AMERICAN SPECTRUM REALTY INC - FORM 10-Q

Attached files

file	filename
EX-32.1 - CERTIFICATION OF CEO PURSUANT TO 18 U.S.C. SECTION 1350 - AMERICAN SPECTRUM REALTY INC	exhibit32-1.htm
EX-32.2 - CERTIFICATION OF CFO PURSUANT TO 18 U.S.C. SECTION 1350 - AMERICAN SPECTRUM REALTY INC	exhibit32-2.htm
EX-31.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - AMERICAN SPECTRUM REALTY INC	exhibit31-2.htm
EXCEL - IDEA: XBRL DOCUMENT - AMERICAN SPECTRUM REALTY INC	Financial_Report.xls
EX-31.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - AMERICAN SPECTRUM REALTY INC	exhibit31-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(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, 2011
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.
(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.)

2401 Fountain View, Suite 510
Houston, Texas		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 o No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 Regulation 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files. Yes þ No

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 definition of “accelerated filer”, “large accelerated filer” and “small reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer o 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 August 3, 2011, 2,954,414 shares of Common Stock ($.01 par value) were outstanding.

TABLE OF CONTENTS

		Page No.
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements	3
	Consolidated Condensed Balance Sheets at June 30, 2011 (unaudited) and December 31, 2010	3
	Consolidated Condensed Statements of Operations for the three and six months ended June 30, 2011
	and 2010 (unaudited)	4
	Consolidated Statement of Equity for the six months ended June 30, 2011 (unaudited)	5
	Consolidated Condensed Statements of Cash Flows for the six months ended June 30, 2011 and
	2010 (unaudited)	6
	Notes to Consolidated Condensed Financial Statements	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 4	Controls and Procedures	27

PART II	OTHER INFORMATION

Item 1	Legal Proceedings	27
Item 5	Exhibits	28

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AMERICAN SPECTRUM REALTY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in thousands, except share amounts)
(Unaudited)

		June 30,			December 31,
		2011			2010
ASSETS

Real estate held for investment (includes $392,176 and $381,354 from consolidated
Variable Interest Entities (“VIE’s”), respectively)	$	602,361		$	646,255
Accumulated depreciation (includes $15,432 and $8,446 from consolidated VIE’s,
respectively)		(80,219	)		(94,090	)
Real estate held for investment, net (includes $376,744 and $372,908 from
consolidated VIE’s, respectively)		522,142			552,165

Cash and cash equivalents		8,144			2,003
Restricted cash (includes $4,985 and $4,016 from consolidated VIE’s, respectively)		5,977			5,008
Tenant and other receivables, net of allowance for doubtful accounts of $881 and $421,
respectively (includes $528 and $1,515 from consolidated VIE’s, respectively)		2,300			2,403
Deferred rents receivable		2,239			2,331
Purchased intangibles subject to amortization		8,492			9,060
Deferred tax asset		9,136			14,083
Goodwill		4,003			4,003
Investment in management company		4,000			4,000
Investments in unconsolidated real estate assets from related parties		173			194
Notes receivable from related parties		2,000			2,000
Interest receivable from related parties		272			272
Accounts receivable from related parties		262			262
Accounts receivable from Evergreen		414			414
Prepaid and other assets, net (includes $7,920 and $8,858 from consolidated VIE’s,
respectively)		17,931			20,164
Total Assets	$	587,485		$	618,362

LIABILITIES AND EQUITY

Liabilities:
Notes payable (includes $272,999 and $268,776 from consolidated VIE’s, respectively)	$	440,955		$	482,819
Accounts payable (includes $3,574 and $5,734 from consolidated VIE’s, respectively)		12,128			16,292
Accounts payable to related parties		286			286
Accrued and other liabilities (includes $3,420 and $1,809 from consolidated VIE’s,
respectively)		15,215			12,154
Total Liabilities		468,584			511,551

Commitments and Contingencies (Note 11):

American Spectrum Realty, Inc. stockholders’ deficit:
Preferred stock		1			1
Common stock		34			34
Additional paid-in capital		49,255			49,067
Accumulated deficit		(53,115	)		(60,509	)
Treasury stock, at cost		(3,095	)		(3,095	)
Total American Spectrum Realty, Inc. stockholders’ deficit		(6,920	)		(14,502	)
Non-controlling interests		125,821			121,313
Total Equity		118,901			106,811

Total Liabilities and Equity	$	587,485		$	618,362

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 for share and per share amounts)
(Unaudited)

		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2011			2010			2011			2010
					(Restated)						(Restated)
REVENUES:
Rental revenue	$	17,481		$	6,894		$	35,222		$	13,432
Third party management and leasing revenue		1,478			1,202			2,514			2,166
Interest income		60			13			199			77
Total revenues		19,019			8,109			37,935			15,675

EXPENSES:
Property operating expense		7,043			3,426			13,601			6,579
Corporate general and administrative		2,424			2,516			4,941			4,138
Depreciation and amortization		7,726			3,278			15,238			6,208
Interest expense		7,709			3,017			15,759			5,748
Impairment of real estate assets		-			-			150			-
Total expenses		24,902			12,237			49,689			22,673

OTHER INCOME:
Gain on litigation settlement		4,174			-			4,174			-
Other income		623			-			623			-
Total other income		4,797			-			4,797			-

Loss from continuing operations before deferred income tax		(1,086	)		(4,128	)		(6,957	)		(6,998	)

Deferred income tax (expense)/benefit		(66	)		1,574			873			2,658

Loss from continuing operations		(1,152	)		(2,554	)		(6,084	)		(4,340	)

Discontinued operations:
Loss from operations		(70	)		(804	)		(857	)		(957	)
Gain on sale of discontinued operations		23,631			-			23,631			4,315
Income tax (expense)/benefit		(6,082	)		293			(5,894	)		(1,229	)
Income/(loss) from discontinued operations		17,479			(511	)		16,880			2,129

Net (loss)/income, including non-controlling interests	$	16,327		$	(3,065	)	$	10,796		$	(2,211	)

Plus: Net (income)/loss attributable to non-controlling interests		(6,894	)		889			(3,402	)		455

Net income/(loss) attributable to American Spectrum Realty, Inc.		9,433			(2,176	)		7,394			(1,756	)

Less: Preferred stock dividend		(60	)		(60	)		(120	)		(120	)

Net income/(loss) attributable to American Spectrum Realty, Inc.
common stockholders	$	9,373		$	(2,236	)	$	7,274		$	(1,876	)

Basic and diluted per share data:
Income/(Loss) from continuing operations attributable to American
Spectrum Realty, Inc. common stockholders	$	0.05		$	(0.66	)	$	(0.53	)	$	(1.17	)
Income/(loss) from discontinued operations attributable to
American Spectrum Realty, Inc.		3.13			(0.08	)		3.03			0.58
Net income/(loss) attributable to American Spectrum Realty, Inc.
common stockholders	$	3.18		$	(0.74	)	$	2.50		$	(0.59	)

Basic and diluted weighted average shares used		2,964,001			2,930,461			2,962,647			2,892,329

Amounts attributable to American Spectrum Realty, Inc. common
stockholders:
Income (loss) from continuing operations	$	81		$	(2,176	)	$	(1,692	)	$	(3,767	)
Income from discontinuing operations	$	9,292		$	(60	)	$	8,966		$	1,891
Net income/(loss)	$	9,373		$	(2,236	)	$	7,274		$	(1,876	)

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

AMERICAN SPECTRUM REALTY INC.
CONSOLIDATED STATEMENT OF EQUITY
(In thousands, except share amounts)
(unaudited)

				Non-			Pre-				Additional			Accum-
	Preferred	Common		controlling			ferred		Common		Paid-In			ulated			Treasury			Total
	Shares	Shares		Interests			Stock		Stock		Capital			Deficit			Stock			Equity
Balance, January 1, 2011	55,172	3,422,706		$	121,313		$	1	$	34	$	49,067			(60,509	)	$	(3,095	)	$	106,811
Preferred stock	-	-			-			-		-		(120	)		-			-			(120	)
dividends
Stock-based	-	15,000			-			-		-		297			-			-			297
compensation
Restricted stock	-	(8,336	)		-			-		-		-			-			-			-
forfeitures
Conversion of OP units
to common Stock	-	1,456			(11	)		-		-		11			-			-			-
Consolidation of VIE’s	-	-			9,241			-		-		-			-			-			9,241
Deconsolidation of
VIE’s	-	-			(2,534	)		-		-		-			-			-			(2,534	)
Noncontrolling interests	-	-
share of income					3,402			-		-		-			-			-			3,402
Distributions	-	-			(6,088	)		-		-		-			-			-			(6,088	)
Contributions	-	-			498			-		-		-			-			-			498
Net income	-	-			-			-		-		-			7,394			-			7,394
Balance, June 30,011	55,172	3,430,826		$	125,821		$	1	$	34	$	49,255		$	(53,115	)	$	(3,095	)	$	118,901

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,
					2010
		2011			(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)	$	10,796		$	(2,211	)
Adjustments to reconcile net income/(loss) to net cash provided by (used in) operating
activities:
Depreciation and amortization		15,951			7,836
Impairment expense		150			-
Income tax expense/(benefit)		5,021			(1,430	)
Gain on sales of real estate assets		(23,631	)		(4,315	)
Stock-based compensation		297			52
Deferred rental income		(64	)		(119	)
Changes in operating assets and liabilities:
Decrease (Increase) in tenant and other receivables		488			(100	)
(Decrease) increase in accounts payable		(2,386	)		956
Increase in related party receivables		-			(433	)
Decrease in prepaid and other assets		771			554
Increase (decrease) in accrued and other liabilities		1,476			(1,063	)
Change in restricted cash		(789	)		(98	)
Net cash provided by (used in) operating activities:		8,080			(371	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds received from sales of real estate assets		51,080			10,166
Capital improvements to real estate assets		(607	)		(1,954	)
Real estate acquisition		-			(267	)
Investments in unconsolidated real estate assets		-			(131	)
Payments for damages related to insurance claims		-			(107	)
Net cash provided by investing activities:		50,473			7,707

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings		5,500			3,156
Repayment of borrowings – property sales		(45,000	)		(5,067	)
Repayment of borrowings – scheduled payments		(2,688	)		(2,027	)
Repayment of borrowings – other		(7,352	)		(490	)
Repurchase of preferred partnership interest		-			(1,785	)
Acquisition of non-controlling interest in the operating partnership		-			(20	)
Dividend payments to preferred stockholders		(17	)		(182	)
Contributions from non-controlling interests		498			-
Distributions to non-controlling interests		(3,353	)		(399	)
Net cash used in financing activities:		(52,412	)		(6,814	)

Increase in cash and cash equivalents		6,141			522

Cash and cash equivalents, beginning of period		2,003			462

Cash and cash equivalents, end of period	$	8,144		$	984

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of operating partnership units to common stock	$	11	$	221
Conversion of accounts payable to note payable		1,720		426
Issuance of operating partnership units in connection with Evergreen acquisition		-		8,000
Issuance of operating partnership units in connection with notes receivable and account
receivable acquisition		-		2,081
Issuance of operating partnership units in connection with real estate acquisitions		-		1,018
Issuance of operating partnership units in connection with investment in unconsolidated
real estate asset		-		1,266
Debt assumed in connection with real estate acquisition		-		6,297
Financing in connection with investment in unconsolidated real estate asset		-		33
Financing in connection with Evergreen acquisition		-		9,500

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest	$	16,663	$	7,997
Cash paid for income taxes		191		257

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

AMERICAN SPECTRUM REALTY, INC.
Notes to Consolidated Condensed Financial Statements
(unaudited)

NOTE 1 - DESCRIPTION OF BUSINESS

We provide comprehensive integrated real estate solutions for our own (controlling interests) property portfolio and the portfolios of our third party clients. We own and manage commercial, industrial, self storage and residential income-properties, and offer our third party clients comprehensive integrated real estate solutions, including management and transaction services based on our market expertise. We conduct our business in the continental United States.

Our business is conducted through an Operating Partnership in which we are the sole general partner and a limited partner with a total equity interest of 65% at June 30, 2011. As the sole general partner of the Operating Partnership, we have the exclusive power to manage and conduct the business of the Operating Partnership.

Our primary business objective is to acquire and manage multiple tenant real estate in strategically located areas where our cost effective enhancements combined with effective leasing and management strategies, can improve the long term values and economic returns of those properties. We focus on the following fundamentals to achieve this objective:

	—		An opportunistic yet disciplined acquisition strategy that focuses on mid-tier multi-tenant real estate in locations that allow us to capitalize on our existing management infrastructure currently servicing our own properties and that of our third party clients; coupled with,

	—		Organic (internally developed opportunities) and external (acquisition generated opportunities) growth of our third party property management contracts.

As of August 5, 2011 the company had payables of $6.5 million over 90 days old. It also had approximately $10.3 million of notes payable coming due in the second half of 2011. The company intends to meet these cash needs by selling one or more properties and refinancing one or more of the notes payable. The Company has listed for sale three of its properties. We can make no guarantees as to the timing of property sales or our ability to refinance existing debt. If we are unable to sell property or refinance existing debt, then we will have to look to a combination of cost-cutting measures and seek additional equity financing to meet our cash needs for the remainder of 2011.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying condensed consolidated financial statements and related notes have been prepared in conformity with generally accepted accounting principles in the United States and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for preparation of interim financial statements. The information furnished in this report reflects all adjustments that, in the opinion of management, are necessary for a fair presentation of the Company’s results of operations, financial position and cash flows, and such adjustments consist of items of a normal recurring nature. The results for such periods are not necessarily indicative of the results to be expected for the full fiscal year or for any other future period. The condensed consolidated financial statements included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2010 included in the Company’s Annual Report on Form 10-K as filed with the SEC on March 31, 2011.

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires us to make judgments, 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 reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we re-evaluate our judgments and estimates. We base our estimates and judgments on our historical experience, knowledge of current conditions and our belief of what could occur in the future considering available information, including assumptions that we believe to be reasonable under the circumstances. By their nature, these estimates and judgments are subject to an inherent degree of uncertainty and actual results could differ materially from the amounts reported based on these policies.

The financial statements include the accounts of the Operating Partnership, all subsidiaries of the Company, and Variable Interest Entities (“VIE’s”) where the Company is the primary beneficiary. All significant intercompany transactions, receivables and payables have been eliminated in consolidation.

The Company accounts for unconsolidated real estate investments using the equity method of accounting. Accordingly, the Company’s share of earnings of these real estate investments is included in the consolidated results of operations.

The accompanying financial statements for the quarterly period ending June 30, 2010 have been restated. Reference is made to our Form 10-Q/A for the quarterly period ending June 30, 2010 filed on May 24, 2011.

Certain prior year balances have been reclassified to conform to the current year presentation. Real estate designated as held for sale is presented as discontinued operations and the results of operations of these properties are included in income (loss) from discontinued operations.

Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us” and “ASR” refer to American Spectrum Realty, Inc. and its consolidated subsidiaries.

Summary of Critical and Significant Accounting Policies and Estimates

Reference is made to “Summary of Critical and Significant Accounting Policies and Estimates” included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 as filed with the SEC on March 31, 2011 with additional policies and updates below.

VARIABLE INTEREST ENTITIES

When we obtain an interest in an entity, we evaluate the entity to determine if it is deemed a Variable Interest Entity (“VIE”) and, if so, whether we are deemed to be the primary beneficiary and are therefore required to consolidate the entity. Significant judgment is required to determine whether a VIE should be consolidated. We review the contractual arrangements provided for in the partnership agreement or other related contracts to determine whether the entity is considered a VIE under current authoritative accounting guidance and to establish whether we have any variable interests in the VIE. We then compare our variable interests, if any, to those of the other venture partners to identify the party that is exposed to the majority of the VIE’s expected losses, expected residual returns, or both. We use this analysis to determine which VIE’s should be consolidated for financial accounting purposes. The comparison uses both qualitative and quantitative analytical techniques that may involve the use of a number of assumptions about the amount and timing of future cash flows.

Upon de-consolidation, we will disclose the following:

the amount of any gain or loss recognized as the result of removal of the VIE’s assets, liabilities, and equity from our balance sheet;
the portion of any gain or loss related to the re-measurement to fair value of any retained investment in the VIE being de-consolidated;
the financial statement line item where the gain or loss relating to de-consolidation of the VIE is recognized;
the nature of our continued involvement (if any) with the former VIE or the entity acquiring the VIE after de-consolidation, and;
whether the de-consolidation transaction occurs with a related party or if the transaction will cause the VIE to be a related party after de-consolidation.

Recent Accounting Pronouncements

Recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants and the SEC did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

NOTE 3 - DISCONTINUED OPERATIONS

7700 Irvine Center, a 209,343 square foot office property, located in Irvine, California was sold on June 28, 2011 for $56.5 million, resulting in net proceeds of approximately $6.1 million. The transaction generated a gain on sale before income tax expense of $23.6 million. The gain on the sale of the property significantly diminished our federal net operating loss carry-forward. The proceeds from the sale were used to distribute the $2.5 million non-controlling interest in 7700 Irvine Center which was held by a third party, and to reduce debt, accrued liabilities and accounts payables.

Income from discontinued operations for the three and six months ended June 30, 2011 includes gain on sale of 7700 Irvine Center and the operating results of the property. Income from discontinued operations for the three months ended June 30, 2010, represents the operating results of 7700 Irvine Center. Income from discontinued operations for the six months ended June 30, 2010 includes the gain on sale of 5580 San Felipe, a 101,880 square foot office property sold in March 2010 and the operating results of San Felipe and 7700 Irvine Center.

The consolidated statements of operations of discontinued operations for the three and six months ended June 30, 2011 and 2010 are summarized below:

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2011			2010			2011			2010
	(In thousands)						(In thousands)
	(Unaudited)						(Unaudited)
Rental Revenue	$	1,067		$	1,198		$	2,043		$	3,325
Expenses (1)		(1,137	)		(2,002	)		(2,900	)		(4,282	)
Loss from discontinued operations before gain
on sale and income tax benefit (expense)		(70	)		(804	)		(857	)		(957	)
Gain on sale of discontinued operations		23,631			-			23,631			4,315
Income tax (expense)		(6,082	)		293			(5,894	)		(1,229	)
Income (loss) from discontinued operations	$	17,479		$	(511	)	$	16,880		$	2,129

(1) Includes interest expense of approximately $0.7 million and $0.7 million for the three months ended June 30, 2011 and June 30, 2010, respectively and interest expense of approximately $1.4 million and $1.3 million for the six months ended June 30, 2011 and June 30, 2010. Mortgage debt related to the property included in discontinued operations was individually secured, as such, interest expense was based on the property’s debt.

NOTE 4 - VARIABLE INTEREST ENTITIES

We have identified multiple Variable Interest Entities where we are the primary beneficiary for accounting purposes since we have (a) the power to direct the activities that most significantly impact each entity’s economic performance such as: sign and enter into leases; set, distribute and implement the capital budgets, or authority to refinance or sell the property within contractually defined limits and (b) the ability to receive fees that are significant to the property and (c) a history of funding any deficit cash flows. As a result, these VIE entities were consolidated in the condensed consolidated financial statements, after eliminating intercompany transactions, and presenting the interests that are not owned by us as non-controlling interests in the condensed consolidated balance sheets. The entities being consolidated as of June 30, 2011 include fourteen self storage properties, two multifamily properties, five student living properties and ten commercial properties. This represents an increase of three self storage properties and one commercial property, less one multifamily and one assisted living facility as compared to the year ended December 31, 2010. The entities are generally self-financed through cash flows from property operations.

The pro forma information below is based on estimates and assumptions that have been made solely for purposes of developing such pro forma information with regards to the VIE’s newly consolidated during the quarter. The pro forma financial information presented below also includes depreciation and amortization plus consolidation of the VIE’s as if such consolidation had occurred as of January 1, 2010. The pro forma financial information does not include any synergies or operating cost reductions that may be achieved from the combined operations.

Pro forma statement of operations
for the three and six months ended June 30, 2010
(in thousands)
(unaudited)


	Three Months		Six Months
	Ended		Ended
	June 30, 2010		June 30, 2010
Total Revenue	10,194		18,635
Total Expenses	(15,352	)	(26,875	)
Net Loss before Noncontrolling
Interest & Tax	(5,158	)	(8,240	)
Deferred Tax Benefit	1,867		2,951
Income from Discontinued Operations	0		2,640
Non-Controlling Interest	1,115		893
Net Loss	(2,176	)	(1,756	)

The accompanying financial statements include the operations of the newly consolidated VIE’s from the acquisition date and consolidation date in accordance with the Company’s business combination and VIE policies. A summary of the effect on operations follows:

VIE component of the condensed consolidated statement of operations
for the three and six months ended June 30, 2011
(in thousands)
(unaudited)

	Three Months		Six Months
	Ended		Ended
	June 30, 2011		June 30, 2011
Total Revenue	979		1,511
Total Expenses	(1,067	)	(1,593	)

Net Loss before Noncontrolling
Interest & Tax	(88	)	(82	)
Deferred Tax Benefit	-		-
Non-Controlling Interest	88		82

Net Loss	-		-

We de-consolidated an assisted living property during the first quarter of 2011 and a multi-family property during the second quarter of 2011. The deconsolidation was due to a change in our management relationship with the properties. We no longer manage or have a continuing involvement with these two properties. The impact to our condensed Consolidated Financial Statements was a decrease in total assets of $19.7 million, a decrease in total liabilities of $12.7 million and a decrease in noncontrolling interest of $2.5 million. In addition, total net income attributable to these noncontrolling interests of $0.1 million was recorded from the deconsolidated properties. The de-consolidation of these entities did not result in a gain or loss in the Condensed Consolidated Statement of Operations as the carrying amount of the non-controlling interest in the former subsidiary at the de-consolidation date was the same as the carrying amount of the former subsidiary’s assets minus liabilities at the date of the de-consolidation.

During the six months ended June 30, 2011, we had our contractual relationships terminated or modified by the entities that owned some of the third party properties we manage. Based on this triggering event we evaluated the management contracts associated with some of our purchased intangibles for impairment and determined that impairment had occurred. We recorded an impairment charge of $0.2 million in the period that reduced the fair value of the contracts to zero.

We own an insignificant interest in most of the VIE’s, and therefore, substantially all operations are included in the net loss attributable to non-controlling interests.

The carrying amounts associated with these entities, after eliminating the effect of intercompany transactions, were as follows (in thousands):

	June 30,		December 31,
Variable interest entity amounts	2011		2010
	(unaudited)
Assets
Restricted Cash	$	4,985	$	4,016
Receivables		528		1,515
Fixed Assets Net of depreciation		376,744		372,908
Other Assets		7,920		8,858
Total Assets	$	390,177	$	387,297

Liabilities
Accounts payable		3,574		5,734
Notes payable		272,999		268,776
Other liabilities		3,420		1,809
Total liabilities	$	279,993	$	276,319

Variable interest entity net carrying amount	$	110,184	$	110,978

At June 30, 2011, the liabilities in the above table are solely the obligations of the VIE’s and are not guaranteed by us. We do not have the ability to leverage the assets of the above identified VIE’s for the purpose of providing ourselves cash. The debt is solely secured by the property of the respective VIE’s.

During the three and six months ended June 30, 2011, we did not provide short term advances to any properties that have been consolidated. A minimal balance is still owed to us as of June 30, 2011 relating to advances during 2010. We do not believe we have significant exposure to losses related to the VIE’s.

NOTE 5 - RELATED PARTY TRANSACTIONS

The following transactions are related party transactions which may include amounts that were eliminated in the consolidation of VIE’s and controlled entities.

The Company recognized third party management fee and advisory revenues attributable to the properties formerly managed by Evergreen Realty Group, LLC and affiliates for the three and six months ended June 30, 2011 of $0.6 million and $1.4 million, respectively, and $1.1 million and $2.0 million, respectively, for the three and six months ended June 30, 2010. At June 30, 2011, accounts receivable related to these revenues was approximately $0.1 million. The Company has a non-economic interest in many of the properties, held in most cases as the manager or general partner of entities which own tenant in common interests.

In September 2010, the Company acquired two notes receivable, each with a face amount of $0.5 million, and interests in three apartment complexes and one student housing facility. The acquisitions, which were acquired from American Spectrum REIT I, Inc. (“ASRI”) for a total purchase price of $1.3 million, were funded by the issuance of 205,394 OP Units. William J. Carden is a director and President of ASRI and Jonathan T. Brohard is a director and Vice President of ASRI. Mr. Carden is Chief Executive Officer, Chairman of the Board, and a principal stockholder in the Company. Mr. Brohard is President of American Spectrum Realty Management, LLC, a wholly-owned subsidiary of the Company.

The two $0.5 million notes bear interest at a rate of 12% per annum and are payable on demand from Evergreen Realty Group, LLC (“ERG”). The Company anticipates the notes receivable will be offset against either its $9.5 million note payable to ERG or through a reduction in OP Units currently held by ERG in 2011.

In June 2010, the Company acquired a 55% interest in Sabo Road Acquisitions, LP, which owns a 57,850 square foot self-storage property located in Houston, Texas. The partnership interest acquired consists of the sole general partnership interest and a limited partnership interest. Also in June 2010, the Company acquired a 38.4% undivided interest in Loop 1604, a 178,595 square foot self-storage property located in San Antonio, Texas. The acquisitions were acquired from ASRI for a total purchase price of approximately $1.7 million, consisting of the 300,949 OP Units and cash of $0.1 million.

In June 2010, the Company acquired two notes receivable and an account receivable from Evergreen Income & Growth REIT, LP (“EIGRLP”) with a total face amount of approximately $2.1 million. The acquisition was funded by the issuance of 428,680 OP Units. Mr. Carden is a director and President of Evergreen Income & Growth REIT, Inc. (“EIGRI”), the general partner of EIGRLP. Mr. Brohard is a director and Vice President of EIGRI. The Company does not have an ownership interest in EIRGI or EIGRLP.

The first note, in the amount of $1.0 million, bears interest at 12% per annum. The note and accrued interest is payable on demand from Central Florida Self Storage Acquisitions, LLC, an entity in which the Company has a non-economic tenant in common interest. Accrued and unpaid interest on the note totaled approximately $0.2 million at June 30, 2011. The note was acquired to ultimately acquire certain real estate assets in which the obligors on the notes have ownership interests. The Company is not recognizing interest income on the note.

The second note in the amount of $0.4 million, which was due from ASRI, bore interest at 10% per annum. This note and accrued interest of approximately $0.1 million, was paid to the Company in January 2011.

The account receivable acquired, which totaled approximately $0.4 million, is due from ERG. The account receivable is related to organizational and offering costs paid in excess of the amounts established in EIGRI’s 2008 private placement agreement. The Company anticipates the receivable from ERG will be offset against either its $9.5 million note payable to Evergreen or through a reduction in OP Units currently held by ERG in 2011.

In May 2010, the Company obtained financing for insurance premiums on both its owned and third party managed properties of which approximately $2.1 million was attributable to the Evergreen property portfolio. During 2010, the Company received approximately $2.0 million from these properties as payment on the premiums. As of June 30, 2011 unpaid amounts due to the Company from these properties was approximately $0.1 million. As of June 30, 2011, the Company had premium refunds of $0.3 million due to these properties from the cancellation of the prior insurance policy.

The Company pays a guarantee fee to Mr. 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. The Guarantors are paid an annual guarantee fee equal to between .25% and .75% (depending on the nature of the guarantee) of the outstanding balance as of December 31 of the guaranteed obligations (“Guarantee Fee”). The Guarantee Fee is paid for a maximum of three years on any particular obligation. The Guarantee Fee paid for the year ended December 31, 2010 was approximately $80,000. The Guarantee Fee paid for the six months ended June 30, 2011 was approximately $59,000.

During 2007, the Company entered into a lease agreement with Galardi Group as a tenant for 15,297 square feet of office space at the Company’s 7700 Irvine Center property. Mr. Galardi 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 approximately $0.5 million over the term of the lease. The property was sold in June 2011.

NOTE 6 - NOTES PAYABLE

We had the following notes payable outstanding, as of June 30, 2011 and December 31, 2010, secured by the following properties (dollars in thousands):

		June 30, 2011				December 31, 2010
	Maturity	Principal		Interest		Principal		Interest
Property (unless otherwise noted)	Date	Balance		Rate		Balance		Rate
Fixed Rate
Pacific Spectrum (1)	6/10/2010		5,206	8.02	%		5,191	8.02	%
Sabo Road Self Storage	7/31/2011		1,961	7.42	%		1,974	7.42	%
Bristol Bay	8/1/2011		6,720	7.58	%		6,792	7.58	%
Technology (1)	8/1/2011		7,091	7.44	%		7,091	7.44	%
Corporate – Secured	9/18/2011		890	5.50	%		890	8.75	%
Creekside (1)	12/1/2011		5,747	7.17	%		5,747	7.17	%
Northwest Spectrum (4)	12/3/2011		500	5.50	%		750	8.75	%
Corporate – Unsecured (5)	1/15/2012		200	3.20	%		-	-
Fountain View Place (6)	4/29/2012		875	10.00	%		1,031	10.00	%
16350 Park Ten Place	5/11/2012		4,353	7.45	%		4,402	7.45	%
16360 Park Ten Place	5/11/2012		3,410	7.45	%		3,449	7.45	%
2855 Mangum	5/11/2012		2,513	7.45	%		2,535	7.45	%
2855 Mangum	5/11/2012		1,364	6.00	%		1,380	6.00	%
6430 Richmond Atrium	5/11/2012		2,109	7.45	%		2,127	7.45	%
Corporate – Secured (7)	5/12/2012		950	5.50	%		950	8.75	%
Corporate – Unsecured	5/31/2012		1,000	9.50	%		1,000	9.50	%
Southwest Pointe	6/1/2012		2,644	7.33	%		2,671	7.33	%
Corporate-Secured	6/15/2012		992	4.50	%		992	4.50	%
16350 Park Ten Place	8/11/2012		480	7.45	%		484	7.45	%
16360 Park Ten Place	8/11/2012		376	7.45	%		380	7.45	%
Corporate – Secured	2/1/2013		1,711	5.50	%		1,736	5.50	%
Corporate – Secured	3/8/2013		783	5.50	%		863	8.75	%
11500 Northwest Freeway	6/1/2014		3,970	5.93	%		4,008	5.93	%
11500 Northwest Freeway	6/1/2014		287	5.93	%		290	5.93	%
Morenci	7/1/2014		1,590	7.25	%		1,632	7.25	%
Northwest Corporate Center (1)	8/1/2014		5,312	6.26	%		5,312	6.26	%
14741 Yorktown	9/1/2014		8,469	5.32	%		8,545	5.32	%
8100 Washington	2/22/2015		2,138	5.59	%		2,156	5.59	%
8300 Bissonnet (1)	5/1/2015		4,484	5.51	%		4,484	5.51	%
2620-2630 Fountain View	6/30/2015		5,350	7.00	%		5,350	7.00	%
1501 Mockingbird	7/1/2015		3,162	5.28	%		3,189	5.28	%
5450 Northwest Central	9/1/2015		2,561	5.38	%		2,585	5.38	%
Corporate – Secured	12/22/2015		2,900	5.00	%		2,900	5.00	%
800/888 Sam Houston Parkway	12/29/2015		4,470	6.25	%		4,528	6.25	%
2401 Fountain View	3/1/2016		11,851	5.82	%		11,967	5.82	%
12000 Westheimer/2470 Gray Falls	1/1/2017		7,222	5.70	%		7,267	5.70	%
6420 Richmond Atrium	6/5/2017		6,303	5.87	%		6,286	5.87	%
7700 Irvine Center	8/1/2017		-	5.99	%		45,000	5.99	%
Fountain View Place	4/29/2018		12,277	6.50	%		12,361	6.50	%
Corporate – Secured	12/31/2019		9,376	5.00	%		9,410	5.00	%
Corporate – Unsecured (3)	Variable		2,188	(3)			1,236	(3)
	Subtotal	$	145,785			$	190,941
Variable Rate
Beltway Industrial (2)	5/9/2013		16,670	7.00	%		17,170	7.00	%
Northwest Spectrum	4/19/2012		2,695	2.90	%		2,820	2.90	%
Windrose Plaza	4/19/2012		2,506	2.90	%		2,612	2.90	%
Corporate – Unsecured	12/12/2013		300	6.00	%		500	6.00	%
	Subtotal	$	22,171			$	23,102
ASR Notes Payable		$	167,956			$	169,043
VIE Notes Payable - See Note 4		$	272,999				268,776
Total		$	440,955			$	482,819

(1) The Company is currently electing not to pay its monthly payments and negotiating extension terms with the lender. Please see additional information regarding these debts below.

(2) In June 2011, the Company made a principal pay-down of approximately $0.5 million on the note and the lender extended the maturity date to May 9, 2013.

(3) The Company has re-negotiated some of its accounts payable which resulted in extended payment terms and/or discounted amounts. Six agreements have promissory notes with interest rates that range between 5%-9% and the maturities of all 15 arrangements vary between July 2011 to December 2015.

(4) In January 2011, the Company made a principal pay-down of approximately $0.3 million on the note and the lender extended the maturity date to December 3, 2011.

(5) In January 2011, the Company obtained a one-year bank loan in the amount of $0.2 million.

(6) The loan was extended for one year and the note was reduced by $0.09 million.

(7) The loan was extended for one year.

We are in default on the notes listed below due to non-payment of scheduled debt service. These notes have been marked with a (1) in the above table that agrees to our balance sheet (unaudited, in thousands):


		Balance at
		June 30,
Property securing debt		2011
Spectrum	$	5,206
Technology	$	7,091
Creekside	$	5,747
Northwest Corporate Center	$	5,312
Bissonnet	$	4,484
	$	27,840

We have elected not to make payments on debt of $27.8 million due to the unpaid balances of the mortgages exceeding the value of the properties covered by the mortgages. We are actively negotiating with the lenders, but there can be no assurance that these negotiations, which may result in loan modifications or discounted pay-offs, will be successful, and the lenders could initiate foreclosure proceedings. The lenders holding the debt on Bissonnet and Spectrum notified us during the second quarter that they have placed both of these properties into receivership. The loans are secured only by the real estate assets. Each of the properties securing the debt in default is held by a consolidated wholly owned subsidiary and the mortgages are not guaranteed by us. All of notes which we have elected not to pay have payment acceleration clauses and payment in full could be demanded by the lenders holding these notes. Certain of these properties currently have operating deficits. We evaluated the impairment related to the long-lived assets of the properties secured by these loans and determined that no impairment should be recorded at June 30, 2011. For further discussion see “Liquidity and Capital Resources” in Item 2.

We were able to successfully negotiate new terms with several holders of our accounts payable. During the six months ended June 30, 2011, we have successfully converted approximately $1.7 million worth of accounts payable that were in excess of 90 days old to notes payable and paid $0.8 million of notes that were previously converted from accounts payable.

Unamortized financing costs at June 30, 2011 and December 31, 2010 were $0.9 million and $1.1 million, respectively.

NOTE 7 - NON-CONTROLLING INTERESTS AND OPERATING PARTNERSHIP UNITS

The following table summarizes the information for the operating partnership units (”OP Units”) for the six months ended June 30, 2011 (in thousands):

Beginning balance December 31, 2010	9,109
Issuances	30
Redemptions	(16	)
Balance June 30, 2011	9,123

Ownership of OP Units at June 30, 2011
ASR	5,954		65%
Others (non-controlling interests)	3,169		35%
	9,123		100%

The following represents the effects of changes in the Company’s equity related to non-controlling interests for the six months ended June 30, 2011 and 2010 (in thousands):

	Six Months Ended		Six Months Ended
	June 30, 2011		June 30, 2010
Net income (loss) attributable to the Company	$	7,394	$	(1,756	)

Increase in the Company’s paid-in-capital on exchange of	$	11	$	211
OP Units for shares of Common Stock

Increase in the Company’s paid-in-capital on
reclassification of preferred interest from temporary
equity		-	$	370
Change from net income (loss) attributable to the Company
related to non-controlling interest transactions	$	7,405	$	(1,175	)

NOTE 8 - NET INCOME (LOSS) PER SHARE

Net income (loss) per share is calculated based on the weighted average number of common shares outstanding. We incurred losses from continuing operations for the three and six months ended June 30, 2011 and June 30, 2010. Stock options outstanding, preferred shares and OP Units that can be converted into common stock on a two-for-one basis have not been included in the net loss per share calculation since their effect on the losses would be anti-dilutive. Net income (loss) per share for the three and six months ended June 30, 2011 and June 30, 2010 is as follows (in thousands, except for shares and per share amounts):

	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Loss from continuing operations		(1,152	)		(2,554	)		(6,084	)		(4,340	)
Net Income/(loss) attributable to non-controlling interests		1,293			438			4,512			693
Income/(loss) from continuing operations attributable to American
Spectrum Realty, Inc. common stockholders		141			(2,116	)		(1,572	)		(3,647	)

Discontinued operations:
Income/(loss) from discontinued operations		(70	)		(804	)		(857	)		(957	)
Gain on sale of discontinued operations		23,631			-			23,631			4,315
Income tax (expense) benefit		(6,082	)		293			(5,894	)		(1,229	)

Net (income)/loss attributable to non‐controlling interests		(8,187	)		451			(7,914	)		(238	)
Income/loss from discontinued operations		9,292			(60	)		8,966			1,891

Preferred stock dividend		(60	)		(60	)		(120	)		(120	)
Net income/(loss) attributable to American Spectrum Realty, Inc. common stockholders		9,373			(2,236	)		7,274			(1,876	)

Basic and diluted per share data:
Income/(Loss) from continuing operations attributable to American Spectrum Realty, Inc. common stockholders		0.05			(0.66	)		(0.53	)		(1.17	)
Income/(loss) from discontinued operations attributable to American Spectrum Realty, Inc. common Stockholders		3.13			(0.08	)		3.03			0.58
Net income/(loss) attributable to American Spectrum Realty, Inc. common stockholders		3.18			(0.74	)		2.50			(0.59	)

Basic weighted average shares used		2,964,001			2,930,461			2,962,647			2,892,329

The following table indicates the instruments that were excluded from the computation of diluted net income per share as they had an anti-dilutive effect:

	Six Months Ended June 30,
	2011	2010
	(unaudited)
Preferred shares	55,172	55,172
Stock options	58,750	58,750
OP Units	3,169,762	2,136,760
Total	3,283,684	2,250,682

NOTE 9 - STOCK-BASED COMPENSATION

Stock-based compensation expense is measured at grant date, based on the fair value of the instrument, and is recognized as expense over the requisite service period.

The following table sets forth the total share-based compensation expense included in our Consolidated Statements of Operations:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2011		2010		2011		2010
	(in thousands)				(in thousands)
General and administrative		43		26		297		26
Total	$	43	$	26	$	297	$	26

As of June 30, 2011, approximately $0.2 million total unrecognized stock-based compensation expense related to non-vested awards is expected to be recognized over the respective vesting terms of each award over the weighted average period of 3.5 years.

Valuation Assumptions

Our determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables.

No options were granted during the six months ending June 30, 2011.

The fair value of each option award is estimated on the date of grant using the Black-Scholes valuation model, consistent with the provisions of ASC 718. The Black-Scholes option-pricing model was developed for use in estimating the fair value of short-lived exchange traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock.

All of our issued and outstanding stock options as of June 30, 2011 are fully vested and expensed.

We declared and paid cash dividends to common shareholders in 2002 and 2003 but do not plan to pay cash dividends to common stock shareholders in the foreseeable future.

The fair value of each restricted stock award (RSA) is estimated on the date of grant based on the closing price of our stock on the grant date. Stock-based compensation expense related to RSAs is recognized over the requisite service period.

Equity Incentive Program

We grant incentive and nonqualified stock options and RSA’s to employees, consultants and directors under the Omnibus Stock Incentive Plan (“the Plan”). Stock options expire 10 years from the date they are granted and generally vest over service periods that range over three years. New shares are issued for options exercised and RSA’s released. RSA’s give the recipient 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 that lapses over various periods ranging from one to three years.

We have reserved 360,000 shares under the Plan. As of June 30, 2011, we had issued 184,036 shares under the Plan.

The following table summarizes the combined activity under the equity incentive plans for the indicated periods:

						Weighted
		Weighted				Average
	Number of	Average				Grant date
	Options	Exercise Price		Number of		Fair Value
	Outstanding	per Share		RSAs		per Share
Balances at December 31, 2010	58,750	$	11.97	39,012		$	12.86

Granted	-	$	-	-
Options Exercised	-	$	-	-
Restricted Stock Award Releases				(13,833	)	$	12.58
Forfeited	-	$	-	(8,336	)	$	12.56
Balances at June 30, 2011	58,750	$	11.97	16,843		$	13.24

The intrinsic value of RSA’s was approximately $0.3 million as of June 30, 2011. The intrinsic value of RSA’s and the intrinsic value of exercisable in-the-money options was approximately $0.4 million as of June 30, 2011. The aggregate intrinsic value of the options and restricted stock awards outstanding at June 30, 2011 represents the total pretax intrinsic value, based on our closing stock price of $16.99 per share as of June 30, 2011, which would have been received by the grant holders, had all option holders with in-the-money options exercised their options as of that date and if all restricted stock awards were vested as of June 30, 2011.

Restricted Stock Awards

No restricted stock awards were granted during the six months ended June 30, 2011.

Awards to Non-Employees

In February 2011, the Company issued 15,000 shares of Common Stock to a firm as consideration for business advisory services. The fair value of the stock was based on the closing market price of our common stock on the date of the grant. The consideration for the shares amounted to $208,650.

NOTE 10 – OTHER INCOME

During the second quarter of 2011, we settled certain accounts payable with creditors on a discounted basis and recorded other income of $0.6 million.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

In June 2011, we reached a settlement with our insurance carrier, ACE American Insurance Company, with respect to our Hurricane Ike claims. We received net proceeds of approximately $4.0 million as a result of the settlement, which was net of attorney fees, expert fees, consulting fees and other costs associated with the claims. We recognized a gain on the settlement of approximately $4.2 million which is included as a component of other income on our consolidated statement of operations for the three and six months ended June 30, 2011.

Certain other claims and lawsuits have arisen against us in our normal course of business including lawsuits by creditors with respect to past due accounts payable. We believe that such claims and lawsuits will not have a material adverse effect on our financial position, cash flows or results of operations.

Some of our notes payable require that we maintain minimum cash and tangible net worth. We believe we are in compliance with these requirements, except as to our loans in default.

On March 2, 2011, we filed an action against Evergreen Realty Group, LLC and certain of its affiliates ("Evergreen") relating to our acquisition of assets from Evergreen in January 2010. The purchase price of the assets was $18.0 million, subject to adjustment as provided in the purchase agreement, and was paid in the form of (a) the assumption of $0.5 million of payables, (b) the issuance of a $9.5 million promissory note and (c) the issuance of operating partnership units which would be redeemable by the Company at the election of Evergreen after June 30, 2011 for a number of shares of our common stock (or, at our option, the cash equivalent) equal to the quotient obtained by dividing $8.0 million by the greater of our share price or net asset value as of December 31, 2010. In our action, we are alleging various offsets and adjustments to the purchase price, as well as defaults by Evergreen, and are seeking damages and a declaration that the principal amount of the promissory note should be reduced to zero, that the operating partnership units should be cancelled and that Evergreen should refund the payments we made of at least approximately $0.6 million which have been made on the promissory note. On March 7, 2011, New West Realty, Inc. (“New West”), an affiliate of Evergreen, filed a complaint for damages in Orange County Superior Court against ASR and other related entities. New West alleges in the complaint that ASR has failed to pay amounts due under a promissory note held by New West in the amount of $9.5 million. We have subsequently paid all amounts currently due and payable under the note and therefore dispute the claim, deny that any payment is now due under the note and we have filed a separate lawsuit against New West and others seeking damages in excess of the amount of New West’s claim. The litigation is ongoing and the Company cannot give any assurance that it will obtain the declaration or the damages that it seeks.

NOTE 12 - PREFERRED STOCK

We are authorized to issue up to 25.0 million shares of one or more classes or series of preferred stock with a par value of $.01 per share.

On December 30, 2008, we filed Articles Supplementary to our Articles of Incorporation, which authorized the issuance of 68,965 of Series A Preferred Stock (“Preferred Stock”).

On December 31, 2008, we issued 55,172 shares of the Preferred Stock to Messrs. Carden, Galardi, and Brown (Also see Note 5 – Related Party Transactions). Each share of Preferred Stock was sold for $29.00 and is entitled to annual dividends, payable quarterly, at an annual rate of 15%, and to a preference on liquidation equal to the following: (a) if on or prior to December 31, 2011, the sum of $29.00 and any accrued and unpaid dividends or (b) if after December 31, 2011, the greater of (x) the sum of $29.00 and any accrued and unpaid dividends or (y) the amount which would be paid on account of each share of common stock upon liquidation if each share of Preferred Stock had hypothetically been converted into one share of common stock. The Preferred Stock is not required to be redeemed by us and the holders will have no right to require redemption. The Preferred Stock is redeemable at our option at any time after December 31, 2011. The shares were issued in a private transaction exempt from registration pursuant to Section 4(2) under the Securities Act of 1933, as amended. As of June 30, 2011 we had accrued and unpaid dividends on the Preferred Stock of $129,171 or $2.34 per preferred share.

NOTE 13 – SUBSEQUENT EVENTS

As of June 30, 2011, we had cash and cash equivalents of $8.1 million. Subsequent to this date we have spent $6.5 million to further reduce payables, debt and other accrued liabilities.

NOTE 14 – INCOME TAXES

For the period ended June 31, 2011, income tax benefit (expense) is recorded solely on income (loss) attributable to the Company. We utilized an effective tax rate of 36.6% on our net loss from continuing operations and an effective tax rate of 39.8% on our net income from discontinued operations.

The sale of 7700 Irvine Center is expected to significantly diminish the Company’s federal net operating loss carry-forward, which at December 31, 2010 was approximately $26.8 million.

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

Forward Looking Statements
This financial review presents our operating results for the three and six months ended June 30, 2011 and 2010, as well as our financial condition at June 30, 2011 and December 31, 2010. The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included in this report and our audited consolidated financial statements and related notes in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the Securities and Exchange Commission (“SEC”) on March 31, 2011. It should also be read in conjunction with our unaudited restated results for the period ending June 30, 2010 filed on Form 10Q/A with the SEC on May 24, 2011 and noted in Item 8 – Note 16. Restatement (Unaudited) filed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

Except for the historical information contained herein, this discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Factors that could cause or contribute to these differences include those discussed in “Risk Factors” under Item 1A of Part II below, as well as those discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and elsewhere. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate” and variations of such words and similar expressions are intended to identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. The cautionary statements made herein should be read as applying to all related forward-looking statements wherever they appear herein.

Unless expressly stated or the context otherwise requires, the terms “we,” “our,” “us” and “ASR” refer to American Spectrum Realty, Inc. and its consolidated subsidiaries.

Business Overview

We provide comprehensive integrated real estate solutions for our own (controlling interests) property portfolio and the portfolios of our third party clients. We own and manage; commercial, industrial, self storage and residential income-properties, and offer our third party clients comprehensive integrated real estate solutions, including management and transaction services based on our market expertise. We conduct our business in the continental United States.

As of June 30, 2011, the portfolio of properties we provided services to was as follows:

	ASR owned		Consolidated VIE's		Third party		Total
		Square		Square		Square		Square
Property Type	Number	footage	Number	footage	Number	footage	Number	footage
Commercial/Industrial/Retail	28	2,485,731	10	4,924,133	17	832,286	55	8,242,150
Self-Storage	1	54,975	14	1,037,934	6	462,360	21	1,555,269
Multi-family	-	-	2	361,340	10	986,268	12	1,347,608
Student housing	-	-	5	1,089,960	1	226,604	6	1,316,564
Senior housing	-	-	-	-	3	128,425	3	128,425
Land	1	N/A	-	-	-	-	1	-
Total	30	2,540,706	31	7,413,367	37	2,635,943	98	12,590,016

	—		An opportunistic yet disciplined acquisition strategy that focuses on mid-tier multi-tenant real estate in locations that allow us to capitalize on our existing management infrastructure currently servicing our own properties and that of our third party clients; coupled with,

	—		Organic (internally developed opportunities) and external (acquisition generated opportunities) and growth of our third party property management contracts.

CRITICAL ACCOUNTING POLICIES

Summary of Critical and Significant Accounting Policies and Estimates

Variable Interest Entity Accounting

We have relationships with many different types of entities; some of those entities are Variable Interest Entities (VIEs). We consolidate any VIE for which we are the primary beneficiary. We analyze our variable interests, including equity investments, guarantees, management agreements and advances, to determine if an entity in which we have a variable interest is a VIE. Our analysis includes both quantitative and qualitative reviews. We base our quantitative analysis on the estimated future cash flows of the entity, and our qualitative analysis on the design of the entity, its organizational structure including decision-making ability and relevant financial agreements. All of these factors are highly subjective and require significant judgment on the part of management.

Upon de-consolidation we will disclose the following:

the amount of any gain or loss recognized as the result of removal of the VIE’s assets, liabilities, and equity from our balance sheet;
the portion of any gain or loss related to the re-measurement to fair value of any retained investment in the VIE being de-consolidated;
the financial statement line item where the gain or loss relating to de-consolidation of the VIE is recognized;
the nature of our continued involvement (if any) with the former VIE or the entity acquiring the VIE after de-consolidation, and;
whether the de-consolidation transaction occurs with a related party or if the transaction will cause the VIE to be a related party after de-consolidation.

RESULTS OF OPERATIONS

In January 2010, the Company acquired certain property management and asset management contracts from Evergreen Realty Group, LLC and affiliates (“Evergreen”) that created a Variable Interest relationship in which the Company is the primary beneficiary (see Note 4 – Variable Interest Entities). As of June 30, 2011 and 2010, the Company has consolidated thirty one and fifteen variable interest entities, respectively. The consolidation of the Variable Interest Entities impacts our revenues and expenses as compared to the prior year.

Discussion of the three months ended June 30, 2011 and 2010.

Revenues by period (unaudited, in thousands except percentages):

	Three months ended June 30,
	2011		2010		Dollar		% Change
			(restated)		Change
Rental revenue	$	17,481	$	6,894	$	10,587	154	%
Third party management and leasing revenue		1,478		1,202	$	276	23	%

The changes in revenues during the three months ending June 30, 2011 as compared to 2010 were primarily due to the following:

Rental revenue for the period increased by $10.6 million, or 154%, in comparison to the prior period. The increase in rental revenue was primarily due to the consolidation of VIE’s, which resulted in additional rental revenues of approximately $11.1 million. Rental revenue for owned properties decreased by $0.5 million. This decrease was attributable to a decrease in rental revenue for properties owned for the full months ended June 30, 2011 and June 30, 2010 of approximately $0.9 million. This decrease was primarily due to a decrease in occupancy. The weighted average occupancy of the owned properties decreased from 82% at June 30, 2010 to 75% at June 30, 2011. The decrease in rental revenue was partially offset by the acquisition of two properties in the second quarter of 2010, which accounted for an increase in rental revenue of $0.4 million.
The increased third party management and leasing revenue was primarily due to increased leasing and refinancing activity.

We expect rental revenues to remain relatively flat with respect to ASR wholly owned properties in the next year for our existing square footage. If we are able to acquire properties in the next year we will experience non-organic growth of our rental revenues. We anticipate seeing continued growth in our third party management and transaction revenues as we retain our clients and add additional clients to our portfolio.

Operating Expenses by period (unaudited, in thousands except percentages):

	Three months ended June 30,
	2011		2010		Dollar			% Change
			(restated)		Change
Property operating expenses	$	7,043	$	3,426	$	3,617		106	%
Corporate general and administrative		2,424		2,516	$	(92	)	-4	%
Depreciation and amortization		7,726		3,278	$	4,448		136	%
Interest expense		7,709		3,017	$	4,692		156	%

The changes in operating expenses during the three months ended June 30, 2011 as compared to 2010 were primarily due to the following:

Property operating expenses increased by approximately $3,6 million. This increase was primarily due to the consolidation of VIE’s which amounted to $4.0 million. Property operating expenses for the Company’s owned properties decreased by $0.4 million. This decrease was primarily due to lower operating expenses for properties owned for the full six months ended June 30, 2011 and June 30, 2010 of approximately $0.6 million large part due to cost cutting measures implemented by management. This increase was partially offset due to the acquisition of two properties in the second quarter of 2010, which accounted for an increase in operating expenses of $0.2 million.
General and administrative expenses remained relatively unchanged, decreasing by approximately $0.1 million. The decrease was primarily due to lower personnel costs.
Depreciation and amortization expense increased by approximately $4.4 million. The increase was primarily due to the consolidation of VIE’s.
Interest expense increased by approximately $4.7 million. The increase was primarily due to the consolidation of VIE’s, which accounted for $4.1 million of this increase. The increase was also attributable to an increase in debt attributable to two properties acquired in the second quarter of 2010 and corporate borrowings.

Additional Income Statement Items by Period (unaudited, in thousands except percentages):

	Three Months Ended
	June 30,
	2011			2010			Dollar			% Change
				(restated)			Change
Interest income	$	60		$	13		$	47		362	%
Discontinued operations		17,479			(511	)	$	17,990		-3521	%
Non-controlling interests		(6,894	)		889		$	(7,783	)	-875	%
Gain on litigation settlement		4,174			-		$	4,174		N/A
Other income		623			-		$	623		N/A

The changes in other income statement items during the three months ended June 30, 2011 as compared to 2010 were primarily due to the following:

Discontinued operations for 2011 reflects the gain on the sale of the property at 7700 Irvine Center and the results of operations of the property for the second quarter of 2011. Discontinued operations for 2010 reflects the property’s operating results for the second quarter of 2010.
Non-controlling interests consist of operating partnership unit holders other than the company and, the non-controlling interests held in our VIE’s and held by others. The decrease was primarily attributable to the gain on sale of 7700 Irvine Center.
Gain on litigation settlement for 2011 represents a settlement of our lawsuit with our insurance carrier related to our Hurricane Ike claims.
Other income for 2011 represents discounts negotiated with several of our accounts payable creditors.

Discussion of the six months ended June 30, 2011 and 2010.

Revenues by period (unaudited, in thousands except percentages):

	Six months ended
	June 30,
	2011		2010		Dollar		% Change
			(restated)		Change
Rental revenue	$	35,222	$	13,432	$	21,790	162	%
Third party management and leasing revenue		2,514		2,166	$	348	16	%

The changes in revenues during the six months ending June 30, 2011 as compared to June 30, 2010 were primarily due to the following:

Rental revenue for the period increased by $21.8 million, or 162%, in comparison to the prior period. The increase in rental revenue was primarily due to the consolidation of VIE’s, which resulted in additional rental revenues of approximately $22.1 million. Rental revenue for properties other than the VIE’s decreased by $0.3 million. This decrease was attributable to a decrease in rental revenue for properties owned for all of the six months ended June 30, 2011 and June 30, 2010 of approximately $1.1 million. This decrease was primarily due to a decrease in occupancy. The weighted average occupancy of the owned properties decreased from 82% at June 30, 2010 to 75% at June 30, 2011. The decrease in rental revenue was partially offset by the acquisition of two properties in the second quarter of 2010, which accounted for an increase in rental revenue of $0.8 million.
The increased third party management and leasing revenue was primarily due to increased leasing and refinancing activity.

Operating Expenses by period (unaudited, in thousands except percentages):

	Six months ended
	June 30,
	2011		2010		Dollar		% Change
			(restated)		Change
Property operating expenses	$	13,601	$	6,579	$	7,022	107	%
Corporate general and administrative		4,941		4,138	$	803	19	%
Depreciation and amortization		15,238		6,208	$	9,030	145	%
Interest expense		15,759		5,748	$	10,011	174	%
Impairment expense		150		-	$	150	N/A

The changes in operating expenses during the six months ended June 30, 2011 as compared to 2010 were primarily due to the following:

Property operating expenses increased by approximately $7.0 million. This increase was primarily due to the consolidation of VIE’s which amounted to $7.6 million. Property operating expenses for the properties other than the VIE’s decreased by $0.6 million. This decrease was attributable to lower operating expenses for properties owned for the full six months ended June 30, 2011 and June 30, 2010 of approximately $1.0 million in large part due to cost cutting measures implemented by management, partially offset by an increase of $0.4 million related to the acquisition of two properties in the second quarter of 2010.
General and administrative expenses increased by approximately $0.8 million. The increase was in large part due to six months of operating expenses associated with the property management and asset management contracts acquired from Evergreen in January 2010. The increase was also due to higher accounting, consulting and professional fees attributable to the consolidation of VIE’s and due to an engagement for business advisory services.
Depreciation and amortization expense increased by approximately $9.0 million, primarily as a result of our VIE’s which accounted for approximately $8.7 million of this increase. The increase also due to an increase in depreciation expense related to capitalized improvements and amortization related to acquired intangible assets.
Interest expense increased by approximately $10.0 million. The increase was primarily due to the consolidation of VIE’s, which accounted for $8.8 million of this increase. The increase was also attributable to an increase in debt attributable to two properties acquired in the second quarter of 2010 and corporate borrowings.
Impairment expense increased by approximately $0.2 million. The impairment expense relates to two management contracts with properties that were terminated during the six months ended June 30, 2011. No impairment expense was incurred during the six months ended June 30, 2010.

All of our expenses are significantly influenced by acquisition activity. We continue to be committed to our philosophy of opportunistic yet disciplined acquisitions of both real estate and asset management contracts to provide for both organic and external growth. We expect all our operating expenses to remain relatively the same over the next year for our properties owned and our third party clients currently being serviced at June 30, 2011.

Additional Income Statement Items by Period (unaudited, in thousands except percentages):

	Six Months Ended
	June 30,
	2011			2010		Dollar			% Change
				(restated)		Change
Interest income	$	199		$	77	$	122		158	%
Discontinued operations		16,880			2,129	$	14,751		693	%
Non-controlling interests		(3,402	)		455	$	(3,857	)	-848	%
Gain on litigation settlement		4,174			-	$	4,174		N/A
Other income		623			-	$	623		N/A

The changes in other income statement items during the six months ended June 30, 2011 as compared to June 30, 2010 were primarily due to the following:

Discontinued operations for 2011 reflects the gain on the sale of the property at 7700 Irvine Center and the result of operations of the property for the second quarter of 2011. Discontinued operations for 2010 reflects the property’s operating results for the second quarter of 2010.
Non-controlling interests consist of operating partnership unit holders other than the company and, the non-controlling interests held in our VIE’s and held by others. The decrease was primarily attributable to the gain on sale of 7700 Irvine Center.
Gain on litigation settlement for 2011 represents a settlement of our lawsuit with our insurance carrier related to our Hurricane Ike claims.
Other income for 2011 represents discounts negotiated with several of our accounts payable creditors.

LIQUIDITY AND CAPITAL RESOURCES

The sale of 7700 Irvine Center and settlement of an insurance related lawsuit generated $10.1 million during the second quarter of 2011 (See Note 3 – Discontinued Operations and Note 11 – Commitments and Contingencies). We spent $3.4 million in the second quarter to reduce payables and debt. During July 2011, we spent another $6.5 million to further reduce payables, debt and other accrued liabilities.

We have approximately 982 leases expiring in various periods over this calendar year. Self-storage leases account for approximately 374 of these leases and are typically month to month in duration. Failure to renew these leases will cause a reduction in rental income.

We anticipate seeing continued growth in our third party management and transaction revenues as we retain our clients and add additional clients to our portfolio. Transaction fees such as tenant acquisition fees, leasing fees and loan advisory fees for arranging financing related to properties under management, and fees and commissions relating to the sale of third party client properties, are all when-and-if-they-occur revenue streams. We can make no guarantee that there will not be some variability in the amounts and timing of amounts related to our transaction fees.

We may continue to acquire additional properties and management contracts based on information that leads us to believe the assets will produce cash and income. Acquisitions entail risks that investments will fail to perform in accordance with expectations. If this is the case, we may need to seek additional funding to help us meet our operational cash flow needs. We cannot guarantee that such funds will be available to us to meet our short-term or long-term operational cash needs at competitive rates or at all.

We have elected not to make payments on debt of $27.8 million due to the unpaid balances of the mortgages exceeding the value of the properties covered by the mortgages. We are actively negotiating with the lenders, but there can be no assurance that these negotiations, which may result in loan modifications or discounted pay-offs, will be successful, and the lenders could initiate foreclosure proceedings. Two of the lenders notified us during the second quarter of 2011 that two of our properties Bissonnet and Spectrum, whose debt the company is electing not to service, went into receivership status. The loans not being serviced are secured only by the real estate assets. Each of the properties securing the debt in default is held by a consolidated wholly owned subsidiary that has not guaranteed the debt. All of the notes which we have elected to not pay have payment acceleration clauses, and payment in full could be demanded by the lenders holding these notes. Certain of these properties currently have operating deficits. We evaluated the impairment related to the long-lived assets of the properties secured by these loans and determined that no impairment should be recorded at June 30, 2011 as the debt exceeds the respective carrying value of each of the properties. For further discussion see Note 6. “Notes Payable”.

We need to generate cash to meet our current liquidity requirements. As of August 5, 2011, the Company (excluding VIE’s) had accounts payable over 90 days totaling $6.5 million. We have successfully negotiated notes payable terms with approximately $2.2 million worth of our accounts payable creditors that were in excess of 90 days old, of which approximately $0.9 million was negotiated during the first two quarters of 2011. We intend to meet these obligations by selling one or more of our properties or through borrowing activities or a combination of those two.

Most of our mortgage debt is not cross-collateralized. We have four mortgage loans that are cross collateralized with a second property.

Because of uncertainties caused by the current credit crisis, our current debt level and our historic losses, there can be no assurance as to our ability to obtain the funds necessary for the refinancing of our maturing debts and our ability to meet the required debt covenants. If refinancing transactions are not consummated, we will seek extensions and/or modifications from existing lenders and initiate cost-cutting measures and seek equity financing. If these refinancings or extensions do not occur, we will not have sufficient cash to meet our obligations.

Current and historic sources of cash from operations:

rent payments
management fees
transaction fees

Current and historic uses of cash from operations:

personnel costs
building maintenance costs
property taxes

The consolidation of VIE’s into the condensed consolidated financial statements and activity from ASR owned properties contributed $7.4 million and $0.7 million, respectively, to the $8.1 million cash flows provided by operating activities for the six months ended June 30, 2011. The increase in depreciation and amortization expense period over period of approximately $9 million resulted from the consolidation of VIE’s. Net cash provided by the operating activities of discontinued operations was approximately $0.4 million for the six months end June 30, 2011.

Net cash provided by operations increased by $8.5 million in 2011 over 2010. This increase was in large part attributable to the consolidation of our VIE’s and the settlement of our insurance related litigation.

Current and historic sources of cash from investing:

proceeds from the sale of assets

Current and historic uses of cash from investing:

property improvements
cash needed to acquire assets

Cash provided by investing activities increased by approximately $42.8 million during the six months ended June 30, 2011 when compared to the six months ended June 30, 2010. During the six months ended June 30, 2011 we received proceeds from the sale of 7700 Irvine Center of approximately $51.1 million. Cash of $0.6 million was used for capital improvements to real estate assets. During the six months ended June 30, 2010 we received proceeds from the sale of 5850 San Felipe of approximately $10.2 million. Cash of approximately $2.0 million was used for capital improvements to real estate assets in 2010.

Current and historic sources of cash from financing activities:

proceeds from borrowing money
proceeds from equity placements

Current and historic uses of cash from financing activities:

debt service payments
cash needed to acquire partnership interests

Cash used in financing activities increased by approximately $45.6 million during the six months ended June 30, 2011 when compared to the six months ended June 30, 2010. The increase was principally due to the repayment of our loan of $45.0 million in connection with the sale of our 7700 Irvine Center property. During the six months ended June 30, 2011, total borrowings repaid amounted to approximately $55.0 million, which included approximately $5.6 million from our VIE’s. Distributions to non-controlling interests amounted to approximately $3.4 million. Proceeds from borrowings of approximately $5.5 million, which included approximately $5.3 million from our VIE’s, were received during the six months ended June 30, 2011. Contributions from non-controlling interests amounted to approximately $0.5 million. During the six months ended June 30, 2010 total borrowings repaid amounted to approximately $7.6 million. We also repurchased a preferred partnership interest for approximately $1.8 million during the six months ended June 30, 2010. Proceeds from borrowings received during the six months ended June 30, 2010 was approximately $3.2 million.

FUNDS FROM OPERATIONS

We believe that Funds From Operations (“FFO”) is a useful supplemental measure of our operating performance. We computed FFO in accordance with standards established by the White Paper on FFO approved by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”) in April 2002. The White Paper defines FFO as net income or loss computed in accordance with Generally Accepted Accounting Principles (“GAAP”), excluding extraordinary items, as defined by GAAP, and gains and losses from sales of depreciable operating property plus real estate-related depreciation and amortization and after adjustments for unconsolidated partnerships and joint ventures. We believe that FFO is helpful to investors as a measure of our performance because, along with cash flow from operating activities, FFO provides investors with an indication of our ability to incur and service debt, to make capital expenditures and to fund other cash needs. FFO is a non-GAAP financial measure. FFO does not represent net income or cash flows from operations, as defined by GAAP, and should not be considered as an alternative to net income (determined in accordance with GAAP) as an indicator of our operating performance or as an alternative to cash flows from operating, investing and financing activities (determined in accordance with GAAP) as a measure of liquidity. FFO does not necessarily indicate that cash flows will be sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders. Further, FFO as disclosed by other companies may not be comparable to our calculation of FFO.

The following table sets forth our calculation of FFO for the six months ended June 30, 2011 and June 30, 2010 (in thousands):

		Six Months			Six Months
		Ended			Ended
		June 30, 2011			June 30, 2010
Net income/(loss) attributable to the Company	$	7,394		$	(1,756	)
Depreciation and amortization from discontinued operations		712			1,636
Gain from sale of discontinued operations attributable to the Company		(15,444	)		(4,315	)
Impairment expense		150			-
Deferred income tax expense/(benefit)		5,021			(1,430	)
Depreciation and amortization attributable from Company’s owned
properties		6,157			5,999
FFO	$	3,990		$	134

The increase in FFO was primarily due to the gain recognized on the litigation settlement.

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 us to increase rental rates or other charges to tenants in response to rising prices and therefore, serve to reduce our 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; 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 global financial crisis and recent downturn in the United States economy; the potential delisting of the Company’s stock; changes in federal and local laws, and regulations; increased competitive pressures; and other factors, as well as factors set forth elsewhere in this Report on Form 10-Q.

ITEM 4 - CONTROLS AND PROCEDURES

Management, including the Company’s Chief Executive Officer and Chief Financial Officer, has 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.

During the second quarter of 2011, we made changes to internal controls over financial reporting as they relate to business combinations and VIE’s as reported in Item 9 of the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2011.

PART II. OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

On March 2, 2011, the Company filed an action against Evergreen Realty Group, LLC and certain of its affiliates ("Evergreen") relating to its acquisition of assets from Evergreen in January 2010. The purchase price of the assets was $18.0 million, subject to adjustment as provided in the purchase agreement, and was paid in the form of (a) the assumption of $500,000 of payables, (b) the issuance of a $9.5 million promissory note and (c) the issuance of operating partnership units (which would be redeemable by Evergreen after June 30, 2011 for a number of shares of the Company's common stock (or, at the Company’s option, the cash equivalent) equal to the quotient obtained by dividing $8.0 million by the greater of the Company's share price or net asset value as of December 31, 2010. In its action, the Company is alleging various offsets and adjustments to the purchase price, as well as defaults by Evergreen, and is seeking damages and a declaration that the principal amount of the promissory note should be reduced to zero, that the operating partnership units should be cancelled and that Evergreen should refund to the Company payments of at least $578,000 which have been made on the promissory note. On March 7, 2011, New West Realty, Inc. (“New West”), an affiliate of Evergreen, filed a complaint for damages in Orange County Superior Court against ASR and other related entities. New West alleges in the complaint that ASR has failed to pay amounts due under a promissory note held by New West in the amount of $9.5 million. The Company has subsequently paid all amounts currently due and payable under the note and therefore disputes the claim, denies that any payment is now due under the note and we have filed a separate lawsuit against New West and others seeking damages in excess of the amount of New West’s claim.

The litigation is ongoing and the Company cannot give any assurances that it will obtain the declaration or the damages that it seeks.

Certain other claims and lawsuits have arisen against the Company in its normal course of business, including lawsuits by creditors with respect to past due accounts payable. The Company believes that such claims and lawsuits will not have a material adverse effect on the Company’s financial position, cash flows or results of operations.

ITEM 5 - 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 13, 2011, a report on Form 8-K was filed with respect to Item 8.01
On May 16, 2011, a report on Form 8-K was filed with respect to Item 2.02
On May 24, 2011, a report on Form 8-K was filed with respect to Item 8.01
On May 25, 2011, a report on Form 8-K was filed with respect to Item 5.07
On May 27, 2011, a report on Form 8-K was filed with respect to Item 5.02

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: August 15, 2011	By:	/s/ William J. Carden
		William J. Carden
		Chairman of the Board, President and,
		Chief Executive Officer
		(Principal Executive Officer)


Date: August 15, 2011	By:	/s/ G. Anthony Eppolito
		G. Anthony Eppolito
		Vice President, Chief Financial Officer,
		(Principal Financial Officer),
		Treasurer and Secretary


Date: August 15, 2011	By:	/s/ Elisa R. Grainger
		Elisa R. Grainger
		Vice President, Chief Accounting Officer,
		(Principal Accounting Officer),

EXHIBIT INDEX

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

Attached files

AMERICAN SPECTRUM REALTY INC Reports

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