Contract analysis

I. Executive Summary This is the third interim status report from Calderwood & Harkness LLP ("Calderwood & Harkness" or the "Firm") to the Audit Committee (the "Committee") of the Board of Directors of Verimark Hospitality Group Inc. ("VHG" or the "Company") concerning the internal investigation (the "Investigation") opened on July 24, 2023, into expense-reporting irregularities and premature revenue-recognition prac

II. Investigation Activity Since Interim Report No. 2 A. Witness Interview: Nicole Prescott — Session 2 (November 8, 2023) On November 8, 2023, Calderwood & Harkness conducted a second interview of Nicole Prescott, Vice President of Finance of VCR. The interview was conducted at the Firm's Miami office at 200 South Biscayne Boulevard, Suite 4400, Miami, Florida 33131. The interview commenced at approximately 9:30 a.m

III. Shell-Entity Analysis — Progress Report Calderwood & Harkness, with forensic accounting support from Crestline Forensic Advisory LLC (engagement partner Douglas Reinhardt, CPA, CFF; senior manager Priya Venkatesh, CPA; engagement number CFA-VHG-2023-0089), is preparing a comprehensive memorandum (the "Shell-Entity Analysis Memorandum") analyzing the three shell entities used in the expense-reimbursement scheme t

IV. Revenue-Recognition Analysis — Update As reported in Interim Status Report No. 2, the Investigation has identified premature revenue recognition of timeshare-interest deposits at VCR totaling $26.4 million across four fiscal quarters. The overstatements by quarter are as follows: The scheme involved the booking of timeshare-interest purchase deposits as completed-sale revenue upon the signing of purchase agreemen

V. Document Review — Status Update As previously reported, the Investigation's document-review workstream has involved the collection, processing, and review of documents from identified custodians at VCR and VHG. The following is a summary of the current status of the document review: Collection. Approximately 1.2 million documents have been collected from eight (8) of the eleven (11) identified custodians. The rema

VI. Coordination with SEC Division of Enforcement As reported in Interim Status Report No. 2, the SEC Division of Enforcement opened a preliminary inquiry (File No. HO-14237) in September 2023, following VHG's filing of the Form 8-K under Item 4.02 on August 14, 2023. The preliminary inquiry is being handled by the SEC's Miami Regional Office. Calderwood & Harkness has continued to coordinate with Westlake Burris & H

VII. Coordination with HSA and Disclosure Matters Calderwood & Harkness continues to coordinate with Hargrove, Steen & Aldrich LLP ("HSA") (William "Bill" Gentry, lead engagement partner, 101 East Kennedy Boulevard, Suite 3200, Tampa, FL 33602), VHG's independent registered public accounting firm, regarding the intersection of the Investigation with HSA's audit and review activities. This coordination is focused on e

VIII. Upcoming Activities and Timeline The Investigation is proceeding in accordance with the timeline previously communicated to the Audit Committee, with the Final Investigation Report targeted for delivery in the first or second week of January 2024. The following activities are planned for the period from this report date through the anticipated conclusion of the Investigation: Second Interview of Ryan Mateo Serr

IX. Investigation Costs — Interim Summary The following is a summary of the Investigation costs incurred through this reporting period and the estimated costs through the close of the Investigation: Calderwood & Harkness LLP Fees incurred through this reporting period total approximately $2,500,000 of an estimated total of $3,420,000 through Investigation close. The hourly rates applicable to the Calderwood & Harknes

X. Recommendations and Items Requiring Audit Committee Action Calderwood & Harkness respectfully directs the Audit Committee's attention to the following items: Serrano Cooperation Agreement. The executed Cooperation Agreement between VHG and Ryan Mateo Serrano, dated November 15, 2023, has been provided to the Audit Committee Chair, Diane Kowalski, for review. No further Audit Committee action is required at this ti

XI. Privilege and Confidentiality Reminder This Interim Status Report No. 3, and all prior interim status reports, constitute attorney-client privileged communications and attorney work product prepared at the direction of the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. in connection with Calderwood & Harkness LLP's engagement as special investigation counsel. The protections of the a