Audit Report - Anderson, Olds, and Watershed

Audit Report

ACC/546

October 29, 2012

Audit Report

Anderson, Olds, and Watershed

Certified Public Accountants

Nashville, TN 37211

Independent Auditor's Report

To the Board of Directors and Stockholders

Apollo Shoes, Inc.

Anderson, Olds, and Watershed (AOW) have audited the balance sheets of Apollo Shoes, Inc. for December 31 2006 and 2007 along with their statements of income, retained earnings, and cash flows. These statements are the responsibility of Apollo Shoes, Inc.'s management, and AOW's responsibility is to express an opinion based upon audits performed by our auditors.

AOW conducted the audits in accordance with U.S. generally accepted auditing standards and followed the standards of the Public Company Accounting Oversight Board. In accordance with these standards AOW planned and performed the audit to obtain reasonable assurance that the financial statements of Apollo Shoes, Inc. are free of material misstatements. In order to provide reasonable assurance our audit included the performance of analytical procedures on financial statements. Our firm calculated common-size financial statements and dollar amount and percent changes, calculated financial ratios, and compared Apollo's numbers with the numbers of its closest competitors. Our audit also addressed materiality and potential for fraud for Apollo Shoes. Minutes from board meetings and internal controls were reviewed, and substantive testing was performed on cash, accounts receivable, inventory, prepaid and other assets, fixed assets, liabilities, and payroll. Anderson, Olds, and Watershed feel that these audit tests and procedures provide a reasonable basis for our opinion.

Our audit process did uncover three issues that are material, but do not affect Apollo's financial statements as a whole. First, there is the issue of the unexpected withdrawal of Smith and Smith, CPAs from the audit and a lack of explanation from Apollo as to why they withdrew. Next, there is the issue of a pending class-action lawsuit against Apollo Shoes and Apollo's largest customer is in bankruptcy proceedings causing sales to decrease significantly, and these two issues may put the company's status as a going concern in doubt.

It is the opinion of Anderson, Olds, and Watershed that the financial statements referred to in this report, in all material respects; present fairly the financial position of Apollo Shoes, Inc as of December 31, 2006 and 2007. It is also our opinion that