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**UNITED STATES SECURITIES ANDEXCHANGE COMMISSION****WASHINGTON, D.C. 20549**

**FORM10-Q**

|   | **Quarterly Report  Under Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|--------|----------------------------------------------------------------------------------------|

** **

| **For  Quarter ended     June 30, 2001**        |
|---------------------------------------------------------------------|
| **Commission  file number      333-43686** |

**AMERICANSPECTRUM REALTY, INC.******(Exact name of Registrant as specified inits charter)

| **State  of Maryland**                                           | **52-2258674**                        |
|------------------------------------------------------------------|---------------------------------------|
| ****                                                             | ****                                  |
| (State or other  jurisdiction of  incorporation or organization) | (I.R.S. Employer  Identification No.) |
|                                                             |                                  |
| **1800  East Deere Avenue  Santa Ana, California 92705**         |
| ****                                                             |
| (Address of principal  executive offices)                        |
|                                                             |
| **949-797-4000**                                                 |
| ****                                                             |
| (Registrant’s  telephone number, including area code)       |

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.  Yes o.  No ý

Theregistrant had 10 shares of common stock outstanding as of September 17, 2001.

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**AMERICAN SPECTRUM REALTY, INC.TABLE OF CONTENTS**

 

| **Part  I.   Financial Information** |
|------------------------------------------------|
|                                           |   |
|                                           | Item 1. | Financial  Statements of American Spectrum Realty, Inc. (Registrant) |
|                                           |   |
|                                           | Balance  Sheets - June 30, 2001 and December 31, 2000 |
|                                           | Statements  of Operations for the six months and three months ended June 30, 2001 |
|                                           | Statements  of Stockholders’ Equity (Deficit) from inception (August 8, 2000) to December  31, 2000 and for the six months ended June 30, 2001 |
|                                           | Statement  of Cash Flows for the six months ended June 30, 2001 |
|                                           | Notes to Financial  Statements |
|                                           |   |
|                                           | Financial  Statements of Sierra Pacific Pension Investors `84 |
|                                           |   |
|                                           | Consolidated  Balance Sheets – June 30, 2001 and December 31, 2000 |
|                                           | Consolidated  Statements of Operations for the six months and three months ended June 30,  2001 and 2000 |
|                                           | Consolidated  Statements of Changes in Partners' Equity for the year ended December 31,  2000 and for the six months ended June 30, 2001 |
|                                           | Consolidated  Statements of Cash Flows for the six months ended June 30, 2001 and 2000 |
|                                           | Notes  to Consolidated Financial Statements |
|                                           |   |
|                                           | Financial  Statements of CGS and the Majority-Owned Affiliates |
|                                           |   |
|                                           | Combined  Balance Sheets – June 30, 2001 and December 31, 2000 |
|                                           | Combined  Statements of Operations for the six months and three months ended June 30,  2001 and 2000 |
|                                           | Combined  Statements of Equity (Deficit) for the year ended December 31, 2000 and for  the six months ended June 30, 2001 |
|                                           | Combined  Statements of Cash Flows for the six months ended June 30, 2001 and 2000 |
|                                           | Notes to  Combined Financial Statements |
|                                           |   |
|                                           | Item  2. | Management’s  Discussion and Analysis of Results of Operations and Financial Condition of  American Spectrum Realty, Inc. |
|                                           |   |
|                                           | Management’s  Discussion and Analysis of Results of Operations and Financial Condition of  Sierra Pacific Pension Investors `84 |
|                                           |   |
|                                           | Management’s  Discussion and Analysis of Results of Operations and Financial Condition of  CGS and the Majority-Owned Affiliates |
|                                           |   |
|                                           | Item  3. | Qualitative  and Quantitative Disclosures about Market Risk |
|                                           |   |
| **Part  II.   Other Information**    |
|                                           |   |
|                                           | Item 1. | Legal Proceedings |
|                                           |   |   |
|                                           | Item  2. | Changes  in Securities and Use of Proceedings |
|                                           |   |   |
|                                           | Item  3. | Default  Upon Senior Securities |
|                                           |   |   |
|                                           | Item  4. | Submission  of Matters to a Vote of Security Holders |
|                                           |   |   |
|                                           | Item 5. | Other Information |
|                                           |   |   |
|                                           | Item  6. | Exhibits  and Reports on Form 8-K |
|                                           |   |   |
| Signatures                                     |   |

 

**PART I  -  FINANCIAL INFORMATION**

**ITEM  1.           FINANCIAL INFORMATION**

AMERICAN SPECTRUM REALTY, INC.CONDENSED BALANCE SHEETS*June30, 2001 and December 31, 2000*

|                                                                                                         |                                              |
|--------------------------------------------------------------------------------------------------------------|---------------------------------------------------|
|                                                                                                         | June  30, 2001 (Unaudited)                        |   | December  31,  2000 |   |
|                                                                                                         |                                                   |   |  |   |
| ASSETS:                                                                                                      |                                              |   |   |   |
| Accounts  receivable from affiliates                                                                         | $                                                 | 100,100 |   | $ | 100 |   |
| Transaction costs                                                                                            | 4,662,546                                         |   | 3,553,931 |   |
| Property and  equipment, net of accumulated depreciation of $20,551 and $9,607                               | 60,238                                            |   | 71,183 |   |
| Other assets                                                                                                 | 100,000                                           |   | 100,000 |   |
|                                                                                                         |                                                   |   |  |   |
|                                                                                                         |                                              |   |   |   |
|                                                                                                         | Total Assets                                      | $ | 4,922,884 |   | $ | 3,725,214 |   |
|                                                                                                         |                                              |  |   |  |   |
|                                                                                                         |                                              |   |   |   |
| LIABILITIES AND  STOCKHOLDERS’ DEFICIT:                                                                 |                                              |   |   |   |
|                                                                                                         |                                              |   |   |   |
| Accrued liabilities                                                                                          | $                                                 | 710,000 |   | $ | 469,846 |   |
| Advances payable to  affiliates                                                                              | 5,030,253                                         |   | 3,639,702 |   |
|                                                                                                         |                                                   |   |  |   |
|                                                                                                         |                                              |   |   |   |
|                                                                                                         | Total liabilities                                 | 5,740,253 |   | 4,109,548 |   |
|                                                                                                         |                                              |   |   |   |
| STOCKHOLDERS’ DEFICIT:                                                                                  |                                              |   |   |   |
|                                                                                                         |                                              |   |   |   |
| Common  stock and capital in excess of par value, $.01 par value; 1,000 shares  authorized, 10 shares issued | 100                                               |   | 100 |   |
| Accumulated deficit                                                                                          | (817,469                                          | ) | (384,434 | ) |
|                                                                                                         |                                                   |   |  |   |
|                                                                                                         |                                              |   |   |   |
|                                                                                                         | Total stockholders’  deficit                 | (817,369 | ) | (384,334 | ) |
|                                                                                                         |                                                   |   |  |   |
|                                                                                                         |                                              |   |   |   |
|                                                                                                         | Total liabilities and  stockholders’ deficit | $ | 4,922,884 |   | $ | 3,725,214 |   |
|                                                                                                         |                                                   |   |  |   |

Theaccompanying notes are an integral part of these condensed financial statements
AMERICAN SPECTRUM REALTY, INC.CONDENSED STATEMENTS OFOPERATIONS*For theSix Months and Three Months Ended June 30, 2001*
 Six  Months  Ended  June 30, 2001 Three  Months  Ended  June 30, 2001     (Unaudited) (Unaudited)      REVENUES:$- $-          Total revenues- -          EXPENSES:     General and  administrative422,091 128,378  Depreciation10,944 5,173           Total expenses$433,035 $133,551          Net loss$(433,035)$(133,551)   
Theaccompanying notes are an integral part of these condensed financial statements
AMERICAN SPECTRUM REALTY, INC. CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)*FromInception (August 8, 2000) to December 31, 2000 and for the six months endedJune 30, 2001*
  Equity Accumulated  Deficit Total            Balance – Inception  (August 8, 2000)$100 $- $100         Net loss- (384,434)(384,434)            Balance – December 31,  2000100 (384,434)(384,334)        Net loss (Unaudited)- (433,035)(433,035)           Balance – June 30,  2001 (Unaudited)$100 $(817,469)$(817,369)    
Theaccompanying notes are an integral part of these condensed financial statements
AMERICAN SPECTRUM REALTY, INC.CONDENSED STATEMENT OF CASHFLOWS*For theSix Months Ended June 30, 2001*
 2001  (Unaudited)      NET LOSS$(433,035)   CASH FLOWS FROM OPERATING  ACTIVITIES:      Depreciation of  property and equipment10,944  Increase in accounts  receivable from affiliates(100,000) Increase in  transaction costs(1,108,615) Increase in accrued  liabilities240,154        Net cash used in operating  activities(1,390,552)  CASH FLOWS FROM  FINANCING ACTIVITIES:      Increase in advances  payable to affiliates1,390,552       Net cash provided by  financing activities1,390,552       INCREASE/DECREASE IN  CASH0      CASH, BEGINNING OF  PERIOD0      CASH, END OF PERIOD$0   
Theaccompanying notes are an integral part of these condensed financial statements
AMERICAN SPECTRUM REALTY, INC.NOTES TO FINANCIAL STATEMENTSJune 30, 2001(Unaudited)

1.          ORGANIZATION

Basis of Presentation

The accompanying unaudited interimfinancial statements should be read in conjunction with the audited financialstatements for the year ended December 31, 2000.  In the opinion of management, the unaudited financial statementscontain all adjustments, consisting only of normal recurring adjustments,necessary for a fair presentation of the balance sheet as of June 30, 2001, thestatements of operations for the three and six months ended June 30, 2001, andthe statement of cash flows for the six months ended June 30, 2001.  Operating results for the interim periodsare not necessarily indicative of the results that may be expected for theentire fiscal year ended December 31, 2001.

The financial statements included hereinhave been prepared by management, without audit, pursuant to the rules andregulations of the Securities and Exchange Commission.  Certain information normally included in thefinancial statements prepared in accordance with generally accepted accountingprinciples has been omitted pursuant to such rules and regulations, althoughmanagement believes that the disclosures are adequate to make the informationpresented not misleading.  The financialstatements should be read in conjunction with the financial statement and notesthereto included in the Form S-4 for the year ended December 31, 2000.

Nature of Business andTransaction

American Spectrum Realty, Inc. (“ASR” orthe “Company”) is a Maryland corporation established August 8, 2000 to be thelegal acquiror and registrant in a consolidation transaction whereby partnersin existing related partnerships would trade partnership units for shares inthis new public entity and owners of existing related entities would exchangeownership interests for units in an operating partnership that will be formedand will initially be wholly owned by the Company.  ASR is a wholly owned subsidiary of CGS Real Estate Company,Inc.  ASR will (subject to approval)acquire eight public limited partnerships, two private entities and, on acarve-out basis, CGS and the Majority-Owned Affiliates.  The accounting acquirer in this transactionwill be Sierra Pacific Pension Investors `84 (SPPI84).  The financial statements of SPPI84 arepresented following the ASR financial statements.  These events are collectively referred to as the “Transaction”.

CGS includes CGS Real Estate Company,Inc. and various other entities and properties involved in real estatedevelopment, management, ownership and operation.  CGS’ operations are located principally in the Midwestern andWestern United States.  CGS’ propertiesconsist of 16 office, office/warehouse, apartment and shopping centers and oneparcel of vacant land.  CGS will be apredecessor entity once the transaction closes.  The financial statements of CGS are presented following thefinancial statements of SPPI84.

ASR will be a full-service real estatecorporation.  The Company’s primarybusiness will be the ownership of office, office/warehouse, apartments andshopping center properties.  The publiclimited partnerships own 18 office/warehouse and apartment properties.  If all the public limited partnershipsapprove the Transaction, ASR will initially own 34 properties.  The Company plans to expand its business byacquiring additional properties.  TheCompany will focus primarily on office, office/warehouse and apartmentproperties located in the Midwestern and western United States.  ASR intends to qualify as a real estateinvestment trust (REIT) in 2003.
The major activity affecting the Company’sbooks and records during the period from inception (August 8, 2000) to June 30,2001 were costs related to the Transaction. Costs that were incremental, directly attributable to the Transaction,and paid to third party vendors were capitalized as transaction costs.  These costs will be charged to equity orcapitalized as debt issuance costs upon successful completion of theTransaction as a cost of issuing securities or debt respectively, dependingupon the outcome of the shareholders’ vote. Until this Transaction occurs, the Company will be dependent upon CGS tofund its operations.  The December 31,2000 combined financial statements of CGS and the December 31, 2000 financialstatements of ASR, included in the Form S-4, disclose an uncertainty regardingtheir ability to continue as a going concern. Management plans in regard to these matters include the parent companyobtaining additional loans from shareholders, obtaining extensions fromlenders, or refinancing all debt through the completion of the Transaction.  See footnotes to CGS’ financial statementsincluded in this Form 10-Q for further discussion of the going concern issueand management plans.

The notes payable included in theaccompanying balance sheets are payable to three of the public limitedpartnerships and are guaranteed by CGS, the general partner of the limitedpartnerships and parent company of ASR. These notes payable will be eliminated upon consummation of theTransaction assuming all of the partnerships elect to participate.

2.          SIGNIFICANTACCOUNTING POLICIES

Use of Estimates

The preparation of financial statementsin conformity with generally accepted accounting principles requires managementto make estimates and assumptions that affect the reported amounts of assetsand liabilities and the disclosure of contingent assets and liabilities at thedate of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from those estimates.

Property and Equipment

Property and equipment is stated at costand is depreciated using the straight-line method over the estimated usefullives of the related assets, ranging from three to five years.  Maintenance and repairs are charged toexpense as incurred.  Significant renewalsand betterments are capitalized.  At thetime of retirement or other disposition of property and equipment, the cost andaccumulated depreciation and amortization are removed from the accounts and anyresulting gain or loss is reflected in operations.

3.          RECENTACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial AccountingStandards Board (FASB) issued Statement of Financial Accounting Standards No.133 (SFAS 133) as amended by SFAS 137 and 138, Accounting for DerivativeInstruments and Hedging Activities. SFAS 133 establishes accounting and reporting standards requiring thatevery derivative instrument (including certain derivative instruments embeddedin other contracts) be recorded in the balance sheet as either an asset orliability measured at its fair value. SFAS 133 requires that changes in the derivative’s fair value berecognized currently in earnings unless specific hedge accounting criteria aremet.  Special accounting for qualifyinghedges allows a derivative’s gains and losses to offset related results on thehedged item in the income statement, and requires that a company formallydocument, designate, and assess the effectiveness of transactions that receivehedge accounting.  SFAS 133 will be effectivefor the Company beginning with the 2001 fiscal year and may not be appliedretroactively.  Management does notbelieve that SFAS 133 will have a material impact on the financial statements.
In July 2001, FASB issued SFAS No. 141,“Business Combinations”, which is effective for business combinations initiatedafter June 30, 2001.  SFAS No. 141requires all business combinations to be accounted for under the purchasemethod and that the pooling-of-interest method is no longer allowed.  The Company will account for the Transactionunder the purchase method.

In July 2001, FASB issued SFAS No. 142,“Goodwill and Other Intangible Assets”, which is effective for fiscal yearsbeginning after December 15, 2001.  SFASNo. 142 requires, among other things, that goodwill no longer be amortized toearnings, but instead be reviewed for impairment.  The adoption of SFAS No. 142 is not expected to have a materialimpact on the Company’s financial position, results of operations, or cashflows.

In June 2001, FASB issued SFAS 143,“Accounting for Asset Retirement”.  SFASNo. 143 addresses financial accounting and reporting obligations associatedwith the retirement of tangible long-lived assets and the associated assetretirement costs.  The provisions ofSFAS No. 143 are required to be applied starting with fiscal years beginningafter June 15, 2002.  The Companybelieves the adoption of the provisions of SFAS 143 will not have a significanteffect its on financial position or results of operations.

4.          SUBSEQUENTEVENT

Subsequent to the date of theProspectus/Consent Solicitation Statement dated August 8, 2001, an affiliate ofCGS purchased 5,572 units in Sierra Pacific Development Fund – II fromaffiliates of Everest Trust for a purchase of $1,150,000 or $206.39 perunit.  In connection with the purchase,Everest entered into a standstill agreement for a five-year period covering theSierra and Nooney funds and ASR following the closing of the Transaction.  CGS and its affiliates own 13,490 units or15.6% of the outstanding units in Sierra Pacific Development Fund – II andintend to vote these units for the Transaction.

On August 30, 2001, CGS transferred allof the membership interest in the entity which owns Villa Redondo Apartments tothe Operating Partnership American Spectrum Realty, L.P., a subsidiary of AmericanSpectrum Realty, Inc.
SIERRAPACIFIC PENSION INVESTORS ’84(A Limited Partnership)CONSOLIDATED BALANCE SHEETS*June 30,2001 and December 31, 2000*

 
  June  30, 2001  (Unaudited) December  31,  2000    ASSETS:    Cash and cash  equivalents$34,185 $33,647 Receivables:     Note receivable, net  of deferred gain of $132,4711,618,300 1,618,300  Unbilled rent50,826 48,713  Billed rent3,538 69,118  Interest87,539 0  Due from affiliate1,127,583 936,752 Income-producing  property – net of accumulated depreciation and valuation allowance of  $2,929,131 and $2,861,598, respectively1,178,271 1,208,166 Investment in  unconsolidated joint venture6,936,910 7,063,438 Other assets – net of  accumulated amortization of $223,467 and $197,100, respectively240,993 232,067          Total Assets$11,278,145 $11,210,201          LIABILITIES AND  PARTNERS’ EQUITY:         Accrued and other  liabilities$129,340 $248,108 Note payable1,340,548 1,349,748          Total Liabilities1,469,888 1,597,856      Partners’ equity  (deficit):     General Partner(181,144)(183,103) Limited Partners:     80,000 units  authorized, 77,000 issued and outstanding9,989,401 9,795,448          Total Partners’ equity9,808,257 9,612,345           Total Liabilities and  Partners’ equity$11,278,145 $11,210,201    
Theaccompanying notes are an integral part of these consolidated financialstatements
SIERRA PACIFIC PENSION INVESTORS ’84(A Limited Partnership)CONSOLIDATED STATEMENTS OFOPERATIONS*For theSix Months Ended June 30, 2001 and 2000and for the Three Months Ended June 30, 2001 and 2000*
  Six  Months Ended  June 30, Three  Months Ended  June 30,     2001  (Unaudited) 2000  (Unaudited) 2001  (Unaudited) 2000  (Unaudited)      REVENUES:        Rental income$330,535 $272,542 $165,079 $124,057 Interest income87,543 79,586 43,771 39,793                Total revenues418,078 352,128 208,850 163,850                EXPENSES:                 Operating expenses267,689 213,674 114,424 85,600 Depreciation and  amortization101,425 73,957 54,137 37,602 Interest expense62,524 64,682 31,379 32,114                Total costs and  expenses431,638 352,313 199,940 155,316                (LOSS) INCOME BEFORE  PARTNERSHIP’S SHARE OF JOINT VENTURE INCOME(13,560)(185)8,910 8,534               PARTNERSHIP’S SHARE OF  UNCONSOLIDATED JOINT VENTURE INCOME209,472 233,204 229,922 105,878               NET INCOME$195,912 $233,019 $238,832 $114,412               Net income per limited  partnership unit$2.52 $3.00 $3.07 $1.48      
Theaccompanying notes are an integral part of these consolidated financialstatements
SIERRA PACIFIC PENSION INVESTORS ’84(A Limited Partnership)CONSOLIDATED STATEMENTS OFCHANGES IN PARTNERS’ EQUITY*For theYear Ended December 31, 2000 andfor the Six Months Ended June 30, 2001*

 
  Limited  Partners General  Partner Total  Partners  Equity Per  Unit Total         Proceeds from sale of  partnership units$250.00 $19,418,250   $19,418,250 Underwriting  commissions and other organization expenses(37.34)(2,894,014)  (2,894,014)Repurchase of 665  partnership units(0.03)(151,621)  (151,621)Cumulative net (loss)  income (to December 31,1999)(70.59)(5,435,550)$133,334 (5,302,216)Cumulative  distributions (to December 31, 1999)(21.43)(1,650,006)(133,334)(1,783,340)              Partners’ equity –  January 1, 2000120.61 9,287,059 0 9,287,059 Transfer among general  partner and limited partners2.42 186,356 (186,356)0 Net income4.18 322,033 3,253 325,286               Partners’ equity  (deficit) December 31, 2000 (audited)127.21 9,795,448 (183,103)9,612,345 Net income (unaudited)2.52 193,953 1,959 195,912               Partners’ equity  (deficit) – June 30, 2001 (unaudited)$129.73 $9,989,401 $(181,144)$9,808,257      
Theaccompanying notes are an integral part of these consolidated financialstatements
SIERRA PACIFIC PENSION INVESTORS ’84(A Limited Partnership)CONSOLIDATED STATEMENTS OFCASH FLOWS*For theSix Months Ended June 30, 2001 and 2000*
  2001  (Unaudited) 2000  (Unaudited)         CASH FLOWS FROM  OPERATING ACTIVITIES:    Net income$195,912 $233,019 Adjustments to  reconcile net income to cash used in operating activities:     Deprecation and  amortization101,425 73,957  Partnership’s share of  unconsolidated joint venture income(209,472)(233,204) Decrease (increase) in  rent receivable63,467 (28,554) Increase in interest  receivable(87,539)(79,581) Increase in other  assets(40,817)(40,008) (Decrease) increase in  accrued and other liabilities(118,768)4,842         Net cash used in  operating activities(95,792)(69,529)        CASH FLOWS FROM  INVESTING ACTIVITIES:    Payments for property  additions(37,639)(24,012)        Net cash used in  investing activities(37,639)(24,012)        CASH FLOWS FROM  FINANCING ACTIVITIES:    Principal payments on  notes payable(9,200)(40,179)Capital contributions  to unconsolidated joint venture0 (34,000)Distributions from unconsolidated  joint venture334,000 283,000 Loan to affiliate(190,831)(135,727)        Net cash provided by  financing activities133,969 73,094      NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS538 (20,447)        CASH AND CASH  EQUIVALENTS – Beginning of Period33,647 31,562         CASH AND CASH  EQUIVALENTS - End of period$34,185 $11,115         SUPPLEMENTAL  DISCLOSURE OF CASH FLOW INFORMATION:         Cash paid during the period  for real estate taxes$56,324 $56,324         Cash paid during the  period for interest$62,942 $65,257    
Theaccompanying notes are an integral part of these consolidated financialstatements
SIERRA PACIFIC PENSION INVESTORS ’84 ANDSUBSIDIARY(A Limited Partnership)NOTES TO CONSOLIDATED FINANCIALSTATEMENTS(Unaudited)

1.          BASISOF FINANCIAL STATEMENTS

In the opinion of Sierra Pacific PensionInvestors ‘84’s (the Partnership) management, these unaudited condensed consolidatedfinancial statements reflect all adjustments which are necessary for a fairpresentation of its financial position at June 30, 2001 and results ofoperations and cash flows for the periods presented.  All adjustments included in these financial statements are of anormal and recurring nature.  Thefinancial statements include the accounts of Sierra Valencia, LLC, awholly-owned subsidiary.  Allsignificant intercompany balances are eliminated in consolidation.  The Partnership consolidates all entities inwhich it has a controlling equity interest.  These financial statements should be read in conjunction with thefinancial statements and notes thereto contained in the Annual Report of thePartnership for the year ended December 31, 2000.

Certain reclassifications have been madeto the June 30, 2000 Consolidated Statement of Cash Flows to conform to theJune 30, 2001 presentation.

2.          RELATEDPARTY TRANSACTIONS

Included in the financial statements forthe six months ended June 30, 2001 and 2000 are affiliate transactions asfollows:
 June  30    2001 2000    Management fees$13,097 $7,882 Administrative fees40,052 37,881 Leasing fees27,027 0 Construction fees11,508 0 
On April 16, 2001, the combined financialstatements of the parent of the general partner and other affiliates, includingthe general partner, (the Company) were issued.  The independent public accountants report on such statementscontained an explanatory paragraph relating to the ability of the Company tocontinue as a going concern.  TheCompany experienced losses in the periods presented and has a net capitaldeficiency.  Certain entities in thecombined financial statements have not made debt payments when due and variouslenders placed $10,520,000 of debt in default. Certain entities also needed to pay or refinance a significant amount ofdebt coming due in the next twelve months. These factors raise substantial doubt about the ability of the combinedentities to continue as a going concern.

Management of the Company has plansrelated to these matters, which include, in addition to those items discussedabove, obtaining additional loans from shareholders, obtaining extensions fromlenders or refinancing all debts through the completion of the transactiondiscussed in Note 5.  In addition, ifnecessary, management believes it could sell properties to generate cash to paydebt.  The Partnership does not believethat the effect of the ultimate outcome of the circumstances surrounding theCompany will have a material adverse effect on its results of operations orfinancial position.
3.          INVESTMENTIN UNCONSOLIDATED JOINT VENTURE

Sierra Mira Mesa Partners (SMMP) wasformed in 1985 between the Partnership and Sierra Pacific Development Fund II(SPDFII), an affiliate, to develop and operate the real property known asSierra Mira Mesa, an office building, located in San Diego, California.  The Partnership’s initial ownership interestin SMMP was 49%; the remaining 51% was owned by SPDFII.  Effective December 31, 1996, the generalpartners amended the partnership agreement to allow for adjustments in thesharing ratio each year based upon the relative net contributions anddistributions since inception of each general partner.  At June 30, 2001 the Partnership’s interestin SMMP was 80.32%; the remaining 19.68% interest is owned by SPDFII.

The consolidated financial statements ofSMMP include the accounts of SMMP and Sorrento I Partners, a majority ownedCalifornia general partnership. Summarized income statement information for SMMP for the six monthsended June 30, 2001 and 2000 is as follows:
 June  30    2001 2000    Rental income$1,136,216 $1,096,679 Total revenues1,273,279 1,220,016 Operating expenses488,642 446,008 Share of  unconsolidated joint venture income25,410 81,931 Net income203,757 326,619      
As of June 30, 2001, SMMP holds a 51.51%interest in Sorrento II Partners (SIIP), a California general partnership withSierra Pacific Institutional Properties V formed in 1993, a 0% interest inSierra Creekside Partners (SCP), a California general partnership with SierraPacific Development Fund formed in 1994, and a 33.55% interest in Sierra VistaPartners (SVP), a California general partnership with Sierra PacificDevelopment Fund III formed in 1994.

Summarized income statement informationfor these Partnerships, which are accounted for by SMMP under the equitymethod, for the six months ended June 30, 2001 and 2000 is as follows:
 SCP SVP SIIP      June  30 June  30 June  30      2001 2000 2001 2000 2001 2000        Rental income$602,808 $489,777 $0 $0 $632,968 $699,130 Total revenues602,808 489,777 0 0 632,968 710,335 Operating expenses356,843 268,936 21,765 13,735 281,341 236,241 Extraordinary loss0 46,020 0 0 0 0 Net (loss) income(74,323)(149,586)(21,765)(13,735)172,988 214,281 
 

4.          PARTNERS’EQUITY

Equity and net income (loss) per limitedpartnership unit is determined by dividing the limited partners’ share of thePartnership’s equity and net income by the number of limited partnership unitsoutstanding, 77,000.

During 2000, an amount was transferredbetween the partners’ equity accounts such that 99% of cumulative operatingincome, gains, losses, deductions and credits of the Partnership is allocatedamong the limited partners and 1% was allocated to the general partner.  Management does not believe that the effectof this transfer was significant.

5.          PENDINGTRANSACTION

CGS Real Estate Company, Inc. (CGS), anaffiliate of the corporate general partner of the Partnership, is continuingthe development of a plan which will combine the Partnership’s property withthe properties of other real estate partnerships managed by CGS and itsaffiliates.  These limited partnershipsown office properties, industrial properties, shopping centers and residentialapartment properties.  It is expectedthat the acquiror, American Spectrum Realty, Inc. (ASR), would qualify in thefuture as a real estate investment trust. Limited partners would receive shares of common stock in ASR, whichwould be listed on a national securities exchange.

The Partnership’s participation in thisplan will require the consent of its limited partners.  ASR filed a registration statement on FormS-4 August 14, 2000 relating to the solicitation of consents with the SEC.  The registration statement was amendedFebruary 14, 2001, April 24, 2001, June 26, 2001, and August 7, 2001 and was declaredeffective by the SEC on August 8, 2001. The plan and the benefits and risks thereof were described in detail inthe final prospectus/consent solicitation statement included in theregistration statement filed under the Securities Act of 1933 at the time itwas declared effective by the SEC. Solicitation materials have been provided tolimited partners in connection with the solicitation of the consent of thelimited partners.  There can be noassurances that the plan described above will be consummated.

As of June 30, 2001, the Partnership haspaid a total of $1,127,583 in expenses relating to the pendingtransaction.  These costs primarilyrelate to professional fees and are recorded as an affiliate receivable on thebalance sheet.  When the transaction isfinalized, the Partnership will be compensated with additional stock.  If the transaction is terminated, thePartnership will be reimbursed by CGS for all costs incurred.

6.          RECENTACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting StandardsBoard issued SFAS No. 133, “Accounting for Derivative Instruments and HedgingActivities”. SFAS No. 133 requires a company to recognize all derivativeinstruments (including certain derivative instruments embedded in othercontracts) as assets or liabilities in its balance sheet and measure them atfair value.  The statement requires thatchanges in the derivative’s fair value be recognized currently in earningsunless specific hedge accounting criteria are met.  SFAS No. 133, as amended, is effective for fiscal years beginningafter June 15, 2000. The Partnership adopted the accounting provisions of SFASNo. 133 in 2001.  The implementation ofSFAS No. 133 did not have a significant effect on the Partnership’s financialconditions or results of operations.

In December 1999, the SEC issued StaffAccounting Bulletin No. 101 (SAB 101), Revenue Recognition in FinancialStatements, which summarizes certain of the SEC staff’s views on applyinggenerally accepted accounting principles to revenue recognition in financialstatements.  The Partnership adopted theaccounting provisions of SAB 101 in 2000. The implementation of SAB 101 did not have a significant effect on thePartnership’s financial condition or results of operations.
CGSAND THE MAJORITY-OWNED AFFILIATESCOMBINED BALANCE SHEETS*June 30, 2001 and December 31,2000*
(In 000’s) June  30, 2001  (Unaudited) December  31,  2000    ASSETS    Real estate held for  investment, net$86,175 $86,021 Cash1,354 1,787 Accounts receivable,  net1,260 1,369 Notes and accounts  receivable from affiliates197 95 Investments in  uncombined partnerships3,226 3,241 Equipment, net402 606 Goodwill, net1,291 1,373 Prepaid and other  assets, net11,809 7,690          Total Assets$105,714 $102,182         LIABILITIES AND EQUITY  (DEFICIT):         Accounts payable and  accrued expenses$7,634 $6,283 Deferred revenue2,359 2,167 Notes payable112,104 110,175 Notes and accounts  payable to affiliates22,932 18,618 Notes payable to  shareholders1,600 1,300          Total Liabilities146,629 138,543          MANDATORILY-REDEEMABLE  COMMON STOCK OF SUBSIDIARY1,045 1,045         MINORITY INTEREST1,247 -         COMMITMENTS AND  CONTINGENCIES:         Equity (Deficit)     Capital2,481 2,481  Accumulated deficit(45,688)(39,887)          Total equity (deficit)(43,207)(37,406)         Total liabilities and  equity (deficit)$105,714 $102,182    
Theaccompanying notes are an integral part of these condensed financial statements
CGS AND THE MAJORITY-OWNED AFFILIATESCOMBINED STATEMENTS OFOPERATIONS*For theSix Months Ended June 30, 2001 and 2000and for the Three Months Ended June 30, 2001 and 2000*

 
 Six  Months Ended June 30, Three  Months Ended June 30,    (In 000’s)2001  (Unaudited) 2000  (Unaudited) 2001  (Unaudited) 2000  (Unaudited)      REVENUES:        Rental income$8,909 $7,708 $4,545 $3,814 Property management  income3,009 4,492 1,664 3,668 Income from affiliates764 963 332 477                Total revenues12,682 13,163 6,541 7,959                COSTS AND EXPENSES:                 Property operating  expense2,995 2,502 1,619 1,562 Property management  expense6,443 4,991 4,084 3,105 Depreciation and  amortization2,132 1,723 966 781 Real estate taxes763 644 295 86 Equity in (income)  loss of uncombined partnerships(54)270 (61)292                Total costs and  expenses12,279 10,130 6,903 5,826               OTHER EXPENSES  (INCOME):                 Interest expense6,445 6,435 3,474 3,595 Gain on sale of  property(100)(1,328)- (135)               Total other expenses  (income)6,345 5,107 3,474 3,460                Minority Interest193 - 207 -          Net loss before  extraordinary items(6,135)(2,074)(4,043)(1,327)         Extraordinary items –  loss on extinguishment of debt- (1,861)- (1,861)               Net loss$(6,135)$(3,935)$(4,043)$(3,188)     
Theaccompanying notes are an integral part of these condensed financial statements
CGS AND THE MAJORITY-OWNED AFFILIATESCOMBINED STATEMENTS OF EQUITY(DEFICIT)*For theYear Ended December 31, 2000and for the Six Months Ended June 30, 2001*
(In 000’s)Equity Accumulated  Deficit Total            Balance, December 31,  1999$2,527 $(28,548)$(26,021)        Net loss – Unaudited- (11,212)(11,212)        Net distributions –  Unaudited(46)(127)(173)            Balance, December 31,  20002,481 (39,887)(37,406)        Net loss  - Unaudited- (6,135)(6,135)        Net contributions  - Unaudited- 334 334             Balance, June 30, 2001  - Unaudited$2,481 $(45,688)$(43,207)    
Theaccompanying notes are an integral part of these condensed financial statements
CGS AND THE MAJORITY-OWNED AFFILIATESCOMBINED STATEMENTS OF CASHFLOWS*For theSix Months Ended June 30, 2001 and 2000*
(In 000’s)2001  (Unaudited) 2000  (Unaudited)    CASH FLOWS FROM  OPERATING ACTIVITIES:    Net loss$(6,135)$(3,935)Adjustments to  reconcile net loss to net cash (used in) provided by operating activities:    Gain on sale of  property(100)(1,328)Depreciation and  amortization2,132 1,723 Equity in (income)  loss of uncombined partnerships(54)12 Extraordinary loss- 1,861 Changes in assets and  liabilities:     Decrease (increase) in  accounts receivable, net109 (453) Increase in accounts  receivable from affiliates(102)(1,768) Increase in prepaid  and other assets, net(4,790)(1,256) Increase in deferred  revenue192 46  Increase in accounts  payable and accrued expenses1,351 1,248  Increase in accounts  payable to affiliates333 6,684           Net cash (used in)  provided by operating activities:(7,064)2,834          CASH FLOWS FROM  INVESTING ACTIVITIES:    Distributions from  (investments in) uncombined partnerships, net69 (208)Purchases of real  estate held for investment(1,124)(526)Proceeds from sales of  real estate held for investment- 950 Purchases of equipment(105)(138)         Net cash used in  investing activities(1,160)78     CASH FLOWS FROM  FINANCING ACTIVITIES:    Borrowings of notes  payable, net1,929 1,577 Minority interest, net1,247 - Equity contributions,  net334 1,522 Proceeds from  (repayments of) loan from shareholders300 (700)Borrowings  (repayments) on notes payable to affiliates3,981 (4,993)         Net cash provided by  (used in) financing activities7,791 (2,594)         (Decrease) increase in  cash(433)318      Cash, beginning of  period1,787 458         Cash, end of period$1,354 $776         SUPPLEMENTAL  DISCLOSURES:    Cash paid for interest$5,349 $7,150    
Theaccompanying notes are an integral part of these condensed financial statements
CGS AND THE MAJORITY-OWNED AFFILIATESNOTES TO COMBINED FINANCIALSTATEMENTSJune 30, 2001(Unaudited)

1.          BASISOF PRESENTATION

The accompanying unaudited interimcombined financial statements should be read in conjunction with the auditedcombined financial statements for the year ended December 31, 2000.  In the opinion of management, the unauditedfinancial statements contain all adjustments, consisting only of normalrecurring adjustments, necessary for a fair presentation of the balance sheetas of June 30, 2001, the statements of operations for the six months ended June30, 2001 and 2000 and the statements of cash flows for the six months endedJune 30, 2001 and 2000.  Operatingresults for the six months ended June 30, 2001 are not necessarily indicativeof the results that may be expected for the entire fiscal year ending December31, 2001.

The combined financial statementsincluded herein have been prepared by management, without audit, pursuant tothe rules and regulations of the Securities and Exchange Commission.  Certain information normally included in thefinancial statements prepared in accordance with generally accepted accountingprinciples has been omitted pursuant to such rules and regulations; managementbelieves that the disclosures are adequate to make the information presentednot misleading.  The financialstatements should be read in conjunction with the financial statements andnotes thereto included in the S-4 for the year ended December 31, 2000.

Certain reclassifications have been madeto the 2000 condensed financial statements to conform with the current periodpresentation.

2.          NATUREOF BUSINESS AND PRINCIPLES OF COMBINATION

CGS and the Majority-owned Affiliates(the “Company”) includes CGS Real Estate Company, Inc., (“CGS” a Texascorporation) and various other entities involved in real estate development,management, ownership, and operation. The Company’s operations are located principally in the Midwest andWestern United States and consist of office, office/warehouse, shoppingcenters, and multi-family apartment properties.  The Company’s combined financial statements include the followingsubsidiaries and properties:
Subsidiaries Properties     American  Spectrum Realty, Inc. Autumn  RidgeParkade  CenterBancor Villa  RedondoWest  FlorissantS-P  Properties, Inc. Back  BayCreekside/Riverside  AptsAmerican  Spectrum Real Estate Services, Inc. 7700  Irvine Center DrPacific  Spectrum  Richardson  PlazaNorthwest  Corporate Ctr.  Sierra  TechnologyMarket  Place  Columbia  N.E.Beach  & Lampson
 

All significant intercompany balances areeliminated in combination.  The Companycombines all entities in which it has a controlling equity interest.  Refer to the Company’s audited financialstatements for the year ended December 31, 2000, which are contained in theCompany’s Form S-4/A – Amendment No. 5 to Registration Statement on Form S-4Under the Securities Act of 1933, for description of the accounting policieswhich have been continued without change except as noted below.  The details in those notes have not changedexcept as a result of normal transactions in the interim or as noted below.

3.          RELATEDPARTY TRANSACTIONS

(i)          Notes Payable to Shareholders

             Notes payable to shareholdersconsist of non-interest bearing advances, due on demand.

(ii)         Notes Payable to Affiliates

Notespayable to affiliates consists of various notes secured usually by realestate.  The notes bear interest atvarious rates, ranging from 6% to 12% and generally mature in various years throughJanuary 2005.  Notes payable totaling$7,218,000 are part of a settlement agreement entered into 1999 and were,pursuant to the settlement agreement, were due prior to December 31, 2000.  Such notes were not paid in accordance withthe settlement agreement causing the settlement agreement to be declaredvoid.  The Company intends to repaythese loans late in 2001 using the proceeds from refinancing properties.

(iii)        Income from Affiliates

TheCompany includes various property management subsidiaries that provide leasing,brokerage, and other services to affiliates and unrelated parties.  Amounts paid/received from propertymanagement services to properties included in these combined financialstatements are eliminated.  The propertymanagement subsidiaries also perform services for various uncombined entitiesin which the Company has ownership interests, the revenue from which has beenreflected as income from affiliates in the accompanying combined financialstatements.

4.          GOINGCONCERN AND MANAGEMENT PLANS

On April 16, 2001, the Company’s auditedcombined financial statements as of December 31, 2000 were issued.  The independent public accountant’s reporton such statements contained an explanatory paragraph relating to the abilityof the Company to continue as a going concern. The Company experienced losses in the periods presented and has a netcapital deficiency.  Certain entities inthe combined financial statements had not made debt payments when due andvarious lenders placed $10,250,000 of debt in default.  Certain entities also needed to pay orrefinance a significant amount of debt coming due in 2001.  These factors raised substantial doubt aboutthe ability of the combined entities, including the general partner, tocontinue as a going concern.

Management plans in regard to thesematters include obtaining additional loans from shareholders, obtainingextensions from lenders or refinancing debt through the completion of theTransaction (see Note 6).  In addition,if necessary, management believes it could sell properties to generate cash topay debt.  Management believes operatinglosses are a result of the Company’s business plan that includes acquisitionand turn-around of under performing properties.  During the turn-around period, losses can accrue due to thetemporary excess of operating expenses, interest expense, and management costover rental income.Subsequent to December 31, 2000, the Company took steps to cure  debt in default and is currently innegotiations to extend or refinance other remaining debts that are pastdue.  Specifically, the Company has paidoff and obtained separate financing for approximately $4,000,000 of debt thatwas previously in default, entered into a verbal agreement requiring a $100,000payment to cure approximately $1,108,000 of debt in default and extended theterms of approximately $416,000 of debt previously in default, subject to theCompany’s stock being traded on the American Stock Exchange by September 1,2001.  Because the Company has beenunable to meet the September 1, 2001 deadline, new terms will have to berenegotiated.  Management believes thatthe Company will be successful in obtaining another extension.
On August 29, 2001, Goldman SachsMortgage Company commenced a lawsuit in the United States District Court,Central District of California against the Company, seeking recovery of$4,668,387 as a result of the Company’s alleged breach of its guaranty of amortgage loan made by plaintiff to McDonnell Associates, LLC.  The loan is secured by a second mortgage onthe Northwest Corporate Center and came due on the maturity date.

The Company has also reached apreliminary agreement to extend debt of approximately $22,000,000 untilDecember 15, 2001. This agreement is not final and is subject to the Companymaking certain payments and meeting other conditions as outlined by thebank.  In the opinion of management,this extension will be successfully completed.

5.          MINORITYINTEREST

On February 28, 2001, a third party buyer(the “Buyer”) purchased a 49% undivided tenancy-in-common interest in theCompany’s Creekside/Riverside property (the “Property”).  In exchange for this interest, the Buyeragreed to pay the Company $1,000,000. In addition, the sale agreement stipulates income and expenses shall beallocated to the Company and Buyer based upon their respective ownershipinterests.

The Company has accounted for thistransaction as a joint venture and as such, the purchase price is accounted foras minority interest on the accompanying balance sheet.  Further, income and distribution allocableto the Buyer are accounted for as an offset to the minority interest account.

6.          PENDINGTRANSACTION

The Company is continuing the developmentof a plan to merge certain entities and assets included in the Company’s combinedfinancial statements into a subsidiary of the operating partnership owned byAmerican Spectrum Realty, Inc. (ASR). ASR was established to be the legal acquirer and registrant in theconsolidation transaction, and is a wholly owned subsidiary of CGS.  ASR will then (subject to approval) acquireeight public limited partnerships and two private entities.  The accounting acquirer in this transactionwill be one of the eight public limited partnerships (Sierra Pacific PensionInvestors ’84).  These events arecollectively referred to as the “Transaction”. Assuming all entities elect to be included in the Transaction, theassets and liabilities of each entity will be exchanged for stock andpromissory notes of ASR (see footnotes to ASR’s financial statements includedin this Form 10-Q for further discussion on how notes arise) and operatingpartnership units in a newly formed operating partnership, that will initiallybe owned by ASR and will continue to be a consolidated subsidiary of ASRthereafter.  The private entities andpublic limited partnerships, which can be included in the Transaction, areengaged in substantially the same business as the Company.  The Company currently provides propertymanagement services to these entities. ASR intends to qualify as a real estate investment trust (REIT) forfederal income tax purposes beginning in 2003.ASR filed a registration statement on Form S-4 with the SEC on August 14, 2000relating to the solicitation of consents. The registration statement was amended February 14, 2001, April 24,2001, June 26, 2001, and August 7, 2001 and was declared effective by the SECon August 8, 2001.  The plan and thebenefits and risks thereof were described in detail in the final prospectus/consentsolicitation statement included in the registration statement filed under theSecurities Act of 1933 at the time it was declared effective by the SEC.  Solicitation materials have been provided tolimited partners in connection with the solicitation of the consent of thelimited partners.  There can be noassurances that the plan described above will be consummated.
7.          RECENTACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial AccountingStandards Board (FASB) issued Statement of Financial Accounting Standards No.133 (SFAS 133) as amended by SFAS 137 and 138, Accounting for DerivativeInstruments and Hedging Activities. SFAS 133 establishes accounting and reporting standards requiring thatevery derivative instrument (including certain derivative instruments embeddedin other contracts) be recorded in the balance sheet as either an asset orliability measured at its fair value. SFAS 133 requires that changes in the derivative’s fair value berecognized currently in earning unless specific hedge accounting criteria aremet.  Special accounting for qualifyinghedges allows a derivative’s gains and losses to offset related results on thehedged item in the income statement, and requires that a company formallydocument, designate, and assess the effectiveness of transactions that receivehedge accounting.  SFAS 133 will beeffective for the Company beginning with the 2001 fiscal year and may not beapplied retroactively.  Management doesnot believe that SFAS 133 will have a material impact on the financialstatements.

In July 2001, FASB issued SFAS No. 141,“Business Combinations”, which is effective for business combinations initiatedafter June 30, 2001.  SFAS No. 141requires all business combinations to be accounted for under the purchase methodand that the pooling-of-interest method is no longer allowed.  The Company will account for the Transactionunder the purchase method.

In July 2001, FASB issued SFAS No. 142,“Goodwill and Other Intangible Assets”, which is effective for fiscal yearsbeginning after December 15, 2001.  SFASNo. 142 requires, among other things, that goodwill no longer be amortized toearnings, but instead be reviewed for impairment.  The adoption of SFAS No. 142 is not expected to have a materialimpact on the Company’s financial position, results of operations, or cashflows.

In June 2001, FASB issued SFAS 143,“Accounting for Asset Retirement”.  SFASNo. 143 addresses financial accounting and reporting obligations associatedwith the retirement of tangible long-lived assets and the associated assetretirement costs.  The provisions ofSFAS No. 143 are required to be applied starting with fiscal years beginningafter June 15, 2002.  The Companybelieves the adoption of the provisions of SFAS 143 will not have a significanteffect on its financial position or results of operations.

In December 1999, the SEC issued StaffAccounting Bulletin No. 101 (SAB 101), Revenue Recognition in FinancialStatements, which summarizes certain of the SEC staff’s views on applyinggenerally accepted accounting principles to revenue recognition in financialstatements.  The Company adopted theaccounting provisions of SAB 101 in 2000. The implementation of SAB 101 did not have a significant effect on theCompany’s financial condition or results of operations.

 

8.          LITIGATION

In December 1994, a subsidiary of CGSacquired the corporate general partner of certain public real estate investmentfunds (the “Funds”) in exchange for assumption of unsecured loans payable tothe Funds (Unsecured Debt).  Separately,the Company acquired property from a Fund in exchange for cash and a purchasemoney note payable to such Fund secured by the property acquired (SecuredDebt).  Pursuant to the terms of alitigation settlement agreement relating to the Unsecured Debt, the SecuredDebt, and other matters, CGS agreed to repay both debts and cause the Funds todistribute the proceeds to the partners of the Funds.  As of December 31, 2000 interest and principal due to the Fundswith respect to the Unsecured Debt and Secured Debt totaled $7,218,000.  A provision for this settlement is accruedfor in the notes payable affiliate account on the accompanying balancesheet.  The Company did not repay theamounts due in accordance with the settlement agreement.  As a result, the settlement agreement wasdeclared void.  Therefore, litigationrelating to the Unsecured Debt, Secured Debt, and other matters was reinstated.

In March 2001, the Company was named as adefendant in an action brought by certain limited partners of a limitedpartnership, which will not be part of the consolidation, seeking damages inexcess of $8,500,000.  The claims ariseout of allegations by the limited partners that an affiliate of the Company, asformer general partner, breached various legal duties to the partnership forbenefit of individuals and entities affiliated with the general partner.  The Company is alleged to be one of theparties that benefited from the alleged breaches.  The outcome of this matter is uncertain.

The Company is also party to variouslawsuits and disputes that have arisen in the normal course of business.  The liability, if any, arising from theunfavorable outcome of these other matters is presently unknown.  In the opinion of management, the amount ofultimate liability, if any, with respect to these other actions will notmaterially affect the financial position or results of operations of theCompany.

On August 29, 2001, Goldman SachsMortgage Company commenced a lawsuit in the United States District Court,Central District of California against the Company, seeking recovery of$4,668,387.20 as a result of the Company’s alleged breach of its guaranty of amortgage loan made by plaintiff to McDonnell Associates, LLC.  The loan is secured by a second mortgage onthe Northwest Corporate Center and came due on the maturity date.  The plaintiff has not taken any action toforeclose on this mortgage.  The Companybelieves that it will be able to obtain financing from other lender to repaythis loan.  As a result, the Companydoes not expect that this lawsuit will have a material effect on its financialcondition.

9.          SUBSEQUENTEVENT

Subsequent to the date of theProspectus/Consent Solicitation Statement dated August 8, 2001, an affiliate ofCGS purchased 5,572 units in Sierra Pacific Development Fund – II from affiliatesof Everest Trust for a purchase of $1,150,000 or $206.39 per unit.  In connection with the purchase, Everestentered into a standstill agreement for a five-year period covering the Sierraand Nooney funds and ASR following the closing of the Transaction.  CGS and its affiliates own 13,490 units or15.6% of the outstanding units in Sierra Pacific Development Fund – II andintend to vote these units for the Transaction.

On August 30, 2001, CGS transferred allof the membership interest in the entity which owns Villa Redondo Apartments tothe Operating Partnership American Spectrum Realty, L.P., a subsidiary ofAmerican Spectrum Realty, Inc.

** **
**ITEM  2.****MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**
 

**AMERICAN SPECTRUM REALTY, INC.**

(a)         OVERVIEW

American Spectrum Realty, Inc. (“ASR” orthe “Company”) was established on August 8, 2000 to be the legal acquiror andregistrant in a consolidation transaction whereby partners in existing relatedpartnerships would trade partnership units for shares in this new public entityand owners of existing related entities would exchange ownership interests forunits in an operating partnership that will be formed and will initially bewholly owned by the Company.  ASR is awholly owned subsidiary of CGS Real Estate Company, Inc.  ASR will (subject to approval) acquire eightpublic limited partnerships, two private entities and, on a carve-out basis CGSand the Majority-Owned Affiliates.  Theaccounting acquirer in this transaction will be one of the eight public limitedpartnerships (Sierra Pacific Pension Investors `84).  These events are collectively referred to as the “Transaction”.

CGS includes CGS Real Estate Company,Inc. and various other entities and properties involved in real estatedevelopment, management, ownership and operation.  CGS’ operations are located principally in the Midwestern andWestern United States.  CGS’ propertiesconsist of 16 office, office/warehouse, apartment and shopping centers and oneparcel of vacant land.

ASR will be a full-service real estatecorporation.  The Company’s primarybusiness will be the ownership of office, office/warehouse, apartments andshopping center properties.  The publiclimited partnerships own 18 office/warehouse and apartment properties.  If all of the public limited partnershipsapprove the Transaction, ASR will initially own 34 properties.  The Company plans to expand its business byacquiring additional properties.  TheCompany will focus primarily on office, office/warehouse and apartmentproperties located in the Midwestern and western United States.  ASR intends to qualify as a real estateinvestment trust (REIT) in 2003.

The following discussion should be readin conjunction with the Financial Statements of ASR, including the respectivenotes thereto, which are included in this Form 10-Q.   This Form 10-Q also includes the Financial Statements, notes,and corresponding Management’s Discussion and Analysis for Sierra PacificPension Investors ’84 and CGS as of June 30, 2001.

(b)        RESULTSOF OPERATIONS

The Company was only recentlyincorporated on August 8, 2000. Therefore, a discussion comparing operating results with thecorresponding periods in the prior year are not meaningful.

The major activity affecting ASR’s booksand records during the period from inception to June 30, 2001 were costsrelated to the Transaction.  Costs thatwere incremental, directly attributable to the Transaction, and paid to thirdparty vendors were capitalized as transaction costs.  These costs will be charged to equity upon successful completionof the Transaction as a cost of issuing securities or debt respectively,depending upon the outcome of the shareholders’ vote.  Until this Transaction occurs, the Company will be dependent uponCGS to fund its operations.

The Company is currently a shell entity;however, on August 30, 2001, CGS transferred all of the membership interest inthe entity which owns Villa Redondo Apartments to the Operating PartnershipAmerican Spectrum Realty, L.P., a subsidiary of American Spectrum Realty,Inc.  No revenues were generated for thesix months and three months ended June 30, 2001.

Total expenses for the six months andthree months ended June 30, 2001 were $433,035 and $133,551, respectively.  These expenses primarily consisted ofgeneral and administrative expenses, which were not directly attributable tothe Transaction.  General andadministrative expenses for the six months and three months ended June 30, 2001totaled $422,091 and $128,378, respectively. Also included in total expenses for the six and three months ended June30, 2001 were depreciation expenses of $10,944 and $5,173, respectively.

(c)         LIQUIDITYAND CAPITAL RESOURCES

The Company had no cash at June 30, 2001and is not currently generating revenue.  Until the Transaction occurs, the Company will be dependent uponCGS to fund its operations.  During thesix months ended June 30, 2001, the Company borrowed $1,390,552 from affiliates.  These notes payable are payable to three ofthe public limited partnerships and are guaranteed by CGS, the general partnerof the limited partnerships and parent company of ASR.   These funds were primarily used to pay forcosts directly attributable to the Transaction, which are capitalized astransaction costs on the balance sheet.

Inflation:

The Company does not expect inflation tobe a material factor in its operations in 2001.

**SIERRA PACIFIC PENSION INVESTORS ‘84**

(a)         OVERVIEW

The following discussion should be readin conjunction with the Sierra Pacific Pension Investors ‘84’s (thePartnership) Consolidated Financial Statements and Notes thereto.

The Partnership currently owns oneproperty, Sierra Valencia (the Property). In addition, the Partnership holds an 80.32% interest in Sierra MiraMesa Partners (SMMP), which is maintained on the equity method of accounting.

(b)        RESULTSOF OPERATIONS

Rental income for the six months endedJune 30, 2001 increased by approximately $58,000, or 21%, in comparison to thecorresponding period in the prior year, primarily as a result of an increase inoccupancy at the Property.  Occupancyrose from 84% at June 30, 2000 to 100% at June 30, 2001, as one tenant expandedits lease from approximately 10,000 to 21,000 square feet.

Operating expenses increased byapproximately $54,000, or 25%, for the six months ended June 30, 2001.  This increase was in large part due tohigher maintenance and repair costs and management fees associated with theincreased occupancy of the Property. Further, data processing, accounting and auditing, and insurance costsrose during the period.  Operatingexpenses for the three months ended June 30, 2001 increased by approximately$29,000 or 34%, principally due to, among other factors, higher dataprocessing, insurance, and management fees incurred during the quarter.

Depreciation and amortization expensesfor the six months and three months ended June 30, 2001 rose by approximately$27,000, or 37%, and by approximately $17,000, or 44%, respectively, whencompared to the same periods in 2000, primarily due to increased depreciationand amortization on additional tenant improvements and lease costs associatedwith the increased occupancy of the Property.

The Partnership’s share of unconsolidatedjoint venture income decreased by approximately $24,000 for the six monthsended June 30, 2001, in comparison to the same period in the prior year.  The decrease in income generated by SMMP wasprimarily due to, among other factors, an increase in utilities associated withhigher energy costs and an increase in depreciation expense as a result ofadditional capitalized tenant improvements at the Sierra Mira Mesaproperty.  SMMP decrease in income wasin large part offset by the recovery of rents previously written-off to baddebt.  During the quarter ended June 30,2001, the Partnership’s share of unconsolidated joint venture income increasedby approximately $124,000 principally due to SMMP rent recoveries.

(c)         LIQUIDITYAND CAPITAL RESOURCES

As of June 30, 2001, the Partnership isin an illiquid position.  Total cash andbilled receivables amount to approximately $38,000 compared to approximately$99,000 in current liabilities.   Cashof approximately $96,000 was used in operating activities and approximately$65,000 was paid for property additions and lease costs during the six monthsended June 20, 2001.  The Partnershiploaned approximately $191,000 to an affiliate in 2001 relating to the pendingconsolidation transaction discussed in Note 5 of the financial statements.

The Partnership anticipates cash requiredto meet debt obligations, operating expenses and costs for the construction ofnew tenant space will be funded from the operations of the Property anddistributions from SMMP.  During the sixmonths ended June 30, 2001, SMMP made distributions of $334,000 to the Partnership.

Inflation:

The Partnership does not expect inflationto be a material factor in its operations in 2001.

**CGS AND THE MAJORITY OWNED AFFILIATES**

(a)         OVERVIEW

The following discussion should be readin conjunction with the CGS and the Majority-Owned Affiliates (the Company)Combined Financial Statements and Notes thereto appearing elsewhere in thisForm 10-Q.

(b)        RESULTSOF OPERATIONS

*Comparison of the Six Months and Three Months Ended June 30,2001 to the Six Months and Three Months Ended June 30, 2000, respectively.*

Total revenues for the six months endedJune 30, 2001 decreased by $481,000 or 3.7% to $12,682,000 as compared to$13,163,000 for the six months ended June 30, 2000.  Total revenues for the three months ended June 30, 2001 decreasedby $1,418,000 or 17.8% to $6,541,000 as compared to $7,959,000 for the threemonths ended June 30, 2000.

Revenue from property managementoperations decreased by $1,483,000 or 33.0% to $3,009,000 for the six monthsended June 30, 2001 as compared to $4,492,000 for the six months ended June 30,2000.  Revenue from property managementoperations decreased by $2,004,000 or 54.6% to $1,664,000 for the three monthsended June 30, 2001 as compared to $3,668,000 for the three months ended June30, 2000.

Revenue from property managementoperations decreased, for the six and three months period ended June 30, 2001,due to the discontinuance of operations in California and Arizona in the firstquarter of 2001 and the decrease in property management revenues in three othermanagement companies.   The decrease inproperty management operations resulted from the Company’s decision to winddown its involvement in third party brokerage and property management services.

Rental income for the six months endedJune 30, 2001 increased by $1,201,000 or 15.6% to $8,909,000 as compared to$7,708,000 for the six months ended June 30, 2000.  Rental income for the three months ended June 30, 2001 increasedby $731,000 or 19.2% to $4,545,000 as compared to $3,814,000 for the threemonths ended June 30, 2000.  Theincrease in rental income resulted primarily from new tenants moving into therecently remodeled Northwest Corporate Center, higher market rental rates andan increase in overall occupancy resulting from higher demand.

 
 Six  Months Ended June 30,  2001   2000          Rental income$8,909,000 70.2%$7,708,000 58.6%Property management  operations3,009,000 23.7 4,492,000 34.1 Income from affiliates764,000 6.1 963,000 7.3      Total revenues$12,682,000 100.0%$13,163,000 100.0%     
 
 Three  Months Ended June 30,  2001   2000          Rental income$4,545,000 69.5%$3,814,000 47.9%Property management  operations1,664,000 25.4 3,668,000 46.1 Income from affiliates332,000 5.1 477,000 6.0      Total revenues$6,541,000 100.0%$7,959,000 100.0%     
Because CGS and the Majority-OwnedAffiliates will perform no third party management services, all ongoing revenueswill be derived from rental income. Substantially all such revenues are earned pursuant to fixed rentcommitments since percentage rent income is immaterial.  Rental income, as a percentage of totalrevenues, has increased due to the increased occupancy and rent levels and thedeclining role of third party management and brokerage activities.

Total expenses excluding interest for thesix months ended June 30, 2001 increased by $2,149,000 or 21.2% to $12,279,000as compared to $10,130,000 for the six months ended June 30, 2000.  Total expenses excluding interest for thethree months ended June 30, 2001 increased by $1,077,000 or 18.5% to $6,903,000as compared to $5,826,000 for the three months ended June 30, 2000.

Expenses excluding interest, impairment charges,depreciation and amortization for the six months ended June 30, 2001 increasedby $1,740,000 or 20.7% to $10,147,000 as compared to $8,407,000 for the sixmonths ended June 30, 2000.  Expensesexcluding interest, impairment charges, depreciation and amortization for thethree months ended June 30, 2001 increased by $892,000 or 17.7% to $5,937,000as compared to $5,045,000 for the three months ended June 30, 2000.

 

Expenses, excluding interest, impairmentcharges, depreciation and amortization, as a percentage of total revenues,increased from 63.9% for the six months ended June 30, 2000 to 80.0% for thesix months ended June 30, 2001. Expenses, excluding interest, impairment charges, depreciation andamortization, as a percentage of total revenues, increased from 63.4% for thethree months ended June 30, 2000 to 90.8% for the three months ended June 30,2001.

Components of expenses excludinginterest, depreciation, and amortization as a percentage of total revenues wereas follows:

 
 Six  Months Ended June 30,  2001   2000          Property operating  & maintenance$2,995,000 23.6%$2,502,000 19.0%Real estate taxes763,000 6.0 644,000 4.9 Property management  operations6,443,000 50.8 4,991,000 37.9 Other (income) expense(54,000)(0.4)270,000 2.1      Total cost and  expenses$10,147,000 80.0%$8,407,000 63.9%     
             
 Three  Months Ended June 30,  2001   2000          Property operating  & maintenance$1,619,000 24.8%$1,562,000 19.6%Real estate taxes295,000 4.5 86,000 1.1 Property management  operations4,084,000 62.4 3,105,000 39.0 Other (income) expense(61,000)(0.9)292,000 3.7      Total cost and  expenses$5,937,000 90.8%$5,045,000 63.4%     
The increase in property operating andmaintenance, as a percentage of revenues, is a result of the increase in baddebt expense associated with the write-off of several uncollectablereceivables.

Interest expense increased by $10,000 or0.2%, to $6,445,000 for the six months ended June 30, 2001 as compared to$6,435,000 for the six months ended June 30, 2000.  Interest expense decreased by $121,000 or 3.4%, to $3,474,000 forthe three months ended June 30, 2001 as compared to $3,595,000 for the threemonths ended June 30, 2000.  Thedecrease was attributed to lower interest rates and the refinancing of severalloans with more favorable terms.

Net loss increased by $2,200,000 or55.9%, to $6,135,000 for the six months ended June 30, 2001 as compared to$3,935,000 for the six months ended June 30, 2000, primarily due to a gain onsale of property ($1,328,000) in 2000 that did not recur in 2001.  Net loss increased by $855,000 or 26.8%, to$4,043,000 for the three months ended June 30, 2001 as compared to $3,188,000for the three months ended June 30, 2000, primarily due to the additionalinterest expense on the participating loans and the accrual of taxes during theperiod.

(c)         LIQUIDITYAND CAPITAL RESOURCES

As of June 30, 2001, the Company is in anilliquid position.  Total cash andbilled receivables amount to approximately $2,800,000 compared to approximately$7,600,000 in current liabilities.  Wewill need to obtain additional cash through a combination of shareholder contributionsand refinancing of properties.

As of June 30, 2001, CGS and theMajority-Owned Affiliates had cash balances totaling $1,354,000.  Cash and cash equivalents on hand as of June30, 2001, decreased $433,000 when compared to the year ended December 31,2000.  We expect this level of cash flowto increase in the short and long term due to the renewal of leases at thecurrent market rates which exceed historical lease rates, lease-up of tworehabilitation projects (Northwest Corporate Center and Autumn Ridge), and therefinancing of several properties.

During the six month period ended June30, 2001, capital additions were made in the amount of $3,369,590 and paymentswere made on mortgage notes in the amount of $1,860,500.  CGS and the Majority-Owned Affiliates planto maintain adequate cash reserves and fund capital expenditures during theremainder of 2001.  Major capitalexpenditures and tenant alterations will partly be funded by cash reserves heldby lenders for such improvements pursuant to the terms of existing and new loanagreements.

The capital expenditures by propertyanticipated for the remainder of 2001 are as follows:

 
 Major  Capital Tenant Lease Total  Expenditures Alterations Commissions Capital   7700 Irvine Center  Drive$122,000 $4,000 $90,000 $216,000 Bristol Bay50,000 - 81,000 131,000 Northwest Corporate  Center132,000 449,000 157,000 738,000 Pacific Spectrum48,000 31,000 26,000 105,000 Parkade50,000 261,000 60,000 371,000 Technology46,000 79,000 - 125,000 Autumn Ridge589,000 - - 589,000 Creekside/Riverside  Apartments80,000 10,000 - 90,000 Villa Redondo503,000 33,000 - 536,000 Beach & Lampson- 42,000 48,000 90,000 Columbia NE- 30,000 30,000 60,000 Market Place1,287,000 284,000 58,000 1,629,000      Total$2,907,000 $1,223,000 $550,000 $4,680,000      
The future liquidity of the Company isdependent on its ability to fund future capital expenditures and mortgagepayments from operation and cash reserves, maintain occupancy, and negotiatewith lenders the refinancing of the mortgage debt as it matures.

Inflation:

The Company does not expect inflation tobe a material factor in its operations in 2001.

**ITEM 3.**            **QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKETRISK**

Market risk is the exposure or lossresulting from changes in interest rates, foreign currency exchange rates,commodity prices and equity prices.  ASR’s exposure to market risk at June 30, 2001 was limited it had nofloating rate debt or holdings of derivative financial or commodityinstruments.  The primary market risk towhich ASR will be exposed to upon completion of the Transaction is interestrate risk, which is sensitive to many factors, including governmental monetaryand tax policies, domestic and international economic and politicalconsiderations and other factors that are beyond its control.

Sierra Pacific Pension Investors ’84’sexposure to market risk at June 30, 2001 was limited as it had no floating ratedebt or holdings of derivative financial or commodity instruments.

CGS’ Qualitative and QuantitativeDisclosures about Market Risk contained in ASR’s Form S-4 /A  - Amendment No. 5 to Registration Statementfiled under the Securities Act of 1933 discusses market rate risk uponconsummation of the Transaction.

**FORWARD-LOOKING STATEMENTS**

In addition to historical information,this Quarterly Report on Form 10-Q contains forward-looking statements withinthe meaning of Section 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities Act of 1934, as amended.  These forward-looking statements, althoughmade in good faith, are subject to certain risks and uncertainties that couldcause actual results to differ materially from those set forth in theseforward-looking statements.  Risks andother factors that might cause such a difference include, but are not limitedto, approval of the consolidation Transaction; the effect of economic andmarket conditions; financing risks, such as the inability to obtain debt orequity financing on favorable terms; risks relating to acquisition anddevelopment activities; uncertainties affecting real estate businesses ingeneral; and market competition.  Assuch, undue reliance should not be placed on these forward-looking statements.

We assume no, and hereby disclaim any,obligation to update any of the foregoing or any other forward-lookingstatements.  We nonetheless reserve theright to make such updates from time to time by press release, periodic reportor other method of public disclosure without the need for specific reference tothis report.  No such update shall bedeemed to indicate that other statements not addressed by such update remaincorrect or create an obligation to provide any other updates.

 

 

 

**PART II  - OTHER INFORMATION**

 

**ITEM  1.**          **LEGAL PROCEEDINGS**

None.  For a description of legal proceedings towhich certain entities which will be acquired by American Spectrum Realty, Inc.(“ASR”) if the consolidation of certain entities with ASR is consummated, seethe Consent Solicitation Statement/Prospectus dated August 8, 2001 and thesupplements thereto.

**ITEM  2.**           **CHANGES IN SECURITIES AND USE OF PROCEEDINGS**

             None

**ITEM  3.**          **DEFAULT UPON SENIOR SECURITIES**

None.  For a description of certain defaults onindebtedness by certain entities which will be acquired by ASR if theconsolidation with certain entities with ASR is consummated, see the ConsentSolicitation Statement/Prospectus dated August 8, 2001 and the supplementsthereto.

**ITEM  4.**           **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

             None

**ITEM  5.**          **OTHER INFORMATION**

             None

**ITEM  6. **         **EXHIBITS AND REPORTS ON FORM 8-K**

(a)         Exhibits

             None

(b)        Reportson Form 8-K

             None

 

**SIGNATURES**

 

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

 
 AMERICAN  SPECTRUM REALTY, INC.  Date:  September 17, 2001*/s/   Thomas N. Thurber* ** Thomas  N. Thurber  Chief  Financial Officer