##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER 001-16785
 American Spectrum Realty, Inc.
  State of Maryland
    
    52-2258674(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)5850 San Felipe, Suite 450Houston, Texas 77057
    
    77057(Address of principal executive offices)
    
    (Zip Code)
  (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report
 þ o
  o o þ
 o þ




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##### 



TABLE OF CONTENTS
 Page No.PART I
    
    FINANCIAL INFORMATIONItem 1
    
    Financial Statements
    
    
    3Consolidated Condensed Balance Sheets at September 30,
2007 (unaudited) and December 31, 2006
    
    
    3Consolidated Condensed Statements of Operations for the
three and nine months ended September 30, 2007 and 2006
(unaudited)
    
    
    4Consolidated Condensed Statement of Stockholders Equity
for the nine months ended September 30, 2007 (unaudited)
    
    
    5Consolidated Condensed Statements of Cash Flows for the
nine months ended September 30, 2007 and 2006 (unaudited)
    
    
    6Notes to Consolidated Condensed Financial Statements
    
    
    7Item 2
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    23Item 4
    
    Controls and Procedures
    
    
    24PART II
    
    OTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    
    25Item 1A
    
    Risk Factors
    
    
    25Item 6
    
    Exhibits and Reports on Form 8-K
    
    
    25Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 AMERICAN SPECTRUM REALTY, INC.
 
 CONSOLIDATED CONDENSED BALANCE SHEETS
  September 30, 2007
    
    
    December 31, 2006(Unaudited)ASSETSReal estate held for investment
    
    $
    231,665
    
    
    $
    202,525Accumulated depreciation
    
    
    (44,682
    )
    
    
    (36,125
    )Real estate held for investment, net
    
    
    186,983
    
    
    
    166,400Real estate held for sale
    
    
    7,005
    
    
    
    7,708Cash and cash equivalents
    
    
    1,686
    
    
    
    1,166Restricted cash
    
    
    3,559
    
    
    
    Tenant and other receivables, net of allowance for doubtful accounts of
$236 and $243, respectively
    
    
    387
    
    
    
    458Deferred rents receivable
    
    
    1,681
    
    
    
    1,327Investment in management company
    
    
    4,000
    
    
    
    4,000Prepaid and other assets, net
    
    
    10,110
    
    
    
    9,123Total Assets
    
    $
    215,411
    
    
    $
    190,182LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Notes payable, including premiums of $76 and $1,460, respectively
    
    $
    184,397
    
    
    $
    149,437Liabilities related to real estate held for sale
    
    
    5,862
    
    
    
    6,072Deferred tax liability
    
    
    1,704
    
    
    
    5,752Accounts payable
    
    
    2,072
    
    
    
    2,351Accrued and other liabilities
    
    
    6,713
    
    
    
    5,186Total Liabilities
    
    
    200,748
    
    
    
    168,798Minority interest
    
    
    5,050
    
    
    
    6,045Stockholders Equity:Preferred stock, $.01 par value; authorized, 25,000,000 shares, none
issued and outstanding
    
    
    
    
    
    
    Common stock, $.01 par value; authorized, 100,000,000 shares;
issued, 1,614,054 and 1,606,179 shares, respectively; outstanding,
1,378,714 and 1,379,429 shares, respectively
    
    
    16
    
    
    
    16Additional paid-in capital
    
    
    46,680
    
    
    
    46,553Accumulated deficit
    
    
    (33,997
    )
    
    
    (28,355
    )Treasury stock, at cost, 235,340 and 226,750 shares, respectively
    
    
    (3,086
    )
    
    
    (2,875
    )Total Stockholders Equity
    
    
    9,613
    
    
    
    15,339Total Liabilities and Stockholders Equity
    
    $
    215,411
    
    
    $
    190,182
  3




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##### Table of Contents



AMERICAN SPECTRUM REALTY, INC.
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006REVENUES:Rental revenue
    
    $
    7,498
    
    
    $
    6,546
    
    
    $
    22,099
    
    
    $
    17,685Interest and other income
    
    
    54
    
    
    
    26
    
    
    
    112
    
    
    
    174Total revenues
    
    
    7,552
    
    
    
    6,572
    
    
    
    22,211
    
    
    
    17,859EXPENSES:Property operating expense
    
    
    3,488
    
    
    
    3,140
    
    
    
    9,555
    
    
    
    8,193Corporate general and administrative
    
    
    898
    
    
    
    806
    
    
    
    2,648
    
    
    
    2,730Depreciation and amortization
    
    
    3,272
    
    
    
    2,719
    
    
    
    9,056
    
    
    
    7,640Interest expense
    
    
    3,211
    
    
    
    2,564
    
    
    
    8,746
    
    
    
    6,935Total expenses
    
    
    10,869
    
    
    
    9,229
    
    
    
    30,005
    
    
    
    25,498OTHER (LOSS) INCOME:(Loss) gain on extinguishment of debt
    
    
    (2,413
    )
    
    
    
    
    
    
    (2,413
    )
    
    
    1,849Total other (loss) income
    
    
    (2,413
    )
    
    
    
    
    
    
    (2,413
    )
    
    
    1,849Net loss from continuing operations before deferred income tax benefit and minority interest
    
    
    (5,730
    )
    
    
    (2,657
    )
    
    
    (10,207
    )
    
    
    (5,790
    )Deferred income tax benefit
    
    
    2,136
    
    
    
    977
    
    
    
    3,918
    
    
    
    2,118Net loss from continuing operations before minority interest
    
    
    (3,594
    )
    
    
    (1,680
    )
    
    
    (6,289
    )
    
    
    (3,672
    )Minority interest (share from continuing operations)
    
    
    464
    
    
    
    225
    
    
    
    818
    
    
    
    490Net loss from continuing operations
    
    
    (3,130
    )
    
    
    (1,455
    )
    
    
    (5,471
    )
    
    
    (3,182
    )Discontinued operations:Loss from discontinued operations
    
    
    (135
    )
    
    
    (113
    )
    
    
    (327
    )
    
    
    (386
    )Gain on sale of discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,349Deferred income tax benefit (expense)
    
    
    52
    
    
    
    42
    
    
    
    130
    
    
    
    (8,077
    )Minority interest
    
    
    11
    
    
    
    9
    
    
    
    26
    
    
    
    (1,848
    )(Loss) income from discontinued operations
    
    
    (72
    )
    
    
    (62
    )
    
    
    (171
    )
    
    
    12,038Net (loss) income
    
    $
    (3,202
    )
    
    $
    (1,517
    )
    
    $
    (5,642
    )
    
    $
    8,856Basic and diluted per share data:Net loss from continuing operations
    
    $
    (2.27
    )
    
    $
    (1.05
    )
    
    $
    (3.97
    )
    
    $
    (2.29
    )(Loss) income from discontinued operations
    
    
    (0.05
    )
    
    
    (0.05
    )
    
    
    (0.12
    )
    
    
    8.66Net (loss) income
    
    $
    (2.32
    )
    
    $
    (1.10
    )
    
    $
    (4.09
    )
    
    $
    6.37Basic weighted average shares used
    
    
    1,380,093
    
    
    
    1,383,404
    
    
    
    1,379,039
    
    
    
    1,388,660
  4




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##### Table of Contents



AMERICAN SPECTRUM REALTY INC.
 
 CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS EQUITY
   AdditionalCommon
    
    Common
    
    Paid-In
    
    Accumulated
    
    TreasuryStock
    
    Stock
    
    Capital
    
    Deficit
    
    Stock
    
    Total EquityBalance, January 1, 2007
    
    
    1,606,179
    
    
    $
    16
    
    
    $
    46,553
    
    
    $
    (28,355
    )
    
    $
    (2,875
    )
    
    $
    15,339Common stock repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (211
    )
    
    
    (211
    )Issuance of common stock to officers
and directors
    
    
    4,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    3,125
    
    
    
    
    
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    85Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    36Acquisition of minority interest in the
operating partnership
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    6Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,642
    )
    
    
    
    
    
    
    (5,642
    )Balance, September 30, 2007
    
    
    1,614,054
    
    
    $
    16
    
    
    $
    46,680
    
    
    $
    (33,997
    )
    
    $
    (3,086
    )
    
    $
    9,613
  5




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AMERICAN SPECTRUM REALTY, INC
 
 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
   Nine Months Ended September 30,2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIES:Net (loss) income
    
    $
    (5,642
    )
    
    $
    8,856Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    9,542
    
    
    
    8,173Deferred rental income
    
    
    (236
    )
    
    
    (37
    )Minority interest
    
    
    (844
    )
    
    
    1,359Net gain on sales of real estate assets
    
    
    
    
    
    
    (22,349
    )Loss (gain) on extinguishment of debt
    
    
    2,413
    
    
    
    (1,849
    )Stock-based compensation expense
    
    
    36
    
    
    
    43Income tax (benefit) expense
    
    
    (4,047
    )
    
    
    5,959Amortization of note payable premiums, included in interest expense
    
    
    (262
    )
    
    
    (331
    )Changes in operating assets and liabilities:Decrease in tenant and other receivables
    
    
    83
    
    
    
    277Increase in accounts payable
    
    
    (279
    )
    
    
    (441
    )Increase in prepaid and other assets
    
    
    (1,355
    )
    
    
    (1,390
    )Increase in accrued and other liabilities
    
    
    1,369
    
    
    
    1,063Net cash provided by (used in) operating activities
    
    
    778
    
    
    
    (667
    )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds received from sales of real estate assets
    
    
    
    
    
    
    36,163Real estate acquisitions
    
    
    (26,140
    )
    
    
    Capital improvements to real estate assets
    
    
    (3,044
    )
    
    
    (3,005
    )Net cash (used in) provided by investing activities:
    
    
    (29,184
    )
    
    
    33,158CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from borrowings
    
    
    53,566
    
    
    
    2,250Proceeds from borrowings  property acquisitions
    
    
    23,422
    
    
    
    Repayment of borrowings  property sales
    
    
    
    
    
    
    (26,165
    )Repayment of borrowings  refinances
    
    
    (44,523
    )
    
    
    (1,500
    )Repayment of borrowings  scheduled payments
    
    
    (3,268
    )
    
    
    (1,290
    )Note payments, litigation settlement
    
    
    
    
    
    
    (4,877
    )Repurchase of common stock
    
    
    (211
    )
    
    
    (390
    )Acquisition of minority interest in the operating partnership
    
    
    (145
    )
    
    
    Proceeds from exercise of stock options
    
    
    85
    
    
    
    63Net cash provided by (used in) financing activities:
    
    
    28,926
    
    
    
    (31,909
    )Increase in cash and cash equivalents
    
    
    520
    
    
    
    582Cash and cash equivalents, beginning of period
    
    
    1,166
    
    
    
    300Cash and cash equivalents, end of period
    
    $
    1,686
    
    
    $
    882SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    8,906
    
    
    $
    7,356Cash paid for income taxes
    
    
    325
    
    
    
    133SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:Conversion of operating partnership units into common stock
    
    $
    
    
    
    $
    43Debt assumed in connection with acquisitions of real estate assets
    
    
    
    
    
    
    16,914Borrowings in connection with acquisitions of real estate assets
    
    
    
    
    
    
    16,452
  6




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##### Table of Contents



AMERICAN SPECTRUM REALTY, INC.
 
 Notes to Consolidated Condensed Financial Statements
 NOTE 1. DESCRIPTION OF BUSINESS
    NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 BASIS OF PRESENTATION
   RECLASSIFICATIONS
  7




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SEGEMENT REPORTING
  NEW ACCOUNTING PRONOUNCEMENTS
  STOCK-BASED COMPENSATION
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to
Employees
 MINORITY INTEREST
  NET INCOME (LOSS) PER SHARE
 Earnings
Per Share,
 8




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INCOME TAXES
       9




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##### Table of Contents



NOTE 3. REAL ESTATE
 ACQUISITIONS
 2007.
  2006.
   DISPOSITIONS
 2007.
  2006.
  NOTE 4. DISCONTINUED OPERATIONS
 Real estate assets held for sale
   10




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##### Table of Contents



Condensed Consolidated Balance Sheet
 September 30, 2007
    
    December 31, 2006Real estate
    
    $
    6,053
    
    
    $
    6,413Other
    
    
    952
    
    
    
    1,295Real estate assets held for sale
    
    $
    7,005
    
    
    $
    7,708Note payable,
    
    $
    5,546
    
    
    $
    5,599Accounts payable
    
    
    109
    
    
    
    110Accrued and other liabilities
    
    
    207
    
    
    
    363Liabilities related to real estate held for sale
    
    $
    5,862
    
    
    $
    6,072
 Net income (loss) from discontinued operations.
    Condensed Consolidated Statements of Operations
 Three Months Ended September 30,2007
    
    2006Rental revenue
    
    $
    294
    
    
    $
    286Total expenses
    
    
    429
    
    
    
    399Loss from discontinued operations before deferred
income tax benefit and minority interest
    
    
    (135
    )
    
    
    (113
    )Income tax benefit
    
    
    52
    
    
    
    42Minority interest from discontinued operations
    
    
    11
    
    
    
    9Net loss from discontinued operations
    
    $
    (72
    )
    
    $
    (62
    )
 Condensed Consolidated Statements of Operations
 Nine Months Ended September 30,2007
    
    2006Rental revenue
    
    $
    871
    
    
    $
    1,245Total expenses
    
    
    1,198
    
    
    
    1,631Net loss from discontinued operations before gain
on sale,
income tax benefit (expense) and minority interest
    
    
    (327
    )
    
    
    (386
    )Gain on sale of discontinued operations
    
    
    
    
    
    
    22,349Income tax benefit (expense)
    
    
    130
    
    
    
    (8,077
    )Minority interest from discontinued operations
    
    
    26
    
    
    
    (1,848
    )Net (loss) income from discontinued operations
    
    $
    (171
    )
    
    $
    12,038
 11




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##### Table of Contents



NOTE 5. NOTES PAYABLE, NET OF PREMIUMS
  September 30, 2007
    
    
    December 31, 2006Maturity
    
    
    Principal
    
    
    Interest
    
    
    Principal
    
    
    InterestProperty (unless otherwise noted)
    
    Date
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateFixed Rate8 Centre/Windrose (1)
    
    
    4/24/2009
    
    
    
    
    
    
    
    18.00
    %
    
    
    
    
    
    
    Pacific Spectrum
    
    
    6/10/2009
    
    
    
    5,443
    
    
    
    8.02
    %
    
    
    5,500
    
    
    
    8.02
    %1501 Mockingbird
    
    
    6/30/2009
    
    
    
    305
    
    
    
    6.00
    %
    
    
    308
    
    
    
    6.00
    %6430 Richmond
    
    
    6/30/2009
    
    
    
    728
    
    
    
    5.50
    %
    
    
    736
    
    
    
    5.50
    %Morenci Professional Park
    
    
    12/1/2009
    
    
    
    1,639
    
    
    
    6.60
    %
    
    
    1,704
    
    
    
    6.60
    %Columbia
    
    
    7/1/2011
    
    
    
    2,227
    
    
    
    7.15
    %
    
    
    2,242
    
    
    
    7.15
    %Bristol Bay
    
    
    8/1/2011
    
    
    
    7,125
    
    
    
    7.58
    %
    
    
    7,192
    
    
    
    7.58
    %Technology
    
    
    8/1/2011
    
    
    
    7,371
    
    
    
    7.44
    %
    
    
    7,443
    
    
    
    7.44
    %Creekside
    
    
    12/1/2011
    
    
    
    6,014
    
    
    
    7.17
    %
    
    
    6,074
    
    
    
    7.17
    %16350 Park Ten Place
    
    
    5/11/2012
    
    
    
    4,600
    
    
    
    7.45
    %
    
    
    4,642
    
    
    
    7.45
    %16360 Park Ten Place
    
    
    5/11/2012
    
    
    
    3,605
    
    
    
    7.45
    %
    
    
    3,637
    
    
    
    7.45
    %2855 Mangum
    
    
    5/11/2012
    
    
    
    2,656
    
    
    
    7.45
    %
    
    
    2,680
    
    
    
    7.45
    %2855 Mangum
    
    
    5/11/2012
    
    
    
    1,545
    
    
    
    6.00
    %
    
    
    1,586
    
    
    
    6.00
    %6430 Richmond
    
    
    5/11/2012
    
    
    
    2,229
    
    
    
    7.45
    %
    
    
    2,249
    
    
    
    7.45
    %Southwest Pointe
    
    
    6/1/2012
    
    
    
    2,726
    
    
    
    7.33
    %
    
    
    2,822
    
    
    
    7.33
    %16350 Park Ten Place
    
    
    5/11/2012
    
    
    
    508
    
    
    
    7.45
    %
    
    
    512
    
    
    
    7.45
    %16360 Park Ten Place
    
    
    8/11/2012
    
    
    
    398
    
    
    
    7.45
    %
    
    
    402
    
    
    
    7.45
    %11500 Northwest Freeway
    
    
    6/1/2014
    
    
    
    4,223
    
    
    
    5.93
    %
    
    
    4,267
    
    
    
    5.93
    %11500 Northwest Freeway
    
    
    6/1/2014
    
    
    
    305
    
    
    
    5.93
    %
    
    
    308
    
    
    
    5.93
    %5850 San Felipe
    
    
    8/1/2014
    
    
    
    5,278
    
    
    
    5.65
    %
    
    
    5,342
    
    
    
    5.65
    %14741 Yorktown
    
    
    9/1/2014
    
    
    
    8,600
    
    
    
    5.32
    %
    
    
    8,600
    
    
    
    5.32
    %8100 Washington
    
    
    2/22/2015
    
    
    
    2,274
    
    
    
    5.59
    %
    
    
    2,298
    
    
    
    5.59
    %8300 Bissonnet
    
    
    5/1/2015
    
    
    
    4,678
    
    
    
    5.51
    %
    
    
    4,724
    
    
    
    5.51
    %1501 Mockingbird
    
    
    7/1/2015
    
    
    
    3,343
    
    
    
    5.28
    %
    
    
    3,350
    
    
    
    5.28
    %5450 Northwest Central
    
    
    9/1/2015
    
    
    
    2,725
    
    
    
    5.38
    %
    
    
    2,754
    
    
    
    5.38
    %800 Sam Houston Parkway
    
    
    12/29/2015
    
    
    
    2,432
    
    
    
    6.25
    %
    
    
    2,466
    
    
    
    6.25
    %888 Sam Houston Parkway
    
    
    12/29/2015
    
    
    
    2,432
    
    
    
    6.25
    %
    
    
    2,466
    
    
    
    6.25
    %2401 Fountainview
    
    
    3/1/2016
    
    
    
    12,528
    
    
    
    5.82
    %
    
    
    12,640
    
    
    
    5.82
    %12000 Westheimer
    
    
    1/1/2017
    
    
    
    4,250
    
    
    
    5.70
    %
    
    
    4,250
    
    
    
    5.70
    %Gray Falls
    
    
    1/1/2017
    
    
    
    3,100
    
    
    
    5.70
    %
    
    
    3,100
    
    
    
    5.70
    %6420 Richmond
    
    
    6/5/2017
    
    
    
    6,400
    
    
    
    5.87
    %
    
    
    6,342
    
    
    
    5.50
    %7700 Irvine Center
    
    
    8/1/2017
    
    
    
    45,000
    
    
    
    5.99
    %
    
    
    33,147
    
    
    
    8.50
    %Subtotal
    
    
    $
    156,752
    
    
    
    
    
    
    $
    145,783Variable RateCorporate  Unsecured
    
    
    12/4/2007
    
    
    
    500
    
    
    
    8.75
    %
    
    
    
    
    
    
    Corporate  Unsecured
    
    
    5/31/2008
    
    
    
    200
    
    
    
    8.75
    %
    
    
    200
    
    
    
    9.25
    %Corporate  Unsecured
    
    
    6/12/2008
    
    
    
    1,500
    
    
    
    8.75
    %
    
    
    
    
    
    
    Corporate  Secured
    
    
    10/1/2008
    
    
    
    1,965
    
    
    
    8.07
    %
    
    
    1,994
    
    
    
    8.07
    %Beltway Industrial
    
    
    5/9/2010
    
    
    
    17,000
    
    
    
    8.15
    %
    
    
    
    
    
    
    8 Centre
    
    
    4/19/2012
    
    
    
    3,324
    
    
    
    8.17
    %
    
    
    
    
    
    
    Windrose
    
    
    4/19/2012
    
    
    
    3,080
    
    
    
    8.17
    %
    
    
    
    
    
    
    Subtotal
    
    
    $
    27,569
    
    
    
    
    
    
    $
    2,194Loan Premiums
    
    
    
    
    
    
    76
    
    
    
    
    
    
    
    1,460Total
    
    
    $
    184,397
    
    
    
    
    
    
    $
    149,437
 
 (1)
    
    Represents a $2,000,000 secured revolving line of credit, which was available as of September
30, 2007.  12




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##### Table of Contents



NOTE 6. (LOSS) GAIN ON EXTINGUISHMENT OF DEBT
   13




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NOTE 7. MINORITY INTEREST
    NOTE 8. REPURCHASE OF COMMON STOCK
    NOTE 9. STOCK-BASED COMPENSATION
   Stock Options
    14




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##### Table of Contents



Shares
    
    Weighted
    
    AverageUnder
    
    Average
    
    IntrinsicOption
    
    Exercise Price
    
    ValueOutstanding on January 1, 2007
    
    
    35,938
    
    
    $
    26.19Granted
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Exercised
    
    
    (3,125
    )
    
    $
    27.08
    
    
    $
    Outstanding on September 30, 2007
    
    
    32,813
    
    
    $
    22.80
    
    
    $
    151,462Exercisable as of September 30, 2007
    
    
    27,813
    
    
    $
    24.07
    
    
    $
    130,025
  Weighted Average
    
    WeightedRange of
    
    
    
    
    
    
    Remaining
    
    AverageExercise
    
    
    Number
    
    Contractual
    
    ExercisePrice
    
    
    Outstanding
    
    Life
    
    Price$8.10 - $12.20
    
    
    
    14,688
    
    
    5.9 years
    
    $
    10.58$18.25 - $27.16
    
    
    
    12,500
    
    
    4.5 years
    
    $
    20.41$60.00 - $60.00
    
    
    
    5,625
    
    
    4.0 years
    
    $
    60.00
  WeightedRange of
    
    
    
    
    
    
    AverageExercise
    
    
    Number
    
    ExercisePrice
    
    

    Exercisable
    
    Price$8.10 - $12.20
    
    
    
    13,438
    
    
    $
    10.81$18.25 - $27.16
    
    

    
    8,750
    
    
    $
    21.33$60.00 - $60.00
    
    
    
    5,625
    
    
    $
    60.00
  Weighted AverageGrant DateNonvested Stock Options
    
    Number
    
    Fair ValueNonvested at January 1, 2007
    
    
    9,374
    
    
    $
    8.48Granted
    
    
    
    
    
    
    Vested
    
    
    4,374
    
    
    $
    7.89Forfeited
    
    
    
    
    
    
    Nonvested at September 30, 2007
    
    
    5,000
    
    
    $
    9.00
  15




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##### Table of Contents



Restricted Stock
   Weighted AverageNumber of
    
    Grant DateRestricted Stock Awards
    
    Shares
    
    Fair ValueNonvested at January 1, 2007
    
    
    Granted
    
    
    4,750
    
    
    $
    22.75Vested
    
    
    Forfeited
    
    
    Nonvested at September 30, 2007
    
    
    4,750
    
    
    $
    22.75
  NOTE 10. RELATED PARTY TRANSACTIONS
   NOTE 10. COMMITMENTS AND CONTINGENCIES
   16




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 OVERVIEW
     CRITICAL ACCOUNTING POLICIES
   
    
    Certain leases provide for tenant occupancy during periods for which no rent is due or
where minimum rent payments increase during the term of the lease. The Company records
rental income for the full term of each lease on a straight-line basis. Accordingly, a
receivable, if deemed collectible, is recorded from tenants equal to the excess of the
amount that would have been collected on a straight-line basis over the amount collected
and currently due (Deferred Rent Receivable). When a property is acquired, the term of
existing leases is considered to commence as of the acquisition date for purposes of this
calculation.
 17




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##### Table of Contents




    
    Many of the Companys leases provide for Common Area Maintenance (CAM)/Escalations
(ESC) as the additional tenant revenue amounts due to the Company in addition to base
rent. CAM/ESC represents increases in certain property operating expenses (as defined in
each respective lease agreement) over the actual operating expense of the property in the
base year. The base year is stated in the lease agreement; typically, the year in which
the lease commenced. Generally, each tenant is responsible for his prorated share of
increases in operating expenses. Tenants are billed an estimated CAM/ESC charge based on
the budgeted operating expenses for the year. Within 90 days after the end of each fiscal
year, a reconciliation and true up billing of CAM/ESC charges is performed based on actual
operating expenses.
    
    Rental properties are stated at cost, net of accumulated depreciation, unless
circumstances indicate that cost, net of accumulated depreciation, cannot be recovered, in
which case the carrying value of the property is reduced to estimated fair value.
Estimated fair value (i) is based upon the Companys plans for the continued operation of
each property and (ii) is computed using estimated sales price, as determined by
prevailing market values for comparable properties and/or the use of capitalization rates
multiplied by annualized net operating income based upon the age, construction and use of
the building. The fulfillment of the Companys plans related to each of its properties is
dependent upon, among other things, the presence of economic conditions which will enable
the Company to continue to hold and operate the properties prior to their eventual sale.
Due to uncertainties inherent in the valuation process and in the economy, the actual
results of operating and disposing of the Companys properties could be materially
different than current expectations.
    
    Gains on property sales are accounted for in accordance with the provisions of SFAS No.
66, Accounting for Sales of Real Estate. Gains are recognized in full when real estate is
sold, provided (i) the gain is determinable, that is, the collectibility of the sales
price is reasonably assured or the amount that will not be collectible can be estimated,
and (ii) the earnings process is virtually complete, that is, the Company is not obligated
to perform significant activities after the sale to earn the gain. Losses on property
sales are recognized immediately.
 RESULTS OF OPERATIONS
 Discussion of the three months ended September 30, 2007 and 2006.
  Variance2007
    
    2006
    
    $
    
    %Rental revenue
    
    $
    7,498,000
    
    
    $
    6,546,000
    
    
    $
    952,000
    
    
    
    14.5
    %Operating expenses:Property operating expenses
    
    
    3,488,000
    
    
    
    3,140,000
    
    
    
    348,000
    
    
    
    11.1
    %General and administrative
    
    
    898,000
    
    
    
    806,000
    
    
    
    92,000
    
    
    
    11.4
    %Depreciation and amortization
    
    
    3,272,000
    
    
    
    2,719,000
    
    
    
    553,000
    
    
    
    20.3
    %Interest expense
    
    
    3,211,000
    
    
    
    2,564,000
    
    
    
    647,000
    
    
    
    25.2
    %
 Rental revenue
 18




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##### Table of Contents



Property operating expenses
 General and administrative
 Depreciation and amortization
 Interest expense
 Loss on extinguishment of debt.
 Deferred income taxes.
 Minority interest from continuing operations.
 Discontinued operations
  Condensed Consolidated Statements of Operations
 Three Months Ended September 30,2007
    
    2006Rental revenue
    
    $
    294
    
    
    $
    286Total expenses
    
    
    429
    
    
    
    399Loss from discontinued operations before
income tax benefit and minority interest
    
    
    (135
    )
    
    
    (113
    )Income tax benefit
    
    
    52
    
    
    
    42Minority interest
    
    
    11
    
    
    
    9Net loss from discontinued operations
    
    $
    (72
    )
    
    $
    (62
    )
 19




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##### Table of Contents



Discussion of the nine months ended September 30, 2007 and 2006.
  Variance2007
    
    2006
    
    $
    
    %Rental revenue
    
    $
    22,099,000
    
    
    $
    17,685,000
    
    
    $
    4,414,000
    
    
    
    25.0
    %Operating expenses:Property operating expenses
    
    
    9,555,000
    
    
    
    8,193,000
    
    
    
    1,362,000
    
    
    
    16.6
    %General and administrative
    
    
    2,648,000
    
    
    
    2,730,000
    
    
    
    (82,000
    )
    
    
    (3.0
    %)Depreciation and amortization
    
    
    9,056,000
    
    
    
    7,640,000
    
    
    
    1,416,000
    
    
    
    18.5
    %Interest expense
    
    
    8,746,000
    
    
    
    6,935,000
    
    
    
    1,811,000
    
    
    
    26.1
    %
 Rental revenue
 Property operating expenses
 General and administrative
 Depreciation and amortization
 Interest expense
 20




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##### Table of Contents



(Loss) gain on extinguishment of debt.
 Deferred income taxes.
 Minority interest from continuing operations.
 Discontinued operations
  Condensed Consolidated Statements of Operations
 Nine Months Ended September 30,2007
    
    2006Rental revenue
    
    $
    871
    
    
    $
    1,245Total expenses
    
    
    1,198
    
    
    
    1,631Net loss from discontinued operations before
gain on sale, income tax benefit (expense) and
minority interest
    
    
    (327
    )
    
    
    (386
    )Gain on sale of discontinued operations
    
    
    
    
    
    
    22,349Income tax benefit (expense)
    
    
    130
    
    
    
    (8,077
    )Minority interest from discontinued operations
    
    
    26
    
    
    
    (1,848
    )Net (loss) income from discontinued operations
    
    $
    (171
    )
    
    $
    12,038
 LIQUIDITY AND CAPITAL RESOURCES
   Nine Months EndedSeptember 30,2007
    
    2006Non-Cash Items:Depreciation and amortization expense
    
    $
    9,542
    
    
    $
    8,173Income tax (expense) benefit
    
    
    (4,047
    )
    
    
    5,959Deferred rental income
    
    
    (236
    )
    
    
    (37
    )Minority interest
    
    
    (844
    )
    
    
    1,359Stock-based compensation expense
    
    
    36
    
    
    
    43Amortization of loan premiums
    
    
    (262
    )
    
    
    (331
    )
 21




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22




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##### Table of Contents



CONTRACTUAL OBLIGATIONS AND COMMITMENTS
  Payment Due By PeriodLess than
    
    
    
    
    
    
    
    
    
    More thanTotal
    
    1 year
    
    1-3 years
    
    3-5 years
    
    5 yearsLong-term debt (1)
    
    $
    184,321
    
    
    $
    2,386
    
    
    $
    12,825
    
    
    $
    41,416
    
    
    $
    127,694Interest costs on long
term debt (1)
    
    
    78,805
    
    
    
    3,018
    
    
    
    23,260
    
    
    
    19,654
    
    
    
    32,873Capital expenditures (2)
    
    
    982
    
    
    
    982
    
    
    
    
    
    
    
    
    
    
    
    Deferred commission (3)
    
    
    491
    
    
    
    350
    
    
    
    141
    
    
    
    
    
    
    
    Consulting
    
    
    14
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    264,613
    
    
    $
    6,750
    
    
    $
    36,226
    
    
    $
    61,070
    
    
    $
    160,567
 
 (1)
    
    See Note 5  Notes Payable  of the Consolidated Financial Statements.(2)
    
    Represents estimated cost of commitments for tenant improvements and lease commissions related
to the leasing of space to new or renewing tenants.(3)
    
    Represents commission payable on 2007 property acquisitions. INFLATION
  FORWARD-LOOKING STATEMENTS
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 INTEREST RATES
    23




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ITEM 4. CONTROLS AND PROCEDURES
   24




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PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
 
 
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
     
 SIGNATURES
  AMERICAN SPECTRUM REALTY, INC.Date: November 8, 2007
    By:
    /s/ William J. CardenWilliam J. CardenChairman of the Board, President and,
Chief Executive Officer
(Principal Executive Officer)Date: November 8, 2007
    By:
    /s/ G. Anthony EppolitoG. Anthony EppolitoVice President, Chief Financial Officer,
(Principal Financial Officer and Accounting Officer),
Treasurer and Secretary 25




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EXHIBIT INDEX
 Exhibit No.
    
    Exhibit Title31.1
    
    Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    Certification of CEO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 200232.2
    
    Certification of CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
 26