Email memo from your manager, Darlene

Audit from Apollo Shoes Inc.

Report of Independent PCAOB Registered Auditors

To the Board of Directors and Shareholders of

Apollo Shoes, Inc.:

We have audited the accompanying consolidated balance sheet of Apollo Shoes, Inc. as of December 31, 2020, and the related consolidated statements of income, shareholders equity, and cash flows for the year ended December 31, 2020. These financial statements are the responsibility of the Companys 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 of the Public Company Accounting Oversight Board (PCAOB). 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 report.

A large sale ($5.8 million) was recorded in late December to a major customer after the customer had declared bankruptcy. Because we do not believe that the sale is realizable, we do not believe the transaction should be recorded as a sale. Management, however, disagrees with our position and has recorded the transaction nonetheless. We believe that net income, retained earnings and sales are overstated as a result. In addition, the Company has recorded a significant account receivable ($20 million, including the $5.8 million December transaction discussed above) at December 31, 2020 which relates to the same customer who is currently in bankruptcy proceedings. We believe there is serious doubt about the collectability of this account receivable. Management also disagrees with our position on this matter and has shown the account receivable as collectible nonetheless. We believe that accounts receivable, net income and retained earnings are overstated as a result.

In our opinion, with the exception of the matters disclosed above, the financial statements referred to above present fairly, in all material respects, the financial position of Apollo Shoes, Inc. as of December 31, 2020, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in the Notes to the consolidated financial statements, the Companys operations through 2020 were financed using debt instead of sales revenue. These factors, among others (bankruptcy of a significant customer, ongoing strike, contingent liability relating to litigation), raise substantial doubt about the Companys ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Internal Control Over Financial Reporting

We also audited the effectiveness of the Companys internal control over financial reporting as of December 31, 2020, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for maintaining effective internal control over financial reporting. Our responsibility is to express an opinion on the effectiveness of the Companys internal control over financial reporting based on our audit. We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 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 the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the companys annual or interim financial statements will not be prevented or detected on a timely basis. The following material weaknesses have been identified, but were not included in managements assessment. The Company did not maintain effective internal control over financial reporting relating to revenue and expense recognition. Although the Company corrected for many of the material misstatements we found, the Company did not adjust its financial statements for two material misstatements noted in our report on the Companys audited financial statements.

The material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the consolidated financial statements as of and for the year ended December 31, 2020, of the Company. In our opinion, because of the effect of the material weaknesses identified above on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2020, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Anderson, Olds, and Watershed

Please respond to the email request from Darlene. Thank you

To: "Darlene Wardlaw" Subject: Apollo CAM First Draft

Darlene,

RESPOND HERE TO DARLENE'S REQUEST FOR AN ATTEMPTED CRITICAL AUDIT MATTER PARAGRAPH.

Date: 21 FEB 2021 11:15:00 +0000 From: "Darlene Wardlaw" Subject: Critical Audit Matters We are almost there! This audit turned out to be a little more interesting than we initially expected, didn't it? I have Taylor working on a few things to help wrap everything up but I want your help with something. We need to draft a critical audit matter (CAM) paragraph for the auditors report. I realize you don't have a ton of experience with these but I have a feeling you'll crush it. Under the current standard a CAM is described as "any matter arising from the audit of the financial statements that was communicated or required to be communicated to the audit committee that: 1) relates to accounts or disclosures that are material to the financial statements and 2) involves especially challenging, subjective or complex auditor judgement." Seems easy enough, right? I take that to mean that it could relate to an entire material account or disclosure, a component of a material account or disclosure, or to several accounts or disclosures. I looked at few other companies and it looks like they all include at least four things: 1) the matter description 2) why the auditor identified it as a CAM. 3) how the CAM was addressed during the audit and a reference to the relevant financial statement accounts or disclosures related to the CAM. Remember this is meant to be a useful summary not an exhaustive detailed play-by-play of what we did. I'd like you to take the first draft of this (I am not expecting perfection). I realize this is a big task. I genuinely think that a CAM is a great way for an auditor to sum up the most important parts of an audit the parts that are not routine or mundane. An ability to do this as a staff will expedite your technical and critical thinking skills and will give you a leg up on your career. This is not busy work. Feel free to look around for examples from other athletic and outdoor companies (maybe Adidas, Nike, or Puma) but don't feel pressured to make it look just like that, we just need to be true to our audit of Apollo. DW