MANAGEMENT’S DISCUSSION & ANALYSIS RESEARCH AND PRODUCT DEVELOPMENT GENERAL AND ADMINISTRATION During the year ended December 31, 2012, research and development expenses before CeaProve GLYPH<H23006>  development decreased by 1% or $6,000 during the same period of 2011 due to increased expenditures incurred for third party technical services and collaboration agreements offset by grant revenue recognition of discounted CAAP funding and grant contributions from Alberta Innovates Technology Futures. CeaProve GLYPH<H23006>  costs have decreased by 87% from $156,000 to $21,000 as a result of decreased costs for patents and decreased costs associated with contract manufacturing activities. During the fourth quarter of 2012, research and development expenses before CeaProve GLYPH<H23006>  development have decreased by 41% mostly due to grant revenue recognition of discounted CAAP funding and grant contributions from Alberta Innovates Technology Futures. CeaProve GLYPH<H23006>  costs have decreased by 90% from $29,000 to $3,000 as a result of decreased costs for patents and decreased costs associated with contract manufacturing activities. General and administration expense for the year ended December 31, 2012 increased by $421,000 or 31% from $1,374,000 to $1,795,000 as a result of increased expenses arising from several non-recurring events. Salaries and benefits increased $85,000 mainly as a result of engaging an engineer to oversee the new manufacturing facility activities. Consulting increased $196,000, most of which related to feasibility studies to review potential new CEAPRO Annual Report 2012 15 Year Ended Quarter Ended December 31 December 31 $000S 2012 2011 CHANGE 2012 2011 CHANGE Salaries and benefits 475 390 129 110 Consulting 407 211 133 62 Board of Directors compensation 155 174 33 41 Insurance 120 121 33 32 Accounting and Audit fees 76 113 25 35 Rent 97 90 25 28 Public Company Costs 82 53 13 2 Travel 113 83 36 29 Depreciation 45 35 12 12 Legal 123 16 20 10 Other 102 88 23 20 Total general and administration expenses 1,795 1,374 31% 482 381 27% Year Ended Quarter Ended December 31 December 31 $000S 2012 2011 CHANGE 2012 2011 CHANGE Salaries and benefits 639 603 151 172 Regulatory and patents 133 118 59 42 Other 63 120 (84) (1) 835 841 GLYPH<H11502> 1% 126 213 GLYPH<H11502> 41% Product development – CeaProve GLYPH<H23006> 21 156 GLYPH<H11502> 87% 3 29 GLYPH<H11502> 90% Total research and product development expenditures 856 997 GLYPH<H11502> 14% 129 242 GLYPH<H11502> 47%