Filed 2026-03-12 · Period ending 2025-12-31 · 18,675 words · SEC EDGAR
# INCOME OPPORTUNITY REALTY INVESTORS INC /TX/ (IOR) — 10-K
**Filed:** 2026-03-12
**Period ending:** 2025-12-31
**Accession:** 0001999371-26-005688
**Source:** [SEC EDGAR](https://www.sec.gov/Archives/edgar/data/949961/000199937126005688/)
**Origin leaf:** 68b5b9c27f1778ed7338e6e9434b5ace4d616618af879801d8ad774444b5a5e2
**Words:** 18,675
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**
UNITED STATES**
**SECURITIES
AND EXCHANGE COMMISSION**
**WASHINGTON,
D.C. 20549**
****
**FORM 10-K**
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ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
**For the fiscal year ended December 31,
2025**
**OR**
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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.**
**(Exact name of registrant as specified
in its charter)**
****
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Nevada |
75-2615944 | |
|
(State
or other jurisdiction of
Incorporation
or organization) |
(IRS
Employer
Identification Number) | |
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| |
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1603
LBJ Freeway, Suite 800 Dallas TX |
75234 | |
|
(Address
of principal executive offices) |
(Zip
Code) | |
**(469) 522-4200**
Registrants Telephone Number,
including area code
Securities registered pursuant to Section
12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered | |
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Common Stock |
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IOR |
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NYSE American | |
Securities registered pursuant to
Section12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.YesNo
Indicate by check mark if the registrant is not required
to file reports pursuant to Section13 or Section15(d) of the Act.YesNo
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.YesNo
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).
YesNo
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.
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Large accelerated filer |
Acceleratedfiler |
Non-accelerated filer |
Smallerreportingcompany | |
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Emerging growth Company |
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| |
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 has filed a report on and attestation to its managements assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report.
If securities are registered pursuant
to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing
reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any
of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any
of the registrants executive officers during the relevant recovery period pursuant to 240.10D-1(b).
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)Yes No
The aggregate market value of voting
and non-voting common equity held by non-affiliates of the registrant was approximately $6.8 million as of the last business day
of the registrant's most recently completed second fiscal quarter based upon the price at which the common stock was last sold
on that day.
As of March10, 2026, there were 4,066,178 shares of common
stock outstanding.
**Documents Incorporated
By Reference:**
None
**INDEX TO**
**ANNUAL REPORT ON FORM 10-K**
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Page | |
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PART I |
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Item
1. |
Business |
3 | |
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Item1A. |
Risk
Factors |
4 | |
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Item
1B. |
Unresolved
Staff Comments |
5 | |
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Item
1C. |
Cybersecurity |
5 | |
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Item
2. |
Properties |
5 | |
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Item
3. |
Legal
Proceedings |
6 | |
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Item
4. |
Mine
Safety Disclosures |
6 | |
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PART II |
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Item
5. |
Market
for Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities |
7 | |
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Item
6. |
Reserved |
7 | |
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Item
7. |
Managements
Discussion and Analysis of Financial Condition and Results of Operations |
7 | |
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Item
7A. |
Quantitative
and Qualitative Disclosures About Market Risk |
10 | |
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Item
8. |
Financial
Statements and Supplementary Data |
11 | |
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Item
9. |
Changes
in and Disagreements with Accountants on Accounting and Financial Disclosure |
25 | |
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Item9A. |
Controls
and Procedures |
25 | |
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Item
9B. |
Other
Information |
25 | |
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Item
9C. |
Disclosure
Regarding Foreign Jurisdictions that Prevent Inspections |
25 | |
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PART III |
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Item
10. |
Directors,
Executive Officers and Corporate Governance |
26 | |
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Item
11. |
Executive
Compensation |
31 | |
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Item
12. |
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
31 | |
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Item
13. |
Certain
Relationships and Related Transactions, and Director Independence |
32 | |
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Item
14. |
Principal
Accounting Fees and Services |
33 | |
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PART IV |
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Item
15. |
Exhibits
and Financial Statement Schedules |
35 | |
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Item
16. |
Form
10-K Summary |
37 | |
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Signatures |
38 | |
2
**FORWARD-LOOKING STATEMENTS**
Certain Statements in this Form 10-K are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, Section27A of the Securities Act of 1933, and
Section21E of the Securities Exchange Act of 1934. The words estimate, plan, intend,
expect, anticipate, believe, and similar expressions are intended to identify forward-looking
statements. The forward-looking statements are found at various places throughout this Report and in the documents incorporated
herein by reference. The Company disclaims any intention or obligations to update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. Although we believe that our expectations are based upon reasonable
assumptions, we can give no assurance that our goals will be achieved. Important factors that could cause our actual results to
differ from estimates or projections contained in any forward-looking statements are described in Part I, Item1A. Risk
Factors.
**PART I**
|
ITEM1. | BUSINESS | |
**General**
Income Opportunity Realty Investors, Inc.
(the Company), a Nevada Corporation, is an externally managed company that invests in mortgage notes receivables
and real property. As used herein, the terms IOR, the Company, We, Our,
or Us refer to the Company.
*Controlling Shareholder*
Transcontinental Realty Investors, Inc.
(TCI), whose common stock is traded on the New York Stock Exchange (NYSE) under the symbol TCI, is our
controlling shareholder. As of December31, 2025, TCI owned 84.6% of our stock and
with its affiliates owned 91.2% of our common stock. Accordingly our financial results are included in the consolidated financial
statements of TCI in its Form 10-K and in its 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.
As described in Part III, Item 13. Certain
Relationships and Related Transactions, and Director Independence, our officers and directors also serve as officers and
directors of TCI and ARL.
*Management*
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 a wholly-owned affiliate of ARL's controlling stockholder.
Pillars 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 unaffiliated independent third party lenders and investors. Pillar also serves as the
contractual Advisor and Cash Manager to TCI. As the contractual advisor, Pillar is compensated by us under an Advisory Agreement
that is more fully described in Part III, Item 10. Directors, Executive Officers and Corporate Governance The Advisor.
We have no employees. Employees of Pillar render services to us in accordance with the terms of the Advisory Agreement.
In addition, as described in Part III,
Item 13. Certain Relationships and Related Transactions, and Director Independence, we compete with related parties
of Pillar having similar investment objectives related to investment in mortgage notes receivables. In resolving any potential
conflicts of interest which may arise, Pillar has informed us that it intends to exercise its best judgment as to what is fair
and reasonable under the circumstances in accordance with applicable law.
**Business Plan and Investment Policy**
We invest in notes receivables that are
collateralized by investments in land and/or multifamily properties. These investments have included notes receivables from Unified
Housing Foundation, Inc. ("UHF") Due to our ongoing relationship and the significant investment in the performance of
the collateral secured under the notes receivable, we consider UHF to be a related party.
3
**Human Capital**
We have no employees. Employees of Pillar
render services to us in accordance with the terms of the Advisory Agreement.
**Available Information**
We maintain a website at www.incomeopp-realty.com.
We make available through our website free of charge Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports
on Form 8-K, reports filed pursuant to Section16, and amendments to those reports, as soon as reasonably practicable after
we electronically file or furnish such materials to the Securities and Exchange Commission. In addition, we have posted the charters
for our Audit Committee, Compensation Committee, and Governance and Nominating Committee, as well as our Code of Business Conduct
and Ethics, Corporate Governance Guidelines on Director Independence and other information on the website. These charters and principles
are not incorporated in this Report by reference. We will also provide a copy of these documents free of charge to stockholders
upon written request. The Company issues Annual Reports containing audited financial statements to its common shareholders.
|
ITEM1A. | RISK FACTORS | |
The following discusses those risk factors
that we believe could have a material effect on our business, operations and financial condition. If any of these risks, as well
as other risks and uncertainties that we have not yet identified or that we currently believe are not material, become realized,
we could be materially adversely affected. In addition, the following risk factors may contain forward looking statements
and should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations,
and the financial statements and related notes in this Annual Report on Form 10-K. An investment in our securities involves various
risks. All investors should carefully consider the following risk factors, applicable to us and our assets in conjunction with
the other information in this report before investing in our securities.
**Our business may be impacted as a
result of any health emergency.**
Epidemics,
pandemics or other outbreaks of an illness, disease or virus, such as COVID-19, can severely disrupt general economic activities
in a variety of ways that are difficult to predict. For example, governments and businesses may take actions to mitigate the public
health crisis, including quarantines, stay-at-home orders, density limitations, social distancing measures, and/or restrictions
on types of business that may continue to operate. The extent to which an outbreak could impact our business will depend on factors
such as the duration and spread, its severity, the actions taken to contain the virus, the emergence and impact of future virus
variants, and how quickly and to what extent normal economic and operating conditions resume. The impacts to our business could
impact our financial condition, results of operations, cash flows, liquidity and our ability to meet our debt service obligations.
**We may not be able to access financial
markets to obtain capital on a timely basis, or on acceptable terms.**
We may need to rely on third party capital
sources for a portion of our capital needs, including capital for acquisitions and development. The public debt and equity markets
are among the sources on which we rely. There is no guarantee that we will be able to access these markets, or any other source
of capital. The ability to access the public debt and equity markets depends on a variety of factors, including:
|
| general economic conditions affecting these markets; | |
|
| our own financial structure and performance; | |
**Our degree of reliance on the operations
of certain businesses to collect receivables can affect our cash flow.**
The collection of our receivables are dependent
upon the ability of the assets held by others that secure the notes or fund receivable payments to produce sufficient cash flow
to service these notes and receivables. Changes in general or local economic conditions in the southwestern United States can have
an adverse effect on the payment of these notes or other receivables.
**Our degree of leverage could limit
our ability to obtain additional financing or affect the market price of our common stock.**
The degree of leverage available to the
Company could affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, development
or other general corporate purposes. The degree of leverage could also make us more vulnerable to a downturn in business or the
economy.
4
**An increase in interest rates would
increase our interest costs on variable rate debt and could adversely impact our ability to refinance existing debt.**
We may incur indebtedness that bears interest
at variable rates. If interest rates increase, so may our interest costs, which would adversely affect our cash flow and our ability
to pay principal and interest on our debt. Further, rising interest rates could limit our ability to refinance any existing debt
when it matures.
**Substantially all of our assets are
receivables from related parties.**
We are the payee and holder of a note receivable
secured by real properties owned by one entity and its affiliates which is payable through their cash flow, which can vary significantly
from time to time. Payment on this note is dependent upon the successful operations of the organizations. Should the maker of the
note be unable to produce the cash flow necessary to service the note, our collection of note and interest payment receipts could
be adversely affected. The maker is in the business of making available affordable multi-family housing and is therefore subject
to the challenges from governmental and non-governmental assistance organizations. The entity is determined to be a related
party under ASC 850 due to our significant investment and that of our controlling shareholder in the performance of the
collateral secured by the note receivable. In addition, we have a substantial receivable from our controlling shareholder.
We engage in a number of business transactions
with related parties, including investment in notes and accounts receivable which related party transactions may not always be
favorable to our business and may include terms, conditions and agreements that are not necessarily in our best interests. If a
related party is unable to, or prevented from payment of any such note or account receivable in accordance with its terms, that
event could have a material adverse effect upon our cash flow, profits and value of our assets. While such notes and accounts receivable
are set forth in our financial statements at full value, such assumption is based solely upon our projection of the ability of
the related party to fund payments on such assets in accordance with their respective terms and conditions but does not provide
any allowance or suggested offset for any industry experience considerations. If any event occurs which might prevent or delay
compliance by makers of such notes or accounts receivable, same could have an adverse impact upon our revenue collections.
|
ITEM 1B | UNRESOLVED STAFF COMMENTS | |
None.
|
ITEM1C. | CYBERSECURITY | |
Cybersecurity Risk Management Processes for Assessing, Identifying, and Managing Threats
We rely on the information technology and
systems maintained by Pillar and their employees to identify and manage material risks from cybersecurity threats. Pillar takes
various actions, and incurs significant costs, to maintain and manage the operation and security of information technology and
systems, including the data maintained in those systems. We believe that Pillars Director of Information Technology and
his associates endeavor to evaluate and address cyber risks in alignment with our business objectives, operational needs and industry-accepted
standards, such as the National Institute of Standards and Technology and CIS Critical Security Controls frameworks. Since we rely
on accounting, financial, operational, management and other information systems, including the Internet and third-party hosted
services to conduct our operations, store personal and sensitive data, process financial information and results of operations
for internal reporting purposes and comply with financial reporting, legal and tax requirements, we have processes and procedures
in place to monitor the prevention, detection, mitigation and remediation of cybersecurity risks. These include, but are not limited
to (i) maintaining a defined and practiced incident response plan; (ii) employing appropriate incident prevention and detection
safeguards; (iii) maintaining a defined disaster recovery policy and employing disaster recovery software, where appropriate; (iv)
educating, training and testing our user community on information security practices and identification of potential cybersecurity
risks and threats; and (v) reviewing and evaluating new developments in the cyber threat landscape. Recognizing the complexity
and evolving nature of cybersecurity risk, we engage with a range of external support in evaluating, monitoring and testing our
cybersecurity management systems and related cyber risks.
Cybersecurity Risk Board of Directors Oversight
The Audit Committee of the Board of Directors
oversees cybersecurity matters, including the material risks related thereto, and regularly receives updates from Pillars
Director of Information Technology regarding the development and advancement of its cybersecurity strategy, as well as the related
risks. In the event of a cybersecurity incident, a detailed incident response plan is in place for contacting authorities and informing
key stakeholders, including management. We do not believe we are reasonably likely to be materially affected from cybersecurity
threats, including as a result of previous incidents.
|
ITEM2. | PROPERTIES | |
At present, we don't own any real estate.
5
|
ITEM 3. | LEGAL PROCEEDINGS | |
None.
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ITEM 4. | MINE SAFETY DISCLOSURES | |
Not applicable.
6
**PART II**
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ITEM5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | |
Our common stock is listed and traded on
the NYSE American Exchange under the symbol IOR. The following table sets forth the high and low sales prices as
reported in the consolidated reporting system of the NYSE American for the quarters ended:
|
| |
2025 | | |
2024 | | |
|
| |
High | | |
Low | | |
High | | |
Low | | |
|
First Quarter | |
$ | 19.00 | | |
$ | 16.05 | | |
$ | 17.82 | | |
$ | 13.11 | | |
|
Second Quarter | |
$ | 19.30 | | |
$ | 16.10 | | |
$ | 17.00 | | |
$ | 16.00 | | |
|
Third Quarter | |
$ | 19.69 | | |
$ | 17.75 | | |
$ | 19.00 | | |
$ | 15.69 | | |
|
Fourth Quarter | |
$ | 19.47 | | |
$ | 17.50 | | |
$ | 18.96 | | |
$ | 16.01 | | |
On March10,
2026, the closing market price of our common stock on the NYSE American Exchange was
$19.00per share, and was held
by 281stockholders of record.
Our Board of Directors established a policy
that dividend declarations on common stock would be determined on an annual basis following the end of each year. In accordance
with that policy, the board determined not to pay any dividends on common stock in 2025, 2024 or 2023. Future distributions to
common stockholders will be determined by the Board of Directors in light of conditions then existing, including our financial
condition and requirements, future prospects, restrictions in financing agreements, business conditions and other factors deemed
relevant by the Board.
On December16, 2024, TCI announced
an offer ("Tender Offer") to purchase up to 100,000 shares of our outstanding common shares at a price of $18 per share,
subject to certain conditions. The Tender Offer was completed on January29, 2025, which resulted in TCI's acquisition of
21,678 of our common shares. Upon completion of the Tender Offer, TCI ownership of our shares increased to 83.7%.
We
have a stock repurchase program that allows for the repurchase of up to 1,650,000 shares of our common stock. This repurchase program
has no termination date. During the year ended December31, 2025, we repurchased a total of 44,536 shares
in two block transactions at $18 per share. As of December31, 2025, there were
513,003 shares remaining for repurchase.
|
ITEM 6. | [RESERVED] | |
|
ITEM7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |
The following discussion should be read
in conjunction with our consolidated financial statements and related notes in Part II, Item 8 of this Report.
**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 arms 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. Pillars 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 stockholder.
7
**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 2Summary of Significant Accounting Policies in our notes to the consolidated financial
statements. However, the following policies are deemed to be critical.
*Non-performing Notes Receivable*
The Company considers a note receivable
to be non-performing when the maturity date has passed without principal repayment and the borrower is not making interest payments
in accordance with the terms of the agreement.
*Interest recognition on Notes Receivable*
We record interest income as earned in
accordance with the terms of the related loan agreements.
*Allowance for Estimated Losses*
We assess the collectability of notes receivable
on a periodic basis, of which the assessment consists primarily of an evaluation of cash flow projections of the borrower to determine
whether estimated cash flows are sufficient to repay principal and interest in accordance with the contractual terms of the note.
We recognize impairments on notes receivable when it is probable that principal and interest will not be received in accordance
with the contractual terms of the loan. The amount of the impairment to be recognized generally is based on the fair value of the
partnerships real estate that represents the primary source of loan repayment (See Note 3 - Notes Receivable of our consolidated
financial statements).
*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 entitys 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:
Level1Unadjusted
quoted prices for identical and unrestricted assets or liabilities in active markets.
Level2Quoted
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.
Level3Unobservable
inputs that are significant to the fair value measurement.
A financial instruments categorization
within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
8
*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.
*Inflation*
The effects of inflation on our operations
are not quantifiable. Revenues from property operations tend to fluctuate proportionately with inflationary increases and decreases
in housing costs. Fluctuations in the rate of inflation also affect sales values of properties and the ultimate gain to be realized
from property sales. To the extent that inflation affects interest rates, our earnings from short-term investments, the cost of
new financings and the cost of variable interest rate debt will be affected.
*Environmental Matters*
Under various federal, state and local
environmental laws, ordinances and regulations, we may be potentially liable for removal or remediation costs, as well as certain
other potential costs, relating to hazardous or toxic substances (including governmental fines and injuries to persons and property)
where property-level managers have arranged for the removal, disposal or treatment of hazardous or toxic substances. In addition,
certain environmental laws impose liability for release of asbestos-containing materials into the air, and third parties may seek
recovery for personal injury associated with such materials.
We are not aware of any environmental liability
relating to the above matters that would have a material adverse effect on our business, assets or results of operations.
**Results of Operations**
The following discussion is based on our
Consolidated Financial Statements Consolidated Statement of Operations, for the years ended December31, 2025, 2024, and 2023
from Part II, Item 8. Financial Statements and Supplementary Data 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 our Advisor at an interest rate indexed to the Secured Overnight Financing
Rate ("SOFR"). We have receivables from related parties which also provide interest income.
*Comparison of the
year ended December31, 2025 to the year ended December31, 2024:*
Our
$0.7 million decrease in net income during the year ended December31, 2025 is
primarily attributed to the following:
|
| The $0.9 million decrease in interest income was primarily due to a decrease in interest
rates in 2025 and 2024. | |
|
| The $0.2 million decrease in income tax provision was primarily due to a decrease in
interest income. | |
*Comparison of the
year ended December31, 2024 to the year ended December31, 2023:*
See Item 7 of Part II in our Annual Report
on Form 10-K for the year ended December31, 2024 filed with the SEC on March21, 2025 for a discussion of our results
of operations for the year ended December31, 2024.
9
**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 December31, 2025, along with cash that will be generated in 2026 from notes and interest receivables, will be sufficient
to meet all of our cash requirements.
*Cash Flow Summary*
The following summary discussion of our
cash flows is based on the consolidated statements of cash flows in Part II, Item8. Consolidated Financial Statements
and Supplementary Data and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods
presented below (dollars in thousands):
|
| |
Year Ended December 31, | | |
| | |
|
| |
2025 | | |
2024 | | |
Incr /(Decr) | | |
|
Net cash (used in) provided by operating activities | |
$ | (77 | ) | |
$ | 713 | | |
$ | (790 | ) | |
|
Net cash provided by investing activities | |
$ | 74 | | |
$ | 27 | | |
$ | 47 | | |
|
Net cash used in financing activities | |
$ | | | |
$ | (802 | ) | |
$ | 802 | | |
The
decrease in cash from operating activities is primarily due to a change in related party receivables.
|
| ITEM7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. | |
Optional and not included.
10
|
| ITEM8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | |
**INDEX TO FINANCIAL STATEMENTS**
|
|
Page | |
|
Financial Statements |
| |
|
Report of Independent Registered Public Accounting Firm (PCAOB ID 782) |
12 | |
|
Consolidated Balance Sheets at December 31, 2025 and 2024 |
14 | |
|
Consolidated Statements of Operations for the Years Ended December 31, 2025, 2024 and 2023 |
15 | |
|
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 2025, 2024 and 2023 |
16 | |
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2025, 2024 and 2023 |
17 | |
|
Notes to Consolidated Financial Statements |
18 | |
|
|
| |
|
Financial Statement
Schedules |
| |
|
Schedule IVMortgage Loan Receivables on Real Estate |
23 | |
11
**REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM**
To the Board of Directors of and
Stockholders of Income Opportunity Realty
Investors, Inc.
Dallas, Texas
Auditor Opinion
**Opinion on the Financial Statements**
We have audited the accompanying consolidated
balance sheets of Income Opportunity Realty Investors, Inc. and Subsidiaries as of December31, 2025 and 2024, and the related
consolidated statements of operations, comprehensive income, stockholders equity, and cash flows for each of the years in
the three years ended December31, 2025, and the related notes and schedules (collectively referred to as the consolidated
financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Income Opportunity Realty Investors, Inc. as of December31, 2025 and 2024 and the results of its operations and
its cash flows for each of the three years in the period ended December31, 2025 in conformity with accounting principles
generally accepted in the United States of America.
**Basis of Opinion**
These consolidated financial statements
are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys consolidated
financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight
Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the
U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are
required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audits provide a reasonable basis for our opinion.
**Critical Audit Matters**
The critical audit matters communicated
below are matters arising from the current period audit of the consolidated financial statements that were communicated or required
to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical
audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not,
by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts
or disclosures to which they relate.
**Transactions with and Balances Due from
Related Parties**
Description of the Matter
The Company has significant transactions
with and balances due from related parties. The Company performs an assessment as to whether substantially all the amounts due
under these receivables are deemed probable of collection. When the Company concludes that it is not probable that it will collect
amounts, the Company creates an allowance for the amount not probable of the collection.
Auditing the Companys collectability
assessment is complex due to the judgment involved in the Companys determination of the collectability of these receivables.
The determination involves consideration of the terms of the receivable, whether the receivable is currently performing, and any
security for the receivable.
12
*How We addressed the Matter in Our Audit*
We obtained an understanding of the Companys
controls over related party receivables and their collectability assessment. Our testing included, among other things, confirmation
of the receivables, reviewing selected financial information of the related parties, reviewing subsequent collections and evaluating
transactions documentation. The relevant financial statement accounts are receivables, notes and interest receivable from related
parties and interest income from related parties.
**Emphasis of Related Party Transactions**
As described in the notes to the consolidated
financial statements, Income Opportunity Realty Investors, Inc. and Subsidiaries has significant transactions with and balances
due from related parties.
**Supplemental Information**
The supplemental information contained
in Schedules IV has been subjected to audit procedures performed in conjunction with the audit of the Companys consolidated
financial statements. The supplemental information is the responsibility of the Companys management. Our audit procedures
included determining whether the supplemental information reconciles to the consolidated financial statements or the underlying
accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information
presented in the supplemental information. In forming our opinion on the supplemental information, we evaluated whether the supplemental
information, including its form and content, is presented in conformity with the Security and Exchange Commissions rules.
In our opinion, the supplemental information is fairly stated, in all material respects, the financial data required to be set
forth therein in relation to the consolidated financial statements as a whole.
FARMER, FUQUA & HUFF, PC
Richardson, Texas
Auditor
ID: 782
March12, 2026
We have served as the Companys auditor
since 2024.
13
**INCOME OPPORTUNITY REALTY INVESTORS,
INC.**
**CONSOLIDATED BALANCE SHEETS**
**(Dollars in thousands, except par value
amounts)**
|
| |
| | | |
| | | |
|
| |
December 31, | |
|
| |
2025 | |
2024 | |
|
Assets | |
| |
| |
|
Current assets | |
| |
| |
|
Cash and cash equivalents | |
$ | 6 | | |
$ | 9 | | |
|
Interest receivable from related parties | |
| 244 | | |
| 291 | | |
|
Receivable from related party | |
| 114,595 | | |
| 110,481 | | |
|
Total current assets | |
| 114,845 | | |
| 110,781 | | |
|
Non-current assets | |
| | | |
| | | |
|
Note receivable from related party | |
| 11,072 | | |
| 11,146 | | |
|
Total assets | |
$ | 125,917 | | |
$ | 121,927 | | |
|
| |
| | | |
| | | |
|
Shareholders' equity | |
| | | |
| | | |
|
Common stock, $0.01 par value, 10,000,000 shares authorized; 4,173,675 shares issued; and 4,066,178 and 4,066,178 outstanding at December31, 2025 and 2024, respectively | |
| 42 | | |
| 42 | | |
|
Treasury stock at cost, 107,497 shares and 107,497 shares at December31, 2025 and 2024, respectively | |
| (1,749 | ) | |
| (1,749 | ) | |
|
Additional paid-in capital | |
| 61,955 | | |
| 61,955 | | |
|
Retained earnings | |
| 65,669 | | |
| 61,679 | | |
|
Total shareholders equity | |
| 125,917 | | |
| 121,927 | | |
|
Total liabilities and equity | |
$ | 125,917 | | |
$ | 121,927 | | |
The accompanying notes are an integral part
of these consolidated financial statements.
14
**INCOME OPPORTUNITY REALTY INVESTORS,
INC.**
**CONSOLIDATED STATEMENTS OF OPERATIONS**
**(Dollars in thousands, except per share
amounts)**
|
: | |
| | | |
| | | |
| | | |
|
| |
For the Years Ended
December 31, | | |
|
| |
2025 | | |
2024 | | |
2023 | | |
|
Revenues: | |
| | |
| | |
| | |
|
Other income | |
$ | | | |
$ | | | |
$ | | | |
|
Expenses: | |
| | | |
| | | |
| | | |
|
General and administrative (including $53, $52 and $254 for 2025, 2024 and 2023, respectively, from related parties) | |
| 280 | | |
| 304 | | |
| 490 | | |
|
Advisory fee to related party | |
| 103 | | |
| 108 | | |
| 970 | | |
|
Total operating expenses | |
| 383 | | |
| 412 | | |
| 1,460 | | |
|
Net operating loss | |
| (383 | ) | |
| (412 | ) | |
| (1,460 | ) | |
|
Interest income from related parties | |
| 5,434 | | |
| 6,299 | | |
| 10,070 | | |
|
Income tax provision | |
| (1,061 | ) | |
| (1,236 | ) | |
| (1,609 | ) | |
|
Net income | |
$ | 3,990 | | |
$ | 4,651 | | |
$ | 7,001 | | |
|
| |
| | | |
| | | |
| | | |
|
Earnings per share - basic and diluted | |
$ | 0.98 | | |
$ | 1.14 | | |
$ | 1.68 | | |
|
Weighted average common shares used in computing earnings per share | |
| 4,066,178 | | |
| 4,080,369 | | |
| 4,162,516 | | |
The accompanying notes are an integral part
of these consolidated financial statements.
15
**INCOME OPPORTUNITY REALTY INVESTORS,
INC.**
**CONSOLIDATED STATEMENT OF SHAREHOLDERS'
EQUITY **
**(Dollars in thousands, except share amounts)**
|
| |
Shares Outstanding | | |
Common Stock | | |
Treasury Stock | | |
Paid-in Capital | | |
Retained Earnings | | |
Total Shareholders' Equity | | |
|
Balance,January 1, 2023 | |
| 4,168,414 | | |
$ | 42 | | |
$ | (39 | ) | |
$ | 61,955 | | |
$ | 50,027 | | |
$ | 111,985 | | |
|
Net income | |
| | | |
| | | |
| | | |
| | | |
| 7,001 | | |
| 7,001 | | |
|
Repurchase of common shares | |
| (57,700 | ) | |
| | | |
| (908 | ) | |
| | | |
| | | |
| (908 | ) | |
|
Balance, December 31, 2023 | |
| 4,110,714 | | |
| 42 | | |
| (947 | ) | |
| 61,955 | | |
| 57,028 | | |
| 118,078 | | |
|
Net income | |
| | | |
| | | |
| | | |
| | | |
| 4,651 | | |
| 4,651 | | |
|
Repurchase of common shares | |
| (44,536 | ) | |
| | | |
| (802 | ) | |
| | | |
| | | |
| (802 | ) | |
|
Balance, December 31, 2024 | |
| 4,066,178 | | |
| 42 | | |
| (1,749 | ) | |
| 61,955 | | |
| 61,679 | | |
| 121,927 | | |
|
Net income | |
| | | |
| | | |
| | | |
| | | |
| 3,990 | | |
| 3,990 | | |
|
Balance, December 31, 2025 | |
| 4,066,178 | | |
$ | 42 | | |
$ | (1,749 | ) | |
$ | 61,955 | | |
$ | 65,669 | | |
$ | 125,917 | | |
The accompanying notes are an integral part
of these consolidated financial statements.
16
**INCOME OPPORTUNITY REALTY INVESTORS,
INC.**
**CONSOLIDATED STATEMENTS OF CASH FLOWS**
**(Dollars in thousands)**
****
|
| |
2025 | | |
2024 | | |
2023 | | |
|
Cash Flow From Operating Activities: | |
| | |
| | |
| | |
|
Netincome | |
$ | 3,990 | | |
$ | 4,651 | | |
$ | 7,001 | | |
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |
| | | |
| | | |
| | | |
|
Changes in assets and liabilities: | |
| | | |
| | | |
| | | |
|
Accrued interest on related party notes receivable | |
| 47 | | |
| 2 | | |
| 383 | | |
|
Related party receivables | |
| (4,114 | ) | |
| (3,940 | ) | |
| (6,407 | ) | |
|
Accounts payable | |
| | | |
| | | |
| (4 | ) | |
|
Net cash (used in) provided by operating activities | |
| (77 | ) | |
| 713 | | |
| 973 | | |
|
Cash Flow From Investing Activities: | |
| | | |
| | | |
| | | |
|
Collection of notes receivable | |
| 74 | | |
| 27 | | |
| | | |
|
Net cash provided by investing activities | |
| 74 | | |
| 27 | | |
| | | |
|
Cash Flow From Financing Activities: | |
| | | |
| | | |
| | | |
|
Repurchase of common shares | |
| | | |
| (802 | ) | |
| (908 | ) | |
|
Net cash used in financing activities | |
| | | |
| (802 | ) | |
| (908 | ) | |
|
Net (decrease) increase in cash and cash equivalents | |
| (3 | ) | |
| (62 | ) | |
| 65 | | |
|
Cash and cash equivalents, beginning of year | |
| 9 | | |
| 71 | | |
| 6 | | |
|
Cash and cash equivalents, end of year | |
$ | 6 | | |
$ | 9 | | |
$ | 71 | | |
The accompanying notes are an integral part
of these consolidated financial statements.
17
**INCOME OPPORTUNITY REALTY INVESTORS,
INC.**
**NOTES TO FINANCIAL STATEMENTS**
**(Dollars in thousands, except per share
amounts)**
|
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, owned 84.6% of our stock at December31,
2025. In addition, an affiliate of TCI owned approximately 6.6% of our common stock at December31, 2025. Accordingly our
financial results are included in the consolidated financial statements of TCIs 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, own approximately 78.4% of TCI at December31, 2025.
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).
Pillars 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*
These consolidated financial statements
have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States of America.
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.
We operate as a single reportable segment
since operations principal source of income is interest on notes receivable from related parties. Our Chief Operating Decision
Maker evaluates financial performance and allocates resources on a consolidated basis, rather than evaluating distinct business
segments, and we provide enhanced disclosures related to significant expense categories in our financial statement footnotes.
Certain prior year amounts have been reclassified
to conform to the current year presentation on the consolidated balance sheets, consolidated statements of operations and the consolidated
statements of cash flows.
*Fair value measurement*
Fair value represents 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.
In determining fair value we apply the following hierarchy:
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.
18
**INCOME OPPORTUNITY REALTY INVESTORS,
INC.**
**NOTES TO FINANCIAL STATEMENTS**
**(Dollars in thousands, except per share
amounts)**
A financial instruments categorization
within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
*Related parties*
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, trusts 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 its own separate interests, or affiliates of the entity.
*Cash and Cash Equivalents and Restricted
Cash*
We consider all highly liquid investments
with an original maturity of three months or less when purchased to be cash equivalents, for which cost approximates fair value.
*Concentration of credit risk*
We maintain our cash balances at commercial
banks and through investment companies, the deposits that are insured by the Federal Deposit Insurance Corporation (FDIC). During
the years ended December31, 2025 and 2024, the Company did not maintain balances in excess of the insured amount.
*Income taxes*
We are a C corporation
for U.S. federal income tax purposes. However, we are included in the May Realty Holdings, Inc. (the "MRHI"). consolidated
group for tax purposes. We have a tax sharing agreement that specifies the manner in which the group will share the consolidated
tax liability and also how certain tax attributes are to be treated among members of the group.
*Comprehensive income*
Net income and comprehensive income (loss)
are the same for the years ended December31, 2025, 2024 and 2023.
*Use of estimates*
In the preparation of consolidated financial
statements in conformity with GAAP, it is necessary for 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 consolidated financial statements
and the reported amounts of revenues and expense for the year ended. Actual results could differ from those estimates.
|
3. | Notes Receivable |
|
We had four notes receivable issued by
Unified Housing Foundation, Inc. (UHF) with an aggregate balance of $11,146. Each of the notes bore interest at 12.0%
and was to mature on December 31, 2032. Principal and interest payments on the notes from 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.
On October1, 2023, we agreed to an
amendment of the four UHF notes. Under the provisions of the amendment, the four notes were consolidated into a single note and
the 12.0% fixed interest rate was replaced with a floating rate indexed to the Secured Overnight Financing Rate ("SOFR")
in effect on the last day of the preceding calendar quarter. In connection with the amendment, $605 of accrued interest was forgiven
in exchange for an increased participation in the proceeds from any future refinancing of the property by UHF.
19
**INCOME OPPORTUNITY REALTY INVESTORS,
INC.**
**NOTES TO FINANCIAL STATEMENTS**
**(Dollars in thousands, except per share
amounts)**
UHF is determined to be a related party
due to our significant investment in the performance of the collateral secured by the note receivable. Principal and interest payments
on the note are funded from surplus cash flow from operations, sale or refinancing of the underlying property and are cross collateralized
to the extent that any surplus cash available from any of other property owned by UHF.
|
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 arms 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 wholly owned by an affiliate
of the MRHI, which owns approximately 90.8% of ARL, which owns approximately 78.4% of TCI, which owns 84.6% of the Company.
Advisory fees paid to Pillar were $103,
$108 and $970 for the years ended December31, 2025, 2024 and 2023, respectively.
Note receivable is an amount held by UHF
(See Note 3 Notes Receivable). UHF is determined to be a related party due to TCI's significant investment in the performance
of the collateral secured by their notes receivable. Interest income on our note with UHF was $488, $588 and $547 for the years
ended December31, 2025, 2024 and 2023, respectively.
Receivable
from related party was $114,595 and $110,481 at
December31, 2025 and 2024, respectively;
which represents amounts outstanding advanced to Pillar net of unreimbursed fees ("Pillar Receivable"),
which bears interest at SOFR. Interest income on Pillar Receivable was
$4,946, $5,711 and $9,523 for the years ended December31, 2025, 2024
and 2023, respectively.
|
5. | Stockholders Equity |
|
Our decision to declare dividends on common
stock is determined on an annual basis following the end of each year. In accordance with that policy, no dividends on our common
stock were declared for 2025, 2024, or 2023. Future distributions to common stockholders will be determined in light of conditions
then existing, including our financial condition and requirements, future prospects, restrictions in financing agreements, business
conditions and other factors deemed relevant by our board of directors.
We
have a stock repurchase program that allows for the repurchase of up to 1,650,000 shares of our common stock. This repurchase program
has no termination date. We repurchased 57,700 and 44,536 shares during the years ended December31,
2023 and 2024, respectively. As of December31, 2025, there are 513,003 shares
remaining that can be repurchased.
On December16, 2024, TCI announced
an offer ("Tender Offer") to purchase up to 100,000 shares of our outstanding common shares at a price of $18 per share,
subject to certain conditions. The Tender Offer was completed on January29, 2025, which resulted in the acquisition of 21,678
of our common shares. Upon completion of the Tender Offer, TCI ownership of our shares increased to 83.7%. TCI subsequently purchased
an additional 32,845 of our common shares in the open market during the remainder of the
year for an additional cost of $583.
TCI owned approximately 84.6% and 83.2%
of our common shares at December31, 2025 and December31, 2024, respectively.
20
**INCOME OPPORTUNITY REALTY INVESTORS,
INC.**
**NOTES TO FINANCIAL STATEMENTS**
**(Dollars in thousands, except per share
amounts)**
|
6. | Income Taxes |
|
We account for income taxes under the asset
and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined
on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates
in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets
and liabilities is recognized in income in the period that includes the enactment date. We recognize deferred tax assets to the
extent that we believe these assets are more likely than not to be realized. In making such a determination, we consider all available
positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable
income, tax-planning strategies, and results of recent operations. If we determine that we would be able to realize our deferred
tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation
allowance, which would reduce the provision for income taxes. We record uncertain tax positions in accordance with ASC 740 on the
basis of a two-step process whereby (1) we determine whether it is more likely than not that the tax positions will be sustained
on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition
threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement
with the related tax authority.
The provision
for income taxes consists of:
|
| |
| | |
| | |
| | |
|
| |
Years Ended December 31, | | |
|
| |
2025 | | |
2024 | | |
2023 | | |
|
Current: | |
| | |
| | |
| | |
|
Federal | |
$ | 1,061 | | |
$ | 1,236 | | |
$ | 1,609 | | |
|
State | |
| | | |
| | | |
| | | |
|
| |
$ | 1,061 | | |
$ | 1,236 | | |
$ | 1,609 | | |
|
7. | Commitments and Contingencies |
|
We believe that we will generate excess
cash from our notes receivables in the next twelve months; such excess, however, might not be sufficient to discharge all of our
obligations as they become due.
|
8. | Quarterly Results of Operations |
|
The following is a tabulation of our quarterly
results of operations for the years 2025 and 2024. Quarterly results presented may differ from those previously reported in our
Form 10-Q due to the reclassification of the operations:
|
| |
| | | |
| | | |
| | | |
| | | |
|
| |
2025 Quarter Ended | | |
|
| |
March 31, | | |
June 30, | | |
September 30, | | |
December 31 | | |
|
Net operating loss | |
$ | (95 | ) | |
$ | (97 | ) | |
$ | (90 | ) | |
$ | (101 | ) | |
|
Net income | |
| 989 | | |
| 994 | | |
| 1,031 | | |
| 976 | | |
|
Net income per share - basic and diluted | |
$ | 0.24 | | |
$ | 0.24 | | |
$ | 0.25 | | |
$ | 0.25 | | |
|
| |
| | | |
| | | |
| | | |
| | | |
|
| |
2024 Quarter Ended | | |
|
| |
March 31, | | |
June 30, | | |
September 30, | | |
December 31 | | |
|
Net operating loss | |
$ | (95 | ) | |
$ | (114 | ) | |
$ | (97 | ) | |
$ | (106 | ) | |
|
Net income | |
| 1,178 | | |
| 1,162 | | |
| 1,198 | | |
| 1,113 | | |
|
Net income per share - basic and diluted | |
$ | 0.29 | | |
$ | 0.28 | | |
$ | 0.29 | | |
$ | 0.27 | | |
21
**INCOME OPPORTUNITY REALTY INVESTORS,
INC.**
**NOTES TO FINANCIAL STATEMENTS**
**(Dollars in thousands, except per share
amounts)**
|
9. | Subsequent Events |
|
The date to which events occurring after
December31, 2025, the date of the most recent balance sheet, have been evaluated for possible adjustments to the financial
statements or disclosure is March12, 2026, which is the date of which the financial statements were available to be issued.
There are no subsequent events that would require an adjustment to the financial statements.
22
**INCOME OPPORTUNITY REALTY INVESTORS,
INC.**
**NOTES TO FINANCIAL STATEMENTS**
**(Dollars in thousands, except per share
amounts)**
**SCHEDULE IV - MORTGAGE LOANS**
**SCHEDULE IV Mortgage Loans Receivable**
**December31,
2025**
|
Description | |
Interest Rate | |
Maturity Date | |
Periodic
Payment Terms | |
Prior Liens | |
Face Amount | | |
Carrying Value | | |
|
UHF - Timbers at The Park | |
| 4.24% | |
12/31/2032 | |
Payments from excess property cash flows | |
$ | 12,594 | |
$ | 11,072 | | |
$ | 11,072 | | |
23
**INCOME OPPORTUNITY REALTY INVESTORS,
INC.**
**NOTES TO FINANCIAL STATEMENTS**
**(Dollars in thousands, except per share
amounts)**
**SCHEDULE IV - MORTGAGE LOANS**
**As of December 31,**
**SCHEDULE IV Mortgage Loans Receivable Roll Forward**
|
| |
2025 | | |
2024 | | |
2023 | | |
|
Balance at January 1, | |
$ | 11,146 | | |
$ | 11,173 | | |
$ | 11,173 | | |
|
Additions | |
| | | |
| | | |
| | | |
|
Deductions | |
| (74 | ) | |
| (27 | ) | |
| | | |
|
Balance at December 31, | |
$ | 11,072 | | |
$ | 11,146 | | |
$ | 11,173 | | |
24
|
ITEM9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | |
None.
|
ITEM9A. | CONTROLS AND PROCEDURES | |
**Evaluation of Disclosure
Controls and Procedures**
Under the supervision and with the
participation of our management, including our Principal Executive Officer and our Principal Financial Officer, we conducted an
evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)) of the Securities Exchange
Act of 1934, as amended (the Exchange Act), which are designed to ensure that information required to be disclosed by
us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified by the SECs rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the
Exchange Act is accumulated and communicated to our management, including our Principal Executive Officer andour Principal
Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Principal
Executive and our Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of
the period covered by this report.
**Managements Report on Internal
Control over Financial Reporting**
Management is responsible for establishing
and maintaining adequate internal control over financial reporting for the Company. Our internal control over financial reporting
is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
in accordance with generally accepted accounting principles. There are inherent limitations to the effectiveness of any system
of internal control over financial reporting. These limitations include the possibility of human error, the circumvention of overriding
of the system and reasonable resource constraints. Because of its inherent limitations, our internal control over financial reporting
may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions or that the degree of compliance with policies or procedures
may deteriorate.
Management assessed the effectiveness of
our internal control over financial reporting as of December31, 2025. In making this assessment, management used the criteria
set forth in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013). Based on managements assessments and those criteria, management has concluded that Companys internal control
over financial reporting was effective as of December31, 2025.
This annual report does not include an
attestation report of our registered public accounting firm regarding internal control over financial report. Managements
report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit
us to provide only managements report in this annual report.
**Changes in Internal Control over Financial
Reporting**
In preparation for managements report
on internal control over financial reporting, we documented and tested the design and operating effectiveness of our internal control
over financial reporting. There were no changes in our internal controls over financial reporting (as such term is defined in Exchange
Act Rule 13a-15(f)) that occurred during the year ended December31, 2025 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
|
Item 9B. | OTHER INFORMATION | |
Not applicable.
|
Item 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | |
Not applicable.
25
**PART III**
|
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | |
**Directors**
The affairs of the Company are managed
by our Board of Directors (Directors). The Directors are elected at the annual meeting of stockholders or appointed by the incumbent Board
and serve until the next annual meeting of stockholders or until a successor has been elected or approved.
An objective is for a majority of our Board
to be independent directors. For a director to be considered independent, the Board must determine that the director does not have
any direct or indirect material relationship with the Company. The Board has established guidelines to assist it in determining
director independence which conform to, or are more exacting than, the independence requirements in the New York Stock Exchange
("NYSE") listing rules. The independence guidelines are set forth in our Corporate Governance Guidelines.
The text of this document has been posted on our website at www.incomeopp-realty.com ("Investor Relations Website")and
is available in print to any shareholder who requests it. In addition to applying these guidelines, the Board will consider all
relevant facts and circumstances in making an independence determination.
We have adopted a code of conduct that
applies to all Directors, officers and employees, including our principal executive officer, principal financial officer and principal
accounting officer. Stockholders may find our code of conduct on our website by going to our Investor Relations Website. We will
post any amendments to the code of conduct, as well as any waivers that are required to be disclosed by the rules of the Security
Exchange Commission (the "SEC") or the NYSE on our website.
Our Board of Directors has adopted charters
for our Audit, Compensation and Governance and Nominating Committees of the Board of Directors. Stockholders may find these documents
on our website by going to our Investor Relations Website. You may also obtain a printed copy of the materials referred to by contacting
us at the following address:
Income Opportunity Realty Investors, Inc.
Attn: Investor Relations
1603 LBJ Freeway, Suite 800
Dallas, Texas 75234
Telephone: 469-522-4200
All members of the Audit Committee and
Nominating and Corporate Governance Committees must be independent directors. Members of the Audit Committee must also satisfy
additional independence requirements, which provide (i)that they may not accept, directly or indirectly, any consulting,
advisory, or compensatory fee from the Company or any of its subsidiaries other than their directors compensation (other
than in their capacity as a member of the Audit Committee, the Board of Directors, or any other committee of the Board), and (ii)no
member of the Audit Committee may be an affiliated person of the Company or any of its subsidiaries, as defined by
the SEC.
Our current Directors are listed below,
together with their ages, terms of service, all positions and offices with us and our current advisor, Pillar, their principal
occupations, business experience and directorships with other companies during the last five years or more. The designation affiliated,
when used below with respect to a director, means that the director is an officer, director or employee of Pillar, an officer of
the Company, or an officer or director of a related party of the Company. The designation independent, when used
below with respect to a Director, means that the Director is neither an officer of the Company nor a director, officer or employee
of Pillar but may be a director of the Company, although the Company may have certain business or professional relationships with
such Director as discussed in Item13. Certain Relationships and Related Transactions, and Director Independence.
HENRY A. BUTLER, age 75, Director, Independent,
since February 2011 and Chairman of the Board since May 2011
Retired (since April 30, 2019); Mr. Butler
served as Vice President for Pillar from April 2011 to April 30, 2019. He also served as Chairman of the Board since May 2009 and
as a Director since November 2005 of ARL, and Chairman of the Board since May 2009 and a Director since November 2005 of TCI.
26
ROBERT A. JAKUSZEWSKI, age 63, Director,
Independent, since March 2004
Mr. Jakuszewski has been Business
Development Manager of Ivy Rehab since May 2025. He was a Territory Manager for Artesa Labs from April 2015 to May 2025, a Medical
Specialist from January 2014 to April 2015 for VAYA Pharma, Inc., Senior Medical Liaison from January 2013 to July 2013 for Vein
Clinics of America, and the Vice President of Sales and Marketing from September 1998 to December 2012 for New Horizons
Communications, Inc. Mr.Jakuszewski has been a Director of the Company since March 2004. He has also been a Director of TCI
since November 2005 and a Director of ARL since November 2005.
FERNANDO
V. LARA CELIS, age 59, Director, Independent, since October 2023
Mr. Lara is an entrepreneur and the former General Manager and President of FY A Project, LLC, a Schlotzskys Deli Franchisee (Restaurant
and Fast Food) which owned and operated nine locations in the North Dallas, Texas area. He is also the General Manager and President
of UDF de Mexico S.de R.L. de C. V., a Dallas, Texas based independent contractor which manages real estate projects Loma Bonita and
La Laguna in Tampico, Mexico. Prior to 2006, Mr. Lara was employed by the Mexico State Superior Control Authority in Veracruz, Mexico
as a General Auditor and/or Information Manager. He has also been a Director of ARL and TCI since October 2023.
TED R. MUNSELLE, age 70, Director, Independent,
since May 2009
Mr.Munselle has been Vice President
and Chief Financial Officer of Landmark Nurseries, Inc. since October 1998. On February 17, 2012, he was appointed as a member
of the Board of Directors for Spindletop Oil & Gas Company and as Chairman of their Audit Committee. Spindletops stock
is traded on the Over-the-Counter (OTC) market. Mr.Munselle has been a Director of the Company since May 2009. He has also
served as Director of TCI since February 2004 and Director of ARL since February 2004. Mr.Munselle is qualified as an Audit
Committee financial expert within the meaning of SEC regulations and the Board of Directors has determined that he has accounting
and related financial management expertise within the meaning of the listing standards of the NYSE. Mr. Munselle is a Certified
Public Accountant.
**Board Meetings and Committees**
The
Board of Directors held five meetings during 2025. For such year, no incumbent director attended fewer than 75% of the aggregate
of (1)the total number of meetings held by the Board during the period for which he or she had been a director and (2)the
total number of meetings held by all committees of the Board on which he or she served during the period that he served. Under
our Corporate Governance Guidelines, each Director is expected to dedicate sufficient time, energy and attention to ensure the
diligent performance of his or her duties, including by attending meetings of the stockholders of the Company, the Board and Committees
of which he is a member. The Board of Directors has standing Audit, Compensation and Governance and Nominating Committees.
The members
of the Board of Directors on the date of this Report and the Committees of the Board on which they serve are identified below:
|
Director | |
Audit Committee | |
Governance and Nominating Committee | |
Compensation Committee | |
|
Henry A. Butler | |
| |
| |
| |
|
Robert A. Jakuszewski | |
X | |
Chair | |
X | |
|
Ted R. Munselle | |
Chair | |
X | |
X | |
|
Fernando V. Lara Celis | |
X | |
X | |
Chair | |
Audit
Committee.The Audit Committee is responsible for review and oversight of our operating and accounting procedures.
Our Audit Committee charter is available on our Investor Relations Website. The Audit Committee
is an audit committee for purposes of Section3(a)(58) of the Exchange Act. All of the current members of the
Audit Committee are independent within the meaning of the SEC Regulations, the listing standards of the NYSE and our Corporate
Governance Guidelines. TedR. Munselle, the chairman of our Audit Committee, is qualified as an Audit Committee financial
expert within the meaning of SEC Regulations, and the Board has determined that he has accounting and related financial management
expertise within the meaning of the listing standards of the NYSE. All of the members of the Audit Committee meet the experience
requirements of the listing standards of the NYSE. The Audit Committee met five times during 2025.
27
Governance
and Nominating Committee.The Governance and Nominating Committee is responsible for developing and implementing
policies and practices relating to corporate governance, including reviewing and monitoring implementation of our Corporate Governance
Guidelines. In addition, the Committee develops and reviews background information on candidates for the Board and makes recommendations
to the Board regarding such candidates. The Committee also prepares and supervises the Boards annual review of director
independence and the Boards performance self-evaluation. The Charter of the Governance and Nominating Committee is available
on our Investor Relations Website. The Governance and Nominating Committee met two times during 2025.
Compensation
Committee.The Compensation Committee is responsible for overseeing the policies of the Company relating
to compensation to be paid by the Company to our principal executive officer and any other officers designated by the Board and
make recommendations to the Board with respect to such policies, produce necessary reports and executive compensation for inclusion
in our Proxy Statement in accordance with applicable rules and regulations and to monitor the development and implementation of
succession plans for the principal executive officers and other key executives and make recommendations to the Board with respect
to such plans. The charter of our Compensation Committee is available on our Investor Relations Website. All of the members of
the Compensation Committee are independent within the meaning of the listing standards of the NYSE and our Corporate Governance
Guidelines. The Compensation Committee is to be comprised of at least two directors who are independent of Management and the Company.
The Compensation Committee met two times during 2025.
**Presiding Director**
The primary responsibility of our presiding
director is to preside over periodic executive sessions of the Board in which any Management directors and other members of Management
do not participate. The presiding director also advises the Chairman of the Board and, as appropriate, Committee Chairs with respect
to agendas and information needs relating to Board and Committee meetings, provides advice with respect to the selection of Committee
Chairs and performs other duties that the Board may from time to time delegate to assist the Board in fulfillment of its responsibilities.
The
day following the annual meeting of stockholders held December10, 2025 for all stockholders of record dated November3,
2025, the full Board met and re-appointed Mr. Munselle as Presiding Director, to serve in such position until the Companys
next annual meeting of stockholders to be held subsequently in 2026.
**Determination of Directors Independence**
Our Corporate Governance Guidelines ("Guidelines")
meet or exceed the new listing standards adopted during that year by the NYSE. The full text of our Guidelines can be found on
our Investor Relations Website.
Pursuant
to the Guidelines, the Board undertook its annual review of director independence in May 2025 and during this review, the Board
considered transactions and relationships between each director or any member of his or her immediate family and the Company and
its subsidiaries and related parties, including those reported under Certain Relationships and Related Transactions below. The
Board also examined transactions and relationship between directors or their related parties and members of our senior management
or their related parties. As provided in the Guidelines, the purpose of such review was to determine whether such relationships
or transactions were inconsistent with the determination that the director is independent.
As a result of these reviews, the Board
affirmatively determined of the then directors, Messrs. Butler, Jakuszewski, Lara and Munselle are each independent of the Company
and its Management under the standards set forth in the Corporate Governance Guidelines.
**Executive Officers**
Executive officers of the Company are listed
below, all of whom are employed by Pillar. None of the executive officers receive any direct remuneration from the Company nor
do any hold any options granted by the Company. Their positions with the Company are not subject to a vote of stockholders. In
addition to the following executive officers, the Company has several vice presidents and assistant secretaries who are not listed
herein. The ages, terms of service and all positions and offices with the Company, Pillar, other related entities, other principal
occupations, business experience and directorships with other publicly-held companies during the last five years or more are set
forth below. No family relationships exist among any of the executive officers or directors of the Company.
28
ERIK L. JOHNSON, 58
Mr. Johnson has served as President and
Chief Executive Officer of the Company since May 2024. Previously, he served as the Interim Chief Executive Officer from April
2023 and as Executive Vice President and Chief Financial Officer from December 2021. Mr. Johnson also serves as President and Chief
Executive Officer of Pillar, ARL and TCI. Prior to joining the Company and its affiliates, he served as Vice President of Financial
Reporting at Macerich (NYSE: MAC) and has served as the Chief Accounting Officer of North American Scientific, Inc. He began his
career as an auditor with PricewaterhouseCoopers and is a CPA.
LOUIS J. CORNA, 78
Mr. Corna has served as Executive Vice
President, General Counsel/Tax Counsel and Secretary of the Company, ARL and TCI since February 2004. He has also been Executive
Vice President since March 2011 and Secretary since December 2010 of Pillar. Mr. Corna was also a Director and Vice President from
June2004 to December 2010 and Secretary from January 2005 to December 2010 of First Equity Properties, Inc. He is also a
CPA.
ALLA DZYUBA, 48
Mrs. Dzyuba has
served as the Senior Vice President and Chief Accounting Officer of the Company since
December 2024. She also serves as Senior Vice President and Chief Accounting
Officer of ARL and TCI. Mrs. Dzyuba has over twenty-two years
of real estate accounting and financial reporting experience, including six years of broker-dealer regulatory reporting experience.
**Code of Ethics**
We have adopted a code of ethics entitled
Code of Business Conduct and Ethics that applies to all directors, officers, and employees (including those of our
Advisor). In addition, we have adopted a code of ethics entitled Code of Ethics for Senior Financial Officers that
applies to the principal executive officer, president, principal financial officer, chief financial officer, chief accounting officer,
and controller. The text of these documents has been posted on our Investor Relations Websiteand are available in print to
any stockholder who requests them.
**Compliance with Section16(a) of
the Exchange Act**
Under the securities laws of the United
States, the directors, executive officers, and any persons holding more than 10% of our shares of Common stock are required to
report their share ownership and any changes in that ownership to the SEC. Specific due dates for these reports have been established
and we are required to report any failure to file by these dates. All of these filing requirements were satisfied by our directors,
executive officers, and 10% holders during the fiscal year ending December31, 2025. In making these statements, we have relied
on the written representations of our incumbent directors and executive officers, 10% holders and copies of the reports that they
have filed with the SEC. In December 2021, the Board of Directors adopted the Company's Insider Trading Policy, a copy of which
is available on our website at www.incomeopp-realty.com, at Investor Relations.
**The Advisor**
Pillar has been our Advisor and Cash Manager
since April 30, 2011 in accordance with an Advisory Agreement and a Cash Management Agreement.On May 7, 2024, the Advisory
Agreement was amended and restated to clarify and revised several separate fees into a single gross asset value fee and a net income
fee plus certain specified allocated reimbursements. The Amended Agreement, did not change any duties or responsibilities of either
Pillar or the Company.
Although the Board of Directors is directly
responsible for managing the affairs of the Company, and for setting the policies which guide it, our day-to-day operations are
performed by Pillar, as the contractual advisor, under the supervision of the Board. Pillars duties include, but are
not limited to accounting, legal, capital market, administrative and executive services. Additionally, Pillar serves as a consultant
to the Board with regard to their decisions in connection with our business plan and investment policy.Pillar also serves
as an Advisor and Cash Manager to ARL and TCI.
Pillar, a Nevada corporation, is owned
by Realty Advisors, Inc. (RAI), a Nevada corporation, which is owned by May Realty Holdings, Inc. ("MRHI"),
a Delaware corporation, which is owned by and/or for the benefit of, the children and grandchildren of the late Gene E. Phillips.
29
Under the Advisory Agreement, Pillar is
required to annually formulate and submit, for Board approval, a budget and business plan containing a twelve-month forecast of
operations and cash flow, a general plan for asset sales and purchases, lending, foreclosure and borrowing activity, and other
investments. Pillar is required to report quarterly to the Board on the Company's performance against the business plan. In
addition, all transactions with Pillar require prior Board approval, unless they are explicitly provided for in the approved
business plan or are made pursuant to authority expressly delegated to Pillar by the Board.
The Advisory Agreement also requires prior
Board approval for the retention of all consultants and third party professionals, other than legal counsel. The Advisory Agreement
provides that Pillar shall be deemed to be in a fiduciary relationship to our stockholders; contains a broad standard governing
Pillars liability for losses incurred by us; and contains guidelines for Pillars allocation of investment opportunities
as among itself, the Company and other entities it advises.
The Advisory Agreement provides for Pillar to receive, as compensation for basic management and advisory services, a gross
asset fee (GAV Fee) of 0.0625%per month (0.75% per annum) of the average of the gross asset value (total assets
less allowance for amortization, depreciation or depletion and valuation reserves) and excludes receivables from Pillar.
In addition, Pillar receives an annual net income fee (Net Income Fee) equal to 7.5% of our adjusted net income, which
is defined as our net income before effect of income tax and interest on any receivables from the Advisor. The GAV Fee and the
Net Income Fee are collectively referred to herein as the Advisory Fee.
The Advisory Agreement further provides that
Pillar shall bear the cost of certain employee expenses; rent and other
office expenses of both Pillar and us (unless we maintains office space separate from that of Pillar); costs not directly
identifiable to our business; and miscellaneous administrative expenses
relating to the performance by Pillar of its duties under the Advisory Agreement.
We do not have any employees and rely upon
Pillar for employee related services, including but not limited to asset management, legal services, accounting services, capital
markets, administrative and executive services. We reimburse the Advisor on a monthly basis, for our pro-rata portion (as reasonably
agreed to between the Advisor and a majority of the Companys Independent Directors) of all expenses related to (i) employment
of the Advisors personnel who are actively engaged in the services to the Company (Service Employees) and
(ii) the reasonable travel and other out-of-pocket costs of the Service Employees. Such expenses shall include, but are not limited
to, salary, wages, payroll taxes and the cost of employee benefit plans.
We
have a Cash Management Agreement with Pillar that provides that our funds may be delivered to Pillar which has a deposit liability
to us and is responsible for payment of all payables and investment of all excess funds which earned interest at the Secured
Overnight Financing Rate ("SOFR"), as set quarterly on the first day of each
calendar quarter. Borrowings from Pillar for our benefit bear the same interest rate. The term of the Cash Management Agreement is
coterminous with the Advisory Agreement, and is automatically renewed each year unless terminated with the Advisory Agreement. We
believe that the terms of the Advisory Agreement are at least as fair as terms that could be obtained from unaffiliated third
parties.
Situations may develop in which our interests
are in conflict with those of one or more directors or officers in their individual capacities, or of Pillar, or of their respective
related parties. In addition to services performed for us, as described above, Pillar actively provides similar services as agent
for, and advisor to, other real estate enterprises, including persons and entities involved in real estate development and financing,
including ARL and TCI. The Advisory Agreement provides that Pillar may also serve as advisor to other entities.
As advisor, Pillar is a fiduciary of our
public investors. In determining to which entity a particular investment opportunity will be allocated, Pillar will consider the
respective investment objectives of each entity and the appropriateness of a particular investment in light of each such entitys
existing mortgage note and real estate portfolios and business plan. To the extent any particular investment opportunity is appropriate
to more than one such entity, such investment opportunity will be allocated to the entity that has had funds available for investment
for the longest period of time, or, if appropriate, the investment may be shared among various entities. Refer to Part III, Item13
Certain Relationships and Related Transactions, and Director Independence.
Pillar may assign the Advisory Agreement
only with our prior consent.
30
The principal executive officers of Pillar
are set forth below:
|
Name |
|
Officers | |
|
Erik L. Johnson |
|
President and Chief Executive Officer | |
|
Louis J. Corna |
|
Executive Vice President and Secretary | |
|
Gina H. Kay |
|
Executive Vice President and Chief Accounting Officer | |
Mr. Johnson is one of two directors of
Pillar.
|
ITEM11. | EXECUTIVE COMPENSATION | |
We have no employees, payroll or benefit
plans and pay no compensation to our executive officers. Our executive officers are also officers and employees of Pillar, our
Advisor, and are compensated by Pillar. Such executive officers perform a variety of services for Pillar and the amount of their
compensation is determined solely by Pillar. Under the terms of the Advisory Agreement, we do reimburse Pillar for certain expenses
- See Item10, Directors, Executive Officers and Corporate Governance for a more detailed discussion of the
compensation payable to Pillar by us.
The only remuneration paid by us is to
our directors who are not officers or employees of Pillar or its related companies. The Independent Directors (1)review our
business plan to determine that it is in the best interest of our stockholders, (2)review the advisory contract, (3)supervise
the performance of the advisor and review the reasonableness of the compensation paid to the advisor in terms of the nature and
quality of services performed, (4)review the reasonableness of our total fees and expenses and (5)select, when necessary,
a qualified independent real estate appraiser to appraise properties acquired.
Except for Henry
A. Butler, who is paid a fee per meeting attended, each non-affiliated Director is entitled to receive an annual retainer
of $5,000, with the Chairman of the Audit Committee to receive a one-time annual fee of $500. Directors who are also employees
of the Company or its advisor receive no additional compensation for service as a Director.
During
the year ended December31, 2025, $17,930 was paid to non-employee Directors in total Directors fees. The fees paid
to the directors are as follows: Henry A. Butler $2,430; Robert A. Jakuszewski, $5,000; Fernando V. Lara Celis, $5,000; and Ted
R. Munselle, $5,500.
|
ITEM12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | |
**Security Ownership of Certain Beneficial
Owners**
The following table
sets forth the ownership of our common stock, both beneficially and of record, both individually and in the aggregate, for those
persons or entities known to be beneficial owners of more than 5.0% of the outstanding shares of our common stock as of the close
of business on March10, 2026.
|
| |
Amountand Nature of Beneficial Ownership* | | |
Approximate Percent of Class** | | |
|
Transcontinental Realty Investors, Inc. | |
| 3,438,587 | | |
| 84.6 | % | |
|
1603 LBJ Freeway, Suite 800 | |
| | | |
| | | |
|
Dallas, Texas 75234 | |
| | | |
| | | |
|
Realty Advisors, Inc. | |
| 269,299 | | |
| 6.6 | % | |
|
1603 LBJ Freeway, Suite 800 | |
| | | |
| | | |
|
Dallas, Texas 75234 | |
| | | |
| | | |
|
* | Beneficial Ownership means the sole or shared power to vote, or to direct the voting of, a security or investment
power with respect to a security, or any combination thereof. | |
|
** | Percentage is based upon 4,066,178 shares of Common stock outstanding at March10,
2026. | |
31
**Security
Ownership of Management.**
The following table sets forth the ownership
of our common stock, both beneficially and of record, both individually and in the aggregate, for our directors and executive officers
as of the close of business on March10, 2026.
|
Name of Beneficial Owner | |
| Amountand Nature of Beneficial Ownership* | | |
| Approximate Percent of Class** | | |
|
Henry A. Butler | |
| | | |
| | % | |
|
Fernando V. Lara Celis | |
| | | |
| | % | |
|
Louis J. Corna | |
| | | |
| | % | |
|
Alla Dzyuba | |
| | | |
| | % | |
|
Robert A. Jakuszewski | |
| | | |
| | % | |
|
Erik L. Johnson | |
| | | |
| | % | |
|
Ted R. Munselle | |
| | | |
| | % | |
|
All Directors and Executive Officers as a group (7 individuals) | |
| | | |
| | % | |
|
* | Beneficial Ownership means the sole power to vote, or to direct the voting of, a security
or investment power with respect to a security, or any combination thereof. | |
|
** | Percentages are
based upon 4,066,178 shares of Common Stock outstanding at March10, 2026. |
|
Messrs. Butler, Jakuszewski, Lara and Munselle
are also directors of TCI and each expressly disclaims any beneficial ownership of any securities of the Company owned by TCI.
|
ITEM13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | |
**Policies with Respect
to Certain Activities**
Article 14 of our Articles of Incorporation
provides that we shall not, directly or indirectly, contract or engage in any transaction with (1)any director, officer or
employee of the Company, (2)any director, officer or employee of the advisor, (3)the advisor, or (4)any affiliate
or associate (as such terms are defined in Rule 12b-2 under the Exchange Act of any of the aforementioned persons, unless (a)the
material facts as to the relationship among or financial interest of the relevant individuals or persons and as to the contract
or transaction are disclosed to or are known by our Board of Directors or the appropriate committee thereof and (b)our Board of
Directors or committee thereof determines that such contract or transaction is fair to the Company and simultaneously authorizes
or ratifies such contract or transaction by the affirmative vote of a majority of our independent directors entitled to vote thereon.
Article 14 defines an Independent
Director (for purposes of that Article) as one who is neither an officer or employee of the Company, nor a director, officer
or employee of our advisor.
Our policy is to have such contracts or
transactions approved or ratified by a majority of the disinterested Directors with full knowledge of the character of such transactions,
as being fair and reasonable to the stockholders at the time of such approval or ratification under the circumstances then prevailing.
Such Directors also consider the fairness of such transactions to the Company. We believe that, to date, such transactions have
represented the best investments available at the time and they were at least as advantageous to us as other investments that could
have been obtained.
We may enter into future transactions with
entities, the officers, directors, or stockholders of which are also officers, directors, or stockholders of the Company, if such
transactions would be beneficial to our operations and consistent with our then-current investment objectives and policies, subject
to approval by a majority of disinterested Directors as discussed above.
We do not prohibit its officers, directors,
stockholders, or related parties from engaging in business activities of the types conducted by the Company.
32
**Certain Business Relationships**
Pillar has been our Advisor and Cash Manager
since April 30, 2011. Although the Board of Directors is directly responsible for managing our affairs, and for setting the
policies which guide it, our day-to-day operations are performed by Pillar, as the contractual advisor, under the supervision of
the Board. Pillars duties include, but are not limited to, locating, evaluating and recommending real estate and real
estate-related investment opportunities and arranging debt and equity financing for the Company with third party lenders and investors.
Additionally, Pillar serves as a consultant to the Board with regard to their decisions in connection with our business plan and
investment policy. Pillar also serves as an Advisor and Cash Manager to ARL and TCI. As the contractual advisor, Pillar
is compensated under an Advisory Agreement that is more fully described in Part III, Item10. Directors, Executive
Officers and Corporate Governance The Advisor. We have no employees and as such, employees of Pillar render
services to us in accordance with the terms of the Advisory Agreement.
Pillar is owned by RAI, which is owned
by MRHI, which is owned by the May Trust.
All of our directors
also serve as Directors of ARL and TCI. Our executive officers also serve as executive
officers of ARL and TCI. As such, they
owe fiduciary duties to that entity as well as to Pillar under applicable law. ARL and
TCI have the same relationship with Pillar, as does the Company.
We are part of a tax sharing and compensating
agreement with respect to federal income taxes among the Company, ARL and TCI. In accordance with the agreement, our
expense (benefit) in each year is calculated based on the amount of losses absorbed by taxable income multiplied by the maximum
statutory tax rate of 21%.
**Related Party Transactions**
The Company has historically engaged in
and may continue to engage in certain business transactions with related parties, including but not limited to asset acquisition
and dispositions. Transactions involving related parties cannot be presumed to be carried out on an arms 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 the best interest of our company.
In
2025, we paid Pillar advisory fees of $0.1 million.
As
of December31, 2025, we had notes and interest receivables of $11.1 million and $0.2 million, respectively, due from related
parties. Refer to Part 2, Item 8. Note 3 Notes Receivable of our consolidated financial statements. During the current
period, we recognized interest income of $0.6 million from this related party notes receivable.
From
time to time, we have made advances and/or borrowings to/from Pillar in accordance with our Cash Management Agreement. These
borrowings bear interest at SOFR, as set quarterly on the first day of each calendar
quarter. At December31, 2025, wehad a receivable from related parties of $114.6 million and recognized interest
income of $4.9 million during the year.
**Director Independence**
See Determination of Director Independence
under Item 10 above to which reference is made.
|
ITEM14. | PRINCIPAL ACCOUNTING FEES AND SERVICES | |
On January 2, 2024 of Swalm & Associates
P.C. ("Swalm") notified us that they were ceasing to be our auditors due to the upcoming retirement of their principle.
Effective January 4, 2024, our Audit Committee engaged Farmer Fuqua & Huff P.C. ("FFH") to audit our consolidated
financial statements for the year ending December 31, 2023.
We were billed by FFH for the services
for the years ended December31, 2025 and 2024 as follows:
Audit Fees. Fees for audit services were
$43,200 and $55,200 for the years ended December31, 2025 and 2024, respectively.
These are fees for professional services performed by the principal auditor for the audit of the Companys annual financial
statements and review of financial statements included in the Companys 10-Q filings and services that are normally provided
in connection with statutory and regulatory filing or engagement.
33
Audit-Related Fees. No fees for audit-related
services were paid for the years ended December31, 2025 and 2024. These are fees for assurance and related services
performed by the principal auditor that are reasonably related to the performance of the audit or review of the Companys
financial statements. These services include attestations by the principal auditor that are not required by statute or regulation
and consulting on financial accounting/reporting standards.
Tax Fees. No fees for tax services were
paid for the years ended December31, 2025 and 2024, respectively.These are fees for professional services performed
by the principal auditor with respect to tax compliance, tax planning, tax consultation, returns preparation and review of returns.
All Other Fees. No other fees were paid
for the years ended December31, 2025 and 2024. These are fees for other permissible work performed by the principal auditor
that do not meet the above category descriptions.
All services rendered by the principal
auditors are permissible under applicable laws and regulations and were pre-approved by either the Board of Directors or the Audit
Committee, as required by law. The fees paid to the principal auditors for the services described in the above table fall under
the categories listed below:
These services are actively monitored (as
to both spending level and work content) by the Audit Committee to maintain the appropriate objectivity and independence in the
principal auditors core work, which is the audit of the Companys consolidated financial statements.
The Audit Committee has established policies
and procedures for the approval and pre-approval of audit services and permitted non-audit services. The Audit Committee has the
responsibility to engage and terminate our independent auditors, to pre-approve their performance of audit services and permitted
non-audit services, to approve all audit and non-audit fees, and to set guidelines for permitted non-audit services and fees. All
fees for December31, 2025 and 2024 were pre-approved by the Audit Committee or were within the pre-approved guidelines for
permitted non-audit services and fees established by the Audit Committee, and there were no instances of waiver of approved requirements
or guidelines during the same periods.
Our Audit Committee has adopted a pre-approval
policy of audit and non-audit services (the Policy), which sets forth the procedures and conditions pursuant to which
services to be performed by the independent auditor are to be pre-approved. Consistent with the SEC rules establishing two different
approaches to pre-approving non-prohibited services, the Policy of the Audit Committee covers Pre-approval of audit services, audit-related
services, international administration tax services, non-U.S. income tax compliance services, pension and benefit plan consulting
and compliance services, and U.S. tax compliance and planning. At the beginning of each fiscal year, the Audit Committee will evaluate
other known potential engagements of the independent auditor, including the scope of work proposed to be performed and the proposed
fees, and will approve or reject each service, taking into account whether services are permissible under applicable law and the
possible impact of each non-audit service on the independent auditors independence from management. Typically, in addition
to the generally pre-approved services, other services would include due diligence for an acquisition that may or may not have
been known at the beginning of the year. The Audit Committee has also delegated to any member of the Audit Committee designated
by the Board or the financial expert member of the Audit Committee responsibilities to pre-approve services to be performed by
the independent auditor not exceeding $25,000 in value or cost per engagement of audit and non-audit services, and such authority
may only be exercised when the Audit Committee is not in session.
34
**PART IV**
|
ITEM 15. | EXHIBITS AND FINANCIALSTATEMENT SCHEDULES | |
|
(a) | The following documents are filed as part of this Report: | |
|
a. | Financial Statements | |
Report of Independent Registered Public Accounting
Firm
Consolidated Balance Sheets as of December31,
2025 and 2024
Consolidated Statements of Operations for the Years
Ended December31, 2025, 2024, and 2023
Consolidated Statements of Stockholders Equity
for the Years Ended December31, 2025, 2024, and 2023
Consolidated Statements of Cash Flows for the Years
Ended December31, 2025, 2024, and 2023
Notes to Financial Statements
|
b. | Financial Statement Schedules | |
Schedule IVMortgage Loan Receivables on Real
Estate
|
c. | Exhibits | |
35
The following documents are filed as Exhibits
to this Report:
|
3.1 |
Certificate of Restatement of Articles of Incorporation of Income Opportunity Realty Investors, Inc., dated August3, 2000 (incorporated by reference to Exhibit 3.0 to the Registrants Quarterly Report on Form 10-Q for the quarter ended September30, 2000). | |
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| |
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3.2 |
Certificate of Correction of Restated Articles of Incorporation of Income Opportunity Realty Investors, Inc., dated August29, 2000 (incorporate by reference to Exhibit 3.1 to the Registrants Quarterly Report on Form10-Q for the quarter ended September30, 2000). | |
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| |
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3.3 |
Articles of Amendment to the Restated Articles of Incorporation of Income Opportunity Realty Investors, Inc. decreasing the number of authorized shares of and eliminating Series B Cumulative Convertible Preferred Stock dated August26, 2003 (incorporated by reference to Exhibit 3.3 to the Registrants Quarterly Report on Form 10-Q for the quarter ended September30, 2003). | |
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| |
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3.4 |
Articles of Amendment to the Restated Articles of Incorporation of Income Opportunity Realty Investors, Inc. decreasing the number of authorized shares of and eliminating Series I Cumulative Preferred Stock dated October1, 2003 (incorporated by reference to Exhibit 3.4 to the Registrants Quarterly Report on Form10-Q for the quarter ended September30, 2003). | |
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3.5 |
Certificate of Amendment to the Articles of Incorporation of Income Opportunity Realty Investors, Inc. amending Article TENTH, Subpart C(incorporated by reference to Exhibit 3.5 to the Registrants Current Report on Form 8-K for event occurring on December 28, 2023, filed January 30, 2024 ). | |
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3.6 |
By-laws of Income Opportunity Realty Investors, Inc. (incorporated by reference to Exhibit 3.2 to the Registrants Registration Statement on Form S-4, filed on December30, 1999). | |
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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 June11, 2001 (incorporated by reference to Exhibit 4.1 to the Registrants Annual Report on Form 10-K for the year ended December31, 2001). | |
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4.2 |
Certificate of Withdrawal of Preferred Stock, Decreasing the Number of Authorized Shares of and Eliminating Series F Redeemable Preferred Stock, dated June18, 2002 (incorporated by reference to Exhibit 3.0 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June30, 2002). | |
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4.3 |
Certificate of Designation, Preferences and Rights of the Series I Cumulative Preferred Stock of Income Opportunity Realty Investors, Inc., dated February3, 2003 (incorporated by reference to Exhibit 4.3 to the Registrants Annual Report on Form 10-K for the year ended December31, 2002). | |
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| |
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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 March16, 2006 (incorporated by reference to Registrant current report on Form 8-K for event
of March16, 2006). | |
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| |
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10.1 |
Amended and Restated Advisory Agreement between Income Opportunity Realty Investors, Inc. and Pillar Income Asset Management, LLC, dated May 7, 2024 (incorporated by reference to Exhibit 10.0 to the Registrants Current Report on Form 8-K, dated May 7, 2024). | |
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14.0 |
Code of Ethics for Senior Financial Officers (incorporated by reference to Exhibit 14.0 to the Registrants Annual Report on Form 10-K for the year ended December31, 2004). | |
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21.1 * |
Subsidiaries of the Registrant. | |
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31.1 * |
Section 302 Certification of Erik L. Johnson, Chief Executive Officer. | |
36
|
31.2 * |
Section 302 Certification of Alla Dzyuba, Chief Accounting Officer. | |
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32.1 * |
Section 906 Certifications of Erik L. Johnson and Alla Dzyuba. | |
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101.INS |
XBRL Instance Document | |
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101.SCH |
XBRL Taxonomy Extension Schema Document | |
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101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document | |
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101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document | |
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101.LAB |
XBRL Taxonomy Extension Label Linkbase Document | |
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101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document | |
* Filed herewith.
|
ITEM 16. | FORM 10-K SUMMARY | |
Optional and not included herein.
37
**SIGNATURES**
Pursuant to the requirements of Section13
or 15(d) 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. | |
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Dated: March 12, 2026 |
By: |
/s/ ERIK L. JOHNSON | |
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Erik L. Johnson | |
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President and Chief Executive Officer | |
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(Principal Executive Officer) | |
Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities
and on the date indicated.
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Signature |
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Title |
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Date | |
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/s/ HENRY A. BUTLER |
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Chairman of the Board and Director |
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March 12, 2026 | |
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Henry A. Butler |
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/s/ ROBERT A. JAKUSZEWSKI |
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Director |
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March 12, 2026 | |
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Robert A. Jakuszewski |
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/s/ FERNANDO V. LARA CELIS |
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Director |
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March 12, 2026 | |
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Fernando V. Lara Celis |
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/s/ TED R. MUNSELLE |
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Director |
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March 12, 2026 | |
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Ted R. Munselle |
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/s/ ERIK L. JOHNSON |
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President and Chief Executive Officer |
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March 12, 2026 | |
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Erik L. Johnson |
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(Principal Executive Officer) |
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/s/ ALLA DZYUBA |
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Senior Vice President and Chief Accounting Officer |
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March 12, 2026 | |
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Alla Dzyuba |
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(Principal Financial Officer) |
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38