<PAGE>


                                  UNITED STATES
                       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 MARCH 31, 2003

                         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.)

     1800 Valley View Lane, Suite 300, Dallas, Texas,               75234
-------------------------------------------------------------------------------
        (Address of Principal Executive Offices)                 (Zip Code)

                                 (469) 522-4200
                         --------------------------------
                         (Registrant's Telephone Number,
                              Including Area Code)

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes ___. No X.

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                               1,438,945
----------------------------                  ---------------------------------
         (Class)                               (Outstanding at April 30, 2003)

<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. ("IORI"), all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
IORI'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>
                                                                    March 31,    December 31,
                                                                      2003           2002
                                                                  ------------   ------------
                                                                     (dollars in thousands,
                                                                        except per share)
<S>                                                               <C>            <C>
                           ASSETS
Real estate held for investment ...............................   $     82,462   $     82,252
Less - accumulated depreciation ...............................         (7,909)        (7,502)
                                                                  ------------   ------------
                                                                        74,553         74,750

Investment in real estate partnerships ........................            600            609
Cash and cash equivalents .....................................            176             10
Other assets (including $9,255 in 2003 and $10,497 in 2002
 from affiliates) .............................................         13,541         14,816
                                                                  ------------   ------------

                                                                  $     88,870   $     90,185
                                                                  ============   ============
             LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Notes and interest payable ....................................   $     51,249   $     51,432
Other liabilities (including $31 in 2003 and $33 in 2002
 to affiliates) ...............................................          1,312          1,446
                                                                  ------------   ------------
                                                                        52,561         52,878
Commitments and contingencies

Stockholders' equity
Common Stock, $.01 par value; authorized 10,000,000 shares;
 issued and outstanding 1,438,945 shares in 2003 and 2002 .....             14             14
Paid-in capital ...............................................         62,774         62,774
Accumulated deficit ...........................................        (26,479)       (25,481)
                                                                  ------------   ------------
                                                                        36,309         37,307
                                                                  ------------   ------------

                                                                  $     88,870   $     90,185
                                                                  ============   ============
</TABLE>

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

                                        2

<PAGE>

                    INCOME OPPORTUNITY REALTY INVESTORS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                  For the Three Months
                                                     Ended March 31,
                                              ----------------------------
                                                  2003            2002
                                              ------------    ------------
                                                 (dollars in thousands,
                                                    except per share)
Property revenue
  Rents ...................................   $      2,476    $      2,519

Property expense
  Property operations .....................          1,378           1,196
                                              ------------    ------------
  Operating income ........................          1,098           1,323

Other income (loss)
  Interest ................................             --              37
  Equity in loss of equity partnerships ...            (15)            (17)
                                              ------------    ------------
                                                       (15)             20

Other expense
  Interest ................................          1,252             949
  Depreciation ............................            407             464
  Advisory fee to affiliate ...............            167             186
  Net income fee to affiliate .............             --             411
  Provision for loss on note receivable ...             --             767
  General and administrative ..............            255             285
                                              ------------    ------------
                                                     2,081           3,062
                                              ------------    ------------

Net loss from continuing operations .......           (998)         (1,719)

Discontinued operations:
  Loss from discontinued operations .......             --            (313)
  Gain on sale of operations ..............             --           7,105
                                              ------------    ------------
                                                        --           6,792
                                              ------------    ------------

Net income (loss) .........................   $       (998)   $      5,073
                                              ============    ============

Earnings (loss) per share
  Net loss from continuing operations .....   $       (.69)   $      (1.19)
  Discontinued operations .................             --            4.72
                                              ------------    ------------
    Net income (loss) .....................   $       (.69)   $       3.53
                                              ============    ============

Weighted average common shares used
 in computing earnings per share ..........      1,438,945       1,438,945
                                              ============    ============

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 Three Months Ended March 31, 2003

<TABLE>
<CAPTION>
                                          COMMON STOCK
                                     -------------------------      PAID-IN       ACCUMULATED     STOCKHOLDERS'
                                      SHARES        AMOUNT          CAPITAL         DEFICIT           EQUITY
                                     ---------   -------------   -------------   -------------    -------------
                                                               (DOLLARS IN THOUSANDS)
<S>                                  <C>         <C>             <C>             <C>              <C>
Balance, January 1, 2003 .....       1,438,945   $          14   $      62,774   $     (25,481)   $      37,307

Net loss .....................              --              --              --            (998)            (998)
                                     ---------   -------------   -------------   -------------    -------------

Balance, March 31, 2003 ......       1,438,945   $          14   $      62,774   $     (26,479)   $      36,309
                                     =========   =============   =============   =============    =============
</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 Three Months
                                                                     Ended March 31,
                                                               --------------------------
                                                                  2003           2002
                                                               -----------    -----------
                                                                 (dollars in thousands)
<S>                                                            <C>            <C>
Cash Flows from Operating Activities
  Net income (loss) ........................................   $      (998)   $     5,073
    Reconciliation of net income (loss) to net cash
     used in operating activities
    Adjustments to reconcile net income (loss) to net
     cash used in operating activities
       Depreciation ........................................           407            500
       Gain on sale of real estate .........................            --         (7,105)
       Loss of equity partnerships .........................            15             17
       Distributions from equity partnerships' operating
        cash flow ..........................................            --             25
       Provision for loss ..................................            --           (767)
       Decrease in other assets ............................           356          1,644
       Increase in interest payable ........................            --             40
       Increase (decrease) in other liabilities ............          (134)           275
                                                               -----------    -----------
       Net cash used in operating activities ...............          (354)          (298)

Cash Flows from Investing Activities
  Funding of notes receivable (including $7,109 in 2002
   to related parties) .....................................   $        --    $    (7,109)
  Funding of equity partnerships ...........................            (6)            (4)
  Real estate improvements .................................          (210)          (229)
  Proceeds from sale of real estate ........................            --         14,575
  Advances from (payments to) advisor ......................           935           (108)
                                                               -----------    -----------
       Net cash provided by (used in) investing
        activities .........................................           719          7,125

Cash Flows from Financing Activities
  Payments on notes payable ................................   $      (183)   $    (6,834)
  Deferred financing costs .................................           (16)            --
                                                               -----------    -----------
       Net cash used in financing activities ...............          (199)        (6,834)

Net increase/(decrease) in cash and cash equivalents .......   $       166    $        (7)
Cash and cash equivalents, beginning of period .............            10             66
                                                               -----------    -----------

Cash and cash equivalents, end of period ...................   $       176    $        59
                                                               ===========    ===========

Supplemental Disclosures of Cash Flow Information
 Cash paid for interest ...................................    $     1,058    $       974
</TABLE>

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

                                        5

<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 three month period ended March 31, 2003, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003. For further information, refer to the Consolidated Financial
Statements and notes thereto included in IORI's Annual Report on Form 10-K for
the year ended December 31, 2002 (the "2002 Form 10-K"). Dollar amounts in
tables are in thousands, except per share amounts.

Certain balances for 2002 have been reclassified to conform to the 2003
presentation.

On January 1, 2002, IORI adopted Statement 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets" ("SFAS No. 144"). The Statement superceded
Statement 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("SFAS No. 121") and Accounting Principles
Board Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions" ("APB 30"), for business
segments that are to be disposed. SFAS 144 retains the requirements of SFAS No.
121 relating to the recognition and measurement of an impairment loss and
resolves certain implementation issues resulting from SFAS No. 121. The adoption
of SFAS No. 144 did not have a material impact on the consolidated financial
position or results of operations of IORI.

In April 2002, the FASB issued Statement 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Correction"
("SFAS No. 145"). Statement 4, "Reporting Gains and Losses from Extinguishment
of Debt" ("SFAS No. 4"), required that gains and losses from the extinguishment
of debt that were included in the determination of net income be aggregated and,
if material, classified as an extraordinary item. The provisions of SFAS No. 145
related to the rescission of SFAS No. 4 will require IORI to reclassify prior
period items that do not meet the extraordinary classification. The provisions
of SFAS No. 145 that related to the rescission of SFAS No. 4 become effective in
fiscal years beginning after May 15, 2002. The adoption of SFAS No. 145 is not
expected to have a material impact on the consolidated financial position or
results of operations of IORI.

In June 2002, the FASB issued SFAS No. 146, "Accounting for costs Associated
with Exit or Disposal Activities," which addresses accounting for restructuring
and similar costs. SFAS No. 146 supersedes previous accounting guidance,
principally Emerging Issues Task Force ("EITF") Issue No. 94-3. IORI has adopted
the provisions of SFAS No. 146 for restructuring activities initiated after
December 31, 2002. SFAS No.

                                        6

<PAGE>

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

NOTE 1.   BASIS OF PRESENTATION (Continued)

146 requires that the liability for costs associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF No. 94-3, a
liability for an exit cost was recognized at the date of a company's commitment
to an exit plan. SFAS No. 146 also establishes that the liability should
initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may
affect the timing of recognizing future restructuring costs as well as the
amount recognized.

NOTE 2.   REAL ESTATE

In 2003, IORI did not sell any properties.

In 2002, IORI sold the following property:

<TABLE>
<CAPTION>
                                                                  SALES       NET CASH       DEBT         GAIN
          PROPERTY               LOCATION          SQ.FT.         PRICE       RECEIVED    DISCHARGED    ON SALE
---------------------------   --------------   --------------   ----------   ----------   ----------   ----------
<S>                           <C>              <C>              <C>          <C>          <C>          <C>
FIRST QUARTER
OFFICE BUILDING
Daley Corporate Center        San Diego, CA    124,059 Sq.Ft.   $   15,500   $    7,820   $    6,618   $    7,105
</TABLE>

NOTE 3.   NOTES AND INTEREST RECEIVABLE

There were no new notes funded in 2003.

In January 2002, IORI purchased 100% of the outstanding common shares of
Rosedale Corporation ("Rosedale"), a wholly-owned subsidiary of American Realty
Investors, Inc. ("ARI"), a related party, for $5.1 million cash. Rosedale owns
the 83,331 sq. ft. Rosedale Towers Office Building in Roseville, Minnesota. ARI
guaranteed that the asset would produce at least a 12% return annually of the
purchase price for a period of three years from the purchase date. If the asset
failed to produce the 12% return, ARI would pay IORI any shortfall. In addition,
if the asset failed to produce the 12% return for a calendar year, IORI could
require ARI to repurchase the shares of Rosedale for the purchase price.
Management classified this related party transaction as a note receivable from
ARI. In the first quarter of 2002, after reviewing the property's fair value
after costs to sell, even though ARI had guaranteed the 12% return, IORI
recognized a provision for loss on the note receivable of $767,000. In December
2002, the Rosedale Towers Office Building was sold for $7.2 million. ARI
received $3.5 million in proceeds after the payment of the first lien debt and
various closing costs and IORI recognized an additional loss of $801,000 on its
note. The $3.5 million received by ARI is included within other assets in the
accompanying Consolidated Balance Sheets. In April 2003, IORI received a $2.0
million paydown from ARI on the receivable.

In February 2002, IORI funded a $2.0 million mortgage loan as a participation
agreement with Transcontinental Realty Investors, Inc. ("TCI"), a related party.
The loan was secured by a second lien on a retail center in Montgomery County,
Texas. The note receivable bore

                                        7

<PAGE>

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

NOTE 3.   NOTES AND INTEREST RECEIVABLE (Continued)

interest at 16.0% per annum, required monthly interest only payments of$47,000
and matured in February 2002. In February 2002, the loan was extended until
April 2002. In April 2002, IORI extended the loan until July 2002, receiving
$8,500 as an extension fee. In July 2002, the loan was extended until September
2002, with IORI receiving $8,500 as an extension fee. Of the $2.0 million in
principal payments, $1.5 million was received by TCI and $500,000 was received
by Basic Capital Management, Inc. ("BCM"), an affiliate and the advisor to IORI.
These amounts are included within receivable from affiliates in the accompanying
Consolidated Balance Sheets.

NOTE 4.   OTHER ASSETS

Related Party. From time-to-time, IORI and its affiliates and related parties
have made advances to each other to fund their respective operations, which
generally have not had specific repayment terms and have been reflected in
IORI's financial statements as other assets. At March 31, 2003, IORI had
receivables of $454,000, $3.5 million and $5.3 million from BCM, ARI and TCI,
respectively.

NOTE 5.   NOTES AND INTEREST PAYABLE

In April 2002, IORI sold all of its residential properties to partnerships
controlled by Metra Capital, LLC ("Metra"). These properties include: the 60
unit Brighton Court, the 92 unit Del Mar, the 68 unit Enclave, the 280 unit
Meridian, the 57 unit Signature, and the 114 unit Sinclair, located in Midland,
Texas, and the 106 unit Treehouse, located in San Antonio, Texas. Innovo Realty,
Inc., a subsidiary of Innovo Group, Inc. ("Innovo") is a limited partner in the
partnerships that purchased the properties. Joseph Mizrachi, a director of ARI,
a related party, controls approximately 11.67% of the outstanding common stock
of Innovo. The sale constituted 23.39% of the total assets of IORI as of
December 31, 2001. The sales price for the properties totaled $26.2 million.
IORI received $5.4 million in cash after the payoff of $16.1 million in debt and
various closing costs. Management has determined to account for this sale as a
refinancing transaction, in accordance with SFAS No. 66, "Accounting for Sales
of Real Estate." IORI will continue to report the assets and the new debt
incurred by the Metra partnerships on the IORI financial statements. The new
debt on the properties totals $21.4 million, bears interest at 7.57% per annum,
requires monthly interest only payments of $135,000 and matures in May 2012.
IORI also received $5.2 million of 8% non-recourse, non-convertible Series A
Preferred Stock ("Preferred Shares") of Innovo.

The dividend on the Preferred Shares will be funded entirely and solely through
member distributions from cash flows generated by the operation and subsequent
sale of the sold properties. In the event the cash flows for the properties are
insufficient to cover the 8% annual dividend, Innovo will have no obligation to
cover any shortfall.

                                        8

<PAGE>

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

NOTE 5.   NOTES AND INTEREST PAYABLE (Continued)

The Preferred Shares have a mandatory redemption feature, and are redeemable
from the cash proceeds received by Innovo from the operation and sale of the
properties. All member distributions that are in excess of current and accrued
8% dividends, must be used by Innovo to redeem the Preferred Shares. Since
redemption of these shares is subject to the above future events, management has
elected to record no basis in the Preferred Shares.

NOTE 6.   RELATED PARTY TRANSACTIONS

On September 19, 2002, IORI's Board of Directors authorized the Chief Financial
Officer of the Company to advance funds either to or from the Company, through
BCM, in an amount up to $5.0 million on the condition that such advances shall
be repaid in cash or transfers of assets within 90 days.

The following table reconciles the beginning and ending balances of Accounts
Receivable from Affiliates as of March 31, 2003.

                                     BCM          ARI       TCI
                                   --------    --------   --------
  Balance, December 31, 2002 ...   $  1,696    $  3,541   $  5,260
    Cash transfers .............        990          --         --
    Cash repayments ............     (1,925)         --         --
    Other additions ............        365          --         --
    Other repayments ...........       (672)         --         --
                                   --------    --------   --------
  Balance, March 31, 2003 ......   $    454    $  3,541   $  5,260
                                   ========    ========   ========

Returns on Metra Properties. As described more fully in Note 5, IORI sold all of
its residential properties during 2002 to partnerships controlled by Metra. The
partnership agreement for each of these partnerships states that the Metra
Partners, as defined, receive cash flow distributions at least quarterly in an
amount sufficient to provide them with a fifteen percent cumulative compounded
annual rate of return on their invested capital, as well as a cumulative annual
amount of 0.50% of the average outstanding balance of the mortgage indebtedness
secured by any of these residential properties. These distributions to the Metra
Partners have priority over distributions to any of the other partners.

NOTE 7.   OPERATING SEGMENTS

Significant differences among the accounting policies of the operating segments
as compared to the Consolidated Financial Statements principally involve the
calculation and allocation of general and

                                        9

<PAGE>

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

NOTE 7.   OPERATING SEGMENTS (Continued)

administrative expenses. Management evaluates the performance of each of the
operating segments and allocates resources to each of them based on their net
operating income and cash flow. Items of income that are not reflected in the
segments are interest and income or loss of equity partnerships which totaled a
$15,000 loss for the three months ended March 31, 2003, and income of $20,000 in
the three months ended March 31, 2002. Expenses that are not reflected in the
segments are general and administrative expenses, advisory and net income fees,
provision for losses, and discontinued operations which totaled $422,000 for the
three months ended March 31, 2003, and $1.96 million for the three months ended
March 31, 2002. Excluded from operating segment assets are assets of $14.3
million at March 31, 2003, and $10.2 million at March 31, 2002, which are not
identifiable with an operating segment. There are no intersegment revenues and
expenses and all business is conducted in the United States.

Presented below is the operating income of each operating segment for the three
months ended March 31, 2003 and 2002, and each segment's assets at March 31.

<TABLE>
<CAPTION>
      THREE MONTHS ENDED            COMMERCIAL
         MARCH 31, 2003             PROPERTIES    APARTMENTS        LAND          TOTAL
---------------------------------   -----------   -----------   -----------    -----------
<S>                                 <C>           <C>           <C>            <C>
Rents ...........................   $     1,141   $     1,335   $        --    $     2,476
Property operating expenses .....           597           701            80          1,378
                                    -----------   -----------   -----------    -----------
Operating income (loss) .........   $       544   $       634   $       (80)   $     1,098
                                    ===========   ===========   ===========    ===========

Interest ........................   $       364   $       520   $       368    $     1,252
Depreciation ....................           291           116                          407
Real estate improvements ........           210            --            --            210
Assets ..........................        28,607        21,017        24,929         74,553

<CAPTION>
       THREE MONTHS ENDED           COMMERCIAL
         MARCH 31, 2003             PROPERTIES    APARTMENTS       LAND           TOTAL
---------------------------------   -----------   -----------   -----------    -----------
<S>                                 <C>           <C>           <C>            <C>
Rents ...........................   $     1,210   $     1,309   $        --    $     2,519
Property operating expenses .....           583           549            64          1,196
                                    -----------   -----------   -----------    -----------
Operating income (loss) .........   $       627   $       760   $       (64)   $     1,323
                                    ===========   ===========   ===========    ===========

Interest ........................   $       406   $       260   $       282    $       949
Depreciation ....................           337           127                          464
Real estate improvements ........            41            --           187            229
Assets ..........................        33,411        21,483        24,680         79,574
</TABLE>

                                       10

<PAGE>

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

NOTE 8.   ADVISORY FEES, PROPERTY MANAGEMENT, ETC.

Revenue, fees and cost reimbursements to BCM and its affiliates for the three
months ended:

                                                     FOR THE THREE MONTHS
                                                        ENDED MARCH 31,
                                                   -----------------------
                                                      2003         2002
                                                   ----------   ----------
Fees
  Advisory .....................................   $      167   $      186
  Net income ...................................           --          411
  Property and construction management and
   leasing commissions* ........................          108           51
                                                   ----------   ----------
                                                   $      275   $      648
                                                   ==========   ==========

Cost reimbursements ............................   $       92   $       81
                                                   ==========   ==========

----------

*  Net of property management fees paid to subcontractors, other than GS
   Realty, Inc., which is owned by an affiliate of BCM.

NOTE 9.   DISCONTINUED OPERATIONS

Effective January 1, 2002, IORI adopted Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"),
which established a single accounting model for the impairment or disposal of
long-lived assets including discontinued operations. This statement requires
that the operations related to properties that have been sold, or properties
that are intended to be sold, be presented as discontinued operations in the
statement of operations for all periods presented, and the properties intended
to be sold are to be designated as "held for sale" on the balance sheet. In the
event of a future asset sale, IORI is required to reclassify portions of
previously reported operations to discontinued operations within the Statements
of Operations.

                                       11

<PAGE>

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

NOTE 9.   DISCONTINUED OPERATIONS (Continued)

For the three months ended March 31, 2002, income from discontinued operations
relates to two properties that IORI sold during 2002. The following table
summarizes revenue and expense information for the properties sold.

                                                      FOR THE THREE MONTHS
                                                         ENDED MARCH 31,
                                                     -----------------------
                                                        2003         2002
                                                     ----------   ----------
Revenue
  Rental .........................................   $       --   $      281
  Property Operations ............................           --          444
                                                     ----------   ----------
    Operating loss ...............................           --         (163)

Expenses
  Interest .......................................           --          114
  Depreciation ...................................           --           36
                                                     ----------   ----------
    Total expenses ...............................           --          150

Net loss from discontinued operations before
 gains on sale of operations .....................           --         (313)

Gain on sale of operations .......................           --        7,105
                                                     ----------   ----------

Net loss from discontinued operations ............   $       --   $    6,792
                                                     ==========   ==========

Discontinued operations have not been segregated in the consolidated statement
of cash flows. Therefore, amounts for certain captions will not agree with
respective consolidated statements of operations.

NOTE 10.  COMMITMENTS AND CONTINGENCIES

Liquidity. Although management anticipates that IORI will generate excess cash
from commercial operations in 2003 due to increased rental rates and occupancy
at its properties, such excess, however, will not be sufficient to discharge all
of IORI's debt obligations as they mature. IORI has $16.5 million in debt due
within one year. Management will need to refinance or sell real estate and incur
additional borrowings against real estate to meet IORI's cash requirements.

Litigation. IORI 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 IORI's financial condition, results of
operations or liquidity.

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

Introduction

IORI invests in equity interests in real estate through acquisitions, leases and
partnerships and also invests in mortgage loans. IORI is the successor to a
California business trust organized on December 14, 1984, which commenced
operations on April 10, 1985.

                                       12

<PAGE>

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

Critical Accounting Policies

Critical accounting policies are those that are both important to the
presentation of IORI's financial condition and results of operations and require
management's most difficult, complex or subjective judgments. IORI's critical
accounting policies relate to the evaluation of impairment of long-lived assets
and the evaluation of the collectibility of accounts and notes receivable.

If events or changes in circumstances indicate that the carrying value of a
rental property to be held and used or land held for development may be
impaired, management performs a recoverability analysis based on estimated
undiscounted cash flows to be generated from the property in the future. If the
analysis indicates that the carrying value is not recoverable from future cash
flows, the property is written down to estimated fair value and an impairment
loss is recognized. If management decides to sell rental properties or land held
for development, management evaluates the recoverability of the carrying amounts
of the assets. If the evaluation indicates that the carrying value is not
recoverable from estimated net sales proceeds, the property is written down to
estimated fair value less costs to sell and an impairment loss is recognized
within income from continuing operations. IORI's estimates of cash flow and fair
values of the properties are based on current market conditions and consider
matters such as rental rates and occupancies for comparable properties, recent
sales data for comparable properties and, where applicable, contracts or the
results of negotiations with purchasers or prospective purchasers. IORI's
estimates are subject to revision as market conditions and IORI's assessments of
them change.

IORI's allowance for doubtful accounts receivable and notes receivable is
established based on analysis of the risk of loss on specific accounts. The
analysis places particular emphasis on past due accounts. Management considers
such information as the nature and age of the receivable, the payment history of
the tenant or other debtor, the financial condition of the tenant or other
debtor and IORI's assessment of its ability to meet its lease or interest
obligations. IORI's estimate of the required allowance, which is reviewed on a
quarterly basis, is subject to revision as these factors change and is sensitive
to the effects of economic and market conditions. Typically, IORI's notes
receivable are collateralized by income producing real estate. IORI had no notes
receivable at March 31, 2003 and December 31, 2002.

Liquidity and Capital Resources

Cash and cash equivalents at March 31, 2003, were $176,000, compared with
$10,000 at December 31, 2002. IORI's principal sources of cash have been, and
will continue to be property operations, proceeds from property sales,
financings and refinancings and partnership distributions. Management
anticipates that IORI will generate excess cash from operations in 2003 due to
increased rental receipts at its properties, however, such excess will not be
sufficient to discharge all of IORI's debt obligations as they mature.
Management intends to

                                       13

<PAGE>

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

Liquidity and Capital Resources (Continued)

selectively sell income producing real estate, refinance real estate and incur
additional borrowings against real estate to meet its cash requirements.

The Company reported a net loss of $998,000 for the three months ended March 31,
2003, which included the following non-cash charges: depreciation of $407,000,
loss of equity partnerships of $15,000, decreases in other assets of $356,000
and decreases in other liabilities of $134,000. Net cash used in operating
activities amounted to $354,000 for the three months ended March 31, 2003.
During the quarter ended March 31, 2003 the decrease in other liabilities was
due to a decrease in accounts payable and the decrease in other assets was due
to amortization of deferred borrowing costs and a decrease in accounts
receivable from affiliates. Net cash provided by investing activities of
$719,000 was comprised of funding of partnerships of $6,000, real estate
improvements of $210,000 and advances from BCM of $935,000. Net cash used in
financing activities of $199,000 was comprised of payments on notes payable of
$183,000 and deferred financing expense of $16,000.

In the first quarter of 2002, IORI sold one office building for $15.5 million,
receiving net cash of $7.8 million after the payoff of existing debt and the
payment of various closing costs. IORI also funded two loans in the first
quarter of 2002 for $7.1 million.

Management reviews the carrying values of IORI'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, 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 first quarter of 2003, IORI had a net loss of $998,000, as compared to
net income of $5.1 million for the corresponding period in 2002, which included
gains on sale of on real estate totaling $7.1 million in 2002. Fluctuations in
components of revenue and expense between the 2003 and 2002 periods are
discussed below.

Rents for the first quarter of 2003, decreased to $2.48 million, as compared to
$2.52 million in the corresponding period in 2002. Of this decrease, $65,000 was
due to a decrease in occupancy at IORI's commercial properties. These decreases
were offset by an increase of

                                       14

<PAGE>

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

Results of Operations (Continued)

$22,000 due to increased occupancies at IORI's apartments. Rental income for the
remaining quarters of 2003 are expected to decline when IORI selectively sells
properties.

Property operations expense increased in the first quarter of 2003, to $1.4
million, as compared to $1.2 million in the corresponding period in 2002. Of
this increase, $158,000 and $29,000 were due to increased repairs and personnel
costs, respectively. Operating expense for the remaining quarters of 2003 are
expected to decline when IORI selectively sells properties.

There was no interest income in the first quarter of 2003 as compared to $37,000
in the corresponding period in 2002. The decrease was due to all of the notes
being collected in 2002.

Interest expense for the first quarter of 2003 increased to $1.2 million from
$949,000 in the corresponding period in 2002. Of this increase, $189,000 was due
to the refinancing of IORI's residential properties, $86,000 was due to the
refinancing of a parcel of unimproved land, and a decrease of $41,000 was due to
lower variable interest rates at IORI's commercial properties. Interest expense
for the remaining quarters of 2003 is expected to decrease due to lower variable
interest rates and the paydown of debt.

Depreciation expense for the first quarter of 2003 decreased to $407,000 from
$464,000 in the corresponding period in 2002. The decrease was due to a decrease
of $57,000 from the full depreciation of tenant improvements. Depreciation for
each of the remaining quarters of 2003, is expected to approximate the first
quarter of 2003.

Advisory fee expense in the first quarter of 2003 was $167,000, as compared to
$186,000 in the corresponding period in 2002. The advisory fee is based on
IORI's gross assets. Advisory fees for the remainder of 2003 are expected to
decrease when IORI selectively sells properties.

Net income fee was $411,000 in the first quarter of 2002. The net income fee is
payable to IORI's advisor based on 7.5% of IORI's net income.

General and administrative expense was $255,000 for the first quarter of 2003 as
compared to $285,000 in the corresponding period in 2002. The decrease was
primarily due to a decrease in professional fees. General and administrative
expense for each of the remaining quarters of 2003 is expected to approximate
that of the first quarter.

Related Party Transactions

Historically, IORI, ARI, BCM and TCI have each engaged in and may continue to
engage in business transactions, including real estate partnerships with related
parties. Management believes that all of the

                                       15

<PAGE>

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

Related Party Transactions (Continued)

related party transactions represented the best investments available at the
time and were at least as advantageous to IORI, ARI, BCM and TCI as could have
been obtained from unrelated third parties.

Property Transactions

In January 2002, IORI purchased 100% of the outstanding common shares of
Rosedale Corporation from ARI, for $5.1 million. See NOTE 3. "NOTES AND INTEREST
RECEIVABLE." The purchase price was determined based upon the market value of
the property exchanged, using a market rate multiple of net operating income
("cap rate") of 7.0%. The business purpose of the transaction was for IORI to
make an equity investment in Rosedale anticipating a profitable return.

In February 2002, IORI purchased a $2.0 million senior participation interest in
a loan from TCI. See NOTE 3. "NOTES AND INTEREST RECEIVABLE." Management
determined that IORI could benefit from the favorable interest rate payments on
the note.

Tax Matters

As more fully discussed in IORI's 2002 Form 10-K, for the year 2002 IORI elected
and qualified to be treated as a Real Estate Investment Trust ("REIT"), as
defined in Sections 856 and 860 of the Internal Revenue Code of 1986, as amended
(the "Code"), and as such was not taxed for federal income tax purposes on that
portion of its taxable income which is distributed to stockholders. Due to the
completion of the tender offer by ARI, an affiliate, and the resulting
concentration of ownership, IORI no longer met the requirements for tax
treatment as a REIT under the Code as of January 1, 2003, and is prohibited for
re-qualifying for REIT status for at least five years.

Financial statement income varies from taxable income principally due to the
accounting for income and losses of investees, gains and losses from asset
sales, depreciation on owned properties, amortization of discounts on notes
receivable and payable and the difference in the allowance for estimated losses.
IORI had a loss for federal income tax purposes in the first quarter of 2003 and
a loss for federal income tax purposes after the use of net operating loss
carryforwards in the first quarter of 2002; therefore, it recorded no provision
for income taxes.

At March 31, 2003, IORI had a net deferred tax asset of $4.9 million due to tax
deductions available to it in future years. However, as management cannot
determine that it is more likely than not that IORI will realize the benefit of
the deferred tax asset, a 100% valuation allowance has been established.

Inflation

The effects of inflation on IORI's operations are not quantifiable. Revenues
from apartment operations tend to fluctuate proportionately

                                       16

<PAGE>

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

Inflation (Continued)

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, IORI 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 IORI's business, assets or
results of operations.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK

At March 31, 2003, IORI's exposure to a change in interest rates on its debt is
as follows:

<TABLE>
<CAPTION>
                                                                     WEIGHTED        EFFECT OF 1%
                                                                      AVERAGE        INCREASE IN
                                                      BALANCE      INTEREST RATE      BASE RATES
                                                   -------------   -------------    -------------
<S>                                                <C>                      <C>     <C>
Wholly-owned debt:
 Variable rate .................................   $      12,440            9.26%   $         124
                                                   =============                    =============

Total decrease in IORI's annual net income .....                                    $         124
                                                                                    =============

Per share ......................................                                    $         .09
                                                                                    =============
</TABLE>

ITEM 4.   CONTROLS AND PROCEDURES

(a)  Within the 90 days prior to the date of 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, IORI's Acting Principal
     Executive Officer and principal accounting officer concluded that IORI's
     disclosure controls and procedures are effective in timely alerting him to
     material

                                       17

<PAGE>

ITEM 4.   CONTROLS AND PROCEDURES (Continued)

     information relating to IORI (including its consolidated subsidiaries)
     required to be included in IORI's periodic SEC filings.

(b)  There have been no significant changes in IORI's internal controls or in
     other factors that could significantly affect IORI's internal controls
     subsequent to the date IORI carried out this evaluation, including any
     corrective actions with regard to significant deficiencies and material
     weaknesses.

                           PART II. OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

On November 15, 2002, ARI commenced tender offers for shares of common stock of
IORI and TCI. The price per share to be paid was $19.00 for IORI shares and
$17.50 for TCI shares. The tender offers were made as an alternative under the
settlements resulting from a failure of timely completion of the SEC review
process of a registration statement for proposed mergers among ARI subsidiaries
and IORI and TCI. ARI deferred further action on the mergers, pending completion
of the tender offer.

The tender offers were completed on March 19, 2003. Pursuant to the tender
offers, ARI acquired 265,036 IORI shares and 1,213,226 TCI shares. The
completion of the tender offers fulfilled the remaining obligations under the
Olive Settlement and the Olive Litigation has been dismissed with prejudice.

Effective March 2003, IORI financial results will be consolidated in the ARI
Form 10-Q and related consolidated financial statements.

For further information refer to NOTE 17. "COMMITMENTS AND CONTINGENCIES AND
LIQUIDITY," included in IORI's Form 10-K for the year ended December 31, 2002.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

  EXHIBIT
   NUMBER                                DESCRIPTION
  -------    -------------------------------------------------------------------
    99.1     Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
             Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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

     None.

                                       18

<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: May 15, 2003                     By:          /s/ Ronald E. Kimbrough
                                            ------------------------------------
                                            Ronald E. Kimbrough
                                            Executive Vice President and Chief
                                            Financial Officer (Principal
                                            Financial and Accounting Officer
                                            and Acting Principal Executive
                                            Officer)

                                       19

<PAGE>

                                  CERTIFICATION

I, Ronald E. Kimbrough, Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer and Acting Principal Executive
Officer) of Income Opportunity Realty Investors, Inc. ("IORI"), certify that:

1.   I have reviewed this quarterly report on Form 10-Q of IORI;

2.   Based on my knowledge, this quarterly report does not contain any untrue
     statement of a material fact or omit to state a material fact necessary to
     make the statements made, in light of the circumstances under which such
     statements were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my knowledge, the financial statements, and other financial
     information included in this quarterly report, fairly present in all
     material respects the financial condition, results of operations and cash
     flows of the registrant as of, and for, the periods presented in this
     quarterly report;

4.   I am responsible for establishing and maintaining internal controls and
     procedures and have:

     a.   designed such internal controls to insure that material information
          relating to IORI and its consolidated subsidiaries is made known to me
          by others within those entities, particularly for the periods
          presented in this quarterly report;

     b.   evaluated the effectiveness of IORI's internal controls as of a date
          within 90 days prior to the filing date of this quarterly report; and

     c.   presented in this quarterly report my conclusions about the
          effectiveness of the disclosure controls and procedures based on a
          date within 90 days prior to the filing date of this quarterly report;

5.   I have disclosed to IORI's auditors and Audit Committee of the Board of
     Directors (or persons fulfilling the equivalent function):

     a.   all significant deficiencies in the design or operation of internal
          controls which could adversely affect IORI's ability to record,
          process, summarize, and report financial data and have identified for
          IORI's auditors any material weaknesses in internal controls; and

     b.   any fraud, whether or not material, that involves management or other
          employees who have a significant role in IORI's internal controls; and

                                       20

<PAGE>

6.   I have indicated in this quarterly report whether or not there were
     significant changes in internal controls or in other factors that could
     significantly affect internal controls subsequent to the date of my most
     recent evaluation, including corrective actions with regard to significant
     deficiencies and material weaknesses.

Date: May 15, 2003                                  /s/ Ronald E. Kimbrough
                                            ------------------------------------
                                            Ronald E. Kimbrough
                                            Executive Vice President
                                            and Chief Financial Officer
                                            (Principal Financial and
                                            Accounting Officer and
                                            Acting Principal Executive Officer)

                                       21

<PAGE>

                    INCOME OPPORTUNITY REALTY INVESTORS, INC.

                                   EXHIBITS TO

                          QUARTERLY REPORT ON FORM 10-Q

                      For the Quarter ended March 31, 2003

 EXHIBIT                                                                   PAGE
  NUMBER                          DESCRIPTION                             NUMBER
 -------  ------------------------------------------------------------    ------
   99.1   Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
          Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.        23

                                       22