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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**WASHINGTON,      DC 20549**

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**FORM      10-QSB**

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**[X]    Quarterly      Report under Sections 13 or 15(d) of **

**the      Securities Exchange Act of 1934 for the quarterly period ended**
**June      30, 2006**

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

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**KEY      HOSPITALITY ACQUISITION CORPORATION **

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** **

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**KEY      HOSPITALITY ACQUISITION CORPORATION**

**JUNE      30, 2006 QUARTERLY REPORT ON FORM 10-QSB**

**TABLE      OF CONTENTS**

**PAGE**

|                                          |                                                                                          |
|-----------------------------------------------|-----------------------------------------------------------------------------------------------|
| PART                I - FINANCIAL INFORMATION | F-1                                                                                           |
| Item                1.                        | Financial                Statements                                                           | F-1 |
|                                          | Condensed                Balance Sheet of June 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 |

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

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

**KEY      HOSPITALITY ACQUISITION CORPORATION**

**CONDENSED      BALANCE SHEET**

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|                                                                                                                                                                                                                                  |   |                                   |       |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                            |   |                              |       |
|                                                                                                                                                                                                                                  |   |  **June                30, 2006** |       |
|                                                                                                                                                                                                                                       |   |  **(Unaudited)**                  |       |
| **Current                assets**                                                                                                                                                                                                     |   |                              |       |
| Cash                                                                                                                                                                                                                                  |   | $                                      | 739,760    |   |
| Prepaid                expenses                                                                                                                                                                                                       |   |                                   | 89,150     |   |
| Total                current assets                                                                                                                                                                                                   |   |                                   | 828,910    |   |
|                                                                                                                                                                                                                                  |   |                                   |            |   |
| **Other                assets,**                                                                                                                                                                                                      |   |                                   |       |   |
| cash                and cash equivalents held in trust fund                                                                                                                                                                           |   |                                   | 48,105,576 |   |
| Total                assets                                                                                                                                                                                                           |   | $                                      | 48,934,486 |   |
|                                                                                                                                                                                                                                  |   |                                   |       |   |
| **LIABILITIES                AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                         |   |                                   |            |   |
|                                                                                                                                                                                                                                  |   |                                   |            |   |
| **Current                liabilities**                                                                                                                                                                                                |   |                                   |            |   |
| Accrued                accounting fees                                                                                                                                                                                                |   | $                                      | 8,000      |   |
|                  Income taxes payable                                                                                                                                                                                            |   |                                   | 267,197    |   |
| Warrant                liability                                                                                                                                                                                                      |   |                                   | 5,160,000  |   |
|                                                                                                                                                                                                                                  |   |                                   |       |   |
| Total                current liabilities                                                                                                                                                                                              |   |                                   | 5,435,197  |   |
|                                                                                                                                                                                                                                  |   |                                   |       |   |
| Common                stock, subject to possible redemption, 1,289,355 shares at redemption                value plus interest income of $232,565 (net of taxes)                                                                 |   |                                   | 9,603,377  |   |
|                                                                                                                                                                                                                                  |   |                                   |       |   |
| **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                                                                                                                                                                                                      |   |                                   | 827,607    |   |
| Total                stockholders’ equity                                                                                                                                                                                       |   |                                   | 33,895,912 |   |
|                                                                                                                                                                                                                                  |   | $                                      | 48,934,486 |   |
|                                                                                                                                                                                                                                       |   |                                   |       |   |
|                                                                                                                                                                                                                                       |   |                                   |       |   |

*See      accompanying notes to financial statements.*

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**KEY      HOSPITALITY ACQUISITION CORPORATION**

**CONDENSED      STATEMENTS OF OPERATIONS**

**(Unaudited)      **

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|                                                           |   |                                      |      |                                       |   |                                    |   |                                     |      |
|----------------------------------------------------------------|--------|-------------------------------------------|-----------|--------------------------------------------|--------|-----------------------------------------|--------|------------------------------------------|-----------|
|                                                                |   | **4/1/06                to****6/30/2006** |      | **4/25/05                to****6/30/2005** |   | **1/1/06                to****6/30/06** |   | **4/25/05                to****6/30/06** |      |
| **Interest                income**                             |   | $                                         | 594,276   |                                       | $      | —                                 |   | $                                        | 1,072,402 |   | $ | 1,378,694 |   |
| **Gain                from warrant liability**                 |   |                                      | 1,419,000 |                                       |   |                                    |   |                                     | 322,500   |   |   | 322,500 |   |
| **Operating                costs**                             |   |                                      | 73,004    |                                       |   | 2,077                                   |   |                                     | 122,172   |   |   | 241,022 |   |
| **Income                before income taxes**                  |   |                                      | 1,940,272 |                                       |   | (2,077                                  | )      |                                     | 1,272,730 |   |   | 1,460,172 |   |
| **Income                taxes**                                |   |                                      | 190,000   |                                       |   |                |   |                                     | 340,000   |   |   | 400,000 |   |
| **Net                income**                                  |   | $                                         | 1,750,272 |                                       | $      | (2,077                                  | )      | $                                        | 932,730   |   | $ | 1,060,172 |   |
| **Weighted                average shares outstanding basic**   |   |                                      | 7,949,995 |                                       |   | 1,499,995                               |   |                                     | 7,949,995 |   |   | 5,150,110 |   |
| **Net                income per share basic**                  |   | $                                         | 0.22      |                                       | $      | (0.00                                   | )      | $                                        | 0.12      |   | $ | 0.21 |   |
| **Weighted                average shares outstanding diluted** |   |                                      | 8,910,202 |                                       |   |                     |   |                                     | 8,862,922 |   |   | 6,451,709 |   |
|                                                           |   |                                      |      |                                       |   |                                    |   |                                     |      |   |   |   |   |
| **Net                income per share diluted**                |   | **$**                                     | **0.20**  |                                       |   |                     |   | **$**                                    | **0.11**  |   | **$** | **0.16** |   |

| **Interest                income attributable to common stock to possible                conversion** |   |   | 102,998   |   |   |   |   |   | 184,954 |   |   | 232,565 |   |
|-------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|--------|--------|---------|--------|--------|---------|--------|
| **Net                income allocable to common stockholders not subject to possible conversion**     |   |   | 1,647,274 |   |   |   |   |   | 747,777 |   |   | 827,607 |   |
|                                                                                                       |   |   |      |   |   |   |   |   |    |   |   |    |   |
|                                                                                                       |   |   |      |   |   |   |   |   |    |   |   |    |   |

*See      accompanying notes to financial statements.*

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**KEY      HOSPITALITY ACQUISITION CORPORATION**

**CONDENSED      STATEMENTS OF CASH FLOWS**

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|                                                                                                            |   |                                      |                     |                              |   |
|-----------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------------------------|-----------------------------------|--------|
|                                                                                                            |   |                                 |                     | **4/25/2005**                     |   |
|                                                                                                            |   |  **Six                months ended** |                     | **(Inception)                to** |   |
|                                                                                                            |   |  **6/30/2006**                       |                     | **6/30/2006**                     |   |
|                                                                                                                 |   |  **(Unaudited)**                     |                     | **(Unaudited)**                   |   |
| **Cash              flows from operating activities**                                                      |   |                                 |                     |                              |   |
| Net                income                                                                                       |   | $                                         | 932,730                  |                              | $      | 1,060,172 |   |
| Adjustments                to reconcile net income to net cash provided by Operating                activities: |   |                                      |                     |                              |   |   |   |
| Warrant                liability                                                                                |   |                                      | (322,500                 | )                                 |   | (322,500 | ) |
| Increase                (decrease) in cash attributable to change in                                            |   |                                      |                          |                              |   |   |   |
| Prepaid                expenses                                                                                 |   |                                      | 10,058                   |                              |   | (89,150 | ) |
| Accrued                legal fees                                                                               |   |                                      | (25,000                  | )                                 |   |   |   |
| Accrued                accounting fees                                                                          |   |                                      | (16,000                  | )                                 |   | 8,000 |   |
| Accrued                franchise taxes                                                                          |   |                                      | (52,700                  | )                                 |   |   |   |
| Income                taxes payable                                                                             |   |                                      | 207,197                  |                              |   | 267,197 |   |
| **Net                cash provided by operating activities**                                               |   |                                      | 733,785                  |                              |   | 923,719 |   |
|                                                                                                            |   |                                      |                          |                              |   |   |   |
| **Net                cash used in investing activity,**                                                         |   |                                      |                     |                              |   |   |   |
| cash                and cash equivalents held in trust fund                                                     |   |                                      | (924,861                 | )                                 |   | (48,105,576 | ) |
|                                                                                                            |   |                                      |                     |                              |   |   |   |
|                                                                                                            |   |                                      |                     |                              |   |   |   |
| **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                increase (decrease) in cash**                                                         |   |                                      | (191,076                 | )                                 |   | 739,760 |   |
|                                                                                                            |   |                                      |                          |                              |   |   |   |
| **Cash,**beginning                of period                                                                     |   |                                      | 930,836                  |                              |   | — |   |
|                                                                                                            |   |                                      |                     |                              |   |   |   |
| **Cash,**end                of period                                                                           |   | $                                         | 739,760                  |                              | $      | 739,760 |   |
|                                                                                                            |   |                                      |                          |                              |   |   |   |
|                                                                                                            |   |                                      |                     |                              |   |  |   |

*See        accompanying notes to financial statements.*

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**KEY      HOSPITALITY ACQUISITION CORPORATION**

**NOTES        TO CONDENSED FINANCIAL STATEMENTS**

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| **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*

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**KEY      HOSPITALITY ACQUISITION CORPORATION**

**NOTES        TO CONDENSED FINANCIAL STATEMENTS**

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*Use      of Estimates*

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

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

| **5.** | **Subsequent                event** |
|--------|-------------------------------------|

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

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

**Comparison      of Six Months Ended June 30, 2006 with the period from inception to June 30,      2005**

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**Liquidity      and Capital Resources**

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

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**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                                |

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**SIGNATURES**

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

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