COMMENTS TO SASB:

JULY 25, 2013

Human Capital Valuation and Reporting

Where Petroleum Reserves Reporting was 50 Years Ago

SEC Reporting Rules for PV 10 of Reserves is a Model for

a SASB PV Human Capital Reporting Recommendation

Gerald DeWolf Shaw CFA, President

EXECUTIVE MEMBER

DeWOLF RESEARCH CORPORATION INC. AND/OR THE INDIVIDUALS WHO PREPARED THIS PRESENTATION AND PROPOSAL (HEREAFTER “PRESENTATION”) DOES NOT WARRANT THE ACCURACY, COMPLETENESS, QUALITY, ADEQUACY, AVAILABILITY OR CONTENT OF ANY INFORMATION HEREIN. THE INFORMATION AND THE CONTENTS IN THIS PRESENTATION ARE PROVIDED ON AN “AS IS” AND “AS AVAILABLE” BASIS, AND WITHOUT ANY REPRESENTATIONS, WARRANTIES OR CONDITIONS OF ANY KIND, WHETHER EXPRESS OR IMPLIED, AND INCLUDING WITHOUT LIMITATION, IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT OF THIRD-PARTY RIGHTS. NEITHER DeWOLF RESEARCH CORPORATION INC. OR ANY OTHER INFORMATION PROVIDER SHALL BE LIABLE FOR ANY DAMAGES, WHETHER DIRECT, INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES (COLLECTIVELY “DAMAGES”), ARISING OUT OF, OR IN ANY WAY CONNECTED WITH THIS PRESENTATION OR INFORMATION CONTAINED HEREIN, INCLUDING BUT NOT LIMITED TO LOSS OF REVENUE, TRADING LOSSES, POTENTIAL PROFITS, ERRORS, OR ACCURACY OF THE PRESENTATION.

DeWolf RESEARCH CORPORATION INC.

Molson Bank Building,

288 rue St-Jacques Street West, Third Floor,

Montreal, Province of Quebec, H2Y 1N1 CANADA

Telephone: +1 514 937 4184 E-mail: dewolf@dewolfresearch.co m

Web: http://www.dewolfresearch.com

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Human Capital Valuation today is similar to how oil reserves were valued by analysts in the 1960’s.

Timeline

1960’s Oil and Gas Reserves Reporting Begins in Annual Reports

• “Proven” and “Probable” gross or net barrels reserves by location, not

generally disclosed in annual reports; gross or net production was but the

PV of reserves was never disclosed

• CFO and Street analysts go back and forth to obtain economic life, rates of

production, costs, economic rent by jurisdiction for forecasting cash flows

• Street analysts then estimate the discounted PV of reserves at varying

discount rates and pricing assumptions to create estimated Net Asset

Values (NAV)

• Companies protested the notion of standardized reporting valuations of

reserves, citing competitive reasons.

1990’s SEC Standard: PV @ 10% proven reserves, flat pricing

1997 Canada’s Bre-X Scandal ($6 billion human capital fraud)

2003 Canada creates the National Instrument Standard

Oil and Gas reserves by location reported: PV 10%, Proven , proven

producing plus 50% of probable reserves; NI 51-101 standards

2009 SEC requires the same December 31

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Back to the Future: 1960 - 2012

EXAMPLE: Off balance sheet assets

Natural Resource Reserves Reporting and Valuation 1960-2012

Now a North American Reserves Reporting and Valuation Standard

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Adam Smith (1723-1790)

University of Glasgow

Wealth of Nations, Book II (1776) Four

types of capital: machines, buildings,

improvements to land and human

capital.

Gary Becker

University of Chicago

Nobel Price in Economics, 1992

Human Capital (1964) Investing in

education, training and medical

treatment is a function of the R of R on

human capital that one owns or

controls

James Tobin

Yale University

Nobel Price in Economics, 1981

Tobin’s Q (1969) Equity / Book Value to

measure management’s ability to create

value and higher returns beyond its

physical assets.

Theodore (Ted) Schultz,

University of Chicago

Nobel Price in Economics, 1979

Investment in Human Capital (1971)

The Role of Education and of Research

Why post War West Germany and

Japan thrived while the UK did not.

Claudia Golden

Harvard University

Understanding the Gender Gap (1992)

The new mobility and re-location

options caused “The Human Capital

Century”

History of Human Capital: 237 Years of Economic Thought

Human Capital and its value to an enterprise is the stock of knowledge

and talent embodied in people that effects their ability to perform labor

so as to both produce and in some cases to destroy economic

value of both the tangible and legal intangible assets of the enterprise.

Human Capital has either a positive or negative value depending

upon how well key persons known as Organizational Human Capital

use their talents to deploy the tangible assets of an enterprise to cause

the hard assets either superior or inferior operating, investing and

innovation capabilities.

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Defining Human Capital

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Human Capital: The Risk Assessment Gap

Watson Wyatt’s Human Capital Indices (HCI), 2002

Companies with high HCI deliver more shareholder value

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A “trained and assembled workforce” which can be rented,

traded or exchanged is an intangible in an acquisition and

since 2001 is valued as an intangible asset based its on

going fair market value as a unit that produces a profit.

Loss of that unit’s key personnel would cause a business

unit loss of future earnings and trigger an impairment

test/loss, write down of goodwill.

But the hiring back of that key personnel/business unit

does not cause a human capital valuation write up.

But financial markets do revalue that Human Capital and

future SASB Disclosure must recommend its valuation.

Human Capital Valuation - FAS 141 142

Wall/Bay Street Analysts do not analyze

potential for human capital impairment risk

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XBRL by 2020: Intellectual Capital Valuation is Coming

A Human Capital Valuation: KPI Gap Needs to be Filled

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A. QUALITATIVE ASSESSMENT HC SCORECARDS (CANNOT BE STANDARDIZED OR VERIFIED HENCE SHOULD NOT FORM PART OF A NEW SASB STANDARD)

•the quality of leadership and professional talent

•expertise of key employees in deploying R & D and IT expenditures

•unique selling and marketing skill sets

•expertise and rankings within the industry

•professional standards (also misconduct) of key managers

•customer relationships, satisfaction and complaints

•reputation and experience of key managers

•advisory board members and directors’ skills in relation to their oversight

responsibilities

•professional awards or discipline

•prior period citations in professional journals of key employees

•disciplinary procedures

•decisions disclosed by a professional body regarding the chief external

auditor, chief legal counsel

•red flags from an internet search of key employees and managers

•criminal and civil background checks of key non executive employees

•prior period experience of management in success or failed exit strategies

•corporate work ethics, corporate culture

•the value of internal and external dispute resolution by-laws

•health of key employees,

•dealing with health and environmental issues of their core technologies

•anecdotal red flags

Never filed a Prospectus with OSC

But was listed on the TSE

No Gold/ Fraud

Little to No Board Expertise in Derivatives

Multiple Human Capital Failures

2007/8 1996/7

Good Talent Practice, highly regarded

for innovation but Bad /Crooked

Management, Accounting fraud.

2001

Negative Human Capital Value = Extraordinary Human Capital Risk

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B. PERIODIC RED FLAG HUMAN CAPITAL STRESS TESTS

Dr. Baruch Lev, NYU

1971: Present Value of Future Employment Earnings

According to the Lev & Schwartz model, the value of human capital embodied in a

person who is ‘y’ years old, is the present value of his/her future earnings from

employment and can be calculated by using the following formula:

E(Vy) = Σ Py(t+1) Σ I(T)/(I+R)t-y

where E (Vy) = expected value of a ‘y’ year old person’s human capital;T = the person’s

retirement age; Py (t) = probability of the person leaving the organization; I(t) =

expected earnings of the person in period I; R = discount rate

2001: Intangibles: Management, Measurement, and Reporting. Lev is regarded as

a founding father of FAS 141, 142 accounting reforms for Intangibles

2003: Knowledge Capital Scorecard

2004: Organizational Human Capital Valuation

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C. QUANTITATIVE HUMAN CAPITAL VALUATION Lev & Schwartz Human Capital Accounting Model (1971)

Organization First Year Reported Model Used Discount Rate

BHEL 1973 – 74 Lev & Schwartz 12%

SAIL 1983 – 84 Lev & Schwartz

(modified)

14%

MMTC 1982 – 83 Lev & Schwartz 12%

ONGC 1981 – 82 Lev & Schwartz 12.25%

NTPC 1984 – 85 Lev & Schwartz 12%

INFOSYS 1995 Lev & Schwartz 12.96%

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Human Capital Valuation Reporting Began in 1973

Examples of Reporting & Valuing Human Capital in India

INFOSYS ANNUAL REPORT 2008

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"SPECIMEN" RESOURCES INC.

Human Capital Evaluation

Modified Lev & Schwartz Human Capital Accounting Model (all figures in $C '000)

DCF Assumptions

WACC 12.0%

Growth 2009-2013 3.0%

Free cash flow buildup

Projected Annual Forecast

2008 2009 2010 2011 2012 2013 Total

Case A

Compensation $ 1,904 $ 1,700 $ 1,751 $ 1,804 $ 1,858

Present value of Compensation $ 2,132 $ 1,700 $ 1,563 $ 1,438 $ 1,322 $ 8,156

Case B

Compensation $ 1,700 $ 1,751 $ 1,804 $ 1,858 $ 1,913

Present value of Compensation $ 1,700 $ 1,563 $ 1,438 $ 1,322 $ 1,216 $ 7,239

PV - Future Compensation (5 Years)

Case A Case B

WACC of 10.0% $ 8,272 $ 7,485

12.0% $ 8,156 $ 7,239

15.0% $ 7,997 $ 6,902

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Example of a DeWolf Research Human Capital Opinion Letter

HUMAN CAPITAL EVALUATION SERVICE™ Molson's Bank Building,

288 rue St-Jacques Street West, Third Floor,

Montreal, Province of Quebec, H2Y 1N1

CANADA

EAST COAST ENERGY INC.

HUMAN CAPITAL VALUATION: SUMMARY &

OPINION LETTER

We have reviewed the information which has been provided to

us by East Coast Energy Inc., (hereafter “East Coast”) in

response to the DeWolf Research Human Capital Valuation

Quantitative and Qualitative Questionnaires and where

possible, we have verified all quantitative information to be true

and correct.

We are of the opinion that the Qualitative Questionnaire

responses provided to us are a reasonable representation of

East Coast’s use of its human capital resources.

We have calculated a present value for East Coast Human

Capital Resources, employing the DeWolf Research Modified

Lev and Schwartz Compensation Model, for the key

employees, advisors and consultants of East Coast, with

assumptions, as provided to the company.

1. It is our opinion, that a correct range of present

values for East Coast’s Human Capital

Resources as at September 30, 2009 is between

$C 1.461 million and $C 1.804, using a range

of weight average cost of capital discount rates

from between 10% and 20%.

2. As a start-up, we assess East Coast’s Human

Capital Risk Assessment (HCRA) to be LOW with

a HCRA outlook being POSTIVE.

3. In our opinion, a fair value of $C 1.461 million is

the appropriate Baseline Human Capital Value for

East Coast, as at September 30, 2009, or an

amount of $C 0.21 per fully diluted common

share of East Coast.

The Baseline Human Capital Value is provided for East Coast’s

use going forward for the analysis of East Coast’s

futureHuman Capital Valuation Key Performance

Indicators(KPIs) and Quarterly Statistical Updates and

Performance Ratios, to be provided as per the

1. DeWolf Research HUMAN CAPITAL

EVALUATION SERVICE™ Services and

Confidentiality Agreement, as agreed to and

established on September 24, 2009.

2. DeWolf Research has conducted seven

ORGANIZATIONAL HUMAN CAPITAL STRESS

TESTS to test for RED, YELLOW and GREEN

flags at East Coast.

3. We conclude that there exists no Organizational

Human Capital RED Flags as defined for as

defined in our report to East Coast as at

September 30, 2009.

DeWolf Research is a Professional Member of the Human

Capital Institute, Washington D.C.

This is to certify and to solemnly declare that this opinion and

attached valuation was prepared by Gerald DeWolf Shaw CFA,

[Charter No. 4944] President, DeWolf Research Corporation

Inc., a Canadian corporation, and independent research and

consulting practice and that the attached Baseline Human

Capital Valuation Report with Organizational Human Capital

Stress Tests fully complies with all aspects of the CFA

Institute’s Code of Ethics and Standards of Professional

Conduct, CFA Institute, Charlottesville, Commonwealth of

Virginia.

Certified at Montreal, in the Province of Quebec on this the

11th day of October 2009.

Gerald DeWolf Shaw CFA

Professional Member

Telephone: +1 514 937 4184

DeWolf Research Corporation Inc.

E-mail: dewolf@dewolfresearch.com

Web: www.dewolfresearch.com

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Since 2001 FAS 141 142 forces an HCV impairment test for acquisitions

Wall/Bay Street analysts and investors historically value Legal Intangibles yet ignore Human

Intangibles; that is changing, because HCV provides new ways to help finance small knowledge

based companies

Human Capital Valuation Reporting is where oil and gas reserves reporting was 50 years ago;

HCV’s create new KPI ratios for securities’ analysts and investors for valuation

Imagine actual and forecasted: HCV/CF HCV/BV HCV/Debt HCV/Equity HVC/NAV

Imagine your HCV Baseline Value, Quarterly Risk Assessment with Stress Tests Red Flag Screens

In time real time HCV’s will be charted like stock prices to reflect HCV expectations; Human

Capital Funds; Human Capital Rating Agencies

FOR JUNIOR OIL AND GAS COMPANIES WITH NO PROVEN RESERVES, HCV CAN BE

INSTRUMENTAL IN THE RAISING OF CAPITAL: AFTER ALL HUMAN CAPITAL IS THE MOST

IMPORTANT ASSET OF A BUSINESS

TAKE AWAY: DOING CAPITALISM BETTER: HCV + NAV = CIV

Human Capital Evaluation (HCV) & Investment Research

Metrics now exist for Periodic, Reliable, Objective and Valid HCV Standards

HCV, HC Risk Assessment and HC Stress Tests have arrived in North America

HCV and HC Key Performance Indicators (KPI) ratios: Future Human Capital

Funds

THANK YOU! MERCI!

DeWolf Research Corporation Inc. Molson Bank Building,

288 rue St-Jacques Street West, Third Floor,

Montreal, Province of Quebec, H2Y 1N1

CANADA

Telephone: +1 514 937 4184

E-mail: dewolf@dewolfresearch.com

www.dewolfresearch.com 22