UNITED STATES
                    SECURITIES AND EXCHANGE COMMISSION
                          Washington, D.C. 20549
                          ----------------------

                               FORM 10-QSB


    [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

    [ ]  Transition Report Pursuant to Section 13 or 15(d) of the Exchange Act

    For the transition period from _______ to ________


    Commission File Number 0-4057

                              PORTSMOUTH SQUARE, INC.
                              -----------------------
        (Exact Name of Small Business Issuer as Specified in its Charter)

           California                               94-1674111
           ----------                               ----------
   (State or Other Jurisdiction of                 (IRS Employer
    Incorporation or Organization)                Identification No.)


           820 Moraga Drive
           Los Angeles, CA                               90049
---------------------------------------               ----------
(Address of Principal Executive Offices)              (Zip Code)

                                  (310) 889-2500
                                  --------------
                (Registrant's Telephone Number, Including Area Code)

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been
subject to such filing requirements for the past 90 days.  Yes (X)  No ( )

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).  Yes ( )  No (X)

     State the number of shares outstanding of each of the issuer's classes of
Common equity, as of the latest practicable date: 734,183 shares of issuer's No
Par Value Common Stock were outstanding as of November 10, 2006.

Transitional Small Business Disclosure Format (check one): Yes ( ) No (X)

<PAGE>



                                     INDEX

                             PORTSMOUTH SQUARE, INC.


PART I. FINANCIAL INFORMATION                                            PAGE

Item 1. Consolidated Financial Statements

 Consolidated Balance Sheet - As of September 30, 2006 (Unaudited)         3

 Consolidated Statements of Operations (Unaudited)- For the Three
    Months ended September 30, 2006 and September 30, 2005                 4

 Consolidated Statements of Cash Flows (Unaudited)- For the Three
    Months ended September 30, 2006 and September 30, 2005                 5

  Notes to Consolidated Financial Statements                               6

Item 2. Management's Discussion and Analysis of Financial
        Condition and Results of Operations                               12

Item 3. Controls and Procedures                                           18


PART II. OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds       19

Item 6. Exhibits and Reports on Form 8-K                                  19

SIGNATURES                                                                20


                                    -2-
<PAGE>



                        PART 1 - FINANCIAL INFORMATION

Item 1 - Consolidated Financial Statements

                             PORTSMOUTH SQUARE, INC.
                            CONSOLIDATED BALANCE SHEET
                                  (Unaudited)
As of September 30,                                          2006
                                                          ----------
Assets
  Investment in hotel, at cost:
    Land                                                $  1,124,000
    Furniture and equipment                               15,095,000
    Building and improvements                             42,204,000
    Accumulated depreciation                             (15,837,000)
                                                          ----------
                                                          42,586,000
                                                          ----------
  Cash and cash equivalents                                2,471,000
  Investment in marketable securities                      9,823,000
  Other investments                                        1,800,000
  Accounts receivable                                      1,259,000
  Other assets                                             2,767,000
                                                          ----------
                                                          60,706,000
  Minority interest                                        2,716,000
                                                          ----------
Total assets                                            $ 63,422,000
                                                          ==========
Liabilities and Shareholders' Equity

Liabilities
  Accounts payable and other liabilities                   7,243,000
  Due to securities broker                                 4,049,000
  Obligations for securities sold                          1,424,000
  Mortgage note payable                                   45,617,000
                                                          ----------
Total liabilities                                         58,333,000
                                                          ----------
Commitments and contingencies

Shareholders' equity:
  Common stock, no par value:
    Authorized shares - 750,000
    Issued and outstanding shares - 734,183                2,092,000
  Additional paid-in capital                                 916,000
  Retained earnings                                        2,081,000
                                                          ----------

Total shareholders' equity                                 5,089,000
                                                          ----------

Total liabilities and shareholders' equity              $ 63,422,000
                                                          ==========

See accompanying notes to the consolidated financial statements.

                                    -3-
<PAGE>

                            PORTSMOUTH SQUARE, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                  (Unaudited)

For the three months ended September 30,             2006           2005
                                                  ----------     ----------
Justice Investors operations:
 Hotel and garage revenue                        $ 7,592,000    $         -
  Operating expenses                              (6,360,000)             -
  Interest expense                                  (749,000)             -
  Real estate taxes                                 (180,000)             -
  Depreciation and amortization                   (1,034,000)             -
                                                  ----------     ----------
Loss from Justice Investors operations              (731,000)             -

Equity in net loss of Justice Investors                    -       (727,000)

General and administrative expense                  (130,000)      (110,000)
Amortization of excess purchase price - Justice        3,000          3,000

Investment transactions:
 Net losses on marketable securities                (397,000)      (198,000)
 Dividend and interest                                25,000         96,000
 Margin interest and trading expense                (107,000)       (83,000)
 Other                                                     -         13,000
                                                  ----------     ----------
                                                    (479,000)      (172,000)
                                                  ----------     ----------

Net loss before income taxes                      (1,337,000)    (1,006,000)

Provision for income tax benefit                     526,000        395,000
                                                  ----------     ----------
Loss before minority interest                       (811,000)      (611,000)
Minority interest, net of tax                        373,000              -
                                                  ----------     ----------
Net loss                                            (438,000)      (611,000)
                                                  ==========     ==========

Basic loss per share                             $     (0.60)   $     (0.83)
                                                  ==========     ==========
Weighted average number of shares outstanding        734,183        734,183
                                                  ==========     ==========

See accompanying notes to the consolidated financial statements.

                                    -4-
<PAGE>



                            PORTSMOUTH SQUARE, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (Unaudited)

For the three months ended September 30,             2006           2005
                                                  ----------     ----------
Cash flows from operating activities:
  Net loss                                      $   (438,000) $   (611,000)
  Adjustments to reconcile net loss
   to net cash provided by operating activities:
    Equity in net loss of Justice Investors                -        724,000
    Net unrealized losses on marketable securities   256,000        204,000
    Depreciation and amortization                  1,034,000              -
    Minority interest                               (373,000)             -
    Changes in assets and liabilities:
      Investment in marketable securities          2,364,000     (1,837,000)
      Other investments and other assets          (1,293,000)      (386,000)
      Accounts payable and other liabilities         411,000         92,000
      Due to securities broker                    (1,489,000)     1,763,000
      Obligations for securities sold                 (9,000)       107,000
                                                  ----------     ----------
  Net cash provided by operating activities          463,000         56,000
                                                  ----------     ----------
Cash flows from financing activities:
  Principal payments on mortgage note payable       (102,000)             -
                                                  ----------     ----------
  Net cash used by financing activities             (102,000)             -
                                                  ----------     ----------
Cash flows from investing activities:
  Additions to furniture, equipment and
   building improvements                            (350,000)             -
                                                  ----------     ----------
  Net cash used by investing activities             (350,000)             -
                                                  ----------     ----------
Net increase in cash and cash equivalents             11,000         56,000

Cash and cash equivalents at the beginning
  of the period                                    2,460,000         20,000
                                                  ----------     ----------
Cash and cash equivalents at the end of the
 period                                         $  2,471,000    $    76,000
                                                  ==========     ==========

Supplemental disclosure of non-cash activities:
 Consolidation of Justice Investors
  Gross components:
   Assets (including cash of $2,352,000)        $(42,975,000)             -
   Liabilities                                    52,366,000              -
   Investment in Justice                          (7,321,000)             -
   Minority interest                              (2,343,000)             -


See accompanying notes to the consolidated financial statements.

                                    -5-
<PAGE>


                       PORTSMOUTH SQUARE, INC.
               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                           (Unaudited)

1.  Basis of Presentation and Significant Accounting Policies
    ---------------------------------------------------------

The consolidated financial statements included herein have been prepared by
Portsmouth Square, Inc. ("Portsmouth" or the "Company"), without audit,
according to the rules and regulations of the Securities and Exchange
Commission.  Certain information and footnote disclosures normally included in
the consolidated financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes the disclosures that are
made are adequate to make the information presented not misleading.  Further,
the consolidated financial statements reflect, in the opinion of management,
all adjustments (which included only normal recurring adjustments) necessary
for a fair statement of the financial position, cash flow and results of
operations as of and for the periods indicated.

The Company has a 50.0% interest in Justice Investors, a California limited
partnership ("Justice" or the "Partnership") in which Portsmouth serves as both
a general and limited partner. The other general partner, Evon Corporation
("Evon"), serves as the managing general partner of Justice. As discussed
below, the financial statements of Justice have been consolidated with those of
the Company, effective as of the first reporting period of its fiscal year
beginning July 1, 2006.

Portsmouth is a 68.8%-owned subsidiary of Santa Fe Financial Corporation
("Santa Fe"), which is also a public company.  Santa Fe is an approximately
74.1%-owned subsidiary of the InterGroup Corporation ("InterGroup"), a public
company.

It is suggested that these financial statements be read in conjunction with the
audited financial statements and the notes therein included in the Company's
Form 10-KSB for the year ended June 30, 2006.

The results of operations for the three months ended September 30, 2006 are not
necessarily indicative of results to be expected for the full fiscal year
ending June 30, 2007.


2.  Investment in Justice Investors
    -------------------------------

Justice Investors owns the land, improvements and leaseholds now known as the
Hilton San Francisco Financial District, a 549-room hotel located at 750 Kearny
Street, San Francisco, California (the "Hotel").

All significant partnership decisions require the active participation and
approval of both general partners.  The Company and Evon jointly consult and
determine the amount of partnership reserves and the amount of cash to be
distributed to the limited partners.  Pursuant to the terms of the partnership

                                    -6-
<PAGE>

agreement, voting rights of the partners are determined according to the
partners' entitlement to share in the net profit and loss of the partnership.
The Company is not entitled to any additional voting rights by virtue of its
position as a general partner.  The partnership agreement also provides that no
portion of the partnership real property can be sold without the written
consent of the general and limited partners entitled to more than 72% of the
net profit.

On July 14, 2005, the Financial Accounting Standards Board directed Staff
Position (FSP) SOP 78-9-1, "Interaction of AICPA Statement of Position 78-9 and
EITF Issue No. 04-5" to amend the guidance in AICPA Statement of Position 78-9,
"Accounting for Investments in Real Estate Ventures" (SOP 78-9) to be
consistent with the consensus in Emerging Issues Task Force Issue No. 04-5
"Determining Whether a General Partner, or General Partners as a Group,
Controls a Limited Partnership or Similar Entity When the Limited Partners Have
Certain Rights" (Issue 04-5). FSP SOP 78-9-1 eliminated the concept of
"important rights" in paragraph .09 of SOP 78-9 and replaces it with the
concepts of "kick out rights" and "substantive participating rights" as defined
in Issue 04-5.

Under the amendment to paragraph .09 of SOP 78-9 the general partners of a
limited partnership should be deemed to control a limited partnership; however,
the rights of the limited partners may overcome that presumption of control.
The guidance in EITF Issue No. 04-5 should be used to determine whether the
rights of the limited partners overcome the presumption of control by the
general partners. The presumption of control is not overcome by the rights of
the limited partners and if a single general partner controls the limited
partnership, that general partner should consolidate the limited partnership
and apply the principles of accounting applicable for investments in
subsidiaries. For existing partnership agreements such as Justice Investors,
the guidance should be applied in financial statements issued for the first
reporting period in the fiscal years beginning after December 15, 2005.

During the fiscal quarter ended March 31, 2006, Portsmouth conducted an
assessment of its general and limited interest in Justice Investors under the
new guidance provided by SOP 78-9-1. The Company determined that, under the
limited partnership agreement, the limited partners of Justice do not have
either "kick out rights" to remove Portsmouth as a general partner or
"substantive participating rights" to direct the business of the Partnership.
Significant in that assessment is the fact that the limited partners of Justice
do not have the ability to dissolve (liquidate) the Partnership and effectively
remove the general partners without the participation and consent of
Portsmouth's 50.0% limited partnership interest since any action to sell the
Partnership real property and dissolve the Partnership requires the approval of
partners entitled to more than 72% of the net profit of the Partnership. Based
on its assessment, Portsmouth concluded that rights of the limited partners
under the Partnership agreement do not overcome the presumption that
Portsmouth, as a general partner and a significant limited partner, controls
the Partnership in accordance with guidance set forth in FSP SOP 78-9-1. Thus,
effective with the first reporting period of its fiscal year beginning July 1,
2006, Portsmouth has applied the principles of accounting applicable for
investments in subsidiaries due to its substantial limited partnership interest
and general partnership rights and has consolidated the financial statements of
Justice with those of the Company.

                                    -7-
<PAGE>

For the three months ended September 30, 2006, the results of operations for
Justice were consolidated with those of the Company.  However, for the three
months ended September 30, 2005, the Company's investment in Justice was
accounted for under the equity method.  For comparative purposes, the statement
of operations for Justice for the three months ended September 30, 2006 and
September 30, 2005 are disclosed below.

Significant to note is the operations of the Hotel were temporarily closed down
effective May 31, 2005, to complete the substantial renovations of the Hotel
required by the Hilton Franchise Agreement. Thus, the Hotel did not generate
any room or food and beverage revenues during the first quarter of fiscal 2005.
The below ground parking garage and Tru Spa located on the lobby level of the
Hotel, both of which are lessees of the Partnership, remained open during the
renovation work. As of January 12, 2006 the Hotel renovation work was
substantially completed, at which time Justice obtained approval from Hilton to
open the Hotel as the "Hilton San Francisco Financial District". The Hotel
opened with a limited number of rooms available to rent, which increased as the
Hotel transitioned into full operations by the end of February 2006.


                                JUSTICE INVESTORS
                             STATEMENTS OF OPERATIONS

For the three months ended September 30,       2006            2005
                                            ----------      ----------
Revenues:
 Hotel rooms                              $  5,881,000     $         -
 Food and beverage                           1,015,000               -
 Rent - hotel garage                           430,000         157,000
 Other                                         266,000         121,000
   Total revenues                           ----------      ----------
                                             7,592,000         278,000
Operating expenses:
 Hotel rooms                                (1,917,000)         (6,000)
 Food and beverage                          (1,300,000)       (103,000)
 Other operating expenses                   (2,334,000)       (320,000)
 Interest expense                             (749,000)       (141,000)
 Real estate taxes                            (180,000)       (133,000)
 Depreciation and amortization              (1,034,000)       (140,000)
 General and administrative                   (822,000)       (900,000)
                                            ----------      ----------
   Total expenses                           (8,336,000)     (1,743,000)
                                            ----------      ----------
                                              (744,000)     (1,465,000)
Intercompany eliminations                       13,000          11,000
                                            ----------      ----------
Net loss                                  $   (731,000)    $(1,454,000)
                                            ==========      ==========


During the three months ended September 30, 2006, Portsmouth received monthly
general partner management fees in the amount of $13,000 from Justice
Investors. This amount was eliminated from Justice operating expenses during
consolidation.

                                    -8-
<PAGE>

Below are the comparative standalone statements of operations for the Hotel for
the indicated periods.


For the three months ended September 30,          2006           2005
                                               -----------     ----------
Operating revenue:
 Room                                         $  5,881,000    $         -
 Food and beverage                               1,015,000              -
 Other operating revenue                           178,000              -
                                               -----------     ----------
  Total operating revenue                        7,074,000              -
                                               -----------     ----------
Operating expenses:
 Rooms                                          (1,917,000)        (6,000)
 Food and beverage                              (1,300,000)      (103,000)
 Other operating expenses                       (3,214,000)      (509,000)
                                               -----------     ----------
  Total operating expenses                      (6,431,000)      (618,000)
                                               -----------     ----------
Net income(loss) from Hotel operations             643,000       (618,000)
Net expenses at Justice Investors               (1,374,000)      (836,000)
                                               -----------     ----------
Net loss from Justice Investors               $   (731,000)   $(1,454,000)
                                               ===========     ==========


3.  Investment in Marketable Securities
    -----------------------------------
The Company's investment in marketable securities consists primarily of
corporate equities. The Company has also invested in corporate bonds and income
producing securities, which may include interests in real estate based
companies and REITs, where financial benefit could inure to its shareholders
through income and/or capital gain.

At September 30, 2006, all of the Company's marketable securities are
classified as trading securities.  In accordance with SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities," the change in the
unrealized gains and losses on these investments are included in earnings.

Trading securities are summarized as follows:

<TABLE>

As of September 30, 2006:
                              Gross            Gross             Net            Market
Investment     Cost       Unrealized Gain  Unrealized Loss  Unrealized Gain     Value
----------  -----------   ---------------  ---------------  ---------------  ------------
<S>         <C>              <C>              <C>              <C>           <C>
Corporate
Equities    $ 7,760,000      $2,353,000      ($  290,000)      $2,063,000    $ 9,823,000

</TABLE>

As of September 30, 2006, the Company had $58,000 of unrealized losses related
to securities held for over one year.

                                    -9-
<PAGE>

As part of the investment strategies, the Company may assume short positions
against its long positions in marketable securities.  Short sales are used by
the Company to potentially offset normal market risks undertaken in the course
of its investing activities or to provide additional return opportunities.  The
Company has no naked short positions.  As of September 30, 2006, the Company
had obligations for securities sold (equities short) of $1,424,000.

Net gains on marketable securities on the statement of operations are comprised
of realized and unrealized gains.  Below is the composition of the two
components for the three months ended September 30, 2006 and 2005,
respectively.

For the three months ended September 30,              2006             2005
                                                  -----------      -----------
Realized (loss)gain on marketable securities      $  (141,000)     $     6,000
Unrealized loss on marketable securities             (256,000)        (204,000)
                                                  -----------      -----------
Net losses on marketable securities                  (397,000)     $  (198,000)
                                                  ===========      ===========

4.  Segment Information
    --------------------

The Company operates in two reportable segments, the operation of Justice
Investors and the investment of its cash and securities assets. These two
operating segments, as presented in the financial statements, reflect how
management internally reviews each segment's performance.  Management also
makes operational and strategic decisions based on this same information.

Information below represents reporting segments for the three months ended
September 30, 2006 and September 30, 2005.  Operating income from Justice
Investors consists of the operations of the hotel and garage.  Operating loss
for investment transactions consist of net investment gains (losses) and
dividend and interest income.

<TABLE>

Three months ended            Justice     Investment
September 30, 2006           Investors   Transactions      Other          Total
                            -----------  ------------   -----------   ------------
<S>                         <C>           <C>           <C>          <C>
Operating income(loss)      $ 7,592,000   $  (372,000)  $         -  $   7,220,000
Operating expenses           (8,323,000)     (107,000)            -     (8,430,000)
                            -----------   -----------   -----------   ------------
Net operating loss             (731,000)     (479,000)            -     (1,210,000)

General and admin. expense                                 (130,000)      (130,000)
Amortization - Justice            3,000             -             -          3,000
Income tax benefit                    -             -       526,000        526,000
Minority interest               373,000             -             -        373,000
                            -----------   -----------   -----------   ------------
Net income (loss)           $  (355,000)  $  (479,000)  $   396,000  $    (438,000)
                            ===========   ===========   ===========   ============
Total Assets                $42,586,000   $11,623,000   $ 9,213,000   $ 63,422,000
                            ===========   ===========   ===========   ============

</TABLE>

                                    -10-
<PAGE>

<TABLE>

Three months ended             Justice    Investment
September 30, 2005            Investors  Transactions      Other          Total
                            -----------  ------------   -----------   ------------
<S>                         <C>           <C>           <C>          <C>
Operating loss              $  (727,000)  $  (102,000)  $         -  $    (829,000)
Operating expenses                    -       (83,000)            -        (83,000)
                            -----------   -----------   -----------   ------------
Net operating loss             (727,000)     (185,000)            -       (912,000)

General and admin. exp.               -             -      (110,000)      (110,000)
Amortizaton - Justice             3,000             -             -          3,000

Other income                          -             -        13,000         13,000
Income tax benefit                    -             -       395,000        395,000
                            -----------   -----------   -----------   ------------
Net income (loss)           $  (724,000)  $  (185,000)  $   298,000  $    (611,000)
                            ===========   ===========   ===========   ============
Total Assets                $   738,000   $10,523,000   $ 1,020,000   $ 12,281,000
                            ===========   ===========   ===========   ============

</TABLE>


5.  Related Party Transactions
    --------------------------

Certain shared costs and expenses, primarily administrative expenses, rent and
insurance are allocated among the Company, the Company's parent, Santa Fe
Financial Corporation ("Santa Fe"), and The InterGroup Corporation
("InterGroup"), parent of Santa Fe, based on management's estimate of the pro
rata utilization of resources.  For the three months ended September 30, 2006
and September 30, 2005, these expenses were approximately $18,000 and $20,000,
respectively.  Four of the Company's Directors serve as directors of InterGroup
and three of the Company's Directors serve on the Board of Santa Fe.

John V. Winfield serves as Chief Executive Officer and Chairman of the Company,
Santa Fe, and InterGroup.  Depending on certain market conditions and various
risk factors, the Chief Executive Officer, his family, Santa Fe and InterGroup
may, at times, invest in the same companies in which the Company invests.  The
Company encourages such investments because it places personal resources of the
Chief Executive Officer and his family members, and the resources of Santa Fe
and InterGroup, at risk in connection with investment decisions made on behalf
of the Company.

During the three months ended September 30, 2006, Portsmouth received monthly
general partner management fees in the total amount of $13,000 and $50,000 in
repositioning fees from Justice Investors.  Portsmouth also has a receivable
from Justice in the amount of $50,000 for the balance of repositioning fees
earned during the prior fiscal year.  All of those amounts were eliminated in
the consolidation of Justice.

                                    -11-
<PAGE>


Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS


FORWARD-LOOKING STATEMENTS AND PROJECTIONS

The Company may from time to time make forward-looking statements and
projections concerning future expectations.  When used in this discussion, the
words "anticipate," "estimate," "expect," "project," "intend," "plan,"
"believe," "may," "could," "might" and similar expressions, are intended to
identify forward-looking statements.  These statements are subject to certain
risks and uncertainties, such as the impact of terrorism and war on the
national and international economies, including tourism and securities markets,
natural disasters, general economic conditions and competition in the hotel
industry in the San Francisco area, labor relations and labor disruptions,
partnership distributions, the ability to obtain financing at favorable
interest rates and terms, securities markets, regulatory factors, litigation
and other factors discussed below in this Report and in the Company's Form 10-
KSB Report for the fiscal year ended June 30, 2006, that could cause actual
results to differ materially from those projected.  Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only
as to the date hereof.  The Company undertakes no obligation to publicly
release the results of any revisions to those forward-looking statements, which
may be made to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.


RESULTS OF OPERATIONS

The Company has a 50.0% ownership interest in the Justice Investors limited
partnership ("Justice" or the "Partnership"), in which Portsmouth serves as one
of the general partners. Justice owns the land, improvements and leaseholds at
750 Kearny Street, San Francisco, California, now known as the Hilton San
Francisco Financial District hotel (the "Hotel"). The financial statements of
Justice have been consolidated with those of the Company, effective as of July
1, 2006.  See Note 2 to the Consolidated Financial Statements.

The Hotel is operated by the Partnership, with the assistance of a Management
Agreement with Dow Hotel Company, LLC. ("Dow") to perform the day-to-day
management functions.  The Partnership also derives income from the lease of
the garage portion of the property to Evon Corporation ("Evon"), the managing
general partner of Justice, and from a lease with Tru Spa for a portion of the
lobby level of the Hotel.  The Company also receives management fees as a
general partner of Justice for its services in overseeing and managing the
Partnership's assets.

On December 10, 2004, Justice entered into a Franchise License Agreement for
the right to operate the Hotel property as a Hilton brand hotel. Prior to
operating the hotel as a Hilton, the Partnership was required to make
substantial renovations to the hotel to meet Hilton standards in accordance
with a product improvement plan agreed upon by Hilton and the Partnership, as
well as complying with other brand standards. The term of the Agreement is for
a period of 15 years commencing on the opening date, with an option to extend
the license term for another five years, subject to certain conditions.

                                    -12-
<PAGE>

Effective May 31, 2005, the Partnership temporarily closed down its Hotel
operations to complete the renovations of the Hotel as required by the Hilton
Agreement.  The below ground parking garage and Tru Spa located on the lobby
remained open during the renovation work, although the operations of both were
impacted during that period of time.

As of January 12, 2006 the Hotel renovation work was substantially completed,
at which time the Partnership obtained approval from Hilton to open the Hotel
as the "Hilton San Francisco Financial District". The Hotel opened with a
limited number of rooms available to rent, which increased as the Hotel
transitioned into full operations by the end of February 2006.


Three Months Ended September 30, 2006 Compared to Three Months
Ended September 30, 2005

The Company had a net loss of $438,000 for the three months ended September 30,
2006 compared to a net loss of $611,000 for the three months ended September
30, 2005.  As discussed below, the decrease in the net loss was primarily due
to the reduction in the net loss from the operations of Justice Investors
partially offset by the increase in the net losses on marketable securities
during the three months ended September 30, 2006.

The net loss from the operations of Justice Investors decreased to $744,000 for
the three months ended September 30, 2006 from a net loss of $1,465,000(before
minority interest of $727,000) for the three months ended September 30, 2005.
That decrease was primarily attributable to net income generated from the
operations of the Hotel during the current quarter compared to the prior
quarter when the Hotel was temporarily closed for major renovations and from
higher garage rental income in the current quarter.  Those results were
partially offset by higher interest costs, insurance costs, property taxes and
greater depreciation and amortization expenses resulting from the renovation of
the Hotel.

For the three months ended September 30, 2006, the Hotel operations generated
net income of $643,000 on total operating revenues of approximately $7,074,000,
while there were no revenues from the operations of the Hotel during the three
months ended September 30, 2005. Garage rent increased to $430,000 from
$157,000 primarily due to the Hotel being open during the current quarter.  The
average daily room rate for the Hotel was approximately $151 and the average
occupancy rate was approximately 77% for the three months ended September 30,
2006.

Occupancy and average daily room rates have continued to improve since the
Hotel's reopening in January 2006 as the Hotel ramped up its operations and new
programs were implemented to increase revenues. However, the Hotel's food and
beverage operations remain problematic as they continue to generate losses,
primarily attributable to brand requirements of maintaining a three-meal, full
service restaurant, the associated costs of union labor, and the intense
competition in the San Francisco market for restaurants.  Management will
continue to work closely with Dow and Hilton to address these issues and to
improve the operations of the Hotel.

                                    -13-
<PAGE>

Corporate general and administrative expenses increased to $130,000 for the
three months ended September 30, 2006 from $110,000 for the three months ended
September 30, 2005 primarily as the result of the increase in audit related
fees.

Net losses on marketable securities increased to $397,000 for the three months
ended September 30, 2006 from $198,000 for the three months ended September 30,
2005.  For the three months ended September 30, 2006, the Company had net
unrealized losses of $256,000 and net realized losses of $141,000.  For the
three months ended September 30, 2005, the Company had net unrealized losses of
$204,000 and net realized gains of $6,000.  Gains and losses on marketable
securities may fluctuate significantly from period to period in the future and
could have a significant impact on the Company's net income.  However, the
amount of gain or loss on marketable securities for any given period may have
no predictive value and variations in amount from period to period may have no
analytical value. For a more detailed description of the composition of the
Company's marketable securities please see the Marketable Securities section
below.

Dividend and interest income decreased to $25,000 for the three months ended
September 30, 2006 from $96,000 for the three months ended September 30, 2005
as a result of the decreased investment in income yielding securities during
the quarter ended September 30, 2006.

Margin interest and trading expenses increased to $107,000 from $83,000
primarily as the result of the increase in margin interest expense to $64,000
during the quarter ended September 30, 2006 from $42,000 during the comparable
quarter ended September 30, 2005.  The increase was the result of higher
interest rates and the maintenance of higher daily average margin balances.

The provision for income tax benefit increased to $526,000 for the three months
ended September 30, 2006 from $395,000 for the three months ended September 30,
2005 as the result of the higher pre-tax loss incurred by the Company during
the current quarter.

During the three months ended September 30, 2006, the Company, for the first
time, consolidated the results of operations from Justice Investors and
recorded a minority interest benefit of $373,000 representing 50% of the net
loss incurred at Justice during the quarter.

                                    -14-
<PAGE>

MARKETABLE SECURITIES

As of September 30, 2006, the Company had investments in marketable equity
securities of $9,823,000.  The following table shows the composition of the
Company's marketable securities portfolio by selected industry groups as of
September 30, 2006.

                                                              % of Total
                                                              Investment
   Industry Group                      Market Value           Securities
   --------------                      ------------           ----------
   REITs and building materials        $ 1,704,000               17.3%
   Telecommunications and media          1,499,000               15.3%
   Technology and internet               1,088,000               11.1%
   Retail and consumer goods             1,017,000               10.4%
   Services                                927,000                9.4%
   Newspapers and paper mills              920,000                9.4%
   Dairy products                          700,000                7.1%
   Insurance, banks and brokers            595,000                6.1%
   Pharmaceuticals and healthcare          521,000                5.3%
   Other                                   852,000                8.6%
                                       ------------           ----------
                                       $ 9,823,000              100.0%
                                       ============           ==========

The Company's investment portfolio is diversified with 30 different equity
positions.  The portfolio contains five individual equity securities that are
more than 5% of the equity value of the portfolio with the largest security
being 9.7% of the value of the portfolio.  The amount of the Company's
investment in any particular issuer may increase or decrease, and additions or
deletions to its securities portfolio may occur, at any time.  While it is the
internal policy of the Company to limit its initial investment in any single
equity to less than 5% of its total portfolio value, that investment could
eventually exceed 5% as a result of equity appreciation or reduction of other
positions.


LIQUIDITY AND SOURCES OF CAPITAL

The Company's cash flows are primarily generated from the operations of Justice
Investors. The Company also receives revenues generated from the investment of
its cash and securities assets.  Since the operations of the Hotel operations
of the Hotel were temporarily closed down on May 31, 2005, and significant
amounts of money were expended to renovate and reposition the Hotel as a
Hilton, the partnership is not expected to pay any limited partnership
distributions until some time after operations of the Hotel stabilize under the
Hilton brand and net income and capital requirements warrant such
distributions. As a result, the Company has had to depend more on the revenues
generated from the investment of its cash and securities assets during that
transition period.

Prior to operating the hotel as a Hilton, the Partnership was required to make
substantial renovations to the hotel to meet Hilton standards in accordance
with a product improvement plan agreed upon by Hilton and the Partnership, as
well as complying with other brand standards. The total cost of the
construction-renovation project of the Hotel was approximately $36.4 million,
which excludes approximately $630,000 in interest costs incurred during for the
construction phase that were capitalized.

                                    -15-
<PAGE>

To meet its substantial financial commitments for the renovation project and
transition of the Hotel to a Hilton, Justice had to rely on borrowings to meet
its obligations. On July 27, 2005, Justice entered into a first mortgage loan
(the "Prudential Loan") with The Prudential Insurance Company of America in a
principal amount of $30,000,000. The term of the Loan is for 120 months at a
fixed interest rate of 5.22% per annum. The Loan calls for monthly installments
of principal and interest in the amount of approximately $165,000, calculated
on a 360 month amortization schedule. The Loan is collateralized by a first
deed of trust on the Partnership's Hotel property, including all improvements
and personal property thereon and an assignment of all present and future
leases and rents. The Loan is without recourse to the limited and general
partners of Justice.

On July 27, 2005, Justice also obtained a $10,000,000 Revolving Line of Credit
("LOC") from United Commercial Bank ("UCB"). The term of the LOC is for 60
months at an annual interest rate, based on an index selected by Justice at the
time of the advance, equal to the Wall Street Journal Prime Rate or the Libor
Rate plus 2%, fixed for the period selected by the Partnership. The LOC is
collateralized by a second deed of trust on the Hotel property. Interest only
is payable monthly with principal and accrued interest due a maturity. On
January 20, 2006, the Partnership obtained a $4,500,000 increase in its LOC,
raising the total amount available to the Partnership pursuant to $14,500,000.
The increase in the credit line is on the same terms as the existing line of
credit with additional loan and documentation fees of $4,000. On May 23, 2006,
Justice obtained a short term increase of its LOC of an additional $2,000,000,
raising the total amount available to the Partnership to $16,500,000.  If the
short term increase of is not paid off by December 31, 2006, UCB has the right
to record a lien on the Hotel property for the additional $2,000,000. That
increase is also on the same terms as the existing LOC, with additional
documentation fees of $1,000. As of September 30, 2006, approximately
$16,079,000 of the LOC was utilized.

The Prudential Loan and the LOC have provided Justice with sufficient financial
resources for the Partnership to complete the substantial renovations to the
Hotel required by its Franchise License Agreement with Hilton and to meet its
debt service requirements and operating capital needs through the reopening of
the Hotel and the period of time necessary to ramp up operations. The Hotel
started to generate net operating income from its operations in June 2006,
which have continued to improve in the first quarter of the Company's current
fiscal year.  Management believes that the revenues expected to be generated
from the Hotel operations and the garage lease will be sufficient to meet all
of its current and future obligations and financial requirements.  Management
also believes that there is sufficient equity in the Hotel assets to support
future borrowings if necessary.

The additional amount of leverage related to the Prudential Loan and the
utilization of the LOC and the associated debt service will create additional
risk for the Company and its ability to generate cash flows in the future since
the Hotel asset has been virtually debt free for many years.  Justice also does
not anticipate paying any partnership distributions until net income from the
operations of the Hotel and capital requirements warrant such distributions.
As a result, the Company may have to continue to rely on revenues generated
from the investment of its cash and securities assets during that transition
period.

                                    -16-
<PAGE>

The Company has invested in short-term, income-producing instruments and in
equity and debt securities when deemed appropriate.  The Company's marketable
securities are classified as trading with unrealized gains and losses recorded
through the statement of operations.

Although the Company may be facing a period of time without partnership
distributions, management believes that its cash, securities assets, and the
cash flows generated from those assets, will be adequate to meet the Company's
current and future obligations.


MATERIAL CONTRACTUAL OBLIGATIONS

The Company also does not have any material contractual obligations or
commercial commitments other than Justice's first mortgage loan with Prudential
and its LOC with United Commercial Bank.


OFF-BALANCE SHEET ARRANGEMENTS

The Company has no off balance sheet arrangements.


IMPACT OF INFLATION

Hotel room rates are typically impacted by supply and demand factors, not
inflation, since rental of a hotel room is usually for a limited number of
nights.  Room rates can be, and usually are, adjusted to account for
inflationary cost increases.  To the extent that the Dow is able to adjust room
rates, there should be minimal impact on partnership revenues due to inflation.
Partnership revenues are also subject to interest rate risks, which may be
influenced by inflation.  For the two most recent fiscal years, the impact of
inflation on the Company's income is not viewed by management as material.


CRITICAL ACCOUNTING POLICIES

The Company reviews its long-lived assets and other investments for impairment
when circumstances indicate that a potential loss in carrying value may have
occurred.  For the Company's investment in Justice, to the extent that
projected future undiscounted cash flows from the operation of the hotel
property are less than the carrying value of the asset, the investment would be
considered impaired and the carrying value of the asset would be reduced to its
fair value.  For other investments, the Company reviews the investment's
operating results, financial position and other relevant factors to determine
whether the estimated fair value of the asset is less than the carrying value
of the asset.

Marketable securities are stated at market value as determined by the most
recently traded price of each security at the balance sheet date.  Marketable
securities are classified as trading with net unrealized gains or losses
included in earnings.

                                    -17-
<PAGE>

Item 3. Controls and Procedures

(a) Disclosure Controls and Procedures.

The Company's management, with the participation of the Company's Chief
Executive Officer and the Chief Financial Officer, has evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the
fiscal period covered by this Quarterly Report on Form 10-QSB.  Based upon such
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, the Company's disclosure controls
and procedures are effective in ensuring that information required to be
disclosed in this filing is accumulated and communicated to management and is
recorded, processed, summarized and reported in a timely manner and in
accordance with Securities and Exchange Commission rules and regulations.

(b) Internal Control Over Financial Reporting.

There have been no changes in the Company's internal control over financial
reporting during the last quarterly period covered by this Quarterly Report on
Form 10-QSB that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial reporting.

                                     -18-
<PAGE>


                               PART II.

                          OTHER INFORMATION


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) None.

(b) Not applicable.

(c) There were no purchases of equity securities by the small business issuer
    or by affiliated purchasers during the period covered by this report.



Item 6.  Exhibits and Reports on Form 8-K.

(a) Exhibits

    31.1   Certification of Chief Executive Officer of Periodic Report
            Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

    31.2   Certification of Chief Financial Officer of Periodic Report
            Pursuant to Rule 13a-14(a) and Rule 15d-14(a).

    32.1   Certification of Chief Executive Officer Pursuant to 18
            U.S.C. Section 1350.

    32.2   Certification of Chief Financial Officer Pursuant to 18
            U.S.C. Section 1350.

(b) Registrant did not file any reports on Form 8-K during the quarter covered
by this Report.

                                    -19-
<PAGE>


                                SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                               PORTSMOUTH SQUARE, INC.
                                                     (Registrant)


Date:  November 14, 2006                   by /s/ John V. Winfield
                                              ---------------------------
                                              John V. Winfield, President,
                                              Chairman of the Board and
                                              Chief Executive Officer


Date:  November 14, 2006                   by /s/ Michael G. Zybala
                                              ---------------------------
                                              Michael G. Zybala,
                                              Vice President and Secretary


Date:  November 14, 2006                   by /s/ David T. Nguyen
                                              --------------------------
                                              David T. Nguyen, Treasurer
                                             (Principal Accounting Officer)


                                    -20-