Contract analysis

I. Executive Summary This memorandum sets forth the findings of our analysis of whether Verimark Coastal Resorts LLC ("VCR"), a wholly owned Florida limited liability company subsidiary of Verimark Hospitality Group Inc. ("VHG," Nasdaq: VMRK), a Delaware corporation headquartered at 4100 Bayshore Boulevard, Suite 1200, Tampa, FL 33611, prematurely recognized revenue on timeshare-interest sales in violation of Account

II. Scope and Methodology A. Scope of Analysis The scope of this revenue-recognition analysis encompasses the following parameters: Temporal Scope. The analysis covers four fiscal quarters, from Q3 FY 2022 (the quarter ending September 30, 2022) through Q2 FY 2023 (the quarter ending June 30, 2023). This period was selected because it represents the earliest quarter in which the premature revenue-recognition practice

1. William "Bill" Gentry, Lead Engagement Partner, HSA — interviewed on August 15, 2023. This interview was informational in nature and was conducted without Upjohn warnings, as Mr. Gentry is not an employee, officer, or director of VHG. Mr. Gentry provided background on HSA's identification of the potential revenue-recognition issue during its Q1 2023 interim review and the circumstances surrounding his June 19, 202

2. Thomas Rhett Griffith, Chief Financial Officer, VHG — interviewed on August 22, 2023. Appropriate Upjohn warnings were provided at the outset of the interview.

3. Ryan Mateo Serrano, Controller, VCR — interviewed on September 27, 2023 (Session 1) and December 5, 2023 (Session 2). Session 2 was conducted pursuant to a cooperation agreement executed by Serrano on November 15, 2023. At both sessions, Serrano's personal counsel, Marco A. Ruiz of Coletti & Ruiz PA, was present. Appropriate Upjohn warnings were provided at the outset of Session 1.

4. Garrett W. Daskine, Division President, VCR — interviewed on October 4, 2023. Daskine's personal counsel, James Corwin Merritt of Merritt & Dunleavy LLP, was present. Appropriate Upjohn warnings were provided at the outset of the interview. Daskine declined a follow-up interview request.

5. Nicole Prescott, Vice President of Finance, VCR — interviewed on October 11, 2023 (Session 1) and November 8, 2023 (Session 2). Prescott's personal counsel, Candace O'Brien Langford of Langford Pace LLP, was present at both sessions. Appropriate Upjohn warnings were provided at the outset of Session 1.

6. Additional VCR sales and accounting personnel were also interviewed as part of the broader investigation. In total, twenty-two interviews of eighteen unique witnesses were conducted. Those additional interviews provided corroborative background information regarding VCR's standard sales and accounting processes, but the five witness categories identified above are the principal sources relied upon for the specific

III. Background: VCR Timeshare-Interest Sales Operations A. Business Model Verimark Coastal Resorts LLC is a wholly owned subsidiary of Verimark Hospitality Group Inc., organized as a Florida limited liability company, with its principal office located at 7820 Gulf Breeze Parkway, Suite 400, Destin, FL 32541. VCR's core business is the development and sale of timeshare interests — commonly referred to in the industry

1. Execution of Purchase Agreement. The prospective purchaser signs a timeshare-interest purchase agreement, which is a binding contract (subject to the statutory rescission right described below) setting forth the material terms of the sale, including the identity of the unit or unit category, the designated use periods, the total purchase price, the deposit amount, the payment schedule, and the terms and conditions

2. Payment of Initial Deposit. At the time of execution of the purchase agreement, the purchaser pays an initial deposit, which typically ranges from 10% to 20% of the total purchase price. Deposits are received by VCR and held in escrow or trust accounts as required by Florida law until the expiration of the rescission period.

3. Statutory Rescission Period. Under Florida Statute § 721.10, the purchaser has a ten-calendar-day right of rescission from the date of execution of the purchase agreement. This right is unconditional — the purchaser may cancel for any reason or no reason at all within the ten-day window. The rescission right is a consumer-protection provision mandated by Florida law and cannot be waived or shortened by contract. I

4. Expiration of Rescission Period. Only after the ten-day rescission period expires without the purchaser having submitted a rescission notice does the sale become non-cancellable and the deposit non-refundable. At this point — and only at this point — VHG's Accounting Policy Manual, Section 4.2, authorizes the recognition of revenue from the timeshare-interest sale.

5. Completion of Sale. Following the expiration of the rescission period, the remaining balance of the purchase price is collected according to the payment schedule (which may include purchaser financing provided by VCR or third-party lenders), and the timeshare interest is transferred to the purchaser in accordance with applicable Florida law and the terms of the purchase agreement. The critical control point in thi

IV. ASC 606 Revenue-Recognition Framework Applied to Timeshare Interest Sales ASC 606 establishes a comprehensive, principles-based framework for revenue recognition, organized around a five-step model. This section applies each step of the ASC 606 model to VCR's timeshare-interest sales and identifies the specific points at which VCR's premature revenue-recognition practice deviated from the requirements of the stan

V. Quantification of Revenue Overstatement A. Methodology. The quantification of the revenue overstatement was performed by Crestline Forensic Advisory LLC under the supervision of Calderwood & Harkness LLP. Crestline's forensic accounting team, led by Douglas Reinhardt, CPA, CFF (Engagement Partner) and Priya Venkatesh, CPA (Senior Manager), performed transaction-level testing of all timeshare-interest purchase agre

VI. Impact on VHG Consolidated Financial Statements A. Revenue Impact The impact of the premature revenue-recognition practice on VHG's consolidated revenue for FY 2022 is summarized as follows: • VHG FY 2022 consolidated revenue (as originally reported in the Form 10-K): $1.87 billion • VCR FY 2022 revenue (as originally reported, prior to intercompany eliminations): $438.7 million • FY 2022 revenue overstatement at

VII. Mechanism and Responsible Individuals A. Description of the Scheme The premature revenue-recognition practice at VCR was not the result of an innocent error, a difference of professional judgment, or a change in accounting estimates. Rather, it was a deliberate and systematic effort, directed by senior VCR division management, to inflate VCR's quarterly revenue results by recording timeshare-interest purchase de