##### Table of Contents



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, 2004
 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
Incorporation or organization)
    
    (IRS Employer Identification
 Number)1755 Wittington Place, Suite 340, Dallas, Texas
    
    75234(Address of principal executive offices)
    
    (Zip Code)
 214-750-5800
  Title of Each ClassCommon Stock, $0.01 par value
    
    Name of each exchange on which
registeredAmerican Stock Exchange
 None
 Yes þ No o
 þ
 Yes o No þ




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TABLE OF CONTENTS  SIGNATUREITEM 6. SELECTED FINANCIAL DATAITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSUREITEM 9A. CONTROLS AND PROCEDURESITEM 9B. OTHER INFORMATION    Table of Contents  AMENDMENT NO. 3 TO
ANNUAL REPORT ON FORM 10-K FOR
INCOME OPPORTUNITY REALTY INVESTORS, INC.
  ·
    
    Page 20  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 2004 and 2003.·
    
    Pages 21-27  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 29-62  Item 8. Financial Statements and Supplementary Data. The Reports of Independent Registered Public Accounting Firms (Pages 30-32)
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 33-38) and Notes to
Consolidated Financial Statements (Pages 39-59) have been revised in the
following respects:
 
    
    Increase in interest expense by $79,000 from a reported $3,491,000 to $3,570,000.
    
    Decrease in advisory fee by $2,000 from a reported $743,000 to $741,000.
    
    Decrease in net income fee by $13,000 from a reported $453,000 to $440,000.
    
    Increase in total other expense by $64,000 from a reported $5,990,000 to $6,054,000.
    
    Decrease in net income by $64,000 from a reported $5,492,000 to $5,428,000.
    
    Decrease in net income per share by $0.04 from a reported $3.95/sh to $3.91/sh.
    
    Decrease in other assets by $563,000 from a reported $3,658,000 to
$3,095,000 (includes $73,000 decrease in 2003).
    
    Decrease in total assets by $563,000 from a reported $91,201,000 to
$90,638,000 (includes $73,000 decrease in 2003).
    
    Decrease in payable to affiliates by $38,000 from a reported
$1,288,000
to $1,248,000 (includes $22,000 decrease in 2003).
    
    Decrease in other liabilities by $24,000 from a reported $1,553,000 to
$1,529,000 (includes $385,000 increase in 2003).
    
    Increase in accumulated deficit by $501,000 from a reported $18,206,000
to $18,707,000 (includes $436,000 increase in 2003).
  ·
    
    Page 64  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
undetected error in the recordation of an April 2002 transaction.




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




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SELECTED FINANCIAL DATA
 For the Years Ended December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(dollars in thousands, except per share)(Restated)
    
    
    (Restated)EARNINGS DATARents
    
    $
    5,905
    
    
    $
    5,224
    
    
    $
    5,298
    
    
    $
    4,956
    
    
    $
    8,761Property expense
    
    
    3,129
    
    
    
    3,331
    
    
    
    2,748
    
    
    
    2,637
    
    
    
    4,652Operating income
    
    
    2,776
    
    
    
    1,893
    
    
    
    2,550
    
    
    
    2,319
    
    
    
    4,109Interest income
    
    
    3,325
    
    
    
    626
    
    
    
    270
    
    
    
    194
    
    
    
    319Income (loss) from equity partnerships
    
    
    (3
    )
    
    
    (7
    )
    
    
    862
    
    
    
    (9
    )
    
    
    (61
    )Recovery of A/R written off
    
    
    
    
    
    
    1,569
    
    
    
    
    
    
    
    
    
    
    
    Other expense
    
    
    6,054
    
    
    
    4,788
    
    
    
    5,694
    
    
    
    3,868
    
    
    
    9,580Net income (loss) from continuing operations
    
    
    44
    
    
    
    (707
    )
    
    
    (2,012
    )
    
    
    (1,364
    )
    
    
    (4,086
    )Discontinued operations
    
    
    5,384
    
    
    
    2,053
    
    
    
    4,097
    
    
    
    (2,098
    )
    
    
    20,880Net income (loss)
    
    $
    5,428
    
    
    $
    1,346
    
    
    $
    2,085
    
    
    $
    (3,462
    )
    
    $
    16,794PER SHARE DATANet income (loss)
    
    $
    3.91
    
    
    $
    0.94
    
    
    $
    1.45
    
    
    $
    (2.32
    )
    
    $
    11.03Dividends per share
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    .45Weighted average common shares outstanding
    
    
    1,389,345
    
    
    
    1,438,945
    
    
    
    1,438,945
    
    
    
    1,493,675
    
    
    
    1,522,510
  As of December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000(dollars in thousands, except per share)(Restated)
    
    
    (Restated)BALANCE SHEET DATAReal estate held for investment, net
    
    $
    31,368
    
    
    $
    50,365
    
    
    $
    74,750
    
    
    $
    87,315
    
    
    $
    86,277Notes and interest receivable, net
    
    
    54,911
    
    
    
    45,531
    
    
    
    
    
    
    
    505
    
    
    
    1,500Total assets
    
    
    90,638
    
    
    
    101,093
    
    
    
    90,185
    
    
    
    91,833
    
    
    
    96,519Notes and interest payable
    
    
    44,571
    
    
    
    60,825
    
    
    
    51,432
    
    
    
    54,426
    
    
    
    54,206Stockholders equity
    
    
    43,290
    
    
    
    38,653
    
    
    
    37,307
    
    
    
    35,222
    
    
    
    39,998Book value per share
    
    $
    31.16
    
    
    $
    26.86
    
    
    $
    25.93
    
    
    $
    24.48
    
    
    $
    26.42
  20




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PAYMENTS DUE BY PERIOD(in thousands)2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    Thereafter
    
    TotalVariable interest rate notesInstruments maturities
    
    $
    5,175
    
    
    $
    3,542
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    8,717Instruments amortization
    
    
    500
    
    
    
    458
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    958Interest
    
    
    493
    
    
    
    243
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    736Fixed interest rate notesInstruments maturities
    
    
    
    
    
    
    1,371
    
    
    
    
    
    
    
    2,083
    
    
    
    
    
    
    
    25,536
    
    
    
    28,990Instruments amortization
    
    
    771
    
    
    
    730
    
    
    
    717
    
    
    
    750
    
    
    
    742
    
    
    
    1,966
    
    
    
    5,676Interest
    
    
    2,337
    
    
    
    2,204
    
    
    
    2,093
    
    
    
    2,006
    
    
    
    1,852
    
    
    
    3,947
    
    
    
    14,439Principal payments
    
    
    6,446
    
    
    
    6,101
    
    
    
    717
    
    
    
    2,833
    
    
    
    742
    
    
    
    27,502
    
    
    
    44,341
     22




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2004
    
    
    2003
    
    
    2002RevenueRental Revenue
    
    $
    1,771
    
    
    $
    4,581
    
    
    $
    5,101Property operations
    
    
    981
    
    
    
    3,087
    
    
    
    3,582790
    
    
    
    1,494
    
    
    
    1,519Interest Income
    
    
    
    
    
    
    462
    
    
    
    ExpensesInterest
    
    
    556
    
    
    
    2,987
    
    
    
    3,457Depreciation
    
    
    323
    
    
    
    740
    
    
    
    1,117879
    
    
    
    3,727
    
    
    
    4,574Net loss from discontinued operations
    
    
    (89
    )
    
    
    (1,771
    )
    
    
    (3,055
    )Gain on sale of real estate
    
    
    5,473
    
    
    
    3,824
    
    
    
    6,769Equity in gain on sale of real estate by equity investees
    
    
    
    
    
    
    
    
    
    
    383Net income (loss) from discontinued operations
    
    $
    5,384
    
    
    $
    2,053
    
    
    $
    4,097
    26




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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   27




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LiabilitiesNotes payableVariable interest rate-fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,639
 2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    TotalInstruments maturities
    
    $
    5,175
    
    
    $
    3,542
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    8,717Instruments amortization
    
    
    500
    
    
    
    458
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    958Interest
    
    
    493
    
    
    
    243
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    736Average rate
    
    
    7.3
    %
    
    
    7.0
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fixed interest rate-fair value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    29,869
 2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    Thereafter
    
    
    TotalInstruments maturities
    
    
    
    
    
    
    1,371
    
    
    
    
    
    
    
    2,083
    
    
    
    
    
    
    
    25,536
    
    
    
    28,990Instruments amortization
    
    
    771
    
    
    
    730
    
    
    
    717
    
    
    
    750
    
    
    
    742
    
    
    
    1,966
    
    
    
    5,676Interest
    
    
    2,337
    
    
    
    2,204
    
    
    
    2,093
    
    
    
    2,006
    
    
    
    1,852
    
    
    
    3,947
    
    
    
    14,439Average rate
    
    
    7.6
    %
    
    
    7.5
    %
    
    
    7.5
    %
    
    
    7.5
    %
    
    
    7.6
    %
    
    
    6.3
    %
 28




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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  PageFinancial StatementsReport of Independent Registered Public Accounting Firms
    
    
    30Consolidated Balance SheetsDecember 31, 2004 and 2003
    
    
    33Consolidated Statements of OperationsYears Ended December 31, 2004, 2003 and 2002
    
    
    34Consolidated Statements of Stockholders EquityYears Ended December 31, 2004, 2003 and 2002
    
    
    36Consolidated Statements of Cash FlowsYears Ended December 31, 2004, 2003 and 2002
    
    
    37Notes to Consolidated Financial Statements
    
    
    39Financial Statement SchedulesSchedule IIIReal Estate and Accumulated Depreciation
    
    
    60Schedule IVMortgage Loans on Real Estate
    
    
    62
   29




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    ,
   
 32




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December 31,2004
    
    
    2003(dollars in thousands,except per share)(Restated)
    
    
    (Restated)AssetsReal estate held for investment
    
    $
    34,988
    
    
    $
    56,367Less  accumulated depreciation
    
    
    (3,620
    )
    
    
    (6,002
    )31,368
    
    
    
    50,365Notes and interest receivable
    
    
    54,911
    
    
    
    45,531Investment in real estate partnerships
    
    
    604
    
    
    
    607Cash and cash equivalents
    
    
    399
    
    
    
    58Receivables from affiliates
    
    
    261
    
    
    
    479Other assets
    
    
    3,095
    
    
    
    4,053$
    90,638
    
    
    $
    101,093Liabilities and Stockholders EquityLiabilitiesNotes and interest payable
    
    $
    44,571
    
    
    $
    60,825Payables to affiliates
    
    
    1,248
    
    
    
    Other liabilities
    
    
    1,529
    
    
    
    1,61547,348
    
    
    
    62,440Commitments and contingenciesStockholders equityCommon Stock, $.01 par value;
authorized 10,000,000 shares; issued
and outstanding and 1,389,345 shares
in 2004 and 1,438,945 shares in 2003
    
    
    14
    
    
    
    14Paid-in capital
    
    
    61,983
    
    
    
    62,774Accumulated deficit
    
    
    (18,707
    )
    
    
    (24,135
    )43,290
    
    
    
    38,653$
    90,638
    
    
    $
    101,093
  33




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##### Table of Contents



For the Years Ended December 31,2004
    
    
    2003
    
    
    2002(Restated)
    
    
    (Restated)(dollars in thousands, except per share)Property revenueRents
    
    $
    5,905
    
    
    $
    5,224
    
    
    $
    5,298Property expenseProperty operations
    
    
    3,129
    
    
    
    3,331
    
    
    
    2,748Operating income
    
    
    2,776
    
    
    
    1,893
    
    
    
    2,550Other incomeInterest
    
    
    3,325
    
    
    
    626
    
    
    
    270Equity in income (loss) of equity partnerships
    
    
    (3
    )
    
    
    (7
    )
    
    
    862Recovery of loss provision on receivable from related party
    
    
    
    
    
    
    1,569
    
    
    
    3,322
    
    
    
    2,188
    
    
    
    1,132Other expenseInterest
    
    
    3,570
    
    
    
    1,812
    
    
    
    1,457Depreciation
    
    
    740
    
    
    
    816
    
    
    
    748Advisory fee to affiliate
    
    
    741
    
    
    
    424
    
    
    
    714Net income fee to affiliate
    
    
    440
    
    
    
    109
    
    
    
    169Provision for loss on receivable from related party
    
    
    
    
    
    
    
    
    
    
    1,568Provision for Asset Impairment
    
    
    
    
    
    
    848
    
    
    
    General and administrative
    
    
    563
    
    
    
    779
    
    
    
    1,0386,054
    
    
    
    4,788
    
    
    
    5,694Net income (loss) from continuing operations
    
    
    44
    
    
    
    (707
    )
    
    
    (2,012
    )Discontinued operations:Income (loss) from operations
    
    
    (89
    )
    
    
    (1,771
    )
    
    
    (3,055
    )Gain on sale of real estate by equity investees
    
    
    
    
    
    
    
    
    
    
    383Gain on sale of operations
    
    
    5,473
    
    
    
    3,824
    
    
    
    6,769Net income (loss) from discontinued operations
    
    
    5,384
    
    
    
    2,053
    
    
    
    4,097Net income (loss)
    
    $
    5,428
    
    
    $
    1,346
    
    
    $
    2,085
 34




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##### Table of Contents



For the Years Ended December 31,2004
    
    
    2003
    
    
    2002(Restated)
    
    
    (Restated)(dollars in thousands, except per share)Earnings per shareNet income (loss) from continuing operations
    
    $
    0.03
    
    
    $
    (0.49
    )
    
    $
    (1.40
    )Discontinued operations
    
    
    3.88
    
    
    
    1.43
    
    
    
    2.85Net income (loss)
    
    $
    3.91
    
    
    $
    0.94
    
    
    $
    1.45Weighted average shares of Common Stock
used in computing earnings per share
    
    
    1,389,345
    
    
    
    1,438,945
    
    
    
    1,438,945
  35




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Common Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Equity(dollars in thousands, except shares)Balance, January 1, 2002
    
    
    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 (as restated)
    
    
    1,438,945
    
    
    $
    14
    
    
    $
    62,774
    
    
    $
    (24,135
    )
    
    $
    38,653Repurchase of Common Stock
    
    
    (49,600
    )
    
    
    
    
    
    
    (791
    )
    
    
    
    
    
    
    (791
    )Net income (as restated)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,428
    
    
    
    5,428Balance,
December 31, 2004 (as restated)
    
    
    1,389,345
    
    
    $
    14
    
    
    $
    61,983
    
    
    $
    (18,707
    )
    
    $
    43,290
  36




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##### Table of Contents



For the Years Ended December 31,2004
    
    
    2003
    
    
    2002(dollars in thousands)(Restated)
    
    
    (Restated)Cash Flows from Operating ActivitiesRents collected
    
    $
    8,106
    
    
    $
    10,671
    
    
    $
    10,554Payments for property operations
    
    
    (5,086
    )
    
    
    (5,903
    )
    
    
    (7,131
    )Interest collected
    
    
    2,413
    
    
    
    262
    
    
    
    291Interest paid
    
    
    (3,885
    )
    
    
    (3,702
    )
    
    
    (4,339
    )Advisory and net income fee paid to affiliate
    
    
    (1,110
    )
    
    
    (451
    )
    
    
    (868
    )General and administrative expenses paid
    
    
    (562
    )
    
    
    (785
    )
    
    
    (1,029
    )Distributions from equity partnerships operating cash flow
    
    
    
    
    
    
    
    
    
    
    25Net cash provided by (used in) operating activities
    
    
    (124
    )
    
    
    92
    
    
    
    (2,497
    )Cash Flows from Investing ActivitiesReal estate improvements
    
    
    
    
    
    
    
    
    
    
    (365
    )Deposits on pending purchases and financings
    
    
    
    
    
    
    
    
    
    
    Proceeds from sale of real estate
    
    
    5,680
    
    
    
    9,582
    
    
    
    19,230Distributions from equity partnerships investing cash flow
    
    
    
    
    
    
    
    
    
    
    752Funding of note receivable (including $5,109 in 2002 to related party)
    
    
    
    
    
    
    (1,567
    )
    
    
    (7,109
    )Collection of note receivable
    
    
    
    
    
    
    
    
    
    
    500Payments from (to) advisor and affiliates
    
    
    (3,866
    )
    
    
    (7,955
    )
    
    
    (6,244
    )Net cash provided by investing activities
    
    
    1,814
    
    
    
    60
    
    
    
    6,764Cash Flows from Financing ActivitiesProceeds from notes payable
    
    
    1,193
    
    
    
    917
    
    
    
    23,152Payments on notes payable
    
    
    (1,435
    )
    
    
    (603
    )
    
    
    (26,308
    )Deferred financing costs
    
    
    (316
    )
    
    
    (418
    )
    
    
    (1,167
    )Retirement of Treasury Stock
    
    
    (791
    )
    
    
    
    
    
    
    Net cash used in financing activities
    
    
    (1,349
    )
    
    
    (104
    )
    
    
    (4,323
    )Net increase (decrease) in cash and cash equivalents
    
    
    341
    
    
    
    48
    
    
    
    (56
    )Cash and cash equivalents, beginning of year
    
    
    58
    
    
    
    10
    
    
    
    66Cash and cash equivalents, end of year
    
    $
    399
    
    
    $
    58
    
    
    $
    10
  37




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##### Table of Contents



For the Years Ended December 31,2004
    
    
    2003
    
    
    2002(dollars in thousands)(Restated)
    
    
    (Restated)Reconciliation of net income (loss) to net cash used in operating activitiesNet income
    
    $
    5,428
    
    
    $
    1,346
    
    
    $
    2,085Adjustments to reconcile net income (loss) to net cash used in operating
activitiesDepreciation and amortization
    
    
    1,392
    
    
    
    2,165
    
    
    
    1,867Gain on sale of real estate
    
    
    (5,473
    )
    
    
    (3,824
    )
    
    
    (7,152
    )Impairment of asset
    
    
    
    
    
    
    848
    
    
    
    Equity in (income) loss of partnerships
    
    
    3
    
    
    
    2
    
    
    
    (862
    )Distributions from equity partnerships operating cash flow
    
    
    
    
    
    
    
    
    
    
    25Provision for loss
    
    
    
    
    
    
    
    
    
    
    1,568(Increase) decrease in interest receivable
    
    
    (807
    )
    
    
    (368
    )
    
    
    5(Increase) decrease in other assets
    
    
    (781
    )
    
    
    1
    
    
    
    774Increase (decrease) in interest payable
    
    
    (168
    )
    
    
    29
    
    
    
    (9
    )Increase (decrease) in other liabilities
    
    
    282
    
    
    
    (107
    )
    
    
    (798
    )Net cash (used in) provided by Operating activities
    
    $
    (124
    )
    
    $
    92
    
    
    $
    (2,497
    )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
    
    
    15,844
    
    
    
    9,637
    
    
    
    Notes receivable collected by affiliates
    
    
    
    
    
    
    
    
    
    
    5,541Notes receivable collected from affiliates
    
    
    8,339
    
    
    
    44,706
    
    
    
    
  38




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##### Table of Contents



SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Organization and business.
 Basis of consolidation.
 Accounting estimates.
 Recent accounting Pronouncements.
 39




---



##### Table of Contents



SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     40




---



##### 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.
 Fair value of financial instruments.
 41




---



##### Table of Contents



SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Cash equivalents.
 Earnings per share.
 REAL ESTATE
  Sales

    
    Net Cash

    
    Debt

    
    Gain/(Loss)Property
    
    Location
    
    Sq.Ft.

    
    Price

    
    Received
    
    Discharged
    
    on SaleOffice BuildingAkard Building
    
    Dallas, TX
    
    42,258 Sq.Ft.
    
    $
    3,900
    
    
    $
    2,007
    
    
    $
    1,849
    
    
    $
    427Yeager Building
    
    Chantilly, VA
    
    60,060 Sq.Ft.
    
    $
    7,600
    
    
    $
    2,174
    
    
    $
    5,230
    
    
    $
    1,939Residential BuildingTreehouse (San Antonio)
    
    San Antonio, TX
    
    88,957 Sq.Ft.
    
    $
    5,400
    
    
    $
    1,437
    
    
    $
    3,747
    
    
    $
    3,091Treehouse(Irving)
    
    Irving, TX
    
    153,072 Sq.Ft.
    
    $
    7,500
    
    
    
    
    
    
    $
    5,018
    
    
    
    LandFrankel Land
    
    Midland County, TX
    
    1 Acre
    
    $
    63
    
    
    $
    61
    
    
    
    
    
    
    $
    16
 Concentration of investment risk.
 42




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##### Table of Contents



NOTES AND INTEREST RECEIVABLE
 Junior Mortgage Loans.
         43




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##### Table of Contents



INVESTMENT IN EQUITY METHOD PARTNERSHIPS
  2004
    
    
    2003Nakash Income Associates (NIA)
    
    
    402
    
    
    
    341TCI Eton Square, L.P. (Eton Square)
    
    
    202
    
    
    
    266$
    604
    
    
    $
    607
    2004
    
    
    2003Notes receivable
    
    $
    902
    
    
    $
    902Real estate, net of accumulated depreciation ($2,146 in 2004 and $1,631 in 2003)
    
    
    14,595
    
    
    
    13,753Other assets
    
    
    (262
    )
    
    
    (262
    )Notes payable
    
    
    (10,054
    )
    
    
    (10,206
    )Other liabilities
    
    
    (2,154
    )
    
    
    (677
    )Partners capital
    
    $
    3,027
    
    
    $
    3,510
 44




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##### Table of Contents



INVESTMENT IN EQUITY METHOD PARTNERSHIPS
 2004
    
    
    2003
    
    
    2002Rents
    
    $
    1,365
    
    
    $
    1,233
    
    
    $
    2,981Interest income
    
    
    156
    
    
    
    156
    
    
    
    156Interest expense
    
    
    (739
    )
    
    
    (685
    )
    
    
    (1,119
    )Property operations expense
    
    
    (775
    )
    
    
    (802
    )
    
    
    (1,453
    )Depreciation
    
    
    (475
    )
    
    
    (400
    )
    
    
    (628
    )Loss before gains on sale of real estate
    
    
    (468
    )
    
    
    (498
    )
    
    
    (63
    )Gain on sale
    
    
    
    
    
    
    
    
    
    
    1,054Net income (loss)
    
    $
    (468
    )
    
    $
    (498
    )
    
    $
    991
  2004
    
    
    2003
    
    
    2002Income (loss) before gains on sale of real estate
    
    $
    (3
    )
    
    $
    (7
    )
    
    $
    862
    *Gain on sale of real estate
    
    
    
    
    
    
    
    
    
    
    383Net income (loss)
    
    $
    (3
    )
    
    $
    (7
    )
    
    $
    1,245
 
 *
    
    Includes the $1.3 million gain from the sale of IORIs investment in Tri-City. NOTES AND INTEREST PAYABLE
  2004
    
    
    2003Estimated
    
    
    
    
    
    
    EstimatedFair
    
    
    Book
    
    
    Fair
    
    
    BookValue
    
    
    Value
    
    
    Value
    
    
    ValueNotes payable
    
    $
    42,444
    
    
    $
    44,342
    
    
    $
    60,930
    
    
    $
    60,427Interest payable
    
    
    
    
    
    
    229
    
    
    
    
    
    
    
    398$
    44,571
    
    
    
    
    
    
    $
    60,825
 45




---



##### Table of Contents



NOTES AND INTEREST PAYABLE
  2005
    
    $
    6,4462006
    
    
    6,1012007
    
    
    7172008
    
    
    2,8332009
    
    
    742Thereafter
    
    
    27,503$
    44,342
    46




---



##### Table of Contents



Net CashDebt
    
    
    Debt
    
    
    Received/
    
    
    Interest
    
    
    MaturityProperty
    
    Location
    
    
    Sq.Ft./Acrs
    
    
    Incurred
    
    
    Discharged
    
    
    (Paid)
    
    
    Rate
    
    
    DateOffice BuildingChuck Yeager
    
    Chantilly, VA
    
    60,060 Sq.Ft.
    
    $
    5,500
    
    
    $
    4,307
    
    
    $
    1,193
    
    
    
    5.25
    %(1)
    
    
    1/07
 
 (1)
    
    Variable rate. RELATED PARTY TRANSACTIONS
      47




---



##### Table of Contents



SWI
    
    
    Regis I
    
    
    ARI
    
    
    TCIBalance, December 31, 2003 (as restated)
    
    
    324
    
    
    
    (473
    )
    
    $
    367
    
    
    $
    261Cash transfers
    
    
    11,530
    
    
    
    
    
    
    
    
    
    
    
    Cash repayments
    
    
    (5,831
    )
    
    
    
    
    
    
    (367
    )
    
    
    Other additions
    
    
    192
    
    
    
    1,075
    
    
    
    
    
    
    
    Other repayments
    
    
    (7,463
    )
    
    
    (602
    )
    
    
    
    
    
    
    Balance, December 31, 2004 (as restated)
    
    
    (1,248
    )
    
    $
    
    
    
    $
    
    
    
    $
    261
 Returns on Metra Properties.
 DIVIDENDS
    48




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##### Table of Contents



RENTS UNDER OPERATING LEASES
  2005
    
    $
    1,1342006
    
    
    8672007
    
    
    6382008
    
    
    5292009
    
    
    176Thereafter
    
    
    446$
    3,790
 ADVISORY AGREEMENT
      49




---



##### Table of Contents



PROPERTY MANAGEMENT
  REAL ESTATE BROKERAGE
  50




---



##### Table of Contents



ADVISORY FEES, PROPERTY MANAGEMENT FEES, ETC.
  2004
    
    
    2003
    
    
    2002Fees
    
    (Restated)
    
    
    (Restated)Fees
Advisory
    
    $
    741
    
    
    $
    424
    
    
    $
    714Net income
    
    
    440
    
    
    
    109
    
    
    
    169Commission on property sale
    
    
    301
    
    
    
    473
    
    
    
    Mortgage brokerage and equity refinancing
    
    
    518
    
    
    
    547
    
    
    
    262Property & Construction Mgt. & Leasing Comm
    
    
    120
    
    
    
    323
    
    
    
    0$
    2,120
    
    
    $
    1,876
    
    
    $
    1,145Cost reimbursements
    
    $
    78
    
    
    $
    173
    
    
    $
    246
 INCOME TAXES
    51




---



##### Table of Contents



December 31,2004
    
    
    2003Deferred tax assetsBasis difference in preferred stock
    
    $
    1,542
    
    
    $
    1,960Accumulated Depreciation and amortization
    
    
    284
    
    
    
    449Basis difference in Metra assets and liabilities
    
    
    425
    
    
    
    219Other
    
    
    182
    
    
    
    Federal benefit of net operating loss carryforward
    
    
    122
    
    
    
    855Deferred tax asset
    
    
    2,555
    
    
    
    3,483Less valuation allowance
    
    
    (2,555
    )
    
    
    (3,483
    )Total deferred tax asset
    
    
    
    
    
    
    
    2004
    
    
    2003
    
    
    2002Federal income tax at statutory rate
    
    
    1,922
    
    
    
    623
    
    
    
    730State tax expense
    
    
    100
    
    
    
    41
    
    
    
    110Gain on sale differences
    
    
    (1,261
    )
    
    
    (243
    )
    
    
    62Other
    
    
    (36
    )
    
    
    (106
    )
    
    
    282Utilization of net operating loss carryforward
    
    
    (725
    )
    
    
    (315
    )
    
    
    (1,184
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    Effective income tax rate
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 OPERATING SEGMENTS
  52




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##### Table of Contents



Commercial2004 (as restated)
    
    Land
    
    
    Properties
    
    
    Apartments
    
    
    TotalRents
    
    $
    
    
    
    $
    1,244
    
    
    $
    4,661
    
    
    $
    5,905Property operating expenses
    
    
    
    
    
    
    673
    
    
    
    2,456
    
    
    
    3,129Operating income (loss)
    
    $
    
    
    
    $
    571
    
    
    $
    2,205
    
    
    $
    2,776Depreciation
    
    $
    
    
    
    $
    294
    
    
    $
    446
    
    
    $
    740Interest
    
    
    996
    
    
    
    874
    
    
    
    1,700
    
    
    
    3,570Real estate improvements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Assets
    
    
    
    
    
    
    12,998
    
    
    
    18,370
    
    
    
    31,368
 CommercialProperty Sales
    
    Land
    
    
    Properties
    
    
    Apartments
    
    
    TotalSales price
    
    $
    63
    
    
    $
    11,500
    
    
    $
    12,900
    
    
    $
    24,463Cost of sale
    
    
    47
    
    
    
    9,134
    
    
    
    9,809
    
    
    
    18,990Gain on sale
    
    $
    16
    
    
    $
    2,366
    
    
    $
    3,091
    
    
    $
    5,473
 53




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##### Table of Contents



OPERATING SEGMENTS
 Commercial2003 (as restated)
    
    Land
    
    
    Properties
    
    
    Apartments
    
    
    TotalRents
    
    $
    
    
    
    $
    718
    
    
    $
    4,506
    
    
    $
    5,224Property operating expenses
    
    
    
    
    
    
    389
    
    
    
    2,942
    
    
    
    3,331Operating income
    
    $
    
    
    
    $
    329
    
    
    $
    1,564
    
    
    $
    1,893Depreciation
    
    $
    
    
    
    $
    456
    
    
    $
    360
    
    
    $
    816Interest
    
    
    
    
    
    
    217
    
    
    
    1,595
    
    
    
    1,812Real estate improvements
    
    
    
    
    
    
    494
    
    
    
    
    
    
    
    494Assets
    
    
    44
    
    
    
    22,105
    
    
    
    28,216
    
    
    
    50,365
 CommercialProperty Sales
    
    Land
    
    
    Properties
    
    
    Apartments
    
    
    TotalSales price
    
    $
    63
    
    
    $
    11,500
    
    
    $
    12,900
    
    
    $
    24,463Cost of sale
    
    
    47
    
    
    
    9,134
    
    
    
    9,809
    
    
    
    18,990Gain on sale
    
    $
    16
    
    
    $
    2,366
    
    
    $
    3,091
    
    
    $
    5,473
 Commercial2002
    
    Land
    
    
    Properties
    
    
    Apartments
    
    
    TotalRents
    
    $
    
    
    
    $
    778
    
    
    $
    4,520
    
    
    $
    5,298Property operating expenses
    
    
    
    
    
    
    360
    
    
    
    2,388
    
    
    
    2,748Operating income
    
    $
    
    
    
    $
    418
    
    
    $
    2,132
    
    
    $
    2,550Depreciation
    
    $
    
    
    
    $
    320
    
    
    $
    428
    
    
    $
    748Interest
    
    
    
    
    
    
    149
    
    
    
    1,308
    
    
    
    1,457Real estate improvements
    
    
    
    
    
    
    240
    
    
    
    
    
    
    
    240Assets
    
    
    24,929
    
    
    
    28,688
    
    
    
    21,133
    
    
    
    74,750
 CommercialProperty Sales
    
    Properties
    
    
    TotalSales price
    
    $
    19,230
    
    
    $
    19,230Cost of sale
    
    
    12,461
    
    
    
    12,461Gain on sale
    
    $
    6,769
    
    
    $
    6,769
 54




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##### Table of Contents



DISCONTINUED OPERATIONS
   2004
    
    
    2003
    
    
    2002RevenueRental
    
    $
    1,771
    
    
    $
    4,581
    
    
    $
    5,101Property operations
    
    
    981
    
    
    
    3,087
    
    
    
    3,582790
    
    
    
    1,494
    
    
    
    1,519Interest Income
    
    
    
    
    
    
    462
    
    
    
    ExpensesInterest
    
    
    556
    
    
    
    2,987
    
    
    
    3,457Depreciation
    
    
    323
    
    
    
    740
    
    
    
    1,117879
    
    
    
    3,727
    
    
    
    4,574Net income (loss) from discontinued operations
    
    
    (89
    )
    
    
    (1,771
    )
    
    
    (3,055
    )Gain on sale of real estate
    
    
    5,473
    
    
    
    3,824
    
    
    
    6,769Equity in gain on sale of real estate by equity investees
    
    
    
    
    
    
    
    
    
    
    383Net income (loss) from discontinued operations
    
    $
    5,384
    
    
    $
    2,053
    
    
    $
    4,097
 55




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##### Table of Contents



QUARTERLY DATA
  Three Months Ended2004 (as restated)
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Rents
    
    $
    1,448
    
    
    $
    1,469
    
    
    $
    1,428
    
    
    $
    1,560Property expense
    
    
    842
    
    
    
    764
    
    
    
    902
    
    
    
    621Operating income
    
    
    606
    
    
    
    705
    
    
    
    526
    
    
    
    939Interest income
    
    
    598
    
    
    
    605
    
    
    
    1,017
    
    
    
    1,105Income (loss) in equity partnerships
    
    
    (1
    )
    
    
    11
    
    
    
    (20
    )
    
    
    7Other expense
    
    
    1,820
    
    
    
    1,453
    
    
    
    1,274
    
    
    
    1,507Net loss from continuing operations
    
    
    (617
    )
    
    
    (132
    )
    
    
    249
    
    
    
    544Discontinued operations
    
    
    3,131
    
    
    
    466
    
    
    
    15
    
    
    
    1,772Net income (loss)
    
    $
    2,514
    
    
    $
    334
    
    
    $
    264
    
    
    $
    2,316Earnings per shareNet income (loss)
    
    $
    1.81
    
    
    $
    0.24
    
    
    $
    0.19
    
    
    $
    1.67
 Three Months Ended2003 (as restated)
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Rents
    
    $
    1,319
    
    
    $
    1,297
    
    
    $
    1,321
    
    
    $
    1,287Property expense
    
    
    670
    
    
    
    729
    
    
    
    873
    
    
    
    1,059Operating income
    
    
    649
    
    
    
    568
    
    
    
    448
    
    
    
    228Recovery of A/R written off
    
    
    
    
    
    
    1,569
    
    
    
    
    
    
    
    Interest income
    
    
    
    
    
    
    614
    
    
    
    12
    
    
    
    Income (loss) in equity partnerships
    
    
    (15
    )
    
    
    
    
    
    
    (13
    )
    
    
    21Other expense
    
    
    1,015
    
    
    
    1,723
    
    
    
    1,071
    
    
    
    979Net loss from continuing operations
    
    
    (381
    )
    
    
    1,028
    
    
    
    (624
    )
    
    
    (730
    )Discontinued operations
    
    
    (546
    )
    
    
    (372
    )
    
    
    (455
    )
    
    
    3,426Net income (loss)
    
    $
    (927
    )
    
    $
    656
    
    
    $
    (1,079
    )
    
    $
    2,696Earnings per shareNet income (loss)
    
    $
    (0.64
    )
    
    $
    0.46
    
    
    $
    (.75
    )
    
    $
    1.87
 56




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##### Table of Contents



QUARTERLY DATA
 Three Months Ended2002
    
    March 31
    
    
    June 30
    
    
    September 30
    
    
    December 31Rents
    
    $
    1,271
    
    
    $
    1,280
    
    
    $
    1,444
    
    
    $
    1,303Property expense
    
    
    557
    
    
    
    618
    
    
    
    854
    
    
    
    719Operating income
    
    
    714
    
    
    
    662
    
    
    
    590
    
    
    
    584Interest income
    
    
    37
    
    
    
    310
    
    
    
    185
    
    
    
    (262
    )Income (loss) in equity partnerships
    
    
    (17
    )
    
    
    48
    
    
    
    60
    
    
    
    771Other expense
    
    
    2,076
    
    
    
    1,184
    
    
    
    724
    
    
    
    1,710Net income (loss) from continuing operations
    
    
    (1,342
    )
    
    
    (164
    )
    
    
    111
    
    
    
    (617
    )Discontinued operations
    
    
    6,415
    
    
    
    (723
    )
    
    
    (1,352
    )
    
    
    (243
    )Net income (loss)
    
    $
    5,073
    
    
    $
    (887
    )
    
    $
    (1,241
    )
    
    $
    (860
    )Earnings per shareNet income (loss)
    
    $
    3.53
    
    
    $
    (0.62
    )
    
    $
    (0.86
    )
    
    $
    (0.60
    )
  COMMITMENTS AND CONTINGENCIES AND LIQUIDITY
 Olive Litigation. Olive et al. v.
National Income Realty Trust et al.
 57




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COMMITMENTS AND CONTINGENCIES AND LIQUIDITY
     Liquidity.
 58




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COMMITMENTS AND CONTINGENCIES AND LIQUIDITY
  Other Litigation.
    59




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##### 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
    

branches
    
    
    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
    
    
    $
    344
    
    
    
    1983
    
    
    
    06/00
    
    
    40 yearsDel Mar, Midland, TX
    
    
    2,725
    
    
    
    324
    
    
    
    2,919
    
    
    
    
    
    
    
    324
    
    
    
    2,919
    
    
    
    3,243
    
    
    
    328
    
    
    
    1983
    
    
    
    06/00
    
    
    40 yearsEnclave, Midland, TX
    
    
    2,882
    
    
    
    324
    
    
    
    2,919
    
    
    
    
    
    
    
    324
    
    
    
    2,919
    
    
    
    3,243
    
    
    
    328
    
    
    
    1983
    
    
    
    06/00
    
    
    40 yearsMeridian, Midland, TX
    
    
    4,502
    
    
    
    1,138
    
    
    
    4,553
    
    
    
    
    
    
    
    1,138
    
    
    
    4,553
    
    
    
    5,691
    
    
    
    569
    
    
    
    1983
    
    
    
    12/99
    
    
    40 yearsSignature Place,
Midland, TX
    
    
    2,410
    
    
    
    265
    
    
    
    2,388
    
    
    
    
    
    
    
    265
    
    
    
    2,388
    
    
    
    2,653
    
    
    
    269
    
    
    
    1983
    
    
    
    06/00
    
    
    40 yearsSinclair Place,
Midland, TX
    
    
    2,054
    
    
    
    221
    
    
    
    1,990
    
    
    
    
    
    
    
    221
    
    
    
    1,990
    
    
    
    2,211
    
    
    
    224
    
    
    
    1983
    
    
    
    06/00
    
    
    40 yearsOffice Buildings2010 Valley View,
Farmers Branch, TX
    
    
    2,426
    
    
    
    120
    
    
    
    479
    
    
    
    2,979
    
    
    
    120
    
    
    
    3,458
    
    
    
    3,578
    
    
    
    1,423
    
    
    
    1998
    
    
    
    09/97
    
    
    5-40 yearsParkway Ctr, Farmers
Branch, TX
    
    
    1,631
    
    
    
    333
    
    
    
    3,511
    
    
    
    
    
    
    
    333
    
    
    
    3,511
    
    
    
    3,844
    
    
    
    88
    
    
    
    1979
    
    
    
    12/03
    
    
    5-40 yearsIndustrial WarehouseEagle Crest, Farmers
Branch, TX
    
    
    
    
    
    
    2,129
    
    
    
    1,906
    
    
    
    
    
    
    
    2,129
    
    
    
    1,906
    
    
    
    4,035
    
    
    
    47
    
    
    
    
    
    
    
    12/03
    
    
    5-40 yearsLand3 Hickory Ctr,
Farmers Branch, TX
    
    
    
    
    
    
    2,804
    
    
    
    
    
    
    
    296
    
    
    
    3,100
    
    
    
    
    
    
    
    3,100
    
    
    
    
    
    
    
    
    
    
    
    $
    21,473
    
    
    $
    7,997
    
    
    $
    23,716
    
    
    $
    3,275
    
    
    $
    8,293
    
    
    $
    26,695
    
    
    $
    34,988
    
    
    $
    3,620
 60




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2004
    
    
    2003
    
    
    2002(dollars in thousands)Reconciliation of Real EstateBalance at January 1,
    
    $
    56,367
    
    
    $
    82,252
    
    
    $
    95,190AdditionsAcquisitions and Improvements
    
    
    
    
    
    
    15,365
    
    
    
    677DeductionsRetirements
    
    
    
    
    
    
    
    
    
    
    (462
    )Sale of real estate
    
    
    (21,379
    )
    
    
    (41,250
    )
    
    
    (13,153
    )Balance at December 31,
    
    $
    34,988
    
    
    $
    56,367
    
    
    $
    82,252Reconciliation of Accumulated DepreciationBalance at January 1,
    
    $
    6,002
    
    
    $
    7,502
    
    
    $
    7,875AdditionsDepreciation
    
    
    1,063
    
    
    
    1,552
    
    
    
    1,867DeductionsRetirements
    
    
    
    
    
    
    
    
    
    
    Sale of real estate
    
    
    (3,445
    )
    
    
    (3,052
    )
    
    
    (2,240
    )Balance at December 31,
    
    $
    3,620
    
    
    $
    6,002
    
    
    $
    7,502
 61




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2004
    
    
    2003
    
    
    2002(dollars in thousands)Balance at January 1,
    
    $
    45,531
    
    
    $
    
    
    
    $
    500AdditionsNew mortgage loans
    
    
    8,655
    
    
    
    45,531
    
    
    
    7,109Interest receivable on mortgage loans
    
    
    913
    
    
    
    
    
    
    
    DeductionsAmounts charged off
    
    
    (188
    )
    
    
    
    
    
    
    (1,568
    )Collections of principal by IORI
    
    
    
    
    
    
    
    
    
    
    (500
    )Collections of principal by affiliates
    
    
    
    
    
    
    
    
    
    
    (5,541
    )Balance at December 31,
    
    $
    54,911
    
    
    $
    45,531
    
    
    $
    
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