue Breakpoints for the First Quarter
2001      2002       2003       2004       2005       2006       2007      2008      2009
   ----      ----       ----       ----       ----       ----       ----      ----      ----
$251,566   $259,306   $270,917   $278,658   $286,398   $294,139   $301,879  $309,620  $317,360
Specifically, the percentage rent is equal to the sum of (a) 17% of all
year-to-date suite revenue, up to the applicable suite revenue breakpoint;  plus
(b) 55% of the  year-to-date  suite  revenue in excess of the  applicable  suite
revenue breakpoint, as reduced by base rent and the percentage rent paid year to
date.

         The  sundry  rent is  payable  quarterly  and  equals 55% of all sundry
revenue,  which consists of revenue other than suite revenue, less the amount of
sundry rent paid year-to-date.

                                      -12-
Other Agreements

         The Boulder  hotel is subject to a license  agreement  and a management
agreement  with  Promus  Hotels,  Inc.  We have  entered  into an  environmental
indemnity  agreement  with  Promus  Hotels,  Inc.,  as well as a comfort  letter
agreement  regarding  the lease with Apple Suites  Management,  Inc. and certain
other issues.  These  agreements are  substantially  similar to agreements  that
exist with respect to our other hotels.

                                      -13-
ITEM 7.a.1
L.P. MARTIN & COMPANY
                                   A PROFESSIONAL CORPORATION
            MEMBERS               CERTIFIED PUBLIC ACCOUNTANTS                  MEMBERS
        VIRGINIA SOCIETY OF            4132 INNSLAKE DRIVE               AMERICAN INSTITUTE OF
 CERTIFIED PUBLIC ACCOUNTANTS      GLEN ALLEN, VIRGINIA 23060        CERTIFIED PUBLIC ACCOUNTANTS

 LEE P. MARTIN, JR., C.P.A.           PHONE: (804) 345-2626              ROBERT C. JOHNSON, C.P.A.
 WILLIAM L. GRAHAM, C.P.A.             FAX: (804) 346-9311         LEE P. MARTIN, C.P.A. (1948-76)
 BERNARD G. KINZIE, C.P.A.
 W. BARCLAY BRADSHAW, C.P.A.
INDEPENDENT AUDITORS' REPORT

Apple Suites, Inc.
Richmond, Virginia

     We  have  audited  the accompanying combined balance sheets of the Homewood
Suites  Acquisition  Hotels  (described  in  Note 1) as of December 31, 1999 and
1998,  and  the  related combined statements of income, shareholders' equity and
cash  flows  for  the  years  then  ended.  These  financial  statements are the
responsibility  of  the  management  of  the  hotels.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

     We  conducted  our  audits  in  accordance with generally accepted auditing
standards.  Those  standards  require  that  we  plan  and perform the audits to
obtain  reasonable  assurance about whether the financial statements are free of
material  misstatement.  An  audit includes examining, on a test basis, evidence
supporting  the  amounts  and  disclosures in the financial statements. An audit
also   includes   assessing  the  accounting  principles  used  and  significant
estimates  made  by  management,  as  well  as  evaluating the overall financial
statement  presentation.  We  believe that our audits provide a reasonable basis
for  our  opinion.  The  accompanying financial statements were prepared for the
purpose  of  complying  with  the  rules  and  regulations of the Securities and
Exchange  Commission  as described in Note 1 to the financial statements and are
not  intended  to  be a complete presentation of the Homewood Suites Acquisition
Hotels.

     In  our opinion, the financial statements referred to above present fairly,
in  all  material  respects,  the  combined  financial  position of the Homewood
Suites  Acquisition  Hotels  as  of December 31, 1999 and 1998, and the combined
results  of  their  operations  and their cash flows for the years then ended in
conformity with generally accepted accounting principles.

                                        /s/ L.P. Martin & Co, P.C.

Richmond, Virginia
May 31, 2000

                                      -14-
HOMEWOOD SUITES ACQUISITION HOTELS

                            COMBINED BALANCE SHEETS
DECEMBER 31, 1999   DECEMBER 31, 1998
                                                         ------------------- ------------------
ASSETS
 CURRENT ASSETS
  Cash .................................................    $    231,297        $    142,363
  Accounts Receivable, Net .............................         207,653             157,754
  Prepaids and Other ...................................          85,403              15,751
                                                            ------------        ------------
    Total Current Assets ...............................         524,353             315,868
                                                            ------------        ------------
 INVESTMENT IN HOTEL PROPERTIES
  Land and Improvements ................................       1,911,918           1,911,918
  Buildings and Improvements ...........................      13,078,590          13,078,407
  Furniture, Fixtures and Equipment ....................       4,362,527           4,091,364
                                                            ------------        ------------
    Total ..............................................      19,353,035          19,081,689
  Less: Accumulated Depreciation .......................      (4,170,565)         (3,473,189)
                                                            ------------        ------------
    Net Investment in Hotel Properties .................      15,182,470          15,608,500
                                                            ------------        ------------
    Total Assets .......................................    $ 15,706,823        $ 15,924,368
                                                            ============        ============
 LIABILITIES AND SHAREHOLDERS' EQUITY
 CURRENT LIABILITIES
  Accounts Payable .....................................    $     17,104        $     44,353
  Accrued Taxes ........................................         277,595             358,676
  Accrued Expenses - Other .............................         105,781             109,590
                                                            ------------        ------------
    Total Current Liabilities ..........................         400,480             512,619
                                                            ------------        ------------
 SHAREHOLDERS' EQUITY
  Contributed Capital ..................................       2,364,469           5,303,463
  Retained Earnings ....................................      12,941,874          10,108,286
                                                            ------------        ------------
    Total Shareholders' Equity .........................      15,306,343          15,411,749
                                                            ------------        ------------
    Total Liabilities and Shareholders' Equity .........    $ 15,706,823        $ 15,924,368
                                                            ============        ============
The accompanying notes are an integral part of these financial statements.

                                      -15-
HOMEWOOD SUITES ACQUISITION HOTELS

                  COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
TOTAL
                                           CONTRIBUTED        RETAINED      SHAREHOLDERS'
                                             CAPITAL          EARNINGS         EQUITY
                                         ---------------   -------------   --------------
Balances, January 1, 1998 ...........    $  6,640,591     $ 7,475,355      $ 14,115,946
 Net Income ..........................              --       2,632,931         2,632,931
 Capital Distributions, Net ..........      (1,337,128)             --        (1,337,128)
                                          ------------     -----------      ------------
 Balances, December 31, 1998 .........       5,303,463      10,108,286        15,411,749
 Net Income ..........................              --       2,833,588         2,833,588
 Capital Distributions, Net ..........      (2,938,994)             --        (2,938,994)
                                          ------------     -----------      ------------
 Balances, December 31, 1999 .........    $  2,364,469     $12,941,874      $ 15,306,343
                                          ============     ===========      ============
COMBINED INCOME STATEMENTS
YEARS ENDED DECEMBER 31,
                                                                            ---------------------------
                                                                                 1999          1998
                                                                            ------------- -------------
GROSS OPERATING REVENUE
  Suite Revenue ...........................................................  $7,419,101    $7,173,338
  Other Customer Revenue ..................................................     398,812       437,197
                                                                             ----------    ----------
    Total Revenue .........................................................   7,817,913     7,610,535
                                                                             ----------    ----------
 EXPENSES
  Property and Operating ..................................................   2,491,119     2,400,823
  General and Administrative ..............................................     105,719        95,694
  Advertising and Promotion ...............................................     328,070       325,398
  Utilities ...............................................................     270,080       291,153
  Real Estate and Personal Property Taxes, and Property Insurance .........     444,162       338,054
  Land Rent ...............................................................     100,000       100,000
  Depreciation Expense ....................................................     714,411     1,003,928
  Franchise and Management Fees ...........................................     530,764       286,933
  Pre-Opening Expenses ....................................................          --       135,621
                                                                             ----------    ----------
    Total Expenses ........................................................   4,984,325     4,977,604
                                                                             ----------    ----------
    Net Income ............................................................  $2,833,588    $2,632,931
                                                                             ==========    ==========
The accompanying notes are an integral part of these financial statements.

                                      -16-
HOMEWOOD SUITES ACQUISITION HOTELS

                       COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
                                                        -------------------------------
                                                              1999            1998
                                                        --------------- ---------------
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
  Net Income ..........................................  $  2,833,588    $  2,632,931
                                                         ------------    ------------
  Adjustments to reconcile net income to net cash
    Provided by operating activities:
    Depreciation ......................................       714,411       1,003,928
    Change In:
     Accounts receivable ..............................       (49,899)        (96,807)
     Prepaids and other current assets ................       (69,652)        (15,751)
     Accounts payable .................................       (27,249)       (491,258)
     Accrued taxes ....................................       (81,081)        158,299
     Accrued expenses - other .........................        (3,809)         46,124
                                                         ------------    ------------
 Net adjustments ......................................       482,721         604,535
                                                         ------------    ------------
       Net cash flows from operating activities .......     3,316,309       3,237,466
                                                         ------------    ------------
 CASH FLOWS TO FINANCING ACTIVITIES
  Capital distributions, net ..........................    (3,227,375)     (3,139,575)
                                                         ------------    ------------
    Net increase in cash ..............................        88,934          97,891
    Cash, beginning of year ...........................       142,363          44,472
                                                         ------------    ------------
    Cash, end of year .................................  $    231,297    $    142,363
                                                         ============    ============
SUPPLEMENTAL DISCLOSURES:

NONCASH FINANCING AND INVESTING ACTIVITIES

     Year Ended December 31, 1999

     Investments  in  hotel  properties in  the amount of $288,381 were financed
     with capital contributions.

     Year Ended December 31, 1998

     Investments  in  hotel properties in the amount of $1,802,447 were financed
     with capital contributions.

     Construction  in progress  in  the amount of $7,510,072 was reclassified to
     investment in hotel properties.

The accompanying notes are an integral part of these financial statements.

                                      -17-
HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
                          DECEMBER 31, 1999 AND 1998

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

     The  Homewood  Suites  Acquisition  Hotels  (the  Hotels)  consist  of  the
following:
PROPERTY                             HOTEL LOCATION       DATE OPENED    # OF SUITES
 ------------------------------  ----------------------- --------------- ------------
Boulder                       Boulder, Colorado    January, 1991       112
      Philadelphia/Great Valley   Malvern, Pennsylvania  January, 1998       123
Economic  conditions  in  the localities in which the individual hotels are
located impact revenues and the ability to collect accounts receivable.

     The  Hotels  specialize  in  providing extended stay lodging to business or
leisure  travelers. While customers may rent rooms for a night, terms of up to a
month  or  longer  are  available.  Services  offered,  which  are  particularly
attractive  to  the  extended  stay  traveler, include laundry services, 24 hour
on-site convenience stores and grocery shopping services.

     The  Hotels  were  owned  and  managed by affiliates of Promus Hotels, Inc.
(the  Owner)  through  November 30, 1999. Promus Hotels, Inc. and the affiliated
entities  owning the Hotels were acquired by Hilton Hotels Corporation effective
November  30,  1999. Hilton Hotels Corporation has managed the Hotels since that
date.  The  accompanying  combined  financial statements of the Hotels have been
presented  on  a  combined  basis  because the Owner sold the Philadelphia/Great
Valley  Hotel  to  an  affiliate  of Apple Suites, Inc. on May 8, 2000 and has a
contract  pending  to  sell  the Boulder Hotel property to an affiliate of Apple
Suites,  Inc.  Apple Suites, Inc., is a real estate investment trust established
to  acquire  equity  interests  in  hotel  properties.  The statements have been
prepared  pursuant  to  the rules and regulations of the Securities and Exchange
Commission for inclusion in a filing by Apple Suites, Inc.

     The  corporate  owner pays income taxes on taxable income of the company as
a   whole   and  does  not  allocate  income  taxes  to  individual  properties.
Accordingly,  the  combined financial statements have been presented on a pretax
basis.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

     Property  --  The  Hotel  properties  are  recorded  at  cost. Depreciation
through August 1999 has been recorded straight-line using the following lives:
LIFE
                                                  ------------
Land Improvements ..........................  5-12 Years
     Buildings and Improvements ................. 15-35 Years
     Furniture, Fixtures and Equipment ..........  3-10 Years
Major   renewals,  betterments  and  improvements  are  capitalized,  while
ongoing  maintenance  and  repairs  are  expensed  as  incurred.  Building costs
include  interest  capitalized  during  the construction period. Construction in
progress represents Hotel

                                      -18-
HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
                    DECEMBER 31, 1999 AND 1998 - (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

properties  under  construction.  At the point construction is completed and the
Hotels  are  ready  to  be  placed  in  service,  the  costs are reclassified to
investment in Hotel properties for financial statement presentation.

     Estimates  --  The  preparation  of financial statements in accordance with
generally  accepted  accounting principals requires management to make estimates
and  assumptions  that  affect  the  reported  amounts  of  assets, liabilities,
revenues  and  expenses  and  disclosures  related thereto. Actual results could
differ from those estimates.

     Annually,   management  of  the  hotels  reviews  the  carrying  value  and
remaining  depreciable  lives of the Hotel properties and related assets. During
1999,  the  Owner  identified  the  Philadelphia/Great  Valley and Boulder Hotel
properties  as  held  for  disposal.  In  accordance with Statement of Financial
Accounting  Standards  number  121,  management  discontinued  depreciating  the
assets  at this time. Accordingly, the 1999 income statement includes only eight
months   depreciation.   Sales   proceeds   received   from   the  sale  of  the
Philadelphia/Great  Valley  property  on  May  8,  2000  and  anticipated  sales
proceeds  for the pending sale of the Boulder Hotel property both exceed the net
carrying values of the properties reflected in these financial statements.

     Accounts  receivable are recorded net of an allowance for doubtful accounts
based  on management's historical experience in estimating credit losses. Actual
uncollectible  balances  written  off  may  be  more  or less than the allowance
recorded.

     Cash  --  Cash  includes all highly liquid investments with a maturity date
of three months or less when purchased.

     Advertising -- Advertising costs are expensed in the period incurred.

     Pre-Opening  Expenses  -- Pre-opening expenses represent operating expenses
incurred  prior  to initial opening of the hotels. In 1998, pre-opening expenses
of $135,621 were expensed as incurred for the Philadelphia/Great Valley hotel.

     Inventories  --  The  Hotels  maintain supplies of room linens and food and
beverages.  However,  due  to the ongoing routine replacement of these items and
the  difficulty  in establishing market values, management has chosen to expense
these items at point of purchase.

NOTE 3 -- RELATED PARTY TRANSACTIONS

     During  the  years  ended  December  31, 1999 and 1998, the following owner
related fees were expensed.

                                      -19-
HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
                    DECEMBER 31, 1999 AND 1998 - (CONTINUED)
NOTE 3 -- RELATED PARTY TRANSACTIONS - (CONTINUED)
TOTAL EXPENSE
                                                                       -----------------------
 FEE TYPE                                  BASIS FOR DETERMINATION        1999         1998
 ------------------------------------   ----------------------------   ----------   ----------
Accounting Fees ....................   $1,000 per hotel per month      $ 24,000     $ 24,000
 Corporate Advertising,
  Training and Reservations .........   4% of Net Suite Revenue         $296,764     $286,934
 Franchise Fees .....................   4% of Net Suite Revenue         $296,764     $286,933
 Management Fees ....................   3% of Total Revenue             $234,000     $     --
The  acquisition  cost  of  the  properties  and  related  furnishings  and
equipment  was  financed  by  the  Owner.  The  Owner allocated interest to each
property  on  monies advanced to fund the construction costs. The interest costs
have  been  capitalized  and  depreciated  in accordance with the Hotels' normal
depreciation  policy. Interest capitalized and included in the cost basis of the
hotels totaled $242,065 in 1998.

     On   most   property   and   equipment   purchases,  excluding  base  hotel
construction  contracts,  the  following  fees  paid  to  the  Owner  have  been
capitalized:

       Purchase Fee -- 3.0% to 4.0% of Asset Cost
       Project  Management  Fee  -- 4.0% to 4.5% of labor portion of capitalized
       asset costs

     Each  Hotel  maintains  a  depository  bank  account  into  which  customer
revenues  have  been  deposited. The bulk of each Hotel's operating expenditures
are  paid through the Owner's corporate accounts. Funds are transferred from the
Hotel's  depository  bank  accounts  to the Owner periodically. The transfers to
the  Owner  and  expenditures  made  on  behalf  of  the Hotels by the Owner are
accounted  for  through  various  intercompany  accounts.  No  interest has been
charged  on  these  intercompany  advances  from ongoing operations. There is no
intention  to  repay  any  advances  to  or from the Owner. Accordingly, the net
amounts   have  been  included  in  shareholders'  equity  with  1999  and  1998
intercompany/intracompany    transfers    being   reflected   as   net   capital
distributions.

NOTE 4 -- LAND LEASE

     The  land  on  which  the  Philadelphia/  Great  Valley hotel is located is
leased.  The  lease  is  for  a  30 year term beginning May 1, 1997 and includes
three  10  year renewal options. Scheduled rent is $100,000 annually, payable in
monthly  installments. Rent can be increased but not decreased, every 5 years by
the CPI change, not to exceed 15%.

     Below are scheduled minimum lease payments for each of the next 5 years.
2000 .................    $100,000
   2001 .................     100,000
   2002 .................     100,000
   2003 .................     100,000
   2004 .................     100,000
                             --------
                             $500,000
                             ========
-20-
HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
                    DECEMBER 31, 1999 AND 1998 - (CONTINUED)

NOTE 4 -- LAND LEASE - (CONTINUED)

     Rent expense for each of the years ended December 31, totaled $100,000.

NOTE 5 -- CONCENTRATIONS OF CREDIT RISK

     At  December  31,  1999,  financial instruments that subject the Company to
concentrations  of  credit  risk  consist of cash deposits in a single financial
institution which exceed maximum amounts insurable by FDIC by $52,977.

                                      -21-
HOMEWOOD SUITES ACQUISITION HOTELS

                      COMBINED BALANCE SHEET (UNAUDITED)
MARCH 31, 2000
                                                         ---------------
ASSETS
 CURRENT ASSETS
  Cash .................................................  $    154,617
  Accounts receivable, net .............................       334,193
  Prepaids and other ...................................        37,509
                                                          ------------
    Total current assets ...............................       526,319
                                                          ------------
 INVESTMENT IN HOTEL PROPERTIES
  Land and improvements ................................     1,911,918
  Buildings and Improvements ...........................    13,078,590
  Furniture, fixtures and equipment ....................     4,362,527
                                                          ------------
    Total ..............................................    19,353,035
  Less: Accumulated depreciation .......................    (4,170,565)
                                                          ------------
    Net investment in hotel properties .................    15,182,470
                                                          ------------
    Total assets .......................................  $ 15,708,789
                                                          ============
 LIABILITIES AND SHAREHOLDERS' EQUITY
 CURRENT LIABILITIES
  Accounts payable .....................................  $      1,679
  Accrued taxes ........................................       223,311
  Accrued expenses -- Other ............................       101,583
                                                          ------------
    Total current liabilities ..........................       326,573
                                                          ------------
 SHAREHOLDERS' EQUITY
 Contributed capital ...................................     1,595,274
  Retained earnings ....................................    13,786,942
                                                          ------------
    Total Shareholders' Equity .........................    15,382,216
                                                          ------------
    Total Liabilities and Shareholders' Equity .........  $ 15,708,789
                                                          ============
The accompanying notes are an integral part of this financial statement.

                                      -22-
HOMEWOOD SUITES ACQUISITION HOTELS

                  COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
       FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED)
TOTAL
                                         CONTRIBUTED       RETAINED       SHAREHOLDERS'
                                           CAPITAL         EARNINGS          EQUITY
                                        -------------   --------------   --------------
Balances, January 1, 2000 ..........    $2,364,469      $12,941,874      $15,306,343
 Net Income .........................            --          845,068          845,068
 Capital Distributions, Net .........      (769,195)              --         (769,195)
                                         ----------      -----------      -----------
 Balances, March 31, 2000 ...........    $1,595,274      $13,786,942      $15,382,216
                                         ==========      ===========      ===========
COMBINED INCOME STATEMENT

       FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED)
GROSS OPERATING REVENUE
  Suite Revenue ...........................................................    $1,841,936
  Other Customer Revenue ..................................................        93,150
                                                                               ----------
    Total Revenue .........................................................     1,935,086
                                                                               ----------
 EXPENSES
  Property and Operating ..................................................       633,274
  General and Administrative ..............................................        33,287
  Advertising and Promotion ...............................................        82,781
  Utilities ...............................................................        65,361
  Real Estate and Personal Property Taxes, and Property Insurance .........       118,585
  Land Rent ...............................................................        25,000
  Franchise and Management Fees ...........................................       131,730
                                                                               ----------
    Total Expenses ........................................................     1,090,018
                                                                               ----------
    Net Income ............................................................    $  845,068
                                                                               ==========
The accompanying notes are an integral part of this financial statement.

                                      -23-
HOMEWOOD SUITES ACQUISITION HOTELS

                       COMBINED STATEMENT OF CASH FLOWS
       FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED)
CASH FLOWS FROM (TO) OPERATING ACTIVITIES
  Net Income ......................................................................    $  845,068
                                                                                       ----------
  Adjustments to reconcile net income to net cash provided by operating activities:
    Change in:
     Accounts receivable ..........................................................      (126,540)
     Prepaids and other current assets ............................................        47,894
     Accounts payable .............................................................       (15,425)
     Accrued taxes ................................................................       (54,284)
     Accrued expenses - other .....................................................        (4,198)
                                                                                       ----------
 Net Adjustments ..................................................................      (152,553)
                                                                                       ----------
     Net cash flows from operating activities .....................................       692,515
 CASH FLOWS TO FINANCING ACTIVITIES:
  Net equity distributions ........................................................      (769,195)
                                                                                       ----------
     Net decrease in cash .........................................................       (76,680)
     Cash, January 1, 2000 ........................................................       231,297
                                                                                       ----------
     Cash, March 31, 2000 .........................................................    $  154,617
                                                                                       ==========
The accompanying notes are an integral part of this financial statement.

                                      -24-
HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
       FOR THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED)

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

     The  Homewood  Suites  Acquisition  Hotels  (the  Hotels)  consist  of  the
following:
PROPERTY                              HOTEL LOCATION       DATE OPENED    # OF SUITES
 -------------------------------- ----------------------- --------------- ------------
Boulder                        Boulder, Colorado    January, 1991       112
      Philadelphia/Great Valley    Malvern, Pennsylvania  January, 1998       123
Economic  conditions  in  the localities in which the individual hotels are
located impact revenues and the ability to collect accounts receivable.

     The  Hotels  specialize  in  providing extended stay lodging to business or
leisure  travelers. While customers may rent rooms for a night, terms of up to a
month  or  longer  are  available.  Services  offered,  which  are  particularly
attractive  to  the  extended  stay  traveler, include laundry services, 24 hour
on-site convenience stores and grocery shopping services.

     The  Hotels  have  been owned and managed by Hilton Hotels Corporation (the
Owner)  throughout  the  financial  statement  period. The accompanying combined
financial  statements  of  the  Hotels  have  been presented on a combined basis
because  the  Owner  sold the Philadelphia/Great Valley Hotel to an affiliate of
Apple  Suites,  Inc.  on  May  8,  2000  and  has a contract pending to sell the
Boulder  Hotel property to an affiliate of Apple Suites, Inc. Apple Suites, Inc.
is  a  real  estate  investment trust established to acquire equity interests in
hotel  properties.  The  statements have been prepared pursuant to the rules and
regulations  of the Securities and Exchange Commission for inclusion in a filing
by Apple Suites, Inc.

     The  corporate  owner pays income taxes on taxable income of the company as
a   whole   and  does  not  allocate  income  taxes  to  individual  properties.
Accordingly,  the  combined financial statements have been presented on a pretax
basis.

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES

     Property  --  The  Hotel  properties  are  recorded  at  cost. Depreciation
through  August, 1999 has been recorded straight-line using the following lives:
LIFE
                                                 ------------
Land Improvements ..........................  5-12 Years
    Buildings and Improvements ................. 15-35 Years
    Furniture, Fixtures and Equipment ..........  3-10 Years
-25-
HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR  THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED) - (CONTINUED)

NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

     Major   renewals,  betterments  and  improvements  are  capitalized,  while
ongoing  maintenance  and  repairs  are  expensed  as  incurred.  Building costs
include interest capitalized during the construction period.

     Estimates  --  The  preparation  of financial statements in accordance with
generally  accepted  accounting principals requires management to make estimates
and  assumptions  that  affect  the  reported  amounts  of  assets, liabilities,
revenues  and  expenses  and  disclosures  related thereto. Actual results could
differ from those estimates.

     Annually,   management  of  the  hotels  reviews  the  carrying  value  and
remaining  depreciable  lives of the Hotel properties and related assets. During
1999,  the  Owner  identified  the  Philadelphia/Great  Valley and Boulder Hotel
properties  as  held  for  disposal.  In  accordance with Statement of Financial
Accounting  Standards  number  121,  management  discontinued  depreciating  the
assets  at  this  time.  Accordingly, the January 1, 2000 through March 31, 2000
income  statement does not include depreciation expense. Sales proceeds received
from  the  sale  of  the  Philadelphia/Great  Valley property on May 8, 2000 and
anticipated  sales  proceeds  for the pending sale of the Boulder Hotel property
both  exceed  the  net  carrying  values  of  the  properties reflected in these
financial statements.

     Accounts  receivable are recorded net of an allowance for doubtful accounts
based  on management's historical experience in estimating credit losses. Actual
uncollectible  balances  written  off  may  be  more  or less than the allowance
recorded.

     Cash  --  Cash  includes all highly liquid investments with a maturity date
of three months or less when purchased.

     Advertising -- Advertising costs are expensed in the period incurred.

     Inventories  --  The  Hotels  maintain supplies of room linens and food and
beverages.  However,  due  to the ongoing routine replacement of these items and
the  difficulty  in establishing market values, management has chosen to expense
these items at point of purchase.

                                      -26-
HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR THE  PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED) - (CONTINUED)

NOTE 3 -- RELATED PARTY TRANSACTIONS

     During  the  period  January  1, 2000 through March 31, 2000, the following
Owner related fees were expensed.
FEE TYPE                             BASIS FOR DETERMINATION      TOTAL EXPENSE
 -------------------------------   ----------------------------   --------------
Accounting Fees ...............   $1,000 per hotel per month         $ 6,000
 Corporate Advertising, Training
  and Reservations .............   4% of net suite revenue             73,677
 Franchise Fees ................   4% of net suite revenue             73,677
 Management Fees ...............   3% of net suite revenue             58,053
The  acquisition  cost  of  the  properties  and  related  furnishings  and
equipment  was  financed  by  the  Owner.  The  Owner allocated interest to each
property  on  monies advanced to fund the construction costs. The interest costs
have  been  capitalized  and  depreciated  in accordance with the Hotels' normal
depreciation policy.

     On   most   property   and   equipment   purchases,  excluding  base  hotel
construction  contracts,  the  following  fees paid to Hilton Hotels Corporation
have been capitalized:

       Purchase Fee -- 4% of Asset Cost
       Project  Management  Fee -- 4.0 % to 4.5% of labor portion of capitalized
       asset costs

     Each  Hotel  maintains  a  depository  bank  account  into  which  customer
revenues  have  been  deposited. The bulk of each Hotel's operating expenditures
are  paid through the Owner's corporate accounts. Funds are transferred from the
Hotel's  depository  bank  accounts  to the Owner periodically. The transfers to
the  Owner  and  expenditures  made  on  behalf  of  the Hotels by the Owner are
accounted  for  through  various  intercompany  accounts.  No  interest has been
charged  on  these  intercompany  advances  from ongoing operations. There is no
intention  to  repay  any  advances  to  or from the Owner. Accordingly, the net
amounts     have     been     included     in    shareholders'    equity    with
intercompany/intracompany    transfers    being   reflected   as   net   capital
distributions.

                                      -27-
HOMEWOOD SUITES ACQUISITION HOTELS

                  NOTES TO THE COMBINED FINANCIAL STATEMENTS
FOR  THE PERIOD JANUARY 1, 2000 THROUGH MARCH 31, 2000 (UNAUDITED) - (CONTINUED)

NOTE 4 -- LAND LEASE

     The  land  on  which  the  Philadelphia/Great  Valley  hotel  is located is
leased.  The  lease  is  for  a  30 year term beginning May 1, 1997 and includes
three  10  year renewal options. Scheduled rent is $100,000 annually, payable in
monthly  installments. Rent can be increased but not decreased, every 5 years by
the CPI change, not be exceed 15%.

     Below are scheduled minimum lease payments for each of the next 5 years.
2000 .................    $100,000
   2001 .................     100,000
   2002 .................     100,000
   2003 .................     100,000
   2004 .................     100,000
                             --------
                             $500,000
                             ========
Rent  expense for the period January 1, 2000 through March 31, 2000 totaled
$25,000.

                                      -28-
ITEM 7.a.2

                              APPLE SUITES, INC.

                        PRO FORMA CONDENSED CONSOLIDATED
                BALANCE SHEET AS OF MARCH 31, 2000 (UNAUDITED)

     The following unaudited Pro Forma Condensed  Consolidated  Balance Sheet of
Apple Suites,  Inc. (the  "Company") is presented as if the  acquisition  of the
Homewood  Suites -- Malvern,  PA hotel on May 8, 2000 and the acquisition of the
Homewood Suites -- Boulder,  CO hotel on June 30, 2000 from Promus Hotels,  Inc.
or its affiliates ("Promus"),  which is now a wholly-owned  subsidiary of Hilton
Hotels  Corporation,  had occurred on March 31, 2000.  See Note A for individual
hotel  details.   Such   information  is  based  in  part  upon  the  historical
Consolidated  Balance Sheet of the Company as of March 31, 2000. In management's
opinion, all adjustments  necessary to reflect the effects of these transactions
have been made.

     The  following  unaudited Pro Forma Condensed Consolidated Balance Sheet is
not  necessarily  indicative  of  what  the actual financial position would have
been  assuming  such  transactions  had been completed as of March 31, 2000, nor
does it purport to represent the future financial position of the Company.
HOMEWOOD
                                                                                        SUITES
                                                                HISTORICAL            ACQUISITION
                                                                  BALANCE               (A IV)                TOTAL
                                                                   SHEET              ADJUSTMENTS           PRO FORMA
                                                             ----------------   ----------------------   ---------------
ASSETS
  Investment in hotel properties .........................     $ 93,450,963         $  30,981,480 (A)     $124,432,443
  Cash and cash equivalents ..............................        3,781,922            (2,772,886)(D)        1,009,036
  Restricted cash ........................................          696,869                    --              696,869
  Rent receivable from Apple Suites Management, Inc. .....        2,641,141                    --            2,641,141
  Notes and other receivable from Apple Suites
    Management, Inc. .....................................          694,766                    --              694,766
  Capital improvement reserve ............................          753,927                    --              753,927
  Prepaid expenses .......................................          263,781                    --              263,781
  Other assets ...........................................          531,470                    --              531,470
                                                               ------------         -------------         ------------
    Total Assets .........................................     $102,814,839         $  28,208,594         $131,023,433
                                                               ============         =============         ============
 LIABILITIES AND SHAREHOLDERS' EQUITY
 LIABILITIES
  Notes payable-secured ..................................     $ 68,569,500         $  22,780,500 (B)     $ 91,350,000
  Accounts payable .......................................          161,258                    --              161,258
  Accounts payable-affiliate .............................          531,285                    --              531,285
  Distributions payable ..................................               --                    --                   --
  Accrued expenses .......................................          554,977                    --              554,977
                                                               ------------         -------------         ------------
    Total Liabilities ....................................       69,817,020            22,780,500           92,597,520
 SHAREHOLDERS' EQUITY
  Common stock, no par value, authorized 200,000,000
    shares; issued and outstanding 3,922,923 shares ......       32,985,016             5,428,094 (C)       38,413,110
  Class B convertible stock, no par value, authorized
    240,000 shares; issued and outstanding 240,000 shares.           24,000                    --               24,000
  Distributions greater than net income ..................          (11,197)                   --              (11,197)
                                                               ------------         -------------         ------------
    Total Shareholders' Equity ...........................       32,997,819             5,428,094           38,425,913
                                                               ------------         -------------         ------------
    Total Liabilities and Shareholders' Equity ...........     $102,814,839         $  28,208,594         $131,023,433
                                                               ============         =============         ============
-29-
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(A) Increase  represents  the purchase of 2 hotels, including the 2% acquisition
    fee  payable  to  Apple Suites Realty Group, Inc. The hotels acquired are as
    follows:
DATE
                                                   COMMENCED
                       PROPERTY                   OPERATIONS
      ----------------------------------------- --------------
IV   Homewood Suites -- Malvern, PA .......... January 1998
 IV   Homewood Suites -- Boulder, CO .......... January 1991
 --------------------------------------------------------------
2%
           DATE        PURCHASE     ACQUISITION                      DEBT
         ACQUIRED        PRICE          FEE           TOTAL        INCURRED
      ------------- -------------- ------------- -------------- --------------
IV   May 8, 2000    15,489,000     309,780       15,798,780     11,616,750
 IV   June 30, 2000  14,885,000     297,700       15,182,700     11,163,750
 ------------------------------------------------------------------------------

         Total      $30,374,000    $607,480      $30,981,480    $22,780,500
(B) Represents  the  debt  incurred  at  acquisition. The notes bear interest of
    8.5%  per  annum.  The  maturity  date  for  the  one  note in the amount of
    $11,616,750  is  May,  2001,  the  maturity  date for the second note in the
    amount of $11,163,750 will be one year from the date of purchase.

(C) Increase  to  common  stock  to  reflect  the  net proceeds from the sale of
    606,491  common  shares  from  the  Company's  continuous  offering,  issued
    subsequent to March 31, 2000.

(D) Reflects the use of cash on hand to purchase the hotels.

                                      -30-
APPLE SUITES, INC.

                        PRO FORMA CONDENSED CONSOLIDATED
                           STATEMENTS OF OPERATIONS
                    FOR THE YEAR ENDED DECEMBER 31, 1999 AND
               THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)

     The  following  unaudited  Pro  Forma  Condensed Consolidated Statements of
Operations  of  the  Company  are  presented  as  if the acquisition and pending
acquisition  of  the  Homewood  Suites  hotels  from  Promus Hotels, Inc. or its
affiliates  ("Promus"),  which is now a wholly-owned subsidiary of Hilton Hotels
Corporation,  had  occurred  at  the  beginning of the periods presented for the
respective  periods  prior  to acquisition by the Company, and all of the hotels
had  been  leased  to  Apple  Suites  Management,  Inc.  or  its subsidiary (the
"Lessee")  pursuant  to  the  master  hotel  lease  agreements.  Such  pro forma
information  is  based in part upon the Consolidated Statements of Operations of
the  Company,  the  Pro  Forma  Statements  of  Operations of the Lessee and the
historical  Statements  of  Operations  of  the acquired hotels. In management's
opinion,  all adjustments necessary to reflect the effects of these transactions
have been made.

     The  following  unaudited  Pro  Forma  Condensed Consolidated Statements of
Operations  for  the  periods  presented  are not necessarily indicative of what
actual  results  of  operations  of  the  Company  would have been assuming such
transactions  had  been  completed as of the beginning of the periods presented,
nor  does  it purport to represent the results of operations for future periods.
The  lease  agreements between the Company and the Lessee were based on economic
conditions  existing at the time of acquisition. Application of these agreements
to periods prior to the acquisition may not be meaningful.

     The  Company's  historical  Statement  of  Operations  for  the  year ended
December  31,  1999  reflect  only  four months of operations, as the first four
hotels were purchased on September 1, 1999.

FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)
HISTORICAL
                                        STATEMENT OF
                                         OPERATIONS
                                       --------------
Revenue:
  Lease revenue ......................  $ 2,518,031
  Interest income and other
   revenue ...........................      169,086
 Expenses:
  Taxes, insurance and other .........      426,592
  General and administrative .........      153,807
  Depreciation of real estate
   owned .............................      496,209
  Interest ...........................    1,245,044
  Rent expense .......................           --
                                        -----------
 Total expenses ......................    2,321,652
                                        -----------
 Net income ..........................  $   365,465
                                        ===========
 Earnings per common share:
 Basic and Diluted ...................  $      0.14
                                        ===========
 Basic and diluted weighted average
  common shares outstanding ..........    2,648,196
                                        ===========
PRO FORMA ADJUSTMENTS
                                       -------------------------------------------------------------------------------
                                             HOMEWOOD            HOMEWOOD            HOMEWOOD            HOMEWOOD
                                              SUITES              SUITES              SUITES              SUITES
                                           ACQUISITION         ACQUISITION         ACQUISITION         ACQUISITION
                                              (A I)               (A II)             (A III)              (A IV)
                                       ------------------- ------------------- ------------------- -------------------
Revenue:
  Lease revenue ......................    $  4,162,371(B)     $  5,480,272(B)     $  1,035,841(B)     $  3,487,608(B)
  Interest income and other
   revenue ...........................              --                  --                  --                  --
 Expenses:
  Taxes, insurance and other .........         822,599(C)          647,225(C)           93,884(C)          444,162(C)
  General and administrative .........         247,028(D)          251,015(D)          230,037(D)          246,594(D)
  Depreciation of real estate
   owned .............................         656,623(E)          821,580(E)          140,664(E)          688,654(E)
  Interest ...........................       1,977,313(F)        2,353,863(F)          372,683(F)        1,936,343(F)
  Rent expense .......................              --                  --                  --             100,000(H)
                                          ------------        ------------        ------------        ------------
 Total expenses ......................       3,703,563           4,073,683             837,268           3,415,753
                                          ------------        ------------        ------------        ------------
 Net income ..........................         458,808           1,406,589             198,573              71,855
                                          ============        ============        ============        ============
 Earnings per common share:
 Basic and Diluted ...................
 Basic and diluted weighted average
  common shares outstanding ..........              --(G)          604,857(G)          176,360(G)          916,311(G)
TOTAL
                                           PRO FORMA
                                       ----------------
Revenue:
  Lease revenue ......................   $ 16,684,123
  Interest income and other
   revenue ...........................        169,086
 Expenses:
  Taxes, insurance and other .........      2,434,462
  General and administrative .........      1,128,481
  Depreciation of real estate
   owned .............................      2,803,730
  Interest ...........................      7,885,246
  Rent expense .......................        100,000
                                         ------------
 Total expenses ......................     14,351,919
                                         ------------
 Net income ..........................      2,501,290
                                         ============
 Earnings per common share:
 Basic and Diluted ...................   $       0.58
                                         ============
 Basic and diluted weighted average
  common shares outstanding ..........      4,345,724
                                         ============
-31-
APPLE SUITES, INC.

                        PRO FORMA CONDENSED CONSOLIDATED
                    STATEMENTS OF OPERATIONS -- (CONTINUED)

FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
PRO FORMA ADJUSTMENTS
                                                                 ----------------------
                                                                        HOMEWOOD
                                                  HISTORICAL             SUITES
                                                 STATEMENT OF          ACQUISITION             TOTAL
                                                  OPERATIONS             (A IV)              PRO FORMA
                                                --------------   ----------------------   ---------------
Revenue:
  Lease revenue .............................    $ 3,406,678         $   861,236 (B)        $ 4,267,914
  Interest income and other revenue .........         48,007             (19,919) (I)            28,088
 Expenses:
  Taxes, insurance and other ................        691,575             118,585 (C)            810,160
  General and administrative ................        254,736               5,126 (D)            259,862
  Depreciation of real estate owned .........        549,201             244,159 (E)            793,360
  Interest ..................................      1,453,110             484,086 (F)          1,937,196
  Rent expense ..............................             --              25,000 (H)             25,000
                                                 -----------         -----------            -----------
 Total expenses .............................      2,948,622             876,956              3,825,578
 Net income .................................    $   506,063             (35,639)           $   470,424
                                                 ===========         ===========            ===========
 Earnings per common share:
 Basic and Diluted ..........................    $      0.14                                $      0.11
                                                 ===========                                ===========
 Basic and diluted weighted average common
  shares outstanding ........................      3,607,458             738,266 (G)          4,345,724
                                                 ===========         ===========            ===========
-32-
APPLE SUITES, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(A) Represents  results  of  operations  for  the hotels acquired on a pro forma
    basis  as  if  the  hotels were owned by the Company at the beginning of the
    periods  presented  for  the  respective periods prior to acquisition by the
    Company. See below.
DATE COMMENCED         DATE
                          PROPERTY                      OPERATIONS         ACQUIRED
       --------------------------------------------- ---------------- ------------------
I     Homewood Suites -- Dallas, TX ...............      1990        September 1, 1999
 I     Homewood Suites -- Las Colinas, TX ..........      1990        September 1, 1999
 I     Homewood Suites -- Plano, TX ................      1997        September 1, 1999
 I     Homewood Suites -- Richmond, VA .............    May 1998      September 1, 1999
 I     Homewood Suites -- Atlanta, GA ..............      1990         October 1, 1999
 ---------------------------------------------------------------------------------------

II    Homewood Suites -- Clearwater, FL ...........  February 1998    November 24, 1999
 II    Homewood Suites -- Salt Lake, UT ............      1996        November 24, 1999
 II    Homewood Suites -- Atlanta, GA ..............      1990        November 24, 1999
 II    Homewood Suites -- Detroit, MI ..............      1990        November 24, 1999
 II    Homewood Suites -- Baltimore, MD ............   March 1998     November 24, 1999
 ---------------------------------------------------------------------------------------

 III   Homewood Suites -- Jackson, MS ..............  February 1997   December 22, 1999
 ---------------------------------------------------------------------------------------

 IV    Homewood Suites -- Malvern, PA ..............  January 1998       May 8, 2000
 IV    Homewood Suites -- Boulder, CO ..............  January 1991      June 30, 2000
(B) Represents  lease payment from the Lessee to the Company calculated on a pro
    forma  basis  by  applying  the  rent  provisions  in the master hotel lease
    agreement  to  the historical room revenue of the hotels as if the beginning
    of  the  period  was  the beginning of the lease year. The base rent and the
    percentage  rent  will  be  calculated  and  paid  based on the terms of the
    lease agreement.

(C) Represents  historical real estate and personal property taxes and insurance
    which  will  be  paid  by  the  Company  pursuant  to the master hotel lease
    agreement.  Such  amounts  are the historical amounts paid by the respective
    hotels.

(D) Represents  the  advisory  fee  of .25% of accumulated capital contributions
    under  the  "best  efforts" offering for the period of time not owned by the
    Company  (for  the  year  ended December 31, 1999 and the three months ended
    March  31,  2000)  plus  and anticipated legal and accounting fees, employee
    costs,  salaries  and  other costs of operating as a public company (for the
    year ended December 31, 1999).

(E) Represents  the  depreciation  on  the hotels acquired based on the purchase
    price,  excluding  amounts  allocated  to land, of $37,450,320 for the first
    acquisition   group,   $34,954,481   for   the   second  acquisition  group,
    $5,485,886  for  the third acquisition group, and $30,500,611 for the fourth
    acquisition  group  for  the  period  of  time not owned by the Company. The
    weighted   average  life  of  the  depreciable  assets  was  39  years.  The
    estimated   useful   lives  are  based  on  management's  knowledge  of  the
    properties and the hotel industry in general.

(F) Represents  the  interest  expense for the hotel acquisitions for the period
    in  which  the  hotels  were  not  owned.  Interest  was  computed using the
    interest  rates  of  8.5%  on mortgage debt that was incurred at acquisition
    of  $33,975,000  for the first acquisition group, $30,210,000 for the second
    acquisition   group,   $4,384,500  for  the  third  acquisition  group,  and
    $22,780,500 for the fourth acquisition group.

(G) Represents  additional  common  shares assuming the properties were acquired
    at  the  beginning  of  the periods presented with the net proceeds from the
    "best  efforts"  offering  of  $9  per  share  (net $8.06 per share) for the
    first  $15,000,000  and  $10  per  share  (net  $8.95  per  share)  for  the
    remainder.

(H) Represents  rent  expense  on  the  land lease at the Malvern, PA hotel. The
    Company accounts for the land lease as a operating lease.

(I)  Represents  reduction  in  interest income associated with the $1.6 million
     of cash used to purchase hotels at an interest rate of 5%.

                                      -33-
APPLE SUITES MANAGEMENT, INC.

                        PRO FORMA CONDENSED CONSOLIDATED
                           STATEMENTS OF OPERATIONS
                      FOR THE YEAR ENDED DECEMBER 31, 1999
             AND THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)

     The  following  unaudited  Pro  Forma  Condensed Consolidated Statements of
Operations  of  Apple Suites Management, Inc. (the "Lessee") are presented as if
the  hotels  purchased  or  to  be  purchased  from  Promus  Hotels, Inc. or its
affiliates  ("Promus"),  which is now a wholly-owned subsidiary of Hilton Hotels
Corporation,  had  been  leased from Apple Suites, Inc. (the "Company") pursuant
to  the  master  hotel  lease agreements from the beginning of periods presented
for  the  respective  periods  prior to acquisition by the Company. Further, the
results  of  operations  reflect  the Management Agreement and License Agreement
entered  into  between  Promus  and  the  Lessee  or an affiliate to operate the
acquired  hotels.  The  lease agreements between the Company and the Lessee were
based  on  economic  conditions existing at the time of acquisition. Application
of  these  agreements to periods prior to the acquisition may not be meaningful.
Such  pro  forma  information  is based in part upon the historical Consolidated
Statements  of  Operations  of  the  Lessee  and  the Homewood Suites Hotels and
should  be  read  in conjunction with such financials statement. In management's
opinion,  all adjustments necessary to reflect the effects of these transactions
have been made.

     The  following  unaudited  Pro  Forma  Condensed Consolidated Statements of
Operations  are  not  necessarily  indicative  of  what  the  actual  results of
operations  of  the  Lessee  would have been assuming such transactions had been
completed  as  of the beginning of the periods presented, nor do they purport to
represent the results of operations for future periods.

FOR THE YEAR ENDED DECEMBER 31, 1999 (UNAUDITED)
HOMEWOOD       HOMEWOOD
                                         HISTORICAL       SUITES         SUITES
                                        STATEMENT OF   ACQUISITIONS   ACQUISITIONS
                                         OPERATIONS        (A I)         (A II)
                                       -------------- -------------- --------------
Revenues:
  Suite revenue ......................   $5,335,925     $9,818,797    $12,082,374
  Other income .......................      335,150        560,096        709,240
 Expenses:
  Operating expenses .................    1,656,540      3,794,204      4,870,096
  General and administrative .........      494,377        250,317        300,399

  Advertising and promotion ..........      472,787        438,985        580,564

  Utilities ..........................      199,907        354,113        551,359
  Taxes and insurance ................           --        822,599        647,225
  Depreciation expense ...............           --      1,783,021      2,217,128
  Franchise fees .....................      213,437        392,757        483,295

  Management fees ....................      226,136        311,275        383,599

  Rent expense-Apple Suites, Inc.         2,518,031             --             --
  Other ..............................       30,964             --             --
                                         ----------     ----------    -----------
 Total expenses ......................    5,812,179      8,147,271     10,033,665
 Income before income tax ............     (141,104)     2,231,622      2,757,949
 Income tax expense ..................           --             --             --
                                         ----------     ----------    -----------
 Net income ..........................   $ (141,104)    $2,231,622    $ 2,757,949
                                         ==========     ==========    ===========
HOMEWOOD      HOMEWOOD
                                           SUITES        SUITES
                                        ACQUISITION   ACQUISITION         PRO FORMA             TOTAL
                                          (A III)        (A IV)          ADJUSTMENTS          PRO FORMA
                                       ------------- ------------- ----------------------- --------------
Revenues:
  Suite revenue ......................  $2,230,952    $7,419,101                   --       $36,887,149
  Other income .......................     168,438       398,812                   --         2,171,736
 Expenses:
  Operating expenses .................     954,102     2,491,119                   --        13,766,061
  General and administrative .........      77,381       105,719      $      (131,000)(B)
                                                                               50,000 (C)     1,147,193
  Advertising and promotion ..........     112,902       328,070           (1,262,049)(D)
                                                                            1,262,049 (E)     1,933,308
  Utilities ..........................      75,639       270,079                   --         1,451,097
  Taxes and insurance ................      93,884       444,161           (2,007,869) (F)           --
  Depreciation expense ...............     426,986       714,411           (5,141,546)(G)            --
  Franchise fees .....................      89,238       296,764           (1,262,049)(H)
                                                                            1,262,049 (I)     1,475,491
  Management fees ....................      71,982       234,000           (1,000,856)(J)
                                                                            1,467,512 (K)     1,693,648
  Rent expense-Apple Suites, Inc.               --            --           14,166,092 (L)    16,684,123
  Other ..............................          --       100,000             (100,000)(M)        30,964
                                        ----------    ----------      ---------------       -----------
 Total expenses ......................   1,902,114     4,984,323            7,302,333        38,181,885
 Income before income tax ............     497,276     2,833,590           (7,302,333)          877,000
 Income tax expense ..................          --            --              350,800 (N)       350,800
                                        ----------    ----------      ---------------       -----------
 Net income ..........................  $  497,276    $2,833,590      $    (7,653,133)      $   526,200
                                        ==========    ==========      ===============       ===========
-34-
APPLE SUITES MANAGEMENT, INC.

                        PRO FORMA CONDENSED CONSOLIDATED
                    STATEMENTS OF OPERATIONS -- (CONTINUED)

FOR THE THREE MONTHS ENDED MARCH 31, 2000 (UNAUDITED)
HOMEWOOD
                                                HISTORICAL         SUITES
                                               STATEMENT OF     ACQUISITION         PRO FORMA           TOTAL
                                                OPERATIONS         (A IV)          ADJUSTMENTS        PRO FORMA
                                              --------------   -------------   ------------------   -------------
Revenues:
  Suite revenue ...........................     $7,682,355      $1,841,936                 --        $9,524,291
  Other income ............................        420,816          93,150                 --           513,966
 Expenses:
  Operating expenses ......................      2,295,392         633,274                 --         2,928,666
  General and administrative ..............        670,943          33,287        $    (6,000)(B)
                                                                                       12,500 (C)       710,730
  Advertising and promotion ...............        662,647          82,781            (73,677)(D)
                                                                                       73,677 (E)       745,428
  Utilities ...............................        283,263          65,361                 --           348,624
  Taxes and insurance .....................             --         118,585           (118,585)(F)            --
  Franchise fees ..........................        307,294          73,677            (73,677)(H)
                                                                                       73,677 (I)       380,971
  Management fees .........................        322,766          58,053            (58,053)(J)
                                                                                       83,403 (K)       406,169
  Rent expense-Apple Suites, Inc. .........      3,406,678              --            861,236 (L)     4,267,914
  Interest expense ........................         15,275              --                 --            15,275
  Other ...................................         96,212          25,000            (25,000)(M)        96,212
                                                ----------      ----------        -----------        ----------
 Total expenses ...........................      8,060,470       1,090,018            749,501         9,899,989
 Income before income tax .................         42,701         845,068           (749,501)          138,268
 Income tax expense .......................             --              --             55,307 (N)        55,307
                                                ----------      ----------        -----------        ----------
 Net income ...............................     $   42,701      $  845,068        $  (804,808)       $   82,961
                                                ==========      ==========        ===========        ==========
-35-
APPLE SUITES MANAGEMENT, INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(A)  Represents  results  of  operations  for the hotels acquired on a pro forma
     basis  as  if  the  hotels  were  leased  and operated by the Lessee at the
     beginning  of  the  periods  presented  for the respective periods prior to
     acquisition by the Company. See below.
DATE COMMENCED         DATE
                          PROPERTY                      OPERATIONS         ACQUIRED
       --------------------------------------------- ---------------- ------------------
I     Homewood Suites -- Dallas, TX ...............      1990        September 1, 1999
 I     Homewood Suites -- Las Colinas, TX ..........      1990        September 1, 1999
 I     Homewood Suites -- Plano, TX ................      1997        September 1, 1999
 I     Homewood Suites -- Richmond. VA .............    May 1998      September 1, 1999
 I     Homewood Suites -- Atlanta, GA ..............      1990         October 1, 1999
 --------------------------------------------------------------------------------

 II    Homewood Suites -- Clearwater, FL ...........  February 1998   November 24, 1999
 II    Homewood Suites -- Salt Lake, UT ............      1996        November 24, 1999
 II    Homewood Suites -- Atlanta, GA ..............      1990        November 24, 1999
 II    Homewood Suites -- Detroit, MI ..............      1990        November 24, 1999
 II    Homewood Suites -- Baltimore, MD ............   March 1998     November 24, 1999
 --------------------------------------------------------------------------------

 III   Homewood Suites -- Jackson, MS ..............  February 1997   December 22, 1999
 --------------------------------------------------------------------------------

 IV    Homewood Suites -- Malvern, PA ..............  January 1998      May 8, 2000
 IV    Homewood Suites -- Boulder, CO ..............  January 1991     June 30, 2000
(B)  Represents the  elimination  of the historical  accounting fee allocated to
     the hotels by the prior owner.
(C)  Represents the addition of the  anticipated  legal and accounting and other
     expenses to operate as a stand alone company.
(D)  Represents  the  elimination of the  historical  advertising,  training and
     reservation fee allocated to the hotels by the prior owner.
(E)  Represents  the addition of the marketing fee to be incurred  under the new
     license  agreements.  The marketing fee is calculated based on the terms of
     the license agreements which is 4% of suite revenue.
(F)  Represents the  elimination of the taxes and insurance.  Under the terms of
     the lease these expenses will be incurred by the Company and,  accordingly,
     are reflected in the Company's Pro Forma Condensed  Consolidated  Statement
     of Operations.
(G)  Represents the elimination of the depreciation  expense.  This expense will
     be reflected in the Company's Pro Forma Condensed Consolidated Statement of
     Operations.
(H)  Represents the elimination of the historical franchise fee allocated to the
     hotels by the prior owner.
(I)  Represents the  addition of  franchise  fees to be incurred  under the new
     license agreements. The franchise fees are calculated based on the terms of
     the agreement , which is 4% of suite revenue.
(J)  Represents the  elimination of the historical  management fees allocated to
     the hotels by the prior owner.
(K)  Represents  the  addition of the  management  fees of 4% of suite and other
     revenue  and the  accounting  fee $1,000 per hotel per month to be incurred
     under the new management agreements for the period presented.
(L)  Represents  lease  payments from the Lessee to the Company  calculated on a
     pro forma basis by applying the rent provisions in the Percentage Leases to
     the historical room revenue of the hotels as if the beginning of the period
     was the beginning of the lease year. The base rent and the percentage  rent
     will be calculated and paid based on the terms of the lease agreement.
(M)  Represents  the  elimination  of rent expense for the land lease.  The rent
     expense  related to the land lease will be reflected on the  Company's  Pro
     Forma Condensed Consolidated Statement of Operations.
(N)  Represents the combined state and federal income tax expense estimated on a
     combined rate of 40%.

                                      -36-
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 hereunto duly authorized.

                                           Apple Suites, Inc.

Date: July 17, 2000                        By:  /s/ Glade M. Knight
                                                --------------------------------
                                                Glade M. Knight,
                                                Chief Executive Officer
                                                of Apple Suites, Inc.

                                      -37-