Contract analysis

I. Introduction and Purpose This memorandum constitutes the first interim status report submitted by Calderwood & Harkness LLP ("C&H" or the "Firm") to the Audit Committee (the "Committee") of the Board of Directors of Verimark Hospitality Group Inc. ("VHG," a Delaware corporation listed on Nasdaq under the ticker symbol VMRK, headquartered at 4100 Bayshore Boulevard, Suite 1200, Tampa, FL 33611) in connection with t

1. Premature Revenue Recognition of Timeshare-Interest Deposits. This workstream addresses the recording of timeshare-interest purchase deposits as completed-sale revenue at VCR properties before the expiration of applicable statutory rescission periods, potentially in violation of ASC 606 revenue-recognition standards and related internal accounting controls. This workstream focuses on timeshare-interest transaction

2. Expense-Reporting Irregularities Involving Potentially Fictitious Vendor Invoices. This workstream examines whether fictitious or inflated vendor invoices were submitted and approved within VCR's capital-improvement budgets at the above-referenced properties, potentially resulting in the misappropriation of company funds through fabricated purchase orders and vendor relationships. The matters under investigation i

II. Investigation Team and Resources A. Calderwood & Harkness LLP Staffing The Firm has assembled a team within its White Collar Defense & Investigations Practice Group to conduct this investigation on behalf of the Committee. The team is currently staffed as follows: The hourly rates set forth above are consistent with the rate schedule contained in the engagement letter executed by Committee Chair Kowalski on July

III. Document Preservation and Collection A. Preservation Notices On July 24, 2023, Calderwood & Harkness issued two document-preservation notices, marking the formal opening of the investigation. The two notices are described below:

1. Company-Wide Preservation Notice. A company-wide preservation notice was distributed to all officers and directors of VHG and to relevant personnel across the VHG organization. This notice directed the preservation of all documents and ESI relating to VCR revenue recognition, timeshare-interest sales, expense reimbursements, and capital-improvement expenditures for the period from January 1, 2021 forward. The noti

2. Targeted Preservation Notice to VCR Custodians. A separate, more targeted preservation notice was issued to identified VCR custodians, including the following individuals: • Garrett W. Daskine, Division President, VCR • Nicole Prescott, Vice President of Finance, VCR • Ryan Mateo Serrano, Controller, VCR • Additional identified VCR finance and operations personnel This targeted notice specified in detail the prese

IV. Administrative Leave of Investigation Subjects On August 7, 2023, in coordination with VHG General Counsel Patricia Navarro and VHG Chief Executive Officer Margaret Calder, the following three individuals were placed on administrative leave from their respective positions at VCR, pending the outcome of this investigation:

1. Garrett W. Daskine — Division President, Verimark Coastal Resorts LLC. Mr. Daskine is a seventeen-year veteran of VHG and has served as Division President of VCR since 2018. Mr. Daskine is suspected of directing the premature recognition of timeshare-interest purchase deposits as completed-sale revenue and of approving fictitious vendor invoices within VCR's capital-improvement budgets to conceal personal expenses

2. Nicole Prescott — Vice President of Finance, Verimark Coastal Resorts LLC. Ms. Prescott is a nine-year veteran of VHG and has served in her current role since 2020. Ms. Prescott is suspected of implementing the revenue-recognition scheme by directing the booking of timeshare-interest purchase deposits as completed-sale revenue upon contract execution, before the expiration of the statutory ten-day rescission perio

3. Ryan Mateo Serrano — Controller, Verimark Coastal Resorts LLC. Mr. Serrano is a five-year veteran of VHG and has served as Controller since 2021. Mr. Serrano is suspected of creating fictitious capital-improvement purchase orders and vendor invoices to funnel reimbursements for personal expenditures through VCR's capital-improvement budgets. Mr. Serrano reported to Ms. Prescott and was responsible for the preparat

V. Interviews Conducted to Date A. Overview As of the date of this report, the investigation team has conducted three (3) interviews in connection with the investigation. A summary of each interview is provided below. For interviews of current VHG employees, the investigation team administered an Upjohn warning script at the opening of each interview. The Upjohn warning script was prepared by C&H on August 14, 2023,

VI. Coordination with Independent Auditor (Hargrove, Steen & Aldrich LLP) On August 9, 2023, C&H transmitted a letter to William Gentry at Hargrove, Steen & Aldrich LLP establishing protocols for coordination between the internal investigation conducted by C&H on behalf of the Committee and HSA's ongoing audit activities with respect to VHG. The letter addressed the following matters: • Information-Sharing Arrangemen

VII. SEC Disclosure Coordination — Form 8-K Filing A. Coordination with Outside Securities Counsel On August 11, 2023, C&H transmitted a letter to Irene Castellanos of Westlake Burris & Holt LLP ("Westlake Burris"), located at 600 Brickell Avenue, Suite 3100, Miami, FL 33131, regarding the coordination of SEC disclosure obligations arising from the investigation. Westlake Burris serves as VHG's regular outside securi

VIII. Preliminary Observations The investigation remains in its early stages, and the observations set forth below are preliminary in nature. The Committee should not draw final conclusions from these preliminary observations. The investigation team expects that additional document review, forensic analysis, and witness interviews will substantially refine and may materially alter these observations. With that signif

IX. Upcoming Activities and Next Steps The investigation team anticipates the following principal activities and milestones during the next reporting period:

1. Document Review. Triton discovery Solutions is expected to complete the processing, de-duplication, and de-NISTing of the collected data set in mid-September 2023. Upon completion of processing, the investigation team will commence full-scale TAR-assisted document review of the estimated 347,000-document review universe. Document review is expected to continue through October and November 2023.

2. Subject Interviews. The investigation team will schedule and conduct interviews of the three investigation subjects—Garrett W. Daskine, Nicole Prescott, and Ryan Mateo Serrano—during the September–October 2023 timeframe, in coordination with their respective counsel. Additional witness interviews may be scheduled as warranted by the findings of the document review and forensic analysis.

3. Crestline Forensic Findings. Crestline Forensic Advisory is expected to deliver preliminary forensic findings on two matters: (a) the quantification of prematurely recognized timeshare-interest revenue across the affected periods, and (b) the analysis of vendor-payment patterns and entity-formation records relevant to the expense-reporting workstream. These preliminary findings are expected during the next reporti

4. SEC Disclosure Coordination. The investigation team will continue to coordinate with Westlake Burris & Holt LLP regarding VHG's ongoing SEC disclosure obligations, including any additional filings that may be required as the investigation develops and as the scope of any potential restatement becomes clearer.

5. Regulatory Monitoring. As of the date of this report, no inquiry or investigation has been initiated by the SEC or any other regulatory body in connection with the matters under investigation. The investigation team will continue to monitor for any regulatory inquiries and will promptly advise the Committee of any such development.

6. Next Interim Status Report. The second interim status report (Interim Status Report No. 2) is anticipated for delivery to the Committee in late October 2023, and will provide an update on the investigation activities and findings during the intervening period.

X. Budget and Fee Status The following is a summary of the current budget and fee status for the investigation: C&H fees incurred through August 31, 2023 will be detailed in the Firm's monthly invoices, which are submitted separately to the Committee in accordance with the billing arrangements set forth in the engagement letter. Crestline's work is proceeding within the parameters of the $1.15 million flat-fee arrang

XI. Privilege and Confidentiality Reminder This report constitutes a privileged and confidential attorney-client communication and attorney work product. It has been prepared by Calderwood & Harkness LLP at the direction of the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. for the sole purpose of providing legal advice to the Committee in connection with the internal investigation of Ve