##### 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 March 31, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER 001-16785
 American Spectrum Realty, Inc.
  State of Maryland
    
    52-2258674(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)5850 San Felipe, Suite 450
Houston, Texas 77057
    
    77057(Address of principal executive offices)
    
    (Zip Code)
  
  
  þ o
  Large accelerated filer oAccelerated filer oNon-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 March 31, 2008 (unaudited) and December 31, 2007
    
    3Consolidated Condensed Statements of Operations for the three months ended March 31, 2008 and 2007 (unaudited)
    
    4Consolidated
Condensed Statement of Stockholders Equity for the three months ended March 31, 2008 (unaudited)
    
    5Consolidated Condensed Statements of Cash Flows for the three months ended March 31, 2008 and 2007 (unaudited)
    
    6Notes to Consolidated Condensed Financial Statements
    
    7Item 2
    
    Managements
Discussion and Analysis of Financial Condition and Results of Operations
    
    15Item 4T
    
    Controls and Procedures
    
    19PART II OTHER INFORMATIONItem 1
    
    Legal Proceedings
    
    20Item 2
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    20Item 6
    
    Exhibits and Reports on Form 8-K
    
    20Certification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS
 
 AMERICAN SPECTRUM REALTY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
 March 31, 2008
    
    
    December 31, 2007(Unaudited)ASSETSReal estate held for investment
    
    $
    239,257
    
    
    $
    238,053Accumulated depreciation
    
    
    (51,835
    )
    
    
    (48,757
    )Real estate held for investment, net
    
    
    187,422
    
    
    
    189,296Real estate held for sale
    
    
    
    
    
    
    1,996Cash and cash equivalents
    
    
    523
    
    
    
    847Restricted cash
    
    
    3,588
    
    
    
    3,565Tenant and other receivables, net of allowance for doubtful accounts of
$361 and $186, respectively
    
    
    579
    
    
    
    561Deferred rents receivable
    
    
    1,801
    
    
    
    1,589Deposits held in escrow for tax-deferred exchanges
    
    
    300
    
    
    
    Investment in management company
    
    
    4,000
    
    
    
    4,000Prepaid and other assets, net
    
    
    9,096
    
    
    
    10,932Total Assets
    
    $
    207,309
    
    
    $
    212,786LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Notes payable, including premium of $53 and $64, respectively
    
    $
    186,708
    
    
    $
    186,824Liabilities related to real estate held for sale
    
    
    
    
    
    
    2,318Deferred tax liability
    
    
    1,312
    
    
    
    1,777Accounts payable
    
    
    2,987
    
    
    
    2,822Accrued and other liabilities
    
    
    6,470
    
    
    
    8,457Total Liabilities
    
    
    197,477
    
    
    
    202,198Minority interest
    
    
    4,419
    
    
    
    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, 1,616,054 and 1,613,554 shares, respectively; outstanding,
1,380,714 and 1,378,214 shares, respectively
    
    
    16
    
    
    
    16Additional paid-in capital
    
    
    46,737
    
    
    
    46,693Accumulated deficit
    
    
    (38,254
    )
    
    
    (37,557
    )Treasury stock, at cost, 235,340 and 235,340 shares, respectively
    
    
    (3,086
    )
    
    
    (3,086
    )Total Stockholders Equity
    
    
    5,413
    
    
    
    6,066Total Liabilities and Stockholders Equity
    
    $
    207,309
    
    
    $
    212,786
  3




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##### Table of Contents



AMERICAN SPECTRUM REALTY, INC.
 
 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
   Three Months EndedMarch 31,2008
    
    
    2007REVENUES:Rental revenue
    
    $
    8,259
    
    
    $
    7,179Interest and other income
    
    
    90
    
    
    
    37Total revenues
    
    
    8,349
    
    
    
    7,216EXPENSES:Property operating expense
    
    
    3,523
    
    
    
    2,989Corporate general and administrative
    
    
    856
    
    
    
    727Depreciation and amortization
    
    
    3,238
    
    
    
    2,944Interest expense
    
    
    3,105
    
    
    
    2,558Total expenses
    
    
    10,722
    
    
    
    9,218Net loss from continuing operations before deferred income tax benefit and minority interest
    
    
    (2,373
    )
    
    
    (2,002
    )Deferred income tax benefit
    
    
    848
    
    
    
    692Net loss from continuing operations before minority interest
    
    
    (1,525
    )
    
    
    (1,310
    )Minority interest (share from continuing operations)
    
    
    197
    
    
    
    174Net loss from continuing operations
    
    
    (1,328
    )
    
    
    (1,136
    )Discontinued operations:Gain (loss) from discontinued operations
    
    
    5
    
    
    
    (1
    )Gain on sale of discontinued operations
    
    
    1,141
    
    
    
    Deferred income tax expense
    
    
    (421
    )
    
    
    Minority interest
    
    
    (94
    )
    
    
    Income (loss) from discontinued operations
    
    
    631
    
    
    
    (1
    )Net loss
    
    $
    (697
    )
    
    $
    (1,137
    )Basic and diluted per share data:Net loss from continuing operations
    
    $
    (0.97
    )
    
    $
    (0.83
    )Income from discontinued operations
    
    
    0.46
    
    
    
    Net loss
    
    $
    (0.51
    )
    
    $
    (0.83
    )Basic and diluted weighted average shares used
    
    
    1,375,131
    
    
    
    1,376,804
  4




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##### Table of Contents



AMERICAN SPECTRUM REALTY INC.
CONSOLIDATED CONDENSED STATEMENTS OF STOCKHOLDERS EQUITY
 Common
    
    Common
    
    AdditionalStock
    
    Stock
    
    Paid-In
    
    Accumulated
    
    Treasury
    
    TotalShares
    
    Amount
    
    Capital
    
    Deficit
    
    Stock
    
    EquityBalance, January 1, 2008
    
    
    1,613,554
    
    
    $
    16
    
    
    $
    46,693
    
    
    $
    (37,557
    )
    
    $
    (3,086
    )
    
    $
    6,066Exercise of stock options
    
    
    2,500
    
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    31Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    
    
    
    
    13Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (697
    )
    
    
    
    
    
    
    (697
    )Balance, March 31, 2008
    
    
    1,616,054
    
    
    $
    16
    
    
    $
    46,737
    
    
    $
    (38,254
    )
    
    $
    (3,086
    )
    
    $
    5,413
  5




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##### Table of Contents



AMERICAN SPECTRUM REALTY, INC
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
 Three Months Ended March 31,2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
    
    $
    (697
    )
    
    $
    (1,137
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    3,260
    
    
    
    2,976Deferred rental income
    
    
    (212
    )
    
    
    (300
    )Minority interest
    
    
    (103
    )
    
    
    (174
    )Net gain on sale of real estate asset
    
    
    (1,141
    )
    
    
    Stock-based compensation expense
    
    
    13
    
    
    
    8Income tax benefit
    
    
    (427
    )
    
    
    (692
    )Amortization of note payable premiums, included in interest expense
    
    
    (11
    )
    
    
    (108
    )Changes in operating assets and liabilities:(Increase) decrease in tenant and other receivables
    
    
    (7
    )
    
    
    143Increase in accounts payable
    
    
    153
    
    
    
    8Increase in prepaid and other assets
    
    
    1,733
    
    
    
    1,665Increase in accrued and other liabilities
    
    
    (2,078
    )
    
    
    (684
    )Net cash provided by operating activities
    
    
    483
    
    
    
    1,705CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds received from sale of real estate asset
    
    
    3,014
    
    
    
    Deposit held in escrow for future acquisitions
    
    
    (300
    )
    
    
    Real estate acquisition
    
    
    
    
    
    
    (748
    )Capital improvements to real estate assets
    
    
    (1,225
    )
    
    
    (1,419
    )Net cash provided by (used in) investing activities:
    
    
    1,489
    
    
    
    (2,167
    )CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from borrowings
    
    
    300
    
    
    
    750Repayment of borrowings  property sales
    
    
    (2,218
    )
    
    
    Repayment of borrowings  scheduled payments
    
    
    (409
    )
    
    
    (450
    )Repurchase of common stock
    
    
    
    
    
    
    (150
    )Acquisition of minority interest in the operating partnership
    
    
    
    
    
    
    (122
    )Proceeds from exercise of stock options
    
    
    31
    
    
    
    85Net cash (used in) provided by financing activities:
    
    
    (2,296
    )
    
    
    113Decrease in cash and cash equivalents
    
    
    (324
    )
    
    
    (349
    )Cash and cash equivalents, beginning of period
    
    
    847
    
    
    
    1,166Cash and cash equivalents, end of period
    
    $
    523
    
    
    $
    817SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for interest
    
    $
    3,056
    
    
    $
    2,653Cash paid for income taxes
    
    
    13
    
    
    
    4
  6




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##### Table of Contents



AMERICAN SPECTRUM REALTY, INC.
Notes to Consolidated Condensed Financial Statements
 NOTE 1. DESCRIPTION OF BUSINESS
   NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 BASIS OF PRESENTATION
    RECLASSIFICATIONS
  SEGMENT REPORTING
  NEW ACCOUNTING PRONOUNCEMENTS
 Disclosures
about Derivative Instruments and Hedging Activities, Accounting
for
 7




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##### Table of Contents



Derivative Instruments and Hedging Activities.
 Business Combinations
 Noncontrolling Interests in Consolidated Financial
Statementsan amendment of Accounting Research Bulletin No. 51
 Fair Value Measurement
 STOCK-BASED COMPENSATION
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to
Employees
 8




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##### Table of Contents



MINORITY INTEREST
  NET LOSS PER SHARE
 Earnings Per Share,
 INCOME TAXES
    NOTE 3. REAL ESTATE
 ACQUISITIONS
   9




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##### Table of Contents



DISPOSITIONS
   NOTE 4. DISCONTINUED OPERATIONS
 Real estate assets held for sale.
   Condensed Consolidated 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
 Net income (loss) from discontinued operations.
   Condensed Consolidated Statements of Operations
    
    Three Months Ended March 31,2008
    
    2007Rental revenue
    
    $
    73
    
    
    $
    87Total expenses
    
    
    68
    
    
    
    88Income (loss) from discontinued operations
before gain on sale, income tax expense and
minority interest
    
    
    5
    
    
    
    (1
    )Gain on sale of discontinued operations
    
    
    1,141
    
    
    
    Income tax expense
    
    
    (421
    )
    
    
    Minority interest from discontinued operations
    
    
    (94
    )
    
    
    Income (loss) from discontinued operations
    
    $
    631
    
    
    $
    (1
    )
 NOTE 5. NOTES PAYABLE, NET OF PREMIUM
  10




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##### Table of Contents



March 31, 2008
    
    
    December 31, 2007Maturity
    
    
    Principal
    
    
    Interest
    
    
    Principal
    
    
    InterestProperty (unless otherwise noted)
    
    Date
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    RateFixed RatePacific Spectrum
    
    
    6/10/2009
    
    
    
    5,401
    
    
    
    8.02
    %
    
    
    5,422
    
    
    
    8.02
    %1501 Mockingbird
    
    
    6/30/2009
    
    
    
    303
    
    
    
    6.00
    %
    
    
    304
    
    
    
    6.00
    %6430 Richmond Atrium
    
    
    6/30/2009
    
    
    
    723
    
    
    
    5.50
    %
    
    
    726
    
    
    
    5.50
    %Morenci
    
    
    12/01/2009
    
    
    
    1,590
    
    
    
    6.60
    %
    
    
    1,617
    
    
    
    6.60
    %Bristol Bay
    
    
    8/1/2011
    
    
    
    7,077
    
    
    
    7.58
    %
    
    
    7,101
    
    
    
    7.58
    %Technology
    
    
    8/1/2011
    
    
    
    7,321
    
    
    
    7.44
    %
    
    
    7,346
    
    
    
    7.44
    %Creekside
    
    
    12/1/2011
    
    
    
    5,972
    
    
    
    7.17
    %
    
    
    5,993
    
    
    
    7.17
    %16350 Park Ten Place
    
    
    5/11/2012
    
    
    
    4,571
    
    
    
    7.45
    %
    
    
    4,586
    
    
    
    7.45
    %16360 Park Ten Place
    
    
    5/11/2012
    
    
    
    3,581
    
    
    
    7.45
    %
    
    
    3,593
    
    
    
    7.45
    %2855 Mangum
    
    
    5/11/2012
    
    
    
    2,639
    
    
    
    7.45
    %
    
    
    2,647
    
    
    
    7.45
    %2855 Mangum
    
    
    5/11/2012
    
    
    
    1,516
    
    
    
    6.00
    %
    
    
    1,531
    
    
    
    6.00
    %6430 Richmond Atrium
    
    
    5/11/2012
    
    
    
    2,215
    
    
    
    7.45
    %
    
    
    2,222
    
    
    
    7.45
    %Southwest Pointe
    
    
    6/1/2012
    
    
    
    2,778
    
    
    
    7.33
    %
    
    
    2,787
    
    
    
    7.33
    %16350 Park Ten Place
    
    
    5/11/2012
    
    
    
    505
    
    
    
    7.45
    %
    
    
    506
    
    
    
    7.45
    %16360 Park Ten Place
    
    
    8/11/2012
    
    
    
    395
    
    
    
    7.45
    %
    
    
    397
    
    
    
    7.45
    %11500 Northwest Freeway
    
    
    6/1/2014
    
    
    
    4,192
    
    
    
    5.93
    %
    
    
    4,208
    
    
    
    5.93
    %11500 Northwest Freeway
    
    
    6/1/2014
    
    
    
    303
    
    
    
    5.93
    %
    
    
    304
    
    
    
    5.93
    %5850 San Felipe
    
    
    8/1/2014
    
    
    
    5,238
    
    
    
    5.65
    %
    
    
    5,258
    
    
    
    5.65
    %Northwest Corporate Center
    
    
    8/1/2014
    
    
    
    5,508
    
    
    
    6.26
    %
    
    
    5,527
    
    
    
    6.26
    %14741 Yorktown
    
    
    9/1/2014
    
    
    
    8,600
    
    
    
    5.32
    %
    
    
    8,600
    
    
    
    5.32
    %8100 Washington
    
    
    2/22/2015
    
    
    
    2,257
    
    
    
    5.59
    %
    
    
    2,266
    
    
    
    5.59
    %8300 Bissonnet
    
    
    5/1/2015
    
    
    
    4,646
    
    
    
    5.51
    %
    
    
    4,662
    
    
    
    5.51
    %1501 Mockingbird
    
    
    7/1/2015
    
    
    
    3,321
    
    
    
    5.28
    %
    
    
    3,332
    
    
    
    5.28
    %5450 Northwest Central
    
    
    9/1/2015
    
    
    
    2,705
    
    
    
    5.38
    %
    
    
    2,715
    
    
    
    5.38
    %800 Sam Houston Parkway
    
    
    12/29/2015
    
    
    
    2,408
    
    
    
    6.25
    %
    
    
    2,420
    
    
    
    6.25
    %888 Sam Houston Parkway
    
    
    12/29/2015
    
    
    
    2,408
    
    
    
    6.25
    %
    
    
    2,420
    
    
    
    6.25
    %2401 Fountainview
    
    
    3/1/2016
    
    
    
    12,441
    
    
    
    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
    %Subtotal
    
    $
    159,364
    
    
    
    
    
    
    $
    159,722Variable RateCorporate  Secured
    
    
    10/1/2008
    
    
    
    1,936
    
    
    
    8.07
    %
    
    
    1,951
    
    
    
    8.07
    %Corporate  Unsecured (1)
    
    
    1/12/2009
    
    
    
    1,500
    
    
    
    7.50
    %
    
    
    1,500
    
    
    
    8.25
    %Beltway Industrial
    
    
    5/9/2010
    
    
    
    17,000
    
    
    
    7.00
    %
    
    
    17,000
    
    
    
    7.64
    %Corporate  Unsecured (2)
    
    
    5/31/2010
    
    
    
    500
    
    
    
    7.00
    %
    
    
    200
    
    
    
    8.25
    %NW Spectrum Plaza
    
    
    4/19/2012
    
    
    
    3,298
    
    
    
    5.49
    %
    
    
    3,315
    
    
    
    7.64
    %Windrose
    
    
    4/19/2012
    
    
    
    3,057
    
    
    
    5.49
    %
    
    
    3,072
    
    
    
    7.64
    %Subtotal
    
    $
    27,291
    
    
    
    
    
    
    $
    27,038Loan Premium
    
    
    
    
    
    
    53
    
    
    
    
    
    
    
    64Total
    
    $
    186,708
    
    
    
    
    
    
    $
    186,824
 
 (1)
    
    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.(2)
    
    In March 2008, the lender extended the maturity date of the note to May 31, 2010 and funded the
Company an additional $300,000, which increased the principal balance to $500,000.  11




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##### Table of Contents



NOTE 6. MINORITY INTEREST
    NOTE 7. REPURCHASE OF COMMON STOCK
   NOTE 8. STOCK-BASED COMPENSATION
    Stock Options
   Shares
    
    Weighted
    
    AggregateUnder
    
    Average
    
    IntrinsicOption
    
    Exercise Price
    
    ValueOutstanding on January 1, 2008
    
    
    32,813
    
    
    $
    24.07Granted
    
    
    
    
    
    
    Forfeited
    
    
    (938
    )
    
    $
    14.86Exercised
    
    
    (2,500
    )
    
    $
    12.43
    
    
    $
    30,181
 12




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##### Table of Contents



Shares
    
    Weighted
    
    AggregateUnder
    
    Average
    
    IntrinsicOption
    
    Exercise Price
    
    ValueOutstanding on March 31, 2008
    
    
    29,375
    
    
    $
    23.93
    
    
    $
    233,038Exercisable as of March 31, 2008
    
    
    25,313
    
    
    $
    25.22
    
    
    $
    188,133
  Weighted Average
    
    WeightedRemaining
    
    AverageNumber
    
    Contractual
    
    ExerciseRange of Exercise Price
    
    Outstanding
    
    Life
    
    Price$8.10  $12.20
    
    
    12,500
    
    
    6.0 years
    
    $
    10.66$18.25  $27.16
    
    
    11,250
    
    
    6.4 years
    
    $
    20.65$60.00  $60.00
    
    
    5,625
    
    
    3.5 years
    
    $
    60.00
  Weighted Average
    
    WeightedRemaining
    
    AverageNumber
    
    Contractual
    
    ExerciseRange of Exercise Price
    
    Exercisable
    
    Life
    
    Price$8.10  $12.20
    
    
    11,563
    
    
    5.9 years
    
    $
    10.87$18.25  $27.16
    
    
    8,125
    
    
    5.8 years
    
    $
    21.57$60.00  $60.00
    
    
    5,625
    
    
    3.5 years
    
    $
    60.00
  Weighted AverageGrant DateNonvested Stock Options
    
    Number
    
    Fair ValueNonvested at January 1, 2007
    
    
    5,000
    
    
    $
    9.00Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    (938
    )
    
    $
    8.67Nonvested at March 31, 2008
    
    
    4,062
    
    
    $
    9.08
  Restricted Stock
   13




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##### Table of Contents



Weighted AverageGrant DateRestricted Stock Awards
    
    Number of Shares
    
    Fair ValueNonvested at January 1, 2007
    
    
    4,250
    
    
    $
    22.75Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Nonvested at March 31, 2008
    
    
    4,250
    
    
    $
    22.75
  NOTE 9. RELATED PARTY TRANSACTIONS
    NOTE 10. COMMITMENTS AND CONTINGENCIES
   NOTE 11. SUBSEQUENT EVENT
  14




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 OVERVIEW
      CRITICAL ACCOUNTING POLICIES
   
    
    Certain leases provide for tenant occupancy during periods for which no rent is due or
where minimum rent payments increase during the term of the lease. The Company records
rental income for the full term of each lease on a straight-line basis. Accordingly, a
receivable, if deemed collectible, is recorded from tenants equal to the excess of the
amount that would have been collected on a straight-line basis over the amount collected
and currently due (Deferred Rent Receivable). When a property is acquired, the term of
existing leases is considered to commence as of the acquisition date for purposes of this
calculation.
    
    Many of the Companys leases provide for Common Area Maintenance (CAM)/Escalations
(ESC) as the additional tenant revenue amounts due to the Company in addition to base
rent. CAM/ESC represents increases in certain property operating expenses (as defined in
each respective lease agreement) over the actual operating expense of the property in the
base year.
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##### Table of Contents



The base year is stated in the lease agreement; typically, the year in which the lease
commenced. Generally, each tenant is responsible for their prorated share of increases in
operating expenses. Tenants are billed an estimated CAM/ESC charge based on the budgeted
operating expenses for the year. Within 90 days after the end of each fiscal year, a
reconciliation and true up billing of CAM/ESC charges is performed based on actual
operating expenses.
    
    Rental properties are stated at cost, net of accumulated depreciation, unless
circumstances indicate that cost, net of accumulated depreciation, cannot be recovered, in
which case the carrying value of the property is reduced to estimated fair value.
Estimated fair value (i) is based upon the Companys plans for the continued operation of
each property and (ii) is computed using estimated sales price, as determined by
prevailing market values for comparable properties and/or the use of capitalization rates
multiplied by annualized net operating income based upon the age, construction and use of
the building. The fulfillment of the Companys plans related to each of its properties is
dependent upon, among other things, the presence of economic conditions which will enable
the Company to continue to hold and operate the properties prior to their eventual sale.
Due to uncertainties inherent in the valuation process and in the economy, the actual
results of operating and disposing of the Companys properties could be materially
different than current expectations.
    
    Gains on property sales are accounted for in accordance with the provisions of SFAS No.
66, Accounting for Sales of Real Estate. Gains are recognized in full when real estate is
sold, provided (i) the gain is determinable, that is, the collectibility of the sales
price is reasonably assured or the amount that will not be collectible can be estimated,
and (ii) the earnings process is virtually complete, that is, the Company is not obligated
to perform significant activities after the sale to earn the gain. Losses on property
sales are recognized immediately.
 RESULTS OF OPERATIONS
 Discussion of the three months ended March 31, 2008 and 2007.
  March 31,
    
    March 31,
    
    Variance2008
    
    2007
    
    $
    
    %Rental revenue
    
    $
    8,259,000
    
    
    $
    7,179,000
    
    
    $
    1,080,000
    
    
    
    15.0
    %Operating expenses:Property operating expenses
    
    
    3,523,000
    
    
    
    2,989,000
    
    
    
    534,000
    
    
    
    17.9
    %General and administrative
    
    
    856,000
    
    
    
    727,000
    
    
    
    129,000
    
    
    
    17.7
    %Depreciation and amortization
    
    
    3,238,000
    
    
    
    2,944,000
    
    
    
    294,000
    
    
    
    10.0
    %Interest expense
    
    
    3,105,000
    
    
    
    2,558,000
    
    
    
    547,000
    
    
    
    21.4
    %
 Rental revenue
 Property operating expenses
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##### Table of Contents



General and administrative
 Depreciation and amortization
 Interest expense
 Income taxes.
 Minority interest.
 Discontinued operations
  Condensed Consolidated Statements of Operations
 Three Months Ended March 31,2008
    
    2007Rental revenue
    
    $
    73
    
    
    $
    87Total expenses
    
    
    68
    
    
    
    88Income (loss) from discontinued operations before
income tax expense and minority interest
    
    
    5
    
    
    
    (1
    )Gain on sale of discontinued operations
    
    
    1,141
    
    
    
    Income tax expense
    
    
    (421
    )
    
    
    Minority interest
    
    
    (94
    )
    
    
    Income (loss) from discontinued operations
    
    $
    631
    
    
    $
    (1
    )
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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
   Three Months EndedMarch 31,2008
    
    2007Non-Cash Items:Depreciation and amortization expense
    
    $
    3,260
    
    
    $
    2,976Income tax benefit
    
    
    (427
    )
    
    
    (692
    )Deferred rental income
    
    
    (212
    )
    
    
    (300
    )Minority interest
    
    
    (103
    )
    
    
    (174
    )Stock-based compensation expense
    
    
    13
    
    
    
    8Amortization of loan premiums
    
    
    (11
    )
    
    
    (108
    )
      18




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INFLATION
  FORWARD-LOOKING STATEMENTS
  
 ITEM 4T. CONTROLS AND PROCEDURES
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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
    
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##### Table of Contents



SIGNATURES
  AMERICAN SPECTRUM REALTY, INC.Date: May 14, 2008
    By:
    /s/ William J. CardenWilliam J. CardenChairman of the Board, President and,
Chief Executive Officer
(Principal Executive Officer)Date: May 14, 2008
    By:
    /s/ G. Anthony EppolitoG. Anthony EppolitoVice President, Chief Financial Officer,
(Principal Financial Officer and Accounting Officer),
Treasurer and Secretary 21




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##### Table of Contents



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
 22