1021-00008 · Client 1021 · Witness Interviews

interview-memo-serrano-session-1.docx DOCUMENT Litigation

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PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

This memorandum was prepared by Calderwood & Harkness LLP at the direction of the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. in connection with the Audit Committee's internal investigation. This memorandum is protected by the attorney-client privilege and the attorney work product doctrine. This memorandum should not be disclosed to any person or entity outside the Audit Committee without the prior written authorization of Calderwood & Harkness LLP. Any unauthorized disclosure may result in a waiver of applicable privileges.

MEMORANDUM OF INTERVIEW

I. Interview Logistics

Witness. Ryan Mateo Serrano ("Serrano"), Controller, Verimark Coastal Resorts LLC ("VCR"), a wholly owned subsidiary of Verimark Hospitality Group Inc. ("VHG" or the "Company"). Serrano is a subject of the Audit Committee's ongoing internal investigation. He has been on administrative leave from VHG since August 7, 2023. Serrano has been employed by VHG for approximately five years.

Counsel for Witness. Marco A. Ruiz, Esq., of Coletti & Ruiz PA, Tampa, Florida, appeared as individual counsel for Serrano and was present throughout the entirety of the interview. Mr. Ruiz participated in discussions regarding the scope and ground rules for the interview and interjected at various points, as noted herein.

Interviewers. Howard Quinn, Partner, Calderwood & Harkness LLP, served as the responsible partner and led portions of the questioning. Liam Donahue, Senior Associate, Calderwood & Harkness LLP, served as lead associate and conducted the majority of the substantive questioning.

Also Present. Steven Hollander, Associate, Calderwood & Harkness LLP, was present throughout the interview in the capacity of working associate and note-taker.

Location. The interview was conducted in person at the offices of Calderwood & Harkness LLP, 200 South Biscayne Boulevard, Suite 4400, Miami, Florida 33131, in Conference Room 44-B.

Duration. The interview commenced at approximately 9:00 a.m. Eastern Time and concluded at approximately 12:40 p.m. Eastern Time, for a total duration of approximately three hours and forty minutes. A brief break of approximately ten minutes was taken at approximately 10:45 a.m. at Serrano's request.

Recording. No audio or video recording of the interview was made. Steven Hollander took contemporaneous handwritten notes during the interview, which form the basis of this memorandum. This memorandum is a summary of the substance of the interview, prepared from those notes, and is not a verbatim transcript.

II. Upjohn Warnings and Acknowledgments

At the outset of the interview, before any substantive questioning commenced, Howard Quinn administered the firm's standard Upjohn warning script (version dated August 14, 2023, a copy of which is maintained in the investigation file). Mr. Quinn advised Serrano of the following:

1. Calderwood & Harkness LLP represents the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. Calderwood & Harkness does not represent Serrano individually, and no attorney-client relationship exists between Calderwood & Harkness and Serrano.

2. The purpose of the interview is to gather facts in connection with the Audit Committee's internal investigation into certain expense-reporting irregularities and revenue-recognition practices at VCR. The investigation was authorized by resolution of the Audit Committee on July 31, 2023.

3. The attorney-client privilege with respect to communications during this interview belongs to VHG, acting through its Audit Committee, and not to Serrano personally. Serrano does not have the authority to assert or waive any privilege on behalf of VHG.

4. VHG, through its Audit Committee, may in its sole discretion choose to waive the privilege and disclose the contents of this interview, including this memorandum and any notes taken during the interview, to third parties, including but not limited to government regulators, law enforcement agencies, and the Securities and Exchange Commission.

5. The substance of this interview is confidential. Serrano was instructed not to discuss the interview, the questions asked, or the information he provided with any other current or former employee, officer, or director of VHG or VCR, or with any other third party, other than his own personal counsel, Marco A. Ruiz.

After each of the foregoing warnings was delivered, Mr. Quinn paused and asked Serrano whether he understood. Serrano stated that he understood each point. Serrano confirmed that he had read and understood the written Upjohn warning that had been provided to him and his counsel in advance of the interview.

Marco Ruiz acknowledged the warnings on behalf of his client and confirmed that Serrano's participation in the interview was voluntary. Mr. Ruiz stated that he had reviewed the Upjohn warnings with Serrano prior to the interview and that Serrano understood the implications of the warnings, including the fact that the privilege belongs to VHG and not to Serrano.

Serrano additionally confirmed that he had not been promised anything — whether by Calderwood & Harkness, the Audit Committee, VHG, or any other person or entity — in exchange for his participation in this interview. He stated that his decision to participate was made voluntarily and in consultation with his own counsel.

III. Background and Employment History

Serrano provided the following background information in response to preliminary questions from Liam Donahue.

Personal Information and Title. Serrano's full legal name is Ryan Mateo Serrano. He holds the title of Controller of Verimark Coastal Resorts LLC. His principal office is located at 7820 Gulf Breeze Parkway, Suite 400, Destin, Florida 32541, which serves as VCR's divisional headquarters.

Reporting Relationships. Serrano stated that he reports directly to Nicole Prescott, Vice President of Finance, Verimark Coastal Resorts LLC. He described this as his primary, "solid-line" reporting relationship. In addition, Serrano indicated that he maintained a "dotted-line" reporting relationship to VHG's corporate finance organization, headed by Thomas Rhett Griffith, who serves as Chief Financial Officer of VHG. Serrano stated that the dotted-line relationship was largely administrative in nature and related primarily to the submission of VCR's financial data for consolidation into VHG's corporate financial statements and SEC filings. Serrano stated he interacted with the corporate finance team most frequently during quarterly and year-end close periods.

Start Date and Tenure. Serrano stated he began his employment with VHG in approximately 2018, making his tenure at the Company approximately five years as of the date of this interview. He did not recall the precise start date but believed it was in the second quarter of 2018.

Prior Professional Experience. Before joining VHG, Serrano stated he held accounting positions at two smaller hospitality companies in the Tampa, Florida, area, though he did not provide the names of those companies during this interview. Serrano holds an active Certified Public Accountant license issued by the State of Florida.

Role and Responsibilities. Serrano described his responsibilities as Controller of VCR as encompassing the day-to-day accounting operations of the division. He identified his principal duties as follows:

• Oversight of the accounts payable function, including vendor setup, invoice processing, and payment authorization within his approval threshold;

• Maintenance of the general ledger for VCR, including the posting of journal entries and account reconciliations;

• Creation and approval of purchase orders within his authorization threshold;

• Management of the monthly close process for VCR, including the preparation and review of trial balances and financial statements;

• Preparation of VCR's divisional financial reports for submission to VHG's corporate finance team for consolidation into the Company's consolidated financial statements; and

• Coordination with VHG's independent auditor in connection with quarterly interim reviews and the annual audit.

Purchase Order Authority. Serrano stated that he had the authority to initiate and approve purchase orders with a value of up to $50,000. Purchase orders with a value exceeding $50,000 required the approval of either Nicole Prescott, in her capacity as VP of Finance for VCR, or Garrett W. Daskine, in his capacity as Division President of VCR. Serrano stated that this threshold was established by VHG's corporate procurement policy and had been in place throughout his tenure.

Key Properties. Serrano stated that his financial oversight responsibilities extended to two principal VCR properties:

1. Coral Dune Resort & Residences, located at 14200 Emerald Coast Parkway, Destin, Florida 32541. Serrano described Coral Dune as VCR's flagship property and stated that the Phase III expansion of the resort was a significant focus of capital-improvement activity during the period under investigation.

2. Palmetto Bluff Club, located at 3950 Longboat Key Drive, Sarasota, Florida 34228. Serrano described Palmetto Bluff Club as a smaller property with a focus on club membership and timeshare-interest sales, including Phase II units that had been brought to market during 2022.

Serrano stated that he was responsible for all financial reporting related to these two properties and that the fictitious purchase orders and the revenue-recognition practices at issue in this investigation related to operations at these properties.

IV. Fictitious Purchase Orders and Shell Entities

A. Overview of the Scheme

In response to questions from Liam Donahue, Serrano acknowledged his role in creating and processing fictitious purchase orders attributed to three purported vendors for capital-improvement work at VCR-managed properties. The three entities — Gulf Standard Contracting LLC, Clearwater Design Collective Inc., and Suncoast Property Services LLC — are described in detail below.

Serrano stated that the scheme originated at the direction of Garrett W. Daskine, Division President of VCR. Serrano characterized the initial approach as occurring in early 2021 — he believed it was in late February or early March 2021, though he could not recall the precise date. According to Serrano, Daskine told him that certain vendors would be performing "off-book" contracting work at VCR properties and that Serrano should set them up in the accounts payable system and process their invoices as they were submitted. Daskine indicated that the work was legitimate but that it needed to be handled outside of VCR's standard procurement process for reasons Daskine described as relating to "timing" and "budget flexibility."

Serrano stated that he initially believed or hoped the vendors were legitimate, but that he came to understand over time — within a matter of weeks to a few months — that the vendors were not performing any actual work at VCR properties and that the payments being processed were instead being directed to entities controlled by Daskine and, subsequently, by Nicole Prescott. Serrano acknowledged that despite this understanding, he continued to process the fictitious purchase orders and invoices over a period of approximately two years.

B. Gulf Standard Contracting LLC ("GSC")

Formation and Registration. Serrano confirmed that Gulf Standard Contracting LLC ("GSC") was formed on March 12, 2021, as a Florida limited liability company. Serrano stated that he served as the registered agent for GSC in connection with its formation with the Florida Secretary of State. He stated that Daskine asked him to serve in this capacity and that Serrano complied.

Beneficial Ownership. Serrano stated that Garrett W. Daskine was the sole member and beneficial owner of GSC. Serrano indicated that Daskine used a nominee arrangement for the entity's formation documents so that Daskine's name would not appear on the public filing. Serrano stated he did not know the specific identity of the nominee individual whose name appeared on the formation documents, but that Daskine told him expressly that the entity was "his" and that Serrano should treat it accordingly.

Vendor Setup. Serrano stated that he created the vendor profile for GSC in VCR's accounts-payable system in approximately April 2021. He entered the business name, mailing address, and bank-account information that Daskine provided to him. Serrano did not recall independently verifying any of this information, such as confirming a physical office location or requesting a W-9 from GSC, though he acknowledged that standard VCR vendor-onboarding procedures would have required such verification.

Invoices and Amounts. Serrano stated that a total of nineteen (19) invoices were submitted under the GSC vendor profile over the course of the scheme, totaling $812,400 in aggregate payments. The invoices were submitted at irregular intervals, typically monthly or bi-monthly, from approximately July 2021 through June 2023.

Invoice Descriptions. The invoices attributed to GSC were typically described as capital-improvement work, including lobby renovation materials, pool-deck resurfacing, and HVAC system upgrades. The majority of the GSC invoices referenced work purportedly performed at Coral Dune Resort & Residences, specifically in connection with the Phase III expansion. A smaller number of invoices referenced work at Palmetto Bluff Club.

Largest Single Invoice. Serrano identified Invoice No. GSC-2023-007, dated February 14, 2023, in the amount of $94,500, as the largest single fictitious invoice he processed in connection with the scheme. The invoice was described as "lobby renovation materials — Coral Dune Phase III." Serrano confirmed that no lobby renovation materials were in fact procured or delivered in connection with this invoice and that the amount was entirely fictitious.

Approval Process. Serrano explained the approval process for GSC invoices as follows. Serrano would draft the purchase orders within VCR's system, creating requisition entries that corresponded to the fictitious invoices. For invoices at or below his $50,000 approval threshold, Serrano approved the purchase orders and processed the invoices himself. For invoices exceeding $50,000 — including Invoice No. GSC-2023-007 for $94,500 — Serrano submitted the purchase orders to Daskine or Prescott for approval. Serrano stated that Daskine personally approved the $94,500 invoice. Serrano could not recall from memory which other GSC invoices above $50,000 were approved by Daskine as opposed to Prescott, but stated that Daskine approved the majority.

Payment Routing. Serrano stated that payments to GSC were made via ACH transfer or, on occasion, by company check. The payments were directed to a bank account whose details were provided to Serrano by Daskine. Serrano stated he did not know the specific financial institution or branch where the GSC account was maintained. He entered the routing and account numbers provided by Daskine into the vendor profile in VCR's accounts-payable system.

C. Clearwater Design Collective Inc. ("CDC")

Formation and Registration. Serrano confirmed that Clearwater Design Collective Inc. ("CDC") was formed on June 4, 2021, as a Florida corporation. Serrano stated that he served as the registered agent for CDC in connection with its formation with the Florida Secretary of State, similar to his role with GSC.

Beneficial Ownership. Serrano stated that Nicole Prescott, VP of Finance for VCR, was the sole shareholder and beneficial owner of CDC. Serrano stated that Prescott instructed him to set up the vendor profile for CDC in VCR's accounts-payable system and that Prescott provided the entity's formation details and bank-account information to Serrano directly.

Vendor Setup. Serrano created the vendor profile for CDC in VCR's accounts-payable system in approximately July 2021. As with GSC, Serrano entered the information provided to him without conducting independent verification of the entity's legitimacy, physical address, or business operations.

Invoices and Amounts. Serrano stated that a total of sixteen (16) invoices were submitted under the CDC vendor profile, totaling $587,600 in aggregate payments. The invoices were submitted over a period from approximately August 2021 through June 2023.

Invoice Descriptions. Invoices attributed to CDC were typically described as interior design consulting services, furniture procurement, and decorative landscaping at VCR properties. Serrano stated these descriptions were fabricated and that CDC did not perform any actual services or deliver any goods to VCR.

Approval Process. Serrano stated that the approval process for CDC invoices was somewhat different from that for GSC. Because Prescott was both the beneficial owner of CDC and the approving authority for purchase orders above $50,000 at VCR, Prescott either approved the invoices herself or instructed Serrano on which general-ledger codes and cost centers to use when booking the entries. In some instances, Daskine also approved CDC invoices. Serrano acknowledged that the arrangement created an obvious conflict of interest but stated he did not raise this issue with anyone outside of VCR.

Payment Routing. Payments to CDC were directed to a bank account whose details were provided to Serrano by Prescott. As with GSC, Serrano stated he did not know the specific financial institution.

D. Suncoast Property Services LLC ("SPS")

Formation and Registration. Serrano confirmed that Suncoast Property Services LLC ("SPS") was formed on November 18, 2021, as a Florida limited liability company. Unlike GSC and CDC, the registered agent for SPS was not Serrano but rather Panhandle Agent Services Inc., a commercial registered-agent service based in Tallahassee, Florida. Serrano stated that Daskine told him he had used a different registered agent for SPS in order to create "distance" between the entity and Serrano, whom Daskine described as already being associated with the other two vendor entities.

Beneficial Ownership. Serrano stated that Garrett W. Daskine was the sole member and beneficial owner of SPS. Serrano stated that Daskine confirmed this to him directly.

Vendor Setup. Serrano created the vendor profile for SPS in VCR's accounts-payable system in approximately December 2021 or January 2022. He entered the entity's name, address, and bank-account information as provided by Daskine.

Invoices and Amounts. Serrano stated that a total of twelve (12) invoices were submitted under the SPS vendor profile, totaling $430,000 in aggregate payments. The invoices were submitted over a period from approximately January 2022 through May 2023.

Invoice Descriptions. Invoices attributed to SPS were typically described as property maintenance services, exterior painting, and grounds-keeping services at VCR properties. As with GSC and CDC, Serrano confirmed that no actual services were performed by SPS.

Approval Process. The approval process for SPS invoices followed the same general pattern as the GSC invoices. Serrano drafted the purchase orders, and those exceeding his $50,000 threshold were submitted to Daskine or Prescott for approval.

Payment Routing. Payments to SPS were directed to a bank account whose details were provided to Serrano by Daskine. Serrano stated the account details were different from those used for GSC.

E. Aggregate Figures and Patterns

Serrano confirmed the following aggregate figures across the three shell entities:

The total of 47 fictitious purchase orders generated $1,830,000 in improper payments over a period of approximately twenty-four months, from July 2021 through June 2023.

Serrano described the timing and pattern of the invoice submissions in response to further questioning from Donahue. He stated that the invoices were typically submitted on a monthly or bi-monthly basis and were deliberately timed to coincide with periods during which legitimate capital-improvement projects were underway at the Coral Dune Resort & Residences and Palmetto Bluff Club properties. The purpose of this timing, Serrano explained, was to ensure that the fictitious entries would "blend in" with genuine expenditures during the monthly close process and would be less likely to attract scrutiny from VHG's corporate finance team or the independent auditor.

Serrano stated unequivocally that he was not aware of any legitimate work performed by any of the three entities — GSC, CDC, or SPS — at any VCR property or on behalf of VCR in any capacity at any time.

Serrano acknowledged that he personally benefited from the scheme, though he characterized his personal benefit as limited in comparison to the total amounts involved. He stated that Daskine paid him a total of approximately $35,000 to $40,000 in cash over the approximately two-year period of the scheme as compensation for his participation. Serrano stated these cash payments were made in person by Daskine on an irregular basis, typically in amounts of a few thousand dollars at a time. Serrano stated he did not receive any direct payments from the bank accounts of GSC, CDC, or SPS, and that all payments he received came directly from Daskine in the form of cash.

F. Knowledge of End-Use of Funds

Serrano stated that he became aware over time that the funds paid to the three shell entities were being used by Daskine and Prescott for personal expenditures rather than for any business purpose of VCR or VHG. When asked how he became aware of this, Serrano stated that his knowledge was based on a combination of comments made by Daskine, observations, and reasonable inferences.

Specifically, Serrano mentioned that he became aware that Daskine used a portion of the funds diverted through the shell entities to finance a residential renovation at Daskine's personal residence. Serrano identified the address of the residence as 312 Harbor View Lane, Destin, Florida 32541. Serrano stated he did not visit the property during or after the renovation but that Daskine mentioned the renovation work on multiple occasions in conversation and that Serrano understood the shell-entity funds were being used to pay for it.

Serrano also stated that he was aware Daskine used funds for boat-slip fees, though he did not provide additional detail regarding the location of the marina or the amounts involved.

With respect to Prescott, Serrano stated that he was aware Prescott used funds from CDC for "personal things," but he stated he did not have detailed knowledge of Prescott's specific expenditures. He described his understanding as general in nature, based on comments Prescott had made, rather than based on any documentary evidence he had reviewed.

Serrano stated that he did not conduct any independent tracing of the funds paid to the shell entities and did not have access to the bank statements or financial records of GSC, CDC, or SPS.

V. Revenue-Recognition Practices at VCR

A. Serrano's Role in Revenue Recording

Donahue transitioned the interview to questions regarding VCR's revenue-recognition practices, a separate but related component of the Audit Committee's investigation. Serrano described his involvement in VCR's monthly and quarterly close processes, which included the recording of revenue from timeshare-interest sales.

Serrano stated that revenue from timeshare-interest sales was the primary revenue category at VCR and constituted the largest single source of revenue for the division. This revenue was generated primarily at two properties: the Coral Dune Resort & Residences, specifically the Phase III units, and the Palmetto Bluff Club, specifically the Phase II units.

Serrano described the standard process for timeshare-interest sales revenue recognition as follows: VCR's sales agents would execute purchase agreements with prospective buyers. At the time of signing, a deposit — typically ranging from 10% to 20% of the total purchase price — was collected from the buyer. Under Florida Statute § 721.10, purchasers of timeshare interests are entitled to a 10-calendar-day rescission period, during which the purchaser may cancel the contract and receive a full refund of the deposit.

B. Premature Revenue Recognition — Direction from Prescott and Daskine

Serrano stated that beginning in or around the third quarter of 2022 (the quarter ending September 30, 2022), Nicole Prescott directed him to change the timing of revenue recognition for timeshare-interest sales deposits. Specifically, Prescott instructed Serrano to book timeshare-interest deposits as completed-sale revenue at the time the purchase agreement was signed by the buyer, rather than waiting for the expiration of the 10-calendar-day rescission period under Florida law.

Serrano stated that prior to Q3 2022, VCR's established practice — which Serrano understood had been in place for years before his arrival at the Company — was to hold deposits in a deferred-revenue account (a liability account on VCR's balance sheet) until the rescission period expired. Only after the 10-day rescission window had closed without the buyer exercising the right to cancel would the amount be reclassified from deferred revenue to recognized revenue. Serrano described this as the "conservative" and, in his view, correct approach under applicable accounting standards.

Serrano stated that Prescott told him the change in practice was intended to "smooth" VCR's quarterly revenue and to ensure that VCR met its internal revenue targets for each reporting period. Serrano stated that Prescott indicated Daskine was aware of and endorsed this change. Serrano was not present for any direct conversation between Prescott and Daskine on this topic but stated he had no reason to doubt Prescott's representation given Daskine's general involvement in VCR's financial reporting.

Serrano stated he raised concerns with Prescott about the departure from VCR's prior practice. He described a conversation, which he believed occurred in or around August or September 2022, in which he told Prescott that booking deposits before the rescission period expired was not consistent with VCR's historical approach and could create problems if rescission rates were significant. Serrano stated that Prescott responded by telling him it was "an interpretation issue" and that "corporate would not object." Serrano understood Prescott's reference to "corporate" to mean VHG's corporate finance team and/or the CFO, Thomas Rhett Griffith. Serrano stated that Prescott did not provide any written analysis or memorandum supporting the change in accounting treatment.

Serrano acknowledged that he did not escalate his concerns beyond Prescott. Specifically, Serrano stated he did not raise the issue with VHG's corporate finance team, the CFO, the Audit Committee, or any member of VHG's Board of Directors. Serrano also stated he did not consult with or report the matter to VHG's independent auditor, Hargrove, Steen & Aldrich LLP.

C. Rescission Reversals and Quarter-Over-Quarter Rolling

Serrano explained the practical consequences of the premature revenue-recognition practice in response to further questioning from Donahue. He stated that a significant number of timeshare purchasers exercised their rescission rights within the 10-calendar-day window provided under Florida Statute § 721.10.

Serrano estimated that the rescission rate during the period under investigation was higher than the historical norm. He estimated the rate at approximately 14% to 15% of signed purchase agreements, compared to what he understood to be an industry average of closer to 11%. Serrano attributed the elevated rescission rate in part to aggressive sales tactics employed by VCR's sales teams, though he stated he did not have direct involvement in or oversight of the sales function.

Serrano described the accounting consequences as follows. Under the changed practice directed by Prescott, when a purchaser signed a purchase agreement and paid the initial deposit, the deposit was booked as recognized revenue in the current quarter. When a purchaser subsequently exercised the rescission right within the 10-day window and the deposit was refunded, the previously recognized revenue needed to be reversed. However, Serrano stated that the reversals were not recorded in the same quarter in which the revenue had been prematurely recognized. Instead, the reversal was recorded in the following quarter.

This practice created a persistent and cumulative overstatement of revenue that rolled forward from quarter to quarter. In any given quarter, the reported revenue figure would include (a) new deposits prematurely booked as revenue in the current quarter and (b) reversals of rescinded sales from the prior quarter. Because new prematurely recognized revenue in each quarter consistently exceeded the reversals from the prior quarter, the net effect was a persistent overstatement of VCR's reported revenue.

Serrano stated that the overstatement grew over time. He identified Q1 2023 (the quarter ending March 31, 2023) as the period in which the overstatement was most significant. He attributed this to a large volume of purchase-agreement signings at Coral Dune Resort & Residences (Phase III) during January and February 2023, combined with a continued high rescission rate. The combination of these factors resulted in a substantial amount of revenue being recognized prematurely in Q1 2023 that was subsequently reversed in Q2 2023.

D. Serrano's Knowledge of the Dollar Amounts

Serrano was asked to provide specific dollar amounts of the revenue overstatement on a quarter-by-quarter basis. He stated he was not able to provide precise figures from memory but acknowledged that the amounts were "significant" and "in the millions."

With respect to Q1 2023 specifically, Serrano stated that the figure was the largest of any quarter during the relevant period. He recalled that the amount of deposits booked prematurely as revenue in Q1 2023 "might have been close to $10 million." He qualified this estimate by stating that he did not recall the exact figure and that he did not prepare any formal internal analysis quantifying the cumulative overstatement during his tenure.

Serrano acknowledged that the premature recognition practice was having a material effect on VCR's reported quarterly revenue. He noted for context that VCR's total reported revenue for the fiscal year ending December 31, 2022 was approximately $438.7 million. Serrano stated that the premature recognition, while representing a small percentage of total annual revenue, was nonetheless a measurable and material figure in the context of quarterly reporting and could have affected quarter-over-quarter growth metrics and comparisons used by investors and analysts.

E. Interaction with HSA's Audit Work

Serrano stated that he was aware that Hargrove, Steen & Aldrich LLP ("HSA"), VHG's independent auditor, performed quarterly interim reviews of the Company's financial statements in connection with VHG's 10-Q filings with the Securities and Exchange Commission.

Serrano stated he was present for certain inquiries by the HSA audit team during the Q1 2023 interim review (the 10-Q period ending March 31, 2023). He recalled that HSA's engagement partner, William Gentry, or members of Gentry's audit team, asked questions about the timing of revenue recognition on certain timeshare-interest sales. Specifically, Serrano recalled that HSA inquired about the classification of deposits and the point at which revenue was being recognized relative to the rescission period.

Serrano stated that he provided the data and documents requested by HSA during the review but that he did not volunteer the fact that VCR's revenue-recognition practice had been changed at Prescott's direction beginning in Q3 2022. Serrano stated he did not affirmatively misrepresent the accounting treatment to HSA but acknowledged that he withheld material context regarding the change in policy and the reasons for it.

Serrano stated that he was aware, as of the date of this interview, that HSA ultimately communicated concerns to VHG's Chief Financial Officer, Thomas Rhett Griffith, and to the Chair of the Audit Committee regarding a potential material weakness in VCR's internal controls over financial reporting. Serrano understood that this communication occurred on or about June 19, 2023, and that it related specifically to the approximately $9.8 million in revenue recognized prematurely in Q1 2023. Serrano stated he was not present for HSA's communication to VHG management or the Audit Committee and learned of it through his reporting chain at VCR.

VI. Serrano's Relationship with Daskine and Prescott

Donahue asked Serrano to describe his working relationships with Garrett W. Daskine and Nicole Prescott, and the dynamic within VCR's leadership team.

Serrano described Daskine as the primary authority at VCR and the individual who set the strategic and operational direction for the division. Serrano characterized Daskine as a "dominant personality" who made major decisions at the division level and expected compliance from subordinates. Serrano stated that Daskine had been at VHG for approximately seventeen years and wielded significant influence within the organization, both at the divisional level and with certain members of VHG's corporate leadership. Serrano stated that Daskine's long tenure and track record of generating revenue for VHG gave him a degree of autonomy that was unusual for a division president.

Serrano described Prescott as Daskine's "right hand" on financial matters. He stated that Prescott had approximately nine years of tenure at VHG and that she and Daskine had a close working relationship. Serrano stated that Prescott was the individual who communicated most of the financial directives to Serrano and that Prescott served as the intermediary between Daskine and the finance team on matters of policy and reporting.

Serrano stated that he felt pressure from both Daskine and Prescott to comply with their directives regarding the shell entities and the revenue-recognition change. He stated that the pressure was not limited to explicit threats but included a general understanding that non-compliance or reporting of the conduct would result in adverse consequences for his employment and career. Serrano stated that he feared retaliation if he refused to participate in the scheme or if he reported the conduct to VHG's corporate office or the Audit Committee.

When asked by Quinn whether he had considered using VHG's existing whistleblower or ethics-reporting channels — including the anonymous compliance hotline maintained by VHG's General Counsel's office — Serrano acknowledged that he was aware such channels existed. He stated, however, that he did not use them. He stated he did not believe the reporting mechanisms would protect him from retaliation given Daskine's influence within the organization. Serrano acknowledged that this was a decision he regretted.

VII. Serrano's Personal Exposure and Posture

Marco Ruiz made a brief statement on behalf of his client regarding Serrano's cooperation posture. Ruiz stated that Serrano was participating in the interview voluntarily and that Serrano recognized the seriousness of the matters under investigation. Ruiz stated that Serrano understood his potential personal exposure in connection with both the fictitious purchase-order scheme and the revenue-recognition irregularities.

Ruiz indicated that Serrano was willing to continue cooperating with the Audit Committee's investigation and was open to future discussions about a formal cooperation arrangement with VHG. Ruiz stated that such an arrangement could include, among other things, continued availability for interviews, assistance with document identification and review, and testimony if required. Ruiz requested that Serrano's cooperative posture be taken into consideration in connection with any decisions by VHG regarding personnel actions, referrals, or other matters affecting Serrano's interests.

Serrano stated that as of the date of this interview, he had not been contacted by any government agency or regulator regarding the matters discussed during the interview. He stated he had not received any subpoena, document request, or informal inquiry from the Securities and Exchange Commission, the Department of Justice, or any state regulatory authority.

Note for File: As of the date of this memorandum, Calderwood & Harkness is aware, based on developments in September 2023, that the SEC Division of Enforcement has opened a preliminary inquiry related to VHG's financial reporting practices, assigned File No. HO-14237. This information was not disclosed to Serrano or his counsel during the interview and is noted here solely for the internal reference of the Audit Committee and investigating counsel.

Subsequent Development: A formal cooperation agreement between VHG (acting through the Audit Committee) and Serrano was executed on November 15, 2023. The terms of that agreement were not discussed at this interview and are addressed in separate memoranda.

VIII. Documents Referenced During Interview

During the course of the interview, Serrano was shown selected documents from Calderwood & Harkness's investigation files. The documents were presented to Serrano for identification and comment and included the following:

1. Sample Purchase Orders. Printouts of selected purchase orders from VCR's accounts-payable system attributed to Gulf Standard Contracting LLC, Clearwater Design Collective Inc., and Suncoast Property Services LLC. Serrano reviewed the purchase orders and confirmed their authenticity. He acknowledged that the purchase orders were created by him in VCR's system.

2. Invoice No. GSC-2023-007. A copy of Invoice No. GSC-2023-007, dated February 14, 2023, in the amount of $94,500, described as "lobby renovation materials — Coral Dune Phase III." Serrano confirmed the invoice was fictitious, that no such materials were procured or delivered, and that the invoice was processed for payment at Daskine's direction.

3. Florida Secretary of State Filing Records. Certified copies of the formation and registration documents on file with the Florida Secretary of State for Gulf Standard Contracting LLC, Clearwater Design Collective Inc., and Suncoast Property Services LLC. Serrano reviewed these documents, confirmed that he served as registered agent for GSC and CDC, and confirmed that the information in the SPS filing was consistent with what Daskine had told him regarding that entity.

4. VCR Revenue-Recognition Journal Entries. Printouts of selected journal entries from VCR's general ledger reflecting the recording of timeshare-interest sales revenue for Q3 2022 (quarter ending September 30, 2022) and Q1 2023 (quarter ending March 31, 2023). Serrano reviewed these entries and confirmed their general accuracy, stating that they reflected the revenue-recognition methodology directed by Prescott.

Serrano confirmed the authenticity and general accuracy of all documents shown to him during the interview. He did not challenge or dispute the accuracy of any document presented.

No documents were provided to Serrano or his counsel to retain following the interview. All documents shown during the interview remained in the custody of Calderwood & Harkness LLP and are maintained in the investigation file for 1021-00008.

IX. Follow-Up Items and Open Questions

At the conclusion of the substantive questioning, the following follow-up items and open questions were identified. Serrano, through his counsel, agreed to provide additional information on the following topics:

1. Bank Account Information. Serrano agreed to provide, to the extent he has records or can reconstruct the information, the specific bank accounts (including financial institution names, routing numbers, and account numbers) to which payments were directed for each of the three shell entities — GSC, CDC, and SPS. Serrano stated he entered this information into VCR's accounts-payable system and may be able to recall or locate it.

2. Communications. Serrano agreed to identify and, to the extent they are in his possession, produce any communications — including emails, text messages, and messages on any messaging platform — between Serrano and Daskine or Prescott regarding the shell entities, the fictitious purchase orders, the revenue-recognition change, or any related topic. Marco Ruiz stated he would review any such communications for privilege and relevance before production.

3. Cash Payments. Serrano agreed to provide additional detail regarding the approximately $35,000 to $40,000 in cash payments he stated he received from Daskine over the course of the scheme, including his best recollection of the timing, amounts, and circumstances of each payment, and whether he has any documentary evidence (such as personal bank-deposit records) corroborating these payments.

Marco Ruiz made two requests at the close of the interview. First, Ruiz requested that any follow-up interview session be scheduled with reasonable advance notice — he requested a minimum of five business days — to allow Serrano and his counsel adequate time to prepare. Second, Ruiz requested that Serrano's cooperative posture and voluntary participation in the investigation be taken into account in connection with any future personnel decisions, legal actions, or referral decisions by VHG, the Audit Committee, or Calderwood & Harkness on behalf of the Audit Committee.

Calderwood & Harkness noted that a second interview session with Serrano is anticipated and would be scheduled following further document review by the investigation team and completion of the forensic accounting analysis currently being conducted by Crestline Forensic Advisory LLC. The investigation team anticipates that additional documents and forensic findings may generate further lines of inquiry for Serrano.

X. Conclusion

The interview of Ryan Mateo Serrano concluded at approximately 12:40 p.m. Eastern Time on September 27, 2023. No other witnesses were present during the interview, and no audio or video recording was made.

This memorandum reflects counsel's summary of the interview based on contemporaneous notes taken by Steven Hollander during the interview. It is not a verbatim transcript of the interview. To the extent any statement attributed to Serrano in this memorandum is paraphrased, the paraphrase is intended to accurately reflect the substance and import of his statements.

This memorandum is protected by the attorney-client privilege and the attorney work product doctrine, is prepared at the direction of the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc., and should not be disclosed to any person or entity without the prior written authorization of Calderwood & Harkness LLP.

Prepared by:

________________________________________

Liam Donahue Senior Associate Calderwood & Harkness LLP

________________________________________

Steven Hollander Associate Calderwood & Harkness LLP

Reviewed by:

________________________________________

Howard Quinn Partner Calderwood & Harkness LLP

Calderwood & Harkness LLP 200 South Biscayne Boulevard, Suite 4400 Miami, Florida 33131

Matter No. 1021-00008

Distribution: This memorandum is distributed solely to the members of the Audit Committee of Verimark Hospitality Group Inc.: Diane Kowalski (Chair), Reginald Faulkner, and Sandra Yeung. No additional copies have been distributed. Recipients are reminded that this memorandum is PRIVILEGED AND CONFIDENTIAL and is protected by the attorney-client privilege and the attorney work product doctrine.

Matter:	Verimark Hospitality Group Inc. — Audit Committee Internal Investigation
C&H Matter Number:	1021-00008
Subject:	Interview of Ryan Mateo Serrano, Controller, Verimark Coastal Resorts LLC — Session 1
Date of Interview:	September 27, 2023
Date of Memorandum:	September 27, 2023
Prepared by:	Liam Donahue, Senior Associate, Calderwood & Harkness LLP

Steven Hollander, Associate, Calderwood & Harkness LLP

Reviewed by:	Howard Quinn, Partner, Calderwood & Harkness LLP
Entity	Invoices	Total Payments
Gulf Standard Contracting LLC (GSC)	19	$812,400
Clearwater Design Collective Inc. (CDC)	16	$587,600
Suncoast Property Services LLC (SPS)	12	$430,000
Total	47	$1,830,000

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT
This memorandum was prepared by Calderwood & Harkness LLP at the direction of the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. in connection with the Audit Committee's internal investigation. This memorandum is protected by the attorney-client privilege and the attorney work product doctrine. This memorandum should not be disclosed to any person or entity outside the Audit Committee without the prior written authorization of Calderwood & Harkness LLP. Any unauthorized disclosure may result in a waiver of applicable privileges.
MEMORANDUM OF INTERVIEW
I. Interview Logistics
Witness. Ryan Mateo Serrano ("Serrano"), Controller, Verimark Coastal Resorts LLC ("VCR"), a wholly owned subsidiary of Verimark Hospitality Group Inc. ("VHG" or the "Company"). Serrano is a subject of the Audit Committee's ongoing internal investigation. He has been on administrative leave from VHG since August 7, 2023. Serrano has been employed by VHG for approximately five years.
Counsel for Witness. Marco A. Ruiz, Esq., of Coletti & Ruiz PA, Tampa, Florida, appeared as individual counsel for Serrano and was present throughout the entirety of the interview. Mr. Ruiz participated in discussions regarding the scope and ground rules for the interview and interjected at various points, as noted herein.
Interviewers. Howard Quinn, Partner, Calderwood & Harkness LLP, served as the responsible partner and led portions of the questioning. Liam Donahue, Senior Associate, Calderwood & Harkness LLP, served as lead associate and conducted the majority of the substantive questioning.
Also Present. Steven Hollander, Associate, Calderwood & Harkness LLP, was present throughout the interview in the capacity of working associate and note-taker.
Location. The interview was conducted in person at the offices of Calderwood & Harkness LLP, 200 South Biscayne Boulevard, Suite 4400, Miami, Florida 33131, in Conference Room 44-B.
Duration. The interview commenced at approximately 9:00 a.m. Eastern Time and concluded at approximately 12:40 p.m. Eastern Time, for a total duration of approximately three hours and forty minutes. A brief break of approximately ten minutes was taken at approximately 10:45 a.m. at Serrano's request.
Recording. No audio or video recording of the interview was made. Steven Hollander took contemporaneous handwritten notes during the interview, which form the basis of this memorandum. This memorandum is a summary of the substance of the interview, prepared from those notes, and is not a verbatim transcript.
II. Upjohn Warnings and Acknowledgments
At the outset of the interview, before any substantive questioning commenced, Howard Quinn administered the firm's standard Upjohn warning script (version dated August 14, 2023, a copy of which is maintained in the investigation file). Mr. Quinn advised Serrano of the following:
1.  Calderwood & Harkness LLP represents the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc. Calderwood & Harkness does not represent Serrano individually, and no attorney-client relationship exists between Calderwood & Harkness and Serrano.
2.  The purpose of the interview is to gather facts in connection with the Audit Committee's internal investigation into certain expense-reporting irregularities and revenue-recognition practices at VCR. The investigation was authorized by resolution of the Audit Committee on July 31, 2023.
3.  The attorney-client privilege with respect to communications during this interview belongs to VHG, acting through its Audit Committee, and not to Serrano personally. Serrano does not have the authority to assert or waive any privilege on behalf of VHG.
4.  VHG, through its Audit Committee, may in its sole discretion choose to waive the privilege and disclose the contents of this interview, including this memorandum and any notes taken during the interview, to third parties, including but not limited to government regulators, law enforcement agencies, and the Securities and Exchange Commission.
5.  The substance of this interview is confidential. Serrano was instructed not to discuss the interview, the questions asked, or the information he provided with any other current or former employee, officer, or director of VHG or VCR, or with any other third party, other than his own personal counsel, Marco A. Ruiz.
After each of the foregoing warnings was delivered, Mr. Quinn paused and asked Serrano whether he understood. Serrano stated that he understood each point. Serrano confirmed that he had read and understood the written Upjohn warning that had been provided to him and his counsel in advance of the interview.
Marco Ruiz acknowledged the warnings on behalf of his client and confirmed that Serrano's participation in the interview was voluntary. Mr. Ruiz stated that he had reviewed the Upjohn warnings with Serrano prior to the interview and that Serrano understood the implications of the warnings, including the fact that the privilege belongs to VHG and not to Serrano.
Serrano additionally confirmed that he had not been promised anything — whether by Calderwood & Harkness, the Audit Committee, VHG, or any other person or entity — in exchange for his participation in this interview. He stated that his decision to participate was made voluntarily and in consultation with his own counsel.
III. Background and Employment History
Serrano provided the following background information in response to preliminary questions from Liam Donahue.
Personal Information and Title. Serrano's full legal name is Ryan Mateo Serrano. He holds the title of Controller of Verimark Coastal Resorts LLC. His principal office is located at 7820 Gulf Breeze Parkway, Suite 400, Destin, Florida 32541, which serves as VCR's divisional headquarters.
Reporting Relationships. Serrano stated that he reports directly to Nicole Prescott, Vice President of Finance, Verimark Coastal Resorts LLC. He described this as his primary, "solid-line" reporting relationship. In addition, Serrano indicated that he maintained a "dotted-line" reporting relationship to VHG's corporate finance organization, headed by Thomas Rhett Griffith, who serves as Chief Financial Officer of VHG. Serrano stated that the dotted-line relationship was largely administrative in nature and related primarily to the submission of VCR's financial data for consolidation into VHG's corporate financial statements and SEC filings. Serrano stated he interacted with the corporate finance team most frequently during quarterly and year-end close periods.
Start Date and Tenure. Serrano stated he began his employment with VHG in approximately 2018, making his tenure at the Company approximately five years as of the date of this interview. He did not recall the precise start date but believed it was in the second quarter of 2018.
Prior Professional Experience. Before joining VHG, Serrano stated he held accounting positions at two smaller hospitality companies in the Tampa, Florida, area, though he did not provide the names of those companies during this interview. Serrano holds an active Certified Public Accountant license issued by the State of Florida.
Role and Responsibilities. Serrano described his responsibilities as Controller of VCR as encompassing the day-to-day accounting operations of the division. He identified his principal duties as follows:
•  Oversight of the accounts payable function, including vendor setup, invoice processing, and payment authorization within his approval threshold;
•  Maintenance of the general ledger for VCR, including the posting of journal entries and account reconciliations;
•  Creation and approval of purchase orders within his authorization threshold;
•  Management of the monthly close process for VCR, including the preparation and review of trial balances and financial statements;
•  Preparation of VCR's divisional financial reports for submission to VHG's corporate finance team for consolidation into the Company's consolidated financial statements; and
•  Coordination with VHG's independent auditor in connection with quarterly interim reviews and the annual audit.
Purchase Order Authority. Serrano stated that he had the authority to initiate and approve purchase orders with a value of up to $50,000. Purchase orders with a value exceeding $50,000 required the approval of either Nicole Prescott, in her capacity as VP of Finance for VCR, or Garrett W. Daskine, in his capacity as Division President of VCR. Serrano stated that this threshold was established by VHG's corporate procurement policy and had been in place throughout his tenure.
Key Properties. Serrano stated that his financial oversight responsibilities extended to two principal VCR properties:
1.  Coral Dune Resort & Residences, located at 14200 Emerald Coast Parkway, Destin, Florida 32541. Serrano described Coral Dune as VCR's flagship property and stated that the Phase III expansion of the resort was a significant focus of capital-improvement activity during the period under investigation.
2.  Palmetto Bluff Club, located at 3950 Longboat Key Drive, Sarasota, Florida 34228. Serrano described Palmetto Bluff Club as a smaller property with a focus on club membership and timeshare-interest sales, including Phase II units that had been brought to market during 2022.
Serrano stated that he was responsible for all financial reporting related to these two properties and that the fictitious purchase orders and the revenue-recognition practices at issue in this investigation related to operations at these properties.
IV. Fictitious Purchase Orders and Shell Entities
A. Overview of the Scheme
In response to questions from Liam Donahue, Serrano acknowledged his role in creating and processing fictitious purchase orders attributed to three purported vendors for capital-improvement work at VCR-managed properties. The three entities — Gulf Standard Contracting LLC, Clearwater Design Collective Inc., and Suncoast Property Services LLC — are described in detail below.
Serrano stated that the scheme originated at the direction of Garrett W. Daskine, Division President of VCR. Serrano characterized the initial approach as occurring in early 2021 — he believed it was in late February or early March 2021, though he could not recall the precise date. According to Serrano, Daskine told him that certain vendors would be performing "off-book" contracting work at VCR properties and that Serrano should set them up in the accounts payable system and process their invoices as they were submitted. Daskine indicated that the work was legitimate but that it needed to be handled outside of VCR's standard procurement process for reasons Daskine described as relating to "timing" and "budget flexibility."
Serrano stated that he initially believed or hoped the vendors were legitimate, but that he came to understand over time — within a matter of weeks to a few months — that the vendors were not performing any actual work at VCR properties and that the payments being processed were instead being directed to entities controlled by Daskine and, subsequently, by Nicole Prescott. Serrano acknowledged that despite this understanding, he continued to process the fictitious purchase orders and invoices over a period of approximately two years.
B. Gulf Standard Contracting LLC ("GSC")
Formation and Registration. Serrano confirmed that Gulf Standard Contracting LLC ("GSC") was formed on March 12, 2021, as a Florida limited liability company. Serrano stated that he served as the registered agent for GSC in connection with its formation with the Florida Secretary of State. He stated that Daskine asked him to serve in this capacity and that Serrano complied.
Beneficial Ownership. Serrano stated that Garrett W. Daskine was the sole member and beneficial owner of GSC. Serrano indicated that Daskine used a nominee arrangement for the entity's formation documents so that Daskine's name would not appear on the public filing. Serrano stated he did not know the specific identity of the nominee individual whose name appeared on the formation documents, but that Daskine told him expressly that the entity was "his" and that Serrano should treat it accordingly.
Vendor Setup. Serrano stated that he created the vendor profile for GSC in VCR's accounts-payable system in approximately April 2021. He entered the business name, mailing address, and bank-account information that Daskine provided to him. Serrano did not recall independently verifying any of this information, such as confirming a physical office location or requesting a W-9 from GSC, though he acknowledged that standard VCR vendor-onboarding procedures would have required such verification.
Invoices and Amounts. Serrano stated that a total of nineteen (19) invoices were submitted under the GSC vendor profile over the course of the scheme, totaling $812,400 in aggregate payments. The invoices were submitted at irregular intervals, typically monthly or bi-monthly, from approximately July 2021 through June 2023.
Invoice Descriptions. The invoices attributed to GSC were typically described as capital-improvement work, including lobby renovation materials, pool-deck resurfacing, and HVAC system upgrades. The majority of the GSC invoices referenced work purportedly performed at Coral Dune Resort & Residences, specifically in connection with the Phase III expansion. A smaller number of invoices referenced work at Palmetto Bluff Club.
Largest Single Invoice. Serrano identified Invoice No. GSC-2023-007, dated February 14, 2023, in the amount of $94,500, as the largest single fictitious invoice he processed in connection with the scheme. The invoice was described as "lobby renovation materials — Coral Dune Phase III." Serrano confirmed that no lobby renovation materials were in fact procured or delivered in connection with this invoice and that the amount was entirely fictitious.
Approval Process. Serrano explained the approval process for GSC invoices as follows. Serrano would draft the purchase orders within VCR's system, creating requisition entries that corresponded to the fictitious invoices. For invoices at or below his $50,000 approval threshold, Serrano approved the purchase orders and processed the invoices himself. For invoices exceeding $50,000 — including Invoice No. GSC-2023-007 for $94,500 — Serrano submitted the purchase orders to Daskine or Prescott for approval. Serrano stated that Daskine personally approved the $94,500 invoice. Serrano could not recall from memory which other GSC invoices above $50,000 were approved by Daskine as opposed to Prescott, but stated that Daskine approved the majority.
Payment Routing. Serrano stated that payments to GSC were made via ACH transfer or, on occasion, by company check. The payments were directed to a bank account whose details were provided to Serrano by Daskine. Serrano stated he did not know the specific financial institution or branch where the GSC account was maintained. He entered the routing and account numbers provided by Daskine into the vendor profile in VCR's accounts-payable system.
C. Clearwater Design Collective Inc. ("CDC")
Formation and Registration. Serrano confirmed that Clearwater Design Collective Inc. ("CDC") was formed on June 4, 2021, as a Florida corporation. Serrano stated that he served as the registered agent for CDC in connection with its formation with the Florida Secretary of State, similar to his role with GSC.
Beneficial Ownership. Serrano stated that Nicole Prescott, VP of Finance for VCR, was the sole shareholder and beneficial owner of CDC. Serrano stated that Prescott instructed him to set up the vendor profile for CDC in VCR's accounts-payable system and that Prescott provided the entity's formation details and bank-account information to Serrano directly.
Vendor Setup. Serrano created the vendor profile for CDC in VCR's accounts-payable system in approximately July 2021. As with GSC, Serrano entered the information provided to him without conducting independent verification of the entity's legitimacy, physical address, or business operations.
Invoices and Amounts. Serrano stated that a total of sixteen (16) invoices were submitted under the CDC vendor profile, totaling $587,600 in aggregate payments. The invoices were submitted over a period from approximately August 2021 through June 2023.
Invoice Descriptions. Invoices attributed to CDC were typically described as interior design consulting services, furniture procurement, and decorative landscaping at VCR properties. Serrano stated these descriptions were fabricated and that CDC did not perform any actual services or deliver any goods to VCR.
Approval Process. Serrano stated that the approval process for CDC invoices was somewhat different from that for GSC. Because Prescott was both the beneficial owner of CDC and the approving authority for purchase orders above $50,000 at VCR, Prescott either approved the invoices herself or instructed Serrano on which general-ledger codes and cost centers to use when booking the entries. In some instances, Daskine also approved CDC invoices. Serrano acknowledged that the arrangement created an obvious conflict of interest but stated he did not raise this issue with anyone outside of VCR.
Payment Routing. Payments to CDC were directed to a bank account whose details were provided to Serrano by Prescott. As with GSC, Serrano stated he did not know the specific financial institution.
D. Suncoast Property Services LLC ("SPS")
Formation and Registration. Serrano confirmed that Suncoast Property Services LLC ("SPS") was formed on November 18, 2021, as a Florida limited liability company. Unlike GSC and CDC, the registered agent for SPS was not Serrano but rather Panhandle Agent Services Inc., a commercial registered-agent service based in Tallahassee, Florida. Serrano stated that Daskine told him he had used a different registered agent for SPS in order to create "distance" between the entity and Serrano, whom Daskine described as already being associated with the other two vendor entities.
Beneficial Ownership. Serrano stated that Garrett W. Daskine was the sole member and beneficial owner of SPS. Serrano stated that Daskine confirmed this to him directly.
Vendor Setup. Serrano created the vendor profile for SPS in VCR's accounts-payable system in approximately December 2021 or January 2022. He entered the entity's name, address, and bank-account information as provided by Daskine.
Invoices and Amounts. Serrano stated that a total of twelve (12) invoices were submitted under the SPS vendor profile, totaling $430,000 in aggregate payments. The invoices were submitted over a period from approximately January 2022 through May 2023.
Invoice Descriptions. Invoices attributed to SPS were typically described as property maintenance services, exterior painting, and grounds-keeping services at VCR properties. As with GSC and CDC, Serrano confirmed that no actual services were performed by SPS.
Approval Process. The approval process for SPS invoices followed the same general pattern as the GSC invoices. Serrano drafted the purchase orders, and those exceeding his $50,000 threshold were submitted to Daskine or Prescott for approval.
Payment Routing. Payments to SPS were directed to a bank account whose details were provided to Serrano by Daskine. Serrano stated the account details were different from those used for GSC.
E. Aggregate Figures and Patterns
Serrano confirmed the following aggregate figures across the three shell entities:
The total of 47 fictitious purchase orders generated $1,830,000 in improper payments over a period of approximately twenty-four months, from July 2021 through June 2023.
Serrano described the timing and pattern of the invoice submissions in response to further questioning from Donahue. He stated that the invoices were typically submitted on a monthly or bi-monthly basis and were deliberately timed to coincide with periods during which legitimate capital-improvement projects were underway at the Coral Dune Resort & Residences and Palmetto Bluff Club properties. The purpose of this timing, Serrano explained, was to ensure that the fictitious entries would "blend in" with genuine expenditures during the monthly close process and would be less likely to attract scrutiny from VHG's corporate finance team or the independent auditor.
Serrano stated unequivocally that he was not aware of any legitimate work performed by any of the three entities — GSC, CDC, or SPS — at any VCR property or on behalf of VCR in any capacity at any time.
Serrano acknowledged that he personally benefited from the scheme, though he characterized his personal benefit as limited in comparison to the total amounts involved. He stated that Daskine paid him a total of approximately $35,000 to $40,000 in cash over the approximately two-year period of the scheme as compensation for his participation. Serrano stated these cash payments were made in person by Daskine on an irregular basis, typically in amounts of a few thousand dollars at a time. Serrano stated he did not receive any direct payments from the bank accounts of GSC, CDC, or SPS, and that all payments he received came directly from Daskine in the form of cash.
F. Knowledge of End-Use of Funds
Serrano stated that he became aware over time that the funds paid to the three shell entities were being used by Daskine and Prescott for personal expenditures rather than for any business purpose of VCR or VHG. When asked how he became aware of this, Serrano stated that his knowledge was based on a combination of comments made by Daskine, observations, and reasonable inferences.
Specifically, Serrano mentioned that he became aware that Daskine used a portion of the funds diverted through the shell entities to finance a residential renovation at Daskine's personal residence. Serrano identified the address of the residence as 312 Harbor View Lane, Destin, Florida 32541. Serrano stated he did not visit the property during or after the renovation but that Daskine mentioned the renovation work on multiple occasions in conversation and that Serrano understood the shell-entity funds were being used to pay for it.
Serrano also stated that he was aware Daskine used funds for boat-slip fees, though he did not provide additional detail regarding the location of the marina or the amounts involved.
With respect to Prescott, Serrano stated that he was aware Prescott used funds from CDC for "personal things," but he stated he did not have detailed knowledge of Prescott's specific expenditures. He described his understanding as general in nature, based on comments Prescott had made, rather than based on any documentary evidence he had reviewed.
Serrano stated that he did not conduct any independent tracing of the funds paid to the shell entities and did not have access to the bank statements or financial records of GSC, CDC, or SPS.
V. Revenue-Recognition Practices at VCR
A. Serrano's Role in Revenue Recording
Donahue transitioned the interview to questions regarding VCR's revenue-recognition practices, a separate but related component of the Audit Committee's investigation. Serrano described his involvement in VCR's monthly and quarterly close processes, which included the recording of revenue from timeshare-interest sales.
Serrano stated that revenue from timeshare-interest sales was the primary revenue category at VCR and constituted the largest single source of revenue for the division. This revenue was generated primarily at two properties: the Coral Dune Resort & Residences, specifically the Phase III units, and the Palmetto Bluff Club, specifically the Phase II units.
Serrano described the standard process for timeshare-interest sales revenue recognition as follows: VCR's sales agents would execute purchase agreements with prospective buyers. At the time of signing, a deposit — typically ranging from 10% to 20% of the total purchase price — was collected from the buyer. Under Florida Statute § 721.10, purchasers of timeshare interests are entitled to a 10-calendar-day rescission period, during which the purchaser may cancel the contract and receive a full refund of the deposit.
B. Premature Revenue Recognition — Direction from Prescott and Daskine
Serrano stated that beginning in or around the third quarter of 2022 (the quarter ending September 30, 2022), Nicole Prescott directed him to change the timing of revenue recognition for timeshare-interest sales deposits. Specifically, Prescott instructed Serrano to book timeshare-interest deposits as completed-sale revenue at the time the purchase agreement was signed by the buyer, rather than waiting for the expiration of the 10-calendar-day rescission period under Florida law.
Serrano stated that prior to Q3 2022, VCR's established practice — which Serrano understood had been in place for years before his arrival at the Company — was to hold deposits in a deferred-revenue account (a liability account on VCR's balance sheet) until the rescission period expired. Only after the 10-day rescission window had closed without the buyer exercising the right to cancel would the amount be reclassified from deferred revenue to recognized revenue. Serrano described this as the "conservative" and, in his view, correct approach under applicable accounting standards.
Serrano stated that Prescott told him the change in practice was intended to "smooth" VCR's quarterly revenue and to ensure that VCR met its internal revenue targets for each reporting period. Serrano stated that Prescott indicated Daskine was aware of and endorsed this change. Serrano was not present for any direct conversation between Prescott and Daskine on this topic but stated he had no reason to doubt Prescott's representation given Daskine's general involvement in VCR's financial reporting.
Serrano stated he raised concerns with Prescott about the departure from VCR's prior practice. He described a conversation, which he believed occurred in or around August or September 2022, in which he told Prescott that booking deposits before the rescission period expired was not consistent with VCR's historical approach and could create problems if rescission rates were significant. Serrano stated that Prescott responded by telling him it was "an interpretation issue" and that "corporate would not object." Serrano understood Prescott's reference to "corporate" to mean VHG's corporate finance team and/or the CFO, Thomas Rhett Griffith. Serrano stated that Prescott did not provide any written analysis or memorandum supporting the change in accounting treatment.
Serrano acknowledged that he did not escalate his concerns beyond Prescott. Specifically, Serrano stated he did not raise the issue with VHG's corporate finance team, the CFO, the Audit Committee, or any member of VHG's Board of Directors. Serrano also stated he did not consult with or report the matter to VHG's independent auditor, Hargrove, Steen & Aldrich LLP.
C. Rescission Reversals and Quarter-Over-Quarter Rolling
Serrano explained the practical consequences of the premature revenue-recognition practice in response to further questioning from Donahue. He stated that a significant number of timeshare purchasers exercised their rescission rights within the 10-calendar-day window provided under Florida Statute § 721.10.
Serrano estimated that the rescission rate during the period under investigation was higher than the historical norm. He estimated the rate at approximately 14% to 15% of signed purchase agreements, compared to what he understood to be an industry average of closer to 11%. Serrano attributed the elevated rescission rate in part to aggressive sales tactics employed by VCR's sales teams, though he stated he did not have direct involvement in or oversight of the sales function.
Serrano described the accounting consequences as follows. Under the changed practice directed by Prescott, when a purchaser signed a purchase agreement and paid the initial deposit, the deposit was booked as recognized revenue in the current quarter. When a purchaser subsequently exercised the rescission right within the 10-day window and the deposit was refunded, the previously recognized revenue needed to be reversed. However, Serrano stated that the reversals were not recorded in the same quarter in which the revenue had been prematurely recognized. Instead, the reversal was recorded in the following quarter.
This practice created a persistent and cumulative overstatement of revenue that rolled forward from quarter to quarter. In any given quarter, the reported revenue figure would include (a) new deposits prematurely booked as revenue in the current quarter and (b) reversals of rescinded sales from the prior quarter. Because new prematurely recognized revenue in each quarter consistently exceeded the reversals from the prior quarter, the net effect was a persistent overstatement of VCR's reported revenue.
Serrano stated that the overstatement grew over time. He identified Q1 2023 (the quarter ending March 31, 2023) as the period in which the overstatement was most significant. He attributed this to a large volume of purchase-agreement signings at Coral Dune Resort & Residences (Phase III) during January and February 2023, combined with a continued high rescission rate. The combination of these factors resulted in a substantial amount of revenue being recognized prematurely in Q1 2023 that was subsequently reversed in Q2 2023.
D. Serrano's Knowledge of the Dollar Amounts
Serrano was asked to provide specific dollar amounts of the revenue overstatement on a quarter-by-quarter basis. He stated he was not able to provide precise figures from memory but acknowledged that the amounts were "significant" and "in the millions."
With respect to Q1 2023 specifically, Serrano stated that the figure was the largest of any quarter during the relevant period. He recalled that the amount of deposits booked prematurely as revenue in Q1 2023 "might have been close to $10 million." He qualified this estimate by stating that he did not recall the exact figure and that he did not prepare any formal internal analysis quantifying the cumulative overstatement during his tenure.
Serrano acknowledged that the premature recognition practice was having a material effect on VCR's reported quarterly revenue. He noted for context that VCR's total reported revenue for the fiscal year ending December 31, 2022 was approximately $438.7 million. Serrano stated that the premature recognition, while representing a small percentage of total annual revenue, was nonetheless a measurable and material figure in the context of quarterly reporting and could have affected quarter-over-quarter growth metrics and comparisons used by investors and analysts.
E. Interaction with HSA's Audit Work
Serrano stated that he was aware that Hargrove, Steen & Aldrich LLP ("HSA"), VHG's independent auditor, performed quarterly interim reviews of the Company's financial statements in connection with VHG's 10-Q filings with the Securities and Exchange Commission.
Serrano stated he was present for certain inquiries by the HSA audit team during the Q1 2023 interim review (the 10-Q period ending March 31, 2023). He recalled that HSA's engagement partner, William Gentry, or members of Gentry's audit team, asked questions about the timing of revenue recognition on certain timeshare-interest sales. Specifically, Serrano recalled that HSA inquired about the classification of deposits and the point at which revenue was being recognized relative to the rescission period.
Serrano stated that he provided the data and documents requested by HSA during the review but that he did not volunteer the fact that VCR's revenue-recognition practice had been changed at Prescott's direction beginning in Q3 2022. Serrano stated he did not affirmatively misrepresent the accounting treatment to HSA but acknowledged that he withheld material context regarding the change in policy and the reasons for it.
Serrano stated that he was aware, as of the date of this interview, that HSA ultimately communicated concerns to VHG's Chief Financial Officer, Thomas Rhett Griffith, and to the Chair of the Audit Committee regarding a potential material weakness in VCR's internal controls over financial reporting. Serrano understood that this communication occurred on or about June 19, 2023, and that it related specifically to the approximately $9.8 million in revenue recognized prematurely in Q1 2023. Serrano stated he was not present for HSA's communication to VHG management or the Audit Committee and learned of it through his reporting chain at VCR.
VI. Serrano's Relationship with Daskine and Prescott
Donahue asked Serrano to describe his working relationships with Garrett W. Daskine and Nicole Prescott, and the dynamic within VCR's leadership team.
Serrano described Daskine as the primary authority at VCR and the individual who set the strategic and operational direction for the division. Serrano characterized Daskine as a "dominant personality" who made major decisions at the division level and expected compliance from subordinates. Serrano stated that Daskine had been at VHG for approximately seventeen years and wielded significant influence within the organization, both at the divisional level and with certain members of VHG's corporate leadership. Serrano stated that Daskine's long tenure and track record of generating revenue for VHG gave him a degree of autonomy that was unusual for a division president.
Serrano described Prescott as Daskine's "right hand" on financial matters. He stated that Prescott had approximately nine years of tenure at VHG and that she and Daskine had a close working relationship. Serrano stated that Prescott was the individual who communicated most of the financial directives to Serrano and that Prescott served as the intermediary between Daskine and the finance team on matters of policy and reporting.
Serrano stated that he felt pressure from both Daskine and Prescott to comply with their directives regarding the shell entities and the revenue-recognition change. He stated that the pressure was not limited to explicit threats but included a general understanding that non-compliance or reporting of the conduct would result in adverse consequences for his employment and career. Serrano stated that he feared retaliation if he refused to participate in the scheme or if he reported the conduct to VHG's corporate office or the Audit Committee.
When asked by Quinn whether he had considered using VHG's existing whistleblower or ethics-reporting channels — including the anonymous compliance hotline maintained by VHG's General Counsel's office — Serrano acknowledged that he was aware such channels existed. He stated, however, that he did not use them. He stated he did not believe the reporting mechanisms would protect him from retaliation given Daskine's influence within the organization. Serrano acknowledged that this was a decision he regretted.
VII. Serrano's Personal Exposure and Posture
Marco Ruiz made a brief statement on behalf of his client regarding Serrano's cooperation posture. Ruiz stated that Serrano was participating in the interview voluntarily and that Serrano recognized the seriousness of the matters under investigation. Ruiz stated that Serrano understood his potential personal exposure in connection with both the fictitious purchase-order scheme and the revenue-recognition irregularities.
Ruiz indicated that Serrano was willing to continue cooperating with the Audit Committee's investigation and was open to future discussions about a formal cooperation arrangement with VHG. Ruiz stated that such an arrangement could include, among other things, continued availability for interviews, assistance with document identification and review, and testimony if required. Ruiz requested that Serrano's cooperative posture be taken into consideration in connection with any decisions by VHG regarding personnel actions, referrals, or other matters affecting Serrano's interests.
Serrano stated that as of the date of this interview, he had not been contacted by any government agency or regulator regarding the matters discussed during the interview. He stated he had not received any subpoena, document request, or informal inquiry from the Securities and Exchange Commission, the Department of Justice, or any state regulatory authority.
Note for File: As of the date of this memorandum, Calderwood & Harkness is aware, based on developments in September 2023, that the SEC Division of Enforcement has opened a preliminary inquiry related to VHG's financial reporting practices, assigned File No. HO-14237. This information was not disclosed to Serrano or his counsel during the interview and is noted here solely for the internal reference of the Audit Committee and investigating counsel.
Subsequent Development: A formal cooperation agreement between VHG (acting through the Audit Committee) and Serrano was executed on November 15, 2023. The terms of that agreement were not discussed at this interview and are addressed in separate memoranda.
VIII. Documents Referenced During Interview
During the course of the interview, Serrano was shown selected documents from Calderwood & Harkness's investigation files. The documents were presented to Serrano for identification and comment and included the following:
1.  Sample Purchase Orders. Printouts of selected purchase orders from VCR's accounts-payable system attributed to Gulf Standard Contracting LLC, Clearwater Design Collective Inc., and Suncoast Property Services LLC. Serrano reviewed the purchase orders and confirmed their authenticity. He acknowledged that the purchase orders were created by him in VCR's system.
2.  Invoice No. GSC-2023-007. A copy of Invoice No. GSC-2023-007, dated February 14, 2023, in the amount of $94,500, described as "lobby renovation materials — Coral Dune Phase III." Serrano confirmed the invoice was fictitious, that no such materials were procured or delivered, and that the invoice was processed for payment at Daskine's direction.
3.  Florida Secretary of State Filing Records. Certified copies of the formation and registration documents on file with the Florida Secretary of State for Gulf Standard Contracting LLC, Clearwater Design Collective Inc., and Suncoast Property Services LLC. Serrano reviewed these documents, confirmed that he served as registered agent for GSC and CDC, and confirmed that the information in the SPS filing was consistent with what Daskine had told him regarding that entity.
4.  VCR Revenue-Recognition Journal Entries. Printouts of selected journal entries from VCR's general ledger reflecting the recording of timeshare-interest sales revenue for Q3 2022 (quarter ending September 30, 2022) and Q1 2023 (quarter ending March 31, 2023). Serrano reviewed these entries and confirmed their general accuracy, stating that they reflected the revenue-recognition methodology directed by Prescott.
Serrano confirmed the authenticity and general accuracy of all documents shown to him during the interview. He did not challenge or dispute the accuracy of any document presented.
No documents were provided to Serrano or his counsel to retain following the interview. All documents shown during the interview remained in the custody of Calderwood & Harkness LLP and are maintained in the investigation file for 1021-00008.
IX. Follow-Up Items and Open Questions
At the conclusion of the substantive questioning, the following follow-up items and open questions were identified. Serrano, through his counsel, agreed to provide additional information on the following topics:
1.  Bank Account Information. Serrano agreed to provide, to the extent he has records or can reconstruct the information, the specific bank accounts (including financial institution names, routing numbers, and account numbers) to which payments were directed for each of the three shell entities — GSC, CDC, and SPS. Serrano stated he entered this information into VCR's accounts-payable system and may be able to recall or locate it.
2.  Communications. Serrano agreed to identify and, to the extent they are in his possession, produce any communications — including emails, text messages, and messages on any messaging platform — between Serrano and Daskine or Prescott regarding the shell entities, the fictitious purchase orders, the revenue-recognition change, or any related topic. Marco Ruiz stated he would review any such communications for privilege and relevance before production.
3.  Cash Payments. Serrano agreed to provide additional detail regarding the approximately $35,000 to $40,000 in cash payments he stated he received from Daskine over the course of the scheme, including his best recollection of the timing, amounts, and circumstances of each payment, and whether he has any documentary evidence (such as personal bank-deposit records) corroborating these payments.
Marco Ruiz made two requests at the close of the interview. First, Ruiz requested that any follow-up interview session be scheduled with reasonable advance notice — he requested a minimum of five business days — to allow Serrano and his counsel adequate time to prepare. Second, Ruiz requested that Serrano's cooperative posture and voluntary participation in the investigation be taken into account in connection with any future personnel decisions, legal actions, or referral decisions by VHG, the Audit Committee, or Calderwood & Harkness on behalf of the Audit Committee.
Calderwood & Harkness noted that a second interview session with Serrano is anticipated and would be scheduled following further document review by the investigation team and completion of the forensic accounting analysis currently being conducted by Crestline Forensic Advisory LLC. The investigation team anticipates that additional documents and forensic findings may generate further lines of inquiry for Serrano.
X. Conclusion
The interview of Ryan Mateo Serrano concluded at approximately 12:40 p.m. Eastern Time on September 27, 2023. No other witnesses were present during the interview, and no audio or video recording was made.
This memorandum reflects counsel's summary of the interview based on contemporaneous notes taken by Steven Hollander during the interview. It is not a verbatim transcript of the interview. To the extent any statement attributed to Serrano in this memorandum is paraphrased, the paraphrase is intended to accurately reflect the substance and import of his statements.
This memorandum is protected by the attorney-client privilege and the attorney work product doctrine, is prepared at the direction of the Audit Committee of the Board of Directors of Verimark Hospitality Group Inc., and should not be disclosed to any person or entity without the prior written authorization of Calderwood & Harkness LLP.
Prepared by:
________________________________________
Liam Donahue Senior Associate Calderwood & Harkness LLP
________________________________________
Steven Hollander Associate Calderwood & Harkness LLP
Reviewed by:
________________________________________
Howard Quinn Partner Calderwood & Harkness LLP
Calderwood & Harkness LLP 200 South Biscayne Boulevard, Suite 4400 Miami, Florida 33131
Matter No. 1021-00008
Distribution: This memorandum is distributed solely to the members of the Audit Committee of Verimark Hospitality Group Inc.: Diane Kowalski (Chair), Reginald Faulkner, and Sandra Yeung. No additional copies have been distributed. Recipients are reminded that this memorandum is PRIVILEGED AND CONFIDENTIAL and is protected by the attorney-client privilege and the attorney work product doctrine.
Matter: | Verimark Hospitality Group Inc. — Audit Committee Internal Investigation
C&H Matter Number: | 1021-00008
Subject: | Interview of Ryan Mateo Serrano, Controller, Verimark Coastal Resorts LLC — Session 1
Date of Interview: | September 27, 2023
Date of Memorandum: | September 27, 2023
Prepared by: | Liam Donahue, Senior Associate, Calderwood & Harkness LLP
Steven Hollander, Associate, Calderwood & Harkness LLP
Reviewed by: | Howard Quinn, Partner, Calderwood & Harkness LLP
Entity | Invoices | Total Payments
Gulf Standard Contracting LLC (GSC) | 19 | $812,400
Clearwater Design Collective Inc. (CDC) | 16 | $587,600
Suncoast Property Services LLC (SPS) | 12 | $430,000
Total | 47 | $1,830,000

PRIVILEGED AND CONFIDENTIAL ATTORNEY-CLIENT PRIVILEGE / ATTORNEY WORK PRODUCT

MEMORANDUM OF INTERVIEW

Record

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