The new field of revenue royalties finance is explained. Introduction to the work of Arthur Lipper in the field; advantages from the perspective of the investor, the company; problems solved. The prospect of a Royalties Exchange is introduced. A case study, introduction to complimentary modelling tools. Prepared by Michael North.

1. Pacific Royalties
opening the door to capital
for growing companies

2. ROYALTY FINANCING
EQUITY RETENTION • INCREASING INCOME

3. the business, personal and
community benefits
of revenue share investing
helping good companies
to become great companies
employment, families,
community, economy
profitable investment for
the future

4. Royalty Finance:
The Investor perspective

5. Investing is the art
of making money with
money.

6. Today’s investors have
two broad types of
investment available:
Equity
or
Debt

7. Equity = Ownership
Debt = Obligation

8. Both equity and debt bring special
challenges to the investor,
and to the company.
Sometimes, the risk and reward are
not in harmony
for either.

9. There is a third way.

10. Royalties
A simple share of revenues
paid by the company to
investors

11. Royalties = Sharing

12. Estimating future revenues is easier
than projecting future profits.
Royalties are much easier
for investors to understand.

13. Royalties have been used throughout
history for specific purposes:
publishing, music, film rights
oil, gas, gold and commodities income
bridges, roads and utilities
real estate, rents
They are in wide use today,
worldwide.

14. Revenue Royalties
developed by Arthur Lipper
What’s new?
Uses royalties for the first time as a
general-purpose finance vehicle
for any kind of company

15. Equity and debt still have
important roles.
Royalties offer a fresh option;
design is based on years of analysis
of investor and company needs.

16. The company agrees to pay a percentage
of its revenues to the investor.
Whether the company is making or
reporting a profit or not,
royalties always get paid, first priority.

17. How Royalties Work:
Answers to Common Questions

18. In the U.S. patent:
1. Royalties can be secured by the transfer
or pledge of assets
or by the guarantee of others.
2. Royalties can be paid by the issuer daily,
monthly, quarterly or annually.
royalties are paid
whenever the issuer receives revenue.

19. 3. Royalties are not a debt.
At the end of the contract, the amount paid
to the company for the royalty
does not have to be repaid.
4. Royalties are financial assets, like stocks,
bonds or property ownership,
and can be sold by one investor to another.

20. 5. When existing royalties are sold,
they would likely sell at a higher price
than originally paid
if the company has shown rising revenues.
6. Royalty contracts can be grouped
and sold together as a Royalty Income Fund.

21. Case Study from
rexroyalties.com
complimentary financial model
website

22. Minimum information to enter:
1. Total investment; 2. Maturity; 3. Royalty Rate(s);
4. Compound Annual Growth Rate(s)
1
2
3 4

23. Optional information, to provide deeper analysis:
1. Price-Earnings Ratio;
2. Current Net After-Tax Income;
3.Comparable or Benchmark Investment Return
1
2
3

24. Results: Basic Projected Revenues, 20 Years

25. Results: Table Shows Projected Royalty Distributions,
Yields, Internal Rate of Return, Market Cap

26. Chart Shows Current Yield of the Royalty,
Compared to Benchmark Return

27. Chart Shows Royalty Distributions and Revenues,
and Return as Percentage of Original Cost

28. Royalty Finance
The Company Perspective --
the Issuer of a Royalty Contract

29. Creating a growing business
is one of life’s great
accomplishments: a successful
business benefits many people.

30. The owner needs access to capital to grow
and compete in today’s fast-moving
markets.
But he also wants to retain
as much control as possible.
So the owner does not like
to sell his shares.

31. Royalties may be better than
debt or equity.
They offer more flexibility and freedom
for the company owner
and management.

32. Why?
Questions and Answers

33. 1.Royalties do not transfer ownership.
2. Royalty holders do not have a vote
like shareholders,
the ability or desire to influence
the company’s management.

34. 3. Royalties are paid automatically, as a cost
of doing business.
They do not appear as a negative (debt)
on the balance sheet.

35. Exchange Traded Royalties
(ETRs) perspective:

36. New companies create fresh economic
activity and employment.
All of society benefits from
entrepreneurial success.
Majority of new, high-skill jobs
come from new companies.

37. A private royalty contract is not liquid -- cannot be
converted easily to cash.
The investor needs to be compensated for
this lack of liquidity.
This means a higher percentage of revenues
must be paid by the company:
therefore, higher costs.

38. A Royalties Exchange
would facilitate Exchange Traded Royalties (ETRs):
with liquidity needed by the investor

39. Converting private contracts into publicly
listed contracts:
The Royalties Exchange would
establish standards
to make ETRS more useful to investors
and to companies.
This solves:
1. the liquidity problem for the investor; and
2. it reduces the percentage of revenues
the company
must pay to attract investors

40. A Royalties Exchange
would create significant economic benefit
for the local and regional economy
where it was located.

41. Capital made available to regional and
national firms
on attractive terms.
A Royalties Exchange could attract listings
from issuers around the world.

42. The creation and operation of the Exchange
would require advanced technical and
financial expertise.
Individuals and organizations with these skills
would become a strategic asset of the
city and region where the Exchange
Is created.

43. The Exchange will generate
international recognition,
revenues and profits.
All businesses where the Exchange
is located
will benefit as a result.

44. The Royalties Exchange would be similar to a
Mainstream Stock Exchange
(New York, London, Shanghai)
But it would supply specialized services
for royalty holders and issuers.

45. The Exchange would be a physical place
(traders come to a public facility to place orders;
investors and press meetings)
as well as a virtual, electronic space
(trades take place from computer to computer)
open 24/7 worldwide.

46. Business Model
Sources of Income:
The Exchange generates income for itself and
allied professional organizations in several ways:

47. 1. listing fees paid by issuers
2. membership fees and dues
3. a share of the commission paid by those
buying and selling royalty contracts

48. 4. fees from investors for the collection and
distribution of royalty payments
5. fees paid by listed issuers for the distribution of
information to the royalty owners

49. Opening Resources:
Arthur Lipper, international expert on royalties
San Diego
assisted by Michael North
Honolulu
supported by
the international Pacific Royalties team
See http://www.pacificroyalties.com
for details

50. First Steps
setting up basic legal structures
attracting strong local companies for private royalty finance
setting up Royalties Income Fund
for up to 20 local and regional companies

51. Next Steps
forming partnership with existing NASD securities exchange
registration of the Royalties Exchange by
Securities & Exchange Commission
attracting participation from international financial community
conducting continuing education worldwide

52. Pacific RoyaltiesPacific Royalties