REINHOLD INDUSTRIES, INC.
2003 ANNUAL REPORT

<PAGE>
Reinhold Industries, Inc.

SELECTED FINANCIAL DATA

                                           2003    2002    2001    2000    1999
--------------------------------------------------------------------------------
Summary of operations (in thousands)
Net sales                              $ 67,001  59,042  48,947  49,287  39,140
Gross profit                           $ 21,277  18,221  13,140  14,789  10,783
Write-down of long-lived assets        $      -       -   5,351       -       -
Operating income (loss)                $  9,088   6,978  (2,921)  5,364   5,704
Gain on sale of asset                  $      -       -       -     962       -
Interest income (expense),net          $      9    (320)   (532)   (529)    100
Net income (loss)                      $  5,724   4,152  (3,723)  3,517   3,570
--------------------------------------------------------------------------------

Year-end position (in thousands)
Cash and cash equivalents              $  6,172   3,037   4,105   7,121   9,419
Working capital                        $ 17,855  10,495  10,981  14,589  13,256
Net property and equipment             $ 12,664  11,307  10,564  11,280   5,726
Total assets                           $ 43,790  36,610  33,029  40,709  25,234
Long-term debt                         $     30     124   6,280   8,721   1,125
Long-term liabilities                  $  7,297   5,872   4,178     449     204
Stockholders' equity                   $ 29,066  19,802  15,077  22,905  18,423
--------------------------------------------------------------------------------

Per share data (Note 1)
Net income (loss):
Basic                                    $ 1.95    1.42   (1.27)   1.20    1.22
Diluted                                  $ 1.83    1.41   (1.27)   1.19    1.22
Stockholders' equity                     $ 9.92    6.77    5.16    7.84    6.30
Market price range:
High                                     $20.23    8.17    7.14    9.77    8.96
Low                                      $ 7.52    4.30    4.27    4.50    4.44
--------------------------------------------------------------------------------

Other data (Note 1)
(in thousands except stockholder & employee data)
Orders on hand                         $ 23,508  34,735  25,263  16,442  13,841
Average shares outstanding - basic        2,929   2,925   2,923   2,923   2,923
Average sharesoutstanding - diluted       3,122   2,948   2,923   2,964   2,933
Average number of common stockholders     1,414   1,465   1,516   1,629   1,711
Average number of employees                 387     382     418     439     289


Note 1: All share information presented has been adjusted for the Company's 10%
stock dividends in 2003, 2002, 2001 and 2000.


                                       1

<PAGE>

Board of Directors

(Pictures)      Ralph R. Whitney, Jr
                Andrew McNally, IV
                Glenn Scolnik
                Thomas A. Brand
                Richard A. Place





(Graph)

Sales (in millions)
1999 - 2003

1999    $39.1
2000    $49.3
2001    $48.9
2002    $59.0
2003    $67.0


(Graph)
Net Income (in millions)
1999 - 2003

1999    $ 3.6
2000    $ 3.5
2001    $(3.7)
2002    $ 4.2
2003    $ 5.7

(Graph)
Total Debt (in millions)
1999 - 2003

1999    $ 1.6
2000    $11.5
2001    $ 9.7
2002    $ 3.3
2003    $ 0.1

                                       2

<PAGE>


A MESSAGE FROM THE PRESIDENT

(Picture)

Michael Furry, President, CEO and Director


(Graph)
Earnings per share (in dollars)
1999 - 2003

1999    $ 1.22
2000    $ 1.19
2001    $(1.27)
2002    $ 1.41
2003    $ 1.83



I am pleased to report that 2003was another record year for Reinhold Industries,
Inc., with gross sales of $67 million, an increase of 13% over 2002, and net
income of $5.7 million, an increase of 38%. Those are impressive numbers, and we
are proud of them, but the numbers wane and the pride wells when they are
juxtaposed, face by face, with the employees of Reinhold Industries, the people
who made those numbers what they are.

     So this  document  is more than a record  of  financial  success.  It is an
expression of the maturing  professionalism and commitment of our employees.  We
have long asserted that they are our principal  asset, so it is fitting that all
of them - 358 as of December 31, 2003 - be acknowledged and honored within these
pages.

     Our company is comprised of five business units: Aerospace, CompositAir, NP
Aerospace, Commercial, and Bingham. All except NP Aerospace are headquartered in
Santa Fe Springs.  Each operates in a climate of approximate  independence  (but
intangible  interdependence)  and all are accounted for  financially as separate
entities.

     Only the Aerospace and Commercial  units were home grown.  They sprang from
Reinhold  Engineered  Plastics,  founded on this site in 1951.  The other  three
business  units were joined to the Reinhold  family as  acquisitions.  (The most
recent  acquisition,  Edler Industries in 2001, never operated as an independent
unit  under  Reinhold,  and  has  been  merged  into  and  accounted  for  under
Aerospace.)

                                       3

<PAGE>

(Pictures)

Employees, families and customers attended open house and dedication of ther new
facility

(Pictures)

Gerry Gore      Ron Pegg        James Ryder





     All of the business  units except  Bingham were  profitable in 2003. We are
pleased with the company's overall  performance,  but we are not satisfied,  and
Bingham will continue to be the primary focus of our efforts at  reformation  in
2004.

New Facility in Santa Fe Springs

In the 2001 and 2002 reports,  we referred to the vexing  problems of renovating
our old buildings in Santa Fe Springs and space allocation and occupancy for all
business  units.  With that  finally  complete and behind us, we  celebrated  on
Monday,  November 3, with an open house and dedication of the new facility. Work
was reduced to half-a-day. Employees were given time off to return home and pick
up their  families,  and,  despite a light,  persistent  rain, they came. So did
other guests. Guides conducted tours.

     After a catered  lunch,  the new facility was dedicated to three  exemplary
employees:  Gerald  Gore and  Ronald L. Pegg,  engineers,  and the late James E.
Ryder,  salesman.  Each joined Reinhold or one of its progenitor  companies more
than 25 years ago and served the  company for the rest of their  careers.

     Gerry Gore joined the Reinhold family in 1973.  Thorough and reliable,  (he
had perfect attendance in three years of high school),  he heads our engineering
group today. In 1978, he left to work for US Polymeric. Shortly after his return
to Reinhold in 1987,  Jack Mertz,  our chief  engineer at the time,  presented a
proposal to Hughes Aircraft. The buyer pored over it. "If I didn't know better,"
he said,  "I would swear Gerry Gore wrote this  proposal."  Mertz  laughed.  "He
did," he said.  "He just came back to work for us." Gerry will retire at the end
of this year but will be available  for  consultation  from his home in Arizona,
only a telephone and computer away.

     Ron Pegg started with Reinhold in 1966 and never left. He is remembered for
his  consuming  interest  in  composite  materials,  their  characteristics  and
applications,  their potential. Awakened from a nap by his wife once, he reached
out, half asleep,  and felt her sweater.  "It has too much resin!" he exclaimed.

     Ron retired in 1998,  but he still  consults  on our behalf and  interfaces
with our major customers from his home outside Phoenix,  Arizona.  His son, Bob,
is a valued member of the Reinhold  engineering team.

     Bright, fun-loving,  and super-responsible,  Jim Ryder may never have met a
man he didn't like. It's virtually certain he never met one who didn't like him.
It is remembered  that he always kept his word - every promise,  every callback.
"He liked closing a big deal because it meant work for the people in the plant,"
his son recalled. At the


                                       4

<PAGE>

(Picture)

A Message from the President




Open House, the purchasing agent for a long-time  Reinhold customer said simply,
"He was the best person I ever worked  with." Jim dignified the man in salesman.
He retired in 1998 and died in 1999.

     By their conduct these men illuminated the Quality Policy that animates our
company.  A plaque in their honor  hangs at the entry of the new main  building.

The Sarbanes-Oxley Act
Brett Meinsen,  Vice President of Finance and  Administration  and Treasurer and
Secretary  of the  corporation,  is faced  with the task of  complying  with The
Sarbanes-Oxley  Act of  2002.  The  Act can be  construed  as an  expression  of
indignation by Congress at the  revelations  of impropriety by Enron,  WorldCom,
and kin that broke with the beginning of this century. Its purpose is to prevent
the recurrence of the kinds of unethical and, perhaps, criminal manipulations in
financial reporting that were exposed by their egregious conduct.  The requisite
internal  audit of written  financial  procedures  is on-going as we prepare for
compliance in 2005.

     Of its  requirements,  Section  404 is the most  onerous  to  Reinhold.  It
stipulates that a company's auditor must attest to the effectiveness of internal
controls  and  procedures  that  constitute  a  company's  basis  for  financial
reporting.  This means that our auditor must now conduct two separate audits and
express two opinions:  (1) that the financial  reports of the company are fairly
presented in accordance with generally accepted accounting  principles,  and (2)
that our systems of internal  controls are sufficient to preclude any subsequent
revelation  that might  materially  affect the company's  financial  statements.
Preparation  for the second opinion  entails the scrutiny and  documentation  of
every aspect of our systems and procedures for internal financial controls.  The
process,  with its  attendant  costs,  is the sole  responsibility  of Reinhold.
Compliance  is  monitored  by the  Securities  and  Exchange  Commission.

Human Resources
Judy Sanson is Reinhold's Human Resources Manager. Her job is manifold. She must
attend to the needs of the  employees  relative  to their  employment.  She must
assure  that  we  are  in  compliance  with  all  local,   state,   and  federal
requirements,  including those of EEOC (Equal Employee  Opportunity  Commission)
and OSHA (Occupational Safety and Health Administration.) She is responsible for
recruiting  and  staffing,  assuring  that we obtain the best  qualified  people
possible. She is responsible for benefits management. She must


                                       5

<PAGE>

(Picture)
Brett Meinsen






know what benefits are offered by other  companies so that she can better advise
management on being competitive in the people market.

     Judy also  administers our pension plans. We have a Defined Benefit Pension
Plan,  into  which  all  contributions  are  made by the  company  and in  which
employees  are fully  vested  after  five  years.  We have a 401(k)  plan and an
OMG/MIC  plan for  certain  regular  salary-exempt  employees.  Under  the plan,
employees  set  individual  objectives  known as OMGs  (Organization  Management
Goals), which are realized through the vehicle of the MIC (Management  Incentive
Compensation) program.

     Regular  employees who receive neither sales  commissions nor qualification
for the OMG/MIC plan are eligible for the PIE (Profit Incentive Equity) program.
Under PIE,  employees can earn as much as five percent of their annual  salaries
by meeting weekly and monthly production goals. A monthly luncheon,  paid for by
the company,  is served when the PIE goals are  accomplished.  The luncheon is a
time for communication  between  employees and employer.  We have an Educational
Assistance  Plan that will  reimburse  employees  for expenses of textbooks  and
tuition.

     We have a cleanup day every Tuesday  before the first work break.  Everyone
has a zone for which they are  responsible,  and everyone  gets an allowance for
the lunch  wagon on that day.  We have  uniforms  for  production  people,  with
laundry included at no cost to the employee.  We have an employee  handbook that
explains benefits and company rules.

     At Reinhold, everybody feels like a member of a team.

Quality Assurance
     Mary  Heninger  is our  Quality  Assurance  Manager.  Under  her  guidance,
Reinhold Industries was granted registration to ISO 9001: 2000 in October,  2003
after a six-month process of Quality System improvements.

     This  registration  includes  all Santa Fe Springs  business  units and the
Oxnard,  California research and development  location for CompositAir.  We used
the ISO 9001 improvement process as a vehicle for streamlining, documenting, and
fool-proofing  our  operations,  from new product  development  to purchasing to
shipping.

     An example of our success is in receiving  inspection,  where we spend less
time re-inspecting machined parts and more time ensuring that our suppliers have
completed  their work as we have  expected.  This has  eliminated  problems with
final product  acceptance and halved the time necessary for final  documentation
preparation.  We have re-invigorated our internal process audit system, training
new  internal  auditors  who were drawn  from all  departments  in the  company.


                                       6

<PAGE>

(Pictures)

Judy Sanson             Mary Heninger

A Message from the President


Quality is truly everyone's responsibility.

     Internal  disciplines   regarding  document  control,   engineering  design
reviews,  procurement  documentation,  and  on-the-job-training  have  all  been
improved  this year.  Everything  that we do has an impact on the quality of our
product and our service.

     Our formal Quality Policy states: "The management of Reinhold Industries is
committed to providing the highest  quality  products and services at the lowest
possible  cost   consistent   with  our  customers'   needs  and   expectations.
Furthermore,  we  frequently  review  our  results  and  strive  for  continuous
improvement."

     Reinhold  has  long  been a  customer-oriented  company.  We  have  defined
ourselves by adherence to this Policy,  sustaining  excellence  and  continually
improving.  Our  Policy  constitutes  the  foundation  upon  which  our  quality
management system is built.

     Our ISO registration is, in many ways, a formal affirmation of that Policy,
and  its   implementation  has  structured  and  reinforced  our  commitment  to
excellence.

     Furthermore,  ISO accreditation is a requirement for doing business in some
countries, and when the scope of our operations becomes more international - and
we expect  that it will - we will be in a stronger  position to compete for that
business.

Aerospace
The Aerospace  Business  Unit  recorded  sales of $22.3 million for the year, an
increase  of 15% over 2002 but short of the  record  $23  million  in 1990.  The
increase is mainly due to orders for the  Minuteman III  Propulsion  Replacement
Program and rocket nozzles.

     Edler  Industries,  which was acquired in April of 2001 and renamed Thermal
Insulation,  operated  under that name until it was absorbed  into  Aerospace in
2003.  With  $1.5  million  in sales  and an  impressive  EBIT,  it  contributed
significantly to Aerospace's performance in 2003.

     The Edler  acquisition has been beneficial in other ways, too. With it came
Vern  Edler,  a  seasoned  manager  strong  in sales  and  marketing,  and their
equipment  and work force have  complemented  our own,  especially in machining,
tape wrapping, and cure-vessel operations.

     We are enhancing our sales and marketing efforts further by training one of
our senior  engineers as a field sales  engineer.  He directed the Orion project
for us and is well-known to ATK Thiokol,  our major Aerospace customer.  He will
be relocated on the east coast,  where ATK Thiokol has operating units. The move
will fill a void that has existed since the retirement and subsequent  demise of
Jim  Ryder,  one of the  three  employees  to whom our new  buildings  have been
dedicated.


                                       7

<PAGE>


(Picture)

<PAGE>


(Picture)
Joe Ball
General Manager
Aerospace Business Unit

A Message from the President





     A measure  of our  confidence  in the  future  for  Aerospace  is the major
investment  in  infrastructure   that  we  have  made  to  support  our  growing
large-nozzle  manufacturing  capabilities.  Early in 2003, we experienced boiler
difficulties  and  delays,  so we  purchased  a new one at a cost  of more  than
$300,000.  One boiler  would  meet our  normal  needs,  but so  emphatic  is our
commitment to zero defects, on-time delivery, and customer satisfaction, that we
have rebuilt the old one as well. We will alternate use of the two and be always
prepared for any occurrence that might impair our production capability.

     For the same  reasons,  we have made a major  investment  in upgrading  and
computerizing  the controls on one of our two  hydroclaves and are proceeding to
do the same for the other one. We will also alternate their use.

     Growing business creates growing demands for space,  people, and equipment.
As the success of this business unit will attest, we were  well-prepared for the
demands  that were placed upon us in 2003 and are duly proud of the job that our
people  did to meet  them.  At the  same  time,  we  recognized  the  need for a
systematic  deepening  of awareness - through all levels of our company - of the
responsibilities that attend the rigorous demands that we are regularly required
to meet.

     Joe Ball,  manager of the  Aerospace  business  unit,  working with Quality
Assurance  Manager Mary Heninger and a team of employees that had coalesced into
a kind  of  brotherhood  of  workmanship,  addressed  these  demands.  The  team
benefited from the simultaneous  involvement in a process,  directed by Mary, of
seeking   compliance  with  Quality  Management   Standard  ISO  9001:2000,   an
accreditation that was ultimately conferred on Reinhold in October of 2003.


     Aerospace had been a reliable  supplier of composite  ablative  hardware to
the aerospace and defense  industries for more than 20 years, a fact of which we
are proud.  Pride,  however, as Proverbs reminds us, goeth before a fall, and it
can metamorphose into smug satisfaction.

     What  Ball's  team  sought was a process  that could  assure - where  field
failure had never  happened - that it never  would.  We all know that nothing is
perfect,  but such a quest - the  striving for  perfection - usually  results in
excellence,  a level of performance that this business unit manifestly  achieved
in  2003.  Achievement  is  rarely  epiphanous.   More  often,  it  is  minutely
incremental, but it is palpable, and because of the performance of this business
unit, we have become a more  professional  organization.  We enter 2004 stronger
than we have ever been.



                                       9

<PAGE>


(Picture)

<PAGE>


(Picture)
Roger Medwell
Managing Director
NP Aerospace Business Unit


A Message from the President




NP Aerospace
In April of 1998, Reinhold bought certain assets and liabilities of
Courtaulds Aerospace in the United Kingdom and formed a new business unit - NP
Aerospace. What triggered the acquisition was the potential for synergism that
existed because both companies made composite commercial aircraft seatbacks. It
was noted in our annual report that the skilled work force and latent leadership
that came with the purchase were readily absorbed into the Reinhold culture.

     Today, five years later, it is gratifying to report again that the benefits
have far exceeded what we expected.

     In 2001,  sales for this  business  unit were $9.3 million with earnings of
$.4 million;  sales rose to $13.3 million with earnings of $1.6 million in 2002,
and rose again to $19.3 million with earnings of $3.8 million in 2003.

     The  experience of NP Aerospace  during those signal years forms a striking
parallel to the experience of our Aerospace unit during the same periods.  Roger
Medwell,  managing director of NP Aerospace,  reports on the factors that shaped
those years.

     "Three years ago, when sales were down, we did a lot of useful work.  There
were  long-term  problems to solve.  We had to  re-structure  the  business.  We
reformed  manufacturing.  We reviewed and  modified  our  standards to make them
congruent with what was actual. We relied on our management  systems.  They were
working.  Data input was accurate.  That gave us confidence.  We got into a good
rhythm, and when the challenge came, we were prepared.  It came in the form of a
$3.5 million body armor  contract for the Ministry of Defence.  We had performed
well many times for them, so they had  confidence in us. We won more than 90% of
the contract,  delivered on time, and earned a thank-you letter from the colonel
in charge.

     "Historically,  we have depended on winning contracts year after year. Now,
one of our objectives is to win long-term,  on-going contracts. Last year we won
a development contract for the new EOD MK V Suit, which is the new bomb disposal
suit that  replaces the MK IV, which has been in service in the British army for
20 years.  We also won a contract  for the  composite  armor for the new British
Battlefield   Engineer   Tank.  It  will  entail   development,   testing,   and
manufacturing  that  will be  on-going  to the  year  2010.  We have  also won a
contract for all of the moldings that go onto the new anti-tank  weapons for the
British and Swedish armies. That contract, called N-LAW, will go on for years.

     "There are numerous other pending defence projects in which we expect to be
involved, some of which include up-grading equipment that we built originally.


                                       11

<PAGE>


(Picture)

<PAGE>


(Picture)
Joe Savage
General Manager
CompositAir Business Unit

A Message from the President




     "On the commercial side, we are moving from strength to strength. Our X-Ray
medical  tables  are doing  well,  and for the past two years we have been named
supplier of the year by the manufacturer of that product.

     "A gratifying aspect of this growth is that we have accomplished it without
adding more people. Our employees have responded magnificently to the challenges
that we have met.  Their  skill and  character  bode well for the  future of our
company."

CompositAir
This business unit makes composite aircraft seatbacks for the commercial airline
industry, which is still operating in what we consider to be a short-term market
trough.  Air  travel had begun to  decline  in the year  2000,  well  before the
catastrophe  of 9/11,  but the events of that day  accelerated  the decline that
resulted in 2001  becoming  the second year in aviation  history  when there was
negative growth in the industry.  Experts predicted a decline of up to 18 months
before recovery would begin.

     CompositAir has been in a holding pattern since then.  Sales fell from $6.5
million in 2002 to $5.3 million in 2003.  Pre-tax earnings fell from $.5 million
to $.3 million.

     The  market-trough  for air travel has been deeper and more  extended  than
predicted.  Contributing  factors have been the economy  generally,  the wars in
Afghanistan and Iraq, and the SARS epidemic. Predictions now are for recovery to
begin 2005-2006 and the market to return to its long term pattern of growth.

     We are not, however, just marking time. We remain in a strong position with
our customers  and are working on projects that could have a positive  effect on
our long-term goals.

     There are six major suppliers of seating products to the commercial airline
industry.  Historically,  their seatbacks have been largely aluminum: world-wide
sales are 70% aluminum and 30%  composites.  We account for 90% of the composite
sales, or 27% world-wide.

     There has been a shift of  emphasis  by  airplane  manufacturers  to larger
planes, a change that creates a greater concern about overall weight.  Composite
seatbacks  have  a  weight   advantage  over  aluminum,   and  seating  products
manufacturers are feeling increased pressure to deliver a lighter product.

     We believe that we can capture an  additional  30% of the total  world-wide
market. That is our goal. Our factory,  sharply focused on composite  seatbacks,
has a current capacity of 200,000 units per year.


                                       13

<PAGE>

(Picture)

<PAGE>



(Picture)

Ari Aleong
General Manager
Commercial Business Unit

A Message from the President



Commercial
The Commercial business unit achieved record sales for the year of
$3.5 million, up from $2.9 million in 2002. Earnings, however, were $.1 million,
down from $.2 million in 2002.

     Earlier in this report,  we cited completion in late 2003 of Project B: the
renovation of old buildings and  reorganization  of manufacturing  process flows
for the Aerospace,  CompositAir and Commercial business units. This endeavor, by
providing  discrete work spaces and reducing  people and material  movement from
operation to operation,  will enhance  efficiency for all three business  units,
but the principal beneficiary will be Commercial. That is because their products
are smaller and more varied,  and their  manufacture  was most fragmented in the
old work spaces.  Since Project B was not completed until late 2003, the changes
it made had little effect on earnings for 2003. We expect,  however,  a positive
effect in 2004.

     A  serendipitous  benefit of Project B was that it forced a reassessment of
how work is done,  and, in the  process,  exposed  previously  undetected  wear,
consequent repair and maintenance needs, and under-utilization of equipment.  It
also revealed a new business opportunity.

     Our  capability  of producing  sheet  molding  compounds  (SMC) exceeds our
internal  needs by  ten-fold,  and there is a market for these  materials on the
west coast.  Large users now buy SMC materials  from suppliers in the midwest or
Canada. Many small manufacturers use open molding, chopper gun, and wet spray-up
processes  that are  subject to  expensive  environmental  constraints.  We have
identified a number of west coast users of SMC whose combined needs could have a
significant impact on Commercial's operations.

     The polymer concrete business, which uses low-grade SMC material additives,
is another potential source of business.

     We are continuing to assess other potential  markets,  to categorize all of
the critical  processes  involved in the  commercial  production of SMC, and are
taking all necessary  steps to assure that our  materials  meet the needs of the
marketplace. We can be very competitive in pricing these materials.

     Our  objectives  for this business unit in 2004 are to penetrate and expand
our position in the SMC materials  market and to achieve absolute control of the
quality and  consistency of our SMC materials for that  marketplace,  to improve
on-the-job training programs for our employees, to improve communications on all
levels of the work  force,  and to reduce  scrap to less than  one-half of 1% in
each of our operations.


                                       15
<PAGE>


(Picture)

<PAGE>



(Picture)
Carl Smith
CEO
Bingham Business Unit



A Message from the President



Bingham
The Samuel Bingham Company, founded in 1848 and one of America's oldest
companies, was failing when Reinhold acquired Bingham in the year 2000 and
created a wholly-owned subsidiary named Samuel Bingham Enterprises, Inc.

     Bingham makes rubber and urethane  rollers for graphic arts and  industrial
users.  Typical graphic arts processes are sheetfed and web offset  lithography,
flexography,  and gravure  printing.  Industrial  applications  include film and
paper coating, laminating, embossing, extruding and casting, and steel and other
metal processing.

     Bingham  produces rolls that range from one inch in diameter and six inches
long,  weighing  only a few pounds,  to 50 inches in diameter  and 20 feet long,
weighing more than  three-and-one-half  tons.  Bingham also formulates and mixes
most of the rubber and urethane that they use.

     For several  years,  the roller  industry has been  severely  affected by a
depressed  economy and excess supply. As a result, we have made major changes in
our  business.  While  closing  some plants and  consolidating  others,  we have
pursued new market  opportunities,  invested in  upgrading  and  purchasing  new
equipment, installed lower cost systems and manufacturing processes,  re-trained
employees, and made significant improvements in quality and on-time delivery.

     Historically,  Bingham  has had  few  contracts  with  large  graphic  arts
customers. Today, we have contracts with major printers and newspaper publishers
and are suppliers to several world class OEMs.


     We reduced costs and increased sales by installing efficient work cells for
Quix (single wide web) and QuixPress (sheetfed press-ready) products. We created
a telephone  sales force of four to sell  QuixPress  and built our  inventory to
accommodate most presses.

     We developed a  computerized  maintenance  and inventory  tracking  system,
complete with hardware and software,  for a major steel mill. A Bingham employee
works daily at our  customer's  facility,  documenting  processes and supporting
their development  efforts. We are an integral part of their plant. We expect to
expand that system into other sites.

     In  support  of  our  large-roll  customers,  we  bought  a new  lathe  for
large-roll  processing in our Black Lick, PA facility.  It enables us to produce
rollers up to 5 feet in diameter and 20 feet in length and do convex and concave
contours  and  grooving  machining  functions,  a unique  feature that we had to
sub-contract to Canada in the past.

     Revitalizing Bingham has been a dogged process, one in which management has
never wavered.  We are not  discouraged.  We believe that we have prevailed over
the worst of times and are ready for the business turnaround that lies ahead.


                                       17

<PAGE>

(Picture)

Right: Reinhold corporate headquarters circa 1990
Below: Reinhold corporate headquarters today


A Message from the President




Summary
Early in this message we reported to you that 2003 was a record year.  Reasoning
why casts a  favorable  light on our  criteria  and methods  for  acquisition  -
synergy, balance, and diversity.

     Reinhold, with five relatively independent business units, is structured to
shield itself against extreme highs and lows.

     Example:  in 1997,  sales for the CompositAir  business unit were ascending
while sales for the  Aerospace  business  unit seemed in an orbit of  inevitable
decline. Now, their fortunes are reversed - Aerospace soars while CompositAir is
grounded.

     Example:  NP Aerospace makes protective  products:  military helmets,  body
armor, armored vehicles,  ballistic shields.  They also make commercial aircraft
seatbacks.  One cause - the war on terrorism - has created demand for protective
products, and, simultaneously,  has greatly diminished air travel and consequent
aircraft seatback sales.

     Example:  the primary target in our acquisition of NP Aerospace in 1998 was
their aircraft seatback  business,  the very business that now lies dormant with
CompositAir,  while overall sales,  profits,  and prospects for NP Aerospace are
surging.

     Such is the capricious nature of business,  particularly the forecasting of
it. Still, we are bullish (but armored with reserve).

     We expect  Aerospace and NP Aerospace to remain strong through this decade.
We expect  CompositAir  to remain  level in 2004 despite the  short-term  market
trough that is expected  to persist  until 2005.  We expect an increase in sales
and  profits  from  Commercial  in 2004  because of the new market for our sheet
molding compounds (SMC) and improved efficiencies in manufacturing and materials
handling.

     Bingham is sharpening,  sharpening. They pared labor, selling, and overhead
expenses by closing two  unprofitable  plants and installing work cells for Quix
and  QuixPress  rollers  at plants  in  Searcy,  AR and  Palmyra,  NY;  invested
substantially  to enhance large roll  capabilities;  signed sales contracts with
major printers, newspaper publishers and OEMs; designed,  installed, and operate
a program for maintenance  and inventory  control in a major steel mill, and are
selling aggressively on all fronts. We expect a profit from Bingham in 2004 with
progressive improvement in 2005 and 2006.

     We are grateful to our employees, customers, and suppliers.
     By the way. Note the chart on page 2. We have no bank debt.


/s/ Michael T. Furry

Michael T. Furry President, CEO and Director



                                       18
<PAGE>

Reinhold  Industries,  Inc.


Management's Discussion and Analysis of Financial Condition and Results of
Operations


     Reinhold  Industries,  Inc.  (Reinhold or the Company) is a manufacturer of
advanced custom composite components, sheet molding compounds and rubber rollers
for a variety of applications in the United States and Europe.  Reinhold derives
revenues from the defense, aerospace, printing and other commercial industries.

     Critical Accounting Policies The Company's consolidated financialstatements
and  related  public  financial  information  are  based on the  application  of
generally  accepted  accounting  principles  ("GAAP").  GAAP requires the use of
estimates,  assumptions,  judgments and subjective interpretations of accounting
principles that have an impact on the assets,  liabilities,  revenue and expense
amounts  reported.  These  estimates  can also affect  supplemental  information
contained  in the  external  disclosures  of the Company  including  information
regarding contingencies,  risk and financial condition. The Company believes its
use of  estimates  and  underlying  accounting  assumptions  adhere to generally
accepted accounting principles and are consistently and conservatively  applied.
Valuations based on estimates are reviewed for  reasonableness  and conservatism
on a consistent  basis  throughout  the Company.  Primary areas where  financial
information of the Company is subject to the use of estimates,  assumptions  and
the  application  of  judgment  include  revenues,   receivables,   inventories,
acquisitions,  valuation  of  long-lived  and  intangible  assets,  pension  and
post-retirement  benefits, the realizability of deferred tax assets, and foreign
exchange  translation.  We base our  estimates on historical  experience  and on
various  other   assumptions   that  we  believe  to  be  reasonable  under  the
circumstances.  Actual results may differ  materially from these estimates under
different assumptions or conditions.

     Revenue  Recognition  and  Allowances  for  Doubtful  Accounts  The Company
recognizes  revenue when title and risk of  ownership  have passed to the buyer.
Allowances  for  doubtful  accounts are  estimated  based on estimates of losses
related to  customer  receivable  balances.  Estimates  are  developed  by using
standard quantitative measures based on historical losses, adjusting for current
economic  conditions and, in some cases,  evaluating  specific customer accounts
for risk of loss. The establishment of reserves requires the use of judgment and
assumptions  regarding the potential for losses on receivable  balances.  Though
the Company  considers these balances  adequate and proper,  changes in economic
conditions  in  specific  markets  in which the  Company  operates  could have a
material effect on reserve balances required.

     Inventories We value our  inventories  at lower of cost or market.  Cost is
determined by the first-in,  first-out (FIFO) method,  including material, labor
and factory  overhead.  The  Company  writes down its  inventory  for  estimated
obsolescence  equal to the cost of the inventory.  Product  obsolescence  may be
caused by shelf-life  expiration,  discontinuance of a product line, replacement
products in the marketplace or other competitive situations.

     Fair  Value  of  Assets  Acquired  and  Liabilities   Assumed  in  Purchase
Combinations The purchase  combinations  carried out by us require management to
estimate the fair value of the assets  acquired and  liabilities  assumed in the
combinations.  These  estimates of fair value are based on our business plan for
the entities acquired  including  planned  redundancies,  restructuring,  use of
assets  acquired and  assumptions  as to the ultimate  resolution of obligations
assumed  for which no future  benefit  will be  received.  Should  actual use of
assets or resolution of obligations differ from our estimates,  revisions to the
estimated  fair values would be required.  If a change in estimate  occurs after
one year of the  acquisition,  the change would be recorded in our  statement of
operations.

     Pensions  and  Post-Retirement  Benefits  The  valuation  of the  Company's
pension and other  post-retirement  plans  requires the use of  assumptions  and
estimates  that  are  used to  develop  actuarial  valuations  of  expenses  and
assets/liabilities.   These  assumptions  include  discount  rates,   investment
returns,  projected  salary  increases and benefits,  and mortality  rates.  The
actuarial  assumptions  used in the  Company's  pension  reporting  are reviewed
annually and compared  with external  benchmarks to assure that they  accurately
account for our future pension  obligations.  Changes in assumptions  and future
investment  returns could  potentially  have a material  impact on the Company's
pension expenses and related funding requirements.

     Valuation of Long-lived and Intangible  Assets In accordance  with SFAS No.
142,  "Goodwill and Other Intangible  Assets" and SFAS No. 144,  "Accounting for
the  Impairment or Disposal of Long-lived  Assets," we assess the fair value and
recoverability of our long-lived assets,  including goodwill annually,  whenever
events and  circumstances  indicate  the  carrying  value of an asset may not be
recoverable from
                                       19

<PAGE>

Reinhold Industries, Inc.


Management's Discussion and Analysis (cont'd)

estimated future cash flows expected to result from its use and eventual
disposition. In doing so, we make assumptions and estimates regarding future
cash flows and other factors to make our deter-mination. The fair value of our
long-lived assets and goodwill is dependent upon the forecasted performance of
our business and the overall economic environment. When we determine that the
carrying value of our long-lived assets and goodwill may not be recoverable, we
measure any impairment based upon a forecasted discounted cash flow method. If
these forecasts are not met, we may have to record additional impairment charges
not previously recognized.

     During  2001,  we performed an  assessment  of the goodwill  related to our
acquisition of Samuel  Bingham  Company  ("Bingham"),  pursuant to SFAS No. 121,
"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to
be Disposed  Of." As a result,  we recorded a charge of $4.0 million  during the
third  quarter  of 2001 to  reduce  goodwill  associated  with the  purchase  of
Bingham.  The  charge was based on the  amount by which the  carrying  amount of
these assets exceeded their fair value.

     Income Taxes We recognize  deferred tax assets and liabilities based on the
differences  between the financial  statement carrying amounts and the tax bases
of assets and  liabilities.  We  regularly  review our  deferred  tax assets for
recoverability and establish a valuation allowance based upon historical losses,
projected  future  taxable  income and the expected  timing of the  reversals of
existing temporary differences.

     Cumulative  Foreign  Exchange  Translation   Accounting  In  preparing  our
consolidated  financial  statements,  we are required to translate the financial
statements  of NP Aerospace  from the currency in which it keeps its  accounting
records,  the British Pound Sterling,  into United States dollars.  This process
results in  exchange  gains and  losses  which are  either  included  within the
statement  of  operations  or as a  separate  part of our net  equity  under the
caption "foreign currency translation adjustment."

     Under the relevant accounting guidance,  the treatment of these translation
gains or losses is dependent upon management's  deter-mination of the functional
currency  of NP  Aerospace.  Generally,  the  currency  in which the  subsidiary
transacts a majority of its transactions, including billings, financing, payroll
and other  expenditures  would be  considered  the  functional  currency but any
dependency  upon the parent and the nature of the  subsidiary's  operations must
also be considered.

     If any subsidiary's functional currency is deemed to be the local currency,
then  any gain or loss  associated  with the  translation  of that  subsidiary's
financial statements is included in cumulative translation adjustments. However,
if the  functional  currency is deemed to be the United  States  dollar then any
gain or loss associated with the translation of these financial statements would
be included within our statement of operations.

     Based on our  assessment  of the factors  discussed  above,  we consider NP
Aerospace's  local  currency  to be the  functional  currency.  Accordingly,  we
recorded  foreign  currency  translation  gains of  approximately  $727,000  and
$465,000 that were included as part of "accumulated  other  comprehensive  loss"
within our balance sheet at December 31, 2003 and 2002, respectively.

     Environmental  Liabilities With respect to outstanding  actions that are in
preliminary  procedural  stages, as well as any actions that may be filed in the
future,  insufficient  information exists upon which judgments can be made as to
the  validity  or  ultimate  disposition  of such  actions,  thereby  making  it
difficult to reasonably  estimate what, if any, potential liability or costs may
be incurred.  Accordingly, no estimate of future liability has been included for
such claims. See note 9 of the accompanying  consolidated  financial  statements
for additional discussion of legal proceedings.

     2003  Compared  with 2002 Backlog at December  31, 2003 was $23.5  million,
down 32% from December 31, 2002,  due to a delay in the receipt of annual orders
for the Minuteman  III  Propulsion  Replacement  Program.  In 2003,  order input
decreased  19% to $55.4  million.  Total  net  sales  increased  by 13% to $67.0
million from $59.0  million in 2002.  Sales  increased by $3.0 million (16%) for
the Aerospace  business unit compared to 2002 due mainly to increased  shipments
of missile  components  for the Minuteman III  Propulsion  Replacement  Program.
Sales also  increased  by $6.0 million  (45%) for NP Aerospace  due to increased
shipments of body armor and military helmets. Sales for the CompositAir business
unit decreased by $1.3 million (20%) due to economic  problems in the commercial
airline industry. Sales for the Commercial business unit

                                       20
<PAGE>

Reinhold Industries,Inc.


increased by $0.6 million (21%) due to increased shipments of in-ground lighting
housings, pool filter tanks and heater covers. Sales decreased by $0.4 million
(2%) at the Bingham business unit.

     Gross profit  margin  increased to 31.8% from 30.9% due primarily to higher
sales and the resulting absorption of overhead expenses for NP Aerospace.  Gross
profit  margin from NP  Aerospace  increased  to 31.4% from 26.7%.  Gross profit
margin from  Aerospace  increased to 44.8% from 44.6%.  Gross profit margin from
CompositAir   increased  to  20.5%  from  17.1%  due  to  elimination  of  labor
inefficiencies resulting from our 2002 consolidation of production facilities in
Santa Fe Springs,  California.  Gross profit margin from Commercial decreased to
19.3% from 20.4% due to higher  overhead  expenses.  Gross  profit  margin  from
Bingham decreased to 21.1% from 25.7% due to higher overhead costs.

     In 2003,  selling,  general and administrative  expenses were $12.2 million
(18.2% of sales)  compared  with  $11.2  million  (19.0% of sales) in 2002.  The
increase is due to higher pension expenses and management incentive compensation
costs.

     In 2003,  net interest  expense  decreased to zero from $0.3 million due to
lower debt.

     Income  before  income taxes was $9.1 million or 13.6% of sales in 2003 and
$6.7  million  or 11.3% of sales in  2002.  Income  before  income  taxes at the
Aerospace  business unit increased to $7.1 million (31.9% of sales) in 2003 from
$6.8 million (35.3% of sales) in 2002 due to higher sales.  Income before income
taxes for  CompositAir  decreased  to $0.3  million in 2003 (5.0% of sales) from
$0.5  million  in 2002  (6.9% of sales) due to lower  sales  caused by  economic
problems in the commercial airline industry.  Income before income taxes for the
Commercial  business  unit  decreased to $0.1 million  (3.1% of sales) from $0.2
million (7.7% of sales) due to higher  overhead  expenses.  A loss before income
taxes of $1.1million  (-6.6% of sales) in 2003 was realized at Bingham  compared
to a loss of $0.7  million  (-4.4%  of  sales)  in 2002  due to  generally  poor
economic conditions and higher overhead costs. Income before income taxes for NP
Aerospace  increased  to $3.8 million in 2003 (19.8% of sales) from $1.6 million
in 2002 (12.1% of sales) due mainly to higher  sales of body armor and  military
helmets.

     A tax  provision  of $3.4  million  was  recorded in 2003  compared  with a
provision of $2.5 million in 2002 due to higher income before income taxes.  The
effective tax rate in 2003 was 37.1% as compared to 37.6% in 2002. The effective
tax rate in the United  Kingdom was 31% in 2003 and 30% in 2002. At December 31,
2003 and 2002,  the Company had net  operating  loss  carryforwards  for Federal
income  tax  purposes  of   approximately   $18.9  million  and  $21.2  million,
respectively.   At  December  31,  2001,   the  Company's  net  operating   loss
carryforwards for State income tax purposes had expired. The Company may utilize
the  Federal net  operating  losses by carrying  them  forward to offset  future
Federal taxable income,  if any, through 2011. As more fully described in note 3
to notes to  consolidated  financial  statements,  benefits  realized  from loss
carryforwards  and  deductible  temporary   differences  arising  prior  to  the
reorganization  have been recorded directly to additional paid-in capital.  Such
benefits  amounted to $4.1 million in 2003 and $1.8 million in 2002.

     Net  income  totaled  $5.7  million,  or $1.83  per  diluted  share in 2003
compared with $4.2 million, or $1.41 per diluted share in 2002.

Liquidity and Capital Resources As of December 31, 2003, working capital was
$17.9 million, up $7.4 million from December 31, 2002. Cash and cash equivalents
of $6.2 million held at December 31, 2003 were $3.1 million higher than cash and
cash equivalents held at December 31, 2002 due primarily due to the increased
profitability of the Company.

     Net cash provided by operating  activities amounted to $8.4 million in 2003
and $7.3 million in 2002.  The increase over the prior period  relates mainly to
the  increased  profitability  of  the  Company.

     Net cash used in investing activities totaled $2.6 million in 2003 and $2.4
million in 2002 consisting primarily of capital expenditures in each year.

     Net  cash  used in  financing  activities  in 2003  totaled  $3.1  million,
consisting  of the  repayment  of the balance owed on the LaSalle line of credit
($3.0  million) and capital  lease  payments  ($0.1  million).  Net cash used in
financing activities in 2002 totaled $6.4 million,  consisting of the borrowings
against the LaSalle line of credit ($7.2  million)  less  subsequent  repayments
($4.2  million)  and the payoff of the Bank of America  loans ($9.3) and capital
leases ($0.1). The Company does not have any current significant commitments for
capital expenditures at December 31, 2003.

                                       21

<PAGE>

Reinhold Industries, Inc.

Management's Discussion and Analysis (cont'd)

     The Company believes that its current working capital of $17.9 million, the
available line of credit,  and  anticipated  working  capital to be generated by
future  operations  will be sufficient to support the Company's  working capital
requirements through at least December 31, 2004.

Contingent commercial commitments at December 31, 2003 are as follows:

Description        Total amount      Amount Oustanding        Expiration date
--------------------------------------------------------------------------------
Line of credit       $8,000,000                     $0             10/31/2004


The following is a summary of contractual obligations at December 31, 2003:

                                                Payments due by period
                                      ------------------------------------------
Contractual                           Less than      1 - 3      3 - 5  More than
obligation                    Total      1 year      Years      Years    5 Years
--------------------------------------------------------------------------------
Capital lease obligations     $ 132       $ 102       $ 30          -          -
--------------------------------------------------------------------------------
Operating lease obligations  10,988       1,226      1,962     $1,626     $6,174
--------------------------------------------------------------------------------
Purchase obligations          3,204       3,204          -          -          -
--------------------------------------------------------------------------------
Pension plan obligations*     1,180       1,180          -          -          -
--------------------------------------------------------------------------------
Total                       $15,504      $5,712     $1,992     $1,626     $6,174
--------------------------------------------------------------------------------

*The total pension liability as of December 31, 2003 is $6,978. Cash
contributions to the plans after 2004 are indeterminable.

2002 Compared with 2001 Backlog at December 31, 2002 was $34.7 million, up 37%
from December 31, 2001, due to increased orders for the Minuteman III Propulsion
Replacement Program, rocket nozzles, and personal protection products. In 2002,
order input increased 22% to $68.8 million. Total net sales increased by 21% to
$59.0 million from $48.9 million in 2001. Sales increased by $7.7 million (67%)
for the Aerospace business unit compared to 2001 due mainly to increased
shipments of missile components for the Minuteman III Propulsion Replacement
Program. Sales also increased by $4.0 million (43%) for NP Aerospace due to
increased shipments of body armor and military helmets. Sales for the
CompositAir business unit increased by $0.7 million (11%) due to higher
shipments of commercial aircraft seatbacks. Sales for the Commercial business
unit decreased by $0.2 million (6%) due primarily to lower sales of inground
lighting housings and pool filter tanks. Sales decreased by $2.0 million (11%)
at the Bingham business unit due to poor general economic conditions.

     Gross profit  margin  increased to 30.9% from 26.8% due primarily to higher
sales and the resulting  absorption of overhead  expenses for both the Aerospace
and NP Aerospace business units. Gross profit margin from CompositAir  increased
to 17.1% from 16.3% due mainly to higher  sales  offset by higher  labor  costs.
Gross profit margin from  Commercial  decreased to 20.4% from 23.6% due to lower
sales and the  resulting  underabsorption  of overhead  expenses.  Gross  profit
margin from Bingham  increased to 25.7% from 24.5% due to higher  selling prices
and lower material costs.

     In 2002,  selling,  general and administrative  expenses were $11.2 million
(19.0% of sales)  compared  with  $10.7  million  (21.9% of sales) in 2001.  The
increase  is due  primarily  to the legal and  settlement  costs  related to the
Valley Forge Historical Park litigation.

     In 2001,  the Company  recorded a charge of  approximately  $5.4 million to
write-down  long-lived  assets  associated with the Bingham  operating  segment.
Included in the $5.4 million charge was approximately $1.3 million write-down of
fixed assets related to the seven manufacturing and administrative  locations of
Bingham  that were  closed or were in the  process  of being  closed.  The fixed
assets were  written  down to their  estimated  fair value which was  determined
based on the proceeds  received and  estimated to be received  from the sales of
the respective facilities. The Company then determined that the estimated future
undiscounted  operating cash flows of the remaining Bingham operations were less
than the carrying amount of Bingham's remaining  long-lived assets. Based on its
evaluation,  the Company determined Bingham's long-lived assets, with a carrying
value of $10.7 million,  were impaired and wrote them down by approximately $4.0
million to their  estimated  fair value.  In 2002,  no  additional  charges were
recorded.

     In 2002, net interest  expense  decreased to $0.3 million from $0.5 million
due to lower debt and lower  effective  interest  rates.

                                       22
<PAGE>

Reinhold Industries, Inc.

     Income  (loss)  before  income  taxes was $6.7 million or 11.3% of sales in
2002,  ($3.5)  million  or -7.1% of sales in 2001 and $5.8  million  or 11.8% of
sales  in 2000.  Income  before  income  taxes at the  Aerospace  business  unit
increased to $6.8 million  (35.3% of sales) in 2002 from $3.1 million  (27.1% of
sales) in 2001 due to higher  sales and the  resulting  absorption  of  overhead
expenses.  Income before income taxes for CompositAir  increased to $0.5 million
in 2002 (6.9% of sales) from $0.2  million in 2001 (3.0% of sales) due to higher
sales of  commercial  aircraft  seatbacks.  Income  before  income taxes for the
Commercial  business  unit  decreased to $0.2 million  (7.7% of sales) from $0.3
million (10.1% of sales) due to lower sales of in-ground  lighting  housings.  A
loss before  income taxes of $0.7 million  (-4.4% of sales) in 2002 was realized
at  Bingham  compared  to a loss of $6.6  million  (-34.6% of sales) in 2001 due
mainly to the $5.4 million  write-down  of  long-lived  assets  offset by higher
selling  prices.  Income before income taxes for NP Aerospace  increased to $1.6
million in 2002 (12.1% of sales)  from $0.4  million in 2001 (3.9% of sales) due
mainly to higher sales of body armor and military helmets.

     A tax  provision  of $2.5  million  was  recorded in 2002  compared  with a
provision of $0.3 million in 2001 due to higher income before income taxes.  The
effective tax rate in 2002 was 37.6% as compared to 7.5% in 2001.  The effective
tax rate in the United  Kingdom  was 30%. At  December  31,  2002 and 2001,  the
Company had net operating loss  carryforwards for Federal income tax purposes of
approximately  $21.2 million and $25.6  million,  respectively.  At December 31,
2001,  the  Company's  net  operating  loss  carryforwards  for State income tax
purposes had expired.  The Company may utilize the Federal net operating  losses
by carrying  them  forward to offset  future  Federal  taxable  income,  if any,
through  2011.  As more  fully  described  in note 3 to  notes  to  consolidated
financial  statements,  benefits realized from loss carryforwards and deductible
temporary  differences  arising prior to the  reorganization  have been recorded
directly to additional  paid-in capital.  Such benefits amounted to $1.8 million
in 2002 and zero in 2001.

     Net  income  totaled  $4.2  million,  or $1.41  per  diluted  share in 2002
compared with a net loss of $3.7 million, or ($1.27) per diluted share in 2001.

Liquidity and Capital Resources As of December 31, 2002, working capital was
$10.5 million, down $0.5 million from December 31, 2001. Cash and cash
equivalents of $3.0 million held at December 31, 2002 were $1.1 million lower
than cash and cash equivalents held at December 31, 2001 due primarily to $6.4
million repayment of debt and $2.5 million of capital expenditures offset by
$7.3 million of cash provided by operating activities.

     Net cash provided by operating  activities amounted to $7.3 million in 2002
and $3.5 million in 2001.  The increase over the prior period  relates mainly to
the  increased  profitability  of  the  Company.
     Net  cash  used in  investing  activities  in 2002  totaled  $2.4  million,
consisting  primarily  of  capital  expenditures.  Net  cash  used in  investing
activities in 2001 totaled $3.8 million,  which  consisted of the acquisition of
the Thermal  Insulation  business unit ($2.6  million) and capital  expenditures
($2.4  million)  offset by the  proceeds  on the sale of  various  assets  ($1.3
million).

     Net  cash  used in  financing  activities  in 2002  totaled  $6.4  million,
consisting of the  borrowings  against the LaSalle line of credit ($7.2 million)
less subsequent  repayments ($4.2 million) and the payoff of the Bank of America
loans  ($9.3  million)  and  capital  leases  ($0.1  million).  Net cash used in
financing  activities in 2001 totaled $2.3 million,  consisting of the repayment
of the Bank of America loans.

Acquired Business On April 20, 2001, Reinhold, purchased certain assets and
assumed certain liabilities of Edler Industries, Inc. ("Edler"). Edler is a
manufacturer of structural and ablative composite components mainly for
subcontractors of the U.S. defense industry. The operation was renamed the
"Thermal Insulation" division of Reinhold. The purchase price was $2.6 million
consisting of $1.6 million cash paid at closing and a $1.0 million, 8% interest
bearing note paid in September 2001. Effective January 1, 2003, Reinhold
consolidated the Thermal Insulation division with the Aerospace division.
Accordingly, all financial data and business segment commentary in this report
reflects a retroactive consolidation and restatement of the the Thermal
Insulation and Aerospace divisional results under the Aerospace mantle.

                                       23
<PAGE>

Reinhold Industries, Inc.

Management's Discussion and Analysis (cont'd)

     Change in Control On May 21, 1999,  pursuant to a Stock Purchase  Agreement
dated May 18, 1999,  between Keene  Creditors'  Trust,  the holder of all of the
outstanding  shares  of the Class B Common  Stock of the  Company  and  Reinhold
Enterprises,  Inc., a newly formed Indiana corporation  ("REI"),  the Creditors'
Trust  sold  997,475  shares  of Class B  Common  Stock  owned by it to  certain
purchasers  designated  by REI  (the  "Purchasers").  These  shares  represented
approximately 49.9% of the outstanding common stock of the Company.


     The sale of shares  to the  Purchasers  constitutes  an  "ownership  shift"
within the  meaning of Section  382 of the  Internal  Revenue  Code of 1986,  as
amended.  Section 382 limits the utilization of net operating loss carryforwards
upon certain  accumulations of stock of corporate issuers.  Additional purchases
of shares by the  Purchasers  prior to May 22,  2002,  or purchases of shares by
other shareholders that result in those shareholders  owning more than 5% of the
outstanding  Common Stock of the Company  prior to May 22,  2002,  may result in
significant  limitations  on the Company's  ability to utilize its net operating
loss carryforwards to offset its future income for federal income tax purposes.

     Between May 21, 1999 and May 22, 2002,  no  additional  purchases of shares
were made by the  Purchasers  or by other  shareholders  that  resulted in those
shareholders owning more than 5% of the outstanding Common Stock of the Company.

Recent Accounting Pronouncements In June 2001, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards ("SFAS") No.
141 "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets".
SFAS No. 141 addresses financial accounting and reporting for business
combination and requires all business combinations to be accounted for using the
purchase method. SFAS No. 141 is effective for any business combinations
initiated after June 30, 2001. SFAS No. 142, effective for the Company January
1, 2002, addresses the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. Goodwill and other
intangible assets with indefinite lives will no longer be amortized but instead
subject to impairment tests at least annually. The Company has determined that
the impact of adopting SFAS No. 142 had a favorable impact of $202,000 (net of
related tax effects) to its results of operations in 2002.

     In November 2002, the Financial  Accounting  Standards  Board (FASB) issued
Interpretation  No. 45 "Guarantor's  Accounting and Disclosure  Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
FIN 45 requires that a liability be recognized at fair value at the inception of
certain guarantees for the obligations undertaken by the guarantor.  FIN 45 also
requires additional disclosures for certain guarantee contracts.  The disclosure
provisions  of FIN 45 were  effective  for  financial  state-ments  ending after
December 15, 2002, while the recognition and initial measurement provisions were
applicable  on a  prospective  basis to  guarantees  issued  or  modified  after
December  31,  2002.  The  adoption of FIN 45 was not material to our results of
operations or financial condition.

     In May 2003, the FASB issued  Statement of Financial  Accounting  Standards
No.  150  (FAS  150),   "Accounting  for  Certain  Financial   Instruments  with
Characteristics  of Both  Liabilities  and Equity." This  statement  establishes
standards  for  how  an  issuer   classifies  and  measures  certain   financial
instruments with  characteristics of both liabilities and equity. This statement
requires  an issuer to  classify a  financial  instrument  issued in the form of
shares that are  mandatorily  redeemable--  i.e.,  that embody an  unconditional
obligation  requiring the issuer to redeem them by transferring  its assets at a
specified or determinable date--as a liability.  This Statement is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
effective at the beginning of the first interim period  beginning after June 15,
2003.  The  adoption  of this  statement  did not have a material  impact on the
Company's consolidated financial position, liquidity, or results of operations.

     In  January  2003,  the  FASB  issued   Interpretation  No.  46  (FIN  46),
"Consolidation of Variable Interest Entities,  an interpretation of ARB No. 51,"
which expands upon and strengthens  existing accounting guidance concerning when
a company should include in its financial statements the assets, liabilities and
activities  of  another  entity.  Prior to the  issuance  of FIN 46,  a  company
generally included another entity in its consolidated  financial statements only
if it

                                       24
<PAGE>

Reinhold Industries, Inc.

controlled the entity through voting interests. FIN 46 now requires a
variable interest entity, as defined in FIN 46, to be consolidated
by a company if that company is subject to a majority of the risk of loss from
the variable interest entity's activities or entitled to receive a majority of
the entity's residual returns or both. FIN 46 also requires disclosures about
variable interest entities that the company is not required to consolidate but
in which it has a significant variable interest. The consolidation requirements
of FIN 46 apply immediately to variable interest entities created after January
31, 2003, and to older entities in the first fiscal year or interim period
beginning after June 15, 2003. Certain of the disclosure requirements apply to
all financial statements issued after January 31, 2003, regardless of when the
variable interest entity was established. As of December 31, 2003, we have
adopted FIN 46, and the effects of adoption were not material to our financial
position, results of operations or cash flows.

     In December 2003, the FASB revised FIN 46 (FIN 46R), delaying the effective
dates for certain  entities  created  before  February 1, 2003, and making other
amendments  to clarify  application  of the  guidance.  For  potential  variable
interest entities other than any Special Purpose Entities (SPEs), FIN 46R is now
required to be applied no later than the end of the first fiscal year or interim
reporting period ending after March 15, 2004. The original guidance under FIN 46
is still applicable,  however, for all SPEs created prior to February 1, 2003 at
the end of the first interim or annual  reporting  period ending after  December
15,  2003.  FIN  46  may  be  applied  prospectively  with  a  cumulative-effect
adjustment as of the date it is first applied, or by restating previously issued
financial statements with a cumulative-effect  adjustment as of the beginning of
the  first  year  restated.  FIN 46R also  requires  certain  disclosures  of an
entity's relationship with variable interest entities. We do not expect that the
adoption  of FIN 46R as of January  1, 2004 will have a  material  impact on our
results of operations, financial position, or cash flows.

     In  December  2003,  the  FASB  revised   Statement  No.  132  (FAS  132R),
"Employers'  Disclosure about Pensions and Other  Postretirement  Benefits." FAS
132R expands employers'  disclosure  requirements for pension and postretirement
benefits  to  enhance  information  about  plan  assets,  obligations,   benefit
payments,  contributions  and net  benefit  cost.  FAS 132R does not  change the
accounting  requirements for pensions and other  postretirement  benefits.  This
statement is effective for fiscal years ending after  December 15, 2003,  and we
have  included  these  disclosures  in  note  7 to  our  consolidated  financial
statements.

Legal Proceedings The Company has been informed that it may be a potentially
responsible party ("PRP") under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), with respect to
certain environmental liabilities arising at the Valley Forge National
Historical Park Site ("Valley Forge Site") located in Montgomery County,
Pennsylvania and at a site formerly known as the Casmalia Resources Hazardous
Waste Management Facility, located in Santa Barbara County, California
("Casmalia Site"). CERCLA imposes liability for the costs of responding to a
release or threatened release of "hazardous substances" into the environment.
CERCLA liability is imposed without regard to fault. PRPs under CERCLA include
current owners and operators of the site, owners and operators at the time of
disposal, as well as persons who arranged for disposal or treatment of hazardous
substances sent to the site, or persons who accepted hazardous substances for
transport to the site. Because PRPs' CERCLA liability to the government is joint
and several, a PRP may be required to pay more than its proportional share of
such costs. Liability among PRPs, however, is subject to equitable allocation
through contribution actions.

     On June 16, 2000 the U.S.  Department of Justice  notified the Company that
it may be a PRP with respect to the Valley  Forge Site and demanded  payment for
past costs incurred by the United States in connection with the site,  which the
Department  of Justice  estimated at  $1,753,726  incurred by the National  Park
Service  ("NPS") as of May 31, 2000 and $616,878  incurred by the United  States
Environmental  Protection  Agency  ("EPA") as of November 30,  1999.  Payment of
these past  costs  would not  release  the  Company  from  liability  for future
response costs.

     Management believes that in or about 1977, the Company's predecessor, Keene
Corporation  ("Keene"),  sold to the U.S.  Department  of Interior  certain real
property and improvements now located within the Valley Forge Site. Prior to the
sale, Keene

                                       25

<PAGE>

Reinhold Industries, Inc.

Management's Discussion and Analysis (cont'd)


operated a manufacturing facility on the real property and may have
used friable asbestos, the substance which gives rise to the claim at the Valley
Forge Site.

     On December 30, 2002,  the United  States  District  Court for the Southern
District of New York  approved and entered a Consent  Decree  agreed upon by the
United States and the Company  settling the claims asserted by the National Park
Service against the Company.  The United States and the Company  stipulated that
the EPA will not seek  reimbursement  of its response  costs with respect to the
Valley Forge Site and that the Company's claim for a declaratory  judgement with
respect to those costs may be dismissed with prejudice.

     Under the terms of the Consent  Decree,  the Company was  obligated  to pay
$500,000 to the Department of the Interior.  In return, the Company has received
from the  United  States a  covenant  not to sue,  subject  to  certain  limited
exceptions,  for claims under CERCLA  Sections 106, 107 and 113 and RCRA Section
7003  relating to the Site.  The payment to the  Department  of the Interior was
made on January 23, 2003.

     In  September   2002,  in  accordance  with  SFAS  No.  5,  Accounting  for
Contingencies,  the Company had recorded a reserve of $500,000 for the estimated
cost to conclude this matter. These costs were included in the December 31, 2002
balance sheet as a component of "Accrued Expenses."

     Pursuant to the Consent Decree and CERCLA Section 113(f)(2),  the Company's
settlement with the United States bars any other party from asserting claims for
contribution  for any response  costs  incurred with respect to the Valley Forge
Site by the United States, any State or other governmental  entity, or any other
party.

     With respect to the Casmalia Site, on August 11, 2000, the EPA notified the
Company that it is a PRP by virtue of waste materials deposited at the site. The
EPA has designated  the Company as a "de minimis" waste  generator at this site,
based on the amount of waste at the Casmalia Site attributed to the Company. The
Company is not currently a party to any litigation concerning the Casmalia Site,
and based on currently  available  data, the Company  believes that the Casmalia
Site  is not  likely  to  have  a  material  adverse  impact  on  the  Company's
consolidated financial position or results of operations.

     The Company is involved in various other claims and legal  actions  arising
in the ordinary course of business.  In the opinion of management,  the ultimate
disposition  of these  matters will not have a material  effect on the Company's
financial position, results of operations, or liquidity.

Forward Looking Statements This Annual Report contains statements which, to the
extent that they are not recitations of historical fact, constitute "forward
looking statements" within the meaning of Section 27A of the Securities Act of
1933, as amended (the "Securities Act") and Section 21E of the Securities
Exchange Act of 1934 (the "Exchange Act"). The words "estimate," "anticipate,"
"project," "intend," "expect," and similar expressions are intended to identify
forward looking statements. All forward looking statements involve risks and
uncertainties, including, without limitation, statements and assumptions with
respect to future revenues, program performance and cash flow. Readers are
cautioned not to place undue reliance on these forward looking statements which
speak only as of the date of this Annual Report. The Company does not undertake
any obligation to publicly release any revisions to these forward looking
statements to reflect events, circumstances or changes in expectations after the
date of this Annual Report, or to reflect the occurrence of unanticipated
events. The forward looking statements in this document are intended to be
subject to safe harbor protection provided by Sections 27A of the Securities Act
and 21E of the Exchange Act.

                                       26

<PAGE>

Reinhold Industries, Inc.
Management's Discussion and Analysis (cont'd)


Consolidated Statements of Operations


(Amounts in thousands, except for                       YEARS ENDED DECEMBER 31,
  per share data)                                       2003      2002     2001
--------------------------------------------------------------------------------
Net sales                                           $ 67,001    59,042   48,947
Cost of sales                                         45,724    40,821   35,807
--------------------------------------------------------------------------------
Gross profit                                          21,277    18,221   13,140
Selling, general and administrative expenses          12,189    11,243   10,710
Write-down of long-lived assets                            -         -    5,351
--------------------------------------------------------------------------------
Operating income (loss)                                9,088     6,978   (2,921)
Interest income (expense), net                             9      (320)    (532)
--------------------------------------------------------------------------------
Income (loss) before income taxes                      9,097     6,658   (3,453)
Income taxes                                           3,373     2,506      270
--------------------------------------------------------------------------------
Net income (loss)                                    $ 5,724     4,152   (3,723)


Earnings (loss) per share:
Basic                                                 $ 1.95      1.42    (1.27)
Diluted                                               $ 1.83      1.41    (1.27)
--------------------------------------------------------------------------------
Weighted average common shares outstanding:
Basic                                                  2,929     2,925    2,923
Diluted                                                3,122     2,948    2,923

See accompanying notes to consolidated financial statements.



                                       27

<PAGE>

Reinhold Industries, Inc.


Consolidated Balance Sheets


(Amounts in thousands, except
  share data)                            December 31, 2003    December 31, 2002
--------------------------------------------------------------------------------
Assets
Current assets:
  Cash and cash equivalents                        $ 6,172                3,037
  Accounts receivable (less allowance
  for doubtful accounts of $53 and $73,
  respectively)                                      8,584                9,977
  Inventories                                        7,472                5,938
  Prepaid pension                                    2,006                1,685
  Other prepaid expenses and current assets          1,018                  670
--------------------------------------------------------------------------------
 Total current assets                               25,252               21,307

Property and equipment, at cost                     22,478               19,742
  Less accumulated depreciation and
  amortization                                       9,814                8,435
--------------------------------------------------------------------------------
Net property and equipment                          12,664               11,307

Goodwill                                             3,786                3,786
Deferred taxes                                       1,915                    -
Other assets                                           173                  210
--------------------------------------------------------------------------------
                                                  $ 43,790               36,610
--------------------------------------------------------------------------------


Liabilities and stockholders' equity
Current liabilities:
  Accounts payable                                  $3,414                4,127
  Accrued expenses                                   3,881                3,536
  Current installments of long term debt               102                  149
  Borrowings under line of credit                        -                3,000
--------------------------------------------------------------------------------
 Total current liabilities                           7,397               10,812

Long-term debt, less current installments               30                  124
Long-term pension liability                          6,978                5,596
Other long-term liabilities                            319                  276
Commitments and contingencies                            -                    -

Stockholders' equity:
  Preferred stock - Authorized: 250,000 shares
    Issued and outstanding: None                         -                    -
  Common stock, $0.01 par value:
    Authorized: 4,750,000 shares
    Issued and outstanding: 2,935,201 and
    2,659,812, respectively                             29                   27
  Additional paid-in capital                        28,303               21,213
  Retained earnings                                  7,721                4,873
  Accumulated other comprehensive loss              (6,987)              (6,311)
--------------------------------------------------------------------------------
Net stockholders' equity                            29,066               19,802
--------------------------------------------------------------------------------
                                                  $ 43,790               36,610
--------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

                                       28

<PAGE>

Reinhold Industries, Inc.


Consolidated Statements of Cash Flows


                                                       YEARS ENDED DECEMBER 31,
(Amounts in thousands)                                  2003      2002     2001
--------------------------------------------------------------------------------
Cash flows from operating activities:
  Net income (loss)                                  $ 5,724     4,152   (3,723)
  Adjustments to reconcile net income (loss)
  to net cash provided by operating activities
  (net of effects of acquisition):
    Depreciation and amortization                      1,680     1,617    1,658
    Additions to paid-in capital resulting from
    tax benefits                                       4,138     1,756        -
    Write-down of long-lived assets                        -         -    5,351
    Non-cash compensation                                 54        18        -
    Gain on sale of assets                              (117)        -        -
    Changes in assets and liabilities:
      Accounts receivable, net                         1,393    (4,381)   1,639
      Inventories                                     (1,534)      337       18
      Note receivable                                      -         -    1,000
      Prepaid expenses and other current assets         (344)       20     (446)
      Accounts payable                                  (713)    1,738     (116)
      Accrued expenses                                   345     1,973   (1,891)
      Deferred tax assets                             (2,240)        -        -
      Other, net                                          58        28       33
--------------------------------------------------------------------------------
Net cash provided by operating activities              8,444     7,258    3,523

Cash flows used in investing activities:
  Acquisitions                                             -         -   (2,645)
  Capital expenditures                                (3,119)   (2,465)  (2,377)
  Proceeds from sale of assets                           516       105    1,256
--------------------------------------------------------------------------------
Net cash used in investing activities                 (2,603)   (2,360)  (3,766)

Cash flows used in financing activities:
  Repayment of long term debt                           (141)   (9,425)  (2,327)
  Borrowings against line of credit                        -     7,221        -
  Repayments on line of credit                        (3,000)   (4,221)       -
  Proceeds from exercise of stock options                 33         -        -
  Dividends paid                                          (9)       (6)      (9)
--------------------------------------------------------------------------------
Net cash used in financing activities                 (3,117)   (6,431)  (2,336)

Effect of exchange rate changes on cash                  411       465     (437)
--------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents   3,135    (1,068)  (3,016)
--------------------------------------------------------------------------------

Cash and cash equivalents at beginning of year         3,037     4,105    7,121
--------------------------------------------------------------------------------

Cash and cash equivalents at end of year             $ 6,172     3,037    4,105
--------------------------------------------------------------------------------

Supplementary disclosures of cash flow
information -
  Cash paid during the year for:
    Income taxes                                     $ 1,136       352      394
    Interest                                            $ 41       272      867
--------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.

                                       29


<PAGE>

Reinhold Industries, Inc.


CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY AND COMPREHENSIVE INCOME

<TABLE>
<CAPTION>


                                                                                   Common stock
                                                                                 $0.01 par value
                                                               Preferred      Class A
(Amounts in thousands, except share data)                         Shares      Shares        Amount
--------------------------------------------------------------------------------------------------
<S>                                                                    <C>  <C>                <C>
Balance, December 31, 2000                                             -    2,198,058          $22
--------------------------------------------------------------------------------------------------
Net loss                                                                            -            -

10% stock dividend                                                            218,664            2

Increase in additional pension liability in excess of
    unrecognized prior service cost                                                 -            -

Foreign currency translation adjustment                                             -            -
--------------------------------------------------------------------------------------------------
Comprehensive loss
--------------------------------------------------------------------------------------------------
Balance, December 31, 2001                                             -    2,416,722          $24
--------------------------------------------------------------------------------------------------
Net income                                                                          -            -

10% stock dividend                                                            240,933            3

Shares issued in conjunction with
  Director's Deferred Stock Plan                                                2,157            -

Additions to paid-in capital resulting
  from tax benefits                                                                 -            -

Increase in additional pension liability in excess of
    unrecognized prior service cost                                                 -            -

Foreign currency translation adjustment                                             -            -
--------------------------------------------------------------------------------------------------
Comprehensive income
--------------------------------------------------------------------------------------------------
Balance, December 31, 2002                                             -    2,659,812          $27
--------------------------------------------------------------------------------------------------
Net income                                                                          -            -

10% stock dividend                                                            265,418            2

Shares issued in conjunction with Directors Deferred
    Stock Plan                                                                  4,248            -

Stock options exercised                                                         5,723            -

Additions to paid-in capital resulting
    from tax benefits                                                               -            -

Increase in additional pension liability in excess of
    unrecognized prior service cost                                                 -            -

Foreign currency translation adjustment                                             -            -
--------------------------------------------------------------------------------------------------
Comprehensive income
--------------------------------------------------------------------------------------------------
Balance, December 31, 2003                                             -    2,935,201          $29


<FN>

See accompanying notes to consolidated financial statements.
</FN>
</TABLE>


                                       30


<PAGE>
Reinhold Industries, Inc.

<TABLE>
<CAPTION>



                                                                   Accumulated
                                                           other comprehensive  Total comprehensive
             Additional paid-in capital  Retained earnings                loss         income (loss)    Net stockholders' equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>                 <C>               <C>                  <C>                          <C>
                                $15,931             $7,972            $(1,020)                                          $22,905
------------------------------------------------------------------------------------------------------------------------------------
                                      -             (3,723)                 -              $(3,723)                      (3,723)

                                  1,583             (1,594)                 -                    -                           (9)


                                      -                  -             (3,659)              (3,659)                      (3,659)

                                      -                  -               (437)                (437)                        (437)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                           $(3,723)
------------------------------------------------------------------------------------------------------------------------------------
                                $17,514             $2,655            $(5,116)                                          $15,077
------------------------------------------------------------------------------------------------------------------------------------
                                      -              4,152                  -                4,152                        4,152

                                  1,925             (1,934)                 -                    -                           (6)


                                     18                  -                  -                    -                           18


                                  1,756                  -                  -                    -                        1,756


                                      -                  -             (1,660)              (1,660)                      (1,660)

                                      -                  -                465                  465                          465
------------------------------------------------------------------------------------------------------------------------------------
                                                                                           $ 2,957
------------------------------------------------------------------------------------------------------------------------------------
                                $21,213             $4,873            $(6,311)                                          $19,802
------------------------------------------------------------------------------------------------------------------------------------
                                      -              5,724                  -                5,724                        5,724

                                  2,865             (2,876)                 -                    -                           (9)


                                     54                  -                  -                    -                           54

                                     33                  -                  -                    -                           33


                                  4,138                  -                  -                    -                        4,138


                                      -                  -             (1,403)              (1,403)                      (1,403)

                                      -                  -                727                  727                          727
------------------------------------------------------------------------------------------------------------------------------------
                                                                                           $ 5,048
------------------------------------------------------------------------------------------------------------------------------------
                                $28,303             $7,721            $(6,987)                                          $29,066



</TABLE>

                                       31

<PAGE>

Reinhold Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003


1 Organization
Description of Business Reinhold Industries, Inc. (Reinhold or the Company) is a
manufacturer of advanced custom composite components, sheet molding compounds
and rubber rollers for a variety of applications in the United States and
Europe. Reinhold derives revenues from the defense, aerospace, printing and
other commercial industries.

     Chapter  11  Reorganization  Reinhold  was  acquired  by Keene  Corporation
(Keene) in 1984 and  operated as a division of Keene until 1990,  when  Reinhold
was incorporated in the state of Delaware as a wholly-owned subsidiary of Keene.

     On December 3, 1993,  Keene filed a  voluntary  petition  for relief  under
Chapter 11 of Title 11 of the United  States Code (the  Bankruptcy  Code) in the
United States  Bankruptcy Court  (Bankruptcy  Court).  Keene's Chapter 11 filing
came as a direct result of the demands on Keene of thousands of asbestos-related
lawsuits which named Keene as a party.

     On July 31,  1996  (the  Effective  Date),  Keene  consummated  its Plan of
Reorganization under the Bankruptcy Code (the Plan) and emerged from bankruptcy.
On the  Effective  Date,  Reinhold  was merged into and with  Keene,  with Keene
becoming the surviving  corporation.  Pursuant to the merger,  all of the issued
and outstanding capital stock of Reinhold was canceled.  Keene, as the surviving
corporation of the merger, was renamed Reinhold.

     On the Effective Date, Reinhold issued 1,998,956 shares of Common Stock, of
which  1,020,000  of  Class B Common  Stock  was  issued  to the  Trustees  of a
Creditors'  Trust (the Creditors'  Trust) set up to administer  Keene's asbestos
claims.  The  remaining  978,956  shares of Class A Common  Stock were issued to
Keene's  former  stockholders  as of record date,  June 30, 1996. All of Keene's
previous outstanding Common Stock was canceled.

     The payments and distributions made to the Creditors' Trust pursuant to the
terms and conditions of the Plan were made in complete satisfaction, release and
discharge  of  all  claims  and  demands  against,  liabilities  of,  liens  on,
obligations of and interest in Reinhold (Reorganized Company).

     On May 21,  1999,  pursuant to a Stock  Purchase  Agreement,  dated May 18,
1999,  between the Creditors' Trust, the holder of all of the outstanding shares
of the Class B Common  Stock of the Company and  Reinhold  Enterprises,  Inc., a
newly formed Indiana  corporation  ("REI"),  the  Creditors'  Trust sold 997,475
shares of Class B Common Stock owned by it to certain  purchasers  designated by
REI  (the  "Purchasers").  These  shares  represent  approximately  49.9% of the
outstanding common stock of the Company.

2 Summary of Significant Accounting Policies and Practices
Critical Accounting Policies The Company's consolidated financial statements and
related public financial information are based on the application of generally
accepted accounting principles ("GAAP"). GAAP requires the use of estimates,
assumptions, judgments and subjective interpretations of accounting principles
that have an impact on the assets, liabilities, revenue and expense amounts
reported. These estimates can also affect supplemental information contained in
the external disclosures of the Company including information regarding
contingencies, risk and financial condition. The Company believes its use of
estimates and underlying accounting assumptions adhere to generally accepted
accounting principles and are consistently and conservatively applied.
Valuations based on estimates are reviewed for reasonableness and conservatism
on a consistent basis throughout the Company. Primary areas where financial
information of the Company is subject to the use of estimates, assumptions and
the application of judgment include revenues, receivables, inventories,
acquisitions, valuation of long-lived and intangible assets, pension and
post-retirement benefits, the realizability of deferred tax assets, and foreign
exchange translation. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under the
circumstances. Actual results may differ materially from these estimates under
different assumptions or conditions.

     Revenue  Recognition  and  Allowances  for  Doubtful  Accounts  The Company
recognizes  revenue when title and risk of  ownership  have passed to the buyer.
Allowances  for  doubtful  accounts are  estimated  based on estimates of losses
related to  customer  receivable  balances.  Estimates  are  developed  by using
standard quantitative measures based on historical losses, adjusting for current
economic  conditions and, in some cases,  evaluating  specific customer accounts
for risk of loss. The establishment of reserves requires the use of judgment and
assumptions  regarding the potential for losses on receivable  balances.  Though
the Company  considers these balances  adequate and proper,  changes in economic
conditions  in  specific  markets  in which the  Company  operates  could have a
material effect on reserve balances required.

                                       32

<PAGE>

Reinhold Industries, Inc.


     Inventories We value our  inventories  at lower of cost or market.  Cost is
determined by the first-in,  first-out (FIFO) method,  including material, labor
and factory  overhead.  The  Company  writes down its  inventory  for  estimated
obsolescence  equal to the cost of the inventory.  Product  obsolescence  may be
caused by shelf-life  expiration,  discontinuance of a product line, replacement
products in the marketplace or other competitive situations.

     Fair  Value  of  Assets  Acquired  and  Liabilities   Assumed  in  Purchase
Combinations The purchase  combinations  carried out by us require management to
estimate the fair value of the assets  acquired and  liabilities  assumed in the
combinations.  These  estimates of fair value are based on our business plan for
the entities acquired  including  planned  redundancies,  restructuring,  use of
assets  acquired and  assumptions  as to the ultimate  resolution of obligations
assumed  for which no future  benefit  will be  received.  Should  actual use of
assets or resolution of obligations differ from our estimates,  revisions to the
estimated  fair values would be required.  If a change in estimate  occurs after
one year of the  acquisition,  the change would be recorded in our  statement of
operations.

     Pensions  and  Post-Retirement  Benefits  The  valuation  of the  Company's
pension and other  post-retirement  plans  requires the use of  assumptions  and
estimates  that  are  used to  develop  actuarial  valuations  of  expenses  and
assets/liabilities.   These  assumptions  include  discount  rates,   investment
returns,  projected  salary  increases and benefits,  and mortality  rates.  The
actuarial  assumptions  used in the  Company's  pension  reporting  are reviewed
annually and compared  with external  benchmarks to assure that they  accurately
account for our future pension  obligations.  Changes in assumptions  and future
investment  returns could  potentially  have a material  impact on the Company's
pension expenses and related funding  requirements.

     Valuation of Long-lived and Intangible  Assets In accordance  with SFAS No.
142 "Goodwill and Other Intangible Assets" and SFAS No. 144, "Accounting for the
Impairment  or  Disposal  of  Long-lived  Assets,"  we assess the fair value and
recoverability of our long-lived assets,  including goodwill annually,  whenever
events and  circumstances  indicate  the  carrying  value of an asset may not be
recoverable from estimated future cash flows expected to result from its use and
eventual  disposition.  In doing so, we make assumptions and estimates regarding
future cash flows and other factors to make our determination. The fair value of
our long-lived assets and goodwill is dependent upon the forecasted  performance
of our business and the overall economic environment. When we determine that the
carrying value of our long-lived assets and goodwill may not be recoverable,  we
measure any impairment based upon a forecasted  discounted cash flow method.  If
these forecasts are not met, we may have to record additional impairment charges
not previously recognized.

     During  2001,  we performed an  assessment  of the goodwill  related to our
acquisition of Bingham, pursuant to SFAS No. 121, "Accounting for the Impairment
of Long-lived  Assets and for Long-lived Assets to be Disposed Of." As a result,
we recorded a charge of $4.0 million  during the third quarter of 2001 to reduce
goodwill  associated  with the purchase of Bingham.  The charge was based on the
amount by which the carrying amount of these assets exceeded their fair value.

     Income Taxes We recognize  deferred tax assets and liabilities based on the
differences  between the financial  statement carrying amounts and the tax bases
of assets and  liabilities.  We  regularly  review our  deferred  tax assets for
recoverability and establish a valuation allowance based upon historical losses,
projected  future  taxable  income and the expected  timing of the  reversals of
existing temporary differences.

     Cumulative  Foreign  Exchange  Translation   Accounting  In  preparing  our
consolidated  financial  statements,  we are required to translate the financial
statements of NP Aerospace from the currency in which they keep their accounting
records,  the British Pound Sterling,  into United States dollars.  This process
results in  exchange  gains and  losses  which are  either  included  within the
statement  of  operations  or as a  separate  part of our net  equity  under the
caption "foreign currency translation adjustment."

     Under the relevant accounting guidance,  the treatment of these translation
gains or losses is dependent upon manage-ment's  determination of the functional
currency  of NP  Aerospace.  Generally,  the  currency  in which the  subsidiary
transacts a majority of its transactions, including billings, financing, payroll
and other  expenditures  would be  considered  the  functional  currency but any
dependency  upon the parent and the nature of the  subsidiary's  operations must
also be considered.

                                       33

<PAGE>

Reinhold Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)

     If any subsidiary's functional currency is deemed to be the local currency,
then any gain or loss associated with the Reinhold  Industries,  Inc.translation
of that subsidiary's  financial statements is included in cumulative translation
adjustments.  However,  if the  functional  currency  is deemed to be the United
States dollar then any gain or loss  associated  with the  translation  of these
financial statements would be included within our statement of operations.

     Based on our  assessment  of the factors  discussed  above,  we consider NP
Aerospace's  local  currency  to be the  functional  currency.  Accordingly,  we
recorded a foreign  currency  translation  gains of  approximately  $727,000 and
$465,000 that were included as part of "accumulated  other  comprehensive  loss"
within our balance sheet at December 31, 2003 and 2002, respectively.

     Environmental  Liabilities With respect to outstanding  actions that are in
preliminary  procedural  stages, as well as any actions that may be filed in the
future,  insufficient  information exists upon which judgments can be made as to
the  validity  or  ultimate  disposition  of such  actions,  thereby  making  it
difficult to reasonably  estimate what, if any, potential liability or costs may
be incurred.  Accordingly, no estimate of future liability has been included for
such claims. See note 9 of the accompanying  consolidated  financial  statements
for additional discussion of legal proceedings.

Principles of Consolidation The accompanying consolidated financial statements
include the accounts of Reinhold and its wholly-owned subsidiaries NP Aerospace
and Bingham. All material intercompany accounts and transactions have been
eliminated in consolidation.

Cash and Cash Equivalents The Company considers cash in banks, commercial paper,
demand notes, and similar short-term investments purchased with maturities of
less than three months as cash and cash equivalents for the purpose of the
statements of cash flows.

Cash and cash equivalents consist of the following (in thousands):

                                         December 31, 2003    December 31, 2002
--------------------------------------------------------------------------------
Cash in banks                                      $ 3,320                2,155
Money market funds                                   2,852                  882
--------------------------------------------------------------------------------
Total                                              $ 6,172                3,037
--------------------------------------------------------------------------------


Inventories Inventories are stated at the lower of cost or market on a first-in,
first-out (FIFO) basis. Inventoried costs relating to long-term contracts and
programs are stated at the actual production costs, including factory overhead,
initial tooling, and other related non-recurring costs incurred to date, reduced
by amounts related to revenue recognized on units delivered.The components of
inventory are as follows (in thousands):

                                         December 31, 2003    December 31, 2002
--------------------------------------------------------------------------------
Raw material                                       $ 5,236                4,625
Work-in-process                                      1,843                  874
Finished goods                                         393                  439
--------------------------------------------------------------------------------
Total                                              $ 7,472                5,938


     Accounting  for  Government  Contracts  Substantially  all of the Company's
government  contracts  are firm  fixed  price.  Sales  and cost of sales on such
contracts are recorded as units are delivered. Estimates of cost to complete are
reviewed and revised periodically  throughout the contract term, and adjustments
to profit resulting from such revisions are recorded in the accounting period in
which the revisions  are made.  Losses on contracts are recorded in full as they
are identified.

     Amounts billed to contractors of the U.S.  Government  included in accounts
receivable  at  December  31,  2003 and 2002  were  $1,733,000  and  $2,218,000,
respectively.

                                       34
<PAGE>

Reinhold Industries, Inc.


Property and Equipment The Company depreciates property and equipment
principally on a straight-line basis based over estimated useful lives.
Leasehold improvements are amortized straight-line over the shorter of the lease
term or estimated useful life of the asset.

Property and equipment, at cost, consists of the following (in thousands):


                         Useful life    December 31, 2003     December 31, 2002
--------------------------------------------------------------------------------
Land                               -                $ 500                   635
Buildings                10-40 years                1,905                 2,068
Leasehold improvements    5-15 years                4,535                 2,732
Machinery and equipment   5-25 years               13,331                11,110
Furniture and fixtures    3-10 years                1,660                 1,374
Construction in process            -                  547                 1,823
--------------------------------------------------------------------------------
                                                   22,478                19,742
Less accumulated depreciation
  and amortization                                  9,814                 8,435
--------------------------------------------------------------------------------
                                                 $ 12,664                11,307
--------------------------------------------------------------------------------


     When  property  is sold or  otherwise  disposed  of,  the  asset  cost  and
accumulated depreciation are removed from the accounts and any resulting gain or
loss is included  in the  statement  of  earnings.

     Maintenance  and  repairs  are  expensed as  incurred.  Improvements  which
significantly increase the useful life of the asset are capitalized.

Goodwill Prior to January 1, 2002, costs in excess of fair value of net assets
of acquired companies (goodwill) was amortized on a straight-line basis over 10
- 40 years. The gross amount of goodwill and related accumulated amortization at
both December 31, 2003 and 2002 amounted to $8,921,000 and $5,135,000,
respectively.

     In June 2001, the Financial  Accounting Standards Board issued Statement of
Financial  Accounting  Standards ("SFAS") No. 142 "Goodwill and Other Intangible
Assets." SFAS No. 142, effective for the Company January 1, 2002,  addresses the
initial  recognition  and  measurement of goodwill and other  intangible  assets
acquired in a business  combination.  Goodwill and other intangible  assets with
indefinite lives are no longer amortized but instead subject to impairment tests
at least annually.  In September 2001, the Company determined that the estimated
future  undiscounted  operating cash flows of the remaining  Bingham  operations
were less than the carrying  amount of Bingham's  remaining  long-lived  assets.
Based on its evaluation,  the Company  determined  Bingham's  long-lived assets,
with a carrying  value of $10.7  million,  were  impaired and wrote them down by
$4.0  million to their  estimated  fair value.  This  write-down  was charged to
goodwill.  Fair value was based on estimated  discounted  future  operating cash
flows of the Bingham operations.

     In  accordance  with SFAS No. 142, the Company  performed the first part of
the  two-step  goodwill  impairment  test as of June 30,  2003.  For each of the
Company's  reporting  units  for  which  goodwill  was  recorded,   the  Company
determined that the fair value exceeded the carrying  amount.  As a result,  the
second step of the impairment test was not required.

                                       35
<PAGE>

Reinhold Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)

     Acquired Business On April 20, 2001, Reinhold, purchased certain assets and
assumed certain liabilities of Edler Reinhold Industries,  Inc.Industries,  Inc.
("Edler").  Edler  is  a  manufacturer  of  structural  and  ablative  composite
components mainly for subcontractors of the U.S. defense industry.  The purchase
price was $2.6  million  consisting  of $1.6  million cash paid at closing and a
$1.0 million,  8% interest  bearing note paid in September 2001. The acquisition
has been accounted for by the purchase method and,  accordingly,  the results of
operations have been included in the consolidated  financial statements from the
date of acquisition.  Prior to January 1, 2002, the cost in excess of fair value
of net  assets  was  amortized  on a  straight-line  basis  over  twenty  years.
Effective January 1, 2003, Reinhold consolidated the Thermal Insulation division
with the  Aerospace  division.  Accordingly,  all  financial  data and  business
segment  commentary  in this report  reflects a  retroactive  consolidation  and
restatement of the the Thermal Insulation and Aerospace divisional results under
the Aerospace mantle.

Income Taxes The Company accounts for income taxes under the asset and liability
method whereby deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date. As more fully described in note 3 of notes to
consolidated financial statements, income tax benefits realized from temporary
differences and operating loss carryforwards prior to the chapter 11
reorganization described above are recorded directly to additional paid-in
capital.

Earnings per common share The Company presents basic and diluted earnings per
share ("EPS"). Basic EPS includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution from
securities that could share in the earnings of the Company. Basic and diluted
EPS reflect changes in the number of shares resulting from the Company's 10%
stock dividends (see note 5).

The reconciliations of basic and diluted weighted average shares are as follows:

                                                        YEARS ENDED DECEMBER 31,
                                                        2003      2002     2001
--------------------------------------------------------------------------------
Net income (loss)                                    $ 5,724     4,152   (3,723)
--------------------------------------------------------------------------------
Weighted average shares used in basic computation      2,929     2,925    2,923
Dilutive stock options                                   190        22        -
Shares to be issued - Directors Deferred Stock Plan        3         1        -
--------------------------------------------------------------------------------
Weighted average shares used for diluted calculation   3,122     2,948    2,923
--------------------------------------------------------------------------------


Accumulated Other Comprehensive Loss Accumulated other comprehensive loss refers
to revenues, expenses, gains and losses that under accounting principles
generally accepted in the United States are included in comprehensive income
(loss) but excluded from net income (loss) as those amounts are recorded
directly as an adjustment to stockholders' equity, net of tax. The Company's
other comprehensive loss is composed of changes in the additional pension
liability in excess of unrecognized prior service cost and foreign currency
translation adjustments. The accumulated balance of additional pension liability
in excess of unrecognized prior service cost and foreign currency translation
losses at December 31, 2003 and 2002 is $6,824,000 and $5,421,000, and $163,000
and $890,000, respectively.

Stock Option Plan The Company accounts for its stock-based compensation in
accordance with Accounting Principles Board Opinion No. 25 "Accounting for Stock
Issued to Employees" (APB 25), and has adopted the disclosure-only alternative
of SFAS No. 123 "Accounting For Stock-Based Compensation" (SFAS 123), as amended
by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure."

                                       36
<PAGE>

Reinhold Industries, Inc.

The following table illustrates the effect on net income and earnings per share
had compensation expense for the employee Reinhold Industries, Inc.based plans
been recorded based on the fair value method under SFAS 123:


                                                         Year Ended December 31,
                                                        2003      2002     2001
--------------------------------------------------------------------------------
Net income (loss) as reported                        $ 5,724   $ 4,152  $(3,723)


Deduct, Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects       (115)     (134)    (280)
--------------------------------------------------------------------------------
Net income (loss), as adjusted                       $ 5,609   $ 4,018  $(4,003)


Earnings (loss) per share:
Basic - as reported                                   $ 1.95    $ 1.42  $ (1.27)
Basic - as adjusted                                   $ 1.91    $ 1.37  $ (1.37)

Diluted - as reported                                 $ 1.83    $ 1.41  $ (1.27)
Diluted - as adjusted                                 $ 1.80    $ 1.36  $ (1.37)


Pension and Other Postretirement Plans The Company has three defined benefit
pension plans and a 401(k) retirement and profit sharing plan covering
substantially all of its employees. The benefits for the Samuel Bingham Company
Employees' Retirement Plan and the Samuel Bingham Company Hourly Employees'
Pension Plan are based on years of service multiplied by a fixed monthly
benefit. The Reinhold Industries, Inc. Retirement Plan benefits are based on
years of service and the employee's compensation during the last years of
service before retirement. The cost of these programs is being funded currently.

     On January 1, 2002, the Company established the Reinhold  Industries,  Inc.
401(k) Plan covering both Reinhold and Bingham  employees who have completed six
months of service and attained 21 years of age. Employees may make contributions
to the Plan up to the maximum  limitations  prescribed  by the Internal  Revenue
Service.  The Company may, at its sole  discretion,  contribute  and allocate to
each eligible participant,  a percentage of the participant's elective deferral.
Matching  contributions,  if any,  shall be determined as of the end of the Plan
year. The matching  contribution vests to the employee on a straight-line  basis
over five years and is fully vested at the end of the  employees'  fifth year of
service.

     Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of The
Company  accounts  for  long-lived  assets  and  certain  intangibles  including
goodwill  at  amortized  cost  annually.  Goodwill is tested for  impairment  in
accordance  with  SFAS  142 and all  other  long-lived  assets  are  tested  for
impairment  in  accordance  with SFAS 144.  As part of an ongoing  review of the
valuation  and  amortization  of  long-lived  assets,  management  assesses  the
carrying value of such assets, if facts and circumstances  suggest that they may
be  impaired.  Recoverability  of  assets to be held and used is  measured  by a
comparison of the carrying  amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired,  the
impairment  to be  recognized  is measured  by the amount by which the  carrying
amount of the assets exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value, less costs to
sell.

     In 2001,  the Company  recorded a charge of  approximately  $5.4 million to
write-down  long-lived  assets  associated with the Bingham  operating  segment.
Included in the $5.4 million charge was approximately $1.3 million write-down of
fixed assets related to the seven manufacturing and administrative  locations of
Bingham  that were  closed or were in the  process  of being  closed.  The fixed
assets were  written  down to their  estimated  fair value which was  determined
based on the proceeds  received and  estimated to be received  from the sales of
the respective facilities. The sales of these facilities were completed prior to
December 31, 2003.


                                       37

<PAGE>

Reinhold Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)

     In 2001, the Company also determined that the estimated future undiscounted
operating  cash flows of the  remaining  Bingham  operations  were less than the
carrying  amount  of  Bingham's  remaining   long-lived  assets.  Based  on  its
evaluation,  the Company determined Bingham's long-lived assets, with a carrying
value of $10.7 million,  were impaired and wrote them down by approximately $4.0
million to their estimated fair value.  This write-down was charged to goodwill.
Fair value was based on estimated  discounted future operating cash flows of the
Bingham operations.

Fair Value of Financial Instruments The carrying amounts of the following
financial instruments approximate fair value because of the short maturity of
those instruments: cash and cash equivalents, accounts receivable, prepaid
expenses and other current assets, other assets, accounts payable, accrued
expenses and current installments of long-term debt. The long-term debt bears
interest at a variable market rate, and thus has a carrying amount that
approximates fair value.

Foreign Currency The reporting currency of the Company is the United States
dollar. The functional currency of NP Aerospace is the UK pound sterling. For
consolidation purposes, the assets and liabilities of the Company's subsidiary
are translated at the exchange rate in effect at the balance sheet date. The
consolidated statements of earnings are translated at the average exchange rate
in effect for the years.

Reclassifications Certain amounts in the prior year's consolidated financial
statements have been reclassified to conform with the current year presentation.

Shipping and Handling Costs Shipping and handling costs are included in cost of
sales.

Research and Development Research and development expenditures were
approximately $425,000, $314,000 and $348,000 for the years ended December 31,
2003, 2002 and 2001, respectively.

Labor Subject to Collective Bargaining Agreements Approximately 43 of the
employees at NP Aerospace in Coventry, England are represented by a labor union.
The total percentage of employees represented by a labor union is approximately
27%. Certain Bingham employees, approximately 53, located in San Leandro,
California, Searcy, Arkansas and Blacklick, Pennsylvania are also represented by
a labor union. The total percentage of union contracts expiring within one year
as a percentage of labor represented by a union is approximately 55%. Reinhold
believes its workforce to be relatively stable and considers its employee
relations to be excellent.

Raw Materials and Purchased Components The principal raw materials for composite
fabrication include pre-impregnated fiber cloth (made of carbon, graphite,
aramid or fiberglass fibers which have been heat-treated), molding compounds,
resins (phenolic and epoxy), hardware, adhesives and solvents. No significant
supply problems have been encountered in recent years. Reinhold uses PAN
(polyacrylonitrile) and rayon in the manufacture of composites. However, the
supply of rayon used to make carbon fiber cloth typically used in ablative
composites is highly dependent upon the qualification of the rayon supplier by
the United States Department of Defense. A major supplier has ceased production
of the rayon used in Reinhold's ablative products. This could have an effect on
the rayon supply in the coming years. Also, a European company has become the
world's sole supplier of graphite and carbon, which is used in Reinhold's
ablative applications. At this time, Reinhold cannot determine if there will be
any significant impact on price or supply.

Recent Accounting Pronouncements In June 2001, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards ("SFAS") No.
141 "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets".
SFAS No. 141 addresses financial accounting and reporting for business
combinations and requires all business combinations to be accounted for using
the purchase method. SFAS No. 141 is effective for any business combinations
initiated after June 30, 2001. SFAS No. 142, effective for the Company January
1, 2002, addresses the initial

                                       38
<PAGE>

Reinhold Industries, Inc.



recognition and measurement of goodwill and other intangible assets acquired in
a business combination. Goodwill and other intangible assets with indefinite
lives will no longer be amortized but instead subject to impairment tests at
least annually. The impairment test is comprised of two parts. The first step
compares the fair value of a reporting unit with its carrying amount, including
goodwill. If the carrying amount exceeds the fair value of the reporting unit,
the second step of the goodwill impairment test must be performed. The second
step compares the implied fair value of the reporting unit's goodwill with the
respective carrying amount in order to determine the amount of impairment loss,
if any. In accordance with SFAS No. 142, the Company performed the first part of
the two-step goodwill impairment test. For each of the Company's reporting units
for which goodwill was recorded, the Company determined that the fair value
exceeded the carrying amount at December 31, 2003. As a result, the second step
of the impairment test was not required.

     Under SFAS No. 142, the Company  discontinued  amortization  of its cost in
excess of fair  value of net assets  acquired  (goodwill)  beginning  January 1,
2002,  which  resulted  in reduced  expense of  approximately  $202,000  (net of
related tax effects) in fiscal 2002.

A reconciliation of net income and earnings per share for periods prior to the
adoption of FAS 142 is as follows (in thousands, except per share data):

                                                        2003      2002     2001
--------------------------------------------------------------------------------
Net income (loss) as reported                        $ 5,724     4,152 ($ 3,723)
Impact of adoption of FAS 142 (net of related
  tax effects)                                             -         -      311
--------------------------------------------------------------------------------
 Pro forma net income (loss)                         $ 5,724     4,152 ($ 3,412)


Pro forma earnings per share:
Basic                                                 $ 1.95    $ 1.42  ($ 1.17)
Diluted                                               $ 1.83    $ 1.41  ($ 1.17)

The gross amount of goodwill and related accumulated amortization at both
December 31, 2003 and 2002 amounted to $8,921,000 and $5,135,000, respectively.

     In May 2003, the FASB issued  Statement of Financial  Accounting  Standards
No.  150  (FAS  150),   "Accounting  for  Certain  Financial   Instruments  with
Characteristics  of Both  Liabilities  and Equity." This  statement  establishes
standards  for  how  an  issuer   classifies  and  measures  certain   financial
instruments with  characteristics of both liabilities and equity. This statement
requires  an issuer to  classify a  financial  instrument  issued in the form of
shares that are  mandatorily  redeemable  - i.e.,  that embody an  unconditional
obligation  requiring the issuer to redeem them by transferring  its assets at a
specified or determinable date - as a liability. This Statement is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
effective at the beginning of the first interim period  beginning after June 15,
2003.  The  adoption  of this  statement  did not have a material  impact on the
Company's consolidated financial position,  liquidity, or results of operations.

     In November 2002, the Financial  Accounting  Standards  Board (FASB) issued
Interpretation  No. 45 "Guarantor's  Accounting and Disclosure  Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45").
FIN 45 requires that a liability be recognized at fair value at the inception of
certain guarantees for the obligations undertaken by the guarantor.  FIN 45 also
requires additional disclosures for certain guarantee contracts.  The disclosure
provisions  of FIN 45 were  effective  for  financial  statements  ending  after
December 15, 2002, while the recognition and initial measurement provisions were
applicable  on a  prospective  basis to  guarantees  issued  or  modified  after
December  31,  2002.  The  adoption of FIN 45 was not material to our results of
operations or financial condition.

     In  January  2003,  the  FASB  issued   Interpretation  No.  46  (FIN  46),
"Consolidation of Variable Interest Entities,  an interpretation of ARB No. 51,"
which expands upon and strengthens  existing accounting guidance concerning when
a company should include in its financial statements the assets, liabilities and
activities of another entity. Prior to the issuance


                                       39
<PAGE>

Reinhold Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)


of FIN 46, a  company  generally  included another  entity  in  its consolidated
financial  statements only if it controlled the entity through voting interests.
FIN 46 now  requires a  variable  interest  entity,  as defined in FIN 46, to be
consolidated  by a company if that  company is subject to a majority of the risk
of loss from the variable interest entity's  activities or entitled to receive a
majority  of the  entity's  residual  returns  or  both.  FIN 46  also  requires
disclosures about variable interest entities that the company is not required to
consolidate  but  in  which  it  has  a  significant   variable  interest.   The
consolidation  requirements  of FIN 46 apply  immediately  to variable  interest
entities  created  after  January 31, 2003,  and to older  entities in the first
fiscal year or interim  period  beginning  after June 15,  2003.  Certain of the
disclosure  requirements apply to all financial  statements issued after January
31, 2003, regardless of when the variable interest entity was established. As of
December 31, 2003,  we have adopted FIN 46, and the effects of adoption were not
material to our financial position, results of operations or cash flows.


     In December 2003, the FASB revised FIN 46 (FIN 46R), delaying the effective
dates for certain  entities  created  before  February 1, 2003, and making other
amendments  to clarify  application  of the  guidance.  For  potential  variable
interest entities other than any Special Purpose Entities (SPEs), FIN 46R is now
required to be applied no later than the end of the first fiscal year or interim
reporting period ending after March 15, 2004. The original guidance under FIN 46
is still applicable,  however, for all SPEs created prior to February 1, 2003 at
the end of the first interim or annual  reporting  period ending after  December
15,  2003.  FIN  46  may  be  applied  prospectively  with  a  cumulative-effect
adjustment as of the date it is first applied, or by restating previously issued
financial statements with a cumulative-effect  adjustment as of the beginning of
the  first  year  restated.  FIN 46R also  requires  certain  disclosures  of an
entity's relationship with variable interest entities. We do not expect that the
adoption  of FIN 46R as of January  1, 2004 will have a  material  impact on our
results of operations, financial position, or cash flows.

     In  December  2003,  the  FASB  revised   Statement  No.  132  (FAS  132R),
"Employers'  Disclosure about Pensions and Other  Postretirement  Benefits." FAS
132R expands employers'  disclosure  requirements for pension and postretirement
benefits  to  enhance  information  about  plan  assets,  obligations,   benefit
payments,  contributions  and net  benefit  cost.  FAS 132R does not  change the
accounting  requirements for pensions and other  postretirement  benefits.  This
statement is effective for fiscal years ending after  December 15, 2003,  and we
have  included  these  disclosures  in  note  7 to  our  consolidated  financial
statements.


3 Income Taxes
The income tax provision consists of (in thousands):

                                                        YEARS ENDED DECEMBER 31,
                                                        2003      2002     2001
--------------------------------------------------------------------------------
Current:
--------------------------------------------------------------------------------
  Federal                                            $ 3,796     1,529       43
  State                                                  628       493       15
  Foreign                                              1,189       484      110
--------------------------------------------------------------------------------
Total current                                        $ 5,613     2,506      168

Deferred:
--------------------------------------------------------------------------------
  Federal                                           ($ 2,240)        -        -
  State                                                    -         -        -
  Foreign                                                  -         -      102
--------------------------------------------------------------------------------
Total deferred                                      ($ 2,240)        -      102
--------------------------------------------------------------------------------
Total income tax provision                           $ 3,373     2,506      270
--------------------------------------------------------------------------------


                                       40

<PAGE>

Reinhold Industries, Inc.



The income tax expense differed from the amounts computed by applying the U.S.
Federal income tax rate of 34% to pretax income as a result of the following (in
thousands):

                                                        YEARS ENDED DECEMBER 31,
                                                        2003      2002     2001
--------------------------------------------------------------------------------
Taxes at statutory Federal rate                      $ 3,093     2,264   (1,086)
State taxes, net of Federal tax benefits                 415       325       10
Rate difference on foreign income                       (114)      (65)      88
Non-deductible expenses                                   45        43       82
Change in valuation allowance                              -         -    1,183
Other                                                    (66)      (61)      (7)
--------------------------------------------------------------------------------
Total provision for income tax expense               $ 3,373     2,506      270
--------------------------------------------------------------------------------


The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:


                                        December 31, 2003     December 31, 2002
--------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss carryforwards                  $ 6,411                 7,194
Tax credits                                           974                 1,048
Goodwill                                              959                 1,167
Other reserves                                      1,377                   256
--------------------------------------------------------------------------------
Total gross deferred tax assets                     9,721                 9,665

Less valuation allowance                           (6,711)               (8,995)
--------------------------------------------------------------------------------
Net deferred tax assets                             3,010                   670

Deferred tax liabilities:
Pension                                              (770)                 (670)
--------------------------------------------------------------------------------
Total gross deferred tax liabilities                 (770)                 (670)
--------------------------------------------------------------------------------
Net deferred tax assets                           $ 2,240                     -
--------------------------------------------------------------------------------


In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Based on the level of
historical taxable income and projections of future taxable income over the
periods in which the deferred tax assets are deductible, management believes
that it is more likely than not the Company will realize a portion of these
deductible temporary differences at December 31, 2003.

     At December 31, 2003, the Company had net operating loss  carryforwards for
federal  income tax  purposes  of  approximately  $18,857,000.  The  Company may
utilize the  federal net  operating  losses by carrying  them  forward to offset
future federal  taxable income,  if any,  through 2011.  Benefits  realized from
these net operating  loss  carryforwards  and deductible  temporary  differences
arising prior to the  reorganization  have been recorded  directly to additional
paid-in  capital.Such  benefits amounted to $4,138,000 in 2003 and $1,756,000 in
2002. The tax credit  carryforward of $974,000 consists primarily of alternative
minimum tax credits which carry forward indefinitely.

     The Company has not provided for U.S. taxes or foreign withholding taxes on
approximately $6.7 million of undistributed earnings from non-U.S.  subsidiaries
because  such  earnings  are intended to be  reinvested  indefinitely.  If these
earnings  were  distributed,  foreign  tax credits  may become  available  under
current law to reduce the resulting U.S. income tax liability.

                                       41
<PAGE>

Reinhold Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)


United States and foreign earnings before income taxes applicable to operations
are as follows:

                                                       YEARS ENDED DECEMBER 31,
                                                        2003      2002     2001
--------------------------------------------------------------------------------
United States                                        $ 5,265     5,044   (3,819)
Foreign                                                3,832     1,614      366
--------------------------------------------------------------------------------
Total                                                $ 9,097     6,658   (3,453)
--------------------------------------------------------------------------------


Pursuant to the Plan, Keene (predecessor company) transferred certain assets on
July 31, 1996 to the Creditors' Trust. Certain assets at the date of transfer
were not capable of being valued until the resolution of pending litigation. The
Company anticipates a future tax benefit; however, since the value of certain
assets is not currently quantifiable and the extent of any potential benefit
resultant upon the transfer of the assets is not estimable, the Company has not
disclosed nor recorded a deferred tax benefit in the accompanying consolidated
financial statements.

4 Long Term Debt
On March 20, 2002, the Company entered into a one year $10,000,000 revolving
credit facility with LaSalle Bank National Association ("LaSalle"). Interest is
at a rate which approximates LIBOR plus 2.50% (3.90% at December 31, 2002) and
is secured by all financial assets of the Company. The credit agreement with
LaSalle is subject to various financial covenants to which the Company must
comply. The covenants require the Company to maintain certain ratios of
profitability, cash flow, total outstanding debt, minimum net worth and limits
on capital expenditures. As of December 31, 2003, the Company was in compliance
with all applicable covenants.

     On March 21, 2002, the Company  received  $7,200,000  from LaSalle  against
this credit facility.  The proceeds from the credit facility and additional cash
on hand were used to extinguish all outstanding debt with B of A.

     On March 21, 2003,  the Company  amended the credit  facility to extend the
termination  date to June 20, 2003.  No changes were made to any other terms and
conditions.  On June 20, 2003 the Company  amended the credit facility to extend
the termination date to June 20, 2004. The line of credit under the facility was
reduced from $10,000,000 to $8,000,000.

     On June 19, 2003 the Company  paid off the  remaining  outstanding  balance
pertaining to the LaSalle credit facility.  The outstanding balance with LaSalle
was $0 at December 31, 2003.

     On October 31, 2003, the Company  amended the credit facility to extend the
termination date to October 31, 2004.

At December 31, 2003, maturities of long term debt were as follows (in
thousands):

                                               Obligations under capital leases
--------------------------------------------------------------------------------
2004                                                                      $ 109
2005                                                                         30
2006                                                                          -
--------------------------------------------------------------------------------
                                                                            139
Less amount representing interest                                             7
--------------------------------------------------------------------------------
Present value of minimum lease payments                                   $ 132
--------------------------------------------------------------------------------


                                       42
<PAGE>

Reinhold Industries, Inc.


5 Stockholders' Equity
On May 8, 2001, the Board of Directors approved the distribution of a 10% stock
dividend payable to stockholders of record on July 13, 2001, where an additional
218,664 shares were issued on July 31, 2001.

     On May 1, 2002, the Board of Directors  approved the  distribution of a 10%
stock  dividend  payable to  stockholders  of record on May 31,  2002,  where an
additional 240,933 shares were issued on June 21, 2002.

     On April 30, 2003, the Board of Directors  approved the  distribution  of a
10% stock dividend to shareholders of record as of May 16, 2003. As a result, an
additional 265,418 shares were issued on May 29, 2003.All common stock
information and earnings per share computations for all periods presented have
been adjusted for the stock dividend. The number of stock options outstanding
and the exercise price were also adjusted for the impact of the 10% stock
dividend.

6 Stock Options
Stock Incentive Plan On July 31, 1996, the Company established the Reinhold
Stock Incentive Plan for key employees. The Reinhold Stock Incentive Plan
permits the grant of stock options, stock appreciation rights and restricted
stock. The total number of shares of stock subject to issuance under the
Reinhold Stock Incentive Plan may not exceed 100,000. The maximum number of
shares of stock with respect to which options or stock appreciation rights may
be granted to any eligible employee during the term of the Reinhold Stock
Incentive Plan may not exceed 10,000. The shares to be delivered under the
Reinhold Stock Incentive Plan may consist of authorized but unissued stock or
treasury stock, not reserved for any other purpose. The Plan provides that the
options are exercisable based on vesting schedules, provided that in no event
shall such options vest more rapidly than 33 1/3 % annually. The options expire
no later than ten years from the date of grant.

     On June 3, 1999,  the Board of Directors  approved and adopted the Reinhold
Industries,  Inc. Stock Option  Agreement by and between the Company and Michael
T. Furry,  granting Mr. Furry the option,  effective June 3, 1999, to acquire up
to 90,000  shares of Class A common stock of the Company at fair market value at
that date ($8.25 per share).  Terms of the Agreement are  equivalent to those in
the Reinhold Stock Incentive Plan.

     The  number  of stock  options  outstanding  and the  exercise  price  were
adjusted for the impact of the 10% stock dividends.

     On  September  30,  2002,  the Company  adopted  the  Amended and  Restated
Reinhold Stock  Incentive  Plan.  This  amendment  increases the total number of
shares of stock subject to issuance under the Reinhold Stock Incentive Plan from
100,000 to 286,523  (including  the impact of the stock  dividends  declared  in
2000,  2001, 2002 and 2003).  The maximum number of shares of stock with respect
to which  options or stock  appreciation  rights may be granted to any  eligible
employee  during the term of the Reinhold  Stock  Incentive  Plan were increased
from 10,000 to 60,000. Vesting occurs ratably over the vesting period. All other
terms  remain  unchanged.  As of December 31, 2003,  options  granted  under the
Amended and Restated Reinhold Stock Incentive Plan totalled 121,000.

     The Company has elected to follow  Accounting  Principles Board Opinion No.
25,  "Accounting  for Stock  Issued to  Employees"  ("APB 25"),  and the related
interpretations  in  accounting  for its  employee  stock  options  because,  as
discussed below,  the alternative fair value accounting  provided for under SFAS
No. 123, "Accounting for Stock-Based  Compensation," as amended by SFAS No. 148,
requires  use of option  valuation  models  that were not  developed  for use in
valuing employee stock options.  Under APB 25, because the exercise price of the
Company's  employee stock options  approximates the fair value of the underlying
stock on the date of grant,  no  compensation  expense is recognized.  Pro forma
information  regarding net income and earnings per share is required by SFAS No.
123, as amended, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that  Statement.  The fair
value  for  these  options  was  estimated  at  the  date  of  grant  using  the
Black-Scholes   Option   Pricing  Model  with  the  following   weighted-average
assumptions:

                                                        2003      2002     2001
--------------------------------------------------------------------------------
Risk free interest rate                                  6.0%      N/A      N/A
--------------------------------------------------------------------------------
Dividend yield                                             -         -        -
--------------------------------------------------------------------------------
Volitility factor                                         70%      N/A      N/A
--------------------------------------------------------------------------------
Weighted average life (years)                            4.1       N/A      N/A
--------------------------------------------------------------------------------


                                       43
<PAGE>

Reinhold Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)

Using the Black-Scholes Option Pricing Model, the estimated weighted-average
grant date fair value of options granted in 2003 was $4.80. No options were
granted to employees during 2002 or 2001. See note 2 for the Company's
accounting policy for its Employee Stock-Based Plans, as well as the effect on
net income and earnings per share had the Employee Stock-Based Plans been
recorded based on the fair value method under SFAS 123.

     The Black-Scholes  Option Pricing Model was developed for use in estimating
the fair value of traded  options  which have no  vesting  restrictions  and are
fully  transferable.   In  addition,  option  valuation  models  require  highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different than those of traded  options,  and because changes in the assumptions
can materially  affect the fair value  estimate,  in management's  opinion,  the
existing  models may not  necessarily  provide a reliable  single measure of the
fair value of its employee stock options.

A summary of the status of the option plans as of and for the changes during the
years ended December 31, 2003 and 2002 is presented below:

                                                                     Weighted
                                                                     average
                                Number of shares     Low    High  exercise price
--------------------------------------------------------------------------------
Outstanding December 31, 2001            204,600  $ 6.82  $ 9.30         $ 7.01
--------------------------------------------------------------------------------
Options issued in connection
  with 10% stock dividend                 20,460    6.20    8.45           6.38
Granted in 2002                                -       -       -              -
Forfeited during 2002                      6,655    8.45    8.45           8.45
--------------------------------------------------------------------------------
Outstanding December 31, 2002            218,405  $ 6.20  $ 8.06         $ 6.31
--------------------------------------------------------------------------------
Options issued in connection
  with 10% stock dividend                 33,207    5.63    9.64           6.32
Granted in 2003                          115,000    8.05   12.50           8.55
Forfeited during 2003                      5,500    9.64    9.64           9.64
Exercised during 2003                      5,723    5.63    6.20           5.77
--------------------------------------------------------------------------------
Outstanding December 31, 2003            355,389  $ 5.63 $ 11.36         $ 6.28
--------------------------------------------------------------------------------

At December 31, 2003, the weighted average remaining contractual life of options
outstanding is 6.7 years. Options representing 271,056 shares are currently
exercisable. The weighted average exercise price of the options exercisable at
December 31, 2003 is $5.93.

Director's Deferred Stock Plan On September 30, 2002, the Company established
the Reinhold Industries, Inc. Director's Deferred Stock Plan. The Plan allows
the non-employee Directors of the Company to elect to receive stock in Reinhold
Industries, Inc.lieu of cash payment for their services on the Board of
Directors. If the Director elects to receive Company stock, he has the option of
receiving the shares immediately or deferring receipt  of  those  shares to a
future date. The value of the services performed are charged to the statement of
operations in the year incurred. As of December 31, 2003, 20,711 shares have
been reserved for issuance under this Plan.


                                       44
<PAGE>

Reinhold Industries, Inc.


7 Pension Plans
The Company currently has four pension plans covering substantially all
employees. The benefits paid under the pension plans generally are based on an
employee's years of service and compensation during the last years of employment
(as defined). Annual contributions made to the pension plans are determined in
compliance with the minimum funding requirements of ERISA, using a different
actuarial cost method and different actuarial assumptions than are used for
determining pension expense for financial reporting purposes. Plan assets
consist principally of publicly traded equity and debt securities.

Net pension cost included the following (in thousands):

                                                       Years Ended December 31,
                                                        2003      2002     2001
--------------------------------------------------------------------------------
Service cost                                           $ 232       235      212
Interest cost on benefits earned in prior years          969       945      953
Expected return on assets                               (869)   (1,025)  (1,159)
Amortization of net obligation at transition               1       (18)     (18)
Amortization of net loss                                 464       278       83
--------------------------------------------------------------------------------
Net pension cost                                       $ 797       415       71
--------------------------------------------------------------------------------

The following table sets forth a reconciliation of the pension plans' benefit
obligation at December 31, 2003 and 2002 (in thousands):

                                                                  2003     2002
--------------------------------------------------------------------------------
Projected benefit obligation at beginning of year             $ 14,624   14,536
Service cost                                                       232      235
Interest cost                                                      969      945
Actuarial loss                                                   2,614      116
Benefits paid                                                   (1,185)  (1,208)
--------------------------------------------------------------------------------
Projected benefit obligation at end of year                   $ 17,254   14,624
--------------------------------------------------------------------------------

The projected benefit obligation at December 31, 2003 increased by approximately
$2.5 million from December 31, 2002 due primarily to a change in the
weighted-average discount rate from 6.75% to 6.25% and a change in the mortality
tables used to compute estimated lives of participants in the Plans.

The following table sets forth a reconciliation of the pension plans' assets at
December 31, 2003 and 2002 (in thousands):

                                                                  2003     2002
--------------------------------------------------------------------------------
Fair value of plan assets at beginning of year                $ 10,173   12,232
Actual return onassets                                           1,479     (918)
Employer contributions                                           1,119       67
Benefits paid                                                   (1,185)  (1,208)
--------------------------------------------------------------------------------
Fair value of plan assets at end of year                      $ 11,586   10,173

The following table discloses the target allocation and actual percentage of the
fair value of total plan assets represented by each asset category at December
31, 2003 and 2002:

                                            Target Allocation     2003     2002
Equity securities                                       60-70%      64%      53%
Debt securities                                         30-40%      34%      38%
Real estate                                                 0%       0%       0%
Other                                                       0%       2%       9%
--------------------------------------------------------------------------------
Totals                                                             100%     100%


                                       45
<PAGE>

Reinhold Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)


The following table sets forth a reconciliation of the pension plans' funded
status at December 31, 2003 and 2002 (in thousands):

                                                                  2003     2002
--------------------------------------------------------------------------------
Projected benefit obligation at end of year                   $ 17,254   14,624
Fair value of plan assets at end of year                        11,586   10,173
--------------------------------------------------------------------------------
Funded status                                                   (5,668)  (4,451)
Unrecognized prior service cost                                    153      173
Unrecognized net obligation at transition                            -        2
Unrecognized net loss                                            7,521    5,961
--------------------------------------------------------------------------------
Prepaid pension cost at end of year                            $ 2,006    1,685

Intangible asset at December 31,                                 $ 153      175
Additional minimum liability at December 31,                    (6,978)  (5,596)
--------------------------------------------------------------------------------
Additional pension liability in excess of prior
service cost at December 31,                                  $ (6,825)  (5,421)
--------------------------------------------------------------------------------

Amounts recognized as prepaid benefit costs at December 31, 2003 and 2002
amounted to $2,062 and $1,731, respectively. Amounts recognized as accrued
benefit obligation at December 31, 2003 and 2002 amounted to $56 and $46,
respectively.

Assumptions used in accounting for the pension plans were:

                                         December 31, 2003    December 31, 2002
--------------------------------------------------------------------------------
Weighted-average discount rate                        6.25%                6.75%
Weighted-average rate of increase in
  compensation levels                                 4.0                  5.0
Weighted-average expected long-term rate
  of return on assets                                 9.0                  9.0
--------------------------------------------------------------------------------

The weighted average expected long term rate of return on assets was established
as of January 1 of each year presented and was changed on January 1, 2004 to
8.5%. The long-term rate of return was developed using a financial model which
computes the historical rate of return on the various asset classes (equities,
debt, others) contained in the portfolio and projects the inflation adjusted
real rate of return for the future. Assumptions concerning discount rates and
rates of increase in compensation levels are determined based on the current
economic environment at the end of each annual reporting period. The company
evaluates the funded status of each of its retirement plans using these current
assumptions and determines the appropriate funding level considering applicable
regulatory requirements, reporting considerations and other factors. Recent
decreases in long-term interest rates have the effect of increasing plan
liabilities and if expected returns on plan assets are not achieved, future
funding obligations could increase substantially. Assuming no changes in current
assumptions, the company expects to contribute approximately $1,180,000 for the
calander year 2004.

The following table discloses the amount of benefits expected to be paid in
future years (in thousands):

--------------------------------------------------------------------------------
2004                                              $ 1,291
2005                                                1,300
2006                                                1,273
2007                                                1,287
2008                                                1,264
2009-2013                                           6,172
--------------------------------------------------------------------------------
Totals                                           $ 12,587
--------------------------------------------------------------------------------


                                       46
<PAGE>

Reinhold Industries, Inc.


The pension plan's accumulated benefit obligation was $16,558,000 at December
31, 2003 and $14,085,000 at December 31, 2002. The unrecognized prior service
cost and the unrecognized net loss are being amortized on a straight-line basis
over the average future service of employees expected to receive benefits under
the plans. The unrecognized net obligation at transition is being amortized on a
straight-line basis over 15 years. The measurement dates used to determine
pension benefits were December 31, 2003 and 2002.

     The company  maintains  a master  trust which holds the assets of all three
defined  benefit  plans.  The  investment of assets in defined  benefit plans is
based on the expected long-term capital market outlook. Asset return assumptions
using historical returns and investment manager forecasts are set forth for each
major asset category  including  domestic  equities and government and corporate
debt. Investment allocations are determined by the Board of Directors. Long-term
allocation  guidelines  are  set  and  expressed  in  terms  of a  target  range
allocation for each asset class to provide portfolio management flexibility. The
asset  allocation is diversified to maintain risk at a reasonable  level without
sacrificing  return.  Factors  including the future growth in the number of plan
participants  and  forecasted  benefit  obligations,  inflation  and the rate of
salary increases are also considered in developing asset  allocations and target
return assumptions.

8 Operating Segments
The company reports segment data pursuant to SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information. Reinhold is a manufacturer of
advanced custom composite components, sheet molding compounds and rubber rollers
for a variety of applications in the United States and Europe. The company
generates revenues from five operating segments: Aerospace, CompositAir,
Commercial, NP Aerospace and Bingham. Management has determined these to be
Reinhold's operating segments based upon the nature of their products. Aerospace
produces a variety of products for the U.S. military and space programs.
CompositAir produces components for the commercial aircraft seating industry.
The Commercial segment produces lighting housings and pool filter tanks. NP
Aerospace produces products for law enforcement, lighting, military, automotive
and commercial aircraft. Bingham manufactures rubber rollers for graphic arts
and industrial applications.

     As of January 1, 2003, the Thermal  Insulation  operating  segment has been
consolidated with the Aerospace  operating segment.  All prior periods have been
adjusted to conform with the current presentation.

The information in the following table is derived directly from the segment's
internal financial reporting for corporate management purposes (in thousands).

                                                       YEARS ENDED DECEMBER 31,
                                                        2003      2002     2001
--------------------------------------------------------------------------------
Net sales
--------------------------------------------------------------------------------
Aerospace                                           $ 22,255    19,250   11,515
CompositAir                                            5,250     6,538    5,877
Commercial                                             3,473     2,877    3,072
NP Aerospace                                          19,317    13,285    9,322
Bingham                                               16,706    17,092   19,161
--------------------------------------------------------------------------------
Total sales                                         $ 67,001    59,042   48,947

Income (loss) before income taxes
--------------------------------------------------------------------------------
Aerospace                                            $ 7,106     6,792    3,118
CompositAir                                              261       450      174
Commercial                                               108       221      311
NP Aerospace                                           3,832     1,614      366
Bingham                                               (1,101)     (748)  (6,622)
Unallocated corporate expenses                        (1,109)   (1,671)    (800)
--------------------------------------------------------------------------------
Total income (loss) before income taxes              $ 9,097     6,658   (3,453)


                                       47
<PAGE>

Reinhold Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)


                                                       YEARS ENDED DECEMBER 31,
                                                        2003      2002     2001
--------------------------------------------------------------------------------
Depreciation and amortization
--------------------------------------------------------------------------------
Aerospace                                              $ 367       355      449
CompositAir                                              216       194      273
Commercial                                               129       127      138
NP Aerospace                                             324       282      172
Bingham                                                  404       525      542
Unallocated corporate                                    240       134       84
--------------------------------------------------------------------------------
Total depreciation and amortization                  $ 1,680     1,617    1,658

Capital expenditures
--------------------------------------------------------------------------------
Aerospace                                            $ 1,113     1,054    1,187
CompositAir                                              214        95      158
Commercial                                               358       437       29
NP Aerospace                                             327       382      239
Bingham                                                  869       363      764
Unallocated corporate                                    238       134        -
--------------------------------------------------------------------------------
Total capital expenditures                           $ 3,119     2,465    2,377

Total assets
--------------------------------------------------------------------------------
Aerospace                                           $ 11,077    10,436
CompositAir                                            2,635     2,749
Commercial                                             1,598     1,220
NP Aerospace                                          11,220     8,504
Bingham                                                9,763    10,187
Unallocated corporate                                  7,497     3,514
--------------------------------------------------------------------------------
Total assets                                        $ 43,790    36,610

Goodwill
--------------------------------------------------------------------------------
Aerospace                                            $ 2,360     2,360
CompositAir                                              161       161
Bingham                                                1,265     1,265
--------------------------------------------------------------------------------
Total goodwill                                       $ 3,786     3,786

Write-down of long-lived assets
--------------------------------------------------------------------------------
Bingham                                                    -         -    5,351
--------------------------------------------------------------------------------
Total write-down of long-lived assets                    $ -         -    5,351


                                       48
<PAGE>

Reinhold Industries, Inc.

The table below presents information related to geographic areas in which
Reinhold's customers were located (in thousands):

                                                       YEARS ENDED DECEMBER 31,
                                                        2003      2002     2001
--------------------------------------------------------------------------------
Net sales
--------------------------------------------------------------------------------
North America                                       $ 47,294    40,479   38,319
United Kingdom                                        16,011    13,807    8,294
Greece                                                     -     2,518        -
Germany                                                1,526     1,706    1,096
Italy                                                    914         -        -
All other                                              1,256       532    1,238
--------------------------------------------------------------------------------
Net sales                                           $ 67,001    59,042   48,947
--------------------------------------------------------------------------------

The table below presents information related to geographic areas in which
Reinhold operated (in thousands):

                                                   DECEMBER  DECEMBER
                                                        31        31
                                                       2003      2002
--------------------------------------------------------------------------------
Total assets
--------------------------------------------------------------------------------
North America                                      $ 32,570    28,106
United Kingdom                                       11,220     8,504
--------------------------------------------------------------------------------
Total assets                                       $ 43,790    36,610

Long-lived assets
--------------------------------------------------------------------------------
North America                                      $ 16,554    13,626
United Kingdom                                        1,984     1,677
--------------------------------------------------------------------------------
Long-lived assets                                  $ 18,538    15,303
--------------------------------------------------------------------------------


9 Commitments and Contingencies
Leases The Company leases certain facilities and equipment under operating
leases expiring through 2014. Certain facility leases are subject to annual
escalations of approximately 1% to 3%. Total rental expense on all operating
leases approximated $1,511,000, $1,621,000 and $1,265,000 for 2003, 2002 and
2001, respectively.

Minimum future rental commitments under noncancelable operating leases and
aggregate future minimum rentals under noncancelable subleases at
December 31, 2003 are as follows (in thousands):

                               Operating Lease Commitments      Sublease Income
2004                                               $ 1,226                 $ 44
2005                                                 1,034                   46
2006                                                   928                   31
2007                                                   834                    -
2008                                                   792                    -
Thereafter                                           6,174                    -
--------------------------------------------------------------------------------
                                                  $ 10,988                $ 121

Legal Proceedings The Company has been informed that it may be a potentially
responsible party ("PRP") under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), with respect to
certain environmental liabilities arising at the Valley Forge National
Historical Park Site ("Valley Forge Site") located in Montgomery County,
Pennsylvania and at a site formerly known as the Casmalia Resources Hazardous
Waste Management

                                       49
<PAGE>

Reinhold Industries, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)

Facility,  located  in  Santa  Barbara  County,  California  ("Casmalia Site").
CERCLA imposes  liability for the costs of responding to a release or threatened
release of "hazardous  substances"  into the  environment.  CERCLA  liability is
imposed  without regard to fault.  PRPs under CERCLA include  current owners and
operators of the site, owners and operators at the time of disposal,  as well as
persons who arranged for disposal or treatment of hazardous  substances  sent to
the site,  or persons who accepted  hazardous  substances  for  transport to the
site.  Because PRPs' CERCLA liability to the government is joint and several,  a
PRP may be  required  to pay more  than its  proportional  share of such  costs.
Liability  among  PRPs,  however,  is subject to  equitable  allocation  through
contribution actions.

     On June 16, 2000 the U.S.  Department of Justice  notified the Company that
it may be a PRP with respect to the Valley  Forge Site and demanded  payment for
past costs incurred by the United States in connection with the site,  which the
Department  of Justice  estimated at  $1,753,726  incurred by the National  Park
Service  ("NPS") as of May 31, 2000 and $616,878  incurred by the United  States
Environmental  Protection  Agency  ("EPA") as of November 30,  1999.  Payment of
these past  costs  would not  release  the  Company  from  liability  for future
response costs.

     Management believes that in or about 1977, the Company's predecessor, Keene
Corporation  ("Keene"),  sold to the U.S.  Department  of Interior  certain real
property and improvements now located within the Valley Forge Site. Prior to the
sale, Keene operated a manufacturing  facility on the real property and may have
used friable asbestos, the substance which gives rise to the claim at the Valley
Forge Site.

     On December 30, 2002,  the United  States  District  Court for the Southern
District of New York  approved and entered a Consent  Decree  agreed upon by the
United States and the Company  settling the claims asserted by the National Park
Service against the Company.  The United States and the Company  stipulated that
the EPA will not seek  reimbursement  of its response  costs with respect to the
Valley Forge Site and that the Company's  claim for a declaratory  judgment with
respect to those costs may be dismissed with  prejudice.

     Under the terms of the Consent  Decree,  the Company was  obligated  to pay
$500,000 to the Department of the Interior.  In return, the Company has received
from the  United  States a  covenant  not to sue,  subject  to  certain  limited
exceptions,  for claims under CERCLA  Sections 106, 107 and 113 and RCRA Section
7003  relating to the Site.  The payment to the  Department  of the Interior was
made on January 23, 2003.

     In  September   2002,  in  accordance  with  SFAS  No.  5,  Accounting  for
Contingencies, the Company recorded a reserve of $500,000 for the estimated cost
to conclude  this  matter.  These costs were  included in the  December 31, 2002
balance  sheet as a  component  of "Accrued  Expenses."

     Pursuant to the Consent Decree and CERCLA Section 113(f)(2),  the Company's
settlement with the United States bars any other party from asserting claims for
contribution  for any response  costs  incurred with respect to the Valley Forge
Site by the United States, any State or other governmental  entity, or any other
party.

     With respect to the Casmalia Site, on August 11, 2000, the EPA notified the
Company that it is a PRP by virtue of waste materials deposited at the site. The
EPA has designated  the Company as a "de minimis" waste  generator at this site,
based on the amount of waste at the Casmalia Site attributed to the Company. The
Company is not currently a party to any litigation concerning the Casmalia Site,
and based on currently  available  data, the Company  believes that the Casmalia
Site  is not  likely  to  have  a  material  adverse  impact  on  the  Company's
consolidated  financial  position  or  results  of  operations.

     The Company is involved in various other claims and legal  actions  arising
in the ordinary course of business.  In the opinion of management,  the ultimate
disposition  of these  matters will not have a material  effect on the Company's
financial position, results of operations, or liquidity.

Insurance Due to a significant increase in workers compensation insurance
premiums, on November 1, 2003, the Company changed its insurance for workers
compensation costs from fully insured to a partially self-insured basis. The
Company is now responsible for payment of all workers compensation costs to a
maximum of $250,000 per individual claim and $1,250,000 in the aggregate. Claims
paid by the insurance company as well as the estimated future costs to be
incurred are recorded as expenses on a monthly basis. In addition, we were
required to provide our insurance company with a irrevocable Letter of Credit in
the amount of $600,000. The policy period extends through October 2004. At that
time, claims experience will be reviewed and a determination made as to whether
to continue on a partially self-insured basis. As of December 31, 2003, $600,000
of the Letter of Credit was unused.


                                       50
<PAGE>

Reinhold Industries, Inc.


10 Business and Credit Concentrations
The Company's principal customers are prime contractors to the U.S. Government,
other foreign governments and aircraft seat manufacturers.

     Sales to each  customer  that exceed 10% of total net sales for the periods
presented and the  operating  segment that realized the sale were as follows (in
thousands):

                                                       YEARS ENDED DECEMBER 31,
                                                        2003      2002     2001
--------------------------------------------------------------------------------
Alliant Techsystems (Aerospace)                     $ 19,324    14,853    5,078
Ministry of Defence -
 United Kingdom (NP Aerospace)                      $ 10,802         *        *
B/E Aerospace (CompositAir and NP Aerospace)               *         *    6,050
--------------------------------------------------------------------------------

* Sales to these customers were less than 10% of total net
sales for the period.

Alliant Techsystems accounted for approximately 16% of the Company's accounts
receivable balance at December 31, 2003 and approximately 17% of the Company's
accounts receivable balance at December 31, 2002 before any adjustments for the
allowance for doubtful accounts. B/E Aerospace accounted for approximately 12%
of the Company's accounts receivable balance at December 31, 2001 before any
adjustments for the allowance for doubtful accounts. The United Kingdom's
Ministry of Defence accounted for approximately 20% of the Company's accounts
receivable balance at December 31, 2003 before any adjustments for the allowance
for doubtful accounts. No other customer exceeded 10% of the Company's gross
accounts receivable balance. The Company estimates an allowance for doubtful
accounts based on the creditworthiness of its customers as well as general
economic conditions. Consequently, an adverse change in those factors could
affect the Company's estimate of its bad debts.

11 Related Party Transactions
On June 3, 1999, Reinhold entered into a two year agreement with Hammond,
Kennedy, Whitney and Company ("HKW"), a private equity firm, to provide Reinhold
and its subsidiaries with advice regarding strategic direction and merger and
acquisition activities, including identifying potential acquisition candidates,
for a fee of $20,000 per month. The agreement is automatically renewed
thereafter for successive one year periods, unless termination notification is
provided by either party within 120 days of the renewal date. Mssrs. Ralph R.
Whitney, Jr., Andrew McNally, IV and Glenn Scolnik, all members of the Board of
Directors of Reinhold, are principals of HKW.

12 Quarterly Summary of Information (Unaudited)
Summarized unaudited financial data is as follows (in thousands, except per
share data):

                                                THREE MONTHS ENDED
                                   March 31, June 30, September 30, December 31,
--------------------------------------------------------------------------------
2003 Net sales                     $ 16,375   17,703        15,866       17,057
     Gross profit                   $ 5,190    6,060         4,896        5,131
     Net income                     $ 1,524    1,880         1,211        1,109

     Net earnings per share:
     Basic                           $ 0.52     0.64          0.41         0.38
     Diluted                         $ 0.50     0.61          0.39         0.36

2002 Net sales                     $ 13,930   13,331        13,562       18,219
     Gross profit                   $ 4,102    4,102         4,310        5,707
     Net income                     $   824      700           660        1,968

     Net earnings per share:
     Basic                           $ 0.28     0.24          0.23         0.67
     Diluted                         $ 0.28     0.24          0.22         0.67


                                       51


<PAGE>


Reinhold Industries, Inc.


Independent Auditors' Report


The Board of Directors and Shareholders
Reinhold Industries, Inc.

We have audited the accompanying consolidated balance sheets of Reinhold
Industries, Inc. as of December 31, 2003 and 2002, and the related consolidated
statements of operations, stockholders' equity and comprehensive income (loss)
and cash flows for each of the three years in the period ended December 31,
2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Reinhold
Industries, Inc. at December 31, 2003 and 2002, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States.

As discussed in note 2 to the consolidated financial statements, effective
January 1, 2002, the Company changed its method of accounting for goodwill and
other intangible assets.

                                       /s/ Ernst & Young LLP



Orange County, California
March 2, 2004



                                       52
<PAGE>

Reinhold Industries, Inc.


Board Of Directors
Ralph R. Whitney, Jr.
Chairman of The Board
Chairman
Hammond, Kennedy, Whitney & Company

Michael T. Furry
President and CEO
Reinhold Industries, Inc.

Andrew McNally, IV
Managing Director
Hammond, Kennedy, Whitney & Company

Glenn Scolnik
President
Hammond, Kennedy, Whitney & Company

Thomas A. Brand
Retired
Fiberite Corporation

Richard A. Place
Retired
Ford Motor Company

Corporate Officers
Michael T. Furry
President and CEO

Brett R. Meinsen
Vice President - Finance and
Administration, Treasurer
and Secretary

Corporate Offices
12827 East Imperial Highway
Santa Fe Springs, CA 90670
562 944-3281
562 944-7238 (fax)

Investor Relations
Contact Judy Sanson
Reinhold Industries, Inc.

Registrar
Continental Stock Transfer &
Trust Company
17 Battery Place
New York, New York 10004

Annual Meeting
The Annual Stockholders'
Meeting will be held at the offices of
Reinhold Industries, Inc.
12827 East Imperial Hwy.
Santa Fe Springs, CA 90670
On May 6, 2004 at 9:30 a.m.

Form 10-K
Stockholders may obtain a copy of
Reinhold's 10-K without charge by
writing to Investor Relations Department

Transfer Agent
Continental Stock Transfer &
Trust Company
17 Battery Place
New York, New York 10004
(212) 509-4000

Independent Auditors
Ernst & Young LLP
18111 Von Karman Avenue
Suite 1000
Irvine, CA 92612

Attorneys
Petillon & Hiraide
21515 Hawthorne Boulevard, Suite 1260
Torrance, California 90503

Horgan, Rosen, Beckham & Coren, LLP
23975 Park Sorrento
Suite 200
Calabasas, CA 91302



                                       53
<PAGE>

Reinhold Industries, Inc.




Stock Listing
Reinhold common stock is listed
on the Nasdaq National Market
Symbol - RNHDA



Stockholder Information                       2003               2002
--------------------------------------------------------------------------------
Market Price                              High     Low       High     Low
--------------------------------------------------------------------------------
First Quarter ended March 31, 2003       11.14    7.52       5.87    4.30
Second Quarter ended June 30, 2003       12.01    9.59       7.39    5.12
Third Quarter ended September 30, 2003   19.10   11.25       7.27    5.50
Fourth Quarter ended December 31, 2003   20.23   17.90       8.17    5.73


The Class A Common Stock of the Company is listed on the Nasdaq National Market
under the ticker symbol RNHDA. The table above sets forth the high and low sale
prices of the Company's Class A Common Stock for each of the quarterly periods
for the years ended December 31, 2003 and 2002, adjusted for the effect of the
10% stock dividend on May 16, 2003.


                                       54
<PAGE>



Reinhold Industries, Inc.
12827 East Imperial Hwy.
Santa Fe Springs, CA 90670
592-944-3281