**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      DC 20549**

----

**FORM      10-QSB**

----

**x   Quarterly      Report under Sections 13 or 15(d) of **

**the      Securities Exchange Act of 1934 for the quarterly period ended**
**June      30, 2007**

**o   Transition      Report under Sections 13 or 15(d) of the Securities Exchange Act of      1934**

**Key      Hospitality Acquisition Corporation**

----

** **

----

**KEY      HOSPITALITY ACQUISITION CORPORATION**

**June      30, 2007 QUARTERLY REPORT ON FORM 10-QSB**

**TABLE      OF CONTENTS**

|                                          |                                                                           | PAGE                 |
|-----------------------------------------------|--------------------------------------------------------------------------------|----------------------|
|                                          |                                                                           |                 |
| PART                I - FINANCIAL INFORMATION | F-2                                                                            |
|                                          |                                                                           |
| Item                1.                        | Financial                Statements                                            | F-2                  |
|                                          |                                                                           |                 |
|                                          | Condensed                Balance Sheet of June 30, 2007 (Unaudited)            | F-2                  |
|                                          |                                                                           |                 |
|                                          | Condensed                Statement of Operations (Unaudited)                   | F-3                  |
|                                          |                                                                           |                 |
|                                          | Condensed                Statement of Cash Flows (Unaudited)                   | F-4                  |
|                                          |                                                                           |                 |
|                                          | Notes                to condensed Financial Statements                         | F-5 to F-7 |
|                                          |                                                                           |                 |
| Item                2.                        | Management’s                Discussion and Analysis or Plan of Operation | 2-4                  |
|                                          |                                                                           |                 |
| Item                3.                        | Controls                and Procedures                                         | 4                    |
|                                          |                                                                           |                 |
| PART                II - OTHER INFORMATION    | 5                                                                              |
|                                          |                                                                           |
| Item                1.                        | Legal                Proceedings                                               | 5                    |
|                                          |                                                                           |                 |
| Item                2.                        | Unregistered                Sales of Equity Securities and Use of Proceeds     | 5                    |
|                                          |                                                                           |                 |
| Item                3.                        | Defaults                Upon Senior Securities                                 | 5                    |
|                                          |                                                                           |                 |
| Item                4.                        | Submission                of Matters to A Vote of Security Holders             | 5                    |
|                                          |                                                                           |                 |
| Item                5.                        | Other                Information                                               | 5                    |
|                                          |                                                                           |                 |
| Item                6.                        | Exhibits                                                                       | 5                    |

----

**PART      I - **
**FINANCIAL      INFORMATION**

**ITEM      1.**
**FINANCIAL      STATEMENTS**

**KEY      HOSPITALITY ACQUISITION CORPORATION**

**CONDENSED      BALANCE SHEET**

|                                                                                                                                                                                                                                  |   | **June                30, 2007 (Unaudited)** |       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                            |   |                                         |       |
| **Current                assets**                                                                                                                                                                                                     |   |                                         |       |
| Cash                                                                                                                                                                                                                                  |   | $                                            | 280,903    |   |
| Prepaid                expenses                                                                                                                                                                                                       |   |                                         | 448,837    |   |
| Deferred                tax asset                                                                                                                                                                                                     |   |                                         | 204,000    |   |
| Total                current assets                                                                                                                                                                                                   |   |                                         | 933,740    |   |
|                                                                                                                                                                                                                                  |   |                                         |       |   |
| **Other                assets,**                                                                                                                                                                                                      |   |                                         |       |   |
| Deferred                Acquisition Costs                                                                                                                                                                                             |   |                                         | 158,655    |   |
| Cash                and cash equivalents held in trust fund                                                                                                                                                                           |   |                                         | 49,119,714 |   |
|                                                                                                                                                                                                                                  |   |                                         |       |   |
| Total                assets                                                                                                                                                                                                           |   | $                                            | 50,212,109 |   |
|                                                                                                                                                                                                                                  |   |                                         |       |   |
| **LIABILITIES                AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                         |   |                                         |       |   |
|                                                                                                                                                                                                                                  |   |                                         |       |   |
| **Current                liabilities**                                                                                                                                                                                                |   |                                         |       |   |
| Warrant                liabilty                                                                                                                                                                                                       |   | $                                            | 7,611,000  |   |
|                                                                                                                                                                                                                                  |   |                                         |       |   |
| Common                stock, subject to possible redemption, 1,289,355 shares at                  redemption value plus interest income of $495,826 (net of                taxes)                                           |   |                                         | 9,866,637  |   |
|                                                                                                                                                                                                                                  |   |                                         |       |   |
| **Stockholders’                equity**                                                                                                                                                                                         |   |                                         |       |   |
| Preferred                stock, $.001 par value, authorized 1,000,000 shares; none                issued                                                                                                                              |   |                                         |       |   |
| Common                stock, $.001 par value, authorized 50,000,000 shares; issued and                outstanding 7,949,995 shares (which includes the 1,289,355 shares                subject                to possible redemption) |   |                                         | 7,950      |   |
| Paid-in                capital in excess of par                                                                                                                                                                                       |   |                                         | 33,060,355 |   |
|                                                                                                                                                                                                                                  |   |                                         |       |   |
| Accumulated                deficit                                                                                                                                                                                                    |   |                                         | (333,833   | ) |
| Total                stockholders’ equity                                                                                                                                                                                       |   |                                         | 32,734,472 |   |
|                                                                                                                                                                                                                                  |   | $                                            | 50,212,109 |   |

*See        accompanying notes to financial statements.*

----

**KEY      HOSPITALITY ACQUISITION CORPORATION**

**CONDENSED      STATEMENTS OF OPERATIONS (Unaudited)**

|                                                                                                                           |   | **April 1, 2007 ****to ****June 30, 2007** |      | **April 1, 2006 ****to ****June 30, 2006** |   | **January 1, 2007 ****to ****June 30, 2007** |   | **January 1, 2006 ****to ****June 30, 2006** |       | **April 25 2005 ****(inception) to ****December 31, 2007** |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------|-----------|--------------------------------------------------------------------------|--------|----------------------------------------------------------------------------|--------|----------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|--------|
| **Interest                income**                                                                                             |   | $                                                                        | 637,644   |                                                                     | $      | 594,276                                                                    |   | $                                                                          | 1,202,186  |                                                                                          | $      | 1,072,402 |   | $ | 3,833,554 |   |
| **Gain(loss)                from warrant liability**                                                                           |   |                                                                     | 709,500   |                                                                     |   | 1,419,000                                                                  |   |                                                                       | (4,644,000 | )                                                                                             |   | 322,500 |   |   | (2,128,500 | ) |
|                                                                                                                           |   |                                                                     |      |                                                                     |   |                                                                       |   |                                                                       |       |                                                                                          |   |   |   |   |   |   |
| **Operating                costs**                                                                                             |   |                                                                     | 123,830   |                                                                     |   | 73,004                                                                     |   |                                                                       | 213,686    |                                                                                          |   | 122,172 |   |   | 632,186 |   |
|                                                                                                                           |   |                                                                     |      |                                                                     |   |                                                                       |   |                                                                       |       |                                                                                          |   |   |   |   |   |   |
| **Net                income(loss) before income taxes**                                                                        |   |                                                                     | 1,223,314 |                                                                     |   | 1,940,272                                                                  |   |                                                                       | (3,655,500 | )                                                                                             |   | 1,272,730 |   |   | 1,072,868 |   |
|                                                                                                                           |   |                                                                     |      |                                                                     |   |                                                                       |   |                                                                       |       |                                                                                          |   |   |   |   |   |   |
| **Income                taxes (benefit)**                                                                                      |   |                                                                     | (24,165   | )                                                                        |   | 190,000                                                                    |   |                                                                       | 141,975    |                                                                                          |   | 340,000 |   |   | 910,875 |   |
|                                                                                                                           |   |                                                                     |      |                                                                     |   |                                                                       |   |                                                                       |       |                                                                                          |   |   |   |   |   |   |
| **Net                income(loss)**                                                                                            |   | $                                                                        | 1,247,479 |                                                                     | $      | 1,750,272                                                                  |   | $                                                                          | (3,797,475 | )                                                                                             | $      | 932,730 |   | $ | 161,993 |   |
|                                                                                                                           |   |                                                                     |      |                                                                     |   |                                                                       |   |                                                                       |       |                                                                                          |   |   |   |   |   |   |
| **Weighted                average shares outstanding basic**                                                                   |   |                                                                     | 7,949,995 |                                                                     |   | 7,949,995                                                                  |   |                                                                       | 7,949,995  |                                                                                          |   | 7,949,995 |   |   | 6,432,954 |   |
|                                                                                                                           |   |                                                                     |      |                                                                     |   |                                                                       |   |                                                                       |       |                                                                                          |   |   |   |   |   |   |
| **Net                income(loss) per share basic**                                                                            |   | **$**                                                                    | **0.16**  |                                                                     | **$**  | **0.22**                                                                   |   | **$**                                                                      | **(0.48**  | **)**                                                                                         | **$**  | **0.12** |   | **$** | **0.03** |   |
|                                                                                                                           |   |                                                                     |      |                                                                     |   |                                                                       |   |                                                                       |       |                                                                                          |   |   |   |   |   |   |
| **Weighted                average shares outstanding diluted**                                                                 |   |                                                                     | 8,270,298 |                                                                     |   | 8,910,202                                                                  |   |                                                                       | 7,949,995  |                                                                                          |   | 8,862,922 |   |   | 8,208,072 |   |
|                                                                                                                           |   |                                                                     |      |                                                                     |   |                                                                       |   |                                                                       |       |                                                                                          |   |   |   |   |   |   |
| **Net                income(loss) per share diluted**                                                                          |   | **$**                                                                    | **0.15**  |                                                                     | **$**  | **0.20**                                                                   |   | **$**                                                                      | **(0.48**  | **)**                                                                                         | **$**  | **0.11** |   | **$** | **0.02** |   |
|                                                                                                                           |   |                                                                     |      |                                                                     |   |                                                                       |   |                                                                       |       |                                                                                          |   |   |   |   |   |   |
|                                                                                                                           |   |                                                                     |      |                                                                     |   |                                                                       |   |                                                                       |       |                                                                                          |   |   |   |   |   |   |
| **Interest                  income attributable to common stock to possible conversion                  ( Net of taxes)** |   |                                                                     | 60,454    |                                                                     |   | 102,998                                                                    |   |                                                                       | 72,412     |                                                                                          |   | 184,954 |   |   | 495,826 |   |
|                                                                                                                           |   |                                                                     |      |                                                                     |   |                                                                       |   |                                                                       |       |                                                                                          |   |   |   |   |   |   |
| **Net                  income(loss) allocable to common stockholders not subject to possible                  conversion**     |   |                                                                     | 1,187,025 |                                                                     |   | 1,647,274                                                                  |   |                                                                       | (3,869,887 | )                                                                                             |   | 747,776 |   |   | (333,833 | ) |

*See      accompanying notes to financial statements.*

----

**KEY        HOSPITALITY ACQUISITION CORPORATION**

**CONDENSED        STATEMENTS OF CASH FLOWS (Unaudited)**

|                                                                                                                       |   | **January 1, 2007****to ****June 30, 2007** |       | **January 1, 2006 ****to ****June 30, 2006** |   | **April 25, 2005 ****(inception) ****to ****June 30, 2007** |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------|------------|----------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------|--------|
| **Cash                flows from operating activities**                                                                    |   |                                                                 |       |                                                                       |   |                                                                                           |   |
| Net                income(loss)                                                                                            |   |                                                                 | (3,797,475 | )                                                                          |   | 932,730                                                                                        |   |   | 161,994 |   |
| Warrant                liability                                                                                           |   |                                                                 | 4,644,000  |                                                                       |   | (322,500                                                                                       | )      |   | 2,128,500 |   |
| Deferred                taxes                                                                                              |   |                                                                 | (204,000   | )                                                                          |   |                                                                                           |   |   | (204,000 | ) |
| **Adjustments                  to reconcile net loss to net cash provided by operating                  activities:** |   |                                                                 |       |                                                                       |   |                                                                                           |   |   |   |   |
| Increase                (decrease) in cash attributable to change in                                                       |   |                                                                 |       |                                                                       |   |                                                                                           |   |   |   |   |
|                                                                                                                       |   |                                                                 |       |                                                                       |   |                                                                                           |   |   |   |   |
| Prepaid                assets                                                                                              |   |                                                                 | (396,010   | )                                                                          |   |                                                                                           |   |   | (396,010 | ) |
| Prepaid                expenses                                                                                            |   |                                                                 | (1,569     | )                                                                          |   | 10,058                                                                                         |   |   | (52,829 | ) |
| Accrued                legal fees                                                                                          |   |                                                                 |       |                                                                       |   | (25,000                                                                                        | )      |   |   |   |
| Accrued                accounting fees                                                                                     |   |                                                                 |       |                                                                       |   | (16,000                                                                                        | )      |   |   |   |
| Accrued                franchise taxes                                                                                     |   |                                                                 |       |                                                                       |   | (52,700                                                                                        | )      |   |   |   |
| Income                taxes payable                                                                                        |   |                                                                 | (82,310    | )                                                                          |   | 207,197                                                                                        |   |   |   |   |
| **Net                cash provided by operating activities**                                                               |   |                                                                 | 162,636    |                                                                       |   | 733,785                                                                                        |   |   | 1,637,655 |   |
|                                                                                                                       |   |                                                                 |       |                                                                       |   |                                                                                           |   |   |   |   |
| **Cash                flows from investing activities**                                                                    |   |                                                                 |       |                                                                       |   |                                                                                           |   |   |   |   |
| Cash                held in trust                                                                                          |   |                                                                 | (362,097   | )                                                                          |   | (924,861                                                                                       | )      |   | (49,119,714 | ) |
| Deferred                acquisition costs                                                                                  |   |                                                                 | (158,655   | )                                                                          |   | -                                                                                              |   |   | (158,655 | ) |
| **Net                cash used in investing activities**                                                                   |   |                                                                 | (520,752   | )                                                                          |   | (924,861                                                                                       | )      |   | (49,278,369 | ) |
|                                                                                                                       |   |                                                                 |       |                                                                       |   |                                                                                           |   |   |   |   |
| **Cash                flows from financing activities**                                                                    |   |                                                                 |       |                                                                       |   |                                                                                           |   |   |   |   |
| Proceeds                from sale of common stock                                                                          |   |                                                                 |       |                                                                       |   |                                                                                           |   |   | 25,000 |   |
| Proceeds                from notes payable, stockholders                                                                   |   |                                                                 |       |                                                                       |   |                                                                                           |   |   | 151,000 |   |
| Payment                of notes payable, stockholders                                                                      |   |                                                                 |       |                                                                       |   |                                                                                           |   |   | (151,000 | ) |
| Gross                proceeds of public offering                                                                           |   |                                                                 |       |                                                                       |   |                                                                                           |   |   | 51,600,000 |   |
| Payments                of costs of public offering                                                                        |   |                                                                 |       |                                                                       |   |                                                                                           |   |   | (3,703,483 | ) |
| Sale                of option                                                                                              |   |                                                                 |       |                                                                       |   |                                                                                           |   |   | 100 |   |
| **Net                cash provided by financing activities**                                                               |   |                                                                 | -          |                                                                       |   | -                                                                                              |   |   | 47,921,617 |   |
|                                                                                                                       |   |                                                                 |       |                                                                       |   |                                                                                           |   |   |   |   |
| **Net                (decrease) increase in cash**                                                                         |   |                                                                 | (358,116   | )                                                                          |   | (191,076                                                                                       | )      |   | 280,903 |   |
| **Cash,                beginning of period**                                                                               |   |                                                                 | 639,019    |                                                                       |   | 930,836                                                                                        |   |   |   |   |
| **Cash,                end of period**                                                                                     |   | $                                                                    | 280,903    |                                                                       | $      | 739,760                                                                                        |   | $ | 280,903 |   |
|                                                                                                                       |   |                                                                 |       |                                                                       |   |                                                                                           |   |   |   |   |
| **Supplemental                Schedule of non-cash financing activity:**                                                   |   |                                                                 |       |                                                                       |   |                                                                                           |   |   |   |   |
| Warrant                liability                                                                                           |   | $                                                                    | 7,611,000  |                                                                       | $      | 5,160,000                                                                                      |   | $ | 2,967,000 |   |
|                                                                                                                       |   |                                                                 |       |                                                                       |   |                                                                                           |   |   |   |   |
| **Supplemental                cash flow disclosure:**                                                                      |   |                                                                 |       |                                                                       |   |                                                                                           |   |   |   |   |
| Income                taxes paid                                                                                           |   | $                                                                    | 833,000    |                                                                       | $      | -                                                                                              |   | $ | 1,253,763 |   |

*See      accompanying notes to financial      statements.*

----

**KEY      HOSPITALITY ACQUISITION CORPORATION**

**NOTES      TO CONDENSED FINANCIAL STATEMENTS**

**1.**
**Basis      of presentation**

**2.**
**Nature      of operations and summary of significant accounting      policies**

*Nature      of Operations*

*Warrant      Liability*

*"Accounting      for Derivative Financial Instruments Indexed to, and Potentially Settled in      a      Company’s Own Stock*

*Net      Income Per Common Share*

----

**KEY        HOSPITALITY ACQUISITION CORPORATION**

**NOTES        TO CONDENSED FINANCIAL STATEMENTS**

*Use      of Estimates*

**3.**
**Initial      public offering**

**4.**
**Related      party**

**5.**
**Income      taxes**

----

**KEY      HOSPITALITY ACQUISITION CORPORATION**

**NOTES      TO CONDENSED FINANCIAL STATEMENTS**

**6.**
**Subsequent      events**

----

**ITEM      2.**
**MANAGEMENT’S      DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**

*Overview*

*Proposed      Acquisition of Cay Clubs*

----

**Comparison      of Three Months Ended June 30, 2007 with Three Months Ended June 30,      200**
**6**

**Comparison      of Six Months Ended June 30, 2007 with Six Months Ended June 30,      2006**

----

**Liquidity      and Capital Resources**

**ITEM      3.**
**CONTROLS      AND PROCEDURES**

----

**PART      II - **
**OTHER      INFORMATION**

**ITEM      1.**
**LEGAL      PROCEEDINGS**

**ITEM      2.**
**UNREGISTERED      SALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

**ITEM      3.**
**DEFAULTS      UPON SENIOR SECURITIES**

**ITEM      4.**
**SUBMISSION      OF MATTERS TO A VOTE OF SECURITY HOLDERS**

**ITEM      5.**
**OTHER      INFORMATION**

**ITEM      6.**
**EXHIBITS**

| **Exhibit                No.**  |   | **Description                of Exhibits**                         |
|--------------------------------------|--------|-------------------------------------------------------------------------|
| 31.1                                 |   | Section                302 Certification of Principal Executive Officer |
| 31.2                                 |   | Section                302 Certification of Principal Financial Officer |
| 32.1                                 |   | Section                906 Certification                                |

----

**SIGNATURES**

|                                 | **KEY                HOSPITALITY ACQUISITION CORPORATION** |
|--------------------------------------|------------------------------------------------------------|
|                                 |                                                       |   |
| Date:                August 13, 2007 | By:                                                        |                 /s/                Jeffrey S.                Davidson                   |
|                                 |                                                       | Jeffrey                S. Davidson |
|                                 |                                                       | *Co-Chairman                of the Board and**Chief                Executive Officer* |

----