Management’s Discussion and Analysis - Mosaic Capital€¦ · Mosaic Capital Corporation 400, 2424 – 4th Street SW, Calgary, Alberta T2S 2T4 | Telephone 403-218-6500 | Fax 403-266-1541

Mosaic Capital Corporation 400, 2424 – 4

th Street SW, Calgary, Alberta T2S 2T4 | Telephone 403-218-6500 | Fax 403-266-1541

Management's Discussion and Analysis

For the Year Ended December 31, 2012

Dated: April 19, 2013

"Growth through sustainable cash flow"

INDEX

NOTE REGARDING FORWARD-LOOKING INFORMATION .................................................................................................. 1

INTRODUCTION .................................................................................................................................................................... 2

BACKGROUND ...................................................................................................................................................................... 2

MOSAIC OVERVIEW .......................................................................................................................................................... 2

EXPERIENCED TEAM WITH VISION ................................................................................................................................. 2

STRONG ALIGNMENT OF INTERESTS ............................................................................................................................. 3

FINANCIAL RESOURCES FOR FUTURE GROWTH .......................................................................................................... 3

PORTFOLIO OF BUSINESSES .......................................................................................................................................... 3

RISK MANAGEMENT ......................................................................................................................................................... 4

DEVELOPMENTS .................................................................................................................................................................. 4

KEY PERFORMANCE INDICATORS AND NON-IFRS FINANCIAL MEASURES .................................................................... 5

DIVIDENDS .......................................................................................................................................................................... 10

OUTLOOK ............................................................................................................................................................................ 10

FINANCIAL REVIEW AND DISCUSSION OF RESULTS ....................................................................................................... 11

SUMMARY OF QUARTERLY RESULTS ........................................................................................................................... 15

PROPERTY, PLANT AND EQUIPMENT ........................................................................................................................... 16

GOODWILL AND OTHER INTANGIBLE ASSETS ............................................................................................................. 16

ASSETS HELD FOR SALE ................................................................................................................................................... 17

MORTGAGES PAYABLE .................................................................................................................................................. 17

NOTES PAYABLE AND SUMMARY OF SCHEDULED PAYMENTS .................................................................................. 17

NON-CONTROLLING INTEREST ..................................................................................................................................... 17

LIQUIDITY AND CAPITAL RESOURCES .......................................................................................................................... 18

FINANCIAL INSTRUMENTS ................................................................................................................................................. 19

STOCK OPTIONS ................................................................................................................................................................ 20

RESTRICTED SECURITY UNITS ......................................................................................................................................... 21

OFF-BALANCE SHEET ARRANGEMENTS .......................................................................................................................... 21

LEGAL PROCEEDINGS ....................................................................................................................................................... 21

RELATED PARTY TRANSACTIONS .................................................................................................................................... 22

SECURITIES DATA .............................................................................................................................................................. 22

RISK FACTORS ................................................................................................................................................................... 23

TAXATION AND ACCOUNTING TREATMENT OF MOSAIC PREFERRED SECURITIES .................................................... 23

CRITICAL ACCOUNTING ESTIMATES ................................................................................................................................ 24

ACCOUNTING POLICIES..................................................................................................................................................... 25

FUTURE ACCOUNTING STANDARDS ............................................................................................................................. 25

SUBSEQUENT EVENTS ...................................................................................................................................................... 26

ADDITIONAL INFORMATION ............................................................................................................................................... 26

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NOTE REGARDING FORWARD-LOOKING INFORMATION

This management's discussion and analysis ("MD&A") contains forward-looking information and statements within the meaning of applicable Canadian securities laws (herein referred to as "forward-looking statements") that involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements or industry results expressed or implied by such forward-looking statements. All information and statements in this MD&A which are not statements of historical fact may be forward-looking statements. Such statements and information may be identified by looking for words such as "may", "believe", "could", "expect", "will", "intend", "should", "plan", "objective", "predict", "potential", "project", "anticipate", "estimate", "continuous" or similar words or the negative thereof or other comparable terminology, including references to assumptions. Such information may involve, but is not limited to, comments with respect to strategies, expectations, planned operations or future actions. Forward-looking statements included in this MD&A include, but are not limited to, statements with respect to: the intention and ability of Mosaic Capital Corporation ("Mosaic" or the "Company") to make cash distributions on its preferred securities and pay quarterly dividends on its common shares; the outlook of Mosaic's and its subsidiaries' businesses; the competitive environment in which Mosaic and its business units operate; the business strategy and objectives of Mosaic; development plans, as well as acquisition and disposition plans, of Mosaic; the supply and demand for products and services; Mosaic's ability to fund the interest payable on its preferred securities and to meet current and future obligations; Mosaic's ability to execute its growth strategy; the impact of federal income tax changes on Mosaic and its subsidiaries; and management's assessment of future plans and operations.

Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other things contemplated by the forward-looking statements will not occur. Such forward-looking statements or information are based on a number of assumptions which may prove to be incorrect, including those assumptions listed below and those discussed elsewhere in this MD&A. Some of the assumptions made by Mosaic, upon which such forward-looking statements are based, include: the business operations of the operating businesses of Mosaic continuing on a basis consistent with prior years; the ability of Mosaic and its subsidiaries to access financing from time to time on favorable terms; the ability of Mosaic to continue to make acquisitions satisfying its criteria and to realize anticipated benefits of acquisitions; the continuation of executive and operating management or the non-disruptive replacement of them on competitive terms; the ability of Mosaic to maintain reasonably stable operating and general administrative expenses; current economic conditions and the strength and persistence of the economic recovery in Canada that may be influenced by international economic developments in the United States, Europe, Asia and elsewhere; and currency, exchange and interest rates and commodity prices being reasonably stable at current rates.

Forward-looking statements reflect current expectations of management regarding future events and operating performance as of the date of this MD&A. Such information: involves significant risks and uncertainties; should not be read as guarantees of future performance or results; and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the risks related to: general economic and political conditions; competition for acquisition candidates; the failure to identify, acquire and develop suitable acquisition targets, unknown liabilities within acquired businesses; insufficient cash flows from subsidiaries; the loss of key personnel; lack of diversification; changes in laws or regulations or the interpretation thereof; regulatory risk; the inability to generate sufficient cash flow from operations to meet current and future obligations; the inability to obtain required debt and/or equity capital on acceptable terms or at all; legal proceedings against Mosaic; potential conflicts of interest of directors and officers; changes in tax law or other adverse tax consequences; diversion of management to manage issues in Mosaic's operating subsidiaries; shift of management's focus to integration, administration or unforeseen business or operating issues, declining employee morale and employee retention issues; integration of subsidiary administrative systems; lack of sufficient business and financial controls or other procedures or policies within acquired entities; fluctuations in operating performance and seasonality; fluctuations in commodity prices; illiquidity of investments; the speculative nature of Mosaic's investments due to the small size of the acquired businesses; lack of diversity of customer base; adverse weather conditions; uninsured and underinsured losses; competition in industries in which our subsidiaries operate; contractual risks, including indemnity obligations; failure to retain significant customers; damage to brand reputation; failure to attract qualified employees or interruption of the labour supply; competition for, among other things, capital, equipment, materials and personnel; risks inherent in our ownership of real property; inability of tenants to fulfill lease obligations; difficulty in renewing leases as they expire or leasing vacant space; fixed costs of ownership of real property; illiquidity of investments in real property; weakness in commercial property market in target markets; and difficulty in enforcing rights upon default by tenants and environmental liabilities. A description of these and other factors can be found under the heading "Risk Factors".

Although the forward-looking statements contained in this MD&A are based upon what Mosaic's management believes to be reasonable assumptions, Mosaic cannot assure investors that actual results will be consistent with such information. Forward-looking statements reflect management's current beliefs and are based on information currently available to Mosaic. We caution readers of this MD&A not to place undue reliance on our forward-looking statements because a number of factors, such as those referred to in the paragraph above, could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements contained in this MD&A. The forward-looking statements are made as of the date of this MD&A and Mosaic assumes no obligation to update or revise such information to reflect new events or circumstances, except as may be required by applicable law.

MANAGEMENT'S DISCUSSION & ANALYSIS FOR THE YEAR ENDED DECEMBER 31, 2012

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INTRODUCTION

This MD&A has been prepared by Mosaic as of April 19, 2013 and should be read in conjunction with the audited consolidated financial statements and related notes of Mosaic for the year ended December 31, 2012, audited consolidated financial statements for the year ended December 31, 2011 and the MD&A for that period. Results are reported in thousands of Canadian dollars, except for security data, unless otherwise stated, and have been prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB").

Readers of this MD&A should refer to "Accounting Policies" below for a discussion of IFRS and its effect on Mosaic's financial presentation.

Certain key performance indicators used by Mosaic in this MD&A, including Adjusted EBITDA, Free Cash Flow, Adjusted Return on Common Equity, Preferred Security Payout Ratio and Combined Payout Ratio, that are not recognized under IFRS and have no standardized meaning prescribed by IFRS are defined, quantified and analyzed under the heading "Key Performance Indicators and Non IFRS Financial Measures".

BACKGROUND

MOSAIC OVERVIEW

Mosaic is an investment company based in western Canada that owns a portfolio of established businesses that have a history of generating sustainable cash flow from their operations. Our objective is to create long term value for our shareholders and business partners and to have that reflected in our share price. We believe that this is achieved by growing Free Cash Flow per common share and retained earnings. We do this by acquiring businesses that we understand at attractive prices and we manage our risk through extensive due diligence, creative transaction structuring and working closely with our businesses after acquisition. Mosaic's current portfolio of businesses operate in the printing, oil and gas services, technology, infrastructure, industrial supply and real estate industries.

The common shares and preferred securities of Mosaic trade on the TSX Venture Exchange under the symbols "M" and "M.PR.A", respectively.

Mosaic's registered office is located at 400, 2424 - 4th Street SW, Calgary, Alberta, T2S 2T4.

EXPERIENCED TEAM WITH VISION

Mosaic's management team has an extensive breadth and depth of experience gained through many years of involvement in numerous aspects of business, including fund management, public and private mergers and acquisitions transactions, corporate restructurings, financings, venture capital and private equity investing, and corporate turn-arounds. This experience allows Mosaic to acquire businesses with capable management teams who Mosaic works with to improve and grow their operations. Mosaic provides its operating subsidiaries with strategic, business, financial, human resource, accounting and legal expertise while at the same time giving the subsidiaries' management teams the autonomy to continue to operate their respective businesses.

In addition, we, along with the management teams of our operating companies, continue to look for acquisitions that would facilitate their entry into new markets or increase their product or service offerings. We are actively looking for businesses in a variety of industries that fit our investment model.

Our acquisition criteria for such businesses include the following:

Demonstrated history of growing sustainable cash flow and operating in an industry which we believe has good growth potential;

A capable and experienced management team that is growth oriented;

A business with a significant market share in its business area;

A business with a competitive advantage; and

Ability to grow the business without significant amounts of new capital.


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STRONG ALIGNMENT OF INTERESTS

Mosaic's management believe in the alignment of interests among various stakeholders, including Mosaic, its shareholders and subsidiary company partners as well as Mosaic's management team and its employee group. Mosaic's management team and its employee group own approximately 51% and 3.5% of the outstanding common shares and preferred securities of Mosaic, respectively, as at March 31, 2013.

FINANCIAL RESOURCES FOR FUTURE GROWTH

A November 2012 report by a large Canadian investment bank indicates that within Canada there is the potential for approximately 550,000 business owners to exit their businesses over the next ten years. These businesses would account for approximately $3.7 trillion in asset value affecting approximately 3.5 million employees and representing approximately 27% of Canada's gross domestic product. This ongoing succession of aging business owners looking for liquidity, often in the form of an exit or a partnership, should provide many opportunities for Mosaic to acquire companies meeting our investment criteria. Mosaic's strong financial position, with $53,052 in working capital (as at December 31, 2012) including cash and cash equivalents of $30,818 as well as Mosaic's ability to access the capital markets, positions us to capitalize on future opportunities.

PORTFOLIO OF BUSINESSES

Mosaic acquires a control position in its businesses, which enables us to exercise the rights of ownership in making strategic decisions and managing risk. Mosaic does not get involved in the daily operating decisions of the businesses. Mosaic has three reportable business segments: Industrial, Real Estate and Corporate:

Industrial - a portfolio of businesses that have a history of generating cash flow from their operations in niche

markets.

Printing Unlimited L.P. (100% ownership) is based in Fort McMurray, Alberta, prints, among other

things, marketing and promotional materials, annual reports, operation manuals and handbooks, safety tags, stationary, carbonless forms, and black and white and color photocopies for customers which include most of the largest oil sand development and production companies. Additionally, Printing Unlimited L.P. provides graphic design and typesetting services to its customers and operates a sign manufacturing division. The business has been in operation since 1984.

Allied Cathodic Services L.P. (80% ownership) is based in Estevan, Saskatchewan, and installs, maintains and replaces cathodic protection systems for oilfield well casings and steel flow lines primarily in southeast Saskatchewan and southwest Manitoba.

Polar Geomatic Solutions L.P. (90% ownership) is based in Red Deer, Alberta, and principally provides

geographic information system related products and services (including a web-based Landowner Information Database) to create, manage and maintain stakeholder information associated with an asset or project. The products and services of Polar Geomatic Solutions L.P. are primarily used by pipeline companies to facilitate stakeholder notifications and ensure compliance with landowner consultation and emergency response planning requirements under applicable legislation.

Remote Waste L.P. (75% ownership) is based in Sexsmith, Alberta, and is principally engaged in the

manufacture and rental of modular wastewater treatment systems (the "Remote Units") used primarily at temporary work camps. The Remote Units are designed for treatment of sewage in remote areas and will treat wastewater for locations housing from 10 up to 100 people. The Remote Units are installed, maintained and removed from a customer's location by Remote Waste's field technicians. The majority of Remote Waste's L.P. business is related to supporting work camps used for oil and natural gas exploration.

Ambassador Mechanical Corp. (75% ownership) is based in Winnipeg, Manitoba, and provides mechanical equipment provisioning and installation services in areas ranging from plumbing and gas fitting to heating, ventilation and air conditioning. Ambassador Mechanical Corp. has been servicing customers in Manitoba and south-west Ontario since 1991 and, as of December 31, 2012, employs over 150 trades people in its sheet metal, plumbing and hydronic piping divisions. Ambassador Mechanical Corp. presently focuses almost exclusively on mechanical contracting work for larger commercial and industrial projects in the Manitoba and south-west Ontario markets.

Kendall's Supply Ltd. (90% ownership) is based in Estevan, Saskatchewan, and is a leading provider of

parts and supplies to companies in the automotive, oil and gas, mining, power generation, construction


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and agriculture industries. Established in 1944, Kendall's Supply Ltd. is a third generation family business with an excellent reputation for customer service and maintaining a large inventory of supplies.

Real Estate - a portfolio of real estate assets in secondary markets throughout western Canada to which

management can conduct activity to provide fundamental value growth.

First West (100% ownership) is based in Calgary, Alberta, and identifies and acquires, directly or

indirectly, what management believes to be real estate with prospects for stable cash flow and short and medium term price appreciation potential. First West adds value to the properties it acquires through, among other things, leasing vacant space, re-leasing upon renewal at market rates, making capital improvements and moving land through the land use planning process. First West currently consists of the businesses being carried on by First West Properties L.P. ("FWPLP") and its subsidiary First West Developments L.P. ("FWDLP"). During the last half of 2012 the business then being carried on by First West Properties Ltd. ("FWP") was reorganized (the "Internal Reorganization") and is now being carried on FWPLP and its subsidiary FWDLP. For purposes of this MD&A reference herein to "First West" means and refers to FWP, for any period prior to completion of the Internal Reorganization, and means and refers to FWPLP and FWDLP and their respective businesses, collectively, for any period subsequent to completion of the Internal Reorganization.

Corporate - this information covers all of the cost centers of Mosaic that are not included in the segments above and primarily relates to corporate expenses.

RISK MANAGEMENT

Mosaic invests significant time to understand the risks associated with our portfolio companies. These risks range from macro-economic factors to industry specific risks and individual business risks. It also includes risks that are largely beyond our reasonable control such as weather and commodity prices. Based on our assessment of the risks we work on various risk mitigation strategies that may involve deployment of technology, business process improvement, individual business and market diversification and overall corporate portfolio diversification.

Some risks are generally beyond our short term control. For example, in some years flooding and wet weather in southeast Saskatchewan and southwest Manitoba has interrupted operations at Allied Cathodic Services L.P., pushing back work by as much as two months during their busiest time of year. We continue to investigate business process improvements that may allow us to deal with these types of seemingly unpredictable factors.

DEVELOPMENTS

The following sets forth certain developments that occurred in the business of Mosaic for the year ended December 31, 2012. Recent developments since December 31, 2012 are discussed under the heading "Subsequent Events" below.

Acquisition of Ambassador Mechanical Corp. ("Ambassador Mechanical") – On January 9, 2012, Mosaic announced the completion of its acquisition of a 75% interest in the business now carried on by Ambassador Mechanical. The cost of such acquisition was $14,625, which was funded through a combination of cash and vendor take back financing. Ambassador Mechanical is based in Winnipeg, Manitoba and is a private commercial industrial mechanical contractor providing mechanical equipment provisioning and installation services in areas ranging from plumbing and gas fitting to heating, ventilation and air conditioning.

Common Share Dividends – On January 19, 2012, Mosaic announced that the board of directors had adopted a policy regarding the payment of quarterly dividends on the common shares in such amount as the board of directors may from time to time determine. On that same day, Mosaic announced the declaration of its first quarterly cash dividend for its common shares of two cents per share to be paid on February 15, 2012 to holders of record on January 31, 2012.

Sale of a parcel of land – On February 29, 2012, First West completed the sale of 3.85 acres of raw

industrial land located at 2821 18 Avenue North in Lethbridge, Alberta for a price of $527 less disposal costs of $11 for a gain of $36. First West originally acquired 7.01 acres of raw industrial land in June 2007 for $1,332.


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Increase in Common Share Dividends – On April 18, 2012, Mosaic announced that the board of

directors had approved the increase of the quarterly dividend on the common shares by $0.01 per share to $0.03 per share from $0.02 per share. The new dividend of $0.03 was paid on May 15, 2012, August 15, 2012 and November 15, 2012 to holders of record April 30, 2012, July 31, 2012 and October 31, 2012 respectively.

Acquisition of Kendall's Supply Ltd. ("Kendall's Supply") – On August 1, 2012, Mosaic announced the completion of its acquisition of 90% of the outstanding common shares of Kendall's Supply. The cost of such acquisition was $9,900, which was funded through a combination of cash and vendor take back financing. Kendall's Supply is based in Estevan, Saskatchewan and has serviced southeast Saskatchewan since 1944 and is a supplier of parts and supplies to companies in the automotive, oil and gas, mining, power generation, construction and agriculture industries.

Sale of An Interest In Land – On September 24, 2012 Mosaic announced that its wholly owned subsidiary FWDLP had, after advancing raw development land in Lethbridge, Alberta through the land use process, assigned to a third party FWDLP's right, title and interest in the agreement of purchase and sale relating to the land for an assignment fee of approximately $1,300.

Purchase of Raw Land – On October 23, 2012 Mosaic completed the purchase of raw land in Saskatchewan for a purchase price of $2,500.

Issue of Preferred Securities – On October 30, 2012 Mosaic announced the closing of a fully marketed short form prospectus offering (the "Offering) of preferred securities. Pursuant to the Offering, Mosaic issued 2,374,750 preferred securities at a price of $10.55 for gross proceeds of $25,054.

KEY PERFORMANCE INDICATORS AND NON-IFRS FINANCIAL MEASURES

Mosaic has historically used various metrics when evaluating its operational and financial performance. Mosaic continually monitors and evaluates its metrics and updates these metrics as required to ensure they provide information considered most useful, in the opinion of Mosaic management, to any decision making based on Mosaic's performance.

This section defines, quantifies and analyzes the key performance indicators used by management of Mosaic that are not recognized under IFRS and have no standardized meaning prescribed by IFRS and therefore are unlikely to be comparable to similar measures presented by other issuers.

Adjusted EBITDA: is defined as income from continuing operations before tax and before (i) gain (loss) on sale of equipment; (ii) non-cash expenses such as amortization; (iii) finance income and expenses; (iv) securities compensation expense; and (v) any unusual non-operating one-time items such as acquisition and reorganization costs. Adjusted EBITDA is used by management to assess Mosaic's normalized cash generated on a consolidated basis and in its operating segments. Adjusted EBITDA is also a performance measure which may be utilized by investors to analyze the cash generated by Mosaic and its operating segments.

Free Cash Flow: is defined as Adjusted EBITDA less (i) non-controlling interest of Adjusted EBITDA, (ii) Mosaic's share of current income tax expense, and (iii) Mosaic's share of the Sustaining Capital Expenditures. Free Cash Flow is a performance measure used by management to summarize the funds available for (i) the payment of distributions to holders of preferred securities, series "A" shares and common shares, (ii) investment in capital expenditures made to grow the enterprise, and (iii) new acquisitions and working capital.

Sustaining Capital Expenditures: is defined as capital expenditures required to sustain the operations of Mosaic at its current level of operations and is calculated by subtracting those capital expenditures which are, as determined in the discretion of management, made to grow the enterprise and expected to generate additional Adjusted EBITDA from total capital expenditures for the period. An example of Sustaining Capital Expenditures would be the replacement of vehicles that have completed their useful life.

Adjusted Return on Common Equity: means that number, expressed as a percentage, that is obtained by dividing (i) Free Cash Flow less distributions declared to holders of preferred securities and series "A" shares during the period indicated by (ii) weighted average Common Shareholders' equity for the period. Management believes Adjusted Return on Common Equity is a key performance measure as it indicates the return generated by Mosaic on its common equity.


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Preferred Security Payout Ratio: means that number, expressed as a percentage, which is the total amount declared (which includes cash paid as well as preferred securities distributed pursuant to the DRIP) to holders of preferred securities and series "A" shares during the period divided by Free Cash Flow for the period. Management believes that this measure may be useful to investors in assessing the likelihood that Mosaic will be able to continue to pay distributions on its preferred securities and series "A" shares.

Combined Payout Ratio: means that number, expressed as a percentage, which is the total amount declared (which includes cash paid as well as preferred securities distributed pursuant to the DRIP) to holders of preferred securities, series "A" shares and common shares during the period divided by Free Cash Flow for the period. Management believes that this measure may be useful to investors in assessing the likelihood that Mosaic will be able to continue to pay distributions on its preferred securities and series "A" shares and pay dividends on its common shares.

Investors are cautioned that Adjusted EBITDA, Free Cash Flow, Adjusted Return on Common Equity, Preferred Security Payout Ratio and Combined Payout Ratio should not be viewed as an alternative to measures that are recognized under IFRS such as net income or cash from operating activities. The distributions and dividends paid by Mosaic to its security holders are dependent on its cash flow from operating activities with consideration for changes in working capital requirements, investing activities and financing activities. Mosaic's method of calculating Adjusted EBITDA, Free Cash Flow, Adjusted Return on Common Equity, Preferred Security Payout Ratio and Combined Payout Ratio may differ from that of other entities and therefore may not be comparable to measures utilized by them. See "Reconciliations for Non-IFRS Financial Measures".

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FINANCIAL HIGHLIGHTS

The financial highlights for Mosaic for the periods indicated are as follows:

2012

per

common

share

(basic)

per

common

share

(diluted) 2011

per

common

share

(basic)

per

common

share

(diluted)

Revenue 22,056$ 2.71 2.59 7,110$ 0.87 0.87

Adjusted EBITDA(1) 3,790 0.47 0.44 1,415 0.17 0.17

Free Cash Flow(1) 3,074 0.38 0.36 925 0.11 0.11

Preferred distributions declared (2) 1,864 827

Common share dividends 244 0.03 - - - -

Preferred Security Payout Ratio(1)(3)(4) 61% 90%

For the year ended December 31

Revenue 75,815$ 9.32 8.89 23,654$ 3.32 3.32

Adjusted EBITDA 16,764 2.06 1.97 5,387 0.76 0.76

Free Cash Flow 10,847 1.33 1.27 3,751 0.53 0.53

Increase in Free Cash Flow per common share 151% 145% - -

Preferred distributions declared (2) 5,679 2,840

Common share dividends 895 0.11 - - - -

Adjusted Return on Common Equity(1)(5) 32% -

Preferred Security Payout Ratio(3)(4) 52% 76%

Combined Payout Ratio(1)61% -

FINANCIAL POSITION

Working capital

Property, plant and equipment

Total assets

Operating loan 5,828 -

Mortgages payable

Equity attributable to equity holders

SHARE INFORMATION

Common shares

Preferred securities

December 31, 2012 December 31, 2011

For the three month period ended December 31

FINANCIAL PERFORMANCE

4,862

61,237

-

94,173

23,997$

4,685

70,043

53,052$

6,319

122,405

8,137,848

7,441,572

8,137,848

5,066,822

December 31, 2012 December 31, 2011

Notes: (1) Adjusted EBITDA, Free Cash Flow, Adjusted Return on Common Equity, Preferred Security Payout Ratio and Combined Payout Ratio

are not recognized measures under IFRS and are defined under the heading "Key Performance Indicators and Non-IFRS Financial Measures". See also the disclosure under the heading "Reconciliation for Non-IFRS Financial Measures".

(2) Includes distributions on preferred securities and dividends on series "A" shares of Mosaic. (3) For purposes of the calculation of the preferred security payout ratio contained in Mosaic's MD&A for periods up to and including the

period ended June 30, 2012, Free Cash Flow was calculated before tax whereas in the MD&A for the period ended September 30, 2012 and going forward Free Cash Flow is calculated after deducting taxes. This change in calculation results in an increase to the payout ratio.

(4) For purposes of the calculation of the preferred security payout ratio contained in Mosaic's MD&A for periods up to and including the period ended June 30, 2012, the amount of the distributions paid on preferred securities was calculated without including the value of the preferred securities distributed to participants in the DRIP, whereas in the MD&A for the period ended September 30, 2012 and going forward the amount of the distributions paid on the preferred securities is calculated inclusive of the value of the preferred securities distributed to participants in the DRIP. This change in calculation results in an increase to the payout ratio.

(5) The year ended 2012 was the first complete financial year for Mosaic as it was formed in 2011 and commenced commercial operat ions following the plan of arrangement transaction effective May 1, 2011 involving Mosaic, Mosaic Diversified Income Fund (the "Fund"), First West and their respective securityholders whereby the Fund and First West become wholly-owned subsidiaries of Mosaic (the "Arrangement"). Prior to Mosaic's first complete financial year, Adjusted Return on Common Equity was not representative of our performance and, accordingly, the twelve month period ending December 31, 2012 is the first reporting period for this metric.


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RECONCILIATIONS FOR NON-IFRS FINANCIAL MEASURES

The following table reconciles Adjusted EBITDA and Free Cash Flow to income from continuing operations before tax, which is the most directly comparable measure under IFRS:

Adjusted EBITDA

2012 2011 2012 2011

Income from continuing operations before tax 2,371$ 432$ 11,594$ 2,272$

Amortization 974 508 3,794 1,879

Accretion 41 - 155 4

Securities based compensation 286 505 828 505

Non-operating items

(Gain) Loss on sale of equipment 14 (29) (23) 20

Acquisition costs - - - 552

Finance income (38) (77) (86) (92)

Finance expense 142 76 502 247

Adjusted EBITDA 3,790$ 1,415$ 16,764$ 5,387$

FREE CASH FLOW

2012 2011 2012 2011

Adjusted EBITDA 3,790$ 1,415$ 16,764$ 5,387$

Non-controlling interest of Adjusted EBITDA (694) (397) (3,480) (968)

Mosaic Capital's share of current income tax expense 187 - (1,253) -

Mosaic Capital's share of Sustaining Capital Expenditures (209) (93) (1,184) (668)

FREE CASH FLOW 3,074$ 925$ 10,847$ 3,751$

December 31

Three months ended

Year ended

Three months ended

Year ended

December 31

Adjusted Return on Common Equity: There is no IFRS measure comparable to Adjusted Return on Common Equity. However, this ratio utilizes Free Cash Flow in its calculation and the most directly comparable measure under IFRS to Free Cash Flow is income from continuing operations before tax. Accordingly, dividing (i) income from continuing operations before tax less distributions declared to holders of preferred securities and series "A" shares during the period, by (ii) weighted average common shareholders' equity for the period, yields a ratio of 37% for the twelve month period ended December 31, 2012.

Preferred Security Payout Ratio: There is no IFRS measure comparable to Preferred Security Payout Ratio. However, this ratio utilizes Free Cash Flow in its calculation and the most directly comparable measure under IFRS to Free Cash Flow is income from continuing operations before tax. Accordingly, dividing the total amount declared to holders of Mosaic preferred securities and series A shares during the period by income from continuing operations before tax for the period, for each of the twelve month periods ended December 31, 2012 and 2011, yields payout ratios of 49% and 125%, respectively.

Combined Payout Ratio: There is no IFRS measure comparable to Combined Payout Ratio. However, this ratio utilizes Free Cash Flow in its calculation and the most directly comparable measure under IFRS to Free Cash Flow is income from continuing operations before tax. Accordingly, dividing the total amount declared to holders of Mosaic preferred securities, series A shares and common shares during the period by income from continuing operations before tax for the period, yields a payout ratio of 57% for the twelve month period ended December 31, 2012.

DISTRIBUTIONS & SECURITY PAYOUT RATIOS

Information regarding the distributions declared and paid to holders of preferred securities and preferred units during the year ended December 31, 2012 and comparative period in 2011 is set forth below.

Under the Mosaic distribution reinvestment plan (the "DRIP") distributions paid on preferred securities to eligible participants may be automatically reinvested into additional preferred securities at the election of the holder of preferred securities.

Under the DRIP, holders of preferred securities who are residents of Canada and are participating in the plan will have distributions relating to their preferred securities reinvested into preferred securities. The difference between distributions declared and distributions paid in cash is related to securities that were purchased through the facilities of the TSX Venture Exchange to satisfy the DRIP. The DRIP allows Mosaic to elect to have the preferred securities purchased on the open market or issued from treasury.


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Record Date

Distributions

Declared

Distributions

net of DRIP

DRIP

Participation (2)

Distributions

Declared

Distributions

net of DRIP

DRIP

Participation (2)

January (1) 423$ 286$ 32% 293$ 134$ 54%

February (1) 422 288 32% 295 134 55%

March (1) 422 290 31% 296 134 55%

April (1) 422 291 31% 298 297 0% (3)

May (1) 422 290 31% 423 264 38%

June (1) 422 289 32% 424 259 39%

July (1) 422 289 32% 423 263 38%

August (1) 422 282 33% 423 263 38%

September (1) 422 282 33% 422 265 37%

October (1) 619 479 23% 422 266 37%

November (1) 620 479 23% 422 275 35%

December (1) 620 471 24% 422 286 32%

5,658$ 4,016$ 29% 4,563$ 2,840$ 38%

2012 2011

Notes: (1) Since listing on the TSX Venture Exchange in May 2011 Mosaic elected to satisfy its obligation under the DRIP by purchasing preferred

securities through the facilities of the TSX Venture Exchange rather than issuing preferred securities from treasury. (2) Percentage of distributions on preferred units or preferred securities with respect to which the holders of securities have elected to

participate in the DRIP. All unitholders of the Fund who were enrolled in the DRIP continued automatically whereas First West did not have a DRIP. This accounts for the percentage participation decrease in April/May 2011.

(3) Due to the plan of arrangement transaction the DRIP participants in respect of the DRIP distributions for the month of April 2011 received cash payment exclusively rather than preferred securities.

For the three months to December 31, 2012, Mosaic declared distributions on preferred securities of $1,859 and in the three month period ended December 31, 2011 Mosaic declared distributions on preferred securities of $1,266. The increase in distributions during the comparative period is as a result of distributions related to the preferred securities issued pursuant to the Offering.

For the year ended December 31, 2012, Mosaic declared distributions on preferred securities of $5,658 and in the year ended December 31, 2011 Mosaic declared distributions on preferred securities of $3,381 and interest to holders of preferred units of the Mosaic Diversified Income Fund (the "Fund") of $1,182.

For the three months to December 31, 2012, Mosaic paid distributions to preferred security holders in the amount of $1,240 and purchased preferred securities with a value of $421 through the facilities of the TSX Venture Exchange to satisfy our obligations pursuant to the DRIP. In the three month period ended December 31, 2011 Mosaic paid distributions on preferred securities of $806 and purchased preferred securities with a value of $460 through the facilities of the TSX Venture Exchange to satisfy our obligations pursuant to the DRIP.

For the year ended December 31, 2012, Mosaic paid distributions to preferred security holders in the amount of $3,819 and purchased preferred securities with a value of $1,641 through the facilities of the TSX Venture Exchange to satisfy our obligations pursuant to the DRIP. In the year ended December 31, 2011 Mosaic paid distributions on preferred securities of $2,688 and purchased preferred securities with a value of $1,746 through the facilities of the TSX Venture Exchange to satisfy our obligations pursuant to the DRIP. Also during the year ended December 31, 2011 the Fund paid interest to holders of preferred units of the Fund of $1,182, which is included in the values above.

During the year ended December 31, 2012, holders of preferred securities representing approximately 29% of the outstanding preferred securities participated in the DRIP.

The Preferred Security Payout Ratios and Combined Payout Ratio for the periods indicated are as follows:

Preferred Security Payout Ratios 2012

Three month period ended December 31 61%

Year ended December 31 52%

Combined Payout Ratio 2012

Year ended December 31 61%


10

DIVIDENDS

In January 2012, Mosaic's board of directors adopted a policy regarding the payment of quarterly dividends on Mosaic's common shares in such amount as Mosaic's board of directors may from time to time determine. Mosaic's board of directors declared an initial quarterly cash dividend for its common shares of $0.02 per share paid on February 15, 2012 to holders of record on January 31, 2012. Mosaic's board of directors declared quarterly cash dividends of $0.03 per share which were paid on May 15, 2012 to holders of record on April 30, 2012, August 15, 2012 to holders of record on July 31, 2012 and November 15, 2012 to holders of record on October 31, 2012 respectively. The objective of paying a dividend is to allow common shareholders of Mosaic to participate in its Free Cash Flow, while ensuring Mosaic retains sufficient capital to preserve its strong balance sheet, continue its acquisition strategy and finance organic growth.

Dividends are also payable monthly on series "A" shares issued and outstanding. Each series "A" share has a right to a dividend equal to the distribution declared on each preferred security.

For the three months to December 31, 2012 Mosaic declared and paid dividends on series "A" shares of $5 (2011 - $5).

For the year ended December 31, 2012 Mosaic declared and paid dividends on series "A" shares of $21 and in the year ended December 31, 2011 Mosaic declared dividends on series "A" shares of $12 and paid dividends on series "A" shares of $10.

OUTLOOK

The following is qualified in its entirety by the "Note Regarding Forward-Looking Information" at the beginning of this MD&A, and the risks and uncertainties referred to in the section titled "Risk Factors".

Management continues to be concerned with certain aspects of the global economic environment and possible resulting market volatility and its potential impact, whether direct or indirect, within the western Canadian markets in which Mosaic Capital's subsidiaries operate. While not directly involved in extractive industries, some of Mosaic's businesses are indirectly affected by low or fluctuating prices for Western Canadian oil and natural gas.

Within the Industrial Segment management expects Alberta and Saskatchewan to continue to benefit from ongoing development in the oil and gas industry in the segments and geography in which our businesses operate. We continue to believe there will be a robust market for agricultural commodities. We do however believe that we may have some weather related challenges this spring due to record snowfall in Saskatchewan and the high potential for flooding. The consistent economic environment in Manitoba, along with the anticipated continuation of a steady flow of commercial and government construction projects are expected to continue to provide Ambassador Mechanical with a steady backlog of projects. Our businesses continue to focus on opportunities and initiatives to increase services and revenue through, among other things, capitalizing on geographic and product expansion opportunities as well as improved business processes and efficiencies. Management has seen, and expects to continue to see, positive economic results from these initiatives.

Within the Real Estate Segment we continue to market our property in Fort McMurray. This sale is not a reflection of our view of property in this market but rather the completion of the catalyst event to add value and accordingly be sold as part of normal operations. We recently completed an acquisition of raw land in Saskatchewan in respect of which development work continues to be undertaken as management looks to build value through such development. Management continues to believe that the economic environment in specific areas in western Canada will continue provide ongoing opportunities for acquisition and development of both raw land and commercial properties.

Looking forward, management believes that Mosaic will continue to grow through acquisition as we find more businesses that meet our investment criteria. In 2012 we reviewed hundreds of potential acquisitions and the pace of opportunities continues. As we acquire new businesses it may be the case that the moderate seasonality of our financials may be reduced. Historically we have seen our weakest quarter being our second quarter and our strongest quarter being our third quarter, this has continued to smooth out with the acquisition of new businesses.

In the face of concerns with certain aspects of the global economic environment and within western Canadian markets, management is maintaining its focus on a strong balance sheet in order to enable Mosaic Capital to


11

capitalize on opportunities that may arise out of market volatility. Mosaic Capital is currently well capitalized, in part, as a result of its recent completion of a prospectus offering of $25,054 in Preferred Securities.

FINANCIAL REVIEW AND DISCUSSION OF RESULTS

The following information should be read in conjunction with the audited consolidated financial statements of Mosaic for the year ended December 31, 2012, the audited consolidated financial statements of Mosaic for the year ended December 31, 2011 and the MD&A for that period.

The most significant impacts of the adoption of IFRS, together with details of IFRS exemptions taken, are described in the "Accounting Policies" and "Transition to IFRS" sections of the MD&A for the year ended December 31, 2011. Comparative information has been restated to comply with IFRS requirements.

[remainder of page intentionally left blank]


12

Mosaic - Consolidated

Selected balance sheet information

Dec 31, Dec 31, Dec 31,

2012 2011 2010

Cash and cash equivalents 30,818$ 20,303$ 10,395$

Accounts receivable 22,248 5,869 4,386

Assets held for sale 19,524 - -

Total current assets 76,845 27,294 15,540

Income producing properties - 19,595 -

Total non-current assets 45,560 42,749 22,922

Total assets 122,405$ 70,043$ 38,462$

Operating loan 5,828 - -

Total current l iabilities 23,793$ 3,297$ 3,143$

Mortgages payable - 4,862 -

Total non-current l iabilities 4,439 5,509 32,750

Total equity attributable to equity holders 94,173$ 61,237$ 2,569$

Working capital 53,052$ 23,997$ 12,397$

Selected income and expense information

2012 2011 2012 2011 2010

Revenue 22,056$ 7,110$ 75,815$ 23,654$ 20,384$

Operating expenses 18,266 5,695 59,051 18,267 13,969

Income from operations 3,790 1,415 16,764 5,387 6,415

Income before other items 2,371 432 11,594 2,824 4,757

Other Income and Expenses -

Acquisition costs - - - 552 -

Net income from continuing operations 3,130 (61) 10,587 1,779 4,638

Net income and comprehensive income 3,130$ 26$ 10,929$ 673$ 1,088$

Shareholders'/Unit holders' 3,349$ (458)$ 8,577$ 811$ 3,896$

Non-controlling interest (219) 397 2,010 968 742

3,130$ (61)$ 10,587$ 1,779$ 4,638$

Shareholders'/Unitholders' per common share - basic 0.18$ (0.15)$ 0.36$ (0.52)$ 0.07$

Shareholders'/Unitholders' per common share - diluted 0.17$ (0.15)$ 0.34$ (0.52)$ 0.07$

Income (loss) and comprehensive income (loss) attributed to: (1)(2)

Shareholders'/Unit holders' 3,349$ (371)$ 8,919$ (295)$ 346$

Non-controlling interest (219) 397 2,010 968 742

3,130$ 26$ 10,929$ 673$ 1,088$

Shareholders'/Unitholders' per common share - basic 0.18$ (0.20)$ 0.40$ (0.51)$ 0.07$

Shareholders'/Unitholders' per common share - diluted 0.17$ (0.20)$ 0.38$ (0.51)$ 0.07$

Distributions and cash dividends declared:

Common share dividends per share(3) 0.11$ NA NA

Series "A" shares per share 1.00$ 0.57$ NA

Net income (loss) from continuing operations attributed to: (1)(2)

Three months ended

Dec 31, Dec 31,

Notes: (1) See "Share Information" in the table under the heading "Financial Highlights". (2) Refer to note 20 within the consolidated financial statements for the per share calculations. Highlights". (3) Mosaic was formed in 2011 and commenced commercial operations following completion of the Arrangement effective May 1, 2011.

Declaration and payment of common share dividends commenced in 2012.


13

The following provides a discussion of the financial position as at December 31, 2012, and the results of operations for the three months and year ended December 31, 2012, with comparative reference to the same period ended December 31, 2011.

Mosaic

For the year ended December 31, 2012 the positive change in the financial condition and performance of Mosaic over 2011 was primarily due to the acquisitions of Ambassador Mechanical (effective January 1, 2012) and Kendall's Supply (effective August 1, 2012) as well as the increase in business activity in Mosaic's Industrial Segment and the completion of the Offering of preferred securities for gross proceeds of $25,054 (completed October 30, 2012). To date, the proceeds of the Offering have been, and are still anticipated to be, utilized consistent with the disclosure of the use thereof as set forth in Mosaic's final short form prospectus dated October 23, 2012 and filed on SEDAR at www.sedar.com under Mosaic's profile. See also the discussion under the headings "Developments" and "Liquidity and Capital Resources".

As at December 31, 2012, working capital was $53,052 (Dec 31, 2011 - $23,997) an increase of $29,055, primarily as a result of the net change related to the acquisitions of Ambassador Mechanical and Kendall's Supply, proceeds received from the Offering of preferred securities and the reclassification of income producing properties to assets available for sale. Total assets increased from $70,043 to $122,405 primarily as a result of an increase in accounts receivable and goodwill and intangible assets in connection with the acquisitions of Ambassador Mechanical and Kendall's Supply and proceeds received from the Offering of preferred securities. Total liabilities increased from $8,806 to $28,232 primarily as a result of an increase of accounts payable and accrued liabilities, deferred contract revenue, notes payable and operating loan in connection with the acquisitions of Ambassador Mechanical and Kendall's Supply.

For the three months ended December 31, 2012, revenue increased by $14,946 to $22,056 (2011 - $7,110) which was primarily related to an increase in overall activity levels in the Industrial Segment which included incremental revenue from Ambassador Mechanical and Kendall's Supply. The increase in operating expense for the three month period to $18,266 (2011 - $5,695) was primarily related to higher costs attributable to increased activity in the Industrial Segment operations which included Ambassador Mechanical and Kendall's Supply in the period. The increase in income before other items to $2,371 (2011 - $432) was primarily a result of increased activity in the Industrial Segment which included Ambassador Mechanical and Kendall's Supply for the period.

For the year ended December 31, 2012 revenue increased to $75,815 (2011 - $23,654) which was primarily as a result of an increase in overall activity levels in the Industrial Segment which included incremental revenue from Ambassador Mechanical and Kendall's Supply. The increase in operating expense to $59,051 (2011 - $18,267) was primarily related to the same reasons as were the case in respect of the increase in the three month period ended December 31, 2012. The increase in income before other items to $11,594 (2011 - $2,824) was primarily related to the same reasons as were the case in respect of the increase in the three month period ended December 31, 2012.

Mosaic - Segmented Information

Industrial


for the Industrial Segment

2012 2011 2012 2011

Revenue 21,315$ 6,746$ 72,336$ 22,229$

Operating expenses 16,956 4,101 54,901 15,342

Income from operations 4,359 2,645 17,435 6,887

Income before other items 3,275 2,229 13,457 5,227

Income from continuing operations before tax 3,275 2,229 13,457 5,227

Income and comprehensive income 2,972$ 1,860$ 12,136$ 4,858$

Three months ended Year ended

December 31 December 31

Revenue in the Industrial Segment increased by $14,569 for the three months ended December 31, 2012 to $21,315 (2011 - $6,746) primarily related to increased activity in oilfield service operations in Alberta and the inclusion of revenue from Ambassador Mechanical and Kendall's Supply for the period.


14

Operating expenses increased by $12,855 for the three months ended December 31, 2012 to $16,956 (2011 - $4,101). The increase in operating expenses was primarily due to the inclusion of expenses of Ambassador Mechanical and Kendall's Supply during the period as well as due to the timing of lower margin contract completions of Ambassador Mechanical.

As a result of the increase in revenue outpacing the increase in operating expenses, income from operations increased by $1,714 for the three months ended December 31, 2012 to $4,359 (2011 - $2,645).

Revenue in the Industrial Segment increased by $50,107 for the year ended December 31, 2012 to $72,336 (2011 - $22,229) primarily related to increased activity in oilfield service operations in Alberta and the inclusion of revenue from Ambassador Mechanical and Kendall's Supply for the period.

Operating expenses increased by $39,559 for the year ended December 31, 2012 to $54,901 (2011 - $15,342). The increase in operating expenses was primarily a result of the inclusion of expenses of Ambassador Mechanical and Kendall's Supply during the period.

As a result of the increase in revenue outpacing the increase in operating expenses, income from operations increased by $10,548 for the year ended December 31, 2012 to $17,435 (2011 - $6,887).

Accounts receivable increased to $22,128 as at December 31, 2012 (December 31, 2011 - $5,844) primarily as a result of the acquisitions of Ambassador Mechanical and Kendall's Supply. The majority of the accounts receivable relates to trade receivables. Mosaic's management believes at this time that all receivables, net of allowances for doubtful accounts of $185, will be collected.

The Industrial Segment has seen organic growth beyond the growth resulting from the acquisition of Ambassador Mechanical and Kendall's Supply. For the year ended December 31, 2012 revenue in the Industrial Segment without the inclusion of Ambassador Mechanical and Kendall's Supply grew 7.5% over 2011 and income from operations grew 16.2%.

Real Estate

Selected income and expense information Year ended 245 days

for the Real Estate Segment December 31 December 31

2012 2011 2012 2011

Revenue 741$ 364$ 3,479$ 1,425$

Operating expenses 231 298 1,099 811

Income from operations 510 66 2,380 614

Income before other items 466 17 2,050 233

Income from continuing operations before tax 466 17 2,050 233

Income (loss) and comprehensive income (loss) 293$ (20)$ 1,471$ 185$

Three months ended

December 31

Mosaic's Real Estate Segment contains a full year of operations in 2012 and, due to the fact that the acquisition of First West occurred pursuant to the Arrangement effective May 1, 2011, the year of operations for the comparative period consists of eight months for 2011.

Income producing properties are comprised of industrial and commercial buildings. These properties are located in secondary markets throughout western Canada.

The Real Estate Segment had revenue of $741 for the three months ended December 31, 2012. Operating expenses were $231 for the three months ended December 31, 2012. This resulted in income from operations of $510 for the three months ended December 31, 2012. The operating expenses primarily relate to operating costs of the income producing properties in the Real Estate Segment.

The Real Estate Segment had revenue of $3,479 for the year ended December 31, 2012. Operating costs were $1,099 for the year ended December 31, 2012. This resulted in income from operations of $2,380 for the year ended December 31, 2012. The increase in revenue and income from operations is primarily related to the sale of an interest in land for an assignment fee of $1,300. The operating expenses primarily relate to operating costs of the income producing properties in the Real Estate Segment.


15

The most significant activities during the year ended December 31, 2012 was the sale of 3.85 acres of raw industrial land located in Lethbridge, Alberta for a price of $527 less disposal costs of $11 for a gain of $36, the sale of an interest in land for an assignment fee of $1,300, as well as the completed purchase of raw land in Saskatchewan for a purchase price of $2,500.

Corporate Expenses


for the Corporate Segment

2012 2011 2012 2011

Revenue -$ -$ -$ -$

Operating expenses 1,079 1,300 3,051 2,118

Income (loss) from operations (1,079) (1,300) (3,051) (2,118)

Income (loss) before other items (1,370) (1,814) (3,913) (2,636)

Income (loss) from continuing operations before tax (1,370) (1,814) (3,913) (3,188)

Income (loss) and comprehensive income (loss) (135) (1,814)$ (2,678)$ (4,370)$

Three months ended Year ended

December 31 December 31

Corporate expenses are considered non-segmented for the purposes of IFRS. The corporate expenses were $1,079 (2011 - $1,300) for the three months ended December 31, 2012. The corporate expenses were $3,051 (2011 - 2,118) for the year ended December 31, 2012. Certain corporate expenses relate to Mosaic's involvement in the operational matters of its subsidiaries in both the Industrial and Real Estate segments. The comparative period contains results from May 1, 2011 which was the completion date of the Arrangement; as a result there is only eight months of comparative information for the prior period. Prior to May 1, 2011 corporate expenses were included as part of the Fund within the Industrial Segment. Starting May 1, 2011 corporate expenses were reallocated from the Industrial Segment.

SUMMARY OF QUARTERLY RESULTS

The following table provides selected quarterly financial information for each of Mosaic's eight most recently completed quarters. Readers should note that the following information is unaudited. Quarter-to-quarter comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of future performance. See "Risk Factors".

Mar 31, Jun 30, Sep 30, Dec 31, Mar 31, June 30, Sep 30, Dec 31,

2011 2011 2011 2011 2012 2012 2012 2012

IFRS IFRS IFRS IFRS IFRS IFRS IFRS IFRS

Revenue 5,611$ 4,165$ 6,768$ 7,110$ 16,307$ 15,309$ 22,143$ 22,056$

Operating expenses 3,881 3,653 5,040 5,695 12,901 12,611 15,273 18,266

Income from operations 1,730 512 1,728 1,415 3,406 2,698 6,870 3,790

Income from continuing operations 1,196 (411) 1,055 (61) 2,398 870 4,189 3,130

Income (loss) attributed to shareholders'/unitholders' (22)$ (636)$ 735$ (371)$ 1,685$ 768$ 3,117$ 3,349$

Income (loss) from continuing operations attributed to:

Shareholders'/Unitholders' per common share - basic -$ (0.21)$ (0.07)$ (0.15)$ 0.05$ (0.09)$ 0.22$ 0.18$

Shareholders'/Unitholders' per common share - diluted -$ (0.21)$ (0.07)$ (0.15)$ 0.05$ (0.09)$ 0.21$ 0.17$

Income (loss) and comprehensive income (loss)

attributed to:

Shareholders'/Unitholders' per common share - basic -$ (0.21)$ (0.07)$ (0.20)$ 0.05$ (0.06)$ 0.23$ 0.18$

Shareholders'/Unitholders' per common share - diluted -$ (0.21)$ (0.07)$ (0.20)$ 0.05$ (0.06)$ 0.22$ 0.17$

Notes: (1) Income (loss) and comprehensive income (loss) attributed to shareholders per common share is calculated after the declaration of

distributions and dividends paid to the holders of preferred securities and series "A" shares.

The increase in both revenue and operating expenses for each of the quarters during the year ended December 31, 2012 was primarily due to the acquisitions of Ambassador Mechanical and Kendall's Supply during the year as well as the increase in business activity in Mosaic's Industrial Segment as compared with the 2011 fiscal year.


16

PROPERTY, PLANT AND EQUIPMENT

The carrying value of property, plant and equipment increased to $6,319 at December 31, 2012 from $4,685 at December 31, 2011. The increase of $1,634 primarily relates to assets acquired with the acquisition of Ambassador Mechanical and Kendall's Supply, and leasehold improvements at Ambassador Mechanical, less amortization recorded for the period.

December 31, 2011Cost Amortization Net Book Value Net Book Value

Motor Vehicles 2,379$ 1,102$ 1,277$ 778$ Computer Equipment 717 355 362 182 Equipment 5,182 1,507 3,675 3,404 Parts Inventory 438 250 188 235 Furniture and fixtures 321 108 213 86

Leasehold improvements 625 21 604 -

9,662$ 3,343$ 6,319$ 4,685$

December 31, 2012

The property, plant and equipment is recorded at cost and subsequently amortized in accordance with the

following rates and methods:

Buildings Declining balance 2%

Computer Equipment Declining balance 30%

Furniture & Fixtures Declining balance 20%

Leasehold Improvements Straight line Term of Lease

Motor Vehicles Declining balance 30%

Parts inventory Declining balance 20%

Production equipment Declining balance 20%

Rental equipment Declining balance 5%

The residual value, if significant, is reassessed annually.

GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying value of goodwill and other intangible assets increased to $35,966 at December 31, 2012 from $17,585 at December 31, 2011. The increase of $18,381 primarily relates to goodwill and other intangible assets resulting from the acquisition of Ambassador Mechanical and Kendall's Supply net of amortization of amortizable assets. Trade names are considered indefinite useful life intangible assets and, like goodwill, are not amortized.

Goodwill and other intangible assets were acquired primarily in connection with the acquisition of Mosaic's operating subsidiaries. They included:

Net Book Value Net Book ValueDecember 31, 2012 December 31, 2011

Goodwill 17,033$ 7,906$ Customer relationships 15,733 8,333 Intellectual property 1,009 1,106 Employment agreements 588 118 Non-competition agreements 122 35 Computer software 12 37 Step-up leases 74 50 Trade name 1,395 - Backlog - -

35,966$ 17,585$

Mosaic tests for impairment of goodwill annually or more frequently, if events occur that could result in

impairment. To date, management has determined that there has been no impairment in the carrying value of

goodwill.

Other intangible assets such as customer relationships, employment agreements and non-competition agreements are amortized over their expected economic lives as follows:


17

Computer Software Straight line 1 year

Customer relationships Straight line 15 years

Employment agreements Straight line 10 years

Backlog Straight line 1 year

Intellectual property Straight line 15 years

Non-compete agreements Straight line 5 years

Step-up Leases Term of lease Term of lease

Intangible assets besides goodwill are tested for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. To date, management has determined that there has been no impairment in the carrying value of intangible assets.

ASSETS HELD FOR SALE

Assets held for sale are comprised of three commercial buildings which are listed and available for immediate sale in their present condition. On February 1, 2013, two of the buildings were sold for aggregate consideration of $14,700. The sale of the remaining building is highly probable and is expected that it will take place within the next six to twelve months.

MORTGAGES PAYABLE

One of Mosaic's subsidiaries had previously entered into various loans with a Canadian chartered bank, and in respect to each, had issued a mortgage and a demand promissory note. The demand promissory note would have come into effect if there was a default. Mosaic repaid in full these mortgages during the year ended December 31, 2012 from proceeds drawn on the operating loan.

NOTES PAYABLE AND SUMMARY OF SCHEDULED PAYMENTS

Notes payable includes vehicle financing, equipment and leasehold improvement loans, capital leases and notes payable to new partners. The note payable issued as partial consideration for the acquisition of Ambassador Mechanical bears interest at 5% and the fair value interest rate has been determined to be 10%. The note payable issued as partial consideration for the acquisition of Kendall's Supply bears interest at 8% and the fair value interest rate has been determined to be 10%. The fair value interest rate on all notes payable has been assessed. As a result the notes payable are reported at a different carrying value than the actual face value which resulted in a non-cash fair value gain of $342 which is expensed as accretion over the life of the notes. The difference between the notes payable carrying value of $6,139 and the face value of $6,326 relates to the un-accreted balance of the debt discount of $187 at December 31, 2012 (December 31, 2011 - $Nil). During the year accretion expense was $155 (2011 - $4).

The payments of principal amounts owing on the above amounts as well as vehicle and equipment financing over the next five years are scheduled as follows:

Cash Payments

$

2013 2,531

2014 2,591

2015 925

2016 142

2017 137

6,326

NON-CONTROLLING INTEREST

Non-controlling interest consists of the capital contributions and accumulated earnings of the minority partners in operating entities of the Fund and Mosaic Capital LP, less distributions to minority partners in those entities.

During the three months ended December 31, 2012, ($219) (December 31, 2011 - $397) of Mosaic's net income was allocated to non-controlling interests and distributions of $200 (December 31, 2011 - $110) were paid to holders of the non-controlling interests.


18

During the year ended December 31, 2012, $2,010 (December 31, 2011 - $968) of Mosaic's net income was allocated to non-controlling interests and distributions of $1,081 (December 31, 2011 - $868) were paid to holders of the non-controlling interests. Capital contributions of $5,975 were received during the period as part of the acquisitions of Ambassador Mechanical and Kendall's Supply.

LIQUIDITY AND CAPITAL RESOURCES

Mosaic's primary capital resources for meeting its cash commitments are existing working capital and cash generated from the operations of its subsidiaries. From time to time Mosaic and its subsidiaries may obtain and draw down on credit facilities. Effective August 1, 2012, Mosaic put in place a revolving demand credit facility with a Canadian chartered bank to be used to finance normal course operations of Mosaic. This facility was shortly thereafter modified to a $10 million revolving facility and a $5.8 million fixed term facility (collectively, the "Credit Facilities" and or "Credit Facility"). As at December 31, 2012 the only subsidiary of Mosaic to have a credit facility in place was Ambassador Mechanical. Ambassador Mechanical's credit facility was undrawn as at December 31, 2012. At December 31, 2012, Mosaic had positive working capital of $53,052 (December 31, 2011 - $23,997) including cash and cash equivalents of $30,818 (December 31, 2011 - $20,303), accounts receivable of $22,248 (December 31, 2011 - $5,869), assets held for sale of $19,524 (December 31, 2011 - $Nil), accounts payable and accrued liabilities of $10,083 (December 31, 2011 - $2,347), deferred contract revenue of $4,732 (December 31, 2011 - $Nil), operating loan (Credit Facility) $5,828 (December 31, 2011 - $Nil) and dividends payable of $622 (December 31, 2011 - $424).

The largest uses of cash during the three months ended December 31, 2012 were $6,428 paid from the proceeds of the Offering in reduction of the revolving portion of the Credit Facilities, $1,859 for distributions to preferred security holders and purchase of preferred securities for delivery pursuant to Mosaic's obligations pursuant to the DRIP, $244 paid to common shareholders as dividends and $209 paid in respect of Sustaining Capital Expenditures during the period. Cash provided by operating activities was $2,365 during the three months ended December 31, 2012. In the three month period Mosaic received gross proceeds of $25,054 from the Offering of preferred securities.

The largest uses of cash during the year ended December 31, 2012 were $13,875 for the acquisition of Ambassador Mechanical, $9,750 for the acquisition of Kendall's Supply, $6,428 paid from the proceeds of the Offering in reduction of the revolving portion of the Credit Facilities, $5,658 for distributions to preferred security holders and purchase of preferred securities for delivery pursuant to Mosaic's obligations pursuant to the DRIP, $895 paid to common shareholders as dividends and $1,184 paid in respect of Sustaining Capital Expenditures. A subsidiary of Mosaic has committed to capital expenditures to upgrade certain equipment to improve its operational performance. Management estimates the remaining cost of these capital expenditures to be approximately $385 to be funded from cash flow of that business. There were cash inflows of $9,782 from the proceeds received on the Credit Facilities, $1,300 from the assignment of an agreement to purchase an interest in land and $516 from the sale of land in Lethbridge. Cash provided by operating activities was $13,486 during the year ended December 31, 2012. Mosaic received gross proceeds of $25,054 from the Offering of preferred securities.

Liquidity risk is the risk that Mosaic will not be able to meet its financial obligations as they are due. Mosaic's approach to managing liquidity is to manage its affairs and operations in such a manner to ensure it will have sufficient liquidity, through cash generated from its operating subsidiaries, to meet its liabilities when due. Mosaic's ongoing liquidity is impacted by various external events and conditions, including commodity price fluctuations and global economic conditions. Mosaic's financial liabilities consist of accounts payable and accrued liabilities, distributions and dividends payable, notes payable and amounts due under operating loans/Credit Facilities.

Management believes, assuming Mosaic generates, in aggregate, positive cash flow from operations in the next twelve months (and management currently knows of no reason why this should not be the case), that its capital resources as at December 31, 2012 are sufficient to meet its financial obligations and working capital requirements, including paying its distributions on preferred securities and dividends on series "A" shares and common shares, over the next 12 months.

Management is continually evaluating potential acquisitions and will consider new acquisitions over the next twelve months if they meet Mosaic's investment criteria. Such acquisitions, however, will be considered only if the acquisitions can be completed utilizing existing capital resources, or with debt or equity financing that is obtained, without impairing Mosaic's ability to meet its ongoing commitments.


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On January 6, 2012, Ambassador Mechanical obtained a revolving demand credit facility of the lesser of $3,000 or the combined value of eligible assigned accounts receivable and inventories as documented in the facility, to be used to finance normal course operations of Ambassador Mechanical. As at December 31, 2012, Ambassador Mechanical has not drawn on the facility. Borrowings under the facility are secured by a first charge on all assets of Ambassador Mechanical, presently owned and after acquired. Interest is charged at a rate per annum equal to prime rate charged by the lending institution plus 0.5%.

Ambassador Mechanical is subject to the following financial covenants with respect to this facility:

i) Cash flow available for debt servicing is to be 1.25 or better; and

ii) The debt to net worth ratio is to be 2.5:1 or better.

Ambassador Mechanical is in compliance with the above covenants as at December 31, 2012.

Effective August 1, 2012, Mosaic put in place the Credit Facilities. Borrowings under these Credit Facilities are due on demand and may also be accelerated and declared due and payable upon the occurrence of certain stipulated events of default typical for such commercial loans. The Credit Facilities are secured by an overdraft lending agreement, a general security agreement from Mosaic and First West, a full liability guarantee by First West, a first charge blanket mortgage on the income producing properties of First West, an assignment of rents and or leases from First West, and an assignment of risk casualty and liability insurance. Borrowings under the Credit Facilities bear interest at a rate per annum equal to prime rate of the Canadian Western Bank plus 1.0%. Advances under the revolving portion of the Credit Facilities are repayable as to interest only until demanded whereas advances under the fixed term portion of the Credit Facilities are to be repaid by monthly payments of principal and interest.

The Credit Facilities require Mosaic to maintain (i) a debt service coverage ratio of not less than 1.30:1 from First West's income producing properties, and (ii) a loan to value ratio of not more than 65%, based upon the value of First West's income producing properties. For purposes of the calculations of these two ratios, the Credit Facilities are considered to be fully drawn.

Mosaic was in compliance with the above covenants as at December 31, 2012.

As at December 31, 2012, Mosaic had a $Nil balance on the revolving portion of the Credit Facilities (December 31, 2011 - $Nil) and $5,828 (December 31, 2011 - $Nil) on the fixed term portion of the Credit Facilities.

As at March 31, 2013 Mosaic had fully repaid its Credit Facilities and, as a result of the February 2013 sale by First West of properties previously comprising security for such facilities, Mosaic's lender has agreed that approximately $5,500 is now available for draw down on the revolving portion of the Credit Facility only.

FINANCIAL INSTRUMENTS

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument to another entity. Upon initial recognition all financial instruments, including derivatives, are recognized on the balance sheet at fair value. Subsequent measurement is then based on the financial instruments being classified into one of four categories: held for trading, loans and receivables, available for sale and financial liabilities. Mosaic has designated its financial instruments into the following categories applying the indicated measurement methods:

Financial Instrument Category Measurement Method

Cash and cash equivalents, restricted cash

Held for trading Fair value

Accounts receivable and deposits Loans and receivables Fair value

Equity instruments Available for sale Fair value

Accounts payable and accrued liabilities, dividends payable, notes payable, income taxes payable, security deposits and operating loan

Financial liabilities Fair value


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Mosaic will assess at each reporting period whether there is a financial asset, other than those classified as held for trading, that is impaired. An impairment loss, other than temporary, is included in net earnings. Mosaic does not hold or use any derivative instruments for trading or speculative purposes.

As at December 31, 2012, Mosaic's financial assets and liabilities consisted primarily of cash and cash equivalents, restricted cash, accounts receivable, deposits and prepaid expenses, accounts payable and accrued liabilities, dividends payable, notes payable, income taxes payable, security deposits and operating loan. These financial instruments arose from the normal course of business with respect to the day-to-day operations, capital expenditures and acquisitions made by Mosaic and its subsidiaries. The carrying values of the financial instruments are considered to approximate their fair values due to their short term nature. Cash and cash equivalents and restricted cash are measured at fair value based on a Level 1 designation.

In addition to liquidity risk discussed above under the heading "Liquidity and Capital Resources", Mosaic has credit and interest rate risks associated with its financial assets and liabilities.

Credit risk

Credit risk is the risk of financial loss to Mosaic if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Mosaic manages the credit exposure related to cash and cash equivalents by selecting Canadian chartered banks with high credit ratings and monitors all short term deposits to ensure an adequate rate of return. Given these credit ratings, management does not expect any counterparty to fail to meet its obligations.

Mosaic is exposed to credit risk as an owner of businesses that extend credit to customers and tenants. Mosaic's accounts receivable are due from a wide range of customers and tenants and are subject to normal credit risk. The credit quality of the trade receivables amount is considered adequate. Mosaic provides allowances for any customer accounts where collectability is doubtful. Mosaic offers a diverse variety of products and services to a wide range of customers across its subsidiaries. The majority of accounts receivable relate to trade receivables. Mosaic's management believes at this time that all receivables, net of allowances for doubtful accounts, will be collected.

Interest rate risk

Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. The notes payable bear a fixed interest rate, and are not exposed to interest rate risk. Mosaic is exposed to interest rate risk to the extent that some of its borrowings are at floating rates.

At December 31, 2012 the sensitivity in net income for each 1% change in interest rates would be approximately $58 and is not significant.

STOCK OPTIONS

The board of directors of Mosaic has adopted an amended and restated securities-based compensation plan which was approved by the holders of common shares of Mosaic at the annual and special meeting of shareholders held June 27, 2012. The Mosaic securities-based compensation plan is intended to afford persons who provide services to Mosaic with an opportunity to obtain a proprietary interest in Mosaic and to assist in attracting as well as retaining and encouraging the continued involvement of such persons with Mosaic. The Mosaic securities-based compensation plan permits the granting of equity incentive awards, including Mosaic options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other securities-based awards to directors, officers, employees and consultants of Mosaic and its subsidiaries. The number of Mosaic common shares that will be available for issuance under the securities-based compensation plan will not exceed 10% of the issued and outstanding Mosaic common shares on a "rolling" basis. The term "rolling" means that as the outstanding capital of Mosaic increases from time to time by the issuance of Mosaic common shares, whether due to the exercise of Mosaic units, options or otherwise, the number of Mosaic common shares eligible to be issued under the Mosaic securities-based compensation plan will automatically increase to 10% of the then issued and outstanding Mosaic common shares. Subject to the rules and regulations of all applicable regulatory authorities to which Mosaic is subject, the number of preferred securities reserved for issuance pursuant to the securities-based compensation plan is unlimited. The number of series "A" shares issuable pursuant to the securities-based compensation plan is limited to the number issuable pursuant to the options described immediately below.


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Immediately prior to the completion of the Arrangement, First West had outstanding options to purchase 1,525,000 common shares of First West (the "First West Options"). Pursuant to the terms of the Arrangement, the First West Options were exchanged for Mosaic unit options on a basis so as to put the holders in materially the same economic position as they were prior to the Arrangement. The Mosaic unit options entitle the holders to receive the same mix of preferred securities and common shares as holders of common shares of First West received under the Arrangement, namely 0.154 common shares per option and 0.077 series "A" shares per option. Upon completion of the Arrangement 1,525,000 Mosaic unit options were issued which entitled the holders thereof to acquire, in aggregate, 234,850 common shares of Mosaic and 117,425 series "A" shares of Mosaic. These options are issued under, and subject to, the Mosaic securities-based compensation plan. As at March 31, 2013, there were outstanding Mosaic common share options and series "A" share options entitling the holders to purchase 221,760 common shares at a weighted average exercise price of $3.52 per share and 90,090 series "A" shares at a weighted average exercise price of $7.16 per share.

RESTRICTED SECURITY UNITS

Mosaic has conditionally issued, as part of its variable compensation incentive program for the 2012 year (the "Plan"), 377,271 restricted securities units ("RSUs") to its executive officers and certain consultants and employees. The terms of the Plan provide that the RSUs issued are subject to cancellation in whole or in part to the extent that specified performance criteria are not met. Accordingly, the maximum potential number of RSUs have been conditionally issued but a portion of them may be cancelled in early 2013. The RSUs are to be settled on a one-for-one basis for the underlying security and have been issued pursuant to Mosaic's securities-based compensation plan. Vesting of the RSUs for each grantee is subject to personal and corporate performance criteria being met and to an allocation at the election of the grantee between RSUs for Mosaic common shares, Mosaic preferred securities or a combination thereof. The attainment of the performance criteria will be assessed and determined by the board of directors of Mosaic in early 2013. The RSUs held by a grantee will vest yearly in three equal tranches starting on the date on which the board makes its determination as to the degree of success in attaining the performance criteria, which determination will determine the corresponding number of RSUs to remain available for vesting and those to be cancelled (if any) for each grantee. Mosaic has reserved a maximum of 377,271 common shares (each at a price of $3.30) and 144,935 preferred securities (each at a price of $8.59) to be issued upon settlement of the RSUs and receipt of the underlying securities by the grantees.

In addition to the foregoing, Mosaic has authorized the grant, as part of its incentive program for the 2011 year, of 25,455 RSUs to one of its executive officers. These RSUs will vest immediately and are to be settled in common shares on a one-for-one basis. Mosaic has reserved 25,455 common shares (each at a price of $3.30), to be issued upon settlement of the RSUs and receipt of the underlying securities by the grantee.

The accrued value of RSUs as of December 31, 2012 was $828 (December 31, 2011 - $Nil).

OFF-BALANCE SHEET ARRANGEMENTS

Mosaic has no off-balance sheet arrangements.

LEGAL PROCEEDINGS

On or about March 6, 2012 Remote Waste L.P. ("RWLP") and its general partner, Remote Waste Ltd. ("RWL"), commenced a court action, and RWLP also served a contractual claim notice for damages, in each case as against Ronald Milner ("Milner"), a former director of RWL, and Remote Waste Inc. ("RWI"), the minority limited partner in RWLP and a shareholder of RWL (RWI and Milner being, collectively, the "Defendants"). Together the court action and contractual claim relate to damages arising from breach of contract, breach of the duty of good faith, breach of fiduciary duties and intentional interference with contractual relations. The aggregate amount claimed is $4.36 million. In December 2012, after failure of the Defendants to respond to the contractual claim notice, RWLP served a notice to arbitrate these contractual claims. The Defendants have yet to recognize the validity of the attempt to arbitrate these claims. However, a defence to the court action has been filed by the Defendants denying the allegations and seeking dismissal of the court action with costs and, in addition, the Defendants have filed a counterclaim against RWLP, RWL, Mosaic Limited Partnership and the general partner thereof, as well as the two Mosaic Capital representatives serving as directors of RWL. The remedies sought in the counterclaim include certain declaratory orders as well as damages in an aggregate amount of $2.5 million. The defendants by counterclaim have filed a defence thereto denying the allegations and seeking dismissal of the counterclaim in its entirety with costs.


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RELATED PARTY TRANSACTIONS

Consulting fees in the amount of $45 were paid for the three months ended December 31, 2012 ( 2011 - $36) and in the amount of $180 for the year ended December 31, 2012 (2011 - $159) to a company controlled by a director of Mosaic (formerly a trustee of the Fund) in the course of business related to Mosaic.

Consulting fees in the amount of $Nil were paid for the three months ended December 31, 2012 (2011 - $Nil) and $Nil (2011 - $100) were paid for the year ended December 31, 2012 to a company controlled by one of the officers of Mosaic (then an officer of the administrator of the Fund) in the course of business related to the Arrangement.

Rent in the amount of $38 (2011 - $Nil) was paid for the three months ended December 31, 2012 to an entity being controlled by a minority partner.

Rent in the amount of $98 (2011 - $Nil) was paid for the year ended December 31, 2012 to entities being controlled by minority partners.

Directors, officers and key employees ("employee" or collectively "employees") of Mosaic are eligible to participate in the employee share purchase plan (the "ESPP"). Under the ESPP, employees who have been invited to participate in the ESPP may contribute up to such amount as is determined by Mosaic. The amount (if any) then contributed by an employee is matched by Mosaic through a matching loan (the "Loan") secured by a promissory note bearing interest at 1% and repayable by the employee over a term not to exceed five years. The employee contribution together with the funds loaned by Mosaic are then provided to the trustee of the ESPP and the trustee uses such funds to purchase common shares of Mosaic through the facilities of the TSX Venture Exchange. The trustee, or its agent, is responsible for determining the pricing and timing of purchases of the common shares. The common shares purchased on behalf of an employee are held as security for their Loan. Should the employee's position terminate with Mosaic then their Loan is repayable, subject to certain exceptions, within 30 days of the termination date. Should the common shares be sold by the employee the proceeds of such sale shall first be applied in repayment of the Loan and then any remaining balance remitted to the employee. If any dividends or other distributions are paid on the common shares held under the ESPP for the benefit of the employee, the proceeds are used to reduce the Loan made to such employee.

The outstanding amount of loans under the ESPP was $549 as at December 31, 2012 (December 31 2011 - $445).

Related party transactions are in the normal course of operations and are recorded at the fair value.

SECURITIES DATA

Mosaic is authorized to issue the following shares and other securities. For full particulars, reference should be made to the Articles of Incorporation of Mosaic and the Preferred Securities Indenture (as hereafter defined) which can be found under Mosaic's profile at www.sedar.com.

(a) Common shares

Authorized: Unlimited

Issued and outstanding as at March 31, 2013: 8,137,848

The holders of common shares are entitled to one vote per share at all meetings of shareholders except separate meetings of the holders of another class or series of shares of Mosaic. The common shares carry an entitlement to dividends, if and when declared by the board of directors of Mosaic and to the distribution of the residual assets of Mosaic in the event of the liquidation, dissolution or winding-up of Mosaic.

(b) Preferred shares, issuable in series


Issued and outstanding as at March 31, 2013: 20,790 Series "A" Shares

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The preferred shares are issuable in series. The preferred shares of each series rank on a parity with the preferred shares of every other series with respect to dividends and return of capital and are entitled to a preference over the common shares and any other shares ranking junior to the preferred shares with respect to priority in the payment of dividends and the distribution of assets in the event of the liquidation, dissolution or winding-up of Mosaic. The board of directors of Mosaic is empowered to fix the number of shares and the rights to be attached to the preferred shares of each series, including the amount of dividends and any conversion, voting and redemption rights. Subject to the Articles of Incorporation of Mosaic and to applicable law, the preferred shares as a class are not entitled to receive notice of or attend or vote at meetings of Mosaic shareholders.

The board of directors of Mosaic has created series "A" shares. The series "A" shares are non-voting and each entitles the holder thereof to a dividend equal to the interest payment made on a preferred security. Each series "A" share is exchangeable by the holder thereof for one preferred security.

(c) Preferred securities


Issued and outstanding as at March 31, 2013: 7,441,572

The preferred securities were created and issued under the subordinated securities indenture ("Preferred Securities Indenture") dated April 29, 2011 between Mosaic and Olympia Trust Company as trustee. The preferred securities are non-voting, unsecured, subordinated, perpetual securities having no fixed maturity date or redemption date and are issuable in denominations of $10 and integral multiples thereof and bear simple interest at the rate of 10% per annum calculated on the principal amount annually not in advance.

On October 30, 2012 Mosaic announced the closing of the Offering of preferred securities. Pursuant to the Offering, Mosaic issued 2,374,750 preferred securities at a price of $10.55 for gross proceeds of $25,054. Transaction costs of $1,671 were incurred related to this Offering and were netted against the preferred securities stated value.

RISK FACTORS

An investment in, and the businesses and operations of, Mosaic are subject to a number of risks and uncertainties in the normal course of business. Such risks and uncertainties could have a negative effect on our financial condition or results of operations. We have identified significant risks that we are aware of in our most recent annual information form under the heading "Risk Factors" therein. Mosaic's annual information form is available under Mosaic's profile at www.sedar.com or under the investors section of Mosaic's website at www.mosaiccapitalcorp.com.

TAXATION AND ACCOUNTING TREATMENT OF MOSAIC PREFERRED SECURITIES

Preferred securities are considered debt for Canadian income tax purposes, but are treated as equity for the purposes of IFRS. On Mosaic's December 31, 2011 financial statements payment of interest to holders of preferred securities is classified as a dividend and payments of distributions to holders of preferred units of the Fund are classified as interest. In the MD&A reference is made to "distributions" on preferred securities in an effort to distinguish between the tax and accounting treatments of payment on the preferred securities. A holder of preferred securities that is a corporation, partnership, unit trust or trust of which a corporation or partnership is a beneficiary will be required to include in its income for a taxation year any interest or amount that is considered for the purposes of the Income Tax Act (Canada) and the regulations thereunder (the "Tax Act") to be interest on the preferred security that accrued to it to the end of the year or became receivable or was received by it before the end of the year (including any interest that is reinvested in preferred securities pursuant to the Mosaic DRIP), except to the extent that it was included in computing its income for a preceding year.

Any other holder, including an individual, will be required to include in income for a taxation year any amount received (including any interest that is reinvested in preferred securities pursuant to the DRIP) or receivable by the holder as interest in the year (depending upon the method regularly followed by the holder when computing income) on the preferred security, to the extent that such amount was not included in the holder's income for a preceding year. In addition, if at any time a preferred security should become an "investment contract" (as defined in the Tax Act) in relation to a holder, such holder will be required to include in computing income for a


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taxation year any interest that accrues to the holder on the preferred security up to any "anniversary day" (as defined in the Tax Act) in that year to the extent such interest was not otherwise included in the holder's income for that year or a preceding year. Under the terms of the preferred securities, Mosaic may indefinitely defer payment of all or any part of any accrued interest otherwise due on the preferred securities. In circumstances where payment of the accrued interest is deferred by Mosaic, the preferred security may be viewed as an "investment contract" for the purposes of the Tax Act in relation to certain holders (including individuals) and such holders will be required to include such deferred interest in their income for the taxation year that includes the "anniversary day" (as defined in the Tax Act) of the preferred security.

A holder that is a "Canadian-controlled private corporation" (as defined in the Tax Act) may be liable for a refundable tax of 66 2/3% on its investment income, which will include interest on the preferred security that is included when computing the holder's income.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Judgments, estimates and underlying assumptions are reviewed on a continuous basis and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

In preparing our financial statements, we make judgments regarding the application of IFRS for our accounting policies. Significant judgments relate to determination of whether a transaction constitutes a business combination, determination of significant influence or control, application of tax rules and regulations, recognition and measurement of infrastructure revenue, infrastructure costs and deferred contract revenue, identification of cash-generating units ("CGUs") and the impairment of assets.

Areas that require significant estimates and assumptions are set out in the following paragraphs.

Amortization of property, plant and equipment and other intangible assets

The amounts recorded for amortization of components of property, plant and equipment and intangible assets are based on remaining lives and the residual values of the related assets.

Valuation of property, plant and equipment and goodwill and other intangible assets

The amounts recorded for property, plant and equipment and goodwill and intangible assets and the valuation of CGUs are based on estimates of future cash flows, remaining lives and periods of future benefits and the residual values of the related assets.

Valuation of accounts receivable

The valuation of accounts receivable is based on management's estimate of the provision for doubtful accounts.

Income taxes

The amounts recorded for deferred income taxes are based on estimates as to the timing of the reversal of temporary differences and the tax rates expected to apply in the period of reversal. They are also based on estimates of the probability of Mosaic utilizing certain tax pools and assets which in turn are dependent on estimates of future taxable income. The availability of tax pools is subject to audit and interpretation by taxation authorities.

Valuation of stock options and restricted security units

When not directly observable in active markets, Mosaic uses third-party models and valuation methodologies that utilize observable market data to estimate the valuation of stock options and restricted security units. In addition to market information, Mosaic incorporates transaction specific details that market participants would utilize in a fair value measurement.


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Infrastructure revenue, infrastructure costs, deferred contract revenue, and costs and estimated earnings in excess of billings

The amounts recorded for infrastructure revenue, infrastructure costs, deferred contract revenue, and costs and estimated earnings in excess of billings include amounts derived using the percentage of completion method applied to infrastructure contracts. Percentage of completion is calculated based on the costs incurred on each infrastructure contract at the end of the respective accounting period divided by the total estimated costs for the contract. To determine the estimated cost to complete the infrastructure contract, judgment, assumptions and estimates are required to evaluate issues related to schedule, material and labour costs, labour productivity, changes in contract scope and subcontractor costs. Due to the nature of infrastructure contracts, estimates may change significantly from one accounting period to the next.

ACCOUNTING POLICIES

The accounting policies of Mosaic used in the determination of the results for the year ended December 31, 2012 and December 31, 2011 that are disclosed and analyzed in this report are described in detail in Note 3 of Mosaic's consolidated financial statements. These policies have been applied in preparing the financial statements for the year ended December 31, 2012 and the comparative information presented in the financial statements for the year ended December 31, 2011. During the year ended December 31, 2012, and as a direct result of the acquisition of Ambassador Mechanical, Mosaic adopted the following accounting policies:

Infrastructure revenue

Infrastructure revenue is recognized income in proportion to the stage of completion of the contract. Revenue from fixed price infrastructure contracts is recognized on the percentage of completion basis. Percentage of completion is calculated based on the costs incurred on each infrastructure contract to the end of the respective accounting period divided by the total estimated costs. Revenue from cost reimbursable contracts is recognized progressively on the basis of costs incurred during the period plus the estimated fee earned. Revenue from unit price contracts in the heavy infrastructure and civil infrastructure is recognized based on the amount of billable work completed. For agency relationships, such as infrastructure management, where the Company acts as an agent for its clients, fee revenue is recognized, in accordance with the contract terms. If the outcome of an infrastructure contract cannot be estimated reliably for management to estimate the ultimate profitability of the contract with a reasonable degree of certainty, revenue may be recognized however profit may not be recognized.

Revenue from change orders is recognized to the extent that management estimates that realization is probable. Any excess of progress billings over earned revenue on infrastructure contracts is carried as deferred contract revenue in the financial statements. Any excess of costs and estimated earnings over progress billings on infrastructure contracts is carried as costs and estimated earnings in excess of billings in the financial statements. Losses from any infrastructure contracts are recognized in full in the period the loss becomes apparent.

Infrastructure costs

Infrastructure costs are expensed as incurred unless they result in an asset related to future contract activity. Infrastructure costs include all expenses that relate directly to execution of the specific contract, including site labour and site supervision, direct materials, subcontractor costs, equipment rentals, design and technical assistance, and warranty claims. Infrastructure costs also include overheads that can be attributed to the project in a systematic and consistent manner and include general insurance and bonding costs, and staff costs relating to project management. Infrastructure costs also include expenditures for services which are specifically recoverable from the customer under the terms of the contract.

A summary of Mosaic's significant accounting policies under IFRS is presented in Note 3 to Mosaic's consolidated financial statements for the year ended December 31, 2012.

FUTURE ACCOUNTING STANDARDS

The standard-setting bodies that determine IFRS have significant ongoing projects that could impact the IFRS accounting policies that we have selected. The impact of any new or amended IFRS standards or interpretations will be evaluated as they are drafted and published. New and amended standards and interpretations have been identified below. Mosaic does not anticipate that the amendments below will have a significant effect on the consolidated financial statements.


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IFRS 7 – Financial Instrument: Disclosures

IFRS 9 – Financial Instruments

IFRS 10 – Consolidated Financial Statements

IFRS 11 – Joint Arrangements

IFRS 12 – Disclosure of Interests in Other Entities

IFRS 13 – Fair Value Measurement

Amendments to IAS 1 – Presentation of Financial Statements

Amendments to IAS 16 – Property, Plant & Equipment

Amendments to IAS 32 – Financial Instruments: Presentation

IAS 12 – Income Taxes

IAS 27 – Consolidated and Separate Financial Statements

IAS 28 – Investments in Associates and Joint Ventures

SUBSEQUENT EVENTS

On January 15, 2013 Mosaic paid a distribution of $620 to holders of preferred securities and a dividend of $2 to all holders of series "A" shares that were outstanding as of December 31, 2012.

On January 18, 2013 Mosaic announced the cash distribution for the month of January 2013 in respect of its preferred securities to all holders of preferred securities of record as of January 31, 2013. This distribution was of $620 was paid February 15, 2013.

On January 18, 2013 Mosaic declared a quarterly dividend on Mosaic's common shares of $0.03 per share. This dividend was paid February 15, 2013 to all holders of record as of January 31, 2013.

On February 1, 2013 Mosaic announced sale of two Lethbridge warehouses for aggregate consideration of $14,700.

On February 1, 2013 Mosaic paid down $5,769 on the fixed term portion of the Credit Facilities.

On February 20, 2013 Mosaic announced the cash distribution for the month of February 2013 in respect of its preferred securities to all holders of preferred securities of record as of February 28, 2013. This distribution of $620 was paid March 15, 2013.

On March 18, 2013 Mosaic announced the cash distribution for the month of March 2013 in respect of its preferred securities to all holders of preferred securities of record as of March 29, 2013. This distribution of $620 was paid April 15, 2013.

On April 17, 2013 Mosaic declared a quarterly dividend on Mosaic's common shares of $0.03 per share. This dividend will be paid May 15, 2013 to all holders of record as of April 30, 2013.

On April 17, 2013 Mosaic declared the cash distribution for the month of April 2013 in respect of its preferred securities to all holders of preferred securities of record as of April 30, 2013. This distribution will be paid May 15, 2013.

ADDITIONAL INFORMATION

Additional information relating to Mosaic, including the AIF and other public filings, is available on SEDAR at www.sedar.com and on Mosaic's website at www.mosaiccapitalcorp.com.


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Documents

Management’s Discussion and Analysis - Mosaic Capital€¦ · Mosaic Capital Corporation 400, 2424 – 4th Street SW, Calgary, Alberta T2S 2T4 | Telephone 403-218-6500 | Fax 403-266-1541