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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2023

 

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to________

 

Commission File Number 001-14784

 

INCOME OPPORTUNITY REALTY INVESTORS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

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

 

1603 Lyndon B. Johnson Freeway, Suite 800, Dallas, Texas 75234
(Address of principal executive offices) (Zip Code)

 

(469) 522-4200
(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock IOR NYSE American Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☐ Accelerated filer  ☐ Non-accelerated filer  ☒ Smaller reporting company   ☒
Emerging growth Company  ☐      

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No.

 

As of November 9, 2023, there were 4,168,414 shares of common stock outstanding.

 

 

 

 

 

INCOME OPPORTUNITY REALTY INVESTORS, INC.
FORM 10-Q

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION PAGE
   
Item 1. Financial Statements 3
     
  Consolidated Balance Sheets at September 30, 2023 and December 31, 2022 3
     
  Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022 4
     
  Consolidated Statements of Equity for the three and nine months ended September 30, 2023 and 2022 5
     
  Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 6
     
  Notes to Consolidated Financial Statements 7
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 9
     
Item 3. Quantitative and Qualitative Disclosures About Market Risks 11
     
Item 4. Controls and Procedures 11
     
PART II. OTHER INFORMATION  
   
Item 1. Legal Proceedings 11
     
Item 1A. Risk Factors 11
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 11
     
Item 3. Defaults Upon Senior Securities 11
     
Item 4. Mine Safety Disclosures 11
     
Item 5. Other Information 11
     
Item 6. Exhibits 12
     
Signatures 13

 

 2

 

INCOME OPPORTUNITY REALTY INVESTORS, INC.

CONSOLIDATED BALANCE SHEETS 
(dollars in thousands, except share and par value amounts)
(Unaudited)

 

   September 30,
2023		   December 31,
2022		 
Assets          
Current assets          
Cash and cash equivalents  $12   $6 
Interest receivable from related parties   520    676 
Receivable from related parties   104,808    100,134 
Total current assets   105,340    100,816 
Non-current assets          
Notes receivable from related parties   11,173    11,173 
Total assets  $116,513   $111,989 
           
Liabilities and Equity          
Liabilities:          
Accounts payable  $1   $4 
           
Shareholders' equity          
Common stock, $0.01 par value, 10,000,000 shares authorized; 4,173,675 shares issued and 4,168,414 outstanding   42    42 
Treasury stock at cost, 5,261 shares   (39)   (39)
Additional paid-in capital   61,955    61,955 
Retained earnings   54,554    50,027 
Total shareholders’ equity   116,512    111,985 
Total liabilities and equity  $116,513   $111,989 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 3

 

INCOME OPPORTUNITY REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
(Unaudited)

 

                 
   Three Months Ended
September 30,		   Nine Months Ended
September 30,		 
   2023   2022   2023   2022 
Revenues:                
Other income  $—   $—   $—   $— 
Expenses:                    
General and administrative (including $54 and $127 for the three months ended September 30, 2023 and 2022, respectively, and $196 and $216 for the nine months ended September 30, 2023 and 2022, respectively, from related parties)   91    114    385    374 
Advisory fee to related party   346    283    1,045    824 
Total operating expenses   437    397    1,430    1,198 
Net operating loss   (437)   (397)   (1,430)   (1,198)
Interest income from related parties   2,516    1,821    7,160    4,506 
Income tax provision   (436)   (236)   (1,203)   (646)
Net income  $1,643   $1,188   $4,527   $2,662 
                     
Earnings per share - basic and diluted  $0.39   $0.29   $1.09   $0.64 
Weighted average common shares used in computing earnings per share   4,168,414    4,168,414    4,168,414    4,168,414 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 4

 

INCOME OPPORTUNITY REALTY INVESTORS, INC.

CONSOLIDATED STATEMENT OF EQUITY
(dollars in thousands)
(Unaudited)

 

   Common
Stock		   Treasury
Stock		   Paid-in
Capital		   Retained
Earnings		   Total
Shareholders'
Equity		 
Three Months Ended September 30, 2023                         
Balance,  July 1, 2023  $42   $(39)  $61,955   $52,911   $114,869 
Net income   —    —    —    1,643    1,643 
Balance,  September 30, 2023  $42   $(39)  $61,955   $54,554   $116,512 
Three Months Ended September 30, 2022                         
Balance,  July 1, 2022  $42   $(39)  $61,955   $47,570   $109,528 
Net  income   —    —    —    1,188    1,188 
Balance,  September 30, 2022  $42   $(39)  $61,955   $48,758   $110,716 
Nine Months Ended September 30, 2023                         
Balance,  January 1, 2023  $42   $(39)  $61,955   $50,027   $111,985 
Net income   —    —    —    4,527    4,527 
Balance,  September 30, 2023  $42   $(39)  $61,955   $54,554   $116,512 
Nine Months Ended September 30, 2022                         
Balance,  January 1, 2022  $42   $(39)  $61,955   $46,096   $108,054 
Net income   —    —    —    2,662    2,662 
Balance,  September 30, 2022  $42   $(39)  $61,955   $48,758   $110,716 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 5

 

INCOME OPPORTUNITY REALTY INVESTORS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)

 

         
   Nine Months Ended
September 30,		 
   2023   2022 
Cash Flow From Operating Activities:          
Net  income  $4,527   $2,662 
Adjustments to reconcile net income to net cash provided by operating activities:          
Changes in assets and liabilities, net of dispositions:          
Accrued interest on related party notes receivable   156    253 
Related party receivables   (4,674)   (2,905)
Accounts payable   (3)   (1)
Net cash provided by operating activities   6    9 
Net increase in cash and cash equivalents   6    9 
Cash and cash equivalents, beginning of the period   6    2 
Cash and cash equivalents, end of the period  $12   $11 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 6

 

INCOME OPPORTUNITY REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share and square foot amounts)
(Unaudited)

 

1.Organization

 

Income Opportunity Investors, Inc. (the “Company”) is an externally managed company that invests in mortgage notes receivables. As used herein, the terms “IOR”, “the Company”, “We”, “Our”, or “Us” refer to the Company.

 

Transcontinental Realty Investors, Inc. (“TCI”), whose common stock is traded on the NYSE under the symbol “TCI”, owns 81.1% of our stock and with its affiliates owns approximately 87.6% of our common stock. Accordingly our financial results are included in the consolidated financial statements of TCI’s in their Form 10-K and in their tax filings. American Realty Investors, Inc. ("ARL"), whose common stock is traded on the NYSE under the symbol “ARL”, in turn, owns approximately 78.4% of TCI.

 

Our business is managed by Pillar Income Asset Management, Inc. (“Pillar”) in accordance with an Advisory Agreement that is reviewed annually by our Board of Directors. Pillar is considered to be a related party (See Note 4 – Related Party Transactions).

 

Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities. Pillar also arranges our debt and equity financing with third party lenders and investors.

 

2.Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading. In the opinion of management, all adjustments (consisting of normal recurring matters) considered necessary for a fair presentation have been included.

 

The consolidated balance sheet at December 31, 2022 was derived from the audited consolidated financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022.

 

We consolidate entities in which we are considered to be the primary beneficiary of a variable interest entity (“VIE”) or have a majority of the voting interest of the entity. We have determined that we are a primary beneficiary of the VIE when we have (i) the power to direct the activities of a VIE that most significantly impacts its economic performance, and (ii) the obligations to absorb losses or the right to receive benefits that could potentially be significant to the VIE. In determining whether we are the primary beneficiary, we consider qualitative and quantitative factors, including ownership interest, management representation, ability to control decision and other contractual rights.

 

We account for entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary under the equity method of accounting. Accordingly, we include our share of the net earnings or losses of these entities in our results of operations.

 

 7

 

INCOME OPPORTUNITY REALTY INVESTORS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except per share and square foot amounts)
(Unaudited)

 

3.Notes Receivable

 

The following table summarizes our notes receivables at September 30, 2023 and December 31, 2022:

 

   Carrying Value        
Borrower / Project  September 30,
2023		   December 31,
2022		   Interest
Rate		   Maturity
Date
United Housing Foundation (Echo Station)  $1,481   $1,481    12.00%  12/31/2032
United Housing Foundation (Lakeshore Villas)   2,000    2,000    12.00%  12/31/2032
United Housing Foundation (Lakeshore Villas)   6,369    6,369    12.00%  12/31/2032
United Housing Foundation (Timbers of Terrell)   1,323    1,323    12.00%  12/31/2032
   $11,173   $11,173         

 

The borrower is determined to be a related party due to our significant investment in the performance of the collateral secured by the notes receivable. Principal and interest payments on the notes from Unified Housing Foundation, Inc. (“UHF”) are funded from surplus cash flow from operations, sale or refinancing of the underlying properties and are cross collateralized to the extent that any surplus cash available from any of the properties underlying the notes.

 

4.Related Party Transactions

 

We engage in certain business transactions with related parties, including investment in notes receivables. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities. Related party transactions may not always be favorable to our business and may include terms, conditions and agreements that are not necessarily beneficial to or in our best interest.

 

Pillar is a wholly owned by a subsidiary of the May Realty Holdings, Inc., which owns approximately 90.8% of ARL, which owns approximately 78.4% of TCI, which owns 81.1% of the Company.

 

Advisory fees paid to Pillar were $346 and $283 for the three months ended September 30, 2023 and 2022, respectively, and $1,045 and $824 for the nine months ended September 30, 2023 and 2022, respectively.

 

Notes receivable are amounts held by UHF (See Note 3 – Notes Receivable). UHF is determined to be a related party due to our significant investment in the performance of the collateral secured by the notes receivable. Interest income on these notes was $338 for the three months ended September 30, 2023 and 2022, and $1,003 for the nine months ended September 30, 2023 and 2022.

 

Related party receivables were $104,808 and $100,134 at September 30, 2023 and December 31, 2022, respectively; which represents amounts outstanding from TCI for loans and advances, net of unreimbursed fees and bear interest at prime plus one percent. Interest income on related party receivables from TCI was $2,178 and $1,483 for the three months ended September 30, 2023 and 2022, respectively, and $6,157 and $3,503 for the nine months ended September 30, 2023 and 2022, respectively.

 

5.Commitments and Contingencies

 

We believe that we will generate excess cash from property operations in the next twelve months; such excess, however, might not be sufficient to discharge all of our obligations as they become due.

 

6.Subsequent Events

 

The date to which events occurring after September 30, 2023, the date of the most recent balance sheet, have been evaluated for possible adjustment to the consolidated financial statements or disclosure is November 9, 2023, which is the date on which the consolidated financial statements were available to be issued.

 

 8

 

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

 

The following discussion and analysis by management should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and Notes included in this Quarterly Report on Form 10-Q (the “Quarterly Report”) and in our Form 10-K for the year ended December 31, 2022 (the “Annual Report”).

 

This Report on Form 10-Q may contain forward-looking statements within the meaning of the federal securities laws, principally, but not only, under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. We caution investors that any forward-looking statements in this report, or which management may make orally or in writing from time to time, are based on management’s beliefs and on assumptions made by, and information currently available to, management. When used, the words “anticipate”, “believe”, “expect”, “intend”, “may”, “might”, “plan”, “estimate”, “project”, “should”, “will”, “result” and similar expressions which do not relate solely to historical matters are intended to identify forward-looking statements. These statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance, which may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, or projected. We caution you that, while forward-looking statements reflect our good faith beliefs when we make them, they are not guarantees of future performance and are impacted by actual events when they occur after we make such statements. We expressly disclaim any responsibility to update our forward-looking statements, whether as a result of new information, future events or otherwise. Accordingly, investors should use caution in relying on past forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends.

 

●Some of the risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

 

●risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments;

 

●failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully;

 

●risks associated with downturns in the national and local economies, increases in interest rates and volatility in the securities markets;

 

●potential liability for uninsured losses and environmental contamination; and

 

●risks associated with our dependence on key personnel whose continued service is not guaranteed.

 

The risks included here are not exhaustive. Some of the risks and uncertainties that may cause our actual results, performance, or achievements to differ materially from those expressed or implied by forward-looking statements, include among others, the factors listed and described in Part I, Item 1A. “Risk Factors” in the Company’s Annual Report on Form 10-K, which investors should review. There have been no changes from the risk factors previously described in the Company’s Form 10-K for the fiscal year ended December 31, 2022.

 

Management's Overview

 

We are an externally advised and managed company that invests in notes receivable that are collateralized by income-producing properties in the Southern United States and in the past, real property. Our current principal source of income is interest income on note receivables from related parties.

 

We have historically engaged in and may continue to engage in certain business transactions with related parties, including but not limited to asset acquisition, dispositions and financings. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities. Related party transactions may not always be favorable to our business and may include terms, conditions and agreements that are not necessarily beneficial to or in our best interest.

 

Our operations are managed by Pillar in accordance with an Advisory Agreement. Pillar’s duties include, but are not limited to, locating, evaluating and recommending investment opportunities. We have no employees. Employees of Pillar render services to us in accordance with the terms of the Advisory Agreement. Pillar is considered to be a related party due to its common ownership with TCI, who is our controlling shareholder.

 

 9

 

Critical Accounting Policies

 

The preparation of our consolidated financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

 

Some of these estimates and assumptions include judgments on the provisions for uncollectible accounts and fair value measurements. Our significant accounting policies are described in more detail in Note 2—Summary of Significant Accounting Policies in our notes to the consolidated financial statements. However, the following policies are deemed to be critical.

 

Fair Value of Financial Instruments

 

We apply the guidance in ASC Topic 820, “Fair Value Measurements and Disclosures”, to the valuation of real estate assets. These provisions define fair value as the price that would be received to sell an asset or paid to transfer a liability in a transaction between market participants at the measurement date, establish a hierarchy that prioritizes the information used in developing fair value estimates and require disclosure of fair value measurements by level within the fair value hierarchy. The hierarchy gives the highest priority to quoted prices in active markets (Level 1 measurements) and the lowest priority to unobservable data (Level 3 measurements), such as the reporting entity’s own data.

 

The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and includes three levels defined as follows:

 

Level 1 – Unadjusted quoted prices for identical and unrestricted assets or liabilities in active markets.

 

Level 2 – Quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

 

Level 3 – Unobservable inputs that are significant to the fair value measurement.

 

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

Related Parties

 

We apply ASC Topic 805, “Business Combinations”, to evaluate business relationships. Related parties are persons or entities who have one or more of the following characteristics, which include entities for which investments in their equity securities would be required, trust for the benefit of persons including principal owners of the entities and members of their immediate families, management personnel of the entity and members of their immediate families and other parties with which the entity may deal if one party controls or can significantly influence the decision making of the other to an extent that one of the transacting parties might be prevented from fully pursuing our own separate interests, or affiliates of the entity.

 

Results of Operations

 

The following discussion is based on our Consolidated Financial Statements Consolidated Statement of Operations, for the three and nine months ended September 30, 2023 and 2022 and is not meant to be an all-inclusive discussion of the changes in our net income applicable to common shares. Instead, we have focused on significant fluctuations within our operations that we feel are relevant to obtain an overall understanding of the change in income applicable to common shareholders.

 

Our operating expenses consist primarily of general and administrative costs such as audit and legal fees and administrative fees paid to a related party.

 

We also have other income and expense items. We receive interest income from the funds deposited with TCI at a rate of prime plus 1.0%. We have receivables from related parties which also provide interest income.

 

 10

 

Comparison of the three months ended September 30, 2023 to the three months ended September 30, 2022:

 

Interest income from related parties increased $695, which was primarily due to an increase in interest rates in 2023.

 

Comparison of the nine months ended September 30, 2023 to the nine months ended September 30, 2022:

 

Interest income from related parties increased $2,654, which was primarily due to an increase in interest rates in 2023.

 

Liquidity and Capital Resources

 

Our principal liquidity needs are to fund normal recurring expenses. Our principal sources of cash are and will continue to be the collection of mortgage notes receivables, and the collections of receivables and interests from related companies.

 

We anticipate that our cash and cash equivalents as of September 30, 2023, along with cash that will be generated in the next twelve months from notes and interest receivables, will be sufficient to meet all of our current cash requirements.

 

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

 

Optional and not included.

 

ITEM 4.CONTROLS AND PROCEDURES

 

Based on an evaluation by our management (with the participation of our Principal Executive and Financial Officer), as of the end of the period covered by this report, our Principal Executive and Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, including our Principal Executive and Financial Officer, to allow timely decisions regarding required disclosures.

 

There has been no change in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II.  OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS

 

None

 

ITEM 1A.RISK FACTORS

 

Except as set forth below, there have been no material changes from the risk factors previously disclosed in the 2022 10-K. For a discussion on these risk factors, please see “Item 1A. Risk Factors” contained in the 2022 10-K.

 

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

We have a program that allows for the repurchase of up to 1,637,000 shares of our common stock. This repurchase program has no termination date. There were no shares purchased under this program during the nine months ended September 30, 2023. As of September 30, 2023, 1,230,535 shares have been purchased and 406,465 shares may be purchased under the program.

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4.MINE SAFETY DISCLOSURES

 

Not applicable

 

ITEM 5.OTHER INFORMATION

 

None

 

 11

 

ITEM 6.EXHIBITS

 

The following exhibits are filed with this report or incorporated by reference as indicated;

 

3.1 By-laws of Income Opportunity Realty Investors, Inc. (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-4, filed on December 30, 1999).
   
4.1 Certificate of Designations, Preferences and Relative Participating or Optional or Other Special Rights, and Qualifications, Limitations or Restrictions Thereof of Series F Redeemable Preferred Stock of Income Opportunity Realty Investors, Inc., dated June 11, 2001 (incorporated by reference to Exhibit 4.1 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2001).
   
4.2 Certificate of Withdrawal of Preferred Stock, Decreasing the Number of Authorized Shares of and Eliminating Series F Redeemable Preferred Stock, dated June 18, 2002 (incorporated by reference to Exhibit 3.0 to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002).
   
4.3 Certificate of Designation, Preferences and Rights of the Series I Cumulative Preferred Stock of Income Opportunity Realty Investors, Inc., dated February 3, 2003 (incorporated by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2002).
   
4.4 Certificate of Designation for Nevada Profit Corporations designating the Series J 8% Cumulative Convertible Preferred Stock as filed with the Secretary of State of Nevada on March 16, 2006 (incorporated by reference to Registrant current report on Form 8-K for event of March 16, 2006).
   
10.1 Advisory Agreement between Income Opportunity Realty Investors, Inc. and Pillar Income Asset Management, LLC, dated April 30, 2011 (incorporated by reference to Exhibit 10.0 to the Registrant’s Current Report on Form 8-K, dated April 30, 2011).
   
10.2 Second Amendment to Modification of Stipulation of Settlement dated October 17, 2001 (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form S-4, dated February 24, 2002).
   
14.0 Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.0 to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004).
   
31.1 * Rule 13a-14(a) Certification by Principal Executive and Financial Officer.
   
32.1 * Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
   
101.INS XBRL Instance Document
   
101.SCH XBRL Taxonomy Extension Schema Document
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith.

 

 12

 

SIGNATURE PAGE

 

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

 

  INCOME OPPORTUNITY REALTY INVESTORS, INC.
     
Date: November 9, 2023 By: /s/ ERIK L. JOHNSON
    Erik L. Johnson
    Executive Vice President and Chief Financial Officer

 

 13

 

Income Opportunity Realty Investors, Inc. 10-Q

 

Exhibit 31.1

 

CERTIFICATION

 

I, Erik L. Johnson, certify that:

 

1.I have reviewed this quarterly report on Form 10-Q of Income Opportunity Realty Investors, Inc.;

 

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

 

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

 

4.The registrant’s other certifying officers(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

 

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations; and

 

(d)Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.The registrant’s other certifying officers(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

 

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Dated: November 9, 2023 By: /s/ ERIK L. JOHNSON
    Erik L. Johnson
    Executive Vice President and Chief Financial Officer
    (Principal Executive and Financial Officer)

 

 

 

Income Opportunity Realty Investors, Inc. 10-Q

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906

OF THE SARBANES-OXLEY ACT OF 2002

 

The undersigned officer of Income Opportunity Realty Investors, Inc., a Nevada corporation (the “Company”) hereby certifies that:

 

(i)The Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2023 fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

 

(ii)The information contained in the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2023 fairly presents in all material respects, the financial condition and results of operations of the Company, at and for the period indicated.

 

Dated: November 9, 2023 By: /s/ ERIK L. JOHNSON
    Erik L. Johnson
    Executive Vice President and Chief Financial Officer
    (Principal Executive and Financial Officer)

 

 

v3.23.3
Cover - shares
 9 Months Ended
Sep. 30, 2023
Nov. 09, 2023
Cover [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Quarterly Report true  
Document Transition Report false  
Document Period End Date Sep. 30, 2023  
Document Fiscal Period Focus Q3  
Document Fiscal Year Focus 2023  
Current Fiscal Year End Date --12-31  
Entity File Number 001-14784  
Entity Registrant Name INCOME OPPORTUNITY REALTY INVESTORS, INC.  
Entity Central Index Key 0000949961  
Entity Tax Identification Number 75-2615944  
Entity Incorporation, State or Country Code NV  
Entity Address, Address Line One 1603 Lyndon B. Johnson Freeway  
Entity Address, Address Line Two Suite 800  
Entity Address, City or Town Dallas  
Entity Address, State or Province TX  
Entity Address, Postal Zip Code 75234  
City Area Code (469)  
Local Phone Number 522-4200  
Title of 12(b) Security Common Stock  
Trading Symbol IOR  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Small Business true  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   4,168,414
v3.23.3
CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)
$ in Thousands
Sep. 30, 2023
Dec. 31, 2022
Current assets    
Cash and cash equivalents $ 12 $ 6
Interest receivable from related parties 520 676
Receivable from related parties 104,808 100,134
Total current assets 105,340 100,816
Non-current assets    
Notes receivable from related parties 11,173 11,173
Total assets 116,513 111,989
Liabilities:    
Accounts payable 1 4
Shareholders' equity    
Common stock, $0.01 par value, 10,000,000 shares authorized; 4,173,675 shares issued and 4,168,414 outstanding 42 42
Treasury stock at cost, 5,261 shares (39) (39)
Additional paid-in capital 61,955 61,955
Retained earnings 54,554 50,027
Total shareholders’ equity 116,512 111,985
Total liabilities and equity $ 116,513 $ 111,989
v3.23.3
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares
Sep. 30, 2023
Dec. 31, 2022
Statement of Financial Position [Abstract]    
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, authorized 10,000,000 10,000,000
Common stock, issued 4,173,675 4,173,675
Common stock, outstanding 4,168,414 4,168,414
Treasury stock 5,261 5,261
v3.23.3
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
Revenues:        
Other income
Expenses:        
General and administrative (including $54 and $127 for the three months ended September 30, 2023 and 2022, respectively, and $196 and $216 for the nine months ended September 30, 2023 and 2022, respectively, from related parties) 91 114 385 374
Advisory fee to related party 346 283 1,045 824
Total operating expenses 437 397 1,430 1,198
Net operating loss (437) (397) (1,430) (1,198)
Interest income from related parties 2,516 1,821 7,160 4,506
Income tax provision (436) (236) (1,203) (646)
Net income $ 1,643 $ 1,188 $ 4,527 $ 2,662
Earnings per share - basic $ 0.39 $ 0.29 $ 1.09 $ 0.64
Earnings per share - diluted $ 0.39 $ 0.29 $ 1.09 $ 0.64
Weighted average common shares used in computing basic earnings per share 4,168,414 4,168,414 4,168,414 4,168,414
Weighted average common shares used in computing diluted earnings per share 4,168,414 4,168,414 4,168,414 4,168,414
v3.23.3
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Parenthetical) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
General and administrative $ 91 $ 114 $ 385 $ 374
Related Party [Member]        
General and administrative $ 54 $ 127 $ 196 $ 216
v3.23.3
CONSOLIDATED STATEMENT OF EQUITY (Unaudited) - USD ($)
$ in Thousands
Total
Common Stock [Member]
Treasury Stock, Common [Member]
Additional Paid-in Capital [Member]
Retained Earnings [Member]
Balance at Dec. 31, 2021 $ 108,054 $ 42 $ (39) $ 61,955 $ 46,096
Net income 2,662 2,662
Balance at Sep. 30, 2022 110,716 42 (39) 61,955 48,758
Balance at Jun. 30, 2022 109,528 42 (39) 61,955 47,570
Net income 1,188 1,188
Balance at Sep. 30, 2022 110,716 42 (39) 61,955 48,758
Balance at Dec. 31, 2022 111,985 42 (39) 61,955 50,027
Net income 4,527 4,527
Balance at Sep. 30, 2023 116,512 42 (39) 61,955 54,554
Balance at Jun. 30, 2023 114,869 42 (39) 61,955 52,911
Net income 1,643 1,643
Balance at Sep. 30, 2023 $ 116,512 $ 42 $ (39) $ 61,955 $ 54,554
v3.23.3
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
Cash Flow From Operating Activities:        
Net  income $ 1,643 $ 1,188 $ 4,527 $ 2,662
Changes in assets and liabilities, net of dispositions:        
Accrued interest on related party notes receivable     156 253
Related party receivables     (4,674) (2,905)
Accounts payable     (3) (1)
Net cash provided by operating activities     6 9
Net increase in cash and cash equivalents     6 9
Cash and cash equivalents, beginning of the period     6 2
Cash and cash equivalents, end of the period $ 12 $ 11 $ 12 $ 11
v3.23.3
Organization
 9 Months Ended
Sep. 30, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Organization

 

1.Organization

 

Income Opportunity Investors, Inc. (the “Company”) is an externally managed company that invests in mortgage notes receivables. As used herein, the terms “IOR”, “the Company”, “We”, “Our”, or “Us” refer to the Company.

 

Transcontinental Realty Investors, Inc. (“TCI”), whose common stock is traded on the NYSE under the symbol “TCI”, owns 81.1% of our stock and with its affiliates owns approximately 87.6% of our common stock. Accordingly our financial results are included in the consolidated financial statements of TCI’s in their Form 10-K and in their tax filings. American Realty Investors, Inc. ("ARL"), whose common stock is traded on the NYSE under the symbol “ARL”, in turn, owns approximately 78.4% of TCI.

 

Our business is managed by Pillar Income Asset Management, Inc. (“Pillar”) in accordance with an Advisory Agreement that is reviewed annually by our Board of Directors. Pillar is considered to be a related party (See Note 4 – Related Party Transactions).

 

Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities. Pillar also arranges our debt and equity financing with third party lenders and investors.
v3.23.3
Summary of Significant Accounting Policies
 9 Months Ended
Sep. 30, 2023
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies

 

2.Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading. In the opinion of management, all adjustments (consisting of normal recurring matters) considered necessary for a fair presentation have been included.

 

The consolidated balance sheet at December 31, 2022 was derived from the audited consolidated financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022.

 

We consolidate entities in which we are considered to be the primary beneficiary of a variable interest entity (“VIE”) or have a majority of the voting interest of the entity. We have determined that we are a primary beneficiary of the VIE when we have (i) the power to direct the activities of a VIE that most significantly impacts its economic performance, and (ii) the obligations to absorb losses or the right to receive benefits that could potentially be significant to the VIE. In determining whether we are the primary beneficiary, we consider qualitative and quantitative factors, including ownership interest, management representation, ability to control decision and other contractual rights.

 

We account for entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary under the equity method of accounting. Accordingly, we include our share of the net earnings or losses of these entities in our results of operations.
v3.23.3
Notes Receivable
 9 Months Ended
Sep. 30, 2023
Receivables [Abstract]  
Notes Receivable

 

3.Notes Receivable

 

The following table summarizes our notes receivables at September 30, 2023 and December 31, 2022:

 

   Carrying Value        
Borrower / Project  September 30,
2023		   December 31,
2022		   Interest
Rate		   Maturity
Date
United Housing Foundation (Echo Station)  $1,481   $1,481    12.00%  12/31/2032
United Housing Foundation (Lakeshore Villas)   2,000    2,000    12.00%  12/31/2032
United Housing Foundation (Lakeshore Villas)   6,369    6,369    12.00%  12/31/2032
United Housing Foundation (Timbers of Terrell)   1,323    1,323    12.00%  12/31/2032
   $11,173   $11,173         

 

The borrower is determined to be a related party due to our significant investment in the performance of the collateral secured by the notes receivable. Principal and interest payments on the notes from Unified Housing Foundation, Inc. (“UHF”) are funded from surplus cash flow from operations, sale or refinancing of the underlying properties and are cross collateralized to the extent that any surplus cash available from any of the properties underlying the notes.
v3.23.3
Related Party Transactions
 9 Months Ended
Sep. 30, 2023
Related Party Transactions [Abstract]  
Related Party Transactions

 

4.Related Party Transactions

 

We engage in certain business transactions with related parties, including investment in notes receivables. Transactions involving related parties cannot be presumed to be carried out on an arm’s length basis due to the absence of free market forces that naturally exist in business dealings between two or more unrelated entities. Related party transactions may not always be favorable to our business and may include terms, conditions and agreements that are not necessarily beneficial to or in our best interest.

 

Pillar is a wholly owned by a subsidiary of the May Realty Holdings, Inc., which owns approximately 90.8% of ARL, which owns approximately 78.4% of TCI, which owns 81.1% of the Company.

 

Advisory fees paid to Pillar were $346 and $283 for the three months ended September 30, 2023 and 2022, respectively, and $1,045 and $824 for the nine months ended September 30, 2023 and 2022, respectively.

 

Notes receivable are amounts held by UHF (See Note 3 – Notes Receivable). UHF is determined to be a related party due to our significant investment in the performance of the collateral secured by the notes receivable. Interest income on these notes was $338 for the three months ended September 30, 2023 and 2022, and $1,003 for the nine months ended September 30, 2023 and 2022.

 

Related party receivables were $104,808 and $100,134 at September 30, 2023 and December 31, 2022, respectively; which represents amounts outstanding from TCI for loans and advances, net of unreimbursed fees and bear interest at prime plus one percent. Interest income on related party receivables from TCI was $2,178 and $1,483 for the three months ended September 30, 2023 and 2022, respectively, and $6,157 and $3,503 for the nine months ended September 30, 2023 and 2022, respectively.
v3.23.3
Commitments and Contingencies
 9 Months Ended
Sep. 30, 2023
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

 

5.Commitments and Contingencies

 

We believe that we will generate excess cash from property operations in the next twelve months; such excess, however, might not be sufficient to discharge all of our obligations as they become due.
v3.23.3
Subsequent Events
 9 Months Ended
Sep. 30, 2023
Subsequent Events [Abstract]  
Subsequent Events

 

6.Subsequent Events

 

The date to which events occurring after September 30, 2023, the date of the most recent balance sheet, have been evaluated for possible adjustment to the consolidated financial statements or disclosure is November 9, 2023, which is the date on which the consolidated financial statements were available to be issued.
v3.23.3
Summary of Significant Accounting Policies (Policies)
 9 Months Ended
Sep. 30, 2023
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading. In the opinion of management, all adjustments (consisting of normal recurring matters) considered necessary for a fair presentation have been included.

 

The consolidated balance sheet at December 31, 2022 was derived from the audited consolidated financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022.

 

We consolidate entities in which we are considered to be the primary beneficiary of a variable interest entity (“VIE”) or have a majority of the voting interest of the entity. We have determined that we are a primary beneficiary of the VIE when we have (i) the power to direct the activities of a VIE that most significantly impacts its economic performance, and (ii) the obligations to absorb losses or the right to receive benefits that could potentially be significant to the VIE. In determining whether we are the primary beneficiary, we consider qualitative and quantitative factors, including ownership interest, management representation, ability to control decision and other contractual rights.

 

We account for entities in which we have less than a controlling financial interest or entities where we are not deemed to be the primary beneficiary under the equity method of accounting. Accordingly, we include our share of the net earnings or losses of these entities in our results of operations.
v3.23.3
Notes Receivable (Tables)
 9 Months Ended
Sep. 30, 2023
Receivables [Abstract]  
The following table summarizes our notes receivables at September 30, 2023 and December 31, 2022:

The following table summarizes our notes receivables at September 30, 2023 and December 31, 2022:

 

   Carrying Value        
Borrower / Project  September 30,
2023		   December 31,
2022		   Interest
Rate		   Maturity
Date
United Housing Foundation (Echo Station)  $1,481   $1,481    12.00%  12/31/2032
United Housing Foundation (Lakeshore Villas)   2,000    2,000    12.00%  12/31/2032
United Housing Foundation (Lakeshore Villas)   6,369    6,369    12.00%  12/31/2032
United Housing Foundation (Timbers of Terrell)   1,323    1,323    12.00%  12/31/2032
   $11,173   $11,173         
v3.23.3
Organization (Details Narrative)
Sep. 30, 2023
Transcontinental Realty Investors, Inc [Member] | IOR [Member]  
Percentage of ownership 81.10%
Transcontinental Realty Investors, Inc. and Affiliates [Member] | IOR [Member] | Common Stock [Member]  
Percentage of ownership 87.60%
American Realty Investors, Inc. [Member] | Transcontinental Realty Investors, Inc. [Member]  
Percentage of ownership 78.40%
v3.23.3
The following table summarizes our notes receivables at September 30, 2023 and December 31, 2022: (Details) - USD ($)
$ in Thousands
 9 Months Ended
Sep. 30, 2023
Dec. 31, 2022
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Carrying Value $ 11,173 $ 11,173
Unified Housing Foundation, Inc. (Echo Station) [Member]    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Description of property Echo Station  
Carrying Value $ 1,481 1,481
Interest Rate 12.00%  
Maturity Date Dec. 31, 2032  
Unified Housing Foundation, Inc. (Lakeshore Villas) [Member]    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Description of property Lakeshore Villas  
Carrying Value $ 2,000 2,000
Interest Rate 12.00%  
Maturity Date Dec. 31, 2032  
Unified Housing Foundation, Inc. (Lakeshore Villas)    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Description of property Lakeshore Villas  
Carrying Value $ 6,369 6,369
Interest Rate 12.00%  
Maturity Date Dec. 31, 2032  
Unified Housing Foundation, Inc. (Timbers of Terrell) [Member]    
Accounts, Notes, Loans and Financing Receivable [Line Items]    
Description of property Timbers of Terrell  
Carrying Value $ 1,323 $ 1,323
Interest Rate 12.00%  
Maturity Date Dec. 31, 2032  
v3.23.3
Related Party Transactions (Details Narrative) - USD ($)
$ in Thousands
 3 Months Ended 9 Months Ended
Sep. 30, 2023
Sep. 30, 2022
Sep. 30, 2023
Sep. 30, 2022
Dec. 31, 2022
Related Party Transaction [Line Items]          
Advisor fees paid $ 346 $ 283 $ 1,045 $ 824  
Interest income from related parties 2,516 1,821 7,160 4,506  
Related party receivables $ 104,808   $ 104,808   $ 100,134
May Realty Holdings, Inc. [Member] | American Realty Investors, Inc. [Member]          
Related Party Transaction [Line Items]          
Percentage of ownership 90.80%   90.80%    
American Realty Investors, Inc. [Member] | Transcontinental Realty Investors, Inc. [Member]          
Related Party Transaction [Line Items]          
Percentage of ownership 78.40%   78.40%    
Transcontinental Realty Investors, Inc [Member]          
Related Party Transaction [Line Items]          
Interest income from related parties $ 2,178 1,483 $ 6,157 3,503  
Related party receivables $ 104,808   $ 104,808   $ 100,134
Transcontinental Realty Investors, Inc [Member] | IOR [Member]          
Related Party Transaction [Line Items]          
Percentage of ownership 81.10%   81.10%    
Pillar [Member]          
Related Party Transaction [Line Items]          
Advisor fees paid $ 346 283 $ 1,045 824  
Unified Housing Foundation, Inc. [Member]          
Related Party Transaction [Line Items]          
Interest income from related parties $ 338 $ 338 $ 1,003 $ 1,003  
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