September 8, 2008

Dear Valued Customer,

As Vice President of Operations/COO of Phillips Machine, we would like to thank you for your past, current and future business.  I would like to extend some information that may be of interest to your organization.  We have gone through some major transitions over the last 14 months.  We are currently experiencing growth and expansion due to the uptick in the coal markets worldwide for our quality products and services. 

Our overall goals are simple:

·         Provide outstanding service for our customers

·         Deliver sustainable value to our owners

·         Offer our employees a rewarding place to work

Changes and Improvements

·         Promoted Bruce Dickerson to VP of Operations/COO

·         Created  New Management Team

·         Promoted C.R. Allen to Domestic and International Sales Manager

·         Promoted Nathan St. Clair to Technical Services Manager

·         Promoted Eli Meadows to Maintenance Foreman

·         Promoted Jeff Toney to Frame Shop Foreman

·         Promoted Todd Cushman to International Sales Coordinator and hired Kevyn McBride as Sales Representative in Northern WV, Ohio and Pennsylvania.

·         Began operations in South Africa – Managed by Larry Cantley

·         Opening an 18,000 SQ FT Manufacturing Facility in Delta, CO. managed by Phil Schmidt and Reggie Farlaino

·         Expanded our internal Engineering Department in Beckley WV managed by Jesse Kincaid

·         Building additional 12000 SQ FT Manufacturing  Facility in Beckley WV

·         Addition of new cranes in both our frame and machining areas

·         Shop reorganization, machining and boring tool expansions

·         Expanding our warehouse capabilities by another 4000 SQ FT

·         50 New Hires within the organization since January 2008

·         Inventory buildup program on long lead time components for Shuttle Cars  

Even with these expansions we are finding ourselves somewhat behind the curve on our ability to meet your ever increasing demands for our services.  Phillips is positioning itself to improve our efficiencies and capabilities to better serve your increasing and upcoming equipment and service needs. We are also having some challenges in making our current delivery schedules, due to vendor’s late delivery of product.  Our management team is consistently pushing for growth and we have to stay enthusiastic, clear-headed and most importantly, honest in our business dealings.  Our challenge is a journey, not a destination.  Our commitment to sustainability and exemplary corporate responsibility is unwavering.

Sincerely,

Phillips Machine Service, Inc.

Bruce D. Dickerson

Vice President of Operations