Apollo Shoes, Inc. internal audit review and risk assessment

Apollo Shoes, Inc.

Internal Audit has completed a review of the Apollo Shoes Corporation in conformity with the fiscal year 2005-2006 plan and as advised by the Sarbanes-Oxley federal requirements. The objective of this review was to contribute to the improvement of risk management and the control systems within the Apollo Shoes Company by identifying and evaluating the company's exposures to risks and the controls designed by management to reduce those risks.

The Apollo Shoes Company attempts to distinguish them by focusing on footwear that is connected to extra-galactic exploration. Combining technological advances in light and sound, Apollo Shoes has fashioned rugged footwear to enable galactic sports participants to realize their fullest potential.

Apollo Shoes also streamlines original footwear two of which have been particularly successful: Spotlight for athletes who compete at night, and Siren for police who work graveyard shifts in notorious districts.

A leader in innovative design and using high technology to produce electronic shoe products, Apollo Shoes is known for the athletic electronic performance and style of its footwear. Products in its pipeline are the Speakershoe, footwear with an amplified loudspeaker, and the Phoneshoes, the sneaker with a cellular phone.

Apollo Shoes, headquartered in Delaware, is a public corporation whose stock is traded in the -- over -- the -- counter markets and independently owns the majority of its stock. The Company employs more than a 100 employees, and occupies approximately 10,000 square feet of space. Its products are shipped to large and small retail outlets in six states.

The scope of the audit included a review of the five divisions of the Apollo Shoe company constituting: Marketing; Finance; Information Systems; Operations; and Organization and Personnel.

The review covered the period of December, 2006 to March, 2007.

RISK EXPOSURE

The intention of this audit is to periodically perform a detailed risk analysis of all of the Company's auditable entities using factors such as level of external regulation, operating expenditures, amount of cash flows, frank activities and so forth. Apollo Shoes Inc. was determined to be a low risk entity due to only minor adverse instances compared to its general optimistic portfolio and expectations.

Apollo Shoes seems to have made remarkable progress this past year with both internal and external performance having achieved some prodigious bids including some of the world's premier athletes signing on as spokespeople for using their products.

On the other hand, given the current recession and global fiscal difficulties, as well as uncertainty with the Federal Reserve's adjustments of interest rates, business has been less than previous years. Compounded to that has been the Company's settlement of a suit (Septemeber15, 2006) to one of its main clients. The final settlement totaled $11, 695,000.

OVERALL ASSESSMENT

This review indicates that the company that whilst Apollo's Shoes' growth has been remarkable during the past year, increasing 2% to $240,575,000 in the year ending December 31, 2006 from the previous year, there have been some difficulties: These include reluctance of company to provide us with contact details of their previous auditors (Smith & Smiths, CPA) which makes it impossible for us to draw up a thorough report. Their excuse has been 'litigation concerns'. Also conspicuous is its settlement with a client this past year, although the Company has emphasized their innocence. Fiscal difficulties, including higher prices for raw materials, have also caused difficulties to the Company. Increase in expense was also indicated in other areas but this was primarily due to expansion of staff and increase in research and development activities. The cash flows of 2006 have been $4,3712 compared to $1,745 of 2005. As of December 31, 20056 the company owes $10,000,000 in short-term debt

Whilst the Company intends to successfully expend its operations, there is no assurance that the Company will in actuality succeed or that such expansion will be profitable.