----

----

----

**FORM      10-Q**

**SECURITIES      AND EXCHANGE COMMISSION**

| x      | QUARTERLY                REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE |   |
|--------|-------------------------------------------------------------------------|--------|
|   | SECURITIES                EXCHANGE ACT OF 1934                          |   |
|   | For                the Quarterly period ended September 30, 2006        |   |
|   |                                                                    |   |
|   | OR                                                                      |   |

| o      | TRANSITION                REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE |   |
|--------|--------------------------------------------------------------------------|--------|
|   | SECURITIES                EXCHANGE ACT OF 1934                           |   |

| For                the transition period from |   | to |   |
|-----------------------------------------------|--------|----|--------|

**SONESTA      INTERNATIONAL HOTELS CORPORATION**

| NEW                YORK                                                       |   | 13-5648107                                          |
|-------------------------------------------------------------------------------|--------|-----------------------------------------------------|
| (State                or other jurisdiction or incorporation or organization) |   | (I.R.S.                Employer Identification No.) |

|                                                                      |
|---------------------------------------------------------------------------|
| (Registrant’s                telephone number, including area code) |
|                                                                      |
|                                                                      |
| (Former                name, former address and former fiscal year,       |
| if                changed since last report)                              |

| Yes                x | No                o |
|----------------------|---------------------|

| Yes                o | No                x |
|----------------------|---------------------|

----

**INDEX**

**SONESTA      INTERNATIONAL HOTELS CORPORATION**

| Part                I. Financial Information | **Page**                                                                                                                                                       |
|----------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                         |                                                                                                                                                           |   |
| Item                1.                       | Financial                Statements (unaudited)                                                                                                                |   |
|                                         |                                                                                                                                                           |   |
|                                         | Condensed                consolidated balance sheets— September 30, 2006 (unaudited) and December                31, 2005                                | 1 |
|                                         |                                                                                                                                                           |   |
|                                         | Condensed                consolidated statements of operations—Three and nine-month periods ended                September 30, 2006 and 2005 (unaudited) | 3 |
|                                         |                                                                                                                                                           |   |
|                                         | Condensed                consolidated statements of cash flows—Nine-month periods ended September                30, 2006 and 2005 (unaudited)           | 4 |
|                                         |                                                                                                                                                           |   |
|                                         | Notes                to condensed consolidated financial statements—September 30, 2006 and                2005                                           | 6 |
|                                         |                                                                                                                                                           |   |
| Item                2.                       | Management’s                Discussion and Analysis of Results of Operations and Financial                Condition—September 30, 2006             |   14 |
|                                         |                                                                                                                                                           |   |
| Item                3.                       | Quantitative                and Qualitative Disclosure of Market Risk                                                                                          |  20 |
|                                         |                                                                                                                                                           |   |
| Item                4.                       | Internal                Controls and Procedures                                                                                                                | 21 |
|                                         |                                                                                                                                                           |   |
| Part                II. Other Information    |                                                                                                                                                           |
|                                         |                                                                                                                                                           |   |
|                                         | Signature                page                                                                                                                                  | 23 |
|                                         |                                                                                                                                                           |   |
| Exhibits                31.1, 31.2, 31.3     | Certifications                by the Company’s Chief Executive Officers and Vice President and                Treasurer                                  |   |
|                                         |                                                                                                                                                           |   |
| Exhibit                32                    | 18                U.S.C. Section 1350 Certification by Company Officers                                                                                        |   |

----

**Part      I - Item 1. Financial Information**

**SONESTA      INTERNATIONAL HOTELS CORPORATION**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

|                                                                                                        |   | (in                thousands)   |    |
|-------------------------------------------------------------------------------------------------------------|--------|---------------------------------|---------|
|                                                                                                        |   | September                302006 |    | December                312005 |   |
|                                                                                                        |   |                            |    |   |   |
| ASSETS                                                                                                      |   |                            |    |   |   |   |   |
| Current                assets:                                                                              |   |                            |    |   |   |   |   |
| Cash                and cash equivalents                                                                    |   | $                               | 22,820  |   | $ | 24,941 |   |
| Restricted                cash                                                                              |   |                            | --      |   |   | 267 |   |
| Accounts                and notes receivable:                                                               |   |                            |    |   |   |   |   |
| Trade,                less allowance of $72 ($94 at December 31, 2005) for doubtful                accounts |   |                            | 6,791   |   |   | 8,821 |   |
| Other,                including current portion of long-term receivables and                advances        |   |                            | 5,222   |   |   | 3,634 |   |
| Total                accounts and notes receivable                                                          |   |                            | 12,013  |   |   | 12,455 |   |
| Inventories                                                                                                 |   |                            | 536     |   |   | 1,156 |   |
| Prepaid                and current deferred tax assets                                                      |   |                            | 774     |   |   | 456 |   |
| Refundable                income taxes                                                                      |   |                            | 77      |   |   | 883 |   |
| Prepaid                expenses and other current assets                                                    |   |                            | 1,196   |   |   | 1,784 |   |
|                                                                                                        |   |                            |    |   |   |   |   |
| Total                current assets                                                                         |   |                            | 37,416  |   |   | 41,942 |   |
|                                                                                                        |   |                            |    |   |   |   |   |
| Long-term                receivables and advances                                                           |   |                            | 7,591   |   |   | 7,520 |   |
|                                                                                                        |   |                            |    |   |   |   |   |
| Deferred                tax assets                                                                          |   |                            | 6,704   |   |   | 6,077 |   |
|                                                                                                        |   |                            |    |   |   |   |   |
| Investment                in development partnership                                                        |   |                            | 35,791  |   |   | -- |   |
|                                                                                                        |   |                            |    |   |   |   |   |
| Property                and equipment, at cost:                                                             |   |                            |    |   |   |   |   |
| Land                and land improvements                                                                   |   |                            | 2,102   |   |   | 9,102 |   |
| Buildings                                                                                                   |   |                            | 25,917  |   |   | 57,895 |   |
| Furniture                and equipment                                                                      |   |                            | 32,350  |   |   | 38,555 |   |
| Leasehold                improvements                                                                       |   |                            | 7,910   |   |   | 7,486 |   |
| Projects                in progress                                                                         |   |                            | 123     |   |   | 538 |   |
|                                                                                                        |   |                            | 68,402  |   |   | 113,576 |   |
|                                                                                                        |   |                            |    |   |   |   |   |
| Less:                accumulated depreciation and amortization                                              |   |                            | 30,267  |   |   | 40,777 |   |
| Net                property and equipment                                                                   |   |                            | 38,135  |   |   | 72,799 |   |
|                                                                                                        |   |                            |    |   |   |   |   |
| Other                long-term assets                                                                       |   |                            | 2,151   |   |   | 2,281 |   |
|                                                                                                        |   | $                               | 127,788 |   | $ | 130,619 |   |

*See      accompanying notes to condensed consolidated financial      statements.*

----

**SONESTA      INTERNATIONAL HOTELS CORPORATION**

**CONDENSED      CONSOLIDATED BALANCE SHEETS**

|                                                             |   | (in                thousands)   |    |
|------------------------------------------------------------------|--------|---------------------------------|---------|
|                                                             |   | September                302006 |    | December                312005 |   |
|                                                             |   |                            |    |   |   |
|                                                             |   |                            |    |   |   |
| LIABILITIES                AND COMMON STOCKHOLDERS’ EQUITY |   |                            |    |   |   |   |   |
| Current                liabilities:                              |   |                            |    |   |   |   |   |
| Accounts                payable                                  |   | $                               | 2,665   |   | $ | 4,935 |   |
| Advance                deposits                                  |   |                            | 912     |   |   | 2,126 |   |
| Accrued                income taxes                              |   |                            | 288     |   |   | 1,160 |   |
| Accrued                liabilities:                              |   |                            |    |   |   |   |   |
| Salaries                and wages                                |   |                            | 1,089   |   |   | 1,277 |   |
| Rentals                                                          |   |                            | 2,048   |   |   | 6,176 |   |
| Interest                                                         |   |                            | 1,177   |   |   | 252 |   |
| Pension                and other employee benefits               |   |                            | 2,734   |   |   | 788 |   |
| Other                                                            |   |                            | 2,309   |   |   | 1,773 |   |
|                                                             |   |                            |    |   |   |   |   |
| Total                accrued liabilities                         |   |                            | 9,357   |   |   | 10,266 |   |
|                                                             |   |                            |    |   |   |   |   |
| Total                current liabilities                         |   |                            | 13,222  |   |   | 18,487 |   |
|                                                             |   |                            |    |   |   |   |   |
| Long-term                debt                                    |   |                            | 34,061  |   |   | 34,061 |   |
|                                                             |   |                            |    |   |   |   |   |
| Deferred                gain/finance obligation (see Note 10)    |   |                            | 64,481  |   |   | 59,728 |   |
|                                                             |   |                            |    |   |   |   |   |
| Other                non-current liabilities                     |   |                            | 6,948   |   |   | 6,478 |   |
|                                                             |   |                            |    |   |   |   |   |
|                                                             |   |                            |    |   |   |   |   |
| Commitments                and contingencies                     |   |                            |    |   |   |   |   |
|                                                             |   |                            |    |   |   |   |   |
| Common                stockholders’ equity:                |   |                            |    |   |   |   |   |
| Common                stock:                                     |   |                            |    |   |   |   |   |
| Class                A, $ 0.80 par value:                        |   |                            |    |   |   |   |   |
| Authorized                - 10,000 shares                        |   |                            |    |   |   |   |   |
| Issued—6,102                shares at stated value         |   |                            | 4,882   |   |   | 4,882 |   |
| Retained                earnings                                 |   |                            | 16,247  |   |   | 19,036 |   |
| Treasury                shares—2,404, at cost              |   |                            | (12,053 | ) |   | (12,053 | ) |
| Total                common stockholders’ equity           |   |                            | 9,076   |   |   | 11,865 |   |
|                                                             |   | $                               | 127,788 |   | $ | 130,619 |   |

*See      accompanying notes to condensed consolidated financial      statements.*

----

**SONESTA      INTERNATIONAL HOTELS CORPORATION**

**CONDENSED      CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)**

|                                                         |   | Three                Months Ended September                30 |   | Nine                Months Ended September                30 |   |
|--------------------------------------------------------------|--------|--------------------------------------------------------------------|--------|-------------------------------------------------------------------|--------|
|                                                         |   | 2006                                                               |   | 2005                                                              |   | 2006 |   | 2005 |   |
| Revenues:                                                    |   |                                                               |   |                                                              |   |   |   |   |   |   |   |   |   |
| Rooms                                                        |   | $                                                                  | 9,124  |                                                              | $      | 9,975 |   | $ | 37,019 |   | $ | 38,656 |   |
| Food                and beverage                             |   |                                                               | 4,271  |                                                              |   | 4,316 |   |   | 16,180 |   |   | 18,752 |   |
| Management,                license and service fees          |   |                                                               | 608    |                                                              |   | 293 |   |   | 3,065 |   |   | 3,380 |   |
| Parking,                telephone and other                  |   |                                                               | 1,615  |                                                              |   | 1,641 |   |   | 6,131 |   |   | 6,465 |   |
|                                                         |   |                                                               | 15,618 |                                                              |   | 16,225 |   |   | 62,395 |   |   | 67,253 |   |
| Other                revenues from managed and               |   |                                                               |   |                                                              |   |   |   |   |   |   |   |   |   |
| affiliated                properties (see Note 1)            |   |                                                               | 8,063  |                                                              |   | 3,402 |   |   | 16,474 |   |   | 10,560 |   |
| Total                revenues                                |   |                                                               | 23,681 |                                                              |   | 19,627 |   |   | 78,869 |   |   | 77,813 |   |
|                                                         |   |                                                               |   |                                                              |   |   |   |   |   |   |   |   |   |
| Costs                and expenses:                           |   |                                                               |   |                                                              |   |   |   |   |   |   |   |   |   |
| Costs                and operating expenses                  |   |                                                               | 9,286  |                                                              |   | 9,987 |   |   | 30,731 |   |   | 31,996 |   |
| Advertising                and promotion                     |   |                                                               | 1,735  |                                                              |   | 1,823 |   |   | 5,409 |   |   | 5,726 |   |
| Administrative                and general                    |   |                                                               | 3,559  |                                                              |   | 3,664 |   |   | 11,242 |   |   | 11,847 |   |
| Human                resources                               |   |                                                               | 356    |                                                              |   | 416 |   |   | 1,294 |   |   | 1,190 |   |
| Maintenance                                                  |   |                                                               | 1,164  |                                                              |   | 1,324 |   |   | 3,774 |   |   | 4,178 |   |
| Rentals                                                      |   |                                                               | (502   | )                                                                 |   | (495 | ) |   | 2,531 |   |   | 4,159 |   |
| Property                taxes                                |   |                                                               | 530    |                                                              |   | 728 |   |   | 1,852 |   |   | 2,080 |   |
| Depreciation                and amortization                 |   |                                                               | 2,594  |                                                              |   | 2,098 |   |   | 7,960 |   |   | 5,999 |   |
|                                                         |   |                                                               | 18,722 |                                                              |   | 19,545 |   |   | 64,793 |   |   | 67,175 |   |
| Other                expenses from managed and               |   |                                                               |   |                                                              |   |   |   |   |   |   |   |   |   |
| affiliated                properties (see Note 1)            |   |                                                               | 8,063  |                                                              |   | 3,402 |   |   | 16,474 |   |   | 10,560 |   |
| Total                costs and expenses                      |   |                                                               | 26,785 |                                                              |   | 22,947 |   |   | 81,267 |   |   | 77,735 |   |
|                                                         |   |                                                               |   |                                                              |   |   |   |   |   |   |   |   |   |
| Operating                income (loss)                       |   |                                                               | (3,104 | )                                                                 |   | (3,320 | ) |   | (2,398 | ) |   | 78 |   |
|                                                         |   |                                                               |   |                                                              |   |   |   |   |   |   |   |   |   |
| Other                income (deductions):                    |   |                                                               |   |                                                              |   |   |   |   |   |   |   |   |   |
| Interest                expense                              |   |                                                               | (759   | )                                                                 |   | (759 | ) |   | (2,253 | ) |   | (3,206 | ) |
| Interest                income                               |   |                                                               | 439    |                                                              |   | 342 |   |   | 1,155 |   |   | 753 |   |
| Foreign                exchange gain (loss)                  |   |                                                               | (3     | )                                                                 |   | -- |   |   | 29 |   |   | (10 | ) |
| Gain                on sales of assets                       |   |                                                               | --     |                                                              |   | 3,954 |   |   | 4 |   |   | 4,079 |   |
|                                                         |   |                                                               | (323   | )                                                                 |   | 3,537 |   |   | (1,065 | ) |   | 1,616 |   |
|                                                         |   |                                                               |   |                                                              |   |   |   |   |   |   |   |   |   |
| Income                (loss) before income tax benefit       |   |                                                               | (3,427 | )                                                                 |   | 217 |   |   | (3,463 | ) |   | 1,694 |   |
| Income                tax benefit                            |   |                                                               | (1,231 | )                                                                 |   | (1,353 | ) |   | (1,044 | ) |   | (4,872 | ) |
| Net                income (loss)                             |   |                                                               | (2,196 | )                                                                 |   | 1,570 |   |   | (2,419 | ) |   | 6,566 |   |
|                                                         |   |                                                               |   |                                                              |   |   |   |   |   |   |   |   |   |
| Retained                earnings at beginning of period      |   |                                                               | 18,443 |                                                              |   | 19,733 |   |   | 19,036 |   |   | 18,435 |   |
| Cash                dividends                                |   |                                                               | --     |                                                              |   | -- |   |   | (370 | ) |   | (3,698 | ) |
| Retained                earnings at end of period            |   | $                                                                  | 16,247 |                                                              | $      | 21,303 |   | $ | 16,247 |   | $ | 21,303 |   |
|                                                         |   |                                                               |   |                                                              |   |   |   |   |   |   |   |   |   |
|                                                         |   |                                                               |   |                                                              |   |   |   |   |   |   |   |   |   |
| Net                income (loss) per share                   |   | $                                                                  | (0.59  | )                                                                 | $      | 0.42 |   | $ | (0.65 | ) | $ | 1.77 |   |
| Weighted                average number of shares outstanding |   |                                                               | 3,698  |                                                              |   | 3,698 |   |   | 3,698 |   |   | 3,698 |   |

*See      accompanying notes to condensed consolidated financial      statements.*

----

**SONESTA      INTERNATIONAL HOTELS CORPORATION**

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)**

|                                                                                                                            |   | (in                thousands)                 |   |
|---------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                                                                            |   | Nine                Months Ended September 30 |   |
|                                                                                                                            |   | 2006                                          |   | 2005 |   |
| Cash                provided (used) by operating activities                                                                     |   |                                          |   |   |   |   |   |
| Net                income (loss)                                                                                                |   | $                                             | (2,419 | ) | $ | 6,566 |   |
| Adjustments                to reconcile net income (loss) to net cash provided by (used in)                operating activities |   |                                          |   |   |   |   |   |
| Depreciation                and amortization of property and equipment                                                          |   |                                          | 7,960  |   |   | 5,999 |   |
| Other                amortization                                                                                               |   |                                          | 31     |   |   | 43 |   |
| Prepaid                and deferred federal and state income tax benefits                                                       |   |                                          | (945   | ) |   | (4,519 | ) |
| Gain                on sales of assets                                                                                          |   |                                          | (4     | ) |   | (4,079 | ) |
| Deferred                interest income                                                                                         |   |                                          | --     |   |   | (235 | ) |
| Changes                in assets and liabilities                                                                                |   |                                          |   |   |   |   |   |
| Restricted                cash                                                                                                  |   |                                          | 267    |   |   | 13 |   |
| Accounts                and notes receivable                                                                                    |   |                                          | (2,018 | ) |   | (1,065 | ) |
| Inventories                                                                                                                     |   |                                          | 620    |   |   | 190 |   |
| Prepaid                expenses and other                                                                                       |   |                                          | 588    |   |   | 912 |   |
| Accounts                payable                                                                                                 |   |                                          | (1,900 | ) |   | (386 | ) |
| Advance                deposits                                                                                                 |   |                                          | (1,214 | ) |   | (601 | ) |
| Accrued                income taxes                                                                                             |   |                                          | (65    | ) |   | (6,440 | ) |
| Accrued                liabilities                                                                                              |   |                                          | (440   | ) |   | (1,068 | ) |
| Cash                provided (used) by operating activities                                                                     |   |                                          | 461    |   |   | (4,670 | ) |
|                                                                                                                            |   |                                          |   |   |   |   |   |
|                                                                                                                            |   |                                          |   |   |   |   |   |
| Cash                provided (used) by investing activities                                                                     |   |                                          |   |   |   |   |   |
| Proceeds                from sales of assets                                                                                    |   |                                          | 383    |   |   | 4,945 |   |
| Proceeds                from finance obligation                                                                                 |   |                                          | --     |   |   | 59,978 |   |
| Expenditures                for property and equipment                                                                          |   |                                          | (4,831 | ) |   | (2,888 | ) |
| Payments                received on long-term receivables and advances                                                          |   |                                          | 3,976  |   |   | 1,178 |   |
| New                loans and advances                                                                                           |   |                                          | (1,370 | ) |   | (837 | ) |
| Cash                provided (used) by investing activities                                                                     |   |                                          | (1,842 | ) |   | 62,376 |   |
|                                                                                                                            |   |                                          |   |   |   |   |   |
| Cash                used by financing activities                                                                                |   |                                          |   |   |   |   |   |
| Repayment                of long-term debt                                                                                      |   |                                          | --     |   |   | (35,539 | ) |
| Cash                dividends paid                                                                                              |   |                                          | (740   | ) |   | (3,698 | ) |
| Cash                used by financing activities                                                                                |   |                                          | (740   | ) |   | (39,237 | ) |
|                                                                                                                            |   |                                          |   |   |   |   |   |
| Net                increase (decrease) in cash                                                                                  |   |                                          | (2,121 | ) |   | 18,469 |   |
| Cash                and cash equivalents at beginning of period                                                                 |   |                                          | 24,941 |   |   | 7,950 |   |
| Cash                and cash equivalents at end of period                                                                       |   | $                                             | 22,820 |   | $ | 26,419 |   |

*See      accompanying notes to condensed consolidated financial      statements.*

----

**CONDENSED      CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited)      (continued)**

| Increase                in investment in development partnership |   | $      | 35,791  |   |
|------------------------------------------------------------------|--------|--------|---------|--------|
| Decrease                in accumulated depreciation              |   |   | 8,429   |   |
| Transfer                of building & improvements           |   |   | (32,466 | )      |
| Transfer                of land                                  |   |   | (7,000  | )      |
| Increase                in deferred gain/finance obligation      |   |   | (4,754  | )      |

*See      accompanying notes to condensed consolidated financial      statements.*

----

**SONESTA      INTERNATIONAL HOTELS CORPORATION**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

| **1.** | **Basis                of Presentation** |
|--------|------------------------------------------|

| **2.** | **Long-Term                Receivables and                Advances** |
|--------|----------------------------------------------------------------------|

|                                                        |   | (in                thousands)     |   |
|-------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                        |   | September                30, 2006 |   | December                31, 2005 |   |
| Sharm                El Sheikh, Egypt (a)                   |   | $                                 | 193    |   | $ | 391 |   |
| Sonesta                Hotel & Suites Coconut Grove (b) |   |                              | 4,384  |   |   | 5,003 |   |
| Trump                International Sonesta Beach Resort (c) |   |                              | 1,391  |   |   | 3,720 |   |
| Chateau                Sonesta Hotel New Orleans (d)        |   |                              | 1,895  |   |   | 1,025 |   |
| Other                                                       |   |                              | 411    |   |   | 740 |   |
| Total                long-term receivables                  |   |                              | 8,274  |   |   | 10,879 |   |
| Less:                current portion                        |   |                              | 683    |   |   | 3,359 |   |
| Net                long-term receivables                    |   | $                                 | 7,591  |   | $ | 7,520 |   |

| (a) | This                loan, in the original amount of $1,000,000, was made in 1996 and                1997 to                the owner of the Sonesta Beach Resort, Sharm El Sheikh. The loan                bears                interest at the prime rate (8.25% at September 30, 2006) and is adjusted                semi-annually. Currently, the loan is being repaid with monthly payments                of $23,800. The loan matures in                2007. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (b) | This                  loan was made to the owner of the Sonesta Hotel & Suites Coconut                  Grove, Miami, which opened in April 2002, to fund construction                  and                  furniture, fixtures and equipment costs. The loan bears interest                  at the                  prime rate (8.25% at September 30, 2006) plus 0.75%. The loan is                  secured                  by a mortgage on the hotel property and is being repaid out of                  the hotel                  profits that are available for distribution to the owner and, to                  the                  extent |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**SONESTA      INTERNATIONAL HOTELS CORPORATION**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

| (c) | This                amount represents advances made to the owner of Trump International                Sonesta Beach Resort Sunny Isles for the Company’s share of the losses of                the resort from the opening on April 1, 2003 through October 31,                2004.                This amount was due pursuant to the terms of the management agreement                under which the Company operates the hotel. No interest is charged                on this                advance, which will be repaid out of future available profits generated                by                the hotel, after the payment of a minimum annual return to the hotel’s                owner. A separate advance for pre-opening expenses ($2,328,000) was                repaid                in January 2006. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (d) | Following                Hurricane Katrina, which struck New Orleans in late August 2005,                the                Company advanced $1,895,000 to Chateau Sonesta Hotel New Orleans,                which it                operates under a long-term management agreement. These advances were                used                for the payment of ongoing expenses during the period the hotel was                closed                from August 29 to November 30, 2005, and to repair damage from Hurricane                Katrina. The hotel’s owner has filed claims under its building insurance                policy, which includes business interruption provisions, but the                amount                and the timing of the insurance recovery is uncertain. If insurance                proceeds are insufficient, the Company will recover these advances,                together with interest, out of first available income from the hotel.                The                interest rate on these advances ranges from prime (8.25% at September                30,                2006) plus one (1) to three (3) percentage                points. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **3.** | **Borrowing                Arrangements** |
|--------|-------------------------------------------|

*Credit      Line*

*Long-Term      Debt*

|                                                                              |   | (in                thousands)     |   |
|-----------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                              |   | September                30, 2006 |   | December                31, 2005 |   |
| Charterhouse                of Cambridge Trust and Sonesta of Massachusetts Inc.: |   |                              |   |   |   |   |   |
| First                mortgage note                                                |   | $                                 | 34,061 |   | $ | 34,061 |   |
| Accrued                interest                                                   |   |                              | 1,177  |   |   | 106 |   |
|                                                                              |   |                              | 35,238 |   |   | 34,167 |   |
| Less                current portion of accrued interest                           |   |                              | (1,177 | ) |   | (106 | ) |
| Total                long-term debt                                               |   | $                                 | 34,061 |   | $ | 34,061 |   |
|                                                                              |   |                              |   |   |   |   |   |

----

**SONESTA      INTERNATIONAL HOTELS CORPORATION**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

| **4.** | **Hotel                Costs and Operating                Expenses** |
|--------|----------------------------------------------------------------------|

|                                     |   | (in                thousands)                                 |   |
|------------------------------------------|--------|---------------------------------------------------------------|--------|
|                                     |   | Three                Months Ended September                30 |   | Nine                Months Ended September                30 |   |
|                                     |   | 2006                                                          |   | 2005 |   | 2006 |   | 2005 |   |
| Direct                departmental costs |   |                                                          |   |   |   |   |   |   |   |   |   |   |   |
| Rooms                                    |   | $                                                             | 2,970  |   | $ | 3,334 |   | $ | 9,680 |   | $ | 10,384 |   |
| Food                and beverage         |   |                                                          | 4,161  |   |   | 4,731 |   |   | 14,206 |   |   | 15,633 |   |
| Heat,                light and power     |   |                                                          | 1,106  |   |   | 900 |   |   | 3,356 |   |   | 2,605 |   |
| Other                                    |   |                                                          | 1,049  |   |   | 1,022 |   |   | 3,489 |   |   | 3,374 |   |
|                                     |   | $                                                             | 9,286  |   | $ | 9,987 |   | $ | 30,731 |   | $ | 31,996 |   |

| **5.** | **Federal,                Foreign and State Income                Tax** |
|--------|-------------------------------------------------------------------------|

|                                                         |   | (in                thousands)                 |   |
|--------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                         |   | Nine                months Ended September 30 |   |
|                                                         |   | 2006                                          |   | 2005 |   |
|                                                         |   |                                          |   |   |   |
| Current                federal income tax benefit            |   | $                                             | (355   | ) | $ | (706 | ) |
| Current                foreign income tax provision          |   |                                          | 213    |   |   | 271 |   |
| Current                state income tax provision            |   |                                          | 37     |   |   | 82 |   |
| Deferred                state income tax provision (benefit) |   |                                          | 21     |   |   | (296 | ) |
| Deferred                federal income tax benefit           |   |                                          | (960   | ) |   | (4,223 | ) |
| Income                tax benefit                            |   | $                                             | (1,044 | ) | $ | (4,872 | ) |

----

**SONESTA      INTERNATIONAL HOTELS CORPORATION**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

| **6.** | **Segment                Information** |
|--------|----------------------------------------|

|                                                                                |   | (in                thousands)                          |   |
|-------------------------------------------------------------------------------------|--------|--------------------------------------------------------|--------|
|                                                                                |   | Owned                &Leased                Hotels |   | ManagementActivities |   |  Consolidated |   |
|                                                                                |   |                                                   |   |   |   |   |   |
| Revenues                                                                            |   | $                                                      | 15,004 |   | $ | 614 |   | $ | 15,618 |   |
| Operating                income (loss) before depreciation and amortization expense |   |                                                   | 1,256  |   |   | (1,766 | ) |   | (510 | ) |
| Depreciation                and amortization                                        |   |                                                   | (2,470 | ) |   | (124 | ) |   | (2,594 | ) |
| Interest                income (expense), net                                       |   |                                                   | (743   | ) |   | 423 |   |   | (320 | ) |
| Other                deductions                                                     |   |                                                   | --     |   |   | (3 | ) |   | (3 | ) |
| Segment                pre-tax loss                                                 |   |                                                   | (1,957 | ) |   | (1,470 | ) |   | (3,427 | ) |
|                                                                                |   |                                                   |   |   |   |   |   |   |   |   |
| Segment                assets                                                       |   |                                                   | 82,209 |   |   | 45,579 |   |   | 127,788 |   |
| Segment                capital additions                                            |   |                                                   | 745    |   |   | 2 |   |   | 747 |   |
|                                                                                |   |                                                   |   |   |   |   |   |   |   |   |

|                                                                                |   | (in                thousands)                          |   |
|-------------------------------------------------------------------------------------|--------|--------------------------------------------------------|--------|
|                                                                                |   | Owned                &Leased                Hotels |   | ManagementActivities |   |  Consolidated |   |
|                                                                                |   |                                                   |   |   |   |   |   |
| Revenues                                                                            |   | $                                                      | 59,298 |   | $ | 3,097 |   | $ | 62,395 |   |
| Operating                income (loss) before depreciation and amortization expense |   |                                                   | 8,642  |   |   | (3,080 | ) |   | 5,562 |   |
| Depreciation                and amortization                                        |   |                                                   | (7,587 | ) |   | (373 | ) |   | (7,960 | ) |
| Interest                income (expense), net                                       |   |                                                   | (2,208 | ) |   | 1,110 |   |   | (1,098 | ) |
| Other                income                                                         |   |                                                   | --     |   |   | 33 |   |   | 33 |   |
| Segment                pre-tax loss                                                 |   |                                                   | (1,153 | ) |   | (2,310 | ) |   | (3,463 | ) |
|                                                                                |   |                                                   |   |   |   |   |   |   |   |   |
| Segment                assets                                                       |   |                                                   | 82,209 |   |   | 45,579 |   |   | 127,788 |   |
| Segment                capital additions                                            |   |                                                   | 4,683  |   |   | 148 |   |   | 4,831 |   |

----

**SONESTA      INTERNATIONAL HOTELS CORPORATION**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

|                                                                                |   | (in                thousands)                          |   |
|-------------------------------------------------------------------------------------|--------|--------------------------------------------------------|--------|
|                                                                                |   | Owned                &Leased                Hotels |   | ManagementActivities |   |  Consolidated |   |
|                                                                                |   |                                                   |   |   |   |   |   |
| Revenues                                                                            |   | $                                                      | 16,059 |   | $ | 166 |   | $ | 16,225 |   |
| Operating                income (loss) before depreciation and amortization expense |   |                                                   | 543    |   |   | (1,765 | ) |   | (1,222 | ) |
| Depreciation                and amortization                                        |   |                                                   | (1,953 | ) |   | (145 | ) |   | (2,098 | ) |
| Interest                income (expense), net                                       |   |                                                   | (748   | ) |   | 331 |   |   | (417 | ) |
| Gain                on sales of assets                                              |   |                                                   | --     |   |   | 3,954 |   |   | 3,954 |   |
| Segment                pre-tax income (loss)                                        |   |                                                   | (2,158 | ) |   | 2,375 |   |   | 217 |   |
|                                                                                |   |                                                   |   |   |   |   |   |   |   |   |
| Segment                assets                                                       |   |                                                   | 80,310 |   |   | 49,760 |   |   | 130,070 |   |
| Segment                capital additions                                            |   |                                                   | 741    |   |   | 35 |   |   | 776 |   |

|                                                                                |   | (in                thousands)                          |   |
|-------------------------------------------------------------------------------------|--------|--------------------------------------------------------|--------|
|                                                                                |   | Owned                &Leased                Hotels |   | ManagementActivities |   |  Consolidated |   |
|                                                                                |   |                                                   |   |   |   |   |   |
| Revenues                                                                            |   | $                                                      | 63,846 |   | $ | 3,407 |   | $ | 67,253 |   |
| Operating                income (loss) before depreciation and amortization expense |   |                                                   | 8,097  |   |   | (2,020 | ) |   | 6,077 |   |
| Depreciation                and amortization                                        |   |                                                   | (5,546 | ) |   | (453 | ) |   | (5,999 | ) |
| Interest                income (expense), net                                       |   |                                                   | (3,171 | ) |   | 718 |   |   | (2,453 | ) |
| Other                deductions                                                     |   |                                                   | --     |   |   | (10 | ) |   | (10 | ) |
| Gain                on sales of assets                                              |   |                                                   | --     |   |   | 4,079 |   |   | 4,079 |   |
| Segment                pre-tax income (loss)                                        |   |                                                   | (620   | ) |   | 2,314 |   |   | 1,694 |   |
|                                                                                |   |                                                   |   |   |   |   |   |   |   |   |
| Segment                assets                                                       |   |                                                   | 80,310 |   |   | 49,760 |   |   | 130,070 |   |
| Segment                capital additions                                            |   |                                                   | 2,691  |   |   | 197 |   |   | 2,888 |   |

| **7.** | **Earnings                per Share** |
|--------|---------------------------------------|

|                                                         |   | Three                months ended September                30 |   | Nine                months ended September                30 |   |
|--------------------------------------------------------------|--------|---------------------------------------------------------------|--------|--------------------------------------------------------------|--------|
|                                                         |   | 2006                                                          |   | 2005                                                         |   | 2006 |   | 2005 |   |
| Numerator:                                                   |   |                                                          |   |                                                         |   |   |   |   |   |   |   |   |   |
| Income                (loss) from operations                 |   | $                                                             | (2,196 | )                                                            | $      | 1,570 |   | $ | (2,419 | ) | $ | 6,566 |   |
|                                                         |   |                                                          |   |                                                         |   |   |   |   |   |   |   |   |   |
| Denominator:                                                 |   |                                                          |   |                                                         |   |   |   |   |   |   |   |   |   |
| Weighted                average number of shares outstanding |   |                                                          | 3,698  |                                                         |   | 3,698 |   |   | 3,698 |   |   | 3,698 |   |
|                                                         |   |                                                          |   |                                                         |   |   |   |   |   |   |   |   |   |
| Net                income (loss) per share of common stock   |   | $                                                             | (0.59  | )                                                            | $      | 0.42 |   | $ | (0.65 | ) | $ | 1.77 |   |

----

**SONESTA      INTERNATIONAL HOTELS CORPORATION**

**NOTES      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

| **8.** | **Pension                Plan** |
|--------|---------------------------------|

|                                                                                                                         |   | (in                thousands)                                |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|--------|
|                                                                                                                         |   | Nine                Months ended September                30 |   |
|                                                                                                                         |   | 2006                                                         |   | 2005 |   |
|                                                                                                                         |   |                                                         |   |   |   |
| Service                cost                                                                                                  |   | $                                                            | 1,285  |   | $ | 1,399 |   |
| Interest                cost                                                                                                 |   |                                                         | 1,678  |   |   | 1,508 |   |
| Expected                return on assets                                                                                     |   |                                                         | (1,432 | ) |   | (1,304 | ) |
| Amortization                of prior service cost                                                                            |   |                                                         | 82     |   |   | 67 |   |
| Amortization                of transition asset                                                                              |   |                                                         | --     |   |   | (66 | ) |
| Recognized                actuarial loss                                                                                     |   |                                                         | 510    |   |   | 506 |   |
| Estimated                pension plan termination costs - Key Biscayne                                                       |   |                                                         | 1,340  |   |   | -- |   |
| Total                plan benefit cost                                                                                       |   |                                                         | 3,463  |   |   | 2,110 |   |
| Less:                amounts charged to hotels operated under management                agreements and affiliated properties |   |                                                         | (1,641 | ) |   | (270 | ) |
| Net                periodic benefit cost included in the consolidatedstatements                of operations                 |   | $                                                            | 1,822  |   | $ | 1,840 |   |

| **9.** | **Legal                Proceedings** |
|--------|--------------------------------------|

----

**SONESTA        INTERNATIONAL HOTELS CORPORATION**

**NOTES        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS        (Continued)**

| **10.** | ** ****Sonesta                  Beach Resort Key                  Biscayne** |
|---------|-----------------------------------------------------------------------------------|

----

**SONESTA        INTERNATIONAL HOTELS CORPORATION**

**NOTES        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)**

----

**Part      I - Item 2**

**MANAGEMENT’S      DISCUSSION AND ANALYSIS**

**OF      RESULTS OF OPERATIONS AND FINANCIAL CONDITION**

**FIRST      NINE MONTHS 2006 COMPARED TO 2005**

**REVENUES**

|                                                                                                    |   | TOTAL                REVENUES(in                thousands) |   |
|---------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|--------|
|                                                                                                    |   | NO.                OFROOMS                                 |   |  2006 |   |  2005 |   |
| Sonesta                Beach Resort Key Biscayne                                                        |   |                                                       | 300    |   | $ | 19,341 |   | $ | 21,506 |   |
| Royal                Sonesta Hotel Boston (Cambridge)                                                   |   |                                                       | 400    |   |   | 19,455 |   |   | 17,532 |   |
| Royal                Sonesta Hotel New Orleans                                                          |   |                                                       | 500    |   |   | 20,502 |   |   | 24,809 |   |
| Management                and service fees and other revenues                                           |   |                                                       |   |   |   | 3,097 |   |   | 3,406 |   |
| Total                revenues, excluding revenues from managed and affiliated                properties |   |                                                       |   |   | $ | 62,395 |   | $ | 67,253 |   |

----

**MANAGEMENT’S      DISCUSSION AND ANALYSIS**

**OF      RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)**

**OPERATING      INCOME**

|                                                                          |   | OPERATING                INCOME (LOSS)(in                thousands) |   |
|-------------------------------------------------------------------------------|--------|---------------------------------------------------------------------|--------|
|                                                                          |   | 2006                                                                |   | 2005 |   |
| Sonesta                Beach Resort Key Biscayne                              |   | $                                                                   | (1,073 | ) | $ | 1,194 |   |
| Royal                Sonesta Hotel Boston (Cambridge)                         |   |                                                                | 1,317  |   |   | 637 |   |
| Royal                Sonesta Hotel New Orleans                                |   |                                                                | 811    |   |   | 720 |   |
| Operating                income from hotels after management and service fees |   |                                                                | 1,055  |   |   | 2,551 |   |
| Management                activities and other                                |   |                                                                | (3,453 | ) |   | (2,473 | ) |
| Operating                income (loss)                                        |   | $                                                                   | (2,398 | ) | $ | 78 |   |

----

**MANAGEMENT’S      DISCUSSION AND ANALYSIS**

**OF      RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)**

**OTHER      INCOME (DEDUCTIONS)**

**THIRD      QUARTER 2006 COMPARED TO 2005**

----

**MANAGEMENT’S      DISCUSSION AND ANALYSIS**

**OF      RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)**

**REVENUES**

|                                                                                                    |   | TOTAL                REVENUES(in                thousands) |   |
|---------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|--------|
|                                                                                                    |   | NO.                OFROOMS                                 |   |  2006 |   |  2005 |   |
| Sonesta                Beach Resort Key Biscayne                                                        |   |                                                       | 300    |   | $ | 2,710 |   | $ | 4,440 |   |
| Royal                Sonesta Hotel Boston (Cambridge)                                                   |   |                                                       | 400    |   |   | 7,364 |   |   | 6,536 |   |
| Royal                Sonesta Hotel New Orleans                                                          |   |                                                       | 500    |   |   | 4,930 |   |   | 5,083 |   |
| Management                and service fees and other revenues                                           |   |                                                       |   |   |   | 614 |   |   | 166 |   |
| Total                revenues, excluding revenues from managed and affiliated                properties |   |                                                       |   |   | $ | 15,618 |   | $ | 16,225 |   |

----

**MANAGEMENT’S      DISCUSSION AND ANALYSIS**

**OF      RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)**

**OPERATING      INCOME**

|                                                                                      |   | OPERATING                INCOME (LOSS) (in                thousands) |   |
|-------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------|--------|
|                                                                                      |   | 2006                                                                      |   | 2005 |   |
| Sonesta                Beach Resort Key Biscayne                                          |   | $                                                                         | (2,381 | ) | $ | (1,533 | ) |
| Royal                Sonesta Hotel Boston (Cambridge)                                     |   |                                                                      | 1,057  |   |   | 649 |   |
| Royal                Sonesta Hotel New Orleans                                            |   |                                                                      | 110    |   |   | (525 | ) |
| Operating                loss from hotels after managementand                service fees |   |                                                                      | (1,214 | ) |   | (1,409 | ) |
| Management                activities and other                                            |   |                                                                      | (1,890 | ) |   | (1,911 | ) |
| Operating                loss                                                             |   | $                                                                         | (3,104 | ) | $ | (3,320 | ) |

----

**MANAGEMENT’S      DISCUSSION AND ANALYSIS**

**OF      RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)**

**OTHER      INCOME (DEDUCTIONS)**

**FEDERAL,      FOREIGN AND STATE INCOME TAXES**

| ·   | In                April 2005, the Company completed the transfer of the land and                improvements of Sonesta Beach Resort Key Biscayne to a partnership                with                the intent to develop a new condominium resort on the site. The Company                is                a 50% partner in the new partnership. This transaction resulted in                significant taxable income, and accordingly, in the first quarter                of 2005,                the Company reversed the valuation allowances previously recorded                during                2003 and 2004 totaling $4,158,000 against the federal and state income                tax                benefits on pre-tax losses of approximately $10.6 million. During                2003 and                2004, it was uncertain if the Company could realize future benefit                for                these losses. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| **·  ** | Also                in 2005, a foreign subsidiary of the Company sold land it had owned                in                Costa Rica, and recorded a pre-tax gain of $3,950,000 on the sale.                The                foreign subsidiary remitted the proceeds to the parent company, and                in                accordance with IRS Code Section 965(a) of the American Job Creations                Act                of 2004, the Company was able to receive a “temporary dividends received                deduction” of approximately $2.8 million, resulting in tax savings of                approximately $1 million. |
|------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**LIQUIDITY      AND CAPITAL RESOURCES**

----

**PART      I - Item 3**

**QUANTITATIVE      AND QUALITATIVE DISCLOSURE OF MARKET RISK**

|                                 |   | YEAR   |   |   |   |   |   |   |   |
|--------------------------------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|                                 |   | 2006   |   | 2007   |   | 2008   |   | 2009   |   | 2010 |   | Thereafter |   | Total |   | Fair                Value |   |
| Fixed                rate            |   | $      | --     |   | $      | --     |   | $      | 602    |   | $ | 665 |   | $ | 32,794 |   | $ | -0- |   | $ | 34,061 |   | $ | 36,335 |   |
| Average                interest rate |   |   | 8.6    | %      |   | 8.6    | %      |   | 8.6    | % |   | 8.6 | % |   | 8.6 | % |   | 8.6 | % |   |   |   |   |   |   |

----

**PART      I - Item 4**

**INTERNAL      CONTROLS AND PROCEDURES**

----

**PART      II - Other Information**

**Item      Numbers 1, 2, 3, 5 and 6 **

----

**SIGNATURE**

|   | **SONESTA                INTERNATIONAL HOTELS CORPORATION** |
|--------|-------------------------------------------------------------|
|   |                                                        |   |
|   |                                                        |   |
|   | By:                                                         |   |
|   |                                                        | Boy                van Riel |
|   |                                                        | Vice                President and Treasurer |
|   |                                                        |   |
|   |                                                        | (Authorized                to sign on behalf of the Registrant as Principal Financial                Officer) |
|   |                                                        |   |
|   | Date:                November 8, 2006                       |

----

----

----