##### 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, 2008
  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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company 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, 2008 (unaudited) and December 31, 2007
    
    
    3Consolidated Condensed Statements of Operations for
the three and nine months ended September 30, 2008
and 2007 (unaudited)
    
    
    4Consolidated Condensed Statement of Stockholders
Equity for the nine months ended September 30, 2008
(unaudited)
    
    
    5Consolidated Condensed Statements of Cash Flows for
the nine months ended September 30, 2008 and 2007
(unaudited)
    
    
    6Notes to Consolidated Condensed Financial Statements
    
    
    7Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    16Item 4T Controls and Procedures
    
    
    22PART II OTHER INFORMATIONItem 1 Legal Proceedings
    
    
    23Item 1A Risk Factors
    
    
    23Item 6 Exhibits and Reports on Form 8-K
    
    
    23EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2
  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, 2008
    
    
    December 31, 2007(Unaudited)ASSETSReal estate held for investment
    
    $
    257,630
    
    
    $
    238,053Accumulated depreciation
    
    
    (58,469
    )
    
    
    (48,757
    )Real estate held for investment, net
    
    
    199,161
    
    
    
    189,296Real estate held for sale
    
    
    
    
    
    
    1,996Cash and cash equivalents
    
    
    1,420
    
    
    
    847Restricted cash
    
    
    
    
    
    
    3,565Tenant and other receivables, net of allowance for doubtful accounts of
$714 and $186, respectively
    
    
    726
    
    
    
    561Deferred rents receivable
    
    
    1,887
    
    
    
    1,589Deferred tax asset
    
    
    1,316
    
    
    
    Investment in management company
    
    
    4,000
    
    
    
    4,000Prepaid and other assets, net
    
    
    13,600
    
    
    
    10,932Total Assets
    
    $
    222,110
    
    
    $
    212,786LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Notes payable, including premium of $30 and $64, respectively
    
    $
    202,814
    
    
    $
    186,824Liabilities related to real estate held for sale
    
    
    
    
    
    
    2,318Deferred tax liability
    
    
    
    
    
    
    1,777Accounts payable
    
    
    2,964
    
    
    
    2,822Accrued and other liabilities
    
    
    11,150
    
    
    
    8,457Total Liabilities
    
    
    216,928
    
    
    
    202,198Minority interest
    
    
    3,815
    
    
    
    4,522Stockholders 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, 1,620,304 and 1,613,554 shares, respectively; outstanding,
1,384,598 and 1,378,214 shares, respectively
    
    
    16
    
    
    
    16Additional paid-in capital
    
    
    46,774
    
    
    
    46,693Accumulated deficit
    
    
    (42,328
    )
    
    
    (37,557
    )Treasury stock, at cost, 235,706 and 235,340 shares, respectively
    
    
    (3,095
    )
    
    
    (3,086
    )Total Stockholders Equity
    
    
    1,367
    
    
    
    6,066Total Liabilities and Stockholders Equity
    
    $
    222,110
    
    
    $
    212,786
  3




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##### Table of Contents



AMERICAN SPECTRUM REALTY, INC.
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007REVENUES:Rental revenue
    
    $
    9,082
    
    
    $
    7,745
    
    
    $
    26,164
    
    
    $
    22,746Interest and other income
    
    
    32
    
    
    
    54
    
    
    
    162
    
    
    
    112Total revenues
    
    
    9,114
    
    
    
    7,799
    
    
    
    26,326
    
    
    
    22,858EXPENSES:Property operating expense
    
    
    4,958
    
    
    
    3,679
    
    
    
    12,740
    
    
    
    9,964Corporate general and administrative
    
    
    854
    
    
    
    863
    
    
    
    2,735
    
    
    
    2,545Depreciation and amortization
    
    
    3,686
    
    
    
    3,407
    
    
    
    10,474
    
    
    
    9,443Interest expense
    
    
    3,501
    
    
    
    3,262
    
    
    
    9,968
    
    
    
    8,898Total expenses
    
    
    12,999
    
    
    
    11,211
    
    
    
    35,917
    
    
    
    30,850OTHER LOSS:Loss on extinguishment of debt
    
    
    
    
    
    
    (2,413
    )
    
    
    
    
    
    
    (2,413
    )Total other loss
    
    
    
    
    
    
    (2,413
    )
    
    
    
    
    
    
    (2,413
    )Net loss from continuing operations before deferred income tax benefit and minority interest
    
    
    (3,885
    )
    
    
    (5,825
    )
    
    
    (9,591
    )
    
    
    (10,405
    )Deferred income tax benefit
    
    
    1,376
    
    
    
    2,151
    
    
    
    3,389
    
    
    
    3,935Net loss from continuing operations before minority interest
    
    
    (2,509
    )
    
    
    (3,674
    )
    
    
    (6,202
    )
    
    
    (6,470
    )Minority interest (share from continuing operations)
    
    
    323
    
    
    
    475
    
    
    
    800
    
    
    
    842Net loss from continuing operations
    
    
    (2,186
    )
    
    
    (3,199
    )
    
    
    (5,402
    )
    
    
    (5,628
    )Discontinued operations:(Loss) gain from discontinued operations
    
    
    
    
    
    
    (5
    )
    
    
    5
    
    
    
    (26
    )Gain on sale of discontinued operations
    
    
    
    
    
    
    
    
    
    
    1,141
    
    
    
    Deferred income tax benefit (expense)
    
    
    
    
    
    
    2
    
    
    
    (421
    )
    
    
    10Minority interest
    
    
    
    
    
    
    0
    
    
    
    (94
    )
    
    
    2(Loss) income from discontinued operations
    
    
    
    
    
    
    (3
    )
    
    
    631
    
    
    
    (14
    )Net loss
    
    $
    (2,186
    )
    
    $
    (3,202
    )
    
    $
    (4,771
    )
    
    $
    (5,642
    )Basic and diluted per share data:Net loss from continuing operations
    
    $
    (1.59
    )
    
    $
    (2.32
    )
    
    $
    (3.93
    )
    
    $
    (4.08
    )Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    
    0.46
    
    
    
    (0.01
    )Net loss
    
    $
    (1.59
    )
    
    $
    (2.32
    )
    
    $
    (3.47
    )
    
    $
    (4.09
    )Basic weighted average shares used
    
    
    1,376,098
    
    
    
    1,380,093
    
    
    
    1,375,942
    
    
    
    1,379,039
  4




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AMERICAN SPECTRUM REALTY INC.
 
 CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS EQUITY
   Common
    
    Common
    
    AdditionalStock
    
    Stock
    
    Paid-In
    
    Accumulated
    
    TreasuryShares
    
    Amount
    
    Capital
    
    Deficit
    
    Stock
    
    Total EquityBalance, January 1, 2008
    
    
    1,613,554
    
    
    $
    16
    
    
    $
    46,693
    
    
    $
    (37,557
    )
    
    $
    (3,086
    )
    
    $
    6,066Common stock repurchase
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9
    )
    
    
    (9
    )Issuance of common stock to officers
and directors
    
    
    4,250
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    2,500
    
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    31Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    
    
    
    
    50Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,771
    )
    
    
    
    
    
    
    (4,771
    )Balance, September 30, 2008
    
    
    1,620,304
    
    
    $
    16
    
    
    $
    46,774
    
    
    $
    (42,328
    )
    
    $
    (3,095
    )
    
    $
    1,367
  5




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AMERICAN SPECTRUM REALTY, INC
  CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
   Nine Months Ended September 30,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (4,771
    )
    
    $
    (5,642
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    10,497
    
    
    
    9,542Deferred rental income
    
    
    (298
    )
    
    
    (236
    )Minority interest
    
    
    (706
    )
    
    
    (844
    )Net gain on sale of real estate asset
    
    
    (1,141
    )
    
    
    Loss on extinguishment of debt
    
    
    
    
    
    
    2,413Stock-based compensation expense
    
    
    50
    
    
    
    36Income tax benefit
    
    
    (2,968
    )
    
    
    (4,047
    )Amortization of note payable premiums, included in interest expense
    
    
    (34
    )
    
    
    (262
    )Changes in operating assets and liabilities:(Increase) decrease in tenant and other receivables
    
    
    (28
    )
    
    
    83Increase in prepaid and other assets
    
    
    (2,526
    )
    
    
    (1,355
    )Increase (decrease) in accounts payable
    
    
    130
    
    
    
    (279
    )Increase in accrued and other liabilities
    
    
    2,302
    
    
    
    1,369Net cash provided by operating activities
    
    
    507
    
    
    
    778CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds received from sale of real estate asset
    
    
    3,014
    
    
    
    Real estate acquisitions
    
    
    (17,250
    )
    
    
    (26,140
    )Capital improvements to real estate assets
    
    
    (3,086
    )
    
    
    (3,044
    )Net cash used in investing activities:
    
    
    (17,322
    )
    
    
    (29,184
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from borrowings
    
    
    470
    
    
    
    53,566Proceeds from borrowings  property acquisitions
    
    
    16,950
    
    
    
    23,422Repayment of borrowings  property sales
    
    
    (2,218
    )
    
    
    Repayment of borrowings  refinances
    
    
    (150
    )
    
    
    (44,523
    )Repayment of borrowings  scheduled payments
    
    
    (1,250
    )
    
    
    (3,268
    )Repurchase of common stock
    
    
    (9
    )
    
    
    (211
    )Acquisition of minority interest in the operating partnership
    
    
    (1
    )
    
    
    (145
    )Proceeds from exercise of stock options
    
    
    31
    
    
    
    85Release of restricted cash
    
    
    3,565
    
    
    
    Net cash provided by financing activities:
    
    
    17,388
    
    
    
    28,926Increase in cash and cash equivalents
    
    
    573
    
    
    
    520Cash and cash equivalents, beginning of period
    
    
    847
    
    
    
    1,166Cash and cash equivalents, end of period
    
    $
    1,420
    
    
    $
    1,686SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    9,593
    
    
    $
    8,906Cash paid for income taxes
    
    
    151
    
    
    
    325
  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
    7




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RECLASSIFICATIONS
  SEGMENT REPORTING
  NEW ACCOUNTING PRONOUNCEMENTS
 Business Combinations Business Combinations
 Fair Value Measurement
 Noncontrolling Interests in Consolidated Financial
Statementsan amendment of Accounting Research Bulletin No. 51
 STOCK-BASED COMPENSATION
 Share-Based Payment Accounting for Stock-Based Compensation
 8




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##### Table of Contents



Accounting for Stock Issued to Employees
 MINORITY INTEREST
  NET LOSS PER SHARE
 Earnings Per Share,
 INCOME TAXES
    9




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##### Table of Contents



NOTE 3. REAL ESTATE
 ACQUISITIONS
 2008
  2007
  DISPOSITIONS
 2008
  2007
  NOTE 4. DISCONTINUED OPERATIONS
 Real estate assets held for sale.
   Consolidated Condensed Balance Sheet
    
    December 31, 2007Real estate
    
    $
    1,808Other
    
    
    188Real estate assets held for sale
    
    $
    1,996Note payable
    
    $
    2,222Accounts payable
    
    
    12Accrued and other liabilities
    
    
    84Liabilities related to real estate held for sale
    
    $
    2,318
 10




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Net income (loss) from discontinued operations.
  Three Months Ended September 30,Consolidated Condensed Statements of Operations
    
    2008
    
    2007Rental revenue
    
    $
    
    
    
    $
    88Total expenses
    
    
    
    
    
    
    93Loss from discontinued operations before income tax
benefit and minority interest
    
    
    
    
    
    
    (5
    )Income tax benefit
    
    
    
    
    
    
    2Minority interest from discontinued operations
    
    
    
    
    
    
    Loss from discontinued operations
    
    $
    
    
    
    $
    (3
    )Nine Months Ended September 30,Consolidated Condensed Statements of Operations
    
    2008
    
    2007Rental revenue
    
    $
    73
    
    
    $
    265Total expenses
    
    
    68
    
    
    
    291Income (loss) from discontinued operations before gain on
sale, income tax (expense) benefit and minority interest
    
    
    5
    
    
    
    (26
    )Gain on sale of discontinued operations
    
    
    1,141
    
    
    
    Income tax (expense) benefit
    
    
    (421
    )
    
    
    10Minority interest from discontinued operations
    
    
    (94
    )
    
    
    2Income (loss) from discontinued operations
    
    $
    631
    
    
    $
    (14
    )
 11




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##### Table of Contents



NOTE 5. NOTES PAYABLE, NET OF PREMIUM
  September 30, 2008
    
    
    December 31, 2007Maturity
    
    
    Principal
    
    
    Interest
    
    
    Principal
    
    
    InterestProperty (unless otherwise noted)
    
    Date
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateFixed RateFountain View Place
    
    
    4/29/2009
    
    
    
    1,700
    
    
    
    10.00
    %
    
    
    
    
    
    
    Fountain View Place
    
    
    4/29/2009
    
    
    
    2,500
    
    
    
    18.00
    %
    
    
    
    
    
    
    Pacific Spectrum
    
    
    6/10/2009
    
    
    
    5,361
    
    
    
    8.02
    %
    
    
    5,422
    
    
    
    8.02
    %1501 Mockingbird
    
    
    6/30/2009
    
    
    
    301
    
    
    
    6.00
    %
    
    
    304
    
    
    
    6.00
    %6430 Richmond Atrium
    
    
    6/30/2009
    
    
    
    718
    
    
    
    5.50
    %
    
    
    726
    
    
    
    5.50
    %Morenci
    
    
    12/01/2009
    
    
    
    1,547
    
    
    
    6.60
    %
    
    
    1,617
    
    
    
    6.60
    %Corporate  Secured (1)
    
    
    2/7/2010
    
    
    
    1,947
    
    
    
    7.50
    %
    
    
    1,951
    
    
    
    8.07
    %Bristol Bay
    
    
    8/1/2011
    
    
    
    7,030
    
    
    
    7.58
    %
    
    
    7,101
    
    
    
    7.58
    %Technology
    
    
    8/1/2011
    
    
    
    7,271
    
    
    
    7.44
    %
    
    
    7,346
    
    
    
    7.44
    %Creekside
    
    
    12/1/2011
    
    
    
    5,930
    
    
    
    7.17
    %
    
    
    5,993
    
    
    
    7.17
    %16350 Park Ten Place
    
    
    5/11/2012
    
    
    
    4,542
    
    
    
    7.45
    %
    
    
    4,586
    
    
    
    7.45
    %16360 Park Ten Place
    
    
    5/11/2012
    
    
    
    3,559
    
    
    
    7.45
    %
    
    
    3,593
    
    
    
    7.45
    %2855 Mangum
    
    
    5/11/2012
    
    
    
    2,622
    
    
    
    7.45
    %
    
    
    2,647
    
    
    
    7.45
    %2855 Mangum
    
    
    5/11/2012
    
    
    
    1,487
    
    
    
    6.00
    %
    
    
    1,531
    
    
    
    6.00
    %6430 Richmond Atrium
    
    
    5/11/2012
    
    
    
    2,201
    
    
    
    7.45
    %
    
    
    2,222
    
    
    
    7.45
    %Southwest Pointe
    
    
    6/1/2012
    
    
    
    2,760
    
    
    
    7.33
    %
    
    
    2,787
    
    
    
    7.33
    %16350 Park Ten Place
    
    
    5/11/2012
    
    
    
    501
    
    
    
    7.45
    %
    
    
    506
    
    
    
    7.45
    %16360 Park Ten Place
    
    
    8/11/2012
    
    
    
    393
    
    
    
    7.45
    %
    
    
    397
    
    
    
    7.45
    %11500 Northwest Freeway
    
    
    6/1/2014
    
    
    
    4,162
    
    
    
    5.93
    %
    
    
    4,208
    
    
    
    5.93
    %11500 Northwest Freeway
    
    
    6/1/2014
    
    
    
    301
    
    
    
    5.93
    %
    
    
    304
    
    
    
    5.93
    %5850 San Felipe
    
    
    8/1/2014
    
    
    
    5,198
    
    
    
    5.65
    %
    
    
    5,258
    
    
    
    5.65
    %Northwest Corporate Center
    
    
    8/1/2014
    
    
    
    5,471
    
    
    
    6.26
    %
    
    
    5,527
    
    
    
    6.26
    %14741 Yorktown
    
    
    9/1/2014
    
    
    
    8,600
    
    
    
    5.32
    %
    
    
    8,600
    
    
    
    5.32
    %8100 Washington
    
    
    2/22/2015
    
    
    
    2,241
    
    
    
    5.59
    %
    
    
    2,266
    
    
    
    5.59
    %8300 Bissonnet
    
    
    5/1/2015
    
    
    
    4,614
    
    
    
    5.51
    %
    
    
    4,662
    
    
    
    5.51
    %1501 Mockingbird
    
    
    7/1/2015
    
    
    
    3,299
    
    
    
    5.28
    %
    
    
    3,332
    
    
    
    5.28
    %5450 Northwest Central
    
    
    9/1/2015
    
    
    
    2,685
    
    
    
    5.38
    %
    
    
    2,715
    
    
    
    5.38
    %800 Sam Houston Parkway
    
    
    12/29/2015
    
    
    
    2,384
    
    
    
    6.25
    %
    
    
    2,420
    
    
    
    6.25
    %888 Sam Houston Parkway
    
    
    12/29/2015
    
    
    
    2,384
    
    
    
    6.25
    %
    
    
    2,420
    
    
    
    6.25
    %2401 Fountain View
    
    
    3/1/2016
    
    
    
    12,360
    
    
    
    5.82
    %
    
    
    12,482
    
    
    
    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 Atrium
    
    
    6/5/2017
    
    
    
    6,400
    
    
    
    5.87
    %
    
    
    6,400
    
    
    
    5.87
    %7700 Building
    
    
    8/1/2017
    
    
    
    45,000
    
    
    
    5.99
    %
    
    
    45,000
    
    
    
    5.99
    %Fountain View Place
    
    
    4/29/2018
    
    
    
    12,706
    
    
    
    6.50
    %
    
    
    
    
    
    
    Subtotal
    
    
    $
    177,525
    
    
    
    
    
    
    $
    161,673Variable RateCorporate  Unsecured (2)
    
    
    1/12/2010
    
    
    
    1,350
    
    
    
    7.00
    %
    
    
    1,500
    
    
    
    8.25
    %Beltway Industrial (3)
    
    
    5/9/2010
    
    
    
    17,170
    
    
    
    7.00
    %
    
    
    17,000
    
    
    
    7.64
    %Corporate  Unsecured (4)
    
    
    5/31/2010
    
    
    
    500
    
    
    
    7.00
    %
    
    
    200
    
    
    
    8.25
    %Northwest Spectrum Plaza
    
    
    4/19/2012
    
    
    
    3,238
    
    
    
    4.86
    %
    
    
    3,315
    
    
    
    7.64
    %Windrose
    
    
    4/19/2012
    
    
    
    3,001
    
    
    
    4.86
    %
    
    
    3,072
    
    
    
    7.64
    %Subtotal
    
    
    $
    25,259
    
    
    
    
    
    
    $
    25,087Loan Premium
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    64Total
    
    
    $
    202,814
    
    
    
    
    
    
    $
    186,824
 
 (1)
    
    In August 2008, the lender extended the maturity date of the note from October 1, 2008 to
February 7, 2010. The interest rate changed from a variable rate to a 7.50% fixed rate.(2)
    
    In May 2008, the Company made a principal payment of $150,000 on the note, which reduced the
principal balance to $1,350,000 and the lender extended the maturity date of the note from June 12,
2008 to January 12, 2009. In October 2008, the Company made a principal payment of $150,000 on the
note which reduced the principal balance to $1,200,000 and the lender extended the maturity date of
the note from January 12, 2009 to January 12, 2010.(3)
    
    In August 2008, the lender funded the Company $170,000 for capital expenditures incurred at the
property. An additional $205,000 in unfunded principal is currently available for future capital
expenditures. 12




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##### Table of Contents



(4)
    
    In March 2008, the lender extended the maturity date of the note from May 31, 2008 to May 31,
2010 and funded the Company an additional $300,000, which increased the principal balance to
$500,000.   NOTE 6. NET LOSS ON EXTINGUISHMENT OF DEBT
   NOTE 7. MINORITY INTEREST
     NOTE 8. REPURCHASE OF COMMON STOCK
    NOTE 9. STOCK-BASED COMPENSATION
  13




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##### Table of Contents



Stock Options
   Shares
    
    Weighted Average
    
    AggregateUnder Option
    
    Exercise Price
    
    Intrinsic ValueOutstanding on January 1, 2008
    
    
    32,813
    
    
    $
    24.07Granted
    
    
    
    
    
    
    Forfeited
    
    
    (938
    )
    
    $
    14.86Exercised
    
    
    (2,500
    )
    
    $
    12.43
    
    
    $
    30,181Outstanding on September 30, 2008
    
    
    29,375
    
    
    $
    23.93
    
    
    $
    406,625Exercisable as of September 30, 2008
    
    
    27,813
    
    
    $
    24.25
    
    
    $
    384,344
  Weighted Average
    
    WeightedRange of
    
    
    
    
    
    Remaining
    
    AverageExercise
    
    Number
    
    Contractual
    
    ExercisePrice
    
    Outstanding
    
    Life
    
    Price$  8.10  $12.20
    
    
    12,500
    
    
    5.5 years
    
    $
    10.66$18.25  $27.16
    
    
    11,250
    
    
    6.0 years
    
    $
    20.65$60.00  $60.00
    
    
    5,625
    
    
    3.0 years
    
    $
    60.00The following table summarizes certain information for stock options exercisable on September 30,
2008:Weighted Average
    
    WeightedRange of
    
    
    
    
    
    Remaining
    
    AverageExercise
    
    Number
    
    Contractual
    
    ExercisePrice
    
    Exercisable
    
    Life
    
    Price$  8.10  $12.20
    
    
    12,500
    
    
    5.5 years
    
    $
    10.66$18.25  $27.16
    
    
    9,688
    
    
    5.7 years
    
    $
    21.03$60.00  $60.00
    
    
    5,625
    
    
    3.0 years
    
    $
    60.00
 14




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##### Table of Contents



Weighted AverageGrant DateNonvested Stock Options
    
    Number
    
    Fair ValueNonvested at January 1, 2008
    
    
    5,000
    
    
    $
    9.00Granted
    
    
    
    
    
    
    Vested
    
    
    (2,500
    )
    
    $
    8.50Forfeited
    
    
    (938
    )
    
    $
    8.67Nonvested at September 30, 2008
    
    
    1,562
    
    
    $
    10.00
  Restricted Stock
    Weighted AverageNumber of
    
    Grant DateRestricted Stock Awards
    
    Shares
    
    Fair ValueNonvested at January 1, 2008
    
    
    4,250
    
    
    $
    22.75Granted
    
    
    4,250
    
    
    $
    25.00Vested
    
    
    (1,413
    )
    
    $
    22.75Forfeited
    
    
    
    
    
    
    Nonvested at September 30, 2008
    
    
    7,087
    
    
    $
    24.10
  NOTE 10. RELATED PARTY TRANSACTIONS
   15




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##### Table of Contents



NOTE 11. COMMITMENTS AND CONTINGENCIES
    
 ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 OVERVIEW
    16




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##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   Investment in Real Estate Assets
   Building and Improvements
    
    5 to 40 yearsTenant Improvements
    
    Term of the related leaseFurniture and Equipment
    
    3 to 5 years
 Allocation of Purchase Price of Acquired Assets
 Business Combinations
 17




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##### Table of Contents



Sales of Real Estate Assets
 Accounting for Sales of Real Estate
 RESULTS OF OPERATIONS
 Discussion of the three months ended September 30, 2008 and 2007.
  September 30,
    
    September 30,
    
    Variance2008
    
    2007
    
    $
    
    %Rental revenue
    
    $
    9,082,000
    
    
    $
    7,745,000
    
    
    $
    1,337,000
    
    
    
    17.3
    %Operating expenses:Property operating expenses
    
    
    4,958,000
    
    
    
    3,679,000
    
    
    
    1,279,000
    
    
    
    34.8
    %General and administrative
    
    
    854,000
    
    
    
    863,000
    
    
    
    (9,000
    )
    
    
    (1.0
    %)Depreciation and amortization
    
    
    3,686,000
    
    
    
    3,407,000
    
    
    
    279,000
    
    
    
    8.2
    %Interest expense
    
    
    3,501,000
    
    
    
    3,262,000
    
    
    
    239,000
    
    
    
    7.3
    %
 Rental revenue
 Property operating expenses
 General and administrative
 Depreciation and amortization
 18




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##### Table of Contents



Interest expense
 Loss on extinguishment of debt.
 Income taxes.
 Minority interest.
 Discussion of the nine months ended September 30, 2008 and 2007.
  September 30,
    
    September 30,
    
    Variance2008
    
    2007
    
    $
    
    %Rental revenue
    
    $
    26,164,000
    
    
    $
    22,746,000
    
    
    $
    3,418,000
    
    
    
    15.0
    %Operating expenses:Property operating expenses
    
    
    12,740,000
    
    
    
    9,964,000
    
    
    
    2,776,000
    
    
    
    27.9
    %General and administrative
    
    
    2,735,000
    
    
    
    2,545,000
    
    
    
    190,000
    
    
    
    7.5
    %Depreciation and amortization
    
    
    10,474,000
    
    
    
    9,443,000
    
    
    
    1,031,000
    
    
    
    10.9
    %Interest expense
    
    
    9,968,000
    
    
    
    8,898,000
    
    
    
    1,070,000
    
    
    
    12.0
    %
 Rental revenue
 Property operating expenses
 19




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##### Table of Contents



General and administrative
 Depreciation and amortization
 Interest expense
 Loss on extinguishment of debt.
 Income taxes.
 Minority interest.
 Discontinued operations
 LIQUIDITY AND CAPITAL RESOURCES
  20




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##### Table of Contents



Nine Months EndedSeptember 30,2008
    
    2007Non-Cash Items:Depreciation and amortization expense
    
    $
    10,497
    
    
    $
    9,542Income tax benefit
    
    
    (2,968
    )
    
    
    (4,047
    )Deferred rental income
    
    
    (298
    )
    
    
    (236
    )Minority interest
    
    
    (706
    )
    
    
    (844
    )Stock-based compensation expense
    
    
    50
    
    
    
    36Amortization of loan premiums
    
    
    (34
    )
    
    
    (262
    )
       21




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##### Table of Contents



INFLATION
  FORWARD-LOOKING STATEMENTS
  
 ITEM 4T. CONTROLS AND PROCEDURES
   22




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 1A. RISK FACTORS
  The global financial crisis may have an impact on the Companys business and financial condition.
  Delisting could have an adverse effect on the value of the Companys stock.
  
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
    
 23




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##### Table of Contents



SIGNATURES
  AMERICAN SPECTRUM REALTY, INC.Date: November 13, 2008
    By:
    /s/ William J. CardenWilliam J. CardenChairman of the Board, President and,
Chief Executive Officer
(Principal Executive Officer)Date: November 13, 2008
    By:
    /s/ G. Anthony EppolitoG. Anthony EppolitoVice President, Chief Financial Officer,
(Principal Financial Officer and Accounting Officer),
Treasurer and Secretary  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
 24