EVEREADY INCOME FUND
TSX : EIS.UN

EVEREADY INCOME FUND

August 12, 2005 08:30 ET

Eveready Announces Second Quarter Financial Results

EDMONTON, ALBERTA--(CCNMatthews - Aug. 12, 2005) - Eveready Income Fund (TSX:EIS.UN)

HIGHLIGHTS:

- Revenue for the second quarter of 2005 exceeds $44 million reflecting an increase of 106% over the same period in 2004

- Eveready reports earnings of $8.2 million or $0.26 per unit on a diluted basis for the six month period ended June 30, 2005

- Eveready completes acquisition of all of the business and assets of the ICE Joint Venture operating primarily in the United States

- Eveready raises $24 million through private placement

- Eveready increases monthly distributions to $0.03 per unit ($0.36 per unit on an annualized basis)

- On July 4, 2005, Eveready completes the acquisition of Allstar Oilfield Services Ltd. and related assets



SELECTED CONSOLIDATED FINANCIAL INFORMATION:

Three months ended Six months ended
June 30 June 30
$ thousands, except 2005 2004 2005 2004
per unit amounts (unaudited) (unaudited) (unaudited) (unaudited)
------------------------------------------------------------------------

Revenue $ 44,016 $ 21,378 $ 99,201 $ 45,115

Gross profit 14,130 8,797 32,789 16,584
Gross margin (%) 32.1% 41.1% 33.1% 36.8%

EBITDA (1) 5,082 2,347 15,788 4,646
EBITDA margin (%) 11.5% 11.0% 15.9% 10.3%

Net earnings 1,738 238 8,212 717
Per unit - basic
and diluted (2,3) 0.05 N/A 0.26 N/A
------------------------------------------------------------------------

Cash flow from
operations(1) 3,902 2,005 13,314 3,650
Per unit - basic
and diluted (2,3) 0.12 N/A 0.42 N/A
------------------------------------------------------------------------

Weighted average
number of units
outstanding (2,3) 33,476 N/A 31,816 N/A
------------------------------------------------------------------------
------------------------------------------------------------------------

Notes: (1) Non-GAAP financial measures are identified and defined under
the section "Non-GAAP Financial Measures".
(2) Basic and diluted per unit amounts have been calculated on
the basis that all rollover limited partnership units
("Rollover LP Units") have been converted into Fund units.
(3) Per share amounts for the comparative periods ended
June 30, 2004 have not been calculated as the Fund's
predecessor, Eveready Industrial Group Ltd. was a privately
owned company during those periods.


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION, RESULTS OF OPERATIONS AND CASH FLOWS

For the three months ended June 30, 2005

Introduction

The following Management's Discussion and Analysis ("MD&A") was prepared as of August 10, 2005 and is provided to assist readers in understanding Eveready Income Fund's ("Eveready" or the "Fund") financial performance for the three and six month periods ended June 30, 2005 and significant trends that may impact future performance of the Fund.

This MD&A should be read in conjunction with the Fund's unaudited consolidated interim financial statements for the three and six months ended June 30, 2005 and 2004 and the notes contained therein. In addition, this MD&A should be read in conjunction with the Joint Management Information Circular of River Valley Income Fund and Eveready Industrial Group Ltd. dated February 24, 2005.

The financial data presented in this MD&A has been prepared in accordance with Canadian generally accepted accounting principles and the Fund's reporting currency is the Canadian dollar. Eveready is a reporting issuer in Canada in the provinces of British Columbia, Alberta, and Ontario. The Fund's units trade on the Toronto Stock Exchange under the symbol "EIS.UN".

Additional information relating to the Fund, including the above Information Circular, is available on the System for Electronic Document Analysis and Retrieval ("SEDAR") web site at www.sedar.com.

Overview of the Business

Operating from 30 facilities located across Canada and one location in Houston, USA, Eveready is one of Canada's leading providers of industrial cleaning, oilfield, and environmental services to the energy, resource, and manufacturing sectors. Eveready has a strong reputation for providing high quality services to customers in all heavy industrial segments including oilsands, power utilities, conventional oil, gas production and refining, pulp and paper, chemical, petrochemical, fertilizer, food processing, municipal water treatment, and hazardous waste disposal.

While the Fund currently operates within one reportable business segment, Eveready provides a broad range of services to its customers. Management believes this provides Eveready with a competitive advantage because the current trend within the oil and gas industry is to reduce the number of service providers retained by them by preferring service providers who can provide a broad range of services. A summary of the principal services provided by Eveready is as follows:



Principal Services Provided by Eveready:

------------------------------------------------------------------------
- Chemical cleaning - Hot oiling
- High pressure water blasting - Pressure testing
- Furnace tube decoking and pigging - Seismic line clearing
- Catalyst handling - Heli-Drilling
- Tank cleaning - Emergency response - services
and training
- Dry ice blasting - Mobile mechanical dredging
and dewatering
- Wet & dry vacuum services - Disposal well
- Steam cleaning - Environmental services
- Fluid pumping, heating, - On stream leak sealing
and filtration & detection
- Hydro-excavation and - Mobile industrial
trenching services health services
------------------------------------------------------------------------


Eveready has achieved year over year growth in revenues in each of the past 10 years. This growth has provided a significant increase in operational capability, depth, and diversity. Growth in seasonally "counter-cyclic" but related business areas has also resulted in improved staffing stability which is critical to the specialized and potentially hazardous work in which Eveready is engaged. Additionally, geographic and equipment expansion has resulted in a much improved capability to field several large projects simultaneously while maintaining our high level of customer service. Eveready is committed to continue this growth, both organically and through acquisition, to maximize per-unit distributable income.

A cornerstone of our customer service is our commitment to safety. Eveready promotes behaviour-based safety through extensive training for our employees as well as basing management remuneration on safe work performance and safety leadership. The professionalism and motivation of our employees to work safely has resulted in a strong safety record for Eveready.

The first half of 2005 was significant for Eveready in positioning itself for continued growth and expansion in the future. On March 29, 2005, the shareholders of River Valley Income Fund ("River Valley") and Eveready Industrial Group Ltd. ("ER Group") approved the Plan of Arrangement (see "Plan of Arrangement" below) to merge the businesses of River Valley and ER Group. This merger is of particular significance to Eveready in that through this merger, Eveready has reorganized into a publicly traded income fund. Management believes that the reorganized structure will allow greater access to capital markets to fund the continued growth of Eveready by attracting new investors and providing a more liquid market for the units than what previously existed for ER Group shares.

Management also believes the income fund structure itself is beneficial to Unitholders in a number of ways. First, the income fund structure will allow Eveready to more efficiently handle its taxes by reducing its liability at the corporate level and thereby increasing the amount of cash available for distribution to Unitholders.

Secondly, the Fund currently intends to distribute all of its available cash to its Unitholders. Not only will this provide Unitholders with a continuous stream of income, this intention demands that management have a disciplined approach to its business activities. Management must properly manage its capital to ensure that operating cash flows are maintained or increased to meet distribution expectations. This prevents management from deploying capital for questionable investments, such as out-of-core businesses or those with unproven potential.

Plan of Arrangement

Pursuant to an arrangement agreement dated December 3, 2004 and a Plan of Arrangement dated March 31, 2005, River Valley acquired 100% of the issued and outstanding shares of ER Group. In consideration for this purchase, River Valley issued 22,461,875 Fund units, or economically equivalent units in a subsidiary limited partnership which are indirectly exchangeable for units of the Fund ("Rollover LP Units") valued at $1.77 per unit to the former shareholders of ER Group. As a result of this arrangement, ER Group and all of its subsidiaries became, indirectly, wholly-owned by the Fund. Concurrent with the Plan of Arrangement, the Fund changed its name to "Eveready Income Fund".

Reverse Takeover Treatment

By issuing 22,461,875 Fund units or economically equivalent Rollover LP units, sufficient units of River Valley were issued so that controlling interest (approximately 74.6%) of the fund passed to the former shareholders of ER Group. As a result, the acquisition has been accounted for as a reverse takeover whereby ER Group has been treated as the purchaser, effective January 1, 2005. These consolidated financial statements are a continuation of the financial statements of the accounting acquirer, ER Group, whereby the assets and liabilities of ER Group are included in the consolidated financial statements at their historical carrying amounts.

The consolidated financial statements for the three and six month periods ended June 30, 2005 consist of the consolidated operations of ER Group and River Valley after giving effect to the reverse takeover transaction. The comparative figures reported for the three and six month periods ended June 30, 2004 discussed in this MD&A and included in the accompanying interim financial statements are those of ER Group, the accounting acquirer.

Acquisition of ICE Joint Venture

On May 2, 2005, Eveready acquired all of the business and assets of a joint venture between Diamond Tree Energy Ltd. and Innovative Coke Expulsion Inc. known as the ICE Joint Venture ("ICE"). Eveready also acquired from ICE all of the shares of its American subsidiary, Innovative Coke Expulsion (USA) Inc., which conducted all of the United States based operations of the joint venture on behalf of the joint venture.

The purchase price for the equipment, material agreements, and intangible assets of the joint venture was $6.5 million. In addition to this sum, Eveready acquired the working capital balances of the joint venture including inventory, accounts receivable, prepaid expenses, and the assumption of accounts payable liabilities, subject to any adjustments that will be determined within 120 days of closing. The aggregate purchase price, subject to any working capital adjustments, was approximately $8.2 million. The majority of the purchase price was satisfied by the issuance of 2,599,179 units for deemed proceeds of $7.9 million. The remainder of the purchase price was satisfied through cash consideration.

The joint venture operates primarily out of Houston, Texas and is in the business of industrial cleaning using pigs to de-coke furnaces at oil and gas refineries. The pigs are also used to clean pipelines and other piping and tubing in the oil and gas industry.

The acquisition of ICE has allowed Eveready to significantly expand its operations in the United States. Management estimates that this acquisition could provide an additional $2.0 million EBITDA to operations on an annualized basis.

Acquisition of Camp Company

On May 20, 2005, Eveready completed its acquisition of certain of the assets of a private Alberta company that provides camps and camp related equipment to customers in the oil and gas industry in Western Canada that allow such customers to house their employees and contractors at or near their work sites. The assets acquired included, among other items, two John Deere crawler tractors and three camps with an aggregate of 235 beds. The majority of the purchase price of $2.86 million was paid via the issuance of 755,738 Rollover LP Units for deemed proceeds of $2.3 million. The balance of the purchase price was paid through the assumption of certain liabilities of $0.5 million with the remainder paid in cash. Additional information regarding Eveready's Rollover LP Units is provided under the section "Unitholders'Equity". Management expects that this acquisition could provide an additional $1.0 million EBITDA to operations on an annualized basis.

Additional information regarding the above acquisitions and the Plan of Arrangement is provided in the accompanying interim consolidated financial statements.

ANALYSIS OF OPERATING AND FINANCIAL RESULTS

Revenue

Revenue for the three months ended June 30, 2005 increased by $22.6 million or 106% to $44.0 million from $21.4 million reported for the three months ended June 30, 2004. Year-to-date, revenue increased $54.1 million or 120% to $99.2 million. This compares with revenue of $45.1 million for the same six month period in 2004. These results reflect the significant growth that Eveready has experienced over the past year. This growth can be attributed to a number of acquisitions carried out over the past 12 months as well as organic growth in the Fort McMurray region. Increases in revenue for the six months ended June 30, 2005 resulted from:

- Our acquisition of River Valley contributed an additional $23.4 million of revenue to operations;

- Revenue from industrial and oilfield services in the Provost and Whitecourt region contributed $19.2 million to the increase. Operations began in these regions as a result of the acquisition of Winterhawk Enterprises (Provost) Ltd. ("Winterhawk");

- The Fort McMurray region provided more oilfield and industrial services resulting in a revenue increase of $8.4 million;

- Our acquisition of the business and assets of the ICE Joint Venture on May 2, 2005 contributed $1.1 million of revenue to operations;

- The remaining $2.0 million in additional revenues were achieved through providing increased industrial cleaning, oilfield, and environmental services across various regions through acquisitions and the expansion of existing services.

Gross Profit

With its growth, the Fund increased its gross profit to $14.1 million and $32.8 million respectively for the three and six month periods ended June 30, 2005 compared with $8.8 million and $16.6 million respectively for the same periods in 2004. On a percentage basis, gross margin for the three months ended June 30, 2005 decreased to 32.1% compared with 41.1% for the same period in 2004. Eveready provides a wide variety of industrial services to its customers. The margins on each of these services can vary based on the market forces present in each service line. As a result, Eveready will experience a certain degree of variability in its gross margin percentage from quarter to quarter.

Eveready's gross margin for the six months ended June 30, 2005 decreased to 33.1% compared with 36.8% for the same period in 2004. The acquisition of Winterhawk in November 2004 contributed to the majority of this decline. Winterhawk provides a significant portion of its oilfield services using third party lease operators that supplement those services provided by Winterhawk's own employees and equipment. This allows Winterhawk to maximize its growth while also retaining flexibility in managing its costs. However, services provided using third party lease operators results in a lower gross margin percentage.

Expenses

Administrative and General

Administrative and general expenses were $9.0 million for the three month period ended June 30, 2005 compared with $6.1 million for the same period in 2004, an increase of $2.9 million. Administrative and general expenses increased $5.4 million to $17.0 million for the six month period ended June 30, 2005 compared with $11.6 million for the comparative six month period in 2004. These increases are attributable to additional salary and wage costs and other fixed expenses required to support Eveready's increased level of revenue for new and existing services. This includes additional administrative support required for River Valley, Winterhawk and ICE which were acquired over the past 12 months. The Fund also incurs additional administrative costs associated with being a public income fund that were not required as a private company in fiscal 2004. During the three month period ended June 30, 2005, the Fund incurred approximately $400 thousand in non-recurring general and administrative costs to complete the Fund's restructuring after its reverse take-over acquisition of River Valley and to obtain a listing on the Toronto Stock Exchange.

As a percentage of revenue, administrative and general expenses for the three and six month periods ended June 30, 2005 were 20.6% and 17.1% compared to 28.3% and 25.6% for the same periods in 2004. Management believes that this improvement over the prior year reflects Eveready's ability to expand and grow its operations efficiently by keeping overhead costs to a minimum and benefiting from the economies of scale improvements that come with a larger revenue base.

Amortization

Amortization increased to $2.1 million and $4.0 million respectively for the three and six month periods ended June 30, 2005 compared with $1.2 million and $2.0 million respectively for the same periods in 2004. The increases are a result of a significant increase in Eveready's property, plant and equipment over the past fiscal year to support its revenue growth. Amortization calculated as a percentage of revenue was 4.0% for the six months ended June 30, 2005 compared with 4.5% for the same period in 2004, which is comparable.

EBITDA

EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and loss (gain) on disposal of property, plant and equipment. Management believes, in addition to net earnings, EBITDA is a useful supplemental measure as it provides an indication of the cash flows generated by the Fund's principal business activities prior to consideration of how these activities are financed or how the results are taxed in various jurisdictions.

EBITDA increased by $2.8 million to $5.1 million for the three months ended June 30, 2005 compared with $2.3 million for the comparative period in 2004. Likewise, EBITDA margin (calculated as EBITDA divided by revenue) increased to 11.5% compared with 11.0% for the comparative period in 2004. On a year-to-date basis, EBITDA increased by $11.2 million to $15.8 million or 15.9% of revenue compared with $4.6 million or 10.3% of revenue for the comparative six month period in 2004. These increases represent the strong revenue growth of Eveready over the past year while also being able to control increases in direct costs and administrative and general expenditures.

Other Expenses

Total interest and financing costs for the three months ended June 30, 2005 was $1.2 million compared with $0.7 million for the same three months in 2004. This increase reflects the increases in long term debt and bank indebtedness over the past 12 months that were required to support the Fund's significant growth in operating activity. As a result of the private placement in June 2005, which raised $22.3 million in net cash flow after issuance costs, Eveready was able to eliminate its bank indebtedness during the quarter. This will result in significantly lower interest expense throughout the remainder of 2005.

Income Taxes

Income tax expense for the three month period ended June 30, 2005 was a nominal amount of $23 thousand. This compares with income tax expense of $239 thousand for the comparative period in 2004. This significant decline in income tax expense is a result of Eveready's reorganization into an income trust (see "Plan of Arrangement" section of this MD&A).

The Fund complies with the Income Tax Act (Canada) to qualify as a mutual fund trust. As a result, the Fund is not subject to income taxes to the extent that its taxable income in a year is paid or payable to Unitholders. Accordingly, no provision for current income taxes for the Fund is made. In addition, the Fund is not subject to the recommendations of CICA section 3465 "Income Taxes", as the Fund distributes to its Unitholders all or virtually all of its taxable income that would otherwise be taxable by the Fund. The Fund intends to continue to meet the requirements under the Income Tax Act applicable to such trusts, and there is no indication that the Fund will fail to meet those requirements.

However, the Fund will continue to follow the liability method of accounting for any incorporated subsidiaries that are subject to income taxes. Income tax expense recognized during the three months ended June 30, 2005 related to on-going operations that remain within taxable incorporated subsidiaries of the Fund. Management expects that going forward the majority of the Fund's earnings will not be subject to corporate income taxes.

Net Earnings and earnings per unit

Net earnings for the three month period ended June 30, 2005 was $1.7 million compared with $0.2 million for the comparative period in 2004. Net earnings for the six month period ended June 30, 2005 was $8.2 million compared with $0.7 million for the same period in 2004. Basic and diluted earnings per unit for the three and six month periods ended June 30, 2005 were $0.05 and $0.26 respectively.

Earnings per unit for the three and six month periods ended June 30, 2005 are based on the weighted average number of units outstanding during the period. Basic and diluted per unit amounts have been calculated on the basis that all outstanding Rollover LP units have been converted into Fund units. The basic and diluted weighted average number of units outstanding for the three and six month periods ended June 30, 2005 were 33,476,315 and 31,816,133 respectively.

Earnings per share for the comparative periods of the Fund's predecessor, ER Group, for fiscal 2004 have not been disclosed as ER Group was a privately owned company during those periods.

Seasonality of Operations

The Fund's operations follow a seasonal pattern, with earnings traditionally being higher in the first six months than in the remainder of the year. Due to this seasonality, interim earnings reported in the first half of the fiscal year may not be reflective of earnings on an annual basis.



Summary of Quarterly Data

($ thousands, except June March December September June March
per unit amounts) 2005 2005 2004 2004 2004 2004
------------------------------------------------------------------------
Revenue 44,016 55,185 26,948 19,787 21,378 23,737
EBITDA (1) 5,082 10,705 4,755 2,307 2,347 2,299
Net earnings 1,738 6,474 169 (295) 238 478
------------------------------------------------------------------------
Earnings per unit
- basic and
diluted (2,3) 0.05 0.21 N/A N/A N/A N/A
------------------------------------------------------------------------
------------------------------------------------------------------------

Notes: (1) EBITDA is identified and defined under the section "Non-GAAP
Financial Measures".
(2) Basic and diluted earnings per unit have been calculated on
the basis that all Rollover LP Units have been converted into
Fund units.
(3) Per share amounts for the comparative quarters ended in
fiscal 2004 have not been calculated as the Fund's
predecessor, ER Group, was a privately owned company.


Historical quarterly data for the Fund's predecessor, ER Group, prior to January 1, 2004 have not been presented in this MD&A. ER Group was a privately owned company prior to the reverse takeover of River Valley and quarterly financial statements for periods prior to 2004 are not readily available.



FINANCIAL CONDITION AND LIQUIDITY

SELECTED CONSOLIDATED FINANCIAL INFORMATION
($ thousands, except ratio amounts) June 30 December 31
(unaudited) 2005 2004
------------------------------------------------------------------------

Current assets $ 51,276 $ 27,836
Total assets 150,525 98,044
------------------------------------------------------------------------

Current liabilities 32,053 33,592
Total liabilities 67,046 79,117
------------------------------------------------------------------------

Unitholders' Equity 83,479 18,927
------------------------------------------------------------------------

Working capital ratio(1) 2.39 1.12
Funded Debt to total capital ratio(2) 0.32 0.63
------------------------------------------------------------------------
------------------------------------------------------------------------

Notes: (1) Working capital is calculated as current assets divided by
current liabilities excluding current portions of long- term
debt and subordinated debt.
(2) Funded debt to total capital is calculated as funded debt
(bank indebtedness, long-term debt, and subordinated debt)
divided by total capital (funded debt plus unitholders'
equity plus preferred shares and amounts due to unitholders).


Working Capital

Eveready's working capital (excluding current portions of long-term debt and subordinated debt) improved from a working capital position of $3.0 million at December 31, 2004 to a working capital position of $29.8 million at June 30, 2005. Strong cash flow generated from operations during the first half of 2005 contributed to this substantial improvement. In addition, Eveready completed a private placement in June raising a further $22.3 million in net cash flow after issuance costs. As a result, Eveready was able to eliminate its bank indebtedness during the quarter. The Fund's current cash position as at June 30, 2005 was $5.6 million, reflecting an improvement of $16.6 million compared with December 31, 2004.

Eveready expects its working capital to remain strong through the remainder of 2005 due to continued positive cash flow from operations. In addition, management believes that Eveready's working capital position will allow the Fund to make growth capital expenditures and pursue additional business acquisition opportunities.

Cash Flow from Operations

Cash flow from operations (excluding changes in working capital balances) during the three month period ended June 30, 2005 was $3.9 million compared with $2.0 million for the same period in 2004. Likewise, cash flow from operations for the six month period ending June 30, 2005 was $13.3 million compared with $3.7 million for the same six month period in 2004. This significant improvement in operating cash flows is a result of the substantial increase in revenue and earnings in 2005. The Fund expects to continue to generate strong cash flow from operations throughout the remainder of 2005. However, due to the cyclical nature of Eveready's business, cash flow generated from operations is traditionally higher in the first six months of the year than during the remainder of the year.

Capital Expenditures

Eveready expended a total of $24 million in additional property, plant and equipment during the six month period ended June 30, 2005. Property, plant and equipment of $17.8 million were acquired through business acquisitions including the acquisitions of River Valley, ICE, and the Camp Company. In addition to this, capital expenditures of $6.2 million were incurred to expand Eveready's servicing capability in existing markets. These capital expenditures are also reflective of Eveready's capital expenditure program which plans for the replacement of old equipment when it becomes cost prohibitive to operate due to high equipment and vehicle costs. Eveready estimates the cost of its annual capital expenditure program to replace old equipment to be approximately 7.5% of the values of its capital assets.

During the remainder of 2005, Eveready intends to continue to expand its fleet of industrial cleaning and oilfield service equipment to meet the anticipated growing demand for these services.

Long Term Debt and Contractual Obligations

Long term debt increased by $3.2 million to $38.0 million as at June 30, 2005 compared with long term debt of $34.8 million as at December 31, 2004. The majority of this increase relates to long term debt obligations acquired upon the reverse takeover acquisition of River Valley Income Fund. The Fund's contractual obligations for the next five years (12 month periods ending on June 30th) are as follows:



Contractual
Obligations
(in thousands of CAD) 2006 2007 2008 2009 2010 Total
------------------------------------------------------------------------

Long-term debt 10,353 9,443 8,084 5,820 4,320 38,020
Subordinated debt 250 250 3,188 - - 3,688
Operating leases 4,811 3,418 2,270 1,074 236 11,809
------------------------------------------------------------------------

Total 15,414 13,111 13,542 6,894 4,556 53,517
------------------------------------------------------------------------
------------------------------------------------------------------------


In addition, the Fund has balances due to Unitholders of $3.9 million outstanding as at June 30, 2005 that are due to be repaid on July 1, 2006.

Unitholders' Equity

Unitholders' Equity increased by $64.6 million to $83.5 million at June 30, 2005 compared with $18.9 million at December 31, 2004. This increase results from an increase in accumulated earnings during the year as well as a significant increase in Unitholders' Capital. The notes to the attached consolidated interim financial statements provide a schedule showing the changes in Unitholders' Capital during the year. The increase in Unitholders' Capital results from a number of factors that include the issuance of Fund units upon the reverse take over acquisition of River Valley Income Fund (see "Plan of Arrangement" section) as well as from the equity private placement in June 2005.



Outstanding Unit Data

As of August 10, 2005:
---------------------------------------------------------------------

Fund units 22,148,607
Rollover LP Units 18,661,866
--------------------------
Total 40,810,473
--------------------------
--------------------------


As at August 10, 2005, the Fund had 22,148,607 Fund units and 18,661,866 Rollover LP Units outstanding totalling 40,810,473 units on a fully-diluted basis. The Rollover LP Units were issued in conjunction with the completion of various acquisitions of the Fund, are units of subsidiary limited partnerships of the Fund and are designed to be, to the greatest extent practicable, the economic equivalent of Fund units. Rollover LP Units are non-transferable (except to certain permitted assigns) and the holders thereof are entitled to receive distributions on a per unit basis equivalent to holders of units of the Fund. When each of the Rollover LP Units were issued, the holder thereof was also issued a non-transferable (except to permitted assigns) right (a "Right") to acquire one unit of the Fund for each Rollover LP Unit held.



Distributable Cash and Cash Distributions

Three months ended Six months ended
$ thousands, except June 30 2005 June 30 2005
per unit amounts (unaudited) (unaudited)

Cash Flow from operations (1) $ 3,902 $ 13,314
Principal repayment of
long-term debt (2,653) (4,686)
Maintenance capital expenditures (345) (1,376)
------------------------------------------------------------------------
Cash available for distribution
and growth (b)(1) 904 7,252
Per unit (1) 0.03 0.23
------------------------------------------------------------------------
Cash distributions declared (a) 3,125 3,586

Payout ratio (a)/(b)(1) 346% 49%
------------------------------------------------------------------------
------------------------------------------------------------------------

Notes: (1) These terms are identified and defined under the section"
Non-GAAP Financial Measures".
(2) Distributable cash information prior to January 1, 2005 is
not applicable because the Fund's predecessor, ER Group,
was a privately owned company during those periods.


The following table summarizes the Fund's distributions on units of
record during the six months ended June 30, 2005:

$ thousands,
except per Net
unit amounts Distribution Distributions Distributions
per Unit Distributions Reinvested Paid
Record Date ($) ($) ($) ($)
------------------------------------------------------------------------
January 31, 2005 0.02 153 122 31
February 28, 2005 0.02 154 124 30
March 31, 2005 0.02 154 126 28
April 29, 2005 0.03 906 609 297
May 31, 2005 0.03 1,012 617 395
June 30, 2005 0.03 1,207 602 605
------------------------------------------------------------------------

Total 0.15 3,586 2,200 1,386
------------------------------------------------------------------------
------------------------------------------------------------------------


Cash distributions are normally paid by the Fund on a monthly basis to Unitholders of record the last business day of each month. Distributions are payable on or about the 15th day of the month following the record date.

In April 2005, the Board of Trustees increased the monthly cash distribution to Unitholders to $0.03 per unit or $0.36 per unit on an annualized basis.

During the six months ended June 30, 2005, the Fund declared total cash distributions of $0.15 per unit or $3.6 million. Of this amount, there was a $2.2 million reinvestment through the Fund's Distribution Reinvestment Plan ("DRIP"). In addition, there was a reinvestment of $58 thousand of cash distributions payable as at December 31, 2004 resulting in the issuance of a total of 512,518 Fund units for deemed proceeds of $2,258,000. Distributions declared during the three months ended March 31, 2005 were based on the number of units outstanding of River Valley prior to completion of the income trust reorganization.

The DRIP is a voluntary program that permits eligible Unitholders to reinvest monthly distributions in additional Fund units. Eligible Unitholders may participate in the DRIP by directing their broker, dealer, or investment advisor holding their units to notify the plan administrator, Computershare Trust Company of Canada Ltd., through the Canadian Depository for Securities Inc. ("CDS").

As a term under the Plan of Arrangement agreement between ER Group and River Valley, certain of the unitholders of the Fund (the "Principal Unitholders") signed a Principal Unitholder Agreement that requires each Principal Unitholder to immediately reinvest through the DRIP, 100% of any cash distributions made by the Fund on that Principal Unitholder's Fund units or Rollover LP Units prior to March 31, 2010. In addition, each Principal Unitholder is restricted from selling more than 10% of their aggregate Fund units or Rollover LP Units in any one twelve month period before March 31, 2010. Management believes that these agreements will ensure that the Fund will have sufficient growth capital to continue to expand and grow its operations. As at June 30, 2005 Principal Unitholders owned approximately 50% of the Fund's total outstanding Fund units and Rollover LP units in aggregate.

Although the Fund intends to make distributions of its available cash to its Unitholders, these cash distributions are not assured and may be reduced or suspended. The ability of the Fund to make cash distributions and the actual amount distributed will be dependent upon, among other things, the financial performance of the Fund and its subsidiaries, their debt covenants and obligations, their working capital requirements, and their future capital requirements. In addition, the market value of the units may decline if the Fund is unable to meet its cash distribution targets in the future, and that decline may be significant.

New Developments and Outlook

Management is pleased with the success of Eveready during the first half of 2005. Acquisitions during the last six months of 2004, the reverse takeover of River Valley Income Fund, and the recent acquisition of ICE have contributed to Eveready's significant growth in 2005. Management also believes that the Fund's outlook for the future is positive with respect to both future revenue and earnings growth.

Management believes that the greatest opportunity for revenue growth during the next 5 years is the planned expansion and development of Alberta's oilsands in the Fort McMurray region by several of the large oil and gas companies operating in that area. The planned expansions and new developments that have been announced to date are anticipated to approximately double the current regional oil and gas production within 10 years. Management's intention is to expand Eveready's regional capabilities to keep pace with this development. If this is achieved, Eveready's revenues from the Fort McMurray region will increase both in absolute terms and as a percentage of total revenues during the foreseeable future.

Other areas that management expects will contribute to revenue growth during the remainder of fiscal 2005 include:

- Introducing complimentary services (i.e. catalyst handling, furnace tube decoking and pigging,) at existing customer sites;

- Generating lateral sales of Eveready's traditional (i.e. chemical cleaning, high pressure water blasting, wet & dry vacuum services, hydro-excavation and daylighting) services at existing customer sites;

- Continue growth in Seismic Line Clearing and Heli Drilling;

- Providing Eveready's new environmental and emergency response services and training as well as drug screening to both existing and future customers.

The Fund also plans to continue its geographic expansion in Western Canada and the United States in markets Eveready does not currently serve. Subsequent to June 30, 2005, Eveready was successful in expanding its operations into the Lloydminster region through the acquisition of Allstar Oilfield Services Ltd. (see "Subsequent Acquisition" section below).

Subsequent Acquisition

On July 4, 2005, Eveready acquired 100% of the issued and outstanding shares of Allstar Oilfield Services Ltd. ("Allstar") and related assets used in the business of Allstar, but not previously owned by Allstar (the "Related Assets"). Allstar is based in Lloydminster, Alberta, and provides a broad range of oilfield services to the energy sector including vacuum truck, pressure testing, flush-by, and hydro excavation services.

The final purchase price payable for Allstar and the Related Assets will be based on the earnings of Allstar and the Related Assets over the 12 month period ending June 30, 2006. However, as required by the purchase agreement, the minimum purchase price of $6,090,000 less assumed debt of approximately $4,133,517 was satisfied on closing via the issuance of an aggregate of 454,996 Fund units for aggregate consideration of $1,956,483. The final purchase price will be based on a multiple of 4.25 times earnings before interest, depreciation and amortization, and other adjustments realized during the 12 month period ending June 30, 2006. Subsequent to the acquisition, Eveready extinguished approximately $3.9 million in long term debt, and operating loans that were assumed at the time of acquisition.

Management estimates that Allstar could generate revenues in excess of $6 million and provide an additional $1.5 million EBITDA to operations on an annualized basis.

Management will continue to pursue additional acquisition opportunities that will allow Eveready to expand its customer base and achieve earnings growth.

Off-Balance Sheet Arrangements

The Fund's off-balance sheet arrangements are substantially the same as those disclosed in the MD&A section of the Fund's 2005 Q1 interim report and the Joint Management Information Circular of River Valley Income Fund and Eveready Industrial Group Ltd. dated February 24, 2005.

Critical Accounting Estimates

The Fund's critical accounting estimates are substantially the same as those disclosed in the MD&A section of the Fund's 2005 Q1 interim report.

Changes in Accounting Policies

Income taxes

Effective January 1, 2005 and in connection with the reverse takeover of River Valley, ER Group was reorganized into an unincorporated, open ended mutual fund trust. Concurrent with the reverse takeover, ER Group prospectively adopted the recommendations of the Canadian Institute of Chartered Accountants ("CICA") Emerging Issues Committee Abstract 107 - "Application of CICA 3465 to Mutual Fund Trusts, Real Estate Investment Trusts, Royalty Trusts and Income Trusts."

The Fund complies with the Income Tax Act (Canada) to qualify as a mutual fund trust. As a result, the Fund is not subject to income taxes to the extent that its taxable income in a year is paid or payable to a Unitholder. Accordingly, no provision for current income taxes for the Fund is made. In addition, the Fund is not subject to the recommendations of CICA section 3465 "Income Taxes", as the Fund distributes to its Unitholders all or virtually all of its taxable income that would otherwise be taxable by the Fund. The Fund intends to continue to meet the requirements under the Income Tax Act applicable to such trusts, and there is no indication that the Fund will fail to meet those requirements.

The Fund continues to follow the liability method of accounting for any incorporated subsidiaries. Under this method, the Fund recognizes both the current and future income tax consequences of all transactions that have been recognized in the financial statements.

Related Party Transactions

a) During the three and six month periods ended June 30, 2005 the Fund incurred $115 thousand and $240 thousand respectively for professional fees from a partnership of which a trustee of the Fund is an associate.

b) During the three and six month periods ended June 30, 2005, the Fund incurred $101 thousand and $131 thousand respectively for professional fees from a partnership of which a different trustee of the Fund is a partner.

c) Included in general and administrative expenses for the three and six month periods ended June 30, 2005 are occupancy costs of $108 thousand and $216 thousand respectively that were paid to companies controlled by certain officers and/or trustees of the Fund.

d) During the six month period ended June 30, 2005 the Fund incurred camp costs and equipment rental charges of $410 thousand paid to a company that an officer and trustee of the Fund each own a 50% beneficial interest. In May, 2005 the Fund acquired the majority of the assets and business of the company at a cost of $2.86 million (-see "Acquisition of Camp Company" section).

These related party transactions were measured at their exchange amounts, which was the consideration established and agreed to by the related parties. Management's opinion is that these transactions were conducted in the normal course of operations and at terms and rates that represent fair value for services provided.

Risk Factors

The Fund's business risks as well as risks and uncertainties related to financial instruments are substantially the same as those disclosed in the MD&A section of the Fund's 2005 Q1 interim report and the Joint Management Information Circular of River Valley Income Fund and Eveready Industrial Group Ltd. dated February 24, 2005.

Non-GAAP Financial Measures

This MD&A contains certain financial measures that do not have any standardized meaning prescribed by Canadian Generally Accepted Accounting Principles ("GAAP"). Therefore, these financial measures may not be comparable to similar measures presented by other issuers. Investors are cautioned that these measures should not be construed as an alternative to net earnings or to cash flow from operating, investing, and financing activities determined in accordance with Canadian GAAP as indicators of the Fund's performance. These measures are provided to assist investors in determining the Fund's ability to generate cash flow from operations and to provide additional information on how these cash resources are used.

These financial measures are identified and defined below:

EBITDA:

EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and loss (gain) on disposal of property, plant and equipment. Management believes, in addition to net earnings, EBITDA is a useful supplemental measure as it provides an indication of the cash flows generated by the Fund's principal business activities prior to consideration of how these activities are financed or how the results are taxed in various jurisdictions.

The following is a reconciliation of EBITDA to net earnings for the Fund:



Three months ended Six months ended
June 30 June 30
$ thousands, except 2005 2004 2005 2004
per unit amounts (unaudited) (unaudited) (unaudited) (unaudited)
------------------------------------------------------------------------

Net earnings $ 1,738 $ 238 $ 8,212 $ 717
Add:
Income taxes 23 239 1,046 572
Amortization 2,089 1,164 3,982 2,013
Interest on
long-term debt 609 391 1,321 720
Interest - other 378 169 784 314
Interest on
subordinated debt 170 176 341 356
Loss (gain) on
disposal of property,
plant and equipment 75 (30) 102 (46)
------------------------------------------------------------------------
EBITDA 5,082 2,347 15,788 4,646
------------------------------------------------------------------------
------------------------------------------------------------------------


Cash Flow from operations:

Cash flow from operations is derived from the consolidated statements of cash flows and is calculated as cash provided from operating activities before changes in non-cash operating working capital. Cash flow per unit refers to cash flow from operations divided by the weighted average number of units outstanding during the period.


Cash available for distribution and growth:

Cash available for distribution and growth is calculated as cash flow from operations, less required principal repayments of long term debt and maintenance capital expenditures. Per unit amounts refer to cash available for distribution and growth divided by the weighted average number of units outstanding during the period.

Maintenance capital expenditures:

Maintenance capital expenditures are capital expenditures required to maintain existing levels of service.

Payout ratio

Payout ratio is calculated as cash distributions declared for the period divided by cash available for distribution and growth.

Note Regarding Forward-Looking Statements

Certain statements contained in this MD&A are forward-looking statements. The use of any of the words "estimate", "may", "will", "expect", "should", "believe", and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Fund believes that the expectations reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such statements included in this MD&A should not be unduly relied upon. These statements speak only as of the date of this MD&A. The Fund does not undertake any obligation to publicly update or revise any forward-looking statements (except as required by applicable securities law).




Eveready Income Fund
Consolidated Balance Sheets
(Unaudited)
--------------------------------------------------------------------
June 30 December 31
2005 2004
$ $
--------------------------------------------------------------------
(thousands of Canadian dollars)

ASSETS

Current
Cash and cash equivalents 5,597 -
Accounts receivable 38,218 23,642
Work in progress 1,699 199
Inventory 4,350 3,397
Income taxes recoverable - 2
Prepaid expenses and deposits 1,412 596
------------------------------
51,276 27,836

Property, plant and equipment 77,250 58,122
Goodwill 20,133 11,805
Intangible assets 675 -
Future income taxes 926 -
Other long-term assets 265 281
------------------------------

150,525 98,044
------------------------------
------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY

Current
Bank indebtedness - 10,979
Accounts payable and accrued
liabilities 20,848 13,627
Unitholder distributions payable 587 -
Income taxes payable 15 -
Due to unitholders - 230
Current portion of long-term debt 10,353 8,506
Current portion of subordinated debt 250 250
------------------------------
32,053 33,592

Long-term debt 27,667 26,281
Subordinated debt 3,438 3,563
Due to unitholders 3,888 5,814
Preferred shares - 4,763
Future income taxes - 5,104
------------------------------
67,046 79,117
------------------------------
Unitholders' Equity
Unitholders' capital (note 5) 69,286 -
Share capital (note 5) - 16,408
Accumulated earnings 17,779 2,519
Accumulated distributions (3,586) -
------------------------------
83,479 18,927
------------------------------

150,525 98,044
------------------------------
------------------------------

(see accompanying notes)


Eveready Income Fund
Consolidated Statements of Earnings and Accumulated Earnings
(Unaudited)
-------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
2005 2004 2005 2004
$ $ $ $
-------------------------------------------------------------------
(thousands of Canadian (Note 2) (Note 2)
dollars, except per
unit amounts)

Revenue 44,016 21,378 99,201 45,115

Direct costs 29,886 12,581 66,412 28,531
--------------------------------------------

Gross profit 14,130 8,797 32,789 16,584

Expenses
Administrative and
general 9,048 6,056 17,001 11,544
Amortization 2,089 1,164 3,982 2,013
--------------------------------------------

Earnings from
operations 2,993 1,577 11,806 3,027
--------------------------------------------

Other expenses
Interest on long-term
debt 609 391 1,321 720
Interest - other 378 169 784 314
Interest on
subordinated debt 170 176 341 356
Stock-based
compensation - 394 - 394
Loss (gain) on disposal
of property, plant and
equipment 75 (30) 102 (46)
--------------------------------------------
1,232 1,100 2,548 1,738
--------------------------------------------

Earnings before income
taxes 1,761 477 9,258 1,289
--------------------------------------------

Income taxes
Current 23 - 28 -
Future - 239 1,018 572
--------------------------------------------
23 239 1,046 572
--------------------------------------------

Net earnings 1,738 238 8,212 717

Accumulated earnings,
beginning of period 16,041 2,605 2,519 2,126
Trust reorganization
adjustment (note 4) - - 7,048 -
--------------------------------------------

Accumulated earnings,
end of period 17,779 2,843 17,779 2,843
--------------------------------------------
--------------------------------------------

Earnings per unit -
basic and diluted
(note 6) 0.05 N/A 0.26 N/A
--------------------------------------------
--------------------------------------------

(see accompanying notes)


Eveready Income Fund
Consolidated Statements of Cash Flows
(Unaudited)
-------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
2005 2004 2005 2004
$ $ $ $
-------------------------------------------------------------------
(thousands of Canadian (Note 2) (Note 2)
dollars)

Operating activities
Net earnings 1,738 238 8,212 717
Items not affecting
cash:
Amortization 2,089 1,164 3,982 2,013
Loss (gain) on disposal
of property, plant and
equipment 75 (30) 102 (46)
Stock-based
compensation - 394 - 394
Future income taxes - 239 1,018 572
--------------------------------------------
3,902 2,005 13,314 3,650
Net change in non-cash
operating working
capital (note 7): 5,815 1,864 (5,374) (231)
--------------------------------------------

9,717 3,869 7,940 3,419
--------------------------------------------

Investing activities
Purchase of property,
plant and equipment (3,094) (2,463) (6,239) (6,579)
Proceeds on disposal of
property, plant and
equipment 115 68 893 465
Business acquisitions,
net of cash acquired (168) - (3,484) (141)
Other long term assets
- net 86 83 111 64
--------------------------------------------
(3,061) (2,312) (8,719) (6,191)
--------------------------------------------

Financing activities
Distributions to
unitholders, net of
distribution
reinvestments (737) - (894) -
Proceeds from long-term
debt 1,327 1,723 2,895 5,923
Repayment of long-term
debt (2,653) (1,775) (4,686) (3,024)
Repayment of
subordinated debt (62) (62) (125) (125)
Proceeds from issuance
of units/share capital 22,300 279 22,300 667
Redemption of preferred
shares - - - (339)
Fund restructuring
costs - reverse
takeover transaction (4) - (162) -
Collection of employee
share purchase loans
receivable 404 96 404 1,250
Repayment of advances
from unitholders (2,360) (900) (2,377) (1,104)
--------------------------------------------
18,215 (639) 17,355 3,248
--------------------------------------------

Net change in cash and
cash equivalents 24,871 918 16,576 476

Bank indebtedness,
beginning of period (19,274) (9,776) (10,979) (9,334)
--------------------------------------------

Cash and cash
equivalents (bank
indebtedness), end of
period 5,597 (8,858) 5,597 (8,858)
--------------------------------------------
--------------------------------------------

(see accompanying notes)


Eveready Income Fund
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except unit and per unit amounts)
(Unaudited)


1. Nature of operations and summary of significant accounting policies

Eveready Income Fund ("Eveready" or the "Fund") provides industrial cleaning, oilfield, and environmental services to the energy, resource, and manufacturing sectors. The Fund's operations follow a seasonal pattern, with earnings traditionally being higher in the first six months than in the remainder of the year. Due to this seasonality, interim earnings reported in the first half of the fiscal year may not be reflective of earnings on an annual basis.

These interim financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles and have been prepared following the same accounting policies and methods of application as those disclosed in the consolidated financial statements of the Fund's predecessor, Eveready Industrial Group Ltd. ("ER Group"), for the fiscal period ended December 31, 2004, except as noted in Note 4 below.

Because the disclosures provided in these interim consolidated financial statements do not conform in all respects with Canadian generally accepted accounting principles for annual financial statements, these interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes of ER Group for the period ended December 31, 2004 included in the Fund's Information Circular dated February 24, 2005.

2. Basis of presentation and Plan of Arrangement

Pursuant to an arrangement agreement dated December 3, 2004 and a Plan of Arrangement dated March 31, 2005, River Valley Income Fund ("River Valley") acquired 100% of the issued and outstanding shares of ER Group. In consideration for this purchase, River Valley issued 22,461,875 Fund units or economically equivalent units in a subsidiary limited partnership which are indirectly exchangeable for units of the Fund ("Rollover LP Units") valued at $1.77 per unit to the former shareholders of ER Group. As a result of this arrangement, ER Group and all of its subsidiaries became, indirectly, wholly-owned by the Fund. Concurrent with the Plan of Arrangement, the Fund changed its name to "Eveready Income Fund".

Reverse Takeover Treatment

By issuing 22,461,875 Fund units or equivalent Rollover LP units, sufficient units of River Valley were issued so that controlling interest (approximately 74.6%) of the fund passed to the former shareholders of ER Group. As a result, the acquisition has been accounted for as a reverse takeover whereby ER Group has been treated as the purchaser, effective January 1, 2005. These consolidated financial statements are a continuation of the financial statements of the accounting acquirer, ER Group, whereby the assets and liabilities of ER Group are included in the consolidated financial statements at their historical carrying amounts.

The consolidated financial statements for the three and six month periods ended June 30, 2005 consist of the consolidated operations of ER Group and River Valley after giving effect to the reverse takeover transaction. The comparative figures presented for the three and six month periods ended June 30, 2004 are those of ER Group, the accounting acquirer.

The preliminary purchase price allocation of the reverse takeover transaction is as follows:



-------------------------------------------------------------
Purchase
Fair value of net assets of River Valley Price
acquired: Allocation
-------------------------------------------------------------

Current assets $ 6,238
Property, plant, and equipment 10,047
Goodwill 7,378
Other long-term assets 95
-------------------------------------------------------------
Total assets 23,758
-------------------------------------------------------------

Current liabilities 7,645
Long-term liabilities 2,615
-------------------------------------------------------------
Total liabilities 10,260
-------------------------------------------------------------

$ 13,498
-------------------------------------------------------------
-------------------------------------------------------------


Consideration given was comprised of the 7,626,167 units outstanding of River Valley prior to the reverse takeover at a computed price of $1.77 per unit. The reverse takeover transaction involved the acquisition of all classes of shares of ER Group, including preferred shares accounted for by ER Group as liabilities. The ER Group preferred shares have been reclassified to Unitholders' equity in these consolidated financial statements.

3. Business acquisitions

ICE Joint Venture

On May 2, 2005, Eveready acquired all of the business and assets of a joint venture between Diamond Tree Energy Ltd. and Innovative Coke Expulsion Inc. known as the ICE Joint Venture ("ICE"). Eveready also acquired from ICE all of the shares in its American subsidiary, Innovative Coke Explusion (USA) Inc., which conducted all of the United States based operations of the joint venture on behalf of the joint venture.

The purchase price for the equipment, material agreements, and intangible assets of the joint venture was $6,500. In addition to this sum, Eveready acquired the working capital balances of the joint venture including inventory, accounts receivable, prepaid expenses, and the assumption of accounts payable liabilities, subject to any adjustments that will be determined within 120 days of closing. The aggregate purchase price, subject to any working capital adjustments, was $8,249. The majority of the purchase price was satisfied by the issuance of 2,599,179 Fund units for proceeds of $7,927. The remainder of the purchase price was satisfied through cash consideration.

The joint venture operates primarily out of Houston, Texas and is in the business of industrial cleaning using pigs to de-coke furnaces at oil and gas refineries. The pigs are also used to clean pipelines and other piping and tubing in the oil and gas industry.

The preliminary purchase price allocation for ICE is as follows:



-------------------------------------------------------------
Purchase
Price
Fair value of net assets of ICE acquired: Allocation
-------------------------------------------------------------

Current assets $ 2,461
Property, plant, and equipment 4,947
Intangible assets 691
Goodwill 730
-------------------------------------------------------------
Total assets 8,829
-------------------------------------------------------------

Current liabilities 580
-------------------------------------------------------------
Total liabilities 580
-------------------------------------------------------------

$ 8,249
-------------------------------------------------------------
-------------------------------------------------------------


Purchase price allocated to intangible assets include customer relationships ($254) and patents ($437) which will be amortized straight-line over their estimated useful lives of 5 years and 10 years respectively.

Camp Company

On May 20, 2005, Eveready acquired certain of the assets of a private Alberta company that provides camps and camp related equipment to customers in the oil and gas industry in Western Canada that allow such customers to house their employees and contractors at or near their work sites. The assets acquired included, among other items, two John Deere crawler tractors and three camps with an aggregate of 235 beds.

The purchase price of $2,855 was paid via: (i) the assumption of certain liabilities related to the assets of $538; (ii) $2,305 payable via the issuance of 755,738 Rollover LP Units; and (iii) the balance of $12 in cash. Additional information regarding Eveready's Rollover LP Units is provided in Note 5 to these consolidated interim financial statements.

The above acquisition was a related party transaction since the vendor was a private Alberta company that a trustee and officer of Eveready each own a 50% beneficial interest. The transaction was measured at its exchange amount, which was the consideration established and agreed to by the related parties. In management's opinion, this transaction was conducted at terms that represent fair value for the assets acquired.

4. New accounting policy

Effective January 1, 2005 and in connection with the reverse takeover of River Valley, ER Group was reorganized into an unincorporated, open ended mutual fund trust. Concurrent with the reverse takeover, ER Group, as the accounting acquirer, prospectively adopted the recommendations of the Canadian Institute of Chartered Accountants ("CICA") Emerging Issues Committee Abstract 107 - "Application of CICA 3465 to Mutual Fund Trusts, Real Estate Investment Trusts, Royalty Trusts and Income Trusts."

The Fund complies with the Income Tax Act (Canada) to qualify as a mutual fund trust. As a result, the Fund is not subject to income taxes to the extent that its taxable income in a year is paid or payable to its Unitholders. Accordingly, no provision for current income taxes for the Fund is made, except for its incorporated subsidiaries as indicated below. In addition, the Fund is not subject to the recommendations of CICA section 3465 "Income Taxes", as the Fund distributes to its Unitholders all or virtually all of its taxable income that would otherwise be taxable by the Fund. The Fund intends to continue to meet the requirements under the Income Tax Act applicable to such trusts, and there is no indication that the Fund will fail to meet those requirements. As a result of the conversion of ER Group to a trust, the Fund's future income tax liability at January 1, 2005 was reduced by $6,337 with the adjustment being credited to accumulated earnings.

The Fund continues to follow the liability method of accounting for its incorporated subsidiaries. Under this method, the Fund recognizes both the current and future income tax consequences of all transactions that have been recognized in the financial statements. Future tax expense of $1,018 recognized for the three months ended March 31, 2005 was a result of a large portion of the earnings of Eveready for the three month period being earned within taxable subsidiaries of the Fund, until the reorganization transaction was completed. Upon completion of the reorganization transaction, the Fund recorded a further reduction in its future tax liability of $711 with the adjustment also being credited to accumulated earnings for the period. The aggregate adjustment to the future tax liability and accumulated earnings resulting from the conversion of ER Group to a trust and completion of the related reorganization was $7,048.

Income tax expense of $23 recognized for the three month period ended June 30, 2005 relates to on-going operations that remain within taxable incorporated subsidiaries of the Fund.

5. Unitholders' capital



--------------------------------------------------------------------
Number Amount
of Units $
--------------------------------------------------------------------
Issued:
Opening balances:
Share capital of ER Group (accounting
acquirer) as at December 31, 2004 16,408
Number of units outstanding of
River Valley (legal parent) as at
December 31, 2004 7,626,167

Activity during the six month
period ended June 30, 2005:
Preferred shares of ER Group
reclassified to equity (net of
shares redeemed) - 4,348
Units issued upon the reverse
takeover of River Valley Income
Fund (note 2) 22,461,875 13,498
Unit issuance costs - reverse
takeover - (162)
Units issued - acquisition of ICE
Joint Venture (note 3) 2,599,179 7,927
Units issued - acquisition of
Camp Company (note 3) 755,738 2,305
Units issued - private placement
(net of issuance costs) 6,400,000 22,300
Units issued - distribution
reinvestment plan 512,518 2,258
Repayment of employee share
purchase loans receivable - 404
--------------------------------------------------------------------

Balance at June 30, 2005 40,355,477 69,286
--------------------------------------------------------------------
--------------------------------------------------------------------

The number of units outstanding
as at June 30, 2005 consisted of
the following components:
Fund units 21,693,611
Rollover LP Units 18,661,866
--------------------------------------------------------------------

40,355,477
--------------------------------------------------------------------
--------------------------------------------------------------------


As a result of the reverse take over transaction, the amount shown as issued capital of the Fund is calculated by adding to the issued capital of the legal subsidiary, ER Group, the amount of the cost of the purchase as determined in Note 2 to these consolidated financial statements. However, the number and type of units issued appearing in the table above reflects that of the legal parent, River Valley, including the units issued to affect the reverse takeover.

The Rollover LP Units were issued in conjunction with the completion of various acquisitions of the Fund, are units of subsidiary limited partnerships of the Fund and are designed to be, to the greatest extent practicable, the economic equivalent of Fund units. Rollover LP Units are non-transferable (except to certain permitted assigns) and the holders thereof are entitled to receive distributions on a per unit basis equivalent to holders of units of the Fund. When each of the Rollover LP Units were issued, the holder thereof was also issued a non-transferable (except to permitted assigns) right (a "Right") to acquire one unit of the Fund for each Rollover LP Unit held.

A total of 18,077,169 Rollover LP Units and 18,077,169 Rights were issued on March 31, 2005, each Rollover LP Unit being redeemable at the option of the applicable subsidiary limited partnership at any time on or before March 31, 2010 at a redemption price of $1.77 per unit and each Right entitling the holder thereof to acquire one unit of the Fund at an exercise price of $1.77 per unit at any time on or before March 31, 2010. Note that upon the exercise of any of the aforementioned Rights, the applicable subsidiary limited partnership has an obligation to promptly redeem from the exercising holder, or that person's permitted assigns, a number of Rollover LP Units equal to the number of Rights so exercised. The Rollover LP Units issued on March 31, 2005 also carry the right to one vote per unit held at each meeting of the unitholders of the Fund.

A total of 755,738 Rollover LP Units and 755,738 Rights were issued on May 20, 2005, each Rollover LP Unit being redeemable at the option of the applicable subsidiary limited partnership at any time on or before May 20, 2010 at a redemption price of $3.05 per unit and each Right entitling the holder thereof to acquire one unit of the Fund at an exercise price of $3.05 per unit at any time on or before May 20, 2010. Note that upon the exercise of any of the aforementioned Rights, the applicable subsidiary limited partnership has an obligation to promptly redeem from the exercising holder, or that person's permitted assigns, a number of Rollover LP Units equal to the number of Rights so exercised. The Rollover LP Units issued on May 20, 2005 do not carry any voting rights at meetings of unitholders of the Fund.

During the quarter ended June 30, 2005, 171,041 Rights were exercised and the related Rollover LP Units redeemed resulting in the issuance of 171,041 Fund units. At June 30, 2005, 18,661,866 Rollover LP Units remained outstanding.

6. Earnings per unit

Earnings per unit for the three and six month periods ended June 30, 2005 were based on the weighted average number of units outstanding during the period. Basic and diluted per unit amounts have been calculated on the basis that all outstanding Rollover LP Units have been converted into Fund units. The basic and diluted weighted average number of units outstanding for the three and six month periods ended June 30, 2005 were 33,476,315 and 31,816,133 respectively.

Earnings per share for the comparative periods ended June 30, 2004 of the Fund's predecessor, ER Group, have not been disclosed as ER Group was a privately owned company during those periods.

7. Net change in non-cash operating working capital



-------------------------------------------------------------------
Three months ended Six months ended
June 30 June 30
2005 2004 2005 2004
-------------------------------------------------------------------

Accounts receivable 7,920 3,215 (6,891) (2,426)
Work in progress (454) 106 (1,500) (19)
Inventory (434) (551) (392) (741)
Prepaid expenses and
deposits 77 233 (530) (241)
Accounts payable and
accrued liabilities (1,311) (1,139) 3,922 3,196
Income taxes payable 17 - 17 -
-------------------------------------------------------------------

5,815 1,864 (5,374) (231)
-------------------------------------------------------------------
-------------------------------------------------------------------


8. Segmented reporting

Management regards the current activities of the Fund as being conducted in one reportable operating segment, that being industrial cleaning and oilfield services to customers in a wide range of heavy industry segments.

9. Subsequent event

On July 4, 2005, Eveready acquired 100% of the issued and outstanding shares of Allstar Oilfield Services Ltd. ("Allstar") and related assets used in the business of Allstar, but not previously owned by Allstar (the "Related Assets"). Allstar is based in Lloydminster, Alberta, and provides a broad range of oilfield services to the energy sector including vacuum truck, pressure testing, flush-by, and hydro excavation services.

The final purchase price payable for Allstar and the Related Assets will be based on the earnings of Allstar and the Related Assets over the 12 month period ending June 30, 2006. However, as required by the purchase agreement, the minimum purchase price of $6,090 less assumed debt of approximately $4,134 was satisfied on closing via the issuance of an aggregate of 454,996 Fund units for aggregate consideration of $1,956. The final purchase price will be based on a multiple of 4.25 times earnings before interest, depreciation and amortization, and other adjustments realized during the 12 month period ending June 30, 2006.

10. Comparative figures

Certain of the comparative figures have been reclassified to conform to the current period's presentation.



UNITHOLDER INFORMATION

Officers and Trustees

Rod Marlin Peter Lacey
President, CEO, and Trustee Chairman of the Board

John M. Stevens Joe Brennan
Chief Financial Officer Secretary and Trustee

Kirk Calvert Bert Holtby
VP Sales & Marketing Trustee

Wally Dumont Brian Tod
VP Operations Trustee

Glen Fleming Donald Pestell
VP Operations Trustee

Darin Hauck J.W. Bruce Picton
VP Operations Trustee

Marvin Lefebvre
VP Operations

---------------------------------------------------------------------

Head Office Solicitors

15817 - 121A Avenue Shea Nerland Calnan
Edmonton, Alberta Calgary, Alberta
T5V 1B1
Ph: (780) 451-6989 Miller Thomson LLP
Toll Free: 1-800-661-6689 Edmonton, Alberta
Fax: (780) 451-7537

Auditors Registrar and Transfer Agent

Ernst & Young LLP Computershare Trust Company
Edmonton, Alberta of Canada
Calgary, Alberta

Stock Exchange Listing Website

Toronto Stock Exchange www.evereadyindustrial.com
Trading Symbol - "EIS.UN"




Contact Information