MANAGEMENT’S DISCUSSION & ANALYSIS RESULTS OF OPERATIONS – YEARS ENDED DECEMBER 31, 2012, 2011, AND 2010 CONSOLIDATED INCOME STATEMENT During the year ended December 31, 2012, the Company’s revenue decreased by 11% or $621,000 to $5,165,000 from $5,786,000 and cost of goods sold increased by 7% or $178,000 to $2,716,000 from $2,538,000 in comparison with the same period of 2011. These changes resulted in a decrease in gross margin by 25% or $799,000 to $2,449,000 from $3,248,000. Income from operations has decreased by $1,091,000 to loss of $506,000 from income of $585,000. There was a net loss in the year ended December 31, 2012 of $538,000 in comparison with net income in the same period of 2011 of $578,000. During the fourth quarter of 2012, the Company’s revenue decreased by 23% or $350,000 to $1,202,000 from $1,552,000 and cost of goods sold increased by 21% or $135,000 to $769,000 from $634,000 in comparison with the same period of 2011. These changes resulted in a decrease in gross margin by 53% or $485,000 to $433,000 from $918,000. Income from operations has decreased by $476,000 to loss of $249,000 from income of $227,000 during the fourth quarter of 2012 in comparison with the same period of 2011. There was a net loss in the fourth quarter of 2012, $237,000 in comparison with net income of $252,000 in the same period of 2011 mostly due to a decrease in gross margin. CEAPRO Annual Report 2012 13 $000S EXCEPT PER SHARE DATA 2012 % 2011 % 2010 % Total revenues 5,165 100% 5,786 100% 5,577 100% Cost of goods sold 2,716 53% 2,538 44% 3,061 55% Gross margin 2,449 47% 3,248 56% 2,516 45% Research and product development 856 17% 997 17% 774 14% General and administration 1,795 35% 1,374 24% 1,279 23% Sales and marketing 199 4% 111 2% 69 1% Finance costs 113 2% 181 3% 203 4% (Loss) income from operations (514) GLYPH<H11537> 10% 585 10% 191 3% Other operating loss (24) 0% (7) 0% (30) GLYPH<H11502> 1% Write-off of property and equipment – 0% – 0% (12) 0% SGGF legal fees recovery – 0% – 0% 315 6% Net (loss) income (538) GLYPH<H11537> 10% 578 10% 464 8% Basic net (loss) income per common share (0.009) 0.009 0.009 Diluted net (loss) income per common share (0.009) 0.009 0.009 Total assets 3,886 4,171 2,820 Long-term financial liabilities 1,089 1,206 1,384