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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K/A
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 5(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year endedDecember 31, 2003
 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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AMENDMENT NO. 1 TO  ANNUAL REPORT ON FORM 10-K FOR  INCOME OPPORTUNITY REALTY INVESTORS, INC.
  
    
    Page 16  Item 6. Selected Financial Data. The table under this
subcaption has been replaced based upon changes in the financial statements
described below with respect to the years 2003 and 2002.
    
    Pages 17-24  Item 7. Managements Discussion and Analysis of Results
of Operations. This item has been amended to conform the appropriate
references to the financial statement changes described below.
    
    Pages 25-59  Item 8. Financial Statements and Supplementary Data.
The Reports of Independent Registered Public Accounting Firms (pages 26-27)
have been updated for a subsequent review. The consolidated balance sheets,
consolidated statements of operations, consolidated statements of stockholders
equity and consolidated statements of cash flows (pages 28-33) and Notes to
Consolidated Financial Statements (pages 34-56) have been revised in the
following respects:
 
    
    Increase in interest expense by $458,000 from a reported
$2,105,000 to $2,563,000.
    
    Decrease in advisory fee by $1,000 from a reported $425,000 to
$424,000.
    
    Decrease in net income fee by $21,000 from a reported $130,000
to $109,000.
    
    Increase in total other expense by $436,000 from a reported
$5,486,000 to $5,922,000.
    
    Decrease in net income by $436,000 from a reported $1,782,000
to $1,346,000.
    
    Decrease in net income per share by $0.30 from a reported
$1.24/sh to $0.94/sh.
    
    Increase in receivable from affiliates by $22,000 from a
reported $457,000 to $479,000.
    
    Decrease in other assets by $73,000 from a reported $4,126,000
to $4,053,000.
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
    
    Decrease in total assets by $51,000 from a reported
$101,144,000 to $101,093,000.
    
    Increase in other liabilities by $385,000 from a reported
$1,230,000 to $1,615,000.
    
    Increase in accumulated deficit by $436,000 from a reported
$23,699,000 to $24,135,000.
  
    
    Page 60  Item 9A  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.
 3




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TABLE OF CONTENTS  SIGNATURESITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL            CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA    Table of Contents  
 SIGNATURES
   INCOME OPPORTUNITY REALTY INVESTORS, INC.By:
    
    /s/ R. Neil Crouch, IIR. Neil Crouch, II, Executive Vice President
and Chief Financial Officer and Acting
Principal Executive Officer
 4




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SELECTED FINANCIAL DATA
 For the Years Ended December 31,2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999(dollars in thousands, except per share)(Restated)EARNINGS DATARents
    
    $
    7,814
    
    
    $
    7,739
    
    
    $
    7,322
    
    
    $
    10,737
    
    
    $
    15,968Property expense
    
    
    4,560
    
    
    
    3,819
    
    
    
    3,701
    
    
    
    5,605
    
    
    
    6,768Operating income
    
    
    3,254
    
    
    
    3,920
    
    
    
    3,621
    
    
    
    5,132
    
    
    
    9,200Interest income
    
    
    626
    
    
    
    270
    
    
    
    194
    
    
    
    319
    
    
    
    29Gain on sale of real estate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,525Income (loss) from equity partnerships
    
    
    (7
    )
    
    
    862
    
    
    
    (9
    )
    
    
    (61
    )
    
    
    148Recovery of A/R written off
    
    
    1,569
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other expense
    
    
    5,922
    
    
    
    6,983
    
    
    
    5,273
    
    
    
    9,569
    
    
    
    9,580Net income (loss) from continuing
operations
    
    
    (480
    )
    
    
    (1,931
    )
    
    
    (1,467
    )
    
    
    (4,179
    )
    
    
    1,322Discontinued operations
    
    
    1,826
    
    
    
    4,016
    
    
    
    (1,995
    )
    
    
    20,973
    
    
    
    Net income (loss)
    
    $
    1,346
    
    
    $
    2,085
    
    
    $
    (3,462
    )
    
    $
    16,794
    
    
    $
    1,322PER SHARE DATANet income (loss)
    
    $
    .94
    
    
    $
    1.45
    
    
    $
    (2.32
    )
    
    $
    11.03
    
    
    $
    .87Dividends per share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    .45
    
    
    $
    .60Weighted average common shares
outstanding
    
    
    1,438,945
    
    
    
    1,438,945
    
    
    
    1,493,675
    
    
    
    1,522,510
    
    
    
    1,527,386
 As of December 31,2003
    
    
    2002
    
    
    2001
    
    
    2000
    
    
    1999(dollars in thousands, except per share)(Restated)BALANCE SHEET DATAReal estate held for investment, net
    
    $
    50,365
    
    
    $
    74,750
    
    
    $
    87,315
    
    
    $
    86,277
    
    
    $
    86,542Notes and interest receivable, net
    
    
    45,531
    
    
    
    
    
    
    
    505
    
    
    
    1,500
    
    
    
    Total assets
    
    
    101,093
    
    
    
    90,185
    
    
    
    91,833
    
    
    
    96,519
    
    
    
    91,185Notes and interest payable
    
    
    60,825
    
    
    
    51,432
    
    
    
    54,426
    
    
    
    54,206
    
    
    
    62,852Stockholders equity
    
    
    38,653
    
    
    
    37,307
    
    
    
    35,222
    
    
    
    39,998
    
    
    
    23,991Book value per share
    
    $
    26.86
    
    
    $
    25.93
    
    
    $
    24.48
    
    
    $
    26.42
    
    
    $
    15.69
  16




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PAYMENTS DUE BY PERIOD(in thousands)2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    Thereafter
    
    
    TotalVariable interest rate notesInstruments maturities
    
    $
    6,272
    
    
    $
    
    
    
    $
    8,553
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    14,825Instruments amortization
    
    
    556
    
    
    
    513
    
    
    
    540
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,609Interest
    
    
    880
    
    
    
    814
    
    
    
    722
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,416Fixed interest rate notesInstruments maturities
    
    
    
    
    
    
    
    
    
    
    1,228
    
    
    
    
    
    
    
    2,078
    
    
    
    35,910
    
    
    
    39,216Instruments amortization
    
    
    566
    
    
    
    606
    
    
    
    565
    
    
    
    510
    
    
    
    523
    
    
    
    2,006
    
    
    
    4,776Interest
    
    
    2,398
    
    
    
    1,970
    
    
    
    1,936
    
    
    
    1,903
    
    
    
    1,835
    
    
    
    5,798
    
    
    
    15,840Principal payments
    
    
    7,394
    
    
    
    1,119
    
    
    
    10,886
    
    
    
    510
    
    
    
    2,601
    
    
    
    37,916
    
    
    
    60,426
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20




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21




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2003
    
    
    2002
    
    
    2001RevenueRental Revenue
    
    $
    1,991
    
    
    $
    2,660
    
    
    $
    5,679Property operations
    
    
    1,858
    
    
    
    2,511
    
    
    
    2,890133
    
    
    
    149
    
    
    
    2,789Interest Income
    
    
    462
    
    
    
    
    
    
    
    ExpensesInterest
    
    
    2,236
    
    
    
    2,635
    
    
    
    3,925Depreciation
    
    
    357
    
    
    
    650
    
    
    
    8592,593
    
    
    
    3,285
    
    
    
    4,784Net loss from discontinued operations
    
    
    (1,998
    )
    
    
    (3,136
    )
    
    
    (1,995
    )Gain on sale of real estate
    
    
    3,824
    
    
    
    6,769
    
    
    
    Equity in gain on sale of real estate by equity
investees
    
    
    
    
    
    
    383
    
    
    
    Net income (loss) from discontinued operations
    
    $
    1,826
    
    
    $
    4,016
    
    
    $
    (1,995
    )
      22




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QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK
   23




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LiabilitiesNotes payableVariable interest rate-fair value
    
    $
    14,576
 2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    Thereafter
    
    
    TotalInstruments maturities
    
    $
    6,272
    
    
    $
    
    
    
    $
    8,553
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    14,825Instruments amortization
    
    
    556
    
    
    
    513
    
    
    
    540
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,609Interest
    
    
    880
    
    
    
    814
    
    
    
    722
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,416Average rate
    
    
    8.9
    %
    
    
    9.1
    %
    
    
    9.2
    %
    
    
    
    
    
    
    
    
    
    
    
 Fixed interest rate-fair value
    
    $
    48,457
 2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    Thereafter
    
    
    TotalInstruments maturities
    
    
    
    
    
    
    
    
    
    
    1,228
    
    
    
    
    
    
    
    2,078
    
    
    
    35,910
    
    
    
    39,216Instruments amortization
    
    
    566
    
    
    
    606
    
    
    
    565
    
    
    
    510
    
    
    
    523
    
    
    
    2,006
    
    
    
    4,776Interest
    
    
    2,398
    
    
    
    1,970
    
    
    
    1,936
    
    
    
    1,903
    
    
    
    1,835
    
    
    
    5,798
    
    
    
    15,840Average rate
    
    
    6.7
    %
    
    
    7.1
    %
    
    
    7.2
    %
    
    
    7.2
    %
    
    
    7.2
    %
    
    
    7.1
    %
 24




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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  PageFinancial StatementsReport of Independent Registered Public Accounting Firms
    
    
    29Consolidated Balance SheetsDecember 31, 2003 and 2002
    
    
    31Consolidated Statements of OperationsYears Ended December 31,
2003, 2002 and 2001
    
    
    32Consolidated Statements of Stockholders EquityYears Ended
December 31, 2003, 2002 and 2001
    
    
    34Consolidated Statements of Cash FlowsYears Ended December 31,
2003, 2002 and 2001
    
    
    35Notes to Consolidated Financial Statements
    
    
    37Financial Statement SchedulesSchedule IIIReal Estate and Accumulated Depreciation
    
    
    60Schedule IVMortgage Loans on Real Estate
    
    
    62
  25




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Accounting for Impairment of Long
Lived Assets
    
 27




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December 31,2003
    
    
    2002(dollars in thousands,except per share)(Restated)AssetsReal estate held for investment
    
    $
    56,367
    
    
    $
    82,252Less  accumulated depreciation
    
    
    (6,002
    )
    
    
    (7,502
    )50,365
    
    
    
    74,750Notes and interest receivable
    
    
    45,531
    
    
    
    Investment in real estate partnerships
    
    
    607
    
    
    
    609Cash and cash equivalents
    
    
    58
    
    
    
    10Receivables from affiliates
    
    
    479
    
    
    
    10,497Other assets
    
    
    4,053
    
    
    
    4,319$
    101,093
    
    
    $
    90,185Liabilities and Stockholders EquityLiabilitiesNotes and interest payable
    
    $
    60,825
    
    
    $
    51,432Other liabilities
    
    
    1,615
    
    
    
    1,44662,440
    
    
    
    52,878Commitments and contingenciesStockholders equityCommon Stock, $.01 par value; authorized
10,000,000 shares; issued and outstanding
1,438,945 shares in 2003 and 2002
    
    
    14
    
    
    
    14Paid-in capital
    
    
    62,774
    
    
    
    62,774Accumulated deficit
    
    
    (24,135
    )
    
    
    (25,481
    )38,653
    
    
    
    37,307$
    101,093
    
    
    $
    90,185
  28




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For the Years Ended December 31,2003
    
    
    2002
    
    
    2001(Restated)(dollars in thousands, except per share)Property revenueRents
    
    $
    7,814
    
    
    $
    7,739
    
    
    $
    7,322Property expenseProperty operations
    
    
    4,560
    
    
    
    3,819
    
    
    
    3,701Operating income
    
    
    3,254
    
    
    
    3,920
    
    
    
    3,621Other incomeInterest
    
    
    626
    
    
    
    270
    
    
    
    194Equity in income (loss) of equity
partnerships
    
    
    (7
    )
    
    
    862
    
    
    
    (9
    )Recovery of loss provision on
receivable from related party
    
    
    1,569
    
    
    
    
    
    
    
    2,188
    
    
    
    1,132
    
    
    
    185Other expenseInterest
    
    
    2,563
    
    
    
    2,279
    
    
    
    2,149Depreciation
    
    
    1,199
    
    
    
    1,216
    
    
    
    1,568Advisory fee to affiliate
    
    
    424
    
    
    
    714
    
    
    
    817Net income fee to affiliate
    
    
    109
    
    
    
    169
    
    
    
    Provision for loss on receivable
from related party
    
    
    
    
    
    
    1,568
    
    
    
    Provision for Asset Impairment
    
    
    848
    
    
    
    
    
    
    
    General and administrative
    
    
    779
    
    
    
    1,037
    
    
    
    7395,922
    
    
    
    6,983
    
    
    
    5,273Net income (loss) from continuing
operations
    
    
    (480
    )
    
    
    (1,931
    )
    
    
    (1,467
    )Discontinued operations:Income (loss) from operations
    
    
    (1,998
    )
    
    
    (3,136
    )
    
    
    (1,995
    )Gain on sale of real estate by
equity investees
    
    
    
    
    
    
    383
    
    
    
    Gain on sale of operations
    
    
    3,824
    
    
    
    6,769
    
    
    
    Net income (loss) from discontinued
operations
    
    
    1,826
    
    
    
    4,016
    
    
    
    (1,995
    )Net income (loss)
    
    $
    1,346
    
    
    $
    2,085
    
    
    $
    (3,462
    )
 29




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For the Years Ended December 31,2003
    
    
    2002
    
    
    2001(Restated)(dollars in thousands, except per share)Earnings per shareNet income (loss) from continuing
operations
    
    $
    (0.33
    )
    
    $
    (1.34
    )
    
    $
    (0.98
    )Discontinued operations
    
    
    1.27
    
    
    
    2.79
    
    
    
    (1.34
    )Net income (loss)
    
    $
    0.94
    
    
    $
    1.45
    
    
    $
    (2.32
    )Weighted average shares of
Common Stock used in computing
earnings per share
    
    
    1,438,945
    
    
    
    1,438,945
    
    
    
    1,493,675
  30




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Common Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Equity(dollars in thousands, except shares)Balance, January 1, 2001
    
    
    1,514,045
    
    
    
    15
    
    
    
    64,087
    
    
    
    (24,104
    )
    
    
    39,998Repurchase of Common Stock
    
    
    (75,100
    )
    
    
    (1
    )
    
    
    (1,313
    )
    
    
    
    
    
    
    (1,314
    )Net (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,462
    )
    
    
    (3,462
    )Balance, December 31, 2001
    
    
    1,438,945
    
    
    
    14
    
    
    
    62,774
    
    
    
    (27,566
    )
    
    
    35,222Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,085
    
    
    
    2,085Balance, December 31, 2002
    
    
    1,438,945
    
    
    
    14
    
    
    
    62,774
    
    
    
    (25,481
    )
    
    
    37,307Net income (as Restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,346
    
    
    
    1,346Balance, December 31, 2003
    
    
    1,438,945
    
    
    $
    14
    
    
    $
    62,774
    
    
    $
    (24,135
    )
    
    $
    38,653(as Restated)
  31




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For the Years Ended December 31,2003
    
    
    2002
    
    
    2001(dollars in thousands)(Restated)Cash Flows from Operating ActivitiesRents collected
    
    $
    10,671
    
    
    $
    10,554
    
    
    $
    12,966Payments for property operations
    
    
    (5,903
    )
    
    
    (7,131
    )
    
    
    (6,981
    )Interest collected
    
    
    262
    
    
    
    291
    
    
    
    148Interest paid
    
    
    (3,702
    )
    
    
    (4,339
    )
    
    
    (5,528
    )Advisory and net income fee paid to affiliate
    
    
    (451
    )
    
    
    (868
    )
    
    
    (1,054
    )General and administrative expenses paid
    
    
    (785
    )
    
    
    (1,029
    )
    
    
    (1,618
    )Distributions from equity partnerships
operating cash flow
    
    
    
    
    
    
    25
    
    
    
    18Other
    
    
    
    
    
    
    
    
    
    
    20Net cash provided by (used in) operating
activities
    
    
    92
    
    
    
    (2,497
    )
    
    
    (2,029
    )Cash Flows from Investing ActivitiesFunding of equity partnerships
    
    
    
    
    
    
    
    
    
    
    (28
    )Real estate improvements
    
    
    
    
    
    
    (365
    )
    
    
    (3,466
    )Deposits on pending purchases and financings
    
    
    
    
    
    
    
    
    
    
    (25
    )Proceeds from sale of real estate
    
    
    9,582
    
    
    
    19,230
    
    
    
    Distributions from equity partnerships
investing cash flow
    
    
    
    
    
    
    752
    
    
    
    Funding of note receivable (including $5,109
in 2002 to related party)
    
    
    (1,567
    )
    
    
    (7,109
    )
    
    
    Collection of note receivable
    
    
    
    
    
    
    500
    
    
    
    1,000Payments from (to) advisor and affiliates
    
    
    (7,955
    )
    
    
    (6,244
    )
    
    
    4,635Net cash provided by investing activities
    
    
    60
    
    
    
    6,764
    
    
    
    2,116Cash Flows from Financing ActivitiesProceeds from notes payable
    
    
    917
    
    
    
    23,152
    
    
    
    14,900Payments on notes payable
    
    
    (603
    )
    
    
    (26,308
    )
    
    
    (14,783
    )Deferred financing costs
    
    
    (418
    )
    
    
    (1,167
    )
    
    
    (911
    )Repurchase of Common Stock
    
    
    
    
    
    
    
    
    
    
    (1,314
    )Net cash used in financing activities
    
    
    (104
    )
    
    
    (4,323
    )
    
    
    (2,108
    )Net increase (decrease) in cash and cash
equivalents
    
    
    48
    
    
    
    (56
    )
    
    
    (2,021
    )Cash and cash equivalents, beginning of year
    
    
    10
    
    
    
    66
    
    
    
    2,087Cash and cash equivalents, end of year
    
    $
    58
    
    
    $
    10
    
    
    $
    66
  32




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##### Table of Contents



For the Years Ended December 31,2003
    
    
    2002
    
    
    2001(dollars in thousands)(Restated)Reconciliation of net income (loss) to net cash
used in operating activitiesNet income (loss)
    
    $
    1,346
    
    
    $
    2,085
    
    
    $
    (3,462
    )Adjustments to reconcile net income (loss) to
net cash used in operating activities
Depreciation and amortization
    
    
    2,165
    
    
    
    1,867
    
    
    
    2,930Gain on sale of real estate
    
    
    (3,824
    )
    
    
    (7,152
    )
    
    
    Impairment of asset
    
    
    848Equity in (income) loss of partnerships
    
    
    2
    
    
    
    (862
    )
    
    
    9Distributions from equity partnerships
operating cash flow
    
    
    
    
    
    
    25
    
    
    
    18Provision for loss
    
    
    
    
    
    
    1,568
    
    
    
    Decrease in interest receivable
    
    
    (368
    )
    
    
    5
    
    
    
    (Increase) decrease in other assets
    
    
    1
    
    
    
    774
    
    
    
    (1,554
    )Decrease in interest payable
    
    
    29
    
    
    
    (9
    )
    
    
    (103
    )Increase (decrease) in other liabilities
    
    
    (107
    )
    
    
    (798
    )
    
    
    133Net cash provided by operating
activities
    
    $
    92
    
    
    $
    (2,497
    )
    
    $
    (2,029
    )Schedule of noncash investing and financing
activitiesNotes payable from purchase of real estate
    
    $
    18,687
    
    
    $
    
    
    
    $
    Notes payable assumed by buyer on sale of real
estate
    
    
    9,637
    
    
    
    
    
    
    
    Notes receivable collected by affiliates
    
    
    8,760
    
    
    
    5,541
    
    
    
    
  33




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##### Table of Contents



SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Organization and business.
  Basis of consolidation.
 Accounting estimates.
 Recent accounting pronouncements.
 34




---



##### Table of Contents



SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    
 35




---



##### Table of Contents



SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Real estate held for investment and depreciation.
 Revenue recognition on the sale of real estate.
 Investment in noncontrolled partnerships.
 Operating segments.
 36




---



##### Table of Contents



SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Fair value of financial instruments.
 Cash equivalents.
 Earnings per share.
 REAL ESTATE
  Sales

    
    Net Cash

    
    Debt

    
    Gain/(Loss)Property
    
    Location
    
    Sq.Ft.

    
    Price

    
    Received
    
    Discharged

    
    on SaleOffice BuildingMowry Building
    
    Newark, CA
    
    58,758 Sq.Ft.
    
    $
    5,000
    
    
    $
    1,113
    
    
    $
    4,057
    
    
    
    La Mesa Building
    
    La Mesa, CA
    
    90,105 Sq.Ft.
    
    $
    13,500
    
    
    $
    6,521
    
    
    $
    5,468
    
    
    $
    3,824One Hickory Centre
    
    Farmers Branch, TX
    
    97,361 Sq.Ft.
    
    $
    12,200
    
    
    $
    227
    
    
    
    
    
    
    
    LandTravelers Land
    
    Farmers Branch, TX
    
    1.01 Acres
    
    $
    25,000
    
    
    $
    2,198
    
    
    
    
    
    
    
    
  Concentration of investment risk.
 37




---



##### Table of Contents



Concentration of investment risk (continued).
 NOTES AND INTEREST RECEIVABLE
 Junior Mortgage Loans.
   38




---



##### Table of Contents



NOTES AND INTEREST RECEIVABLE
   
 39




---



##### Table of Contents



INVESTMENT IN EQUITY METHOD PARTNERSHIPS
  2003
    
    
    2002Nakash Income Associates (NIA)
    
    
    341
    
    
    
    275TCI Eton Square, L.P. (Eton Square)
    
    
    266
    
    
    
    334$
    607
    
    
    $
    609
     2003
    
    
    2002Notes receivable
    
    $
    902
    
    
    $
    902Real estate, net of accumulated depreciation
($1,631 in 2003 and $1,230 in 2002)
    
    
    13,753
    
    
    
    14,152Other assets
    
    
    (262
    )
    
    
    Notes payable
    
    
    (10,206
    )
    
    
    (10,362
    )Other liabilities
    
    
    (677
    )
    
    
    (559
    )Partners capital
    
    $
    3,510
    
    
    $
    4,133
 40




---



##### Table of Contents



INVESTMENT IN EQUITY METHOD PARTNERSHIPS
 2003
    
    
    2002
    
    
    2001Rents
    
    $
    1,233
    
    
    $
    2,981
    
    
    $
    2,579Interest income
    
    
    156
    
    
    
    156
    
    
    
    80Interest expense
    
    
    (685
    )
    
    
    (1,119
    )
    
    
    (1,131
    )Property operations expense
    
    
    (802
    )
    
    
    (1,453
    )
    
    
    (1,230
    )Depreciation
    
    
    (400
    )
    
    
    (628
    )
    
    
    (586
    )Loss before gains on sale of real estate
    
    
    (498
    )
    
    
    (63
    )
    
    
    (288
    )Gain on sale
    
    
    
    
    
    
    1,054
    
    
    
    Net income (loss)
    
    $
    (498
    )
    
    $
    991
    
    
    $
    (288
    )
  2003
    
    
    2002
    
    
    2001Income (loss) before gains on
sale of real estate
    
    $
    (7
    )
    
    $
    862
    *
    
    $
    (9
    )Gain on sale of real estate
    
    
    
    
    
    
    383
    
    
    
    Net income (loss)
    
    $
    (7
    )
    
    $
    1,245
    
    
    $
    (9
    )
 
 *
    
    Includes the $1.3 million gain from the sale of IORIs investment in Tri-City. NOTES AND INTEREST PAYABLE
  2003
    
    
    2002Estimated
    
    
    
    
    
    EstimatedFair
    
    Book
    
    Fair
    
    BookValue
    
    Value
    
    Value
    
    ValueNotes payable
    
    $
    63,033
    
    
    $
    60,427
    
    
    $
    50,402
    
    
    $
    51,063Interest payable
    
    
    
    
    
    
    398
    
    
    
    
    
    
    
    369$
    60,825
    
    
    
    
    
    
    $
    51,432
 41




---



##### Table of Contents



NOTES AND INTEREST PAYABLE
  2004
    
    $
    7,3942005
    
    
    1,1192006
    
    
    10,8862007
    
    
    5102008
    
    
    2,601Thereafter
    
    
    37,916$
    60,426
   
 42




---



##### Table of Contents



NOTES AND INTEREST PAYABLE
   Net CashDebt
    
    
    Debt
    
    
    Received/
    
    
    Interest
    
    
    MaturityProperty
    
    Location
    
    
    Sq.Ft./Acrs
    
    
    Incurred
    
    
    Discharged
    
    
    (Paid)
    
    
    Rate
    
    
    DateOffice
Building
2010 Valley View
    
    Farmers Branch,TX
    
    40,066 Sq.Ft.
    
    $
    2,436
    
    
    
    1,778
    
    
    
    547
    
    
    
    6.25
    %
    
    
    10/08Travelers Land
    
    Farmers Branch, TX
    
    97,361 Sq.Ft.
    
    $
    5,000
    
    
    $
    4,225
    
    
    
    
    
    
    
    6.00
    %(1)
    
    
    12/06
 
 (1)
    
    Variable rate. RELATED PARTY TRANSACTIONS
  43




---



##### Table of Contents



RELATED PARTY TRANSACTIONS
       SWI
    
    
    BCM
    
    
    ARI
    
    
    TCIBalance, December 31, 2002
    
    
    
    
    
    $
    1,696
    
    
    $
    3,541
    
    
    $
    5,260Cash transfers
    
    
    15,209
    
    
    
    5,017
    
    
    
    
    
    
    
    Cash repayments
    
    
    (3,881
    )
    
    
    (3,937
    )
    
    
    (3,494
    )
    
    
    (1,000
    )Other additions
    
    
    2,926
    
    
    
    784
    
    
    
    367
    
    
    
    1Other repayments
    
    
    (13,930
    )
    
    
    (3,560
    )
    
    
    (47
    )
    
    
    (4,000
    )Balance, December 31, 2003
    
    
    324
    
    
    $
    
    
    
    $
    367
    
    
    $
    261
 44




---



##### Table of Contents



RELATED PARTY TRANSACTIONS
 Returns on Metra Properties.
 DIVIDENDS
     RENTS UNDER OPERATING LEASES
  2004
    
    $
    2,3542005
    
    
    2,2982006
    
    
    1,7622007
    
    
    1,3892008
    
    
    1,182Thereafter
    
    
    1,888$
    10,873
 ADVISORY AGREEMENT
  45




---



##### Table of Contents



ADVISORY AGREEMENT
      
 46




---



##### Table of Contents



ADVISORY AGREEMENT
   PROPERTY MANAGEMENT
 
 REAL ESTATE BROKERAGE
  47




---



##### Table of Contents



ADVISORY FEES, PROPERTY MANAGEMENT FEES, ETC.
  2003
    
    
    2002
    
    
    2001Fees
    
    (Restated)Advisory
    
    $
    424
    
    
    $
    714
    
    
    $
    817Net income
    
    
    109
    
    
    
    169
    
    
    
    Property acquisition
    
    
    
    
    
    
    
    
    
    
    Mortgage brokerage and equity refinancing
    
    
    547
    
    
    
    262
    
    
    
    99Property & Construction Mgt. & Leasing Comm
    
    
    323
    
    
    
    0
    
    
    
    0$
    1,403
    
    
    $
    1,145
    
    
    $
    916Cost reimbursements
    
    $
    173
    
    
    $
    246
    
    
    $
    323
 INCOME TAXES
   48




---



##### Table of Contents



OPERATING SEGMENTS
   Commercial2003 (as restated)
    
    Land
    
    
    Properties
    
    
    Apartments
    
    
    TotalRents
    
    $
    
    
    
    $
    2,456
    
    
    $
    5,358
    
    
    $
    7,814Property operating expenses
    
    
    
    
    
    
    1,091
    
    
    
    3,471
    
    
    
    4,560Operating income (loss)
    
    $
    
    
    
    $
    1,365
    
    
    $
    1,887
    
    
    $
    3,254Depreciation
    
    $
    
    
    
    $
    794
    
    
    $
    405
    
    
    $
    1,199Interest
    
    
    
    
    
    
    623
    
    
    
    1,940
    
    
    
    2,563Real estate improvements
    
    
    
    
    
    
    494
    
    
    
    
    
    
    
    494Assets
    
    
    44
    
    
    
    22,105
    
    
    
    28,216
    
    
    
    50,365
 49




---



##### Table of Contents



OPERATING SEGMENTS
 CommercialProperties
    
    
    
    
    
    
    TotalProperty SalesSales price
    
    
    
    
    
    $
    55,700
    
    
    
    
    
    
    $
    55,700Cost of sale
    
    
    
    
    
    
    51,874
    
    
    
    
    
    
    
    51,874Gain on sale
    
    
    
    
    
    $
    3,824
    
    
    
    
    
    
    $
    3,824CommercialLand
    
    
    Properties
    
    
    Apartments
    
    
    Total2002Rents
    
    $
    
    
    
    $
    2,394
    
    
    $
    5,345
    
    
    $
    7,739Property operating expenses
    
    
    
    
    
    
    1,030
    
    
    
    2,789
    
    
    
    3,819Operating income
    
    $
    
    
    
    $
    1,364
    
    
    $
    2,556
    
    
    $
    3,920Depreciation
    
    $
    
    
    
    $
    739
    
    
    $
    477
    
    
    $
    1,216Interest
    
    
    
    
    
    
    605
    
    
    
    1,674
    
    
    
    2,279Real estate improvements
    
    
    
    
    
    
    240
    
    
    
    
    
    
    
    240Assets
    
    
    24,929
    
    
    
    28,688
    
    
    
    21,133
    
    
    
    74,750CommercialProperties
    
    
    
    
    
    
    TotalProperty SalesSales price
    
    
    
    
    
    $
    19,230
    
    
    
    
    
    
    $
    19,230Cost of sale
    
    
    
    
    
    
    12,461
    
    
    
    
    
    
    
    12,461Gain on sale
    
    
    
    
    
    $
    6,769
    
    
    
    
    
    
    $
    6,769CommercialLand
    
    
    Properties
    
    
    Apartments
    
    
    Total2001Rents
    
    $
    
    
    
    $
    2,277
    
    
    $
    5,045
    
    
    $
    7,322Property operating expenses
    
    
    
    
    
    
    1,034
    
    
    
    2,667
    
    
    
    3,701Operating income
    
    $
    
    
    
    $
    1,243
    
    
    $
    2,378
    
    
    $
    3,621Depreciation
    
    $
    
    
    
    $
    1,056
    
    
    $
    512
    
    
    $
    1,568Interest
    
    
    
    
    
    
    788
    
    
    
    1,361
    
    
    
    2,149Real estate improvements
    
    
    2,404
    
    
    
    1,062
    
    
    
    
    
    
    
    3,466Assets
    
    
    24,492
    
    
    
    41,213
    
    
    
    21,610
    
    
    
    87,315
 50




---



##### Table of Contents



DISCONTINUED OPERATIONS
   2003
    
    
    2002
    
    
    2001RevenueRental
    
    $
    1,991
    
    
    $
    2,660
    
    
    $
    5,679Property operations
    
    
    1,858
    
    
    
    2,511
    
    
    
    2,890133
    
    
    
    149
    
    
    
    2,789Interest Income
    
    
    462
    
    
    
    
    
    
    
    ExpensesInterest
    
    
    2,236
    
    
    
    2,635
    
    
    
    3,925Depreciation
    
    
    357
    
    
    
    650
    
    
    
    8592,593
    
    
    
    3,285
    
    
    
    4,784Net income (loss) from discontinued operations
    
    
    (1,998
    )
    
    
    (3,136
    )
    
    
    (1,995
    )Gain on sale of real estate
    
    
    3,824
    
    
    
    6,769
    
    
    
    Equity in gain on sale of real estate by equity
investees
    
    
    
    
    
    
    383
    
    
    
    Net income (loss) from discontinued operations
    
    $
    1,826
    
    
    $
    4,016
    
    
    $
    (1,995
    )
 51




---



##### Table of Contents



QUARTERLY DATA
  Three Months Ended2003 (as restated)
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Rents
    
    $
    1,942
    
    
    $
    1,958
    
    
    $
    1,970
    
    
    $
    1,944Property expense
    
    
    966
    
    
    
    1,012
    
    
    
    1,182
    
    
    
    1,400Operating income
    
    
    976
    
    
    
    946
    
    
    
    788
    
    
    
    544Interest income
    
    
    
    
    
    
    614
    
    
    
    12
    
    
    
    Income (loss) in equity
partnerships
    
    
    (15
    )
    
    
    
    
    
    
    (13
    )
    
    
    21Recovery of A/R written off
    
    
    
    
    
    
    1,569
    
    
    
    
    
    
    
    Other expense
    
    
    1,300
    
    
    
    1,982
    
    
    
    1,325
    
    
    
    1,315Net income (loss) from continuing operations
    
    
    (339
    )
    
    
    1,147
    
    
    
    (538
    )
    
    
    (750
    )Discontinued operations
    
    
    (588
    )
    
    
    (491
    )
    
    
    (541
    )
    
    
    3,446Net income (loss)
    
    $
    (927
    )
    
    $
    656
    
    
    $
    (1,079
    )
    
    $
    2,696Earnings per shareNet income (loss)
    
    $
    (0.64
    )
    
    $
    0.46
    
    
    $
    (.75
    )
    
    $
    1.87
 Three Months Ended2002
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Rents$
    1,892
    
    
    $
    1,888
    
    
    $
    2,061
    
    
    $
    1,898Property expense
    
    
    801
    
    
    
    896
    
    
    
    1,137
    
    
    
    985Operating income
    
    
    1,091
    
    
    
    992
    
    
    
    924
    
    
    
    913Interest income
    
    
    37
    
    
    
    310
    
    
    
    185
    
    
    
    (262
    )Income (loss) in equity
partnerships
    
    
    (17
    )
    
    
    48
    
    
    
    60
    
    
    
    771Other expense
    
    
    2,393
    
    
    
    1,519
    
    
    
    1,055
    
    
    
    2,016Net loss from continuing
operations
    
    
    (1,282
    )
    
    
    (169
    )
    
    
    114
    
    
    
    (594
    )Discontinued operations
    
    
    6,355
    
    
    
    (718
    )
    
    
    (1,355
    )
    
    
    (266
    )Net income (loss)
    
    $
    5,073
    
    
    $
    (887
    )
    
    $
    (1,241
    )
    
    $
    (860
    )Earnings per shareNet income (loss)
    
    $
    3.53
    
    
    $
    (.62
    )
    
    $
    (.86
    )
    
    $
    (.60
    )
 52




---



##### Table of Contents



QUARTERLY DATA
 Three Months Ended2001
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Rents
    
    $
    1,814
    
    
    $
    1,806
    
    
    $
    1,802
    
    
    $
    1,900Property expense
    
    
    907
    
    
    
    889
    
    
    
    1,013
    
    
    
    892Operating income
    
    
    907
    
    
    
    917
    
    
    
    789
    
    
    
    1,008Interest income
    
    
    72
    
    
    
    62
    
    
    
    8
    
    
    
    52Income (loss) in equity
partnerships
    
    
    9
    
    
    
    (6
    )
    
    
    (30
    )
    
    
    18Other expense
    
    
    1,328
    
    
    
    1,327
    
    
    
    1,406
    
    
    
    1,212Net income (loss) from
continuing operations
    
    
    (340
    )
    
    
    (354
    )
    
    
    (639
    )
    
    
    (134
    )Discontinued
operations
    
    
    (377
    )
    
    
    (378
    )
    
    
    (1,110
    )
    
    
    (130
    )Net income (loss)
    
    $
    (717
    )
    
    $
    (732
    )
    
    $
    (1,749
    )
    
    $
    (264
    )Earnings per shareNet income (loss)
    
    $
    (.47
    )
    
    $
    (.49
    )
    
    $
    (1.16
    )
    
    $
    (.18
    )
  COMMITMENTS AND CONTINGENCIES AND LIQUIDITY
 Olive Litigation. Olive et al. v. National Income Realty Trust et al.
 53




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##### Table of Contents



COMMITMENTS AND CONTINGENCIES AND LIQUIDITY
  
 54




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##### Table of Contents



COMMITMENTS AND CONTINGENCIES AND LIQUIDITY
   Liquidity.
 55




---



##### Table of Contents



COMMITMENTS AND CONTINGENCIES AND LIQUIDITY
  Other Litigation.
   56




---



##### Table of Contents



Life onWhichDepreciationCost
    
    
    Gross Amount
    
    
    Accumu-
    
    
    
    
    
    
    
    
    
    
    in LatestInitial Cost
    
    
    Capitalized
    
    
    Carried at End of Year (1)
    
    
    lated
    
    
    Date of
    
    
    
    
    
    
    StatementEncum-
    
    
    
    
    
    
    Building &
    
    
    Subsequent to
    
    
    
    
    
    
    Building &
    
    
    
    
    
    
    Depreci-
    
    
    Construc-
    
    
    Date
    
    
    of OperationProperty/Location
    
    brances
    
    
    Land
    
    
    Improvements
    
    
    Acquisition
    
    
    Land
    
    
    Improvements
    
    
    Total
    
    
    ation
    
    
    tion
    
    
    Acquired
    
    
    is Computed(dollars in thousands)Properties Held For Investment
ApartmentsBrighton Court, Midland, TX
    
    $
    2,843
    
    
    $
    339
    
    
    $
    3,051
    
    
    $
    
    
    
    $
    339
    
    
    $
    3,051
    
    
    $
    3,390
    
    
    $
    267
    
    
    
    1983
    
    
    
    06/00
    
    
    40 yearsDel Mar, Midland, TX
    
    
    2,725
    
    
    
    324
    
    
    
    2,919
    
    
    
    
    
    
    
    324
    
    
    
    2,919
    
    
    
    3,243
    
    
    
    255
    
    
    
    1983
    
    
    
    06/00
    
    
    40 yearsEnclave, Midland, TX
    
    
    2,882
    
    
    
    324
    
    
    
    2,919
    
    
    
    
    
    
    
    324
    
    
    
    2,919
    
    
    
    3,243
    
    
    
    255
    
    
    
    1983
    
    
    
    06/00
    
    
    40 yearsMeridian, Midland, TX
    
    
    4,502
    
    
    
    1,138
    
    
    
    4,552
    
    
    
    
    
    
    
    1,138
    
    
    
    4,552
    
    
    
    5,690
    
    
    
    455
    
    
    
    1983
    
    
    
    12/99
    
    
    40 yearsSignature Place, Midland, TX
    
    
    2,410
    
    
    
    265
    
    
    
    2,388
    
    
    
    
    
    
    
    265
    
    
    
    2,388
    
    
    
    2,653
    
    
    
    174
    
    
    
    1983
    
    
    
    06/00
    
    
    40 yearsSinclair Place, Midland, TX
    
    
    2,054
    
    
    
    221
    
    
    
    1,990
    
    
    
    
    
    
    
    221
    
    
    
    1,990
    
    
    
    2,211
    
    
    
    209
    
    
    
    1983
    
    
    
    06/00
    
    
    40 yearsTreehouse, San Antonio, TX
    
    
    3,752
    
    
    
    375
    
    
    
    2,124
    
    
    
    259
    
    
    
    375
    
    
    
    2,383
    
    
    
    2,758
    
    
    
    844
    
    
    
    1975
    
    
    
    09/89
    
    
    5-40 yearsTreehouse, Irving, TX
    
    
    5,083
    
    
    
    716
    
    
    
    6,771
    
    
    
    
    
    
    
    716
    
    
    
    6,771
    
    
    
    7,487
    
    
    
    
    
    
    
    1974
    
    
    
    12/03
    
    
    5-40 yearsOffice Buildings2010 Valley View, Farmers
Branch, TX
    
    
    2,425
    
    
    
    120
    
    
    
    479
    
    
    
    2,979
    
    
    
    120
    
    
    
    3,458
    
    
    
    3,578
    
    
    
    1,264
    
    
    
    1998
    
    
    
    09/97
    
    
    5-40 yearsAkard Plaza, Dallas, TX
    
    
    1,966
    
    
    
    734
    
    
    
    2,936
    
    
    
    454
    
    
    
    734
    
    
    
    3,390
    
    
    
    4,124
    
    
    
    785
    
    
    
    1984
    
    
    
    12/97
    
    
    5-40 yearsChuck Yeager, Chantilly, VA
    
    
    4,336
    
    
    
    1,080
    
    
    
    4,321
    
    
    
    1,566
    
    
    
    1,080
    
    
    
    5,887
    
    
    
    6,967
    
    
    
    1,494
    
    
    
    1991
    
    
    
    01/97
    
    
    5-40 yearsParkway Ctr, Farmers Branch, TX
    
    
    1,631
    
    
    
    333
    
    
    
    3,511
    
    
    
    
    
    
    
    333
    
    
    
    3,511
    
    
    
    3,844
    
    
    
    
    
    
    
    1979
    
    
    
    12/03
    
    
    5-40 yearsIndustrial WarehouseEagle Crest, Farmers Branch, TX
    
    
    
    
    
    
    2,129
    
    
    
    1,906
    
    
    
    
    
    
    
    2,129
    
    
    
    1,906
    
    
    
    4,035
    
    
    
    
    
    
    
    
    
    
    
    12/03
    
    
    5-40 yearsLandFrankel, Midland County, TX
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    
    
    
    
    06/003 HickoryCtr, FarmersBranch, TX
    
    
    
    
    
    
    2,804
    
    
    
    
    
    
    
    296
    
    
    
    3,100
    
    
    
    
    
    
    
    3,100
    
    
    
    
    
    
    
    
    
    
    
    $
    36,609
    
    
    $
    10,946
    
    
    $
    39,867
    
    
    $
    5,554
    
    
    $
    11,242
    
    
    $
    45,125
    
    
    $
    56,367
    
    
    $
    6,002
 
 (1)
    
    The aggregate cost for Federal income tax purposes is $34.7 million. 57




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##### Table of Contents



2003
    
    
    2002
    
    
    2001(dollars in thousands)Reconciliation of Real EstateBalance at January 1,
    
    $
    82,252
    
    
    $
    95,190
    
    
    $
    91,837AdditionsAcquisitions and Improvements
    
    
    15,365
    
    
    
    677
    
    
    
    3,466DeductionsRetirements
    
    
    
    
    
    
    (462
    )
    
    
    (113
    )Sale of real estate
    
    
    (41,250
    )
    
    
    (13,153
    )
    
    
    Balance at December 31,
    
    $
    56,367
    
    
    $
    82,252
    
    
    $
    95,190Reconciliation of Accumulated DepreciationBalance at January 1,
    
    $
    7,502
    
    
    $
    7,875
    
    
    $
    5,560AdditionsDepreciation
    
    
    1,552
    
    
    
    1,867
    
    
    
    2,427DeductionsRetirements
    
    
    
    
    
    
    
    
    
    
    (112
    )Sale of real estate
    
    
    (3,052
    )
    
    
    (2,240
    )
    
    
    Balance at December 31,
    
    $
    6,002
    
    
    $
    7,502
    
    
    $
    7,875
 58




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##### Table of Contents



2003
    
    
    2002
    
    
    2001(dollars in thousands)Balance at January 1,
    
    $
    
    
    
    $
    500
    
    
    $
    1,500AdditionsNew mortgage loans
    
    
    45,531
    
    
    
    7,109
    
    
    
    DeductionsAmounts charged off
    
    
    
    
    
    
    (1,568
    )
    
    
    Collections of principal by IORI
    
    
    
    
    
    
    (500
    )
    
    
    Collections of principal by affiliates
    
    
    
    
    
    
    (5,541
    )
    
    
    (1,000
    )Balance at December 31,
    
    $
    45,531
    
    
    $
    
    
    
    $
    500
 59




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##### Table of Contents



60




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60.1




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##### Table of Contents



60.2