Family Fun Center -- Due Diligence

Vicki Hunsinger – Property Owner

Here are some facts I have discovered:

1. The construction contractor that Mr. Brown indicated would be “breaking ground” , is Metro Group Contracting dba: Metro Estate Planning Group. The address for these two “groups” is Mr. Brown’s home address. The telephone number is listed to 5 people. Two at Mr. Brown’s address, 35 Cherokee Drive, Saulsbury, and to the three Ervins in Bolivar, TN all living at the same address in Bolivar.

2. Metro Group Contracting dba: Metro Estate Planning Group has 3 employees. Dorothy Brown, President, Larry Brown, secretary, and an unidentified third person.

3. Metro Group Contracting is in the phone book and on the Internet listed under: Mobile Home Improvements category.

4. The annual revenues as reported are an estimated $175K for Metro Group Contracting dba: Metro Estate Planning Group.

5. The letterhead on the draft proposal letter is: Diamondhead Condo Hotel, Ltd. This is probably something made up for the presentation to the Diamondhead group. Ltd is a limited liability corporation in Great Britain, Canada, Australia, Wales, etc. In the United States the correct designation is LLC or LLP. There is no listing for such a company in Tennessee or Arkansas. What is the explanation for the Ltd designation? Please don’t laugh this off - if they don’t understand the correct designation for a corporation, what else don’t they understand? Or was this deliberate?

6. A research of the licenses issued for General Contractors in Arkansas and Tennessee did not show a Metro Group Contracting in the lists of companies with General Contractor licenses.

7. Mr. Brown will give the DPOA $240 for each corporate membership sold (estimated 400). What is the actual price of the membership sold by Mr. Brown? What is our cost to allow two people to play a round of golf with cart for $20? Is it more than $20?

8. 400 corporate memberships X 5 families per membership = 2000 families X 4 members each = 8,000 additional people with access to facilities? What are our capacities? What does a country club charge for golf, pool, boat docks, clubhouse, tennis courts, annual membership? Corporate membership at Hot Springs country club: Initiation fee: $3,500.00; monthly dues $272.00; good for 1 family only. The second corporate family would have an initiation fee of $3,000.00 plus the same monthly dues of $272.00.

9. With this type of membership sales will come additional responsibilities and costs to Diamondhead. If corporations pay Mr. Brown several thousand dollars, there will be specific expectations that Diamondhead will have to meet.

10. If the project is to bring in $17.5 million with $12 million construction costs; what is Mr. Brown’s profit on the construction? What is Mr. Brown’s profit on the “presold” memberships at Diamondhead?

11. Where is the Environmental Impact Statement? Status?

12. It has been over five weeks since the draft proposal letter was presented. Mr. Brown states in that draft proposal letter that, “ these plans are somewhat sketchy, as we still do not have the planning and design phase completed”. Please show good faith and share your marketing plan, business plan, planning and design aka: project plan.

13. Please show good faith and provide information on the funding source for this project? This would include the financial plan for the project. Include a list of the principle parties involved in the project.

14. Would the Board please share a copy of the due diligence report that they have done on the discovery process for this project?

15. I do not know what the cost of construction is in Arkansas. But, I am going to use the lowest national average of $85.00 per square foot for residential new home: hypothetically 1500 (average is 1600) square feet for a 3 bedroom, 2 bath condo = $127,500. 110 condos X $127,500 = $14,025,000. Remember, these are “upscale” dwellings and I am using the lowest estimate per foot (a standard quality cost is $120.30 per sq. foot). A commercial center at 40,000 square feet (using the lower estimate of footage) and the lowest average price for economy structure 40,000 x $217.20 = $8,688,000. This does not include the amenities required for a Fun Center to be a fun center. Total to build this project: $22,713,000.00. To build an apartment style building which is more along the lines of the condo hotel idea the cost is much higher, $179.80 per square foot X 165,000 sq. feet = $29,667,000 plus the cost of the fun center building. This is probably a $40 million to $50 million project.

16. Presales will mean that Mr. Brown will begin to take in money for “memberships” to Diamondhead and down payments on the condo hotels units. Hypothetically, if Mr. Brown sells a corporate membership at $1250. (that’s $250 per family for the 5 families, a bargain) he should realize the following profit: $1250 X 400 = $500,000 - $96,000 (Diamondhead share) = $404,000.00. Pre-sell 110 condos at $5,000.00 down payment . Take 110 X $5000 = $550,000.00. Total to Mr. Brown is $954,000.00. Memberships at Diamondhead to condo purchasers at $360 X 110 = $36,600.00. This $36,600.00 appears to be less than the cost of one full time employee with benefits. If these are prepaid and the condos aren’t built??????? And, if they sign a contract, is Diamondhead obligated to assure that they will “always” have access to Diamondhead facilities?