State of the Nation

by E. W. Phares II

Congratulations to all! Our Company finished 2007 with record sales and record pretax profit since going private over 20 years ago.

All of the divisions did well and most were ahead of last year. Penetone sales were slightly ahead of last year with a dramatic turn at the bottom line from a loss during the previous year. All indications are that 2008 will continue this trend as our sales in military, pulp and paper, and pipeline are all continuing to enhance our operations.

Sales at West Canada were a dramatic 13 percent ahead of last year and well ahead of plan. Pretax operating profits were close to 15 percent ahead of 2006 due to continuing growth in the industrial and supermarket field, as well as excellent penetration into the swine cleaning industry, where we have grown from basically zero in 2005 to over 1 million dollars in 2007. All indications are that 2008 will continue to be quite strong.

R&M Chemicals was the only weak area in operations in 2007 primarily due to the curtailment of gas and oil development. Gas prices, which are an integral part of the operation of R&M Chemicals, have dropped from $14 to $7 per mm BTU. We have numerous large proposals that are under consideration and we fully expect that 2008 will be a strong revival in both sales and profits in our newest acquisition.

Petron continues to grow nicely with a strong increase in sales and a dramatic million dollar improvement at the bottom line. All areas continue to grow well with new opportunities in Brazil, India, and China. The demand for steel and cooper continues strong offshore as well as in the United States and we anticipate that 2008 will be another banner year for Petron.

There are definite clouds on the economic horizon in the United States, and we could very well have a recession. We reviewed all of our markets and feel that we are strategically placed in the right position. In spite of the uncertainty in the economy, we fully anticipate that our Company will have a continued improvement in both sales and profits in 2008.

Let me, once again, congratulate and thank each and every one of you for the contributions that you have made to our Company in 2007. I look forward to working closely with all of you in this New Year.

West Penetone Has a Record Year

by Jean Richard

Thanks to record sales in both the supermarket and food/barn divisions, West Canada enjoyed record sales and operating profit in 2007. Gross sales increased by 13% while our pre-tax operating profit increased by 15%.

Industrial sales have for the first time in a number of years reversed a downward trend and showed a slight increase over the previous year. We are currently working on some major opportunities in Western Canada in particular the "tar sands" in Northern Alberta and are confident we should see some major breakthroughs in 2008.

On December 1, 2007, R&M Chemicals (acquired in January 2006) and West Canada were legally merged into one operating unit under the West Penetone name.

After close to 2 years I am pleased to say that the purchase of R&M has not only added nicely to our operating profit but has significantly strengthened our position in western Canada, a market which shows promise for many years to come.

I would like to take this occasion to wish all of our "readers" all the best in 2008.

Penetone's Growth Due to Many Markets

by Bruce Muretta

Penetone 2007 sales achieved plan and increased 4% above 2006. Leading the increase was Pulp & Paper, which grew 20% above the prior due to strong gains at Kimberly Clark and SCA tissue which have laid the platform for continued growth in 2008. Military results were 8% above 2006 as a result of successful bidding, contract cleaning bases and the introduction of new products. Petrochemical/Pipeline market continued its growth as sales rose 10% above 2006. These markets are anticipated to achieve advances in 2008 as well.

Initial marketing and product development has begun in Barn cleaning and sanitation with launch anticipated in early 2008. Penetone achieved another accident free year in 2007 making it over 12 years without incident.

Successful product developments were completed for Military cleaning Types IV and V, gear cleaning and barn sanitation.

These successes have been achieved due to efforts of the entire Penetone team and I am confident this will continue into 2008.

2007 Proves Trying for R&M

by Sean Crockett

Greetings and Happy New Year from Alberta, Canada! In review, the year 2007 was a historic year for Alberta and for R&M Chemicals. On December 1, 2007 the R&M Chemicals name was dropped and we officially became the Western Industrial Division of West Penetone Inc. and are fully integrated under one national sales and infrastructure banner. And, in October 2007, the Alberta Government released the results of a much-anticipated royalty review on provincial revenues from oil, gas and oilsands industries.

The past year proved to be a trying year for Alberta's economy as we saw a significant slowdown in the drilling and servicing activities of our conventional oil and gas industries. As a province, Alberta's revenues from selling exploration rights slumped more than 60% in 2007, knocked by low natural gas prices, rising oil sands development costs and weak equity markets. Although record high prices for crude oil continue to support strong future oilsands development, over 70% of Alberta's conventional drilling activities are in natural gas where prices are down nearly 50% from highs of November 2005.

In late October, the provincial government of Alberta made the decision to increase royalties on oil and natural-gas production. The new rules take effect beginning in 2009 and had both a short-term and long-term impact on Alberta's oil and gas industry. Overall, the royalty review resulted in an increase in the royalty rates charged to industry to develop Alberta's resources, with the rate partially indexed to the commodity market value of the resource. In the short- term, the uncertainty of the review caused many oil and gas companies to curtail their activities in the last half of 2007 and has resulted in some companies shifting their future investment plans to focus on areas outside of Alberta.

Despite tough market conditions and a high inflationary environment, the Western Industrial Division kept pace with last year's sales while others in the industry suffered revenue declines. The market outlook for 2008 is also proving uncertain and our challenge will be to protect our existing accounts, compete aggressively for market share and continue to improve our manufacturing efficiencies. With the emergence of exciting new products from our Research and Development team, we stand poised to make significant in-roads in the areas of environmentally-appealing industrial cleaners. It is sure to be another challenging year, but as always we're up for the task! Best wishes for the New Year.

5 Year Record Achieved

by John McHale

Petron recently completed our fiscal 2007 and I am proud to report that we have set a new record for sales and profitability. Thanks to all of you who helped us achieve this wonderful accomplishment.

Our 2007 Sales were 6.5% ahead of 2006 and our Operating Profit in 2007 was 11% greater than 2006. However, as we all know in business, it is not what you do for one quarter or one year that matters, it is being able to repeat that success over an extended period of time. To that end, I am very pleased to say that we have now completed our 5th consecutive year in which we set records for sales, profitability and safety.

This degree of success does not happen on its own just by showing up everyday. It happens by having quality people giving 100% all the time. At Petron, we are very fortunate to have those people.

As I reported in the Fall, mining worldwide continues to be extremely strong. Although copper prices have come down from their highs of $3.75 per pound, they remain above $3.00 per pound and that makes for a very strong copper market when combined with insatiable appetites for metals like copper and gold from countries such as China and India. The iron, cement and coal business worldwide also remains very robust. There is no doubt that this is a fortuitous time to be in the mining related business.

We started to see price increases in our raw materials and additives in the last quarter of 07, after having a relatively calm base oil market for the first part of 2007. When I last wrote an article for the Fall edition of Tote Notes, the price of a barrel of oil was at $81 per barrel. It is now in the low $90's and we have had excursions up $100 per barrel in the last month or so. It is just too difficult to predict what will happen to the price of a barrel of oil in 2008 and what effect it may have on our operation. We just have to remain diligent to our cost structure and react accordingly when our costs go up.

The key to Petron's success is taking care of existing customers via good technical service, quality products and fair pricing, as well as developing new customers. Petron continues to put it focus on expanding market share in specific mining sectors throughout the world.

This laser beam approach continues to serve Petron well. Both Gerry Enroth and Bob Colombo and their respective teams have done a terrific job in the last 5 years of expanding our customer base and at the same time taking care of the existing customers.

We have just completed 8 years (8 years!!) without a reportable lost time accident. Congratulations to all of you for making safety your number one priority. This is a terrific accomplishment and you should all take pride in knowing that you helped contribute to this record.

I want to take this opportunity to thank everyone at Petron for their commitment to growing the company in a safe and profitable way. In addition, I want to thank all of our customers and suppliers for all of their support and loyalty.

A Culture of Safety

by Ralph Santoro

Everybody knows where they were on November 22, 1963 and September 11, 2001, but how many people, besides me, know where they were on the 8th of June in 1995? That was the day that my co-workers and I were attending to the last Penetone employee to be involved in a reportable injury. This fellow hurt himself falling off a short ladder and bruised his butt (and ego). Not a particularly serious injury but reportable nonetheless. Since that day we have had our share of bumps, scrapes and paper cuts but nothing that required hospitalization, ambulances or any thing more than a Band-Aid. Is this just luck? No, this is the result of a culture of safety at Penetone. We have an experienced workforce who know the hazards of their jobs and do everything to minimize them. We have regular safety seminars to remind everyone the right way to do things. We invite outside safety auditors in as another pair of eyes to spot potential safety issues. We publish a safety newsletter. All this adds up to 4,589 days, or 12.6 years, (as of December 31, 2007) without an accident. That's 3,212 work days or 8.8 years accident-free. Put another way June 8th of 1995 was before the latest Yankee dynasty began. Sorry, I had to add that. But it goes to show that it was a long time ago.

2007 Employee Awards

Operations Employee of the Year was awarded to Phil Figdore (Penetone). Phil directed our lab to develop products to meet military QPL requirements for Types IV and V cleaners. Significant sales have resulted in the brief time these products have been available. Phil was very active developing marketing data and products for the animal cleaning and sanitizing market to lead Penetone's effort into this very important sector. Compliance with NJDEP requirements for hazardous material handlers has been directed by Phil in 2007 as well as our continuing ISO 9000 certification.

Dennis Fortin (West Penetone), sales rep for the barn in Quebec, is this year's Salesman of the Year. He developed the pig market in Quebec and has brought in at least $400K in new business over the last 2 years.

The Sales Manger of the Year again goes to Gerry Enroth (Petron). Gerry exceeded his 2007 sales budget and increased sales over 2006 by $300,000+ or 6.5%.

Administrative Employee of the year was awarded to Kimberly Lyons (Penetone). In Kim's second year of managing our insurance program she has worked closely with our insurance consultants to achieve a 10 % reduction in our premium rates. Kim was very significant developing an effective plan to liquidate West's prior retirement plan to avoid excess charges and minimize interest costs in light of current IRS requirements.