e10vqza

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

Amendment No. 1

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 001-16785

American Spectrum Realty, Inc.

(Exact name of Registrant as specified in its charter)


State of Maryland		52-2258674

(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

5850 San Felipe, Suite 450
Houston, Texas 77057		77057

(Address of principal executive offices)		(Zip Code)

(713) 706-6200

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer o		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company þ

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

As of July 31, 2008, 1,384,598 shares of Common Stock ($.01 par value) were outstanding.

EXPLANATORY NOTE

This Amendment No. 1 to the Quarterly Report on Form 10-Q of American Spectrum Realty, Inc. (“ASR” or, collectively, as a consolidated entity with its subsidiaries, the “Company”) for the three and six months ended June 30, 2008 is being filed to correct a classification error in the Cash Flow section of ASR’s Consolidated Condensed Financial Statements and the related disclosures.

As discussed in Note 11, “Restatement,” of the notes to the accompanying Consolidated Condensed Financial Statements in this Form 10-Q/A, the correction of this error from previously reported information for the six months ended June 30, 2008 has resulted in a change in the Cash Flows from Operating Activities and Cash Flows from Financing Activities along with the related Management’s Discussion and Analysis of Financial Condition and Results of Operations discussion.

This amended Quarterly Report on Form 10-Q/A should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2007 and subsequent filings with the Securities and Exchange Commission (the “SEC”). In addition, in accordance with applicable SEC rules, this amended Quarterly Report on Form 10-Q/A includes updated certificates from our chief executive officer and chief financial officer as Exhibits 31.1, 31.2, 32.1 and 32.2.

TABLE OF CONTENTS


		Page No.
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements		3
	Consolidated Condensed Balance Sheets at June 30, 2008 (unaudited) and December 31, 2007		3
	Consolidated Condensed Statements of Operations for the three and six months ended June 30, 2008 and 2007 (unaudited)		4
	Consolidated Condensed Statement of Stockholders’ Equity for the six months ended June 30, 2008 (unaudited)		5
	Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2008 and 2007 (unaudited)		6
	Notes to Consolidated Condensed Financial Statements		7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 4T	Controls and Procedures		21

PART II	OTHER INFORMATION

Item 1	Legal Proceedings		22
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds		22
Item 4	Submission of Matters to a Vote of Security Holders		22
Item 6	Exhibits and Reports on Form 8-K		23
Certification of CEO Pursuant to Section 302
Certification of CFO Pursuant to Section 302
Certification of CEO Pursuant to Section 906
Certification of CFO Pursuant to Section 906

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERICAN SPECTRUM REALTY, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS

(Dollars in thousands, except share amounts)


	June 30, 2008			December 31, 2007
	(Unaudited)
ASSETS

Real estate held for investment	$	256,406		$	238,053
Accumulated depreciation		(55,124	)		(48,757	)

Real estate held for investment, net		201,282			189,296

Real estate held for sale		—			1,996
Cash and cash equivalents		2,058			847
Restricted cash		—			3,565
Tenant and other receivables, net of allowance for doubtful accounts of $543 and $186, respectively		770			561
Deferred rents receivable		1,849			1,589
Investment in management company		4,000			4,000
Prepaid and other assets, net		13,153			10,932


Total Assets	$	223,112		$	212,786


LIABILITIES AND STOCKHOLDERS’ EQUITY

Liabilities:
Notes payable, including premium of $41 and $64, respectively	$	203,076		$	186,824
Liabilities related to real estate held for sale		—			2,318
Deferred tax liability		105			1,777
Accounts payable		2,459			2,822
Accrued and other liabilities		9,802			8,457


Total Liabilities		215,442			202,198


Minority interest		4,139			4,522

Stockholders’ Equity:
Preferred stock, $.01 par value; authorized, 25,000,000 shares, none issued and outstanding		—			—
Common stock, $.01 par value; authorized, 100,000,000 shares; issued, 1,620,304 and 1,613,554 shares, respectively; outstanding, 1,384,598 and 1,378,214 shares, respectively		16			16
Additional paid-in capital		46,754			46,693
Accumulated deficit		(40,144	)		(37,557	)
Treasury stock, at cost, 235,706 and 235,340 shares, respectively		(3,095	)		(3,086	)


Total Stockholders’ Equity		3,531			6,066


Total Liabilities and Stockholders’ Equity	$	223,112		$	212,786

The accompanying notes are an integral part of these consolidated condensed financial statements

AMERICAN SPECTRUM REALTY, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

(Dollars in thousands, except share and per share amounts)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
REVENUES:
Rental revenue	$	8,778		$	7,822		$	17,042		$	15,001
Interest and other income		40			21			130			58

Total revenues		8,818			7,843			17,172			15,059


EXPENSES:
Property operating expense		4,216			3,296			7,744			6,285
Corporate general and administrative		1,025			955			1,881			1,682
Depreciation and amortization		3,550			3,092			6,788			6,036
Interest expense		3,362			3,078			6,467			5,636

Total expenses		12,153			10,421			22,880			19,639

Net loss from continuing operations before deferred income tax benefit and minority interest		(3,335	)		(2,578	)		(5,708	)		(4,580	)

Deferred income tax benefit		1,165			1,092			2,013			1,784


Net loss from continuing operations before minority interest		(2,170	)		(1,486	)		(3,695	)		(2,796	)

Minority interest (share from continuing operations)		280			193			477			367


Net loss from continuing operations		(1,890	)		(1,293	)		(3,218	)		(2,429	)

Discontinued operations:
(Loss) gain from discontinued operations		—			(20	)		5			(21	)
Gain on sale of discontinued operations		—			—			1,141			—
Deferred income tax benefit (expense)		—			8			(421	)		8
Minority interest		—			2			(94	)		2

(Loss) income from discontinued operations		—			(10	)		631			(11	)


Net loss	$	(1,890	)	$	(1,303	)	$	(2,587	)	$	(2,440	)


Basic and diluted per share data:
Net loss from continuing operations	$	(1.37	)	$	(0.94	)	$	(2.34	)	$	(1.77	)
Income from discontinued operations		—			—			0.46			—

Net loss	$	(1.37	)	$	(0.94	)	$	(1.88	)	$	(1.77	)


Basic weighted average shares used		1,376,098			1,380,221			1,375,864			1,378,512

The accompanying notes are an integral part of these consolidated condensed financial statements

AMERICAN SPECTRUM REALTY, INC

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)


	Six Months Ended June 30,
	2008
	(Restated)			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(2,587	)	$	(2,440	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		6,810			6,102
Deferred rental income		(260	)		(284	)
Minority interest		(383	)		(369	)
Net gain on sale of real estate asset		(1,141	)		—
Stock-based compensation expense		30			21
Income tax benefit		(1,592	)		(1,860	)
Amortization of note payable premiums, included in interest expense		(23	)		(218	)
Changes in operating assets and liabilities:
(Increase) decrease in tenant and other receivables		(72	)		164
Increase in prepaid and other assets		(1,737	)		(259	)
(Decrease) increase in accounts payable		(375	)		60
Increase in accrued and other liabilities		999			656

Net cash (used by) provided by operating activities		(331	)		1,573


CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds received from sale of real estate asset		3,014			—
Real estate acquisitions		(17,250	)		(26,108	)
Capital improvements to real estate assets		(1,862	)		(2,267	)

Net cash used in investing activities:		(16,098	)		(28,375	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings		300			12,125
Proceeds from borrowings – property acquisitions		16,950			23,422
Repayment of borrowings – property sales		(2,218	)		—
Repayment of borrowings – refinances		(150	)		(8,067	)
Repayment of borrowings – scheduled payments		(829	)		(869	)
Repurchase of common stock		(9	)		(150	)
Acquisition of minority interest in the operating partnership		—			(133	)
Proceeds from exercise of stock options		31			85
Release of restricted cash		3,565			—

Net cash provided by financing activities:		17,640			26,413


Increase (decrease) in cash and cash equivalents		1,211			(389	)

Cash and cash equivalents, beginning of period		847			1,166


Cash and cash equivalents, end of period	$	2,058		$	777


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest	$	6,207		$	5,651
Cash paid for income taxes		151			121

The accompanying notes are an integral part of these consolidated condensed financial statements

AMERICAN SPECTRUM REALTY, INC.

Notes to Consolidated Condensed Financial Statements

NOTE 1. DESCRIPTION OF BUSINESS

American Spectrum Realty, Inc. (“ASR” or, collectively, as a consolidated entity with its subsidiaries, the “Company”) is a Maryland corporation established on August 8, 2000. The Company is a full-service real estate corporation, which owns, manages and operates income-producing properties. Substantially all of the Company’s assets are held through an operating partnership (the “Operating Partnership”) in which the Company, as of June 30, 2008, held the sole general partner interest of .98% and a limited partnership interest totaling 86.14%. As of June 30, 2008, through its majority-owned subsidiary, the Operating Partnership, the Company owned and operated 29 properties, which consisted of 23 office buildings, four industrial properties and two retail properties. The 29 properties are located in five states.

During the six months ended June 30, 2008, the Company acquired a 178,000 square foot office property consisting of two adjacent buildings located in Houston, Texas. Also during the six months ended June 30, 2008, the Company sold Columbia, one of the Company’s non-core properties. Columbia is a 58,783 square foot retail center located in Columbia, South Carolina. During 2007, the Company acquired a 400,000 square foot industrial park and two retail properties aggregating 76,000 square feet. All three properties acquired in 2007 are located in Houston, Texas. No properties were sold during 2007. The property acquisitions are part of the Company’s strategy to acquire value-added real estate in its core markets of Texas, California and Arizona.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Our accompanying condensed consolidated financial statements have been prepared without audit in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Pursuant to such rules and regulations, these financial statements do not include all disclosures required by accounting principles generally accepted in the U.S. for complete financial statements. The condensed consolidated financial statements reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of financial position, results of operations and cash flows for the interim periods. Such adjustments are considered to be of a normal recurring nature unless otherwise identified. Operating results for the three and six months ended June 30, 2008 are not necessarily indicative of the results that may be expected for the year ending December 31, 2008 or for any future period.

The accompanying condensed consolidated financial statements and notes thereto should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2007.

The financial statements include the accounts of the Operating Partnership and all other subsidiaries of the Company. All significant intercompany transactions, receivables and payables have been eliminated in consolidation.

RECLASSIFICATIONS

Certain prior year balances have been reclassified to conform with the current year presentation. In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, real estate designated as held for sale are accounted for in accordance with the provisions of SFAS No. 144 and the results of operations of these properties are included in income from discontinued operations. Prior periods have been reclassified for comparability, as required.

SEGMENT REPORTING

The Company operates as one business operating and reportable segment.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51 (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008, and will be adopted by the Company in the first quarter of fiscal 2009. The Company is currently evaluating the potential impact, if any, of the adoption of SFAS No. 160 on its consolidated results of operations and financial condition.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurement (“SFAS No. 157”), effective for the Company’s fiscal year beginning January 1, 2008. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but simplifies and codifies related guidance within General Accepted Accounting Principles. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurements. The adoption of this pronouncement did not have a material impact on the Company’s consolidated results of operations and financial condition. As of June 30, 2008, the Company had no financial instruments requiring fair value measurement.

STOCK-BASED COMPENSATION

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”), using the modified prospective transition method and, therefore, has not restated results for prior periods. Under this transition method, stock-based compensation expense beginning with the first quarter of 2006 included compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provision of SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). Stock-based compensation expense for all stock-based compensation awards granted after January 1, 2006 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. The Company is recognizing these compensation costs on a straight-line basis over the requisite service period of the award, which range from immediate vesting to vesting over a three-year period. Prior to the January 1, 2006 adoption of SFAS 123R, the Company recognized stock-based compensation expense in accordance with Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”). In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the SEC’s interpretation of SFAS 123R and the valuation of share-based payments for public companies. The Company has applied the provisions of SAB 107 in its adoption of SFAS 123R. See Note 8 for a further discussion on stock-based compensation.

MINORITY INTEREST

Unit holders in the Operating Partnership (other than the Company) held a 12.88% and 12.94% limited partnership interest in the Operating Partnership, as limited partners, at June 30, 2008 and December 31, 2007, respectively. Each of the holders of the interests in the Operating Partnership (other than the Company) has the option (exercisable after the first anniversary of the issuance of the OP Units) to redeem its OP Units and to receive, at the option of the Company, in exchange for each four OP Units, either (i) one share of Common Stock of the Company, or (ii) cash equal to the value of one share of Common Stock of the Company at the date of conversion, but no fractional shares will be issued.

NET LOSS PER SHARE

Net loss per share is calculated based on the weighted average number of common shares outstanding. The Company incurred net losses for each of the three and six month periods ended June 30, 2008 and June 30, 2007. In accordance with SFAS No. 128, Earnings Per Share, stock options outstanding of 29,375 and 32,813 and OP Units (other than those held by the Company) outstanding of 823,509 and 827,883

(convertible into approximately 205,877 and 206,971 shares of common stock), at June 30, 2008 and 2007, respectively, have not been included in the Company’s net loss per share calculations for periods presented since their effect would be anti-dilutive.

INCOME TAXES

In May 2006, the State of Texas enacted a margin tax which became effective in 2008. This margin tax will require each of the Company’s limited partnerships and limited liability companies that operate in Texas to pay a tax of 1.0% on their “margin” as defined in the law, beginning in 2008 based on 2007 results. The legislation revises the Texas franchise tax to create a new tax on virtually all Texas businesses. The margin tax did not have a material effect on the Company’s income tax liability.

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement 109” (“FIN 48”). This statement clarifies the criteria that an individual tax position must satisfy for some or all of the benefits of that position to be recognized in a company’s financial statements. FIN 48 prescribes a recognition threshold of more-likely–than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those tax positions to be recognized in the financial statements. Effective January 1, 2007, the Company adopted the provisions of FIN 48 and there was no material effect on its financial statements. As a result, there was no cumulative effect related to adopting FIN 48.

As of June 30, 2008, the Company had unrecognized tax benefits of approximately $127,000, all of which would affect our effective tax rate if recognized. The Company does not expect that the amounts of unrecognized tax benefits will change significantly within the next 12 months. The Company’s policy is to recognize interest related to any unrecognized tax benefits as interest expense and penalties as operating expenses. There are no significant penalties or interest accrued at June 30, 2008. The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter. The Company’s federal and state income tax returns are open to audit under the statute of limitations for the years ending December 31, 2004 through 2007.

NOTE 3. REAL ESTATE

ACQUISITIONS

2008

On April 30, 2008, the Company purchased Fountain View Place, a 178,000 square foot office property located in Houston, Texas. The project, which consists of two adjacent buildings, is within blocks of the Company’s 2401 Fountain View office building. Acquisition costs for the property were funded with new mortgage debt and proceeds from a tax-deferred exchange.

2007

In March and April 2007, the Company completed the acquisition of a multi-tenant industrial park located in Houston, Texas. The industrial park consists of approximately 400,000 leasable square feet. The park includes 12 acres of land on which the Company anticipates developing an additional 100,000 square feet of multi-tenant industrial space. The Company also acquired two retail properties located in Houston Texas in April 2007. These two properties have an aggregate rentable square footage of 76,000 feet. Acquisition costs for the three properties were primarily funded with mortgage debt, with the remainder in cash.

DISPOSITIONS

2008

During the first quarter of 2008, the Company sold a 58,783 square foot retail property (“Columbia’) located in Columbia, South Carolina for $3,200,000. The sale generated net proceeds of approximately $800,000, of which $300,000 was being held in escrow to assist the funding of a future acquisition in a tax-deferred exchange.

2007

No properties were sold during 2007.

NOTE 4. DISCONTINUED OPERATIONS

Real estate assets held for sale.

At December 31, 2007, Columbia was classified as “Real estate held for sale.” The property was sold in February 2008. No real estate assets were classified as held for sale by the Company at June 30, 2008.

The carrying amount of Columbia at December 31, 2007 is summarized below (dollars in thousands).


Condensed Consolidated Balance Sheet	December 31, 2007
Real estate	$	1,808
Other		188

Real estate assets held for sale	$	1,996


Note payable	$	2,222
Accounts payable		12
Accrued and other liabilities		84

Liabilities related to real estate held for sale	$	2,318

Net income (loss) from discontinued operations.

The operations of discontinued operations for the three and six months ended June 30, 2008 and 2007 are summarized below (dollars in thousands):


	Three Months Ended June 30,
Condensed Consolidated Statements of Operations	2008		2007

Rental revenue	$	—	$	90
Total expenses		—		110

Loss from discontinued operations before gain on sale, income tax expense and minority interest		—		(20	)
Income tax expense		—		8
Minority interest from discontinued operations		—		2

Loss from discontinued operations	$	—	$	(10	)


	Six Months Ended June 30,
Condensed Consolidated Statements of Operations	2008			2007

Rental revenue	$	73		$	177
Total expenses		68			198

Income (loss) from discontinued operations before gain on sale, income tax expense and minority interest		5			(21	)
Gain on sale of discontinued operations		1,141			—
Income tax expense		(421	)		8
Minority interest from discontinued operations		(94	)		2

Income (loss) from discontinued operations	$	631		$	(11	)

NOTE 5. NOTES PAYABLE, NET OF PREMIUM

The Company had the following notes payable outstanding as of June 30, 2008 and December 31, 2007 (dollars in thousands):


			June 30, 2008					December 31, 2007
	Maturity		Principal		Interest			Principal		Interest
Property (unless otherwise noted)	Date		Balance		Rate			Balance		Rate

Fixed Rate
Fountain View Place		4/29/2009		1,700		10.00	%		—		—
Fountain View Place		4/29/2009		2,500		18.00	%		—		—
Pacific Spectrum		6/10/2009		5,382		8.02	%		5,422		8.02	%
1501 Mockingbird		6/30/2009		302		6.00	%		304		6.00	%
6430 Richmond Atrium		6/30/2009		721		5.50	%		726		5.50	%
Morenci		12/01/2009		1,571		6.60	%		1,617		6.60	%
Bristol Bay		8/1/2011		7,054		7.58	%		7,101		7.58	%
Technology		8/1/2011		7,296		7.44	%		7,346		7.44	%
Creekside		12/1/2011		5,951		7.17	%		5,993		7.17	%
16350 Park Ten Place		5/11/2012		4,556		7.45	%		4,586		7.45	%
16360 Park Ten Place		5/11/2012		3,570		7.45	%		3,593		7.45	%
2855 Mangum		5/11/2012		2,630		7.45	%		2,647		7.45	%
2855 Mangum		5/11/2012		1,502		6.00	%		1,531		6.00	%
6430 Richmond Atrium		5/11/2012		2,208		7.45	%		2,222		7.45	%
Southwest Pointe		6/1/2012		2,769		7.33	%		2,787		7.33	%
16350 Park Ten Place		5/11/2012		503		7.45	%		506		7.45	%
16360 Park Ten Place		8/11/2012		394		7.45	%		397		7.45	%
11500 Northwest Freeway		6/1/2014		4,177		5.93	%		4,208		5.93	%
11500 Northwest Freeway		6/1/2014		302		5.93	%		304		5.93	%
5850 San Felipe		8/1/2014		5,218		5.65	%		5,258		5.65	%
Northwest Corporate Center		8/1/2014		5,490		6.26	%		5,527		6.26	%
14741 Yorktown		9/1/2014		8,600		5.32	%		8,600		5.32	%
8100 Washington		2/22/2015		2,249		5.59	%		2,266		5.59	%
8300 Bissonnet		5/1/2015		4,630		5.51	%		4,662		5.51	%
1501 Mockingbird		7/1/2015		3,310		5.28	%		3,332		5.28	%
5450 Northwest Central		9/1/2015		2,695		5.38	%		2,715		5.38	%
800 Sam Houston Parkway		12/29/2015		2,396		6.25	%		2,420		6.25	%
888 Sam Houston Parkway		12/29/2015		2,396		6.25	%		2,420		6.25	%
2401 Fountain View		3/1/2016		12,400		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		$	163,222				$	159,722

Variable Rate
Corporate – Unsecured (1)		1/12/2009		1,350		7.00	%		1,500		8.25	%
Corporate – Secured (2)		2/7/2010		1,922		8.07	%		1,951		8.07	%
Beltway Industrial		5/9/2010		17,000		7.00	%		17,000		7.64	%
Corporate – Unsecured (3)		5/31/2010		500		7.00	%		200		8.25	%
Northwest Spectrum Plaza		4/19/2012		3,270		4.86	%		3,315		7.64	%
Windrose		4/19/2012		3,031		4.86	%		3,072		7.64	%
Fountain View Place		4/29/2018		12,740		6.50	%		—		—

	Subtotal		$	39,813				$	27,038
Loan Premium				41					64

	Total		$	203,076				$	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 August 2008, the lender extended the maturity date of the note from October 1, 2008 to February 7, 2010.

(3)		In March 2008, the lender extended the maturity date of the note from May 31, 2008 to May 31, 2010 and funded the Company an additional $300,000, which increased the principal balance to $500,000.

In April 2008, in connection with the acquisition of Fountain View Place, an office property in Houston, Texas, the Company obtained new mortgage debt of $16,940,000. The debt is comprised of three loans; i) a $12,740,000 ten-year bank loan which bears interest at a fixed rate of 6.5% per annum, ii) a $1,700,000 one-year junior loan from the same bank which bears interest at a fixed rate of 10% per annum, and iii) a $2,500,000 one-year junior loan from a private firm, which bears interest at a rate of 18% per annum. The $2,500,000 loan contains an option to extend maturity for two six-month terms.

The Company is not in compliance with a debt covenant on a mortgage loan secured by one of its office properties located in Houston, Texas. The debt covenant requires the Company to maintain a minimum tangible book net worth as defined in the debt agreement. In the event the lender elects to enforce the non-compliance matter, the Company will attempt to negotiate a revision to the loan covenant. If a refinance of the loan becomes necessary, the Company believes it could obtain a new mortgage loan for an amount in excess of the current debt balance and prepayment costs associated with the current loan.

NOTE 6. MINORITY INTEREST

OP Units (other than those held by the Company) of 823,509 (convertible into approximately 205,877 shares of common stock) were outstanding as of June 30, 2008.

During the six months ended June 30, 2008, no OP Units were redeemed for cash or exchanged for stock.

During the year ended December 31, 2007 a total of 21,998 OP Units were redeemed for cash of approximately $145,000. No OP Units were exchanged for stock during 2007.

NOTE 7. REPURCHASE OF COMMON STOCK

In January 2006, the Company’s Board of Directors authorized the repurchase of up to an additional 100,000 shares of its common stock, which increased the authorized amount to 200,000 shares. The stock repurchases were made from time to time in open market transactions. In May 2008, the authorization to repurchase shares in open market transactions was withdrawn by the Board of Directors.

In April 2008, 366 shares were repurchased in a private transaction for $9,143, or $24.98 per share.

During 2007, a total of 8,590 shares were repurchased in open market transactions, increasing the total number of shares repurchased under the program to 122,206 as of December 31, 2007. The total cost of the 8,590 shares repurchased amounted to $211,000 at an average price of $24.60 per share inclusive of transaction fees.

NOTE 8. STOCK-BASED COMPENSATION

The Company has in effect its Omnibus Stock Incentive Plan (the “Plan”), which is administered by the Board of Directors, and provides for the granting of incentive and non-qualified stock options, stock appreciation rights, restricted stock, performance units and performance shares. The Board has reserved a total of 180,000 shares under the Plan. As of June 30, 2008, 111,314 ASR shares were available for issuance to executive officers, directors or other key employees of the Company.

In accordance with SFAS No. 123R, stock-based compensation expense for all stock-based compensation awards granted after January 1, 2006 is based on the grant-date fair value estimated on the grant date using the Black-Scholes option-pricing model. The Company recognizes these compensation costs net of a forfeiture rate and recognizes the compensation costs for only those shares expected to vest on a straight-line basis over the requisite service period of the award.

Total stock-based compensation expense recognized for the three months ended June 30, 2008 and 2007 amounted to $17,000, or $.01 per share and $13,000, or $.01 per share, respectively. Total stock-based compensation expense recognized for the six months ended June 30, 2008 and 2007 amounted to $30,000, or $.02 per share and $27,000, or $.02 per share, respectively. Compensation expense is included in

general and administrative expense in the Company’s consolidated condensed statement of operations for all periods presented.

Stock Options

No stock options have been granted since 2006. The Company has a policy of issuing new shares upon the exercise of stock options. During the six months ended June 30, 2008, 2,500 options were exercised. Cash of $31,069 was received from the exercise of these options.

The following table summarizes activity and outstanding stock options under the plan:


	Shares			Weighted Average		Aggregate
	Under Option			Exercise Price		Intrinsic Value

Outstanding on January 1, 2008		32,813		$	24.07
Granted		—			—
Forfeited		(938	)	$	14.86
Exercised		(2,500	)	$	12.43	$	30,181

Outstanding on June 30, 2008		29,375		$	23.93	$	610,875


Exercisable as of June 30, 2008		27,813		$	24.25	$	575,156

The following table summarizes certain information for stock options outstanding on June 30, 2008:


			Weighted Average	Weighted
Range of			Remaining	Average
Exercise	Number		Contractual	Exercise
Price	Outstanding		Life	Price
$8.10 - $12.20		12,500	5.8 years	$	10.66
$18.25 - $27.16		11,250	6.2 years	$	20.65
$60.00 - $60.00		5,625	3.3 years	$	60.00

The following table summarizes certain information for stock options exercisable on June 30, 2008:


			Weighted Average	Weighted
Range of			Remaining	Average
Exercise	Number		Contractual	Exercise
Price	Exercisable		Life	Price
$8.10 - $12.20		12,500	5.8 years	$	10.66
$18.25 - $27.16		9,688	5.9 years	$	21.03
$60.00 - $60.00		5,625	3.3 years	$	60.00

A summary of the status of the Company’s nonvested stock options as of January 1, 2008 and changes during the six months ended June 30, 2008 is presented below:


				Weighted Average
				Grant Date
Nonvested Stock Options	Number			Fair Value

Nonvested at January 1, 2008		5,000		$	9.00
Granted		—			—
Vested		(2,500	)	$	8.50
Forfeited		(938	)	$	8.67

Nonvested at June 30, 2008		1,562		$	10.00

As of June 30, 2008, there was $13,000 of unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a remaining vesting period of approximately one year.

Restricted Stock

In May 2008 Company issued 4,250 shares of Common Stock to its officers and directors under the Plan. The restrictions on the shares issued lapse in three equal annual installments commencing on the first anniversary date of the issuance. Compensation expense is recognized on a straight-line basis over the vesting period.

During the three months ended June 30, 2008 and 2007, compensation expense of $12,000 and $5,000, respectively, was recognized for restricted shares. During the six months ended June 30, 2008 and 2007, compensation expense of $21,000 and $5,000, respectively, was recognized for restricted shares. Recipients of restricted stock have the right to vote all shares, to receive and retain all cash dividends payable to holders of shares of record on or after the date of issuance and to exercise all other rights, powers and privileges of a holder of Company shares, with the exception that the recipient may not transfer the shares during the restriction period.

A summary of the status of the Company’s restricted stock awards as of January 1, 2008 and changes during the six months ended June 30, 2008 is presented below:


				Weighted Average
	Number of			Grant Date
Restricted Stock Awards	Shares			Fair Value

Nonvested at January 1, 2008		4,250		$	22.75
Granted		4,250		$	25.00
Vested		(1,413	)	$	22.75
Forfeited		—			—

Nonvested at June 30, 2008		7,087		$	24.10

As of June 30, 2008, there was $161,000 of unrecognized compensation cost related to unvested restricted stock awards, which is expected to be recognized over a remaining weighted-average restriction period of 2.5 years.

NOTE 9. RELATED PARTY TRANSACTIONS

During 2007, the Company entered into a lease agreement with Galardi Group for 15,297 square feet of office space at the Company’s 7700 Irvine Center property. John N. Galardi, a principal stockholder and director of the Company, is a principal stockholder, director and officer of Galardi Group. The lease commenced March 1, 2008 and has a five year term. The annual base rent due to the Company pursuant to the lease is $504,081 over the term of the lease.

The Company pays a guarantee fee to William J. Carden, Mr. Galardi and CGS Real Estate Company, Inc., a company owned indirectly by Messrs. Carden and Galardi (“the Guarantors”), in consideration for their guarantees of certain obligations of the Company. Mr. Carden is the Chief Executive Officer, a director and a principal stockholder of the Company. The Guarantors are paid an annual guarantee fee equal to between 0.25% and 0.75% (depending on the nature of the guarantee) of the outstanding balance of the guaranteed obligations (“Guarantee Fee”). The Guarantee Fee is paid for a maximum of three years on any particular obligation. The Company accrued $65,000 for the six months ended June 2008 related to the Guarantee Fee for the 2008 year.

As disclosed in the Company’s proxy statement for its 2008 annual meeting, three directors (Mr. Carden, Mr. Galardi and Timothy R. Brown) adopted a 10b5-1 trading plan in December 2007 to jointly purchase up to 300,000 shares of ASR stock, commencing December 26, 2007; to date, they have jointly purchased 73,604 shares.

NOTE 10. COMMITMENTS AND CONTINGENCIES

The Company is aware that one of its properties may contain hazardous substances above reportable levels. The property is located in the State of Indiana. The Company retained an environmental expert that developed a clean up and monitoring plan that has been approved by the State of Indiana. In 2005, the Company accrued $75,000 for the future environmental cleanup and monitoring, of which the majority has been spent. The Company does not anticipate that remaining clean up costs will be material.

Certain claims and lawsuits have arisen against the Company in its normal course of business. The Company believes that such claims and lawsuits will not have a material adverse effect on the Company’s financial position, cash flow or results of operations.

NOTE 11. RESTATEMENT

Subsequent to the issuance of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008, the Company determined that its Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2008 contained an error in classification of the release of restricted cash. As a result, the Company has corrected the accompanying Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2008. The correction affects the classification of the release of restricted cash and the subtotals of cash flows from operating and financing activities presented in the Consolidated Condensed Statement of Cash Flows for the six months ended June 30, 2008 but it has no impact on the Net Increase (Decrease) in Cash and Cash Equivalents set forth in that Statement. The correction does not affect the Company’s Consolidated Condensed Balance Sheet as of June 30, 2008 or its Consolidated Condensed Statement of Operations as of and for the three and six months ended June 30, 2008.

The following tables summarize the impact of the restatement discussed above on the previously issued Consolidated Statement of Cash Flows (dollars in thousands):


	As
	Previously
Statement of Cash Flows for the Six Months Ended June 30, 2008	Reported		Adjustment			Restated
Cash Flows from Operating Activities:
Release of restricted cash	$	3,565	$	(3,565	)	$	—
Net cash used in operating activities		3,234		(3,565	)		(331	)

Cash Flows from Financing Activities:
Release of restricted cash		—		3,565			3,565
Net cash used in financing activities		14,075		3,565			17,640

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

OVERVIEW

American Spectrum Realty, Inc. (“ASR” or, collectively, as a consolidated entity with its subsidiaries, the “Company”) is a Maryland corporation established on August 8, 2000. The Company is a full-service real estate corporation, which owns, manages and operates income-producing properties. Substantially all of the Company’s assets are held through an operating partnership (the “Operating Partnership”) in which the Company, as of June 30, 2008, held the sole general partner interest of 0.98% and a limited partnership interest totaling 86.14%. As of June 30, 2008, through its majority-owned subsidiary, the Operating Partnership, the Company owned and operated 29 properties, which consisted of 23 office buildings, four industrial properties and two retail properties. The 29 properties are located in five states.

2008, the Company sold Columbia, one of the Company’s non-core properties. Columbia is a 58,783 square foot retail center located in Columbia, South Carolina. During 2007, the Company acquired a 400,000 square foot industrial park and two retail properties aggregating 76,000 square feet. All three properties acquired in 2007 are located in Houston, Texas. No properties were sold during 2007. The property acquisitions are part of the Company’s strategy to acquire value-added real estate in its core markets of Texas, California and Arizona.

The properties held for investment by the Company were 88% occupied at June 30, 2008 and June 30, 2007. The Company continues to aggressively pursue prospective tenants to increase its occupancy, which if successful, should have the effect of improving operational results.

In the accompanying financial statements, the results of operations for Columbia are shown in the section “Discontinued operations”. Columbia was classified as “Real estate held for sale” at December 31, 2007. As such, the revenues and expenses reported for the periods presented exclude results from properties sold or classified as held for sale. The following discussion and analysis of the financial condition and results of operations of the Company should be read in conjunction with the consolidated financial statements of the Company, including the notes thereto, included in Item 1.

The Company intends to continue to seek to acquire additional properties in its core markets of Texas, California and Arizona and further reduce its non-core assets while focusing on an aggressive leasing program during 2008.

CRITICAL ACCOUNTING POLICIES

The major accounting policies followed by the Company are listed in Note 2 – Summary of Significant Accounting Policies – of the Notes to the Consolidated Financial Statements. The consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the results of operations during the reporting period. Actual results could differ materially from those estimates.

The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of its consolidated financial statements:

Investment in Real Estate Assets

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.

Depreciation is provided using the straight-line method over the useful lives of the respective assets. The useful lives are as follows:


Building and Improvements		5 to 40 years
Tenant Improvements		Term of the related lease
Furniture and Equipment		3 to 5 years

Allocation of Purchase Price of Acquired Assets

Upon acquisitions of real estate, the Company assesses the fair value of acquired tangible and intangible

assets (including land, buildings, tenant improvements, above and below market leases, origination costs, acquired in-place leases, other identified intangible assets and assumed liabilities in accordance with SFAS No. 141, Business Combinations), and allocates the purchase price to the acquired assets and assumed liabilities. The Company also considers an allocation of purchase price of other acquired intangibles, including acquired in-place leases.

The Company evaluates acquired “above and below” market leases at their fair value (using a discount rate which reflects the risks associated with the leases acquired) equal to the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases.

Sales of Real Estate Assets

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 June 30, 2008 and 2007.

The following table shows a comparison of rental revenues and certain expenses for the quarter ended:


	June 30,		June 30,		Variance
	2008		2007		$		%
Rental revenue	$	8,778,000	$	7,822,000	$	956,000		12.2	%
Operating expenses:
Property operating expenses		4,216,000		3,296,000		920,000		27.9	%
General and administrative		1,025,000		955,000		70,000		7.3	%
Depreciation and amortization		3,550,000		3,092,000		458,000		14.8	%
Interest expense		3,362,000		3,078,000		284,000		9.2	%

Rental revenue. Rental revenue increased $956,000, or 12.2%, for the three months ended June 30, 2008 in comparison to the three months ended June 30, 2007. This increase was primarily attributable to $654,000 in revenue generated from one office property acquired during the second quarter of 2008 and two retail properties and one industrial property acquired during the second quarter of 2007. Greater revenues from properties owned for the full three months ended June 30, 2008 and June 30, 2007 accounted for the remaining increase of $302,000. The increase in revenue from the properties owned for the full three months ended June 30, 2008 and June 30, 2007 was primarily due to increases in rental rates and lease termination revenue. The increase was also attributable to a reduction in rent concessions. The weighted average occupancy of the Company’s properties was 88% as of June 30, 2008.

Property operating expenses. Property operating expenses increased by $920,000, or 27.9%, for the three months ended June 30, 2008 in comparison to the three months ended June 30, 2007. The increase was partially due to operating expenses of $410,000 related to the four acquired properties mentioned above. Property operating expenses on properties owned for the full three months ended June 30, 2008 and 2007 accounted for the remaining increase of $510,000. This increase was in large part attributable to higher electricity rates and an increase in repairs and maintenance costs when compared to the same period in the prior year. The increase was also due to a increase in bad debt expense incurred during the period.

General and administrative. General and administrative costs increased $70,000, or 7.3%, for the three months ended June 30, 2008 in comparison to the three months ended June 30, 2007. The increase was principally due to professional fees incurred during the second quarter of 2008 related to a potential

investment opportunity. The increase was also attributable to an increase in other professional fees, primarily accounting and tax.

Depreciation and amortization. Depreciation and amortization expense increased $458,000, or 14.8%, for the three months ended June 30, 2008 in comparison to the three months ended June 30, 2007. The increase was principally attributable to depreciation and amortization of $427,000 related to the acquired properties mentioned above. The increase was also due to the depreciation of additional capital improvements and amortization of capitalized lease costs incurred between periods.

Interest expense. Interest expense increased $284,000, or 9.2%, for the three months ended June 30, 2008 in comparison to the three months ended June 30, 2007. The increase was primarily due to interest expense associated with the acquired properties mentioned above of $212,000. The increase was also due to the write-off of a loan premium on one of the Company’s loans refinanced in July 2007, which also contributed to the increase in interest expense. The loan premium, which had an unamortized balance of $1,123,000 at the time of the refinance, was amortized as an offset to interest expense during the three months ended June 30, 2007.

Income taxes. The Company recognized a deferred income tax benefit from continuing operations of $1,165,000 for the three months ended June 30, 2008, compared to $1,092,000 for the three months ended June 30, 2007. The increase in deferred income tax benefit for the second quarter of 2008 corresponds to the increase in loss from continuing operations for the second quarter of 2008, in comparison to the second quarter of 2007.

Minority interest. The share of loss from continuing operations for the three months ended June 30, 2008 for the holders of OP Units was $280,000, compared to a share of loss of $193,000 for the three months ended June 30, 2007. The minority interest represents the approximate 13% interest in the Operating Partnership not held by the Company.

Discussion of the six months ended June 30, 2008 and 2007.

The following table shows a comparison of rental revenues and certain expenses for the six months ended:


	June 30,		June 30,		Variance
	2008		2007		$		%
Rental revenue	$	17,042,000	$	15,001,000	$	2,041,000		13.6	%
Operating expenses:
Property operating expenses		7,744,000		6,285,000		1,459,000		23.2	%
General and administrative		1,881,000		1,682,000		199,000		11.8	%
Depreciation and amortization		6,788,000		6,036,000		752,000		12.5	%
Interest expense		6,467,000		5,636,000		831,000		14.7	%

Rental revenue. Rental revenue increased $2,041,000, or 13.6%, for the six months ended June 30, 2008 in comparison to the six months ended June 30, 2007. This increase was primarily attributable to $1,258,000 in revenue generated from one office property acquired during the second quarter of 2008 and two retail properties and one industrial property acquired during the second quarter of 2007. Greater revenues from properties owned for the full six months ended June 30, 2008 and June 30, 2007 accounted for the remaining increase of $783,000. The increase in revenue from the properties owned for the full six months ended June 30, 2008 and June 30, 2007 was primarily due to increases in rental rates and a reduction in rent concessions. The increase was also attributable to higher lease termination revenue. The increase was partially offset by a decrease in occupancy, which on a weighted average basis decreased from 89% for the six months ended June 30, 2007 to 86% for the six months ended June 30, 2008. The weighted average occupancy of the Company’s properties was 88% as of June 30, 2008.

Property operating expenses. Property operating expenses increased by $1,459,000, or 23.2%, for the six months ended June 30, 2008 in comparison to the six months ended June 30, 2007. The increase was partially due to operating expenses of $738,000 related to the four acquired properties mentioned above. Property operating expenses on properties owned for the full six months ended June 30, 2008 and 2007 accounted for the remaining increase of $721,000. This increase was partially attributable to an increase in

repairs and maintenance costs and electricity rates. The increase was also due to an increase in bad debt expense incurred during the period. Furthermore, real estate taxes rose as a result of an increase in the assessed value of several of the Company’s properties.

General and administrative. General and administrative costs increased $199,000, or 11.8%, for the six months ended June 30, 2008 in comparison to the six months ended June 30, 2007. The increase was partially due to professional fees incurred during the second quarter of 2008 related to a potential investment opportunity. The increase was also attributable to an increase other professional fees, primarily accounting and tax. Compensation costs were also increased during the period in comparison to the same period in the prior year.

Depreciation and amortization. Depreciation and amortization expense increased $752,000, or 12.5%, for the six months ended June 30, 2008 in comparison to the six months ended June 30, 2007. The increase was principally attributable to depreciation and amortization of $795,000 related to the acquired properties mentioned above. The increase was partially offset by a reduction in depreciation and amortization attributable to fully depreciated tenant improvements and amortized lease costs associated with properties owned for the full six months ended June 30, 2008 and 2007.

Interest expense. Interest expense increased $831,000, or 14.7%, for the six months ended June 30, 2008 in comparison to the six months ended June 30, 2007. The increase was primarily due to interest expense associated with the acquired properties mentioned above of $616,000. The increase was also due to the write-off of a loan premium on one of the Company’s loans refinanced in July 2007, which accounted for $194,000 of the increase in interest expense. The loan premium, which had an unamortized balance of $1,123,000 at the time of the refinance, was amortized as an offset to interest expense during the six months ended June 30, 2007.

Income taxes. The Company recognized a deferred income tax benefit from continuing operations of $2,013,000 for the six months ended June 30, 2008, compared to $1,784,000 for the six months ended June 30, 2007. The increase in deferred income tax benefit for the six months ended June 30, 2008 corresponds to the increase in loss from continuing operations for the six months ended June 30 2008, in comparison to the six months ended June 30, 2007.

Minority interest. The share of loss from continuing operations for the six months ended June 30, 2008 for the holders of OP Units was $477,000, compared to a share of loss of $367,000 for the six months ended June 30, 2007. The minority interest represents the approximate 13% interest in the Operating Partnership not held by the Company.

Discontinued operations. The Company recorded income from discontinued operations of $631,000 for the six months ended June 30, 2008 compared to a loss of $11,000 for the six months ended June 30, 2007. The income for the six months ended June 30, 2008 includes the operating results and gain on sale of Columbia. Columbia, a 58,783 square foot retail center located in Columbia, South Carolina, was sold in March 2008. The loss for the six months ended June 30, 2007 represents Columbia’s results of operations for the period.

LIQUIDITY AND CAPITAL RESOURCES

During the first six months of 2008, the Company derived cash primarily from the collection of rents, proceeds from borrowings, the sale of a property and the release of restricted cash. Major uses of cash included the acquisition of one property, payments for capital improvements to real estate assets, primarily for tenant improvements, payment of operational expenses, repayment of borrowings and scheduled principal payments on borrowings.

The Company reported a net loss of $2,587,000 for the six months ended June 30, 2008 compared to a net loss of $2,440,000 for the six months ended June 30, 2007. These results include the following non-cash items:


	Six Months Ended June 30,
	2008			2007
Non-Cash Items:
Depreciation and amortization expense	$	6,810		$	6,102
Income tax benefit		(1,592	)		(1,860	)
Deferred rental income		(260	)		(284	)
Minority interest		(383	)		(369	)
Stock-based compensation expense		30			21
Amortization of loan premiums		(23	)		(218	)

Net cash used in operating activities amounted to $331,000 for the six months ended June 30, 2008. The net cash used in operating activities consisted of a net increase in operating assets and liabilities of $1,185,000, partially offset by $854,000 generated by property operations. Net cash provided by operating activities amounted to $1,573,000 for the six months ended June 30, 2007. The net cash provided by operating activities consisted of $952,000 generated by property operations and $621,000 attributable to a net decrease in operating assets and liabilities.

Net cash used in investing activities amounted to $16,098,000 for the six months ended June 30, 2008. Cash of $17,250,000 was used to acquire one office property and $1,862,000 was used for capital expenditures, primarily tenant improvements. This amount was reduced by proceeds of $3,014,000 received from the sale of Columbia during the period. Net cash used in investing activities amounted to $28,375,000 for the six months ended June 30, 2007. Cash of $26,108,000 was used to acquire two retail properties and an industrial property. In addition, cash of $2,267,000 was used for capital expenditures, primarily tenant improvements.

Net cash provided by financing activities amounted to $17,640,000 for the six months ended June 30, 2008, which included $16,950,000 in new borrowings related to the acquisition of an office property, $300,000 from an additional borrowing on an unsecured loan and $3,565,000 from the release of restricted cash. This amount was reduced by the repayment of borrowings on the sale of Columbia of $2,218,000, scheduled principal payments of $829,000 and other principal repayments of $150,000. Net cash provided by financing activities amounted to $26,413,000 for the six months ended June 30, 2007. Proceeds from borrowings totaled $12,125,000, which included a $6,400,000 new loan on an office property located in Houston, Texas. Other borrowings of $23,422,000 were obtained primarily to assist with the acquisition costs associated with three properties acquired during 2007. Repayment of borrowings related to refinances amounted to $8,067,000 and scheduled principal payments amounted to $869,000 for the six months ended June 30, 2007.

The Company expects to meet its short-term liquidity requirements for normal property operating expenses and general and administrative expenses from cash generated by operations. In addition, the Company expects to incur capital costs related to leasing space and making improvements to properties provided the estimated leasing of space is completed. The Company anticipates meeting these obligations with cash currently held, the use of funds held in escrow by lenders, proceeds from the sale of assets and refinancing activities. There can be no assurance, however, that these activities will occur. If these activities do not occur, the Company will not have sufficient cash to meet its obligations if all leasing projections are met.

The Company has loans totaling $11,955,000, maturing over the next twelve months, of which $10,605,000 is secured and $1,350,000 is unsecured. One of the secured loans, with a balance of $2,500,000, contains an option to extend maturity for two six-month terms. Based on uncertainties with the current credit market and the Company’s historical losses and current debt level, there can be no assurances as to the Company’s ability to obtain funds necessary for the refinancing of its maturing debts. If refinancing transactions are not consummated, the Company will seek extensions and/or modifications from existing lenders. If these refinancings do not occur, the Company will not have sufficient cash to meet its obligations.

The Company has a $2,000,000 line of credit available if needed. The entire line was available to the Company as of June 30, 2008. The line of credit expires in April 2009. The line can be extended from time to time if mutually agreed upon by the lender and the Company.

INFLATION

Substantially all of the leases at the industrial and retail properties provide for pass-through to tenants of certain operating costs, including real estate taxes, common area maintenance expenses, and insurance. Leases at the office properties typically provide for rent adjustment and pass-through of increases in operating expenses during the term of the lease. All of these provisions may permit the Company to increase rental rates or other charges to tenants in response to rising prices and therefore, serve to reduce the Company’s exposure to the adverse effects of inflation.

FORWARD-LOOKING STATEMENTS

This Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements are based on management’s beliefs and expectations, which may not be correct. Important factors that could cause actual results to differ materially from the expectations reflected in these forward-looking statements include the following: the Company’s level of indebtedness and ability to refinance its debt; the fact that the Company’s predecessors have had a history of losses in the past; unforeseen liabilities which could arise as a result of the prior operations of companies acquired in the 2001 consolidation transaction; risks inherent in the Company’s acquisition and development of properties in the future, including risks associated with the Company’s strategy of investing in under-valued assets; general economic, business and market conditions, including the impact of the current economic downturn; changes in federal and local laws, and regulations; increased competitive pressures; and other factors, including the factors set forth below, as well as factors set forth elsewhere in this Report on Form 10-Q.

ITEM 4T. CONTROLS AND PROCEDURES

Management, including the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the quarter covered by this report. Based on, and as of the date of, that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, in all material respects, to ensure that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required.

There were no changes made in the Company’s internal controls over financial reporting during the second quarter of 2008 that materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In May 2008, the Company issued a total of 4,250 shares of Common Stock to its officers and directors pursuant to the Company’s Omnibus Stock Option Incentive Plan. The issuance of Common Stock was exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2) and Rule 506 of Regulation D promulgated thereunder.

Company Purchases of Equity Securities


					Total Number of
					Shares Purchased as		Maximum Number of
	Total Number				Part of Publicly		Shares that May Yet Be
	of Shares		Average Price		Announced Plans or		Purchased Under the
Period	Purchased (1)		Paid per Share		Programs		Plans or Programs
April 1-30, 2008		366	$	24.98		—		—
May 1-31, 2008		—		—		—		—
June 1-30, 2008		—		—		—		—


Total		366	$	24.98		—		—


(1)		Represents shares purchased in a private transaction.

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

The 2008 annual meeting of stockholders was held on May 13, 2008. The matters on which the stockholders voted, in person or by proxy, were (i) to elect five directors to serve until the Company’s next annual meeting of stockholders and until their successors are duly elected and qualified, and (ii) to ratify the selection of Hein & Associates LLP, as the Company’s independent auditors for the fiscal year ended December 31, 2008. The results of the voting are shown below:

Election of directors:


Name of	Number of		Number of
Nominee	Votes For		Votes Withheld

Timothy R. Brown		1,177,402		6,294
William J. Carden		1,176,934		6,762
John N. Galardi		1,176,960		6,736
William W. Geary, Jr.		1,177,402		6,294
Presley E. Werlein, III		1,177,340		6,356

Ratify the selection of Hein & Associates LLP as independent auditors:


Number of	Number of		Number of
Votes For	Votes Against		Votes Abstaining

1,178,413		3,021		2,263

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

The Exhibit Index attached hereto is hereby incorporated by reference this item.

(b) Reports on Form 8-K:

On May 14, 2008, a report on Form 8-K was filed with respect to Item 2.02.

On May 1, 2008, a report of Form 8-K was filed with respect to Item 8.01.

SIGNATURES

Pursuant to the requirements of Section l3 or l5(d) of the Securities Exchange Act of l934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

AMERICAN SPECTRUM REALTY, INC.


Date: October 8, 2008	By:	/s/ William J. Carden
		William J. Carden
		Chairman of the Board, President and, Chief Executive Officer (Principal Executive Officer)


Date: October 8, 2008	By:	/s/ G. Anthony Eppolito
		G. Anthony Eppolito
		Vice President, Chief Financial Officer, (Principal Financial Officer and Accounting Officer), Treasurer and Secretary


Exhibit No.		Exhibit Title

31.1		Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of CEO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of CFO pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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	Common		Common		Additional
	Stock		Stock		Paid-In		Accumulated			Treasury
	Shares		Amount		Capital		Deficit			Stock			Total Equity

Balance, January 1, 2008		1,613,554	$	16	$	46,693	$	(37,557	)	$	(3,086	)	$	6,066
Common stock repurchase											(9	)		(9	)
Issuance of common stock to officers and directors		4,250		—		—		—			—			—
Exercise of stock options		2,500				31								31
Stock-based compensation						30								30
Net loss								(2,587	)					(2,587	)


Balance, June 30, 2008		1,620,304	$	16	$	46,754	$	(40,144	)	$	(3,095	)	$	3,531