<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C.  20549


                                   FORM 10-Q


             [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1999
                                                          ------------------



                         Commission File Number 1-14784
                                                -------



                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
             -------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)



           NEVADA                                          75-2615944
-------------------------------                        -------------------
(State or Other Jurisdiction of                          (I.R.S. Employer
 Incorporation or Organization)                        Identification No.)



    10670 North Central Expressway, Suite 300, Dallas, Texas,      75231
    -----------------------------------------------------------------------
     (Address of Principal Executive Offices)                    (Zip Code)



                                (214) 692-4700
                        ------------------------------
                        (Registrant's Telephone Number,
                             Including Area Code)



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  X .  No ___.
                                        ---



Common Stock, $.01 par value                          1,528,908
----------------------------               ---------------------------------
         (Class)                           (Outstanding at October 29, 1999)

                                       1
<PAGE>

                         PART I.  FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS
-----------------------------

The accompanying Consolidated Financial Statements have not been audited by
independent certified public accountants, but in the opinion of the management
of Income Opportunity Realty Investors, Inc. (the "Company"), all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the Company's consolidated financial position, consolidated results of
operations and consolidated cash flows at the dates and for the periods
indicated, have been included.

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                      September 30,  December 31,
                                                          1999           1998
                                                      -------------  ------------
                                                        (dollars in thousands,
                                                           except per share)
                Assets
                ------
<S>                                                   <C>            <C>
Real estate held for investment, net of
 accumulated depreciation ($9,387 in 1999 and
 $7,379 in 1998)....................................       $ 83,398      $ 83,691

Investment in partnerships..........................            842         1,483
Cash and cash equivalents...........................            142           103
Other assets (including $314 in 1999 and $475 in
 1998 from affiliates)..............................          3,356         3,418
                                                           --------      --------
                                                           $ 87,738      $ 88,695
                                                           ========      ========

         Liabilities and Stockholders' Equity
         ------------------------------------
Liabilities
Notes and interest payable..........................       $ 60,211      $ 60,786
Other liabilities (including $63 in 1999 and
 $1,194 in 1998 to affiliates)......................          3,834         4,349
                                                           --------      --------
                                                             64,045        65,135

Commitments and contingencies

Stockholders' equity
Common Stock, $.01 par value;
 authorized, 10,000,000 shares; issued and
 outstanding, 1,527,772 shares in 1999 and
 1,526,043 in 1998..................................             15            15
Paid-in capital.....................................         64,868        64,857
Accumulated distributions in excess of accumulated
 earnings...........................................        <41,190>      <41,312>
                                                           --------      --------
                                                             23,693        23,560
                                                           --------      --------
                                                           $ 87,738      $ 88,695
                                                           ========      ========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

                                       2
<PAGE>

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                                For the Three Months       For the Nine Months
                                                                                Ended September 30,        Ended September 30,
                                                                                 1999           1998         1999         1998
                                                                              ----------     ----------   -----------  ----------
                                                                                    (dollars in thousands, except per share)
<S>                                                                           <C>            <C>          <C>          <C>
INCOME
  Rents...................................................................    $    4,199     $   3,321    $    12,016  $   10,511
  Interest................................................................            10            33             23         158
                                                                              ----------     ---------    -----------  ----------
                                                                                   4,209         3,354         12,039      10,669


EXPENSES
 Property operations......................................................         1,783         1,592          5,076       4,547
 Interest.................................................................         1,371         1,388          4,206       4,217
 Depreciation.............................................................           690           551          2,008       1,573
 Advisory fee to affiliate................................................           163           165            495         500
  Net income fee to affiliate.............................................            63           <4>             65           -
 General and administrative...............................................           210           206            539         594
                                                                              ----------     ---------    -----------  ----------
                                                                                   4,280         3,898         12,389      11,431
                                                                              ----------     ---------    -----------  ----------


<Loss> from operations....................................................           <71>         <544>          <350>       <762>

Equity in income <loss> of
  partnerships............................................................           850           <12>         1,155         249
                                                                              ----------     ---------    -----------  ----------

Net income <loss>.........................................................    $      779     $    <556>   $       805  $     <513>
                                                                              ==========     =========    ===========  ==========


Earnings Per Share

  Net income <loss>.......................................................    $      .51     $    <.37>   $       .53  $     <.34>
                                                                              ==========     =========    ===========  ==========

Weighted average Common shares
  used in computing
  earnings per share......................................................     1,527,751     1,522,491      1,526,873   1,520,976
                                                                              ==========     =========    ===========  ==========
</TABLE>

The accompanying notes are an integral part of these Consolidated Financial
Statements.

                                       3
<PAGE>

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                  For the Nine Months Ended September 30, 1999

<TABLE>
<CAPTION>
                                                                                          Accumulated
                                                                                         Distributions
                                                                                         in Excess of
                                                            Common Stock       Paid-In    Accumulated     Stockholders'
                                                     ----------------------
                                                        Shares     Amount      Capital      Earnings         Equity
                                                     ----------  ----------  ----------- -------------- ----------------
                                                                 (dollars in thousands, except per share)
<S>                                                  <C>         <C>         <C>         <C>             <C>
Balance, January 1, 1999.........................     1,526,043  $       15  $    64,857 $      <41,312> $        23,560

Sale of Common Stock under
     dividend reinvestment
     plan........................................         1,729           -           11              -               11

Dividends ($.45 per share)                                    -           -            -           <683>            <683>

Net income.......................................             -           -            -            805              805
                                                     ----------  ----------  ----------- -------------- ----------------

Balance, September 30,
     1999........................................     1,527,772  $       15  $    64,868 $      <41,190> $        23,693
                                                     ==========  ==========  =========== ==============  ===============
</TABLE>


The accompanying notes are an integral part of these Consolidated Financial
Statements.

                                       4
<PAGE>

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                               For the Nine Months
                                                               Ended September 30,
                                                             -----------------------
                                                                  1999      1998
                                                             -----------  ----------
                                                              (dollars in thousands)
<S>                                                          <C>          <C>
Cash Flows from Operating Activities
 Rents collected......................................       $    12,024  $  10,806
 Interest collected...................................                23        168
 Interest paid........................................            (4,085)    (4,072)
 Payments for property operations.....................            (4,498)    (4,615)
 Advisory and net income fee paid to affiliate........              (160)      (369)
 General and administrative expenses paid.............              (561)      (895)
 Distributions from equity partnerships' operating
    cash flow.........................................               155          -
 Other................................................                94       (225)
                                                             -----------  ---------

    Net cash provided by operating activities.........             2,992        798


Cash Flows from Investing Activities
 Investment in equity partnership.....................              (384)         -
 Real estate improvements.............................            (1,716)    (3,143)
 Funding of equity partnerships.......................                (1)        (7)
 Distributions from equity partnerships'
    investing cash flow...............................             2,027        399
 Collection of note receivable........................                 -      2,000
                                                             -----------  ---------

    Net cash (used in) investing activities...........               (74)      (751)


Cash Flows from Financing Activities
 Payments on notes payable............................            (6,485)    (1,180)
 Proceeds from notes payable..........................             5,940        800
 Deferred borrowing costs.............................              (289)       (24)
 Sale of Common Stock under dividend reinvestment
    plan..............................................                11         29
 Dividends to stockholders............................              (683)      (719)
 Advances from/payments to affiliates.................            (1,373)       383
                                                             -----------  ---------

    Net cash (used in) financing activities...........            (2,879)      (711)


Net increase (decrease) in cash and cash equivalents                  39       (664)
Cash and cash equivalents, beginning of period........               103      1,145
                                                             -----------  ---------

Cash and cash equivalents, end of period..............       $       142  $     481
                                                             ===========  =========
</TABLE>


The accompanying notes are an integral part of these Consolidated Financial
Statements.

                                       5
<PAGE>

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
               CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

<TABLE>
<CAPTION>
                                                                     For the Nine Months
                                                                     Ended September 30,
                                                                -----------------------------
                                                                   1999               1998
                                                                -----------       -----------
                                                                  (dollars in thousands)
<S>                                                             <C>               <C>
Reconciliation of net income (loss) to net cash
  provided by operating activities
Net income (loss).............................................  $       805       $     (513)
Adjustments to reconcile net income (loss) to net
     cash provided by operating activities
  Depreciation and amortization...............................        2,159            1,666
  Equity in (income) of partnerships..........................       (1,155)            (249)
  Distributions from equity partnerships' operating
     cash flow................................................          155                -
  Decrease in interest receivable.............................            -               17
  Decrease in other assets....................................          393              483
  Increase (decrease) in interest payable.....................          (30)              45
  Increase (decrease) in other liabilities....................          665             (651)
                                                                -----------       ----------

     Net cash provided by operating activities................  $     2,992       $      798
                                                                ===========       ==========
</TABLE>



The accompanying notes are an integral part of these Consolidated Financial
Statements.

                                       6
<PAGE>

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1. BASIS OF PRESENTATION
-----------------------------

The accompanying Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and notes required
by generally accepted accounting principles for complete financial statements.
Operating results for the nine month period ended September 30, 1999 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1999. For further information, refer to the Consolidated Financial
Statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1998 (the "1998 Form 10-K").

Certain balances for 1998 have been reclassified to conform to the 1999
presentation.


NOTE 2. INVESTMENT IN EQUITY METHOD REAL ESTATE ENTITIES
--------------------------------------------------------

The Company owns a 36.3% general partner interest in Tri-City Limited
Partnership ("Tri-City"), which, at January 1, 1999, owned three commercial
properties in Texas. In June 1999, Tri-City sold the 48,696 sq. ft. Summit at
Bridgewood Shopping Center for $3.3 million, receiving net cash of $3.1 million
after the payment of various closing costs, including a real estate brokerage
commission of $119,000 to Carmel Realty, Inc. ("Carmel Realty"), an affiliate of
Basic Capital Management, Inc. ("BCM"), the Company's advisor. The Company
received a distribution of $1.2 million of such net cash. Tri-City recognized a
gain of $587,000 on the sale of which the Company's equity share was $213,000.
In July 1999, Tri-City sold the 53,472 sq. ft. MacArthur Mills Office Building
in Carrollton, Texas, for $3.9 million, receiving net cash of $2.3 million after
paying off $1.3 million of mortgage debt and the payment of various closing
costs, including a real estate brokerage commission of $137,000 to Carmel
Realty. The Company received a distribution of $871,000 of such net cash.
Tri-City recognized a gain of $2.3 million on the sale of which the Company's
equity share was $822,000.

In September 1999, the Company invested $384,000 for a 10% limited partnership
interest in TCI Eton Square, L.P., a Texas limited partnership which purchased
the 222,654 sq. ft. Eton Square Building in Tulsa, Oklahoma, for $14.0 million
paying $3.1 million in cash and obtaining mortgage financing of $10.5 million.
The mortgage bears interest at 8.5% per annum requires monthly payments of
principal and interest of $84,549 and matures in October 2004. The partnership
paid a real estate brokerage commission of $330,000 to Carmel Realty and a real
estate acquisition fee of $140,000 to BCM.

                                       7
<PAGE>

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued



NOTE 3. NOTES AND INTEREST PAYABLE
----------------------------------

In January 1999, the mortgage debt in the amount of $2.5 million secured by the
42,895 sq. ft. Akard Plaza Office Building in Dallas, Texas, matured. In
February 1999, the lender agreed to extend the maturity date to June 1999. In
July 1999, the Company refinanced the matured mortgage debt in the amount of
$2.1 million, paying net cash of $547,000 to payoff the $2.5 million in mortgage
debt and the payment of various closing costs, including a mortgage brokerage
and equity refinancing fee of $21,000 to BCM. The new mortgage bears interest at
a variable rate, currently 8.07% per annum, requires monthly payments of
principal and interest of $16,306 and matures in August 2002.

In August 1999, the Company refinanced the mortgage debt secured by the 128 unit
La Monte Park Apartments in Houston, Texas, in the amount of $3.8 million,
receiving net cash of $355,000 after paying off $3.3 million in mortgage debt
and the payment of various closing costs and escrows. The new mortgage bears
interest at 7.95% per annum, requires monthly payments of principal and interest
of $28,043 and matures in September 2009. A mortgage brokerage and equity
refinancing fee of $38,000 was paid to BCM.


NOTE 4. COMMITMENTS AND CONTINGENCIES
-------------------------------------

The Company is involved in various lawsuits arising in the ordinary course of
business.  Management is of the opinion that the outcome of these lawsuits will
have no material impact on the Company's financial condition, results of
operations or liquidity.


NOTE 5. OPERATING SEGMENTS
--------------------------

Significant differences among the accounting policies of the Company's operating
segments as compared to the Company's consolidated financial statements
principally involve the calculation and allocation of general and administrative
expenses.  Management evaluates the performance of the  operating segments and
allocates resources to each of them based on their operating income and cash
flow.  The Company based reconciliation of expenses that are not reflected in
the segments is $539,000 of general and administrative expenses in the nine
months ended September 30, 1999 and $594,000 in 1998.  There are no intersegment
revenues and expenses and the Company conducts all of its business in the United
States.

                                       8
<PAGE>

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued


NOTE 5. OPERATING SEGMENTS (Continued)
--------------------------

Presented below is the operating income of each of the Company's reportable
operating segments for the nine months ended September 30, and each segment's
assets at September 30.

<TABLE>
<CAPTION>
                                      Commercial
   1999                               Properties  Apartments   Total
----------                            ----------  ----------  -------
<S>                                   <C>         <C>         <C>
    Rents...........................  $    8,022  $    3,994  $12,016
    Property operating expenses.....       3,307       1,769    5,076
                                      ----------  ----------  -------
    Operating income................  $    4,715  $    2,225  $ 6,940
                                      ==========  ==========  =======

    Depreciation....................  $    1,556  $      452  $ 2,008
    Interest........................       2,832       1,374    4,206
    Real estate improvements........       1,716           -    1,716
    Assets..........................      58,952      24,446   83,398

   1998
----------
    Rents...........................  $    6,569  $    3,942  $10,511
    Property operating expenses.....       2,711       1,836    4,547
                                      ----------  ----------  -------
    Operating income................  $    3,858  $    2,106  $ 5,964
                                      ==========  ==========  =======

    Depreciation....................  $    1,121  $      452  $ 1,573
    Interest........................       2,828       1,389    4,217
    Real estate improvements........       3,034         109    3,143
    Assets..........................      58,371      25,112   83,483
</TABLE>

                           ________________________

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

Introduction
------------

The Company invests in equity interests in real estate through direct equity
ownership and partnerships and has invested in mortgage loans on real estate.
The Company is the successor to a California business trust organized on
December 14, 1984 which commenced operations on April 10, 1985.

Liquidity and Capital Resources
-------------------------------

Cash and cash equivalents at September 30, 1999, were $142,000, compared with
$103,000 at December 31, 1998.  The Company's principal sources of cash have
been, and will continue to be property operations, proceeds from property sales,
financings and refinancings, partnership distributions and, to the extent
necessary,  advances from its advisor.

The Company's cash flow from property operations (rents collected less payments
for expenses applicable to rental income) increased to $7.5

                                       9
<PAGE>

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

Liquidity and Capital Resources (Continued)
-------------------------------

million in the nine months ended September 30, 1999 from $6.2 million in 1998.
This increase was mainly due to an increase in rental rates and an increase in
occupancy at the Company's commercial properties.

Interest collected decreased to $23,000 in 1999 from $168,000 in 1998. The
decrease was due to the collection of the Company's last remaining mortgage note
receivable in August 1998.

General and administrative expenses paid decreased to $561,000 in 1999 from
$895,000 in 1998.  This decrease was due to a decrease in legal fees relating to
the Olive litigation and a decrease in professional fees paid related to
prospective property purchases.

Distributions received from equity partnerships were $2.2 million in 1999
compared to $399,000 in 1998.  This increase was due to Tri-City's sale of the
Summit at Bridgewood Shopping Center and MacArthur Mills Office Building.  See
NOTE 2. "INVESTMENT IN EQUITY METHOD REAL ESTATE ENTITIES."

Other cash from operating activities increased to $94,000 in 1999 from a use of
$225,000 in 1998.  The increase is due to a decrease in prepaids and other
assets and an increase other liabilities.

Under its advisory agreement, all or a portion of the annual advisory fee must
be refunded by the advisor if the operating expenses of the Company exceed
certain limits specified in the advisory agreement.  The Company received a
refund of $337,000 of its 1998 advisory fee in March 1999 as compared to
$202,000 of its 1997 advisory fee in March 1998.

In 1999, dividends of $.45 per share or a total of $683,000 were paid and 1,729
shares of Common Stock were sold through the dividend reinvestment program for a
total of $11,000.

Management reviews the carrying values of the Company's properties at least
annually and whenever events or a change in circumstances indicate that
impairment may exist.  Impairment is considered to exist if, in the case of a
property, the future cash flow from the property (undiscounted and without
interest) is less than the carrying amount of the property. If impairment is
found to exist, a provision for loss is recorded by a charge against earnings.
The property review generally includes selective property inspections,
discussions with the manager of the property and visits to selected  properties
in the area and a review of the following:  (1) the property's current rents
compared to market rents; (2) the property's expenses; (3) the property's
maintenance requirements; and (4) the property's cash flows.

Results of Operations
---------------------

For the three and nine months ended September 30, 1999, the Company had net
income of $779,0000 and $805,000 as compared with a net loss of

                                       10
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
         RESULTS OF OPERATIONS (Continued)
         ---------------------

Results of Operations (Continued)
---------------------

$556,000 and net income $513,000 for the corresponding periods in 1998.
Fluctuations in components of revenue and expense between the 1998 and 1999
periods are discussed below.

Rents in the three and nine months ended September 30, 1999 were $4.2 million
and $12.0 million as compared to $3.3 million and $10.5 million in the
corresponding periods in 1998.  The increase in rents was mainly due to an
increase in rental rates and a decrease in lost rents from bad debts at the
Company's commercial properties and the initial leasing of an office building
construction of which was completed in September 1998.  Rents for the remainder
of 1999 are expected to increase as the occupancy rate at the Company's
commercial properties is expected to increase.

Property operations expense in the three and nine months ended September 30,
1999 was $1.8 million and $5.1 million as compared to $1.6 million and $4.5
million in the corresponding periods in 1998.  The increases were due to an
increase in property tax and repair and maintenance expenses at the Company's
commercial properties in addition to leasing expenses relating to the lease up
of the Company's recently completed 2010 Valley View Office Building.

Interest income in the three and nine months ended September 30, 1999 was
$10,000 and $23,000 as compared to $33,000 and $158,000 in the corresponding
periods in 1998.  The decrease was due to the collection of the Company's last
remaining mortgage note receivable in August 1998. Interest income for the
remainder of 1999 is expected to be insignificant.

Interest expense was constant at $1.4 million and $4.2 million in the three and
nine months ended September 30, 1999 and as compared to 1998. Interest expense
for the remainder of 1999 is expected to approximate that of the third quarter,
unless the Company acquires or sells properties.

Depreciation increased to $690,000 and $2.0 million in the three and nine months
ended September 30, 1999 compared to $551,000 and $1.6 million in the
corresponding periods in 1998.  The increase was due to increased depreciation
of capital and tenant improvements at the Company's commercial properties.
Depreciation is expected to remain constant, unless the Company acquires or
sells properties.

The advisory fee of $163,000 and $495,000 in the three and nine months ended
September 30, 1999 approximated the $165,000 and $500,000 in 1998. Advisory fee
expense is expected to remain constant, unless the Company acquires or sells
properties.

Net income fee was $63,000 and $65,000 in the three and nine months ended
September 30, 1999. No such fee was incurred for the nine months ended September
30, 1998. The net income fee is payable to the Company's advisor based on 7.5%
of the Company's net income.

                                       11
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
         RESULTS OF OPERATIONS (Continued)
         ---------------------


Results of Operations (Continued)
---------------------

General and administrative expense was $210,000 and $539,000 for the three and
nine months ended September 30, 1999 as compared to $206,000 and $594,000 in the
corresponding periods in 1998.  The nine month decrease was mainly due to a
decrease in legal fees related to litigation and professional fees relating to
prospective property purchases.  General and administrative expense for the
remainder of 1999 is expected to approximate that of the third quarter of 1999.

Tax Matters
-----------

As more fully discussed in the Company's 1998 Form 10-K, the Company has elected
and, in management's opinion, qualified, to be taxed as a real estate investment
trust ("REIT"), as defined under Sections 856 through 860 of the Internal
Revenue Code of 1986, as amended, (the "Code").  To continue to qualify for
federal taxation as a REIT under the Code, the Company is required to hold at
least 75% of the value of its total assets in real estate assets, government
securities, cash and cash equivalents at the close of each quarter of each
taxable year.  The Code also requires a REIT to distribute at least 95% of its
REIT taxable income plus 95% of its net income from foreclosure property, all as
defined in Section 857 of the Code, on an annual basis to shareholders.

Inflation
---------

The effects of inflation on the Company's operations are not quantifiable.
Revenues from apartment operations tend to fluctuate proportionately with
inflationary increases and decreases in housing costs.  Fluctuations in the rate
of inflation also affect the sales value of properties and the ultimate gain to
be realized from property sales.  To the extent that inflation affects interest
rates, earnings from short-term investments and the cost of new financings as
well as the cost of variable interest rate debt will be affected.

Environmental Matters
---------------------

Under various federal, state and local environmental laws, ordinances and
regulations, the Company may be potentially liable for removal or remediation
costs, as well as certain other potential costs, relating to hazardous or toxic
substances (including governmental fines and injuries to persons and property)
where property-level managers have arranged for the removal, disposal or
treatment of hazardous or toxic substances.  In addition, certain environmental
laws impose liability for release of asbestos-containing materials into the air,
and third parties may seek recovery for personal injury associated with such
materials.

Management is not aware of any environmental liability relating to the above
matters that would have a material adverse effect on the Company's business,
assets or results of operations.

                                       12
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
         RESULTS OF OPERATIONS (Continued)
         ---------------------


Year 2000
---------

BCM, the Company's advisor, has informed management that its computer hardware
operating system and computer software have been certified as year 2000
compliant.

Further, Carmel Realty Services, Ltd. ("Carmel, Ltd."), an affiliate of BCM that
performs property management services for the Company's properties, has informed
management that effective January 1, 1999 it began using year 2000 compliant
computer hardware and property management software for the Company's commercial
properties.  With regard to the Company's apartments, Carmel, Ltd. has informed
management that its subcontractors are also using year 2000 compliant computer
hardware and property management software.

The Company has not incurred, nor does it expect to incur, any costs related to
its computer hardware and accounting and property management software being
modified, upgraded or replaced to make them year 2000 compliant.  Such costs
have been or will be borne by either BCM, Carmel, Ltd. or the property
management subcontractors of Carmel, Ltd.

Management has completed its evaluation of the Company's computer controlled
building systems, such as security, elevators, heating and cooling, etc., to
determine what systems are not year 2000 compliant. Management believes that
necessary modifications to such systems are insignificant and do not require
significant expenditures to make the affected systems year 2000 compliant, as
enhanced operating systems are readily available.

The Company has or will have in place the year 2000 compliant systems that will
allow it to operate.  The risks the Company faces are that certain of its
vendors will not be able to supply goods or services and that financial
institutions and taxing authorities will not be able to accurately apply
payments made to them.  Management believes that other vendors are readily
available and that financial institutions and taxing authorities will, if
necessary, apply monies received manually.  The likelihood of the above having a
significant impact on the Company's operations is negligible.

                                       13
<PAGE>

                          PART II.  OTHER INFORMATION


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


(a)  Exhibits:


Exhibit
Number                                     Description
-------       ------------------------------------------------------------------

 27.0         Financial Data Schedule, filed herewith.


(b) Reports on Form 8-K as follows:

    None.

                                       14
<PAGE>

                                SIGNATURE PAGE


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                  INCOME OPPORTUNITY REALTY INVESTORS, INC.



Date:  November 4, 1999           By:  /s/ Karl L. Blaha
     ------------------------        ----------------------------------
                                     Karl L. Blaha
                                     President



Date:  November 4, 1999           By:  /s/ Thomas A. Holland
     ------------------------        ----------------------------------
                                     Thomas A. Holland
                                     Executive Vice President and
                                     Chief Financial Officer
                                     (Principal Financial and
                                     Accounting Officer)

                                       15
<PAGE>

                   INCOME OPPORTUNITY REALTY INVESTORS, INC.

                                  EXHIBITS TO
                         QUARTERLY REPORT ON FORM 10-Q

                 For the Nine Months Ended September 30, 1999



Exhibit                                                                   Page
Number                           Description                             Number
-------       ------------------------------------------------           ------

 27.0         Financial Data Schedule.                                     17

                                       16