SECTION 2:


PELICAN - QUESTIONS AND ANSWERS: Sunday, November 6, 2005

From: Jeff Berger
Date sent: Fri, 21 Oct 2005

“”Eighth, what was the cost for the laundry construction and how much are
we saving each month after all operating costs are reflected? “”

RC>>>>>>>The numbers for the laundry have been provided on many
occasions. They are also available at the Resort upon request.<<<<<

Jeff:
Judy, with all due respect, this is not an answer. Perhaps they and many others (including me) never saw the answers. We all have a lot going on in”our lives. When someone asks a question in your newsletter, grant your audience the respect they deserve and answer it. "This" answer wastes everyone's time including yours. You are supposed to serve at the pleasure of timeshare "owners" -- this reply disrespects all owners since it is a non-answer....

Pelican: The total construction cost for the laundry was $469,925.00. We are saving every month an average of $16,340.00.

From: Bob Clement
Date sent: Mon, 24 Oct
Subject: Reclaimed intervals

October 24, 2005

I'm confused by your comment in the last newsletter, "The resort would not want to "take back" inventory or it would be liable to pay the AMF on every (such) unit. Instead, title passes from old owner to new one. Hence, the resort is "sold out" as it has no notable company inventory to sell."

Let's take this step by step: I assume there is a period of time during which the old owner has failed to pay AMF and/or extra assessments. Accounts receivable are then created. Legal action is taken by the resort to get the title for the interval, occurring costs at that time. Once title has been obtained by the resort, the resort can then resell the interval. (Am I correct thus far?)

Pelican: The resort never gets title back. Contract indicates that delinquent owner losses the right of use, but it is still liable for any unpaid AMF and any new ones. Then the Marketing Company (Royal) looks for a person to buy the membership (what we call a forced resale, this is explain in the contract). The monies collected from this forced resale are distributed in this order: first to the Marketing Company to pay for the marketing costs, second to the resort to collect any unpaid AMF and whatever monies are left, then is paid back to the old owner.

If the resort doesn't legally obtain title to the interval, how can it resell the interval? The old owner must release the interval to the resort in some manner for the interval to be resold by the resort. Upon resale of the unit by the resort, how are the sales proceeds recorded ... I assume some portion must go aganst accounts receiveable and any balance goes into interval sales income? At any point in time there must be groups of intervals: a) past due on their payments to the resort , b) interval owners legally notified that foreclosure is initiated/scheduled, c) Intervals that have had foreclosure accomplished, d) intervals that are available for sale, and e) intervals that have been resold with the income properly recorded to accounts receiveable and sales income.

Therefore, the resort is probably never "sold out"!

Please help me to understand how there is never any unsold inventory! Bob Clement, Pelican weeks 18-21

Pelican: Someone is always responsible for the AMF, that is what the Pelican should care about.

Judy Comment: Unpaid AMF’s can amount to a great deal of money over a two-year period while the sales department is attempting to sell the unit , i.e. if 100 units weeks are not sold and the AMF not paid that would amount to over $70,000 times 2 years $140,000. That is money the Resort is not getting for expenses to run the Resort.

From: "Bill & Jess Torrance"
Subject: AMF Delinquencies
Date sent: Mon, 24 Oct 2005

Hi Judy,
At the 2001 AGM I had raised the question of " What is the current policy of the Board of Directors concerning the non payment of AMF's by the due date? When does the Board commence proceedings for forced sale and what is the time frame before sale can be effected?". I was advised that the policy was being revisited. The only information I
find since then is in Para 7 on Page 5 of the 2003 AGM minutes which states - " Eric Millet (a representative from Royal Resorts Group) informed owners that the units can be placed in inventory for forced resale after 90 days, and everyone interested should contact the Sales promoter. By April 15 all maintenance fees should be paid, or the unit will be subject to forced resale."

Pelican: This is correct and is the current policy. In practice we wait sometimes until June-July to release the forced resale inventory to the Marketing Company to avoid any mistakes.

To Judy, if this is still the Board's policy it doesn't appear that it is being adhered to or being successfully applied or both. I can say this with some authority, as three months ago a family member was the successful bidder on an E-Bay auction listing to purchase week 48 of Unit B568. On checking with ISCO prior to closing we were advised on August 3rd that the Fees for 2004, 2005 and the Special Contribution all remained unpaid.

Pelican: The Marketing Company does not use E-Bay or any other web-based tools to sell resales or forced resales. Owners of weeks are free to sell their units wherever they please (like E-Bay) and anybody interested on purchasing a week directly from the owner should make sure that the membership is current with all AMF payments; this is not the resort’s responsibility.

Please provide us with the current policy with timeframes which the Board follows to collect delinquent fees. Also, it is not clear to me who it is who tries to find the buyers for these foreclosed weeks. Thanks, Bill Torrance

Pelican: This E-Bay example was not a foreclosed week. The Marketing Company (Royal-Sales office) is the only authorized agent to sell foreclosed weeks. The only way to buy a foreclosed week is by contacting the Sales office at the resort.
.
From: "Brian Sanford"
Copies to: "'Jeff Berger'"
Subject: AMF ??
Date sent: Thu, 27 Oct 2005

Judy,

I'm stumped. My wife and I re "Owner", "Tenants", "Shareholders" or what ever we're called these days, and self-employed corporation owners. I've never seen an annual report with so many open ends. Little explanation of budgeted expenses for 2006 and no report of actual expenses for 2005.

What is with the "Slush Fund" and why do we borrow $2 Million +/- for
cash flow, pay off interest of 10% (very expensive note), and borrow again $2 Million +/-. None of this makes sense.

Pelican: $2,500,000 is the cumulative deficit of the Resort that is mainly related to the years in which the resort was not collecting the Maintenance Fees of the approximately 4,000 unsold weeks worth approximately $2,000,000 in Maintenance Fees. In addition to the above, the lack of maintenance from the time of the original developer obliged the Resort to invest large sums of money in the infrastructure.

Pelican: Pelican was able to obtain the loan from a Third Party. The terms were a rate of 10% and maturity of 1 year. The projected deficit for 2006 will reduce to $2,100,000 point at which Pelican will be able to obtain another loan with better terms.

I get the annual report and bill for the upcoming AMF but nothing makes sense. How can other Resorts continue to manage and improve with smaller increases in Management Fees?

Pelican: Other resorts did not go bankrupt nor have all the legal problems the Pelican has. Other resorts are “Maintenance-Friendly,” Pelican is not. Pelican did not receive any maintenance during “Vlietman times.” Have Mr. Sanford list all this other resorts he talks about, is easy to talk without giving facts.

I read emails from other owners claiming inconsistencies and mismanagement. What is true? Why do we have the highest AMFs on the Island? And a whopping 20% increase? These are some questions that have been addressed by other "owners" and
I'd like the answers too: Thank you, Brian Sanford

Date sent: Thu, 27 Oct 2005
From: Jeff Berger
Subject: Re: AMF ??

Judy,
With all due respect, why is Royal allowed to set the budget? It seems to me that Royal should make recommendations, but it should be the Board, on behalf of owners, that sets the budget.

Pelican: It is in the contract between the TAPRC and Royal. Royal presents the budget to the TAPRC and is the TAPRC who approves it or rejects it.

Also, is it the Board or Royal who decides what use is put to weeks that owners are not using? I know that some of those weeks go to Cheap Caribbean, others go to tour operators, and others go to a vacation condo club . . . all of whom pay Royal/Pelican hundreds of dollars less than it would receive were the weeks sold as hotel nights through an affiliation with an outfit like, for example, Marriott.... The whole financial operation looks more curious every day....

Pelican: Pelican cannot use any unit that the owners don’t use except those that owners place in the rental program and foreclosed weeks. Units placed on the rental program are marketed directly by Royal and Royal may or may not use the tour operators quoted by Jeff. Rental program participants are told before hand how much money they are going to collect per rented night and monies collected from the rent of foreclosed weeks are always higher than maintenance fee amounts. By contract, Royal is responsible of all this.

From: "alan stuparitz"
Copies to: Richard Corso and Eric Millet
Subject: Call For Proxies Take II
Date sent: Wed, 19 Oct 2005

Judy,

At the risk of being called a naysayer and/or malcontent, for the second year in a row, I believe it is time for the Pelican Owners (of course only those who have "real" Pelican units), to band together and vote down the budget and the associated minutes.

The AMF increase of over 20% is too high and the Financials provided in the last two AGM packets are too inconsistent to be believed.

Pelican: Financial Statements are reviewed every year by the financial committed and audited by Ernst and Young

I had requested 2004 "Actual Financials" and the 2005 Interim Financials. I was directed to the Pelican Website only to find the March 2005 Actual versus Budget. What numbers did the Board use to determine the 2006 Budget? Was it the same March information on the website?

A few examples to ponder:

"1) How much is 10% of $10,929,778? According to the 2006 Budget it is $1,162,742?

Pelican: As per Management, Marketing and Membership Services Agreement by and among Pelican Resort Club and Royal Resorts: “The Management Fee equals to 10% of all Annual Maintenance Fees for all Intervals at the Resort billed to Members”.

Pelican: For budgeting purposes, the amount of $10,929,778 represents an estimation of collection of 94% of 2006’s total Maintenance Fee billed ($11,627,424). Royal Resort’s Management fee represents 10% over the total amount billed to owners.

"2) Concession income for 2005 and 2006 is $351,600. Does this include any amount for Food & Beverage? Are we budgeting for amounts we cannot expect?

Pelican: In the last few years, all of our Concessionaires have paid us on time with the exception of Food & Beverage (FBMD). Food & Beverage was evicted for that reason and new tenants are now in place. We budgeted for 2006 to collect from Food & Beverage a conservative amount of $14,200 monthly, which we are confident that we will meet.

"3) No sales income for foreclosed units. Royal gets a management fee for all sold units. Forced resales that are in inventory are not generating any AMF or income to the Pelican, but it would appear we are paying the management fees.

Pelican: Pelican never gets the title back, delinquent owner loses right of use and is still liable for the AMF, Royal gets paid a marketing fee and collects it from the proceeds of the sale of each forced resale. Alan has had this explained this several times.

"4) The resort borrowed $2,500,000 in 2005, which has to be paid back in August 2006, which will be replaced by another borrowing of $2,100,000, which is not being shown as a payback in 2007. What did we read about the AMF being increased to cover cash flow and build a reserve? Why the additional borrowing?

Pelican: loans are still needed even with the AMF increase.

Pelican: Due to a mistake, the repayment of $2,100,000 was not reflected in 2007. The new loan for $1,600,000 in 2007 is the replacement of the loan for $2,100,000. The final Cash Flow balance should reflect $1,278,878. Our apologies are given for this error.


"5) The 2005 Budget projected PCIP re-payments of $491,797. The 2006 Budget shows no re-payments. The PCIP has been extended and a cap put on of $4,000,000. How much was in the program in 2004 and 2005. How much was paid back in 2005?

Pelican: As of December 31st, 2004 the balance of the program is for the amount of $4,242,188, and as of September 30th, 2005 the balance is for the amount of $3,912,188.

Pelican: We are confident that by the end of 2005 we will hit the amount of $4,000,000. The amount paid back during 2005 is $465,000.

I will be at the AGM again this year, and I will be glad to accept any and all proxies to vote against the Budget and the Minutes. You can fax your proxy to 954-783-2578.

We didn't fare very well in our first call for proxies last year, and as a result, you can see that we have been financially burdened one more time. HOW LONG ARE WE GOING TO ALLOW THIS TO CONTINUE???? Alan D. Stuparitz, Pelican and FIP Owner

JUDY'S COMMENT: I am not an accountant and would like some input from those who put together next years budget. As you are all aware I am unable to contact anyone at Royal Resorts or Florida due to the hurricane. I am unable to get answers to Alan's questions. At his insistence I am sending this out as is.

The Board has acted in an appropriate manner, setting maintenance fees at a level to properly fund our annual expenses and affords, in time, an appropriate sum of money to upgrade units that have been neglected since construction began. If the Pelican is going to exist for the future, it must finance its own expenses. Money was borrowed on short term basis to finance continuing operating of our resort for this year and will be required again next year and perhaps the following year, at which point maintenance fees should finance continuing operation.

From: "Vaughn Schlunz"
Subject: Re: Newsletter Comments
Date sent: Sat, 22 Oct 2005
Judy,

I have read Alan's comments, and as an accountant too, I see a lot of merit and substance to his points. Chris and I think you should send his comments to the newsletter subscribers and post it to your web-site. This has always been your style and I think your policy to do that has always worked in the best interest of the resort. There are a lot of readers, including current/previous board members, who might be able to add much to the discussion...of course Royal Resorts comments would be welcome as well. ---GOD be with them during hurricane Wilma--- As you know, Chris and I were at Pelican for both the '95 & '99 hurricanes, and we wouldn't wish it on anyone.

>>>>>Judy: There have been a few times over the years when I have saught help from the Board or Royal for answers to owners questions. I am merely doing this again this time.<<<<<

I would like to make a few points too.

FIRST, Royal Resorts has and is doing a fine job managing Pelican. However, during the bankruptcy and eventual owners purchase of Pelican, the fraudulent Board that was trying to bilk owners for money during that time, and the first major hurricane in 1995 ($12,000,000 in damage), Royal Resorts was not present. This was all handled through the resolve of a handful of very talented and dedicated owners and the majority of the general ownership willing to take a risk and hang in there through it all. It is this resolve and ownership that should prevail to make the major decisions at Pelican. Pelican management should come and go as needed, and never control the major decision making process as Royal Resorts does today.

>>>Judy: I know you think that Royal contols decisions by voting for who is on the Board. None of the Board decisions over the years have been easy ones. They will continue to be difficult. We need good people to run for the Board. Vaughn are you interested? I asked you before.

>>>>Judy: Royal is the one that guarantees the third party loans, they want to assure the lenders they are responsible. None of us could commit to loans in the millions. Nor would a bank even listen. They don't want to be timeshare resort owners if we default. Believe it or not we have asked these questions. There is no easy way to do this. We can't have 18,000 making the decisions. We have to depend on management for advise and on the Board members to make good decisions.<<<<

SECOND, I'm wondering why we would pay "Royal channels" 12% to borrow money for capital investments without giving the owners a chance. I'm not one of the rich owners that Alan refers to but, I have invested twice and have not been given 12% interest. In fact, I was told if I roll my investment over next month when it matures I'll be getting even less interest that the 8% I'm getting now.

>>>>Judy: I didn't make up the budged I can't answer the questions. Estela is on vacation, those who know the details are in Mexico and unreachable at the moment. The point is the PCIP program is for upgrading the resort not paying the day to day bills. <<

THIRD, Utility charges have been in the discussions lately and you pointed out that there was a separate utility charge ($50) during each week the unit was used. You may also recall that Royal Resorts suggested we include the utility charge as part of the annual maintenance fee to all members because when a unit sits empty no utility charges are collected, yet there are still some minimum utility costs to the unit. The Board agreed and our annual fees went up by $50. This also immediately resulted in a pay raise for Royal Resorts because we pay them their management fees based on a percent of the owners annual maintenance fees and not utility charges. If utilities are a major part of the inflation causing the increase in annual fees then charge it to the owners on their bill as a utility surcharge, and not raise the annual maintenance fee.

Pelican: When we had the utility surcharge, 20% of members were not paying it and, by contract, we could not foreclose on them. That was the ONLY reason we added it to the AMF, to make sure we collected those monies, if we separate it again some owners will not pay it and that is not fair to the rest of the owners.

Even if it isn't a major factor go back to a utility surcharge which could be raised, lowered or eliminated to fit the situation. I've never heard of annual maintenance fees going down. This would also ensure that management fees would not be paid with money needed to pay for utility cost increases.

Pelican: Inflation is constant on the island, there is no deflation nor has been in the past years

>>>>Judy: I know the utility fees were separated but I don't know that it really saved much. It probably cost us all more since the amount needed for the 52 weeks a year was not always collected. Again, I wasn't there, it was a decision made at that time under different circumstances. Royal is charging much less than the industry standard for their management fee. They have given us a lot of things over the years for very little money. I can't list all the things they have done but trust that I know they have done much more than is required by a management company.

FINALLY, Speaking of utilities, is Marco's Beach Bar still running on the utilities from the resort, or does his electricity and water get metered separately? We might have some leverage there yet.

>>>>Judy: That is a question. I will ask Luis. Hopefully they are not. The restaurant utilities we paid by Pelican for years. A further court hearing is scheduled for November.

Pelican: The “Marcos Bar” is not being supplied with power and water by Pelican, as of yesterday they still had none of these services.

Judy, you know Chris and I fairly well and know that we are not complainers and have supported Royal Resorts and the Board one hundred percent. We have paid our special assessments and increases over the years with no complaints and with complete trust that the management company was doing the right thing... (even though only one of our ten units has been renovated!) Since both of our careers are in the financial arena, we do have to agree with Alan that this budget needs further explanation before it can be passed so we will be sending our proxies for all of our units (those that have voting rights) to Alan to vote this budget down and hope that everyone reading this in your weekly newsletter will do the same this year. I'm guessing that the increase is a done deal but if given the chance, we would have voted it down as well. Vaughn & Chris Schlunz

>>>>Judy: My question is still where do we get the money to run the resort on a day to day basis and where do we get the funds to upgrade the resort? The PCIP program is still an obligation and must be repaid at some point.

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