1 EXHIBIT 99.12 NEIGHBORHOOD INNS OF CHICAGO STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES YEAR ENDED DECEMBER 31, 1997 2 Independent Auditors' Report To the Board of Trustees Transcontinental Realty Investors, Inc. We have audited the accompanying statement of revenues and direct operating expenses of Neighborhood Inns of Chicago for the Year ended December 31, 1997. This statement of revenues and direct operating expenses is the responsibility of the Property's management. Our responsibility is to express an opinion on this statement of revenues and direct operating expenses based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of revenues and direct operating expenses is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement of revenues and direct operating expenses. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall statement of revenues and direct operating expenses presentation. We believe that our audit provides a reasonable basis for our opinion. The accompanying financial statement is prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in Form 8-K of Transcontinental Realty Investors, Inc.) and, as described in Note 1, is not intended to be a complete presentation of the results of operations. In our opinion, the statement of revenues and direct operating expenses referred to above presents fairly, in all material respects, the revenues and direct operating expenses of Neighborhood Inns of Chicago for the Year ended December 31, 1997, in conformity with generally accepted accounting principles. FARMER, FUQUA, HUNT & MUNSELLE, P.C. Dallas, Texas December 11, 1998 3 NEIGHBORHOOD INNS OF CHICAGO STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES Year ended December 31, 1997 REVENUES Room rental revenues $3,480,711 Other revenues 104,042 ---------- Total revenues 3,584,753 DIRECT OPERATING EXPENSES Salaries and benefits 1,049,907 Repairs and maintenance 282,503 Utilities 177,919 Property taxes 147,709 Insurance 22,173 ---------- Total direct operating expenses 1,680,211 ---------- REVENUES IN EXCESS OF DIRECT OPERATING EXPENSES $1,904,542 ========== The accompanying notes are an integral part of this statement. 4 NEIGHBORHOOD INNS OF CHICAGO NOTES TO STATEMENT OF REVENUES AND DIRECT OPERATING EXPENSES December 31, 1997 NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION Neighborhood Inns of Chicago is a group of three hotels located in Chicago, Illinois. During 1997, the hotels were owned by The Wilmont Hotel Limited Partnership. The three hotels, Park Brompton Inn, City Suites Hotel and Surf Hotel, have 52 rooms, 45 rooms and 55 rooms, respectively. The accompanying financial statement does not include a provision for depreciation and amortization, bad debt expense, interest expense, or income taxes. Accordingly, this statement is not intended to be a complete presentation of the results of operations. NOTE 2: ACCOUNTING ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 3: OTHER REVENUES Other revenues consists of the following: Phone Revenues $ 82,446 Other Revenues 21,596 ---------- $ 104,042 ========== NOTE 4: SUBSEQUENT EVENT The property was sold to Transcontinental Realty Investors, Inc., a Nevada corporation, on December 2, 1998.