Contract analysis

I. Introduction and Purpose This memorandum sets forth Calderwood & Harkness LLP's ("C&H" or "the Firm") recommended remedial measures arising from the independent internal investigation conducted at the direction of the Audit Committee (the "Committee") of the Board of Directors of Verimark Hospitality Group Inc. ("VHG" or the "Company") into financial irregularities identified at Verimark Coastal Resorts LLC ("VCR"

1. Address the material weakness in VCR's internal controls over financial reporting identified by HSA during its Q1 2023 interim review, as communicated to the Committee by HSA engagement partner William Gentry on June 19, 2023.

2. Remediate the specific control deficiencies that permitted the identified misconduct to occur and persist without timely detection.

3. Restore compliance with Sections 302 and 404 of the Sarbanes-Oxley Act of 2002 ("SOX") in connection with VHG's future periodic filings with the U.S. Securities and Exchange Commission (the "SEC" or the "Commission").

4. Establish a governance and oversight framework that significantly reduces the risk of similar misconduct occurring at VCR or at any other VHG operating division in the future.

5. Demonstrate to regulators, shareholders, and other stakeholders that VHG has taken prompt, comprehensive, and good-faith remedial action in response to the identified irregularities. These recommendations supplement the personnel actions already taken by the Company in connection with the investigation. Specifically, on December 18, 2023, VHG terminated for cause Garrett W. Daskine, Division President of VCR, and

II. Executive Summary of Findings Giving Rise to Remediation Needs Before setting forth our specific recommendations, we provide below a summary of the principal investigative findings that inform the remediation framework. A full discussion of the evidence, witness interviews, and analytical work supporting these findings is contained in the Final Investigation Report to be delivered on January 9, 2024. This summary

1. Gulf Standard Contracting LLC ("GSC") GSC was formed as a Florida limited liability company on March 12, 2021. The registered agent listed in the Florida Secretary of State filings was Ryan Mateo Serrano. The beneficial owner of GSC was Garrett W. Daskine, who held his interest through a nominee arrangement designed to obscure his ownership. GSC submitted nineteen (19) invoices to VCR over the course of the scheme

2. Clearwater Design Collective Inc. ("CDC") CDC was formed as a Florida corporation on June 4, 2021. The registered agent listed in the Florida Secretary of State filings was Ryan Mateo Serrano. The sole shareholder of CDC was Nicole Prescott. CDC submitted sixteen (16) invoices to VCR, totaling $587,600 in fraudulent payments.

3. Suncoast Property Services LLC ("SPS") SPS was formed as a Florida limited liability company on November 18, 2021. The registered agent listed in the Florida Secretary of State filings was Panhandle Agent Services Inc., a commercial registered agent service based in Tallahassee, Florida. The sole member of SPS was Garrett W. Daskine, who in this instance held his interest directly. SPS submitted twelve (12) invoic

III. Recommendations: Revenue-Recognition Controls The revenue-recognition irregularities at VCR exploited the absence of adequate controls governing the timing of revenue recognition for timeshare-interest sales. The following recommendations are designed to establish a robust control framework that prevents premature revenue recognition, ensures compliance with applicable accounting standards and Florida statutory

IV. Recommendations: Vendor Management and Purchase-Order Authorization Controls The fictitious vendor scheme at VCR was facilitated by fundamental weaknesses in VCR's vendor-management processes and purchase-order authorization controls. The following recommendations are designed to eliminate the conditions that allowed shell entities to be onboarded as approved vendors, fictitious purchase orders to be created and

V. Recommendations: Corporate Governance and Oversight Enhancements Beyond the specific transaction-level controls described in Sections III and IV, the investigation findings point to broader deficiencies in VHG's corporate governance and oversight framework that contributed to the environment in which the misconduct could occur and persist. The following recommendations address these structural issues. A. Internal

VI. Recommendations: Compliance Training and Tone at the Top The effectiveness of the controls and governance enhancements described in the preceding sections will depend significantly on the knowledge, awareness, and ethical commitment of VHG's personnel. The following recommendations address the human-capital dimension of the remediation program. A. Mandatory Compliance Training We recommend that VHG require all fi

VII. Recommendations: Financial Statement Remediation A. Restatement VHG should proceed with the restatement of its FY 2022 financial statements (Form 10-K) and its Q1 2023 and Q2 2023 interim financial statements (Forms 10-Q) to correct the $26.4 million aggregate revenue overstatement attributable to the premature recognition of timeshare-interest deposits and the misclassification of approximately $1.83 million in