AMERICANS FOR EFFECTIVE

LAW ENFORCEMENT, INC.

Statements of Financial Position

Statements of Activities

Statements of Changes in Net Assets

Statements of Cash Flows

Years Ended December 31, 2000 and 1999

AUDITOR'S REPORT

Note A--Summary of Significant Accounting Policies

Note B--Investment--Partnership

Note C--Mortgages Receivable

Note D--Building Purchase

Note E--Marketable Securities

INDEPENDENT AUDITORS REPORT

To the Board of Directors

Americans For Effective Law Enforcement, Inc.

Park Ridge, Illinois

We have audited the accompanying statements of financial position of Americans for Effective Law Enforcement, Inc. (a not-for-profit organization) as of December 31, 2000 and 1999 and the related statements of activities, changes in net assets, and cash flows for the year ended December 31, 2000. These financial statements are the responsibility of the Organizations management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

CONTENTS

Because we were not engaged to audit the 1999 statements of activities, changes in net assets, and cash flows, we did not extend our auditing procedures to enable us to express an opinion on results of operations and cash flows for the year ended December 31, 1999. Accordingly, we express no opinion on them.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Americans for Effective Law Enforcement, Inc. as of December 31, 2000 and 1999, and the changes in its net assets and its cash flows for the year ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America.

Skokie, Illinois

June 4, 2001

_________________________________________________________________________________

AMERICANS FOR EFFECTIVE LAW ENFORCEMENT, INC.

NOTES TO FINANCIAL STATEMENTS

DECEMBER 31, 2000 AND 1999

NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The Organization maintains a national legal research center to assist law enforcement agencies. They also provide legal publications and workshops as well as filing amicus curiae briefs in the United States Supreme Court and other major courts in support of the law enforcement issues.

Use of Estimates

Management uses estimates and assumptions in preparing financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported revenues and expenses.

Cash and Cash Equivalents

For purposes of the Statements of Cash Flows, the Organization considers short-term investments, such as money-market accounts, certificates of deposit and other highly-liquid assets as cash equivalents.

Accounts Receivable

The Organization considers accounts receivable to be fully collectible. Accordingly, no allowance for doubtful accounts has been established. If accounts become uncollectible, they are charged to operations when that determination is made.

Investments

Investments in marketable securities with readily determinable fair values and all investments in debt securities are reported at their fair values on the statement of financial position. Unrealized gains and losses are included in the change in net assets.

Property and Equipment

The cost of property and equipment is being depreciated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:

Building and improvements 10-40 years

Furniture and fixtures 5-7 years

Computer equipment 5 years

Computer software 5 years

Depreciation expense amounted to $15,154 and $17,808 for the years ended December 31, 2000 and 1999, respectively.

Concentration of Credit Risk

The Company provides credit in the normal course of business to customers throughout the United States. The Company maintains its cash balances at various financial institutions. The accounts are insured by the Federal Deposit Insurance Corporation up to $100,000. At December 31, 2000 and 1999, the Companys uninsured cash balances totaled $964,093 and $887,682, respectively.

Revenue Recognition and Deferred Revenue

Voluntary contributions are recorded as revenue when received, except when specified by the donor for use in future periods. There were contributions of $150 received in 2000 and $0 in 1999.

Deferred revenue arises from prepayments of workshop fees and certain subscription revenues applicable to future periods. Specifically, the Organization recognizes all subscription revenues received for subscriptions commencing in the current year as revenue in the current year. Subscription revenue received in the current year for subscriptions commencing in the following year is deferred.

Income Taxes

Americans for Effective Law Enforcement, Inc. is a not-for-profit organization which is exempt from federal income taxes on its not-for-profit activities under Internal Revenue Code Section 501(c)(3). However, unrelated activities are subject to income taxation under the Internal Revenue Code. During 1999 and 1998, the Organization reported losses from unrelated activities and, therefore, paid no income taxes. At December 31, 2000, a loss carry-forward of approximately $40,000 exists to offset future income from unrelated activities.

Financial Statement Presentation

Financial statement presentation follows the recommendations of the Financial Accounting Standards Board in its Statement of Financial Accounting Standards (SFAS) No. 117, Financial Statements for Not-for-Profit Organizations. Under SFAS No. 117, the organization is required to report information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets, and permanently restricted net assets. No permanently or temporarily restricted assets were held, and accordingly, these financials do not reflect any activity related to these classes of net assets.

NOTE B--INVESTMENT--PARTNERSHIP

In 1993, the Organization purchased an interest in Spectrum, LLC (a real estate limited liability company) for $150,000, which is accounted for using the equity method. In 2000, an additional $41,640 was contributed due to a capital call by the managing partner. At December 31, 2000 and 1999, the value of the Organization's 13.88% interest amounted to ($129,695) and ($170,785), respectively. A summary of financial information of Spectrum, LLC as of December 31, 2000 and 1999 is shown below:

2000 1999

Net assets $ (40,053) $ (336,096)

Net sales $ 970,263 $ 798,120

Net loss $ (3,957) $ (270,563)

NOTE C--MORTGAGES RECEIVABLE

As of December 31, 1999, the Organization was owed a total of $925,000 under three separate mortgage agreements with a real estate general partnership of which it is a partner. These mortgages accrued interest at rates ranging from a fixed 10% to default rates of 6% over prime. At December 31, 1999, two of the mortgages totaling $275,000 were in default and subject to litigation.

In August, 2000, the Organization reached a settlement with the partnership and received $925,000 in principal, $856,678 in accrued interest and $40,123 in reimbursement of litigation expenses.

NOTE D--BUILDING PURCHASE

In August 2000, the Organization purchased a building in Park Ridge, Illinois for its own exclusive use for $495,000 in cash. In conjunction with this purchase, the Organization applied for charitable organization status with the State of Illinois for the purpose of obtaining an exemption for approximately $24,000 in annual county real estate taxes. This application is currently pending and the outcome is deemed indeterminable at this time.

NOTE E--MARKETABLE SECURITIES

Marketable securities are stated at fair value and consist of equity securities. As of December 31, 2000, the Organization had unrealized holding gains on these securities as follows:

Market value $ 1,410,545

Original cost (1,240,057)

Unrealized gain $ 170,488