management’s discussion and analysis for the six...

MANAGEMENT’S DISCUSSION AND ANALYSIS

For the six and three months endedJune 30, 2013

Management’s Discussion and Analysis

Aveda Transportation and Energy Services Inc. – Six and three months ended June 30, 2013

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Section 1: Description of the Business ....................................................................................................... 3

Section 2: Key Performance Indicators ...................................................................................................... 4

Section 3: Overall Performance .................................................................................................................4

Section 4: Selected Financial Information for the Six Months Ended June 30, 2013 ................................6

Section 5: Results of Operations for the Six Months Ended June 30, 2013 ...............................................7

Section 6: Selected Financial Information for the Three Months Ended June 30, 2013..........................10

Section 7: Results of Operations for the Three Months Ended June 30, 2013 ........................................11

Section 8: Non-IFRS Measure...................................................................................................................14

Section 9: Summary of Quarterly Results ................................................................................................15

Section 10: Liquidity and Capital Resources...............................................................................................15

Section 11: Seasonality of Business ...........................................................................................................16

Section 12: Transactions with Related Parties ...........................................................................................17

Section 13: Adoption of New Accounting Pronouncements......................................................................17

Section 14: Critical Accounting Estimates ..................................................................................................18

Section 15: Risks and Uncertainties ...........................................................................................................18

Section 16: Outlook....................................................................................................................................18

Section 17: Forward Looking Statements ..................................................................................................20



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This Management’s Discussion and Analysis (“MD&A”) for Aveda Transportation and Energy Services Inc.(“Aveda” or the “Company”) for the six and three month period ended June 30, 2013 should be read inconjunction with the Company’s (i) audited consolidated financial statements and accompanying notesfor the year ended December 31, 2012 (“Annual Financial Statements”), together with the MD&Athereon (“2012 MD&A”), and (ii) the unaudited condensed interim financial statements (“InterimFinancial Statements”) which are available at www.sedar.com and on the Company’s website atwww.avedaenergy.com. All dollar amounts are in Canadian dollars unless otherwise indicated.

The Board of Directors carries out its responsibility for review of the disclosure in this MD&A principallythrough its Audit Committee, comprised of three directors, one of whom is independent. The AuditCommittee reviews this disclosure and recommends its approval to the Board of Directors. This MD&Ahas been approved by the Board of Directors.

The Company reports on certain non-IFRS measures that are used by management to evaluate theperformance of the business. Since non-IFRS measures do not have a standardized meaning, securitiesregulators require that non-IFRS measures be clearly defined and qualified, reconciled to the nearestIFRS measure, and be given no more prominence than the closest IFRS measures. The definition,calculation, and reconciliation of the non-IFRS measures are provided in the section “Reconciliation ofnon-IFRS Measure” in this MD&A.

Aveda is publicly traded on the TSX Venture Exchange under the symbol AVE.

This MD&A contains statements that are not historical facts and are forward looking statements (see"Forward Looking Statements" below).

This MD&A is dated as at August 14, 2013.

Section 1: Description of the Business

Aveda earns revenue predominantly by providing specialized transportation services required for thedrilling exploration, development and production of petroleum resources in the Western CanadianSedimentary Basin (“WCSB”) and in the United States of America principally in and around the states ofTexas and Pennsylvania. Transportation services are provided using assets which are owned by theCompany, or through owner-operators who provide trucks, and in some cases trailers, exclusively forthe benefit of the Company under annual contracts, or through sub-contractors who own theirequipment and are contracted by the Company during times of peak demand. Transportation servicesinclude both the equipment necessary to move the load as well as a trained, professional driver capableof securing, moving and manipulating the load to its destination.

Aveda’s rental operations include the rental of tanks, mats, pickers, light towers and other equipmentnecessary for oilfield operations.

Aveda was incorporated in 1994 as a private company to serve the oil and gas industry. In the spring of2006 the Company went public on the TSX Venture Exchange. Aveda has major operations in Calgary,AB, Slave Lake, AB, Leduc, AB, Sylvan Lake, AB, Mineral Wells, TX, Pleasanton, TX, Midland, TX,Williamsport, PA and Buckhannon, WV.

For more information on Aveda please visit www.avedaenergy.com.



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Section 2: Key Performance Indicators

Aveda monitors a number of key performance indicators including those set out below:

Revenue provides an overall indication of success and progress toward achieving growingmarket share;

Earnings Per Share measures the return to shareholders and also allows management to assesswhether acquisitions are accretive to earnings;

Standardized EBITDA is earnings before interest, taxes, depreciation and amortization;

Adjusted EBITDA1 is Standardized EBITDA, excluding foreign exchange gains or losses which areprimarily related to the US dollar activities of the Company and can vary significantly dependingon exchange rate fluctuations, which are beyond the control of the Company, and write downsof intangible assets, goodwill impairment, financing costs, gains or losses on disposal of assets,stock based compensation, fees and expenses on settlement of debt and losses onextinguishment of debt; and

Adjusted EBITDA per Share1 is Adjusted EBITDA1 divided by the weighted average number ofshares outstanding for the period.

Section 3: Overall Performance

2013 SECOND QUARTER BUSINESS HIGHLIGHTS

Revenue for the three months ended June 30, 2013 grew by $2.2 million to $20.0 million,compared with revenue of $17.8 million for the same period in 2012;

Reported 13 consecutive quarters of record revenue growth as compared to the same period ofthe prior year;

Generated net income for the three months ended June 30, 2013 of $0.4 million, an increase of$1.2 million compared to a $0.8 million loss for the same period in 2012. Net income per shareincreased to $0.04 compared to a loss per share of $0.10 in the comparative period;

Increased Adjusted EBITDA1 by 122.4% to $3.2 million in the second quarter of 2013 ascompared to $1.4 million in the same period of 2012; and

The Company’s solid EBITDA results and positive cash flow generation reduced bank debt by$4.4 million during the three months ended June 30, 2013.

Note:

(1) See Section 8: Non-IFRS Measure.



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2013 FIRST HALF BUSINESS HIGHLIGHTS

Revenue for the six months ended June 30, 2013 grew by $3.1 million to $43.5 million,compared with revenue of $40.4 million for the same period in 2012. Aveda achieved thisrevenue growth despite an average year-over-year rig count decline of approximately 10% inthe areas the Company operates in;

Generated net income for the six months ended June 30, 2013 of $2.1 million, an increase of$2.4 million compared to a $0.3 million loss for the same period in 2012. Net income per shareincreased to $0.21 compared to a loss per share of $0.04 in the comparative period;

Generated Adjusted EBITDA1 for the six months ended June 30, 2013 of $7.5 million, an increaseof $3.1 million compared with Adjusted EBITDA1 of $4.3 million for the same period in 2012, anincrease of 71.9% year over year;

Generated net cash provided by operating activities for the six months ended June 30, 2013 of$8.6 million, an increase of $3.4 million compared to $5.2 million for the same period in 2012;

Repaid loans and borrowing of $7.8 million in the six months ended June 30, 2013; and

Relocated the Company’s Pennsylvania branch from New Columbia to Williamsport,Pennsylvania.

Note:




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Section 4: Selected Financial Information for the Six Months Ended June 30,2013

(in thousands, except per share and ratio amounts)

2013 2012

$ Change2012 -

2013

% Change2012 -

2013

Revenue 43,495 40,380 3,115 7.7%Gross profit5

8,836 7,104 1,732 24.4%Gross margin 20.3% 17.6% N/A N/A

Gross profit5 excluding depreciation and amortization 12,763 9,777 2,986 30.5%Gross margin excluding depreciation and amortization 29.3% 24.2% N/A N/AAdjusted EBITDA1

7,467 4,345 3,122 71.9%Adjusted EBITDA1 as a percentage of revenue 17.2% 10.8% N/A N/ANet income 2,123 (330) 2,453 743.3%Net income as a percentage of revenue 4.9% -0.8% N/A N/A

Adjusted EBITDA per share 0.75 0.58 0.17 29.3%Earnings per share - basic 0.21 (0.04) 0.25 625.0%Earnings per share - diluted 0.20 (0.04) 0.24 600.0%Current ratio2

2.01 2.10 (0.09) -4.3%Debt to equity ratio3

0.94 0.89 0.05 5.8%Debt to EBITDA ratio3, 4

1.98 2.24 (0.27) -11.8%Total assets 63,983 58,303 5,680 9.7%Total long-term debt 25,496 21,717 3,779 17.4%Notes :

(1) See Section 8: Non-IFRS Measure.(2) Current ratio calculated as current assets divided by current l iabil ities.(3) Debt includes loans and borrowings as per their carrying amounts on the balance sheet.(4) EBITDA used is Adjusted EBITDA for the trail ing twelve months.(5) Gross profit calculated as revenue less direct operating expense.

Revenue increased by $3.1 million compared to the same period in the prior year due to the Company’sstrong performance in its US operating locations offset by weaker performance in the Canadianoperations. Direct operating costs excluding depreciation and amortization were flat despite theincrease in revenue, which led to an increase in gross profit excluding depreciation and amortization of$3.0 million.

The Company’s net income increased by $2.4 million to $2.1 million from a $0.3 million loss in the prioryear.



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Section 5: Results of Operations for the Six Months Ended June 30, 2013

REVENUE

The following table provides a breakdown of the Company’s revenue by geography for the six monthsended June 30, 2013 and 2012:

(in thousands)

2013 2012$ Change

2012 - 2013% Change

2012 - 2013Canada 15,095 20,058 (4,963) -24.7%United States 28,400 20,322 8,078 39.8%

43,495 40,380 3,115 7.7%

35%65%

2013Canada United States

50%50%


Total revenue increased by 7.7% from $40.4 million in 2012 to$43.5 million in 2013. The increase in revenue is related entirely tothe Company’s strong performance in the US. Revenue from theCompany’s US operations increased by $8.1 million as a result ofbranches in Pleasanton and Midland, TX which were opened in2012. The strong performance of the new branches is offset by arevenue decline in the Mineral Wells, TX branch. The decline in revenue at the Mineral Wells branch canbe attributed to a slowdown in drilling activities in the surrounding area along with the new Aveda Texasbranches taking over some of the customer relationships of the Mineral Wells branch.

Revenue in the WCSB decreased by $5.0 million compared to 2012 largely due to the closed branches inGrande Prairie and Melita and a general slowdown experienced in drilling activities in the WCSB.Offsetting some of the decline was increased rental revenue from the acquisition completed in thesecond half of 2012; the acquisition contributed approximately $2.1 million in additional revenue in thesix months ended June 30, 2013. The closed branches reduced revenue by $2.7 million.

During the six months ended June 30, 2013, revenue from the use of third party subcontractors was$12.8 million compared to $11.2 million in the same prior of the prior year. The Company charges itscustomers a minimal markup, generally 5% – 15% on the use of third party subcontractors.

-

10,000

20,000

30,000

40,000

50,000

2011 2012 2013

Total Revenue



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EXPENSES

The following table sets forth total expenses by function and as a percentage of revenue for the sixmonths ended June 30, 2013 and 2012:

(in thousands)

2013 2012$ Change

2012 - 2013% Change

2012 - 2013Direct operating 34,659 33,276 1,383 4.2%Selling and administrative 5,669 5,612 57 1.0%

40,328 38,888 1,440 3.7%

% of total revenue 2013 2012Direct operating 79.7% 82.4%

Selling and administrative 13.0% 13.9%92.7% 96.3%

Direct Operating Expenses

Direct operating expenses for the six months ended June 30, 2013 increased by $1.4 million from $33.3million in 2012 to $34.7 million. The increase in direct operating expense is primarily attributed to a $1.3million increase in depreciation and amortization expense due to the Company having a higher assetbase in 2013 compared to 2012. Excluding depreciation and amortization, the Company’s operatingexpenses were essentially flat year-over-year, despite having increased revenues by $3.1 million. The2012 operating expenses included start-up costs for Pleasanton and high operating costs related tounderperforming branches in Canada which were subsequently closed. These costs were not repeatedin 2013. However, the 2013 amounts included normal operating costs of the newly opened Pleasantonand Midland branches. Overall, this also led to a decrease in operating expenses as a percentage ofrevenue.

The Company also benefitted in 2013 by $0.4 million as a result of a successful appeal of its US Worker’sCompensation rate with its insurer. This recovery relates to periods prior to 2013. The new rate isanticipated to have about a 0.5% increase in US operating margin going forward.

Excluding depreciation and amortization, the Company obtained a gross margin of 29.3% for the sixmonths ended June 30, 2013 compared to 24.2% in 2012. Gross margin with the effect of depreciationand amortization expense was 20.3% in 2013 compared to 17.6% in 2012.

Selling and Administrative Expenses

Selling and administrative expenses for the six months ended June 30, 2013 were essentially the same as2012. However, as a percentage of revenue, selling and administrative expenses decreased to 13.0% ofrevenue compared to 13.9% in the same period of the prior year. This is the result of cost managementefforts implemented across the organization.



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FINANCE COSTS

The following table sets forth the Company’s finance cost and foreign exchange gains and losses for thesix months ended June 30, 2013 and 2012:

(in thousands)

2013 2012$ Change

2012 - 2013% Change

2012 - 2013Finance costs and interest expense 983 861 122 14.2%Foreign exchange gains (886) (28) (858) 3064.3%

97 833 (736) -88.4%

Finance costs and interest expense during the six months ended June 30, 2013 increased by $0.1 millioncompared to the same period in 2012. The increase in finance costs and interest expenses is due to theamount of higher borrowings in the current year along with an increase in the unused credit facility feesas a result of the Company’s credit facility being increased to $49.5 million compared to $35.0 million inthe prior year.

For 2013, the Company recognized a foreign exchange gain of $0.9 million due to the weakening of theCanadian dollar.

INCOME TAXES

The following table sets forth the Company’s income tax expense for the six months ended June 30,2013 and 2012:

(in thousands)

2013 2012$ Change

2012 - 2013% Change

2012 - 2013Current tax expense 281 162 119 73.5%Deferred tax expense 669 921 (252) -27.4%

950 1,083 (133) -12.3%

Income tax expense relates entirely to income earned in the United States.

NET INCOME

The following table sets forth the Company’s net income for the six months ended June 30, 2013 and2012:

(in thousands)

2013 2012$ Change

2012 - 2013% Change

2012 - 2013Net income (loss) 2,123 (330) 2,453 743.3%Percentage of revenue 4.9% -0.8%



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02,0004,0006,0008,000

2011 2012 2013

Adjusted EBITDA

The Company realized net income of $2.1 million in 2013 compared to loss of $0.3 million in 2012.Accordingly, Aveda’s net income per share for 2013 was $0.21 compared to loss per share of $0.04 inthe comparative period.

ADJUSTED EBITDA1

The following table sets forth the Company’s adjusted EBITDA1 for the six months ended June 30, 2013and 2012:

(in thousands)

2013 2012$ Change

2012 - 2013% Change

2012 - 2013Adjusted EBITDA1

7,467 4,345 3,122 71.9%

Percentage of revenue 17.2% 10.8%

Adjusted EBITDA1 for 2013 increased by 71.9% to $7.5 millioncompared with $4.3 million in 2012 due to the factorsdiscussed above. Accordingly, Aveda’s Adjusted EBITDA pershare for the six month period ended June 30, 2013 was $0.75compared to $0.58 in the comparative period.

Note:(1) See Section 8: Non-IFRS Measure.

Section 6: Selected Financial Information for the Three Months Ended June 30,2013

(in thousands, except per share and ratio amounts)

2013 2012$ Change

2012 - 2013% Change

2012 - 2013

Revenue 20,024 17,780 2,244 12.6%Gross profit 3,977 2,815 1,162 41.3%Gross margin 19.9% 15.8% N/A N/AGross profit excluding depreciation and amortization 5,922 4,223 1,699 40.2%Gross margin excluding depreciation and amortization 29.6% 23.8% N/A N/AAdjusted EBITDA1

3,161 1,421 1,740 122.4%Adjusted EBITDA1 as a percentage of revenue 15.8% 8.0% N/A N/ANet income (loss) 400 (770) 1,170 151.9%Net income (loss) as a percentage of revenue 2.0% -4.3% N/A N/A

Adjusted EBITDA per share 0.32 0.18 0.14 77.8%Earnings per share - basic and diluted 0.04 (0.10) 0.14 140.2%

Notes :




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Revenue increased by $2.2 million or 12.6% due to the Company’s strong performance in its USoperating locations offset by decreased revenue in the WCSB. Revenue in the US increased by $3.7million and revenue in the WCSB decreased by $1.5 million as per the reasons discussed earlier in thisMD&A. Additional revenue combined with cost management efforts led to a gross profit increase of $1.2million, and gross profit excluding depreciation and amortization increase of $1.7 million compared tothe same period in the prior year.

Section 7: Results of Operations for the Three Months Ended June 30, 2013

REVENUE

The following table provides a breakdown of the Company’s revenue by geography for the three monthsended June 30, 2013 and 2012:

(in thousands)

2013 2012$ Change

2012 - 2013% Change

2012 - 2013Canada 5,344 6,812 (1,468) -21.6%United States 14,680 10,968 3,712 33.8%

20,024 17,780 2,244 12.6%

27%

73%


38%62%


Revenue for the quarter increased by 12.6% from $17.8 million in 2012 to $20.0 million in 2013. Theincrease in revenue is due to the strong performance in the Company’s US operations. The USoperations increased revenue by $3.7 million as the result of the maturing of the Pleasanton andMidland branches, as these new terminals gained traction. These new terminals contributed $6.6 millionof additional revenue compared to the prior year. However, the strong performance experienced by thenew branches is offset by a revenue decline in the Mineral Wells branch. The decline in revenue in theMineral Wells branch is due to the surrounding area experiencing a significant reduction in rig counts,and the new Pleasanton and Midland branches serving the Company’s West Texas customers.

Revenue in the WCSB decreased by $1.5 million compared to 2012. The closed branches in GrandePrairie and Melita contributed $0.5 million of the decrease. The remaining decrease is the result ofgeneral drilling slowdown in the WCSB. The decline in revenue is offset by the rental acquisitioncompleted in the second half of 2012; the acquisition contributed approximately $0.5 million inadditional revenue in the second quarter.



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During the quarter, revenue from use of third party subcontractors was $5.7 million compared to $4.5million in 2012. The increase in third party revenue is the result of the Company’s US operations.

EXPENSES

The following table sets forth total expenses by function and as a percentage of revenue for the threemonths ended June 30, 2013 and 2012:

(in thousands)

2013 2012$ Change

2012 - 2013% Change

2012 - 2013Direct operating 16,047 14,965 1,082 7.2%Selling and administrative 2,966 2,858 108 3.8%

19,013 17,823 1,190 6.7%

% of total revenue 2013 2012Direct operating 80.1% 84.2%

Selling and administrative 14.8% 16.1%95.0% 100.2%

Direct Operating Expenses

Direct operating expenses for the second quarter of 2013 increased by $1.1 million but decreased as apercentage of revenue. The increase in direct operating expenses is attributed to a $0.5 million increasein depreciation and amortization expense due to the Company having a higher asset base in 2013compared to 2012. The remaining increase is attributable to increased use of third party equipment,which varies with the third party subcontractor revenue generated, offset by strong cost managementefforts across the Company.

During the second quarter of 2013, the Company also benefitted by $0.5 million as a result of asuccessful appeal of its US Worker’s Compensation rate with its insurer. $0.4 million of the recovery wasrelated prior to 2013, and $0.1 million was related to the first quarter of 2013. The new rate isanticipated to have about a 0.5% increase in US operating margin going forward.

Excluding depreciation and amortization, the Company obtained a gross margin of 29.6% for the quarterended June 30, 2013 compared to 23.8% in 2012. Gross margin with the effect of depreciation andamortization expense was 19.9% in 2013 compared to 15.8% in 2012.

Selling and Administrative Expenses

Selling and administrative expenses for the quarter ended June 30, 2013 were essentially the same as2013. However, as a percentage of revenue, selling and administrative expenses decreased to 14.8% ofrevenue compared to 16.1% compared to the same period of the prior year. This is the result of costmanagement efforts across the organization.



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FINANCE COSTS

The following table sets forth the Company’s finance cost and foreign exchange gains and losses for thethree months ended June 30, 2013 and 2012:

(in thousands)

2013 2012$ Change

2012 - 2013% Change

2012 - 2013Finance costs and interest expenses 456 502 (46) -9.2%Foreign exchange losses (gains) (566) (168) (398) 236.9%

(110) 334 (444) -132.9%

Finance costs and interest expense was essentially flat compared to the same period in the prior year.

For the second quarter of 2013, the Company realized a foreign exchange gain of $0.6 million due to theweakening of the Canadian dollar. The Company realized a foreign exchange gain of $0.2 million in 2012.

INCOME TAXES

The following table sets forth the Company’s income tax expense for the three months ended June 30,2013 and 2012:

(in thousands)

2013 2012$ Change

2012 - 2013% Change

2012 - 2013Current tax expense (recovery) 209 (166) 375 -225.9%Deferred tax expense 510 653 (143) -21.9%

719 487 232 47.6%

Income tax expense relates entirely to income earned in the United States.

NET INCOME

The following table sets forth the Company’s net income for the three months ended June 30, 2013 and2012:

(in thousands)

2013 2012$ Change

2012 - 2013% Change

2012 - 2013Net income (loss) 400 (770) 1,170 151.9%Percentage of revenue 2.0% -4.3%

The Company realized net income of $0.4 million in the second quarter of 2013 compared to net loss of$0.8 million for 2012 due to the factors discussed above. Accordingly, earnings per share for the threemonths ended June 30, 2013 were $0.04 compared to a net loss per share of $0.10 in 2012.



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ADJUSTED EBITDA1

The following table sets forth the Company’s Adjusted EBITDA1 for the three months ended June 30,2013 and 2012:

(in thousands)

2013 2012$ Change

2012 - 2013% Change

2012 - 2013Adjusted EBITDA1

3,161 1,421 1,740 122.4%

Percentage of revenue 15.8% 8.0%Note:(1) See Section 8: Non-IFRS Measures

Adjusted EBITDA1 for the second quarter of 2013 increased by 122.4% to $3.2 million compared with$1.4 million in 2012 due to the factors discussed above. Accordingly, Aveda’s Adjusted EBITDA1 pershare for the quarter ended June 30, 2013 was $0.32 compared to $0.18 in the comparative period.

Note:(1) See Section 8: Non-IFRS Measure.

Section 8: Non-IFRS Measure

The following table provides a reconciliation of net income to Adjusted EBITDA for the six and threemonths ended June 30, 2013 and 2012:

(in thousands)

Six monthsended June

30, 2013

Six monthsended June

30, 2012

Three monthsended June

30, 2013

Three monthsended June

30, 2012

Net income (loss) 2,123 (330) 400 (770)Add (deduct):Finance costs and interest expense 983 861 456 502Foreign exchange gains (886) (28) (566) (168)Income tax expense 950 1,083 719 487Depreciation and amortization 3,972 2,706 1,967 1,430Loss (gain) on disposal of assets (3) (94) 2 (91)Stock based compensation 328 147 183 31

Adjusted EBITDA 7,467 4,345 3,161 1,421



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Section 9: Summary of Quarterly Results

The following table provides a summary of certain key financial information for Aveda for the last eightquarters:

(in thousands, except per share amounts)Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3

Revenue 20,024 23,471 23,015 19,936 17,780 22,600 19,554 18,106Adjusted EBITDA 3,161 4,306 2,553 2,863 1,421 2,924 2,655 2,890Adjusted EBITDA as a % of revenue 15.8% 18.3% 11.1% 14.4% 8.0% 12.9% 13.6% 16.0%EBITDA per share - basic 0.32 0.43 0.26 0.29 0.18 0.41 0.46 0.50Income (loss) 400 1,723 (517) (431) (770) 440 336 1,676Income (loss) as a % of revenue 2.0% 7.3% -2.2% -2.2% -4.3% 1.9% 1.7% 9.3%Earnings (loss) per share - basic1

0.04 0.17 (0.05) (0.04) (0.10) 0.06 0.06 0.29Earnings (loss) per share - diluted1

0.04 0.16 (0.05) (0.04) (0.10) 0.06 0.06 0.29Weighted average shares - basic1

9,954 9,951 9,944 9,942 8,025 7,083 5,807 5,741Weighted average shares - diluted1

9,954 11,827 9,944 9,942 9,882 8,985 5,867 5,741(1) 2011 per share amounts calculated to take into consideration the Company's 30:1 share consolidation which took place on

November 28, 2011 as if the share consolidation had been in affect throughout the prior period.

2013 2012 2011

Section 10: Liquidity and Capital Resources

NET WORKING CAPITAL

The following table presents summarized working capital information as at June 30, 2013 and 2012:

(in thousands) 2013 2012$ Change

2012 - 2013% Change

2012 - 2013Current assets 14,071 17,291 (3,220) -18.6%Current l iabil ities 7,001 8,253 (1,252) -15.2%Working capital 7,070 9,038 (1,968) -21.8%Working capital ratio 2.0 2.1

During the six months ended June 30, 2013, the Company generated $7.5 million in Adjusted EBITDA,decreased borrowing by $7.8 million, and invested $0.5 million in assets. As a result, the Companyended the quarter with $0.8 million in cash on hand and approximately $28.1 million in availability on itssenior debt facility.

OPERATING ACTIVITIES

Aveda generated cash flow from operating activities of $8.6 million for the six months ended June 30,2013, compared to the $5.2 million generated for 2012. The increase is due to higher Adjusted EBITDAof $3.1 million and positive changes in non-cash balances related to working capital of $0.5 million



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compared to the prior year. Offsetting the positive increase was an increase in finance costs paid of $0.2million.

INVESTING ACTIVITIES

During 2013, the Company acquired about $0.4 million (net of dispositions) of equipment and leaseholdimprovements and also invested $0.1 million in a new ERP system.

FINANCING ACTIVITIES

During the six months ended, the Company decreased loans and borrowings by $7.8 million by usingcash flow generated from operating activities.

OUTSTANDING SHARE DATA

The following data is as of the date of this MD&A, unless otherwise noted. There are 9,962,851 commonshares issued and outstanding.

The Company is authorized to issue an unlimited number of voting common shares and preferredshares. There are 10.0 million common shares outstanding.

The Company has $4.7 million in convertible debentures outstanding, which upon conversion wouldresult in the issuance of approximately 1.85 million common shares on a conversion price of $2.55 pershare.

The Company has a stock option plan for employees, directors and consultants. A total of 1.0 millionshares are reserved under this plan. Options granted generally vest over a three year period. As of June30, 2013, 0.9 million options were outstanding with a weighted average exercise price of $2.43 pershare.

In connection with financings entered into by the Company in previous years, the Company has 0.17million common share warrants outstanding which can be converted into the Company’s common stockon a one to one basis. The average conversion price on these common share warrants is $4.62.

On a fully diluted basis, if all convertible debentures were converted, options and warrants exercised forcommon shares, the total number of common shares issued and outstanding would be approximately12.9 million.

Section 11: Seasonality of Business

There are factors causing quarterly variances that may not be reflective of the Company’s futureperformance. The Company's earnings generally follow the seasonal activity pattern of westernCanada's oil and gas industry because of the significance of its operations in Canada. The oil and gasindustry in western Canada is typically more active during the winter months as the movement of heavyequipment over frozen ground is generally easier. Rain through the spring, summer and fall reducesactivity levels because of the weather’s effect on ground conditions and consequently its load bearingcapacity. In addition to the impact of rain, thawing ground in the spring tends to make the groundunstable. During this thawing period governments frequently implement restrictions on moving heavy



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loads on public roadways. This period is often referred to as “spring break-up”. The Company’soperations in the United States are generally less affected by weather and are less seasonal by nature.As a result of these seasonal variations, quarterly operating results should not be relied upon as anyindication of results for any future period.

Section 12: Transactions with Related Parties

The following table provides a summary of the Company’s transactions with related parties for the sixmonths ended June 30, 2013 and 2012:

Nature of(in thousands) relationship 2013 2012

Revenue (a) -$ 965$

Expenditures:Services reported in direct operating expenses (a) 7$ -$Support services reported in administrative expenses (b) - 29Support services reported in intangible assets (b) 27 115Financing costs (b) 94 94Legal services reported in administrative expenses (c) 22 56

150$ 294$

Accounts receivable as at June 30 (a) -$ -$Accounts payable as at June 30 (b) (c) 19$ 189$Loans and borrowings as at June 30 (b) 4,720$ 4,720$

Six months ended June 30,

Nature of relationship:(a) Transactions with oilfield services businesses in which David Werklund, a director and Executive

Chairman of the Company, is a director and significant shareholder.(b) Transactions with investment businesses in which David Werklund, a director and Executive Chairman

of the Company, is a director and significant shareholder.(c) Transactions with legal firm in which one of the Company’s directors is a partner and the Corporate

Secretary is an associate.

Section 13: Adoption of New Accounting Pronouncements

A description of new Canadian GAAP pronouncements can be found on page 19 of the 2012 MD&A. Thefollowing have since been adopted.

On January 1, 2013 the Company adopted new standards with respect to consolidations (IFRS 10), jointarrangements (IFRS 11), disclosure of interests in other entities (IFRS 12), fair value measurements(IFRS 13) and amendments to financial instrument disclosures (IFRS 7) as well as amendments related toinvestments in associates and joint ventures (IAS 28). The adoption of these amendments andstandards had no impact on the amounts recorded in the consolidated financial statements as atJanuary 1, 2013 or on the comparative periods.



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Section 14: Critical Accounting Estimates

This MD&A summarized the Company’s financial condition and results of operations and is based uponits Interim Financial Statements, which have been prepared in accordance with Canadian GAAP andcomply with IAS 34 Interim Financial Reporting. The Interim Financial Statements require managementto select significant accounting policies and make certain critical accounting estimates that affect thereported assets, liabilities, revenue and expenses. A description of the Company’s significant accountingpolicies can be found beginning on page 21 of the 2012 MD&A. As at June 30, 2013, the Company’scritical accounting estimates have not changed significantly from such description.

Section 15: Risks and Uncertainties

A description of principal risks and uncertainties can be found beginning on page 22 of the 2012 MD&A.As at June 30, 2013, these business risks and uncertainties have not changed significantly from thosedescriptions.

Section 16: Outlook

The Company earns revenue primarily by providing specialized transportation services to companiesengaged in exploration, development and production of petroleum resources. Demand for theCompany’s transportation services is therefore linked to the economic conditions of the energy industryand the general level of drilling activity in the exploration, development and production of petroleumresources in Western Canada and in the United States. Drilling activity in the WCSB and in the UnitedStates has in recent history been affected by amongst other things, low natural gas prices and higherthan normal natural gas inventories in storage caused by many factors, including reduced demand forcommodities as a consequence of a global recession and the temporary oversupply of natural gas due tothe fast development of shale gas resources in the United States.

Countering these factors is a strong price for oil, which has allowed oil-focused regions such as areassurrounding the Company’s Pleasanton and Midland, TX branches to experience robust rig counts. In thesecond quarter of 2013, oil prices showed a strong recovery compared to the first quarter, with WTIreaching $106/bbl1, much better than the previously expected $90/bbl2.

In Canada, the second quarter of 2013 showed rig counts akin to historical pattern up to the end ofMay3, while June showed a slower recovery than the previous years. With the end of the break-upseason, early July rig counts have been strong and are above the same month in 2012, but below 2011.This is in line with the PSAC forecast of April 20134. Unfavourable conditions caused by export capacitybottlenecks remain, with the province of Alberta appealing to rail transportation as an outlet for itscrude oil while a decision on major pipeline projects is awaited5. Large capital expenditure projectscontinue to be challenged by the prevailing conditions, as exemplified by the late 2012 announcement

1 Bloomberg Energy and Oil Prices, found at http://www.bloomberg.com/energy/ and accessed on July 10, 20132 Petroleum Services Association of Canada, Drilling Activity Forecast Update, April 25 20133 CAODC Statistics, accessed on July 10, 2013 at www.caodc.ca4 Petroleum Services Association of Canada, Drilling Activity Forecast Update, April 25 20135 According to the Canadian Association of Oil Producers, cited at Profiler Magazine, June 2013 edition, page 11. ISSN 1204-4741



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of delays in large projects such as the Fort Hill and Joslyn oil sands mines6. Within WCSB gas plays,various companies have reduced capital expenditure investments due to the low returns experiencedfrom the exploration and production of low-priced natural gas. Instead, these companies have shiftedtheir focus towards cautious investments in liquids-rich plays, divesting from dry gas assets and reducingoverall capital expenditure in expectation of market improvements7.

Canada in 2013 as a whole remains uncertain due to the market conditions described, including the riskof additional delays or cancellations in major upstream projects in Canada and continually depressednatural gas prices. However, a more optimistic outlook has been expressed by major playersrepresented by the PSAC, supported by encouraging early rig counts coming out of the break-up season,but it remains to be seen whether such expectations will come to fruition.

Opportunities for expansion and growth continue to appear strongest in the US. According to the BakerHughes Rig Count8, drilling activity in the Eagleford and Permian basins remains close to the highestlevels experienced in the last 10 years, although in both basins, rig counts in July 2013 appear to havestabilized 8% lower than the same period in 2012. Rig counts remain, however, at very high levelscompared to previous years, and the slight decline shown is not expected to represent any significantreduction in Aveda’s activity levels in these regions due to increase in rig efficiency resulting in morefrequent rig moves. The high activity levels experienced have allowed Aveda to grow significantly inthese areas, with the opening of two new branches (Pleasanton and Midland) in 2012. The Midlandbranch continues to increase its activities as it is established within the Permian Basin client base. Theterminal is showing strong month over month growth in 2013. In contrast, the Mineral Wells branch hasfaced a significant decline in rig counts in the Dallas/Ft. Worth Basin (Barnett Shale play), and is workingto maximize revenue and EBITDA by focusing efforts at acquiring new customers in higher activity,liquids-rich areas to the north.

Pennsylvania is also facing significant declines in rig counts in the surrounding area. The declining rigcounts have created significant downward price pressure due to fierce competitive environment and ashrinking market size. It is expected that rig counts will continue a slow downward trend in Pennsylvaniagas plays. However, the Company has continued to maintain solid revenues out of its Pennsylvaniabranch as this branch has been servicing customers in the Utica Shale play in addition to its traditionalcustomer base in the Marcellus. The solid demand in the Utica Shale play has led the Company toexpand its operations by opening a satellite branch in Buckhannon, WV. This branch is being run andmanaged by Aveda’s Pennsylvania team, as such, the expansion is being undertaken with minimalimpact to overhead costs.

Aveda has recently experienced increases in quoting activity levels across its rig moving branches and isalso seeing a greater willingness by customers to enter into master service agreements. With theexpansion of the Company’s operations into Buckhannon, and generally higher customer quotingactivity levels, Aveda is increasing its planned capital expenditure to $4.0 - $5.0 million in 2013.

6 http://www.theglobeandmail.com/globe-investor/suncor-joins-spending-retreat/article4813907/7http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/encana-puts-brakes-on-liquids-plays/article8656404/8 Baker Hughes Rig Count, accessed on July 10, 2013, at http://investor.shareholder.com/bhi/rig_counts/rc_index.cfm



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Section 17: Forward Looking Statements

Certain statements in this MD&A, including (i) statements that contain words such as "anticipate","could", "expect", "seek", "may", "intend", "will", "believe", "should", "project", "forecast", "plan" andsimilar expressions, including the negatives thereof, (ii) statements that are based on currentexpectations and estimates about the markets in which the Company operates, and (iii) statements ofbelief, intentions and expectations about developments, results and events that will or may occur in thefuture, constitute "forward-looking statements" and are based on certain assumptions and analysismade by the Company. Forward-looking statements in this MD&A specifically include, but are notlimited to, statements with respect to future capital expenditures, including the amount, nature andtiming thereof; oil and natural gas prices and demand; other development trends within the oil andnatural gas industry; business strategy; expansion and growth of the Company's business and operationsincluding the Company's market share and position in the oilfield service market; and other suchmatters.

The forward-looking statements contained in this MD&A reflect material factors, expectations andassumptions including, without limitation: (i) oil and natural gas production levels; (ii) commodity pricesand interest rates; (iii) capital expenditure programs and other expenditures; (iv) supply and demand foroil and natural gas; (v) expectations regarding the Company's ability to raise capital and to increase itsequipment fleets through acquisitions and manufacture; (vi) schedules and timing of certain projectsand the Company’s strategy for growth; (vii) the Company’s future operating and financial results; (viii)the Company’s ability to retain and hire qualified personnel; and (ix) treatment under governmentalregulatory regimes and tax, environmental and other laws.

Financial outlook information contained in this MD&A about prospective results of operations, financialposition or cash flows is based on assumptions about future events, including economic conditions andproposed courses of action, based on management’s assessment of the relevant information currentlyavailable. Readers are cautioned that such financial outlook information contained in this MD&A shouldnot be used for purposes other than for which it is disclosed herein.

Such forward-looking statements are subject to important risks and uncertainties, which are difficult topredict and that may affect the Company's operations, including but not limited to the impact of generaleconomic conditions in Canada and the United States; industry conditions, including the adoption ofnew environmental, safety and other laws and regulations and changes in how they are interpreted andenforced; volatility of oil and natural gas prices; oil and natural gas product supply and demand; risksinherent in the Company's ability to generate sufficient cash flow from operations to meet its currentand future obligations; increased competition; the lack of availability of qualified personnel or labourunrest; fluctuation in foreign exchange or interest rates; stock market volatility; opportunities availableto or pursued by the Company and other factors, many of which are beyond the control of theCompany. The Company's actual results, performance or achievements could differ materially fromthose expressed in, or implied by, these forward-looking statements and, accordingly, no assurance canbe given that any of the events anticipated by the forward-looking statements will transpire or occur, orif any of them do transpire or occur, what benefits the Company will derive therefrom. Accordingly,readers should not place undue reliance upon any of the forward-looking information set out in thisMD&A. All of the forward-looking statements in this MD&A are expressly qualified in their entirety bythis cautionary statement. Except as required under applicable securities laws, the Company disclaims



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any intention or obligation to update or revise any forward-looking statements, whether as a result ofnew information, future events or otherwise.

management’s discussion and analysis for the six...

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