From: "Darlene Wardlaw" Subject: Prepaids and Other Assets

Prepaids

Audit prepaids, but dont spend too much time on them. There just isnt a lot of exposure there. Because the amounts are not significant, let the Crumpler do most of the legwork (vouching invoices, examining cancelled checks, examining titles, etc.) for you on prepaids and fixed assets. On second thought, insurance expense looks really low compared to last years better check it out.

Other Assets

Since I know that your hands have been full, I tried to help out with other assets. With the information below, I think you can complete the Investments and other assets sections (I-1):

By luck, Shock-Proof Socks is one of our firms clients. I checked with Dave Masterson, the audit manager, about how the company is doing. He said that after reporting no income for several years, they struck gold in 2011, reporting total income of $3,782,854.04. The company has yet to pay out any dividends though.

When I had lunch with Eric Unum, we discussed Apollos recent purchase of Synergizer Battery stock. He indicated that Larry eventually wanted to purchase controlling stock in the company when Apollo started moving production in-house. While in his office, I examined the brokers confirmation, the cancelled check (# 3582), and examined the stock certificate for 20,000 shares in Apollos name. The price of the stock was unchanged as of December 31 from its purchase price of $23.63. Personally, I would be surprised if Apollo will ever be able to purchase even 5% of Synergizers stock.

You may want to think about the Phoneshoe patent, since the company has decided to discontinue research and development efforts on it.

Investment income is composed of the equity earning in Shock-Proof Socks and a transfer from the Controllers Clearing Account for $480,375.80. The clearing account is a temporary account Apollo uses for out of balance items and transactions they cant identify. If there is a balance at the end of the year, they either recognize miscellaneous income or expense to clear it out. The amount is the same amount as the December 26 purchase of the investment in Synergizer. You should investigate this further.

Do some analytic procedures on interest income to make sure that it is reasonable with respect to the interest rate on the bank confirmation and compared to last year.

Acadiana Insurance Agency

2132 Highland Road, Suite 225

Baton Rouge, LA 70803

Phone: 225-555-1212

January 19, 2012

Anderson, Olds and Watershed

Certified Public Accountants

Shoetown, ME

This is to confirm that during 2011, Apollo Shoes, Inc. had the following insurance policies listed with this agency:

State Fire Insurance: Policy # 624-3200, fire and extended coverage on plant building and contents, $50,000,000, $100,000 deductible, dated January 1, 2009, 4-year term, premium $1,414,414.92.

Ironworks Insurance Group: Policy # l645-O32-692, corporate vehicle liability, $500,000, dated January 1, 2009, 3-year term, premium $108,320.76.

Rock Solid Fidelty: Policy # UTK-394, fidelity bond on employees and directors, $250,000, dated January 1, 2011, 5-year term, premium $ 2,667,006.32. The previous fidelity bond policy (UTK-393) expired as of December 31, 2010. It was a one-year policy with a premium of $464,232.

Sincerely Yours,

Bubba Thibodeaux

Louisiana Insurance Agency

Apollo Shoes, Inc.						E-1
Prepaid Expenses Lead Schedule					Prepared by
For Year Ended 12/31/2011					Reviewed by
PBC
		(Audited)			Unaudited
		Balance		Amortization/	Balance
Acct #	Account Title	12/31/2010	Additions	Disposals	12/31/2011
14100	Prepaid Insurance	$743,314.38	$2,667,006.32	$36,106.92	$3,374,213.78
14200	Prepaid Rent	$200,000.00	$1,003,574.00	$1,203,574.00	$0.00
14300	Office Supplies	$7,406.82	$26,025.00	$24,891.82	$8,540.00
		$950,721.20	$3,696,605.32	$1,264,572.74	$3,382,753.78

Apollo Shoes, Inc.									I-1
Other Assets Lead Schedule								Prepared by
For Year Ended 12/31/2011								Reviewed by
PBC
					(Audited)			Unaudited
					Cost			Balance
Acct #	Date	Description			12/31/2010	Additions	Deletions	12/31/2011
19000	Equity Investments
	6/24/2009		Shock Proof Socks, Inc.	25% Share	$612,691.08	$945,713.51	$0.00	$1,558,404.59
	12/26/2011		Synergizer Battery Company	20,000 shares purchased at $23.63 per share on 12/26. (Commission costs amounted to 7,775.80)	$0.00	$480,375.80		$480,375.80
					$612,691.08	$1,426,089.31	$0.00	$2,038,780.39
19900	Other Non-current Assets
	12/31/2010	Phoneshoe patent registration expenses			$13,840.59	$0.00	$0.00	$13,840.59
					$626,531.67	$1,426,089.31	$0.00	$2,052,620.98

Date: 3 FEB 2012 12:35:15 +0000 From: "Bradley Crumpler" Subject: Prepaids

Well I did all your work for you (again!):

I examined five cancelled checks written during the year for $200,000 each for building rental through June 30, 2011. Even though they moved into a new building in February 2010, they couldnt get out of their lease until this year.

As I noted in my e-mail about the inventory observation, I observed the counting of office supplies on December 31. They all appeared to be there.

I dont know or understand what you want me to do with the insurance confirmation. Ill let you do that.

(Bold letters are directions for what needs to be created)