##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q/A
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 5(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarter year ended March 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 001-14784
 Income Opportunity Realty Investors, Inc.
  Nevada
    
    75-2615944(State or other jurisdiction of
    
    (IRS Employer IdentificationIncorporation or organization)
    
    Number)1755 Wittington Place, Suite 340, Dallas, Texas
    
    75234(Address of principal executive offices)
    
    (Zip Code)
 214-750-5800
  Title of Each Class
    
    Name of each exchange on which registeredCommon Stock, $0.01 par value
    
    American Stock Exchange
 None
 Yes þ No o
 þ
 Yes o No þ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISKITEM 4. CONTROLS AND PROCEDURESPART II. OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsSIGNATURE    Table of Contents  AMENDMENT NO. 1 TO  QUARTERLY REPORT ON FORM 10-Q FOR  INCOME OPPORTUNITY REALTY INVESTORS, INC.  FOR THE QUARTER ENDED MARCH 31, 2005
  
    
    Pages 2-5  Part I, Item 1. Financial Statements. The consolidated
balance sheets, consolidated statements of operations, consolidated statements
of stockholders equity and consolidated statements of cash flows have been
revised in the following respects:
 
    
    Decrease in interest expense by $65,000 from a reported $936,000 to $871,000.
    
    Decrease in advisory fee by $1,000 from a reported $167,000 to $166,000.
    
    Increase in net income fee by $12,000 from a reported $12,000 to $24,000.
    
    Decrease in total other expense by $54,000 from a reported $1,434,000 to $1,380,000.
    
    Increase in net income by $54,000 from a reported $239,000 to $293,000.
    
    Increase in net income per share by $0.04 from a reported $0.17/sh to $0.21/sh.
    
    Decrease in other assets by $210,000 from a reported $3,244,000 to
$3,034,000 (includes $105,000 decrease in 2004 and $73,000 decrease in 2003).
    
    Decrease in total assets by $210,000 from a reported $91,006,000 to
$90,796,000 (includes $105,000 decrease in 2004 and $73,000 decrease in 2003).
    
    Decrease in payable to affiliates by $26,000 from a reported $1,523,000
to $1,497,000 (includes $15,000 decrease in 2004 and $22,000 decrease in 2003).
    
    Increase in other liabilities by $263,000 from a reported $1,081,000 to
$1,344,000 (includes $26,000 decrease in 2004 and $385,000 increase in 2003).
    
    Increase in accumulated deficit by $447,000 from a reported $17,967,000
to $18,414,000 (includes $64,000 increase in 2004 and $436,000 increase in 2003).
  
    
    Pages 8-9  Part I, Item 1. Financial Statements. This item within
these pages has been amended to conform the appropriate references to the
financial statement as stated above.
    
    Pages 11-13  Part I, Item 2. Managements Discussion and Analysis of
Results of Operations. This item within these pages has been amended to
conform the appropriate references to the financial statement as stated above.
    
    Pages 13-14  Part I, Item 4. Controls and Procedures This item has
been revised to disclose the identification of a control deficiency in internal
controls over financial reporting as of April 2002 which continued through
March 2005, which was an error in the recordation of an April 2002 transaction.
    
    Pages 15  Item 1. Legal Proceedings. The last sentence under the
paragraph subcaptioned Innovo Realty, Inc. has been changed to substitute the
amount of $162,000 for $56,000 so that such last sentence will read, Of the
payment, the Company will recognize expense of $162,000 and a reduction of
$1,476,000 in liabilities during the second quarter of 2005.
 1.2




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ITEM 1. FINANCIAL STATEMENTS
    March 31,
    
    
    December 31,2005
    
    
    2004(Restated)
    
    
    (Restated)(dollars in thousands,except per share)AssetsReal estate held for investment
    
    $
    35,033
    
    
    $
    34,988Lessaccumulated depreciation
    
    
    (3,796
    )
    
    
    (3,620
    )31,237
    
    
    
    31,368Related Party Notes and interest receivable
    
    
    55,454
    
    
    
    54,911Investment in real estate partnerships
    
    
    596
    
    
    
    604Cash and cash equivalents
    
    
    214
    
    
    
    399Receivables from affiliates
    
    
    261
    
    
    
    261Other assets
    
    
    3,034
    
    
    
    3,095$
    90,796
    
    
    $
    90,638Liabilities and Stockholders EquityLiabilitiesNotes and interest payable
    
    $
    44,372
    
    
    $
    44,571Payables to affiliates
    
    
    1,497
    
    
    
    1,248Other liabilities
    
    
    1,344
    
    
    
    1,52947,213
    
    
    $
    47,348Commitments and contingenciesStockholders equityCommon Stock, $.01 par value; authorized,
10,000,000 shares; issued and outstanding
1,389,345 shares in 2005 and 1,438,945
shares in 2004
    
    
    14
    
    
    
    14Paid-in capital
    
    
    61,983
    
    
    
    61,983Accumulated deficit
    
    
    (18,414
    )
    
    
    (18,707
    )43,583
    
    
    
    43,290$
    90,796
    
    
    $
    90,638
  2




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For the Three MonthsEnded March 31,(dollars in thousands, except per share)2005
    
    
    2004(Restated)
    
    
    (Restated)Property revenueRents
    
    $
    1,529
    
    
    $
    2,136Property expenseProperty operations (including $29 in 2005 and $32 in 2004 to
affiliates and related parties)
    
    
    821
    
    
    
    1,211Operating income
    
    
    708
    
    
    
    925Other income (loss)Interest
    
    
    974
    
    
    
    598Equity in loss of equity partnerships
    
    
    (9
    )
    
    
    (1
    )965
    
    
    
    597Other expenseInterest
    
    
    871
    
    
    
    1,118Depreciation
    
    
    177
    
    
    
    342Advisory fee to affiliate
    
    
    166
    
    
    
    192Net income fee to affiliate
    
    
    24
    
    
    
    215General and administrative
    
    
    142
    
    
    
    2701,380
    
    
    
    2,137Net income (loss) from continuing operations
    
    
    293
    
    
    
    (615
    )Discontinued operations:Loss from discontinued operations
    
    
    
    
    
    
    (128
    )Gain on sale of operations
    
    
    
    
    
    
    3,257
    
    
    
    3,129Net income
    
    $
    293
    
    
    $
    2,514Earnings (loss) per shareNet income (loss) from continuing operations
    
    $
    0.21
    
    
    $
    (0.42
    )Discontinued operations
    
    
    
    
    
    
    2.17Net income
    
    $
    0.21
    
    
    $
    1.75Weighted average common shares used in computing earnings per share
    
    
    1,389,345
    
    
    
    1,438,945
  3




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Common Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Equity(dollars in thousands)Balance, January 1, 2005 (as restated)
    
    
    1,389,345
    
    
    $
    14
    
    
    $
    61,983
    
    
    $
    (18,707
    )
    
    $
    43,290Net income (as restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    293
    
    
    
    293Balance, March 31, 2005 (as restated)
    
    
    1,389,345
    
    
    $
    14
    
    
    $
    61,983
    
    
    $
    (18,414
    )
    
    $
    43,583
  4




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For the Three MonthsEnded March 31,2005
    
    
    2004(Restated)
    
    
    (Restated)(dollars in thousands)Cash Flows from Operating ActivitiesNet income/(loss)
    
    $
    293
    
    
    $
    2,514Reconciliation of net income (loss) to net cash used by operating activitiesAdjustments to reconcile net income (loss) to net cash used in operating activitiesDepreciation and amortization
    
    
    246
    
    
    
    347Gain on sale of real estate
    
    
    
    
    
    
    (3,257
    )Loss of equity partnerships
    
    
    9
    
    
    
    1(Increase) decrease in interest receivable
    
    
    (543
    )
    
    
    209Decrease (Increase) in other assets
    
    
    298
    
    
    
    (129
    )(Decrease) Increase in interest payable
    
    
    (125
    )
    
    
    17(Decrease) Increase in other liabilities
    
    
    (538
    )
    
    
    385Net cash provided by (used in) operating activities
    
    
    (360
    )
    
    
    87Cash Flows from Investing ActivitiesFunding of equity partnerships
    
    
    
    
    
    
    Real estate improvements
    
    
    
    
    
    
    Proceeds from sale of real estate
    
    
    
    
    
    
    1,437Advances from (payments to) advisor
    
    
    249
    
    
    
    (2,082
    )Net cash provided by (used in) investing activities
    
    
    249
    
    
    
    (645
    )Cash Flows from Financing ActivitiesPayments on notes payable
    
    $
    (74
    )
    
    $
    (586
    )Proceeds on notes payable
    
    
    
    
    
    
    1,193Deferred financing costs
    
    
    
    
    
    
    5Net cash provided by (used in) financing activities
    
    
    (74
    )
    
    
    612Net increase in cash and cash equivalents
    
    $
    (185
    )
    
    $
    54Cash and cash equivalents, beginning of period
    
    
    399
    
    
    
    58Cash and cash equivalents, end of period
    
    $
    214
    
    
    $
    112Supplemental Disclosures of Cash Flow InformationCash paid for interest
    
    $
    978
    
    
    $
    1,107
  
 5




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NOTE 1. BASIS OF PRESENTATION
   NOTE 2. REAL ESTATE
   Sales
    
    
    Net Cash
    
    
    Debt
    
    
    GainProperty
    
    Location
    
    
    Sq.Ft.
    
    
    Price
    
    
    Received
    
    
    Discharged
    
    
    on SaleFirst QuarterApartment BuildingTreehouse
    
    San Antonio, TX
    
    88,957 Sq.Ft.
    
    $
    5,400
    
    
    $
    1,100
    
    
    $
    3,747
    
    
    $
    3,257
 NOTE 3. NOTES AND INTEREST RECEIVABLE
 Junior Mortgage Loans.
      6




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NOTE 4. RECEIVABLE FROM AND PAYABLE TO AFFILIATES
 Related Party.
 NOTE 5. NOTES AND INTEREST PAYABLE
    7




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NOTE 6. RELATED PARTY TRANSACTIONS
         SWI
    
    
    TCIBalance, December 31, 2004 (as
restated)
    
    
    (1,248
    )
    
    $
    261Cash transfers
    
    
    553
    
    
    
    Cash repayments
    
    
    (592
    )
    
    
    Other additions
    
    
    
    
    
    
    Other repayments (as restated)
    
    
    (210
    )
    
    
    Balance, March 31, 2005 (as restated)
    
    
    (1,497
    )
    
    $
    261
 Returns on Metra Properties.
 8




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NOTE 7. OPERATING SEGMENTS
   Three Months EndedMarch 31, 2005
    
    
    
    
    
    Commercial(Restated)
    
    Land
    
    
    Properties
    
    
    Apartments
    
    
    TotalRents
    
    $
    
    
    
    $
    322
    
    
    $
    1,207
    
    
    $
    1,529Property operating expenses
    
    
    
    
    
    
    211
    
    
    
    610
    
    
    
    821Operating income (loss)
    
    $
    
    
    
    $
    111
    
    
    $
    597
    
    
    $
    708Depreciation
    
    $
    
    
    
    $
    66
    
    
    $
    111
    
    
    $
    177Interest
    
    
    221
    
    
    
    326
    
    
    
    324
    
    
    
    871Real estate improvements
    
    
    
    
    
    
    45
    
    
    
    
    
    
    
    45Assets
    
    
    
    
    
    
    12,979
    
    
    
    18,258
    
    
    
    31,237
 Three Months EndedMarch 31, 2004
    
    
    
    
    
    Commercial(Restated)
    
    Land
    
    
    Properties
    
    
    Apartments
    
    
    TotalRents
    
    $
    
    
    
    $
    722
    
    
    $
    1,414
    
    
    $
    2,136Property operating expenses
    
    
    
    
    
    
    388
    
    
    
    823
    
    
    
    1,211Operating income (loss)
    
    $
    
    
    
    $
    334
    
    
    $
    591
    
    
    $
    925Depreciation
    
    $
    
    
    
    $
    188
    
    
    $
    154
    
    
    $
    342Interest
    
    
    325
    
    
    
    324
    
    
    
    469
    
    
    
    1,118Real estate improvements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Assets
    
    
    44
    
    
    
    21,917
    
    
    
    26,149
    
    
    
    48,110
 NOTE 8. ADVISORY FEES, PROPERTY MANAGEMENT, ETC.
  For the Three MonthsEnded March 31,2005
    
    
    2004(Restated)
    
    
    (Restated)FeesAdvisory
    
    $
    166
    
    
    $
    192Net income
    
    
    24
    
    
    
    215Property and construction management and leasing commission
    
    
    29
    
    
    
    32$
    219
    
    
    $
    439Cost reimbursements
    
    $
    19
    
    
    $
    19
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NOTE 9. DISCONTINUED OPERATIONS
  For the Three MonthsEnded March 31,2005
    
    
    2004RevenueRental
    
    $
    
    
    
    $
    168Property Operations
    
    
    
    
    
    
    172Operating (loss)/income
    
    
    
    
    
    
    (4
    )ExpensesInterest
    
    
    
    
    
    
    119Depreciation
    
    
    
    
    
    
    5Total expenses
    
    
    
    
    
    
    124Net (loss)/income from discontinued operations before
gains on sale of operations
    
    
    
    
    
    
    (128
    )Gain on sale of operations
    
    
    
    
    
    
    3,257Net income from discontinued operations
    
    $
    
    
    
    $
    3,129
  NOTE 10. COMMITMENTS AND CONTINGENCIES
 Liquidity.
 Other Litigation.
 10




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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Introduction
  Critical Accounting Policies
    Liquidity and Capital Resources
    11




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Results of Operations
          Related Party Transactions
  Taxes
  12




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Inflation
  Environmental Matters
   
 ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK
  Weighted
    
    
    Effect of 1%Average
    
    
    Increase InBalance
    
    
    Interest Rate
    
    
    Base RatesWholly-owned debt:Variable
rate
    
    $
    10,133
    
    
    
    7.87
    %
    
    $
    101Total decrease in IORIs annualNet
income
    
    
    
    
    
    
    
    
    
    $
    101Per
share
    
    
    
    
    
    
    
    
    
    $
    0.07
 
 ITEM 4. CONTROLS AND PROCEDURES
 (a)
    
    As of the end of the period covered by this report, IORI carried out an evaluation, under the
supervision and with the participation of IORIs management, including IORIs Acting Principal
Executive Officer and principal accounting officer, of the effectiveness of the design and
operation of IORIs disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.
Based upon the evaluation, at the time of filing of its Form 10-Q for the quarter ended March
31, 2005, IORIs Acting Principal Executive Officer and principal accounting officer concluded
that IORIs disclosure controls and procedures were then effective in timely alerting him to
material information relating to IORI (including its consolidated subsidiaries) required to be
included in IORIs periodic SEC filings.
 13




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However, subsequent to the filing of the original Form 10-Q for the quarter ended March 31,
2005, IORI and its accountants identified a control deficiency in its internal controls over
financial reporting as of April 2002 (which was not material in 2002) which continued
undetected through March 2005, which constituted a material weakness (starting in 2003)
within the meaning of the Public Company Accounting Oversight Board Auditing Standard No. 2.
A material weakness is a control deficiency, or combination of control deficiencies, that
results in more than a remote likelihood that a material misstatement of an annual or interim
financial statement will not be prevented or detected. The material weakness related to
IORIs accounting for the Metra transaction in April 2002 which included a deferral of
operating income and/or expense until the time of ultimate sale of a property to an
independent third party purchaser. As a result, an error was discovered that affected the
consolidated balance sheet, consolidated statement of operations, consolidated statements of
stockholders equity and consolidated statements of cash flows for 2002 and subsequent periods.
The amounts for 2002 were not material, but the amounts for 2003 were material which caused
the need for correction of the 2003 financial statements. That correction caused IORI to file
an amendment on Form 10-K/A for the years ended December 31, 2003 and December 31, 2004, and a
subsequent Form 10-Q/A for the quarter ended March 31, 2005 in order to restate such 2003
annual financial statements in its prior filings and to carry forward such changes in current
filings. The error also caused IORIs acting principal executive officer and principal
financial officer to re-evaluate and reconsider the effect on the adequacy of IORIs
disclosure controls and procedures as of the end of the period covered by the original Form
10-K for the period ended December 31, 2004. Based upon such error, IORIs disclosure
controls and procedures involving review of all material historical transactions and
supporting documents could have an impact on any current reporting periods were not effective
to detect such error. Beginning after that second quarter of 2005, IORI concluded that
Management will review all material historical transactions and supporting documents that
could have a continuing impact upon any current reporting periods, will review quarterly on a
sampling basis all non-material historical transactions that are included in financial
statements for any current reporting period, and will continue the process of reviewing all
current transactions included in current reporting period financial statements. Management
also believes that the transaction involving the error was uniquely complex and is not likely
to be repeated, but Management is working with its outside consultant for guidance about other
possible control procedures to ensure that in the future errors will be detected and material
misstatement of annual or interim financial statements will be prevented.
 WARNING CONCERNING FORWARD LOOKING STATEMENTS
  14




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PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings.
 Innovo Realty, Inc. American Realty Investors,
Inc., Transcontinental Realty Investors, Inc. and Income Opportunity Realty Investors, Inc.,
Plaintiffs v. Innovo Realty, Inc. and Innovo Group, Inc., Involuntary Plaintiffs v. Innovo Realty,
Inc., Metra Capital LLC, Innovo Group, Inc., Joseph Mizrachi, Simon Mizrachi, Herbert Guez, Third
Millennium Partners LLC, Third Millennium Partners, Inc., Third Millennium Group LLC and Sunridge
Management, Inc., Defendants
 Sunset
Management LLC. Sunset Management LLC,
derivatively on behalf of Transcontinental Realty Investors, Inc. v. American Realty Investors,
Inc., et al.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  15




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SIGNATURE
  Date: September 7, 2005.
    
    INCOME OPPORTUNITY REALTY INVESTORS, INC.By:
    
    /s/ Robert N. Crouch IIRobert N. Crouch IIExecutive Vice President, Chief Financial Officer,and Acting Principal Executive Officer