**Table          of          Contents**

----

----

**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 **
**September      30, 2006**

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

----

**Key      Hospitality Acquisition Corporation**

----

----

** **

----

----

**Table          of          Contents**

**KEY      HOSPITALITY ACQUISITION CORPORATION**

**SEPTEMBER      30, 2006 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 September 30, 2006                (Unaudited)       | F-1 |
|                                          | Condensed                Statement of Operations                (Unaudited)                   | F-2 |
|                                          | Condensed                Statement of Cash Flows (Unaudited)                                  | F-3 |
|                                          | Notes                to Condensed Financial Statements                                        | F-4                to F-5 |
|                                          |                                                                                          |   |
| Item                2.                        | Management’s                Discussion and Analysis or Plan of                Operation | 2 |
|                                          |                                                                                          |   |
| Item                3.                        | Controls                and Procedures                                                        | 3 |
|                                          |                                                                                          |
| PART                II - OTHER INFORMATION    | 4                                                                                             |
|                                          |                                                                                          |   |
| Item                1.                        | Legal                Proceedings                                                              | 4 |
|                                          |                                                                                          |   |
| Item                2.                        | Unregistered                Sales of Equity Securities and Use of                Proceeds     | 4 |
|                                          |                                                                                          |   |
| Item                3.                        | Defaults                Upon Senior Securities                                                | 4 |
|                                          |                                                                                          |   |
| Item                4.                        | Submission                of Matters to a Vote of Security                Holders             | 4 |
|                                          |                                                                                          |   |
| Item                5.                        | Other                Information                                                              | 4 |
|                                          |                                                                                          |   |
| Item                6.                        | Exhibits                                                                                      | 4 |

----

**Table          of Contents**

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

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

**KEY      HOSPITALITY ACQUISITION CORPORATION**

**CONDENSED      BALANCE SHEET**

----

|                                                                                                                                                                                                                         |   |                                    |       |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                   |   |                               |       |
|                                                                                                                                                                                                                         |   | **September                  30, 2006** |       |
|                                                                                                                                                                                                                              |   |                                         |       |
| **Current                  assets**                                                                                                                                                                                          |   |                               |       |
| Cash                                                                                                                                                                                                                         |   | $                                       | 728,272    |   |
| Prepaid                  expenses                                                                                                                                                                                            |   |                                    | 64,120     |   |
| Total                  current assets                                                                                                                                                                                        |   |                                    | 792,392    |   |
|                                                                                                                                                                                                                         |   |                                    |            |   |
| **Other                  assets,**                                                                                                                                                                                           |   |                                    |       |   |
| cash                  and cash equivalents held in trust fund                                                                                                                                                                |   |                                    | 48,174,206 |   |
| Total                  assets                                                                                                                                                                                                |   | $                                       | 48,966,598 |   |
|                                                                                                                                                                                                                         |   |                                    |       |   |
| **LIABILITIES                  AND STOCKHOLDERS’ EQUITY**                                                                                                                                                              |   |                                    |            |   |
|                                                                                                                                                                                                                         |   |                                    |            |   |
| **Current                  liabilities**                                                                                                                                                                                     |   |                                    |            |   |
| Accrued                  accounting fees                                                                                                                                                                                     |   | $                                       | 12,000     |   |
| Income                  taxes payable                                                                                                                                                                                        |   |                                    | 41,514     |   |
| Derivative                  liability                                                                                                                                                                                        |   |                                    | 4,837,500  |   |
| Total                  current liabilities                                                                                                                                                                                   |   |                                    | 4,891,014  |   |
|                                                                                                                                                                                                                         |   |                                    |       |   |
| Common                  stock, subject to possible redemption, 1,289,355 shares at redemption                  value plus interest income of 241,103 (net of taxes)                                                     |   |                                    | 9,624,522  |   |
|                                                                                                                                                                                                                         |   |                                    |       |   |
| **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 |   |
| Retained                  earnings                                                                                                                                                                                           |   |                                    | 1,382,758  |   |
| Total                  stockholders’ equity                                                                                                                                                                            |   |                                    | 34,451,063 |   |
|                                                                                                                                                                                                                         |   | $                                       | 48,966,598 |   |
|                                                                                                                                                                                                                              |   |                                    |       |   |
|                                                                                                                                                                                                                              |   |                                    |       |   |

*See        accompanying notes to financial statements.*

----

**Table          of Contents**

**KEY      HOSPITALITY ACQUISITION CORPORATION**

**CONDENSED        STATEMENTS OF OPERATIONS**

----

|                                                                                                                 |   |                                                                                                  |      |                                                                                                  |   |                                                                                                            |   |                                                                                                                |      |                                                                          |   |
|----------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|-----------|-------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------|-----------|-------------------------------------------------------------------------------|--------|
|                                                                                                                      |   | **July                  1, 2006 to****September                  30, 2006****Q3                  06** |      | **July                  1, 2005 to****September                  30, 2005****Q3                  05** |   | **January                    1, 2006 to****September                    30, 2006****06                    YTD** |   | **April                    25, 2005 to****September                    30, 2005****05                    YTD** |      | **April                  25, 2005 to****September                  30, 2006** |   |
| **Interest                  income**                                                                                 |   | $                                                                                                     | 635,158   |                                                                                                  | $      | —                                                                                                         |   | $                                                                                                                   | 1,707,560 |                                                                          | $      | — |   | $ | 2,013,852 |   |
| **Gain                  (Loss) from warrant liability**                                                              |   |                                                                                                  | 322,500   |                                                                                                  |   |                                                                                                            |   |                                                                                                                | 645,000   |                                                                          |   |   |   |   | 645,000 |   |
| **Operating                  costs**                                                                                 |   |                                                                                                  | 82,464    |                                                                                                  |   | 250                                                                                                             |   |                                                                                                                | 204,636   |                                                                          |   | 2,327 |   |   | 323,486 |   |
| **Net                  income before income taxes**                                                                  |   |                                                                                                  | 875,194   |                                                                                                  |   | (250                                                                                                            | )      |                                                                                                                | 2,147,924 |                                                                          |   | (2,327 | ) |   | 2,335,366 |   |
| **Income                  taxes**                                                                                    |   |                                                                                                  | 306,318   |                                                                                                  |   |                                                                                                            |   |                                                                                                                | 638,898   |                                                                          |   |   |   |   | 706,318 |   |
| **Net                  income**                                                                                      |   | $                                                                                                     | 568,876   |                                                                                                  | $      | (250                                                                                                            | )      | $                                                                                                                   | 1,509,026 |                                                                          | $      | (2,327 | ) |   | 1,629,048 |   |
| **Weighted                  average shares outstanding basic**                                                       |   |                                                                                                  | 7,949,995 |                                                                                                  |   | 1,499,995                                                                                                       |   |                                                                                                                | 7,949,995 |                                                                          |   | 1,499,995 |   |   | 5,639,824 |   |
|                                                                                                                 |   |                                                                                                  |      |                                                                                                  |   |                                                                                                            |   |                                                                                                                |      |                                                                          |   |   |   |   |   |   |
| **Net                  income per share basic**                                                                      |   | $                                                                                                     | 0.07      |                                                                                                  | $      | (0.00                                                                                                           | )      | $                                                                                                                   | 0.19      |                                                                          | $      | (0.00 | ) | $ | 0.29 |   |
| **Weighted                  average shares outstanding diluted**                                                     |   |                                                                                                  | 9,104,985 |                                                                                                  |   | 1,499,995                                                                                                       |   |                                                                                                                | 8,946,803 |                                                                          |   | 1,499,995 |   |   | 6,962,171 |   |
|                                                                                                                      |   |                                                                                                  |      |                                                                                                  |   |                                                                                                            |   |                                                                                                                |      |                                                                          |   |   |   |   |   |   |
| **Net                  income per share diluted**                                                                    |   | **$**                                                                                                 | **0.06**  |                                                                                                  | $      | (0.00                                                                                                           | )      | **$**                                                                                                               | **0.17**  |                                                                          | **$**  | (0.00 | ) | $ | 0.23 |   |
|                                                                                                                 |   |                                                                                                  |      |                                                                                                  |   |                                                                                                            |   |                                                                                                                |      |                                                                          |   |   |   |   |   |   |
| **Interest                  income attributable to common stock to possible                  conversion**            |   |                                                                                                  | 13,725    |                                                                                                  |   |                                                                                                            |   |                                                                                                                | 198,678   |                                                                          |   |   |   |   | 246,290 |   |
| **Net                  income allocable to common stockholders not subject to possible                  conversion** |   | $                                                                                                     | 555,151   |                                                                                                  |   |                                                                                                            |   | $                                                                                                                   | 1,310,347 |                                                                          |   |   |   | $ | 1,382,758 |   |
|                                                                                                                 |   |                                                                                                  |      |                                                                                                  |   |                                                                                                            |   |                                                                                                                |      |                                                                          |   |   |   |   |   |   |
|                                                                                                                 |   |                                                                                                  |      |                                                                                                  |   |                                                                                                            |   |                                                                                                                |      |                                                                          |   |   |   |   |   |   |

*See        accompanying notes to financial statements.*

----

**Table            of Contents**

**KEY          HOSPITALITY ACQUISITION CORPORATION**

**CONDENSED        STATEMENTS OF CASH FLOWS**

----

|                                                                                                                    |   |                                      |                                       |                                      |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------------------------------------------|-------------------------------------------|--------|
|                                                                                                                    |   |                                 |                                       | **April                    25, 2005**     |   |
|                                                                                                                    |   | **January                    1, 2006 to** |                                       | **(Inception)                    to**     |   |
|                                                                                                                    |   | **September                    30, 2006** |                                       | **September                    30, 2006** |   |
|                                                                                                                         |   |                                           |                                       |                                      |   |
| **Cash                  flows from operating activities**                                                          |   |                                 |                                       |                                      |   |
| Net                    income                                                                                           |   | $                                         | 1,509,026                                  |                                      | $      | 1,636,467 |   |
| Adjustments                    to reconcile net income to net cash provided by operating                    activities: |   |                                      |                                       |                                      |   |   |   |
| Increase/(decrease)                    in cash attributable to change in                                                |   |                                      |                                            |                                      |   |   |   |
| Derivative                    liability                                                                                 |   |                                      | (645,000                                   | )                                         |   | (645,000 | ) |
| Prepaid                    expenses                                                                                     |   |                                      | 35,088                                     |                                      |   | (64,120 | ) |
| Accrued                    legal fees                                                                                   |   |                                      | (25,000                                    | )                                         |   |   |   |
| Accrued                    accounting fees                                                                              |   |                                      | (12,000                                    | )                                         |   | 12,000 |   |
| Accrued                    franchise taxes                                                                              |   |                                      | (52,700                                    | )                                         |   |   |   |
| Income                    taxes payable                                                                                 |   |                                      | (18,486                                    | )                                         |   | 41,514 |   |
| **Net                    cash provided by operating activities**                                                   |   |                                      | 790,927                                    |                                      |   | 980,861 |   |
|                                                                                                                    |   |                                      |                                            |                                      |   |   |   |
| Net                    cash used in investing activity, cash held in trust                                              |   |                                      | (993,491                                   | )                                         |   | (48,174,206 | ) |
|                                                                                                                    |   |                                      |                                       |                                      |   |   |   |
| 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**                                                             |   |                                      | (202,564                                   | )                                         |   | 728,272 |   |
|                                                                                                                    |   |                                      |                                            |                                      |   |   |   |
| **Cash,                    beginning                    of period**                                                     |   |                                      | 930,836                                    |                                      |   | — |   |
|                                                                                                                    |   |                                      |                                       |                                      |   |   |   |
| **Cash,                    end                    of period**                                                           |   | $                                         | 728,272                                    |                                      | $      | 728,272 |   |
|                                                                                                                    |   |                                      |                                            |                                      |   |   |   |
|                                                                                                                    |   |                                      |                                       |                                      |   |  |   |

*See        accompanying notes to financial statements.*

----

**Table          of Contents**

**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*

----

**Table          of Contents**

**KEY        HOSPITALITY ACQUISITION CORPORATION**

**NOTES        TO CONDENSED FINANCIAL STATEMENTS**

----

*Warrant        Liability*

** **
** **
***"***
*Accounting      for derivative financial instruments indeed to, and potentially settled in      a      Company’s own stock*
**"      **

*Net      Income Per Common Share*

*Use      of Estimates*

| **3.** | **Initial                public offering** |
|--------|--------------------------------------------|

| **4.** | **Income                taxes** |
|--------|---------------------------------|

----

**Table          of Contents**

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

**Comparison      of Three Months Ended September 30, 2006 with Three Months Ended September      30,      2005**

**Comparison      of Nine Months Ended September 30, 2006 with the period from inception to      September 30, 2005**

----

**Table          of Contents**

**Liquidity      and Capital Resources**

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

----

**Table          of Contents**

**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                                |

----

**Table          of Contents**

**SIGNATURES**

|                                   |   |                                                       |   |                                                                                  |
|----------------------------------------|--------|------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|
|                                   |   | **KEY                HOSPITALITY ACQUISITION CORPORATION** |
|                                   |   |                                                       |
| Date:                November 14, 2006 |   | By:                                                        |   | /s/                Jeffrey S. Davidson                                                |
|                                   |   |                                                       |   | Jeffrey                S. Davidson                                                    |
|                                   |   |                                                       |   | *Co-Chairman                of the Board and**Chief                Executive Officer* |

----