Reinhold Industries, Inc.
                                                              1998 Annual Report

                             for the next millennium
                                 a global vision
<PAGE>

Picture of Board of Directors

Reinhold Industries Board of Directors
(left to right): Chairman of the Board
Lawrence H. Diamond, President and
Chief Executive Officer Michael T. Furry,
and Director Robert B. Steinberg.

replacing metal
                           with advanced composites
         where light weight,
                                    corrosion resistance,
                           or complex shapes are required
<PAGE>

Reinhold Industries, Inc. and Subsidiary
<TABLE>
<CAPTION>

Selected Financial Data

                                                       1998      1997       1996      1995      1994

-------------------------------------------------------------------------------------------------------------------
Summary of operations (in thousands)
<S>                                               <C>          <C>        <C>       <C>       <C>   
Net sales                                         $  25,996    16,232     13,120    11,122    14,824
Gross profit                                      $   6,503     4,699      3,046     1,728     4,579
Operating income (loss)                           $   2,196     1,595         17    (1,832)    1,628
Interest (expense) income, net                    $     (17)      103      1,159     2,202     2,108
Reorganization expenses                           $      -         -       3,139     9,492    11,230
Net income (loss)                                 $   2,138     1,647     (2,198)   (8,983)   (7,792)

-------------------------------------------------------------------------------------------------------------------
Year end position (in thousands)
Cash and marketable securities                    $   3,622     3,169      2,522    34,660    42,833
Working capital                                   $   8,961     6,314      3,602    39,105    48,682
Net property and equipment                        $   5,476     4,526      5,158     5,607     6,201
Total assets                                      $  20,215    13,215     12,540    64,705    75,321
Long-term debt                                    $   1,550         -          -         -         -
Long-term liabilities                             $   4,124     2,438      4,879     4,733     4,259
Stockholder equity                                $   9,698     9,340      5,719    41,990    51,251

-------------------------------------------------------------------------------------------------------------------
Per share data Net income (loss):
Basic & diluted (Note 1)                          $    1.07       0.82      N.M.*   (0.86)     (0.75)
Stockholders' equity                              $    4.85       4.67      2.86     4.02       4.91
Market price range: (Note 2)
High                                              $    9 1/4     10         4 1/8     N.M.*      N.M.*
Low                                               $    5 1/2      2 7/8     3 1/4     N.M.*      N.M.*

-------------------------------------------------------------------------------------------------------------------
Other data (in thousands except stockholder & employee data)
Orders on hand                                    $  16,194     5,989      4,935     6,635     3,514
Average shares outstanding                            1,999     1,999     Note 1    10,442    10,442
Average number of common stockholders                 1,808     1,951      2,099     2,396     2,434
Average number of employees                             220       124        105       104       119

<FN>

Note 1: Keene emerged from bankruptcy on July 31, 1996. Reinhold was merged into
and with Keene,  with the surviving  company being renamed Reinhold  Industries,
Inc. The outstanding common stock of Keene on July 31, 1996,  10,746,235 shares,
was  canceled  and  replaced  by  978,956  shares  of Class A Common  Stock  and
1,020,000 shares of Class B Common Stock. Therefore,  the earnings per share and
average shares outstanding information is not meaningful.

Note 2: The  historical  market  value of the old Keene  stock (the  predecessor
company) is not meaningful  since the company has been  recapitalized as of July
31, 1996.


See management analysis and Note 1 to the consolidated  financial statements for
discussion of Chapter 11 bankruptcy  proceedings  and the Effective  Date of the
Fourth Amended Plan of Reorganization.

*N.M. - Not Meaningful
</FN>
</TABLE>
                                                                               1
<PAGE>

Reinhold Industries, Inc. and Subsidiary

Picture of Michael T. Furry

Michael T. Furry
President and CEO

To Our Stockholders

ACQUISITION  SYNERGY  In  1998,  Reinhold  added  significantly  to  its  sales,
manufacturing  skill base,  and  profitability  through the  purchase of certain
assets and liabilities of Courtaulds Aerospace in the United Kingdom.  Following
its acquisition in April, this new business unit was re-named NP Aerospace.

The  acquisition of Courtaulds was first pursued  because of our mutual presence
in the  aircraft  seating  business.  In the  process of due  diligence,  a much
greater  potential for synergism than first  appeared was uncovered.  We found a
skilled  work force and latent  leadership  ready to be absorbed in the Reinhold
culture  of an  enlightened  work  ethic,  a sense of  controlled  urgency,  and
targeted financial goals. They needed no more motivation than a well-articulated
vision of our combined possibilities.

While our financial performance with NP Aerospace for the first eight months has
exceeded our  forecast,  the primary  benefits of the  acquisition  will be long
range:  the  broadening  of our  market  base  and the  illumination  of ways to
economize in manufacturing and distribution. Already the fusion of technology in
combining two unique processes related to seat back structure  manufacturing has
resulted in the  realization of our goal of a better product at a lower cost. We
expect this hybrid  process to have a positive  impact on production as early as
1999.

A new niche  market  that NP  Aerospace  has  brought to the  Reinhold  products
portfolio is  ballistic  protection  products,  including  military  helmets for
ground  forces  and air crews,  armored  vehicles,  body  armor,  and  ballistic
shields.

NP Aerospace  also occupies a niche in the market for our  structural  composite
family of products with medical radiation  therapy tables,  and products for the
trade molding market for the lighting,  communications,  United Kingdom defense,
and automotive after-market industries.

REINHOLD  IN THE  GLOBAL  MARKETPLACE  The  effect of this  acquisition  is that
Reinhold  has become a global  company.  The prospect of a broad base of diverse
industries being served by an accomplished assembly of composites  manufacturing
experts has become a reality.

Wherever  lighter  weight,  corrosion  resistance,  or a more complex shape of a
manufactured component is needed, a change from metal to advanced composites may
be indicated. Where it is, there is both need and opportunity for Reinhold.

Reinhold revenue is currently derived from four business units: Aerospace (USA),
Commercial (USA), CompositAir (USA), and NP Aerospace (UK).

Aerospace  products  are  made  of  structural  and  ablative  (heat  absorbing)
composites and are related to the solid rocket propulsion industry. Most of them
are sold directly or indirectly to the United States  Defense  Department.  With
few exceptions, these products cannot be sold outside the United States.

The Commercial  business unit serves a regional  swimming pool filter  customer,
the USA lighting market,  and various other commercial  customers.  All products
are made using Reinhold manufactured Sheet Molding Compound (SMC) as the molding
raw  material.  This unit operates in highly  competitive  markets where freight
costs  are  significant.

2

<PAGE>

The  opportunity for  international  sales for these products is slight but some
sales could result from duplicating  their manufacture at the NP Aerospace plant
in the United Kingdom.

The strategy of  acquiring NP Aerospace to become a global  supplier of aircraft
seat backs has already begun to have a positive impact on our business. In 1997,
CompositAir  (USA)  secured a major  contract  from a European  manufacturer  of
commercial  aircraft  seating.  The contract was completed  satisfactorily,  but
follow-up business was lost to an "in-country" supplier because of our excessive
freight costs and logistic difficulties.  Now, that business has been recaptured
because of the combined  design and  engineering  skills of CompositAir  and the
manufacturing capability and proximity of NP Aerospace.

Composite  commercial seat back structures will continue to provide  opportunity
for  expansion.  NP Aerospace has  established  a good  reputation in the United
Kingdom serving companies in England and Northern Ireland.  We have expanded our
marketing  staff for seating  products to secure  business  from other  European
manufacturers.  These sales and marketing  efforts are designed to highlight the
benefits  of using  composites  to  replace  aluminum  for seat back  structures
because of lower  weight and more freedom for  designers to utilize  shapes that
address ergonomic considerations.

NP Aerospace  has a  long-standing  international  presence as a result of their
ballistic protection products.  There is a significant  international demand for
these products  outside of the United  Kingdom.  They are sold to other European
countries,  Africa, and Asia. We expect sales of ballistic and specialty helmets
to represent a major portion of our business for the next several years.

In the near term, the synergy of the CompositAir and NP Aerospace business units
in the  engineering,  manufacturing,  and marketing of composite seat backs will
provide the most tangible benefits of our global presence.

PERFORMANCE  IN 1998 Net sales  increased by 60%,  from $16.2 million in 1997 to
$26.0 million in 1998.  The increase is  attributable  to the  acquisition of NP
Aerospace ($8.9 million),  and increased sales by Compositair ($0.6 million) and
Commercial  ($0.5  million),  offset by lower  Aerospace  sales ($0.2  million).
Backlog  increased 170%, from $6.0 million in 1997 to $16.2 million in 1998, due
mainly to the NP Aerospace acquisition.

Gross  profit  increased  from $4.7  million in 1997 to $6.5 million in 1998 but
dropped  as a  percentage  of sales  from  28.9%  in 1997 to 25.0% in 1998.  The
percentage  decrease  primarily  reflects lower sales by  Aerospace(USA),  whose
products have comparatively  higher gross margins, and the inclusion of sales by
NP  Aerospace,  a lower  gross  margin  business.  There  were  also  production
inefficiencies  at  CompositAir  and  lower  positive  material   variances  for
Aerospace products than in 1997.

Selling, general and administrative expenses were $4.3 million in 1998 (16.6% of
sales) compared with $3.1 million in 1997 (19.1% of sales).  The dollar increase
is  primarily  attributable  to  added  headcount  and  the  one-time  costs  of
facilities consolidation at our new subsidiary in the United Kingdom.

Net  income  in 1998 was $2.1  million,  $1.07  per  share,  compared  with $1.6
million, $0.82 per share, in 1997. 

During 1997, the Company's  Board of Directors  changed its investment  strategy
related to the  Retirement  Plan  Trust.  As a result,  the market  value of the
portfolio  increased  by $2.0  million,  thereby  reducing  the  excess  pension
liability and increasing  the company's net worth by $2.0 million.  In 1998, the
impact  of a drop in  long-term  interest  rates  used in  calculating  our Plan
funding  requirements as well as fluctuations in the stock market decreased both
portfolio value and the Company net worth by $1.7 million.

PROJECTIONS  FOR 1999 AND BEYOND Sales and profit  growth for the past two years
have been good. We believe that the trend will continue in CY1999.  Such results
depend on committed  people and have been realized  because of a team of workers
and  management  who embrace the Reinhold  philosophy  of fewer  people  working
harder and smarter in the pursuit of excellence.

In 1998 we doubled our headcount with the  acquisition of NP Aerospace.  Our new
teammates have shown early enthusiasm for the Reinhold philosophy. Our challenge
will be to attract leaders who will enable us to continue double-digit sales and
profit growth.  Unfortunately,  we lost two valued business unit managers in the
US in 1998. We shall miss them, but we have promoted from within to replace them
with good results.

All  business  units are on track for 1999.  Aerospace  activity  is better than
expected.  CompositAir  continues to ship at a record pace.  We expect  moderate
sales growth and higher  profits from the  Commercial  business  unit, and early
indications are good for NP Aerospace.

For the past decade,  Reinhold has experienced a significant  decline in Defense
related business.  In response,  we have acquired  companies that served markets
and supplied products not indigenous to Reinhold.  We have done this to increase
sales and  profit in lieu of the more  costly and risky  attempt to develop  new
products internally. In 1998, more than 70% of revenue was derived from acquired
businesses.

Our strategy is to acquire companies most likely to benefit from our operational
and  financial  management  methods.  Our  Return  On  Capital  Employed  (ROCE)
objective  is above  15%.  Our 1998 ROCE was 18%.  Based on the  results we have
achieved in  identifying,  acquiring at the right price,  and turning  companies
around,  we will continue to seek  acquisition  candidates to expand  Reinhold's
presence in growing markets.

The support of our customers  and suppliers and the  commitment of our employees
is indispensable to our continued success. To all of you, we express our thanks.




/s/ Michael T. Furry
Michael T. Furry
President and Chief Executive Officer
March 3, 1999
                                                                               3
<PAGE>

Picture

Combat helmet shell being removed from a mold.

NP Aerospace  manufactures  ballistic  helmets for the U.K. Ministry of Defense,
governments  throughout  Europe,  and third world countries.  Composite  helmets
offer light weight and ballistic  protection  superior to the metal helmets they
replace.

4
<PAGE>

Picture

                                     helmets
                                       uk

Tough light weight Helicopter Users Helmet being inspected.
                                                                               5

<PAGE>

Picture
                                    aerospace
                                       usa

Whether designing and manufacturing components to power communication satellites
into orbit or building strong but lightweight  aerospace structural  components,
Reinhold is helping to shape the 21st century.

6
<PAGE>

Picture

The quality and attention to detail necessary for successful space components is
present in every Reinhold process.

Reinhold  Industries  has  been a  pioneer  in  building  components  for  space
exploration  since the earliest days of the U.S. space  program.  Reinhold built
ablative (heat absorbing)  hardware for satellite launch and propulsion  systems
such as Thor  Delta and  Castor II and IV as well as  components  for the manned
Gemini and Apollo  programs,  including  the LEM-D  engine  that took the Apollo
astronauts  from orbit to the  surface of the moon.  Today,  Reinhold  remains a
leading  producer of ablative  components  for various  U.S.  space and military
applications. 
                                                                               7
<PAGE>

Picture

Composite preform being prepared for molding operation.

Composite  aircraft  seatbacks offer superior  performance and increased comfort
over metal equivalents.  We have produced over 120,000 composite seatbacks since
the mid-eighties in a wide range of ergonomic designs.  Our seatback  structures
are produced from multiple layers of high performance  carbon and glass fabrics.
These seatbacks offer light weight with  significantly  enhanced comfort for the
passenger.

8
<PAGE>

Picture
                                    seatbacks
                                       uk

Final inspection of seatbacks at Quality Audit station.

                                                                               9
<PAGE>

Picture
                                    seatbacks
                                       usa

Composite  seat  back  frames  for a  regional  class  commercial  aircraft  are
manufactured in a custom hydraulic  molding press using precision  matched metal
mold tooling.

10
<PAGE>
Picture

High volume production of a tourist class composite seat frame is performed in a
CNC  machining  center  equipped  with a multiple  tool  changer  and rapid feed
cutting capabilities.

CompositAir has been in continuous production of composite seatback frames since
1980.  Composites of epoxy,  phenolic,  or other resin systems,  reinforced with
carbon,  aramid or glass fibers,  are laminated into the complex shapes required
by today's features-packed commercial aircraft seats. Our ability to manufacture
these composite materials  economically with preferred shapes and weight savings
of 30% to 40% distinguish  CompositAir's  seatback  products from the industry's
standard aluminum frames.

                                                                              11
<PAGE>
Picture

"Rhinolite"  SMC  molded  components  can be  bonded  together  to form  complex
water-tight enclosures for inground lighting applications.

Reinhold has been formulating and  manufacturing  sheet molding  compounds (SMC)
since the early 1970s.  Reinhold produces SMC for sales to third parties and for
internal use in our aerospace and commercial applications.  Our "Rhinolite" line
of  SMC  is  specifically  formulated  to  replace  metals  in  corrosive,  high
temperature lighting applications.

12
<PAGE>

Picture

                                    lighting
                                       usa

"Rhinolite"  SMC,   formulated  and   manufactured  by  Reinhold,   blends  high
performance  engineered  resins,  mineral fillers and structural  fibers to meet
demanding lighting industry requirements.

                                                                              13
<PAGE>

Picture
                                    lighting
                                       uk

Housing for motorway  lighting  application  is inspected on a 5 axis  measuring
machine.

14
<PAGE>
Reinhold Industries, Inc. and Subsidiary

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

Reinhold is a manufacturer  of advanced  custom  composite  components and sheet
molding compounds for a variety of applications in the United States and Europe.
Reinhold  derives  revenues from the defense  contract  industry,  the aerospace
industry and other commercial industries.

1998 COMPARED WITH 1997 Backlog at December 31, 1998 was $16.2 million,  up 170%
from December 31, 1997,  primarily due to the acquisition of NP Aerospace and an
increase in aircraft  seatback  orders.  In 1998,  order input  increased 72% to
$29.8 million and net sales increased 60% to $26.0 million from $16.2 million in
1997,  primarily  reflecting  sales of $8.9  million  related  to the April 1998
acquisition of NP Aerospace.  Sales also increased $0.6 million for  CompositAir
products and $0.5 million for  Commercial  products.  However,  there was a $0.2
million decrease in sales for Aerospace products.

Gross profit margin  decreased to 25.0% from 28.9%,  reflecting  lower Aerospace
sales,  whose  products  have  comparatively  higher gross  margins,  production
inefficiencies  at CompositAir  and the inclusion of NP Aerospace  activities (a
lower total margin business).  There were also lower positive material variances
for  Aerospace  products in 1998  compared to 1997.  Gross margin for  Aerospace
products  decreased to 41.0% in 1998 from 43.9% in 1997. Gross profit margin for
CompositAir products decreased to 19.5% in 1998 from 20.7% in 1997. Gross profit
margin for  Commercial  products  increased to 19.3% in 1998 from 11.1% in 1997.
Gross  profit  margin for NP  Aerospace  products  was 20.8% for the period from
acquisition (April 24, 1998) through December 31, 1998.

In 1998, selling,  general and administrative  expenses were $4.3 million (16.6%
of sales) compared with $3.1 million (19.1% of sales) in 1997. Although selling,
general  and  administrative  expenses  were  higher  in  1998,  these  expenses
decreased  2.5% as a  percent  of sales.  Selling,  general  and  administrative
expense  increases  are primarily  associated  with the costs of the new foreign
subsidiary,  including the costs associated with the consolidation of facilities
in the United Kingdom.

Income before  income taxes  increased to $2.2 million (8.4% of sales) from $1.7
million  (10.5% of sales),  reflecting  lower gross  margins and lower  interest
income offset by lower public compliance  costs.  Income before income taxes for
Aerospace  was $1.6 million  (25.7% of sales) in 1998 compared with $2.0 million
(31.2% of sales) in 1997.  Income before income taxes for  CompositAir  was $0.4
million  (4.8% of sales) in 1998  compared  with $0.3 million (3.6% of sales) in
1997. Income before income taxes for Commercial was $0.1 million (3.6% of sales)
in 1998  compared  with a loss in 1997 of $0.2 million.  Since  acquisition,  NP
Aerospace  contributed  income before  income taxes of $0.4 million,  or 4.6% of
sales.

In 1998,  net  interest  expense was $0.01  million.  Interest  expense of $0.15
million was offset by interest income of $0.14 million. In 1997, interest income
was $0.1  million.  The average  yield was 5.14% in 1998  compared with 5.12% in
1997.

A tax  provision  of $0.04  million  was  recorded  in 1998 for the  alternative
minimum tax for  federal and state tax  expenses  compared  with a provision  of
$0.05 million in 1997. In 1998,  the Company had pre-tax  income of $2.2 million
and was able to reduce income taxes by $0.4 million by utilizing a net operating
loss carry  forward,  which  resulted in a reduction in the valuation  allowance
related to  deferred  tax assets.  Deferred  tax  assets,  net of  deferred  tax
liabilities,  amounted to $13.4  million at December 31,  1998.  The Company has
recorded a related  valuation  allowance  of $13.4  million.  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. Management considers the projected future taxable
income and tax planning  strategies  in making this  assessment.  Based upon the
level of historical  taxable income  (losses) and projections for future taxable
income  over the  periods  in which the  deferred  tax  assets  are  deductible,
management  believes it is more likely than not the Company will not realize the
benefits  of  these  deductible  differences.  See  Note 3 to  the  consolidated
financial statements.

Net income  totaled $2.1 million,  or $1.07 per share in 1998 compared with $1.6
million, or $0.82 per share in 1997.

During 1997, the Company's  Board of Directors  changed its investment  strategy
related to the  Retirement  Plan  Trust.  As a result,  the market  value of the
portfolio  increased  by $2.0  million,  thereby  reducing  the  excess  pension
liability and increasing  the company's net worth by $2.0 million.  In 1998, the
impact  of a drop in  long-term  interest  rates  used in  calculating  our Plan
funding  requirements as well as fluctuations in the stock market decreased both
portfolio value and the Company net worth by $1.7 million.

LIQUIDITY  AND CAPITAL  RESOURCES As of December 31, 1998,  working  capital was
$9.0 million,  up $2.6 million from December 31, 1997. Cash and cash equivalents
of $3.6 million held at December 31, 1998 were $1.2 million higher than cash and
cash  equivalents held at December 31, 1997 primarily due to $3.1 million of net
cash provided by operating activities and $0.7 million of marketable  securities
which  matured  offset by the net cash outlay of $1.4 million by the Company for
the NP Aerospace  acquisition  ($3.7 million less loan proceeds of $2.3 million)
and $1.0  million  spent  on  capital  expenditures.  There  were no  marketable
securities held at December 31, 1998.

Net cash  provided  by  operations  amounted  to $3.1  million  in 1998 and $1.2
million in 1997.  The increase  over the prior period  relates to the  increased
profitability of the Company.

Net cash used in  investing  activities  in 1998  totaled  $3.9  million,  which
consisted of the NP Aerospace acquisition totaling $3.7 million and property and
equipment expenditures of $1.0 million offset by the maturity of $0.7 million of
marketable  securities.  Net cash used in investing  activities  in 1997 totaled
$0.3 million  which  consisted of property and equipment  expenditures  totaling
$0.3 million and $0.2 million  relating to the payment made for the  acquisition
of  Reynolds & Taylor  offset by the  maturity  of $0.2  million  of  marketable
securities.

Net cash provided by financing  activities in 1998 totaled $2.0 million relating
to the $2.3 million of proceeds from the CIT loan, less subsequent repayments.

The  Company  does not have any  current  significant  commitments  for  capital
expenditures at December 31, 1998.

                                                                              15
<PAGE>
Reinhold Industries, Inc. and Subsidiary

Management's Discussion and Analysis (cont'd)

As discussed in the notes to the consolidated financial statements,  the Company
acquired  certain  assets and assumed  certain  liabilities of the Ballistic and
Performance  Composites  Division of Courtaulds  Aerospace Ltd on April 24, 1998
(the Closing  Date).  On the Closing Date,  Reinhold paid to Courtaulds  plc Two
Million Two Hundred  Thousand  pounds  sterling  ((pound)2,200,000)  ($3,706,340
based on an exchange  rate of $1.6847) and may make  additional  payments in the
future as required by the Asset Sale Agreement.

The  source of funds  for a portion  of the  Purchase  Consideration  due on the
Closing  Date was a Five Year  Loan and  Security  Agreement  with The CIT Group
Credit/Finance  (CIT) in the amount of Four Million  Dollars  ($4,000,000) at an
interest rate of prime plus 1.75%  (9.50%).  The term portion of the loan in the
amount of Two Million Two Hundred Sixty-Eight  Thousand Dollars ($2,268,000) was
received from CIT. The remainder of the CIT credit facility is a revolver of One
Million Seven Hundred Thirty-Two  Thousand Dollars  ($1,732,000),  which has not
been used at this time. The remaining portion of the purchase  consideration not
funded by the CIT loan was funded by Reinhold's  cash on hand.  Future  payments
required by the Agreement are expected to be financed from operating cash flows.

The Company had a credit  facility with the Keene  Creditors'  Trust whereby the
Company had the ability to draw on a $1.5 million line of credit.  However, this
credit  facility  expired on July 31, 1998.  No amounts had been used under this
facility.

Management  believes that the available cash, cash flows from operations and the
amounts available under the Credit Facility  described above, will be sufficient
to fund the Company's operating and capital expenditure requirements.

RECENT  ACCOUNTING   PRONOUNCEMENTS  In  June  1998,  the  Financial  Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative  Instruments and
Hedging  Activities".  SFAS No. 133 modifies the accounting for  derivatives and
hedging  activities and is effective for fiscal years  beginning  after December
15, 1999. At this time, the Company does not expect the adoption of SFAS No. 133
to have a significant impact on its financial position or results of operations.
In March 1998, the American  Institute of Certified  Public  Accountants  issued
Statement  of Position  98-1 (SOP 98-1),  "Accounting  for the Costs of Computer
Software  Developed or Obtained for  Internal  Use".  The Company will adopt SOP
98-1  effective  in 1999.  The  adoption of SOP 98-1 will require the Company to
modify its method of accounting for computer software  developed or obtained for
internal use. Based upon information  currently available,  the Company does not
expect the adoption of SOP 98-1 to have a  significant  impact on its  financial
position or results of operations.

KEENE  CREDITORS' TRUST SCHEDULE 13D AMENDMENT FILING On July 27, 1998 The Keene
Creditors' Trust, owner of 100% of the Class B Common Stock, filed an amendment,
dated July 16, 1998, to their  previously  filed  Schedule 13D, dated August 12,
1996,  with the Securities and Exchange  Commission.  The purpose of this filing
was to announce the retention of HT Capital Advisors, LLC to assist the Trust in
determining the value of its shares and the feasibility of a disposition of 100%
of those  shares for cash.  The process to sell has been  initiated  and several
companies have shown interest in those shares. Formal due diligence  proceedings
have not yet begun by any of the prospective purchasers.

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.

YEAR 2000 Many existing computer programs use only two digits to identify a year
in a date. If not corrected,  many computer  applications and systems could fail
or create erroneous results before or after the year 2000. In The United States,
the  Company  had  anticipated  the year  2000  problem  in the  mid-1980's  and
therefore created compliant systems. The internal computer systems in the United
States are Year 2000  compliant.  In the United  Kingdom,  the Company is in the
process of identifying and  remediating or replacing any other computer  systems
and software that may not function correctly in the year 2000. Additionally, the
Company is planning a program of communications with its significant  suppliers,
customers  and  affiliated  companies to determine  the readiness of these third
parties  and the impact on the Company as a  consequence  of their own year 2000
issues.  The  Company's  manual  assessment  of the impact of the year 2000 date
change should be complete by mid-1999. The Company believes that it will be able
to  identify,  and, if  necessary,  modify or replace  such systems and software
before any year 2000 associated  problems.  No assurances can be given that such
modification  and replacement  will be completed before any year 2000 associated
problems arise or that costs arising from unanticipated problems will not have a
material adverse effect on the Company. The Company's most likely potential risk
is a temporary  inability of some  customers to order and pay on a timely basis,
and for the  company  to receive  purchases  from  their  vendors  on time.  The
Company's  year 2000 efforts are ongoing and its overall  plan will  continue to
evolve as new information becomes available.

While the Company anticipates no major interruption in its business  activities,
it will be  dependent,  in part, on the ability of third parties to be year 2000
compliant.  As of December 31, 1998,  amounts spent on the  Company's  year 2000
program were less than  $25,000.  The Company  currently  estimates  the cost to
remediate  both its year  2000  hardware  and  software  issues  to be less than
$30,000.

The  Company  is in the  process of  assessing  the year 2000  readiness  of its
critical suppliers.  We expect this assessment to be completed by the end of the
second  quarter 1999. At this time, we have not  formulated a contingency  plan,
but expect to have specific  contingency  plans in place by the end of the third
quarter 1999.

16
<PAGE>
Reinhold Industries, Inc. and Subsidiary
<TABLE>
<CAPTION>

Consolidated Statements of Operations
(Amounts in thousands, except for per share data)

-------------------------------------------------------------------------------------------------------------------
                                                                   Year ended                        Year ended
                                                            December 31, 1998                 December 31, 1997

-------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                                <C>   
Net sales                                                             $25,996                            16,232
Cost of sales                                                          19,493                            11,533
-------------------------------------------------------------------------------------------------------------------
Gross profit                                                            6,503                             4,699
Selling, general and administrative expenses                            4,307                             3,104
-------------------------------------------------------------------------------------------------------------------
Operating income                                                        2,196                             1,595
Interest (expense) income, net                                            (17)                              103
-------------------------------------------------------------------------------------------------------------------
Income before income taxes                                              2,179                             1,698
Income taxes                                                               41                                51
-------------------------------------------------------------------------------------------------------------------
Net income                                                            $ 2,138                             1,647
-------------------------------------------------------------------------------------------------------------------


Basic and diluted earnings per share
Net income                                                            $  1.07                              0.82
-------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding                              1,999                             1,999
-------------------------------------------------------------------------------------------------------------------
<FN>

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

                                                                              17
<PAGE>


Reinhold Industries, Inc. and Subsidiary
<TABLE>
<CAPTION>

Consolidated Balance Sheets
(Amounts in thousands, except share data)

-------------------------------------------------------------------------------------------------------------------
                                                                           December 31, 1998     December 31, 1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                   <C>
Assets
Current assets:
   Cash and cash equivalents                                                         $ 3,622                 2,419
   Marketable securities                                                                   -                   750
   Accounts receivable (less allowance for doubtful accounts of $287
      and $344, respectively)                                                          4,869                 1,899
   Inventories                                                                         4,385                 1,975
   Prepaid expenses and other current assets                                             928                   708
-------------------------------------------------------------------------------------------------------------------
      Total current assets                                                            13,804                 7,751
-------------------------------------------------------------------------------------------------------------------
Property and equipment, at cost                                                        9,532                 7,826
   Less accumulated depreciation and amortization                                      4,056                 3,300
-------------------------------------------------------------------------------------------------------------------
      Net property and equipment                                                       5,476                 4,526
-------------------------------------------------------------------------------------------------------------------

Other assets, less applicable amortization                                               935                   938
-------------------------------------------------------------------------------------------------------------------
                                                                                     $20,215                13,215
-------------------------------------------------------------------------------------------------------------------


Liabilities and stockholders' equity
Current liabilities:
   Accounts payable                                                                  $ 2,976                   588
   Accrued expenses                                                                    1,413                   849
   Current installments of long term debt                                                454                     -
-------------------------------------------------------------------------------------------------------------------
      Total current liabilities                                                        4,843                 1,437
-------------------------------------------------------------------------------------------------------------------

Long-term pension liability                                                            2,290                   592
Long-term debt, less current installments                                              1,550                     -
Other long-term liabilities                                                            1,834                 1,846

Stockholders' equity:
   Common stock, $0.01 par value:
      Class A - authorized 1,480,000 shares; issued and outstanding 978,956 shares        10                    10
      Class B - authorized 1,020,000 shares; issued and outstanding 1,020,000 shares      10                    10
   Additional paid-in capital                                                          7,791                 7,791
   Retained earnings                                                                   4,186                 2,048
   Accumulated other comprehensive loss                                               (2,299)                 (519)
-------------------------------------------------------------------------------------------------------------------
      Net stockholders' equity                                                         9,698                 9,340

Commitments and contingencies
-------------------------------------------------------------------------------------------------------------------
                                                                                     $20,215                13,215
-------------------------------------------------------------------------------------------------------------------
<FN>

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

18
<PAGE>
Reinhold Industries, Inc. and Subsidiary
<TABLE>
<CAPTION>

Consolidated Statements of Cash Flows
(Amounts in thousands)

-------------------------------------------------------------------------------------------------------------------
                                                                             Year ended             Year ended
                                                                     December 31, 1998       December 31, 1997

-------------------------------------------------------------------------------------------------------------------
<S>                                                                            <C>                       <C>
Cash flows from operating activities:
   Net income                                                                  $ 2,138                   1,647
   Adjustments to reconcile net income to net cash
   provided by operating activities:
      Depreciation and amortization                                                899                     844
         Accounts receivable, net                                                 (359)                    (76)
         Inventories                                                              (178)                   (484)
         Other current assets                                                     (143)                   (250)
         Other assets                                                               32                      26
         Accounts payable                                                        1,007                    (170)
         Accrued expenses                                                          (18)                    (89)
         Other, net                                                               (266)                   (205)
-------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                        3,112                   1,243
-------------------------------------------------------------------------------------------------------------------

Cash flows used in investing activities:
   Maturity of marketable securities                                               750                     250
   Acquisitions                                                                 (3,707)                   (246)
   Capital expenditures                                                           (956)                   (350)
-------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                           (3,913)                   (346)
-------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
   Proceeds from long term debt                                                  2,268                       -
   Repayment of long term debt                                                    (264)                      -
-------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                        2,004                       -
-------------------------------------------------------------------------------------------------------------------

Net increase in cash and cash equivalents                                        1,203                     897
-------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at beginning of year                                   2,419                   1,522
-------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents at end of year                                       $ 3,622                   2,419
-------------------------------------------------------------------------------------------------------------------

Supplementary  disclosures  of cash flow  information - 
  Cash paid during the year for:
      Income taxes                                                             $    38                      30
      Interest                                                                 $   137                       -
-------------------------------------------------------------------------------------------------------------------
<FN>

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

                                                                              19
<PAGE>
Reinhold Industries, Inc. and Subsidiary
<TABLE>
<CAPTION>

Consolidated Statements of Stockholders' Equity and Comprehensive Income
(Amounts in thousands, except share data)


                                                                                     Common stock   $0.01 par value                 
                                                                            --------------------------------------------------
                                                                            Class A                         Class B                 
                                                                             Shares        Amount            Shares     Amount      
------------------------------------------------------------------------------------------------------------------------------
<S>                                                                         <C>               <C>         <C>              <C>      
Balance, December 31, 1996                                                  978,956           $10         1,020,000        $10      


Net income                                                                        -             -                 -          -      

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

Comprehensive income                                                                                                                
------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997                                                  978,956            10         1,020,000         10      

Net income                                                                        -             -                 -          -      

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

Foreign currency translation adjustment                                           -             -                 -          -      
------------------------------------------------------------------------------------------------------------------------------

Comprehensive income                                                                                                                
------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                                                  978,956           $10         1,020,000        $10      
------------------------------------------------------------------------------------------------------------------------------
<FN>

See accompanying notes to consolidated financial statements.

</FN>
</TABLE>

20
<PAGE>
Reinhold Industries, Inc. and Subsidiary
<TABLE>
<CAPTION>
                                                    Comprehensive Income      
                               --------------------------------------------------------------
                                                             Accumulated
                                                     other comprehensive    Total comprehensive
Additional paid-in capital     Retained earnings                    loss                 income       Net stockholders' equity
------------------------------------------------------------------------------------------------------------------------------
                    <S>                  <C>                     <C>                     <C>                          <C>  
                    $7,791               $   401                 $(2,493)                                             $5,719

                         -                 1,647                       -                 $1,647                        1,647


                         -                     -                   1,974                  1,974                        1,974
------------------------------------------------------------------------------------------------------------------------------

                                                                                          3,621
------------------------------------------------------------------------------------------------------------------------------
                      7,791                2,048                    (519)                                              9,340

                          -                2,138                       -                  2,138                        2,138


                          -                    -                  (1,730)                (1,730)                      (1,730)

                          -                    -                     (50)                   (50)                         (50)
------------------------------------------------------------------------------------------------------------------------------

                                                                                            358
------------------------------------------------------------------------------------------------------------------------------
                     $7,791                $4,186                 $(2,299)                                            $9,698
------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              21
<PAGE>
Reinhold Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements
Years ended December 31, 1998 and 1997

1 ORGANIZATION
Description of Business Reinhold  Industries,  Inc. and Subsidiary  (Reinhold or
the Company) is a manufacturer of advanced custom composite components and sheet
molding compounds for a variety of applications in the United States and Europe.
Reinhold  derives  revenues from the defense  contract  industry,  the aerospace
industry 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).

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Principles of Consolidation The accompanying  consolidated  financial statements
as of and for the years ended  December 31, 1998 and 1997,  include the accounts
of Reinhold and its wholly owned subsidiary NP Aerospace  Limited (NP Aerospace)
which was acquired on April 24, 1998.  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.
<TABLE>
<CAPTION>

Cash and cash equivalents consist of the following (in thousands):
                                                            December 31, 1998                    December 31, 1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                                    <C>
Cash in banks                                                         $   722                                  504
Money market funds                                                      2,900                                1,915
-------------------------------------------------------------------------------------------------------------------
Total                                                                 $ 3,622                                2,419
-------------------------------------------------------------------------------------------------------------------
</TABLE>

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.

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 on units  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,  1998  and  1997  were   $889,000  and  $647,000,
respectively.

MARKETABLE  SECURITIES The Company  accounts for investments in certain debt and
equity  securities  under the  provisions  of Statement of Financial  Accounting
Standards (SFAS) No. 115,  "Accounting for Certain Debt and Equity  Securities".
Under SFAS No. 115, the Company must  classify  its debt and  marketable  equity
securities  in  one  of  three  categories:  trading,   available-for-sale,   or
held-to-maturity.

Available-for-sale  securities  are recorded at fair value.  Unrealized  holding
gains and losses,  net of the tax effect, on  available-for-sale  securities are
excluded from earnings and are reported as a separate component of stockholders'
equity  until  realized.  Declines  in the  market  value of  available-for-sale
securities  deemed to be other  than  temporary  result in  charges  to  current
earnings and establishment of a new cost basis.

22
<PAGE>
Reinhold Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements (cont'd)


At December 31, 1997, the Company's marketable securities consist principally of
highly liquid U.S.  Government  Treasury  notes and bills with various  maturity
dates through 1998. The Company has classified all of its marketable  securities
as available-for-sale.  At December 31, 1997, unrealized holding gains or losses
were immaterial.

Proceeds from the sale of marketable securities available for sale were $750,000
during the year  ended  December  31,  1998 and  $250,000  during the year ended
December 31, 1997.  Gross realized  gains and losses  included in income in 1998
and 1997 were immaterial.

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.
<TABLE>
<CAPTION>

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

                                                     Useful life  December 31, 1998        December 31, 1997

-------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                     <C>                       <C>
Undeveloped land                                     -                       $  900                      900
Buildings                                            10 years                   352                        -
Leasehold improvements                               5-6 years                  838                      836
Machinery and equipment                              5-25 years               6,794                    5,553
Furniture and fixtures                               3-10 years                 643                      523
Construction in process                              -                            5                       14
-------------------------------------------------------------------------------------------------------------------
                                                                              9,532                    7,826
Less accumulated depreciation and amortization                                4,056                    3,300
-------------------------------------------------------------------------------------------------------------------
                                                                             $5,476                    4,526
-------------------------------------------------------------------------------------------------------------------
</TABLE>

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 operations.

Maintenance  and repairs are expensed as incurred.  Renewals and betterments are
capitalized.

OTHER ASSETS Other assets consist primarily of goodwill. Goodwill represents the
excess  of  purchase  price  over  fair  value of net  assets  acquired,  and is
amortized on a straight-line basis over the expected periods to be benefited, 10
years. Goodwill and related accumulated amortization included in other assets at
December 31, 1998 and 1997 amounted to $1,118,000  and $369,000,  and $1,118,000
and $252,000, respectively.

ACQUIRED  BUSINESS  On April 24,  1998,  NP  Aerospace  Limited  purchased  from
Courtaulds Aerospace Limited (CAL), a U.K. Corporation,  which is a wholly owned
subsidiary of Courtaulds plc, a U.K. Corporation,  certain assets (consisting of
Accounts Receivable,  Inventory,  Machinery and Equipment, Land and Intellectual
Property and Patents)  and assumed  certain  liabilities  of the  Ballistic  and
Performance  Composites  Division  of CAL.  Reinhold,  as the  Guarantor  for NP
Aerospace,   became  obligated  to  pay  to  Courtaulds  plc  net  consideration
consisting   of  (a)  Two   Million  Two  Hundred   Thousand   pounds   sterling
((pound)2,200,000) ($3,706,340 based on an exchange rate of $1.6847) cash on the
Closing Date and (b) within 120 days  following  the end of each of the calendar
years 1998 through 2001, a cash amount equal to 25% of the Pre-tax Profit on the
light armored vehicle business only, the maximum aggregate amount of which shall
not  exceed  Twenty  Million  pounds  sterling  ((pound)20,000,000).  Additional
payments will be capitalized as part of the purchase price, when and if earned.

The acquisition has been accounted for by the purchase method and,  accordingly,
the results of  operations  of the acquired  business  have been included in the
consolidated financial statements from April 24, 1998.
<TABLE>
<CAPTION>

The excess of the fair value of the net  identifiable  assets  acquired over the
purchase price has been allocated to fixed assets as follows (in thousands):

<S>                                                                         <C>    
Working capital                                                             $ 3,360
Severance costs                                                                (403)
-------------------------------------------------------------------------------------------------------------------
Net identifiable assets                                                       2,957
Purchase price                                                                3,707
-------------------------------------------------------------------------------------------------------------------
Excess over cost allocated to property, plant and equipment                 $   750
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              23
<PAGE>
Reinhold Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements (cont'd)

<TABLE>
<CAPTION>

The pro forma  unaudited  results of operations for the years ended December 31,
1998 and 1997,  assuming  consummation of the purchase as of January 1, 1997 are
as follows (in thousands, except earnings per share data):

                                                            Year ended                              Year ended
                                                    December 31, 1998                        December 31, 1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                                       <C>   
Net sales                                                     $ 30,918                                  32,780
Net income                                                    $  2,270                                   1,997
Basic and diluted earnings per share                          $   1.14                                    1.00
</TABLE>

On March 2, 1992, the Company acquired Reynolds & Taylor,  Inc. (R&T) from Furon
Company  (Furon).  The  acquisition  was  accounted  for  as  a  purchase.   The
acquisition agreement provided that Reinhold was required to pay additional cash
consideration  over the years ended December 31, 1992 through  December 31, 1996
(inclusive).  The  final  payment  for the  year  ended  December  31,  1996 was
$246,000,  resulting in an increase in goodwill. This amount was paid in January
1997.

INCOME  TAXES  The  Company  accounts  for  income  taxes  under  SFAS No.  109,
"Accounting for Income Taxes." Under the asset and liability  method of SFAS No.
109,  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.  Under SFAS No. 109,  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.

EARNINGS PER SHARE The Company  adopted the provisions of SFAS No. 128 "Earnings
Per Share" during the quarterly  period ending December 31, 1997. This statement
specifies new standards  designed to improve the earnings per share  information
provided in financial  statements  by  simplifying  the  existing  computational
guidelines, revising the disclosure and increasing the comparability of earnings
per share data on an international basis. Adoption of SFAS No. 128 had no impact
on the current year's calculation or previously reported amounts, as the Company
has no dilutive securities.

COMPREHENSIVE  INCOME  The  Company  adopted  the  provisions  of SFAS  No.  130
"Reporting  Comprehensive  Income",  effective  January  1,  1998.  SFAS No. 130
establishes  standards for reporting and display of comprehensive income and its
components  in a  full  set  of  general  purpose  financial  statements.  Total
comprehensive income is reported in the Consolidated Statements of Stockholders'
Equity in the  financial  statements  and  includes  net income,  changes in the
additional  pension  liability in excess of unrecognized  prior service cost and
changes in foreign currency translation.

STOCK OPTION PLAN Prior to January 1, 1996, the Company  accounted for its stock
option plan in accordance  with the  provisions of Accounting  Principles  Board
(APB) Opinion No. 25,  "Accounting  for Stock Issued to Employees,"  and related
interpretations.  As such, compensation expense would be recorded on the date of
grant only if the current  market  price of the  underlying  stock  exceeded the
exercise  price.  On  January  1,  1996,  the  Company  adopted  SFAS  No.  123,
"Accounting for Stock-Based  Compensation,"  which permits entities to recognize
as expense over the vesting period the fair value of all  stock-based  awards on
the date of grant. Alternatively,  SFAS No. 123 also allows entities to continue
to apply the  provisions  of APB Opinion No. 25 and provide pro forma net income
and pro forma  earnings per share  disclosures  for employee stock option grants
made in 1995 and future years as if the fair-value-based  method defined in SFAS
No. 123 had been  applied.  The  Company  has  elected to  continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions
of SFAS No. 123, if  required.  All stock  options  granted by the Company  were
prior to January 1, 1995;  accordingly,  pro forma  disclosures are not required
until such time as the Company  grants  additional  stock  options under the new
stock plan, as described in Note 6 to the consolidated financial statements.

PENSION AND OTHER POSTRETIREMENT PLANS The Company has a defined benefit pension
plan  covering  substantially  all of its  employees.  The benefits are based on
years of  service  and the  employee's  compensation  during  the last  years of
service before  retirement.  The cost of this program is being funded currently.
In February 1998, the Financial  Accounting  Standards Board issued SFAS No. 132
"Employers' Disclosures about Pensions and Other Postretirement  Benefits". SFAS
No. 132 does not change the measurement or recognition of these plans,  however,
it  standardizes  the disclosure  requirements.  See Note 7 to the  consolidated
financial statements.

USE OF ESTIMATES  Management  of the Company has made a number of estimates  and
assumptions  relating to the reporting of assets and  liabilities and income and
expense and  disclosure of contingent  assets and  liabilities  to prepare these
consolidated   financial   statements  in  conformity  with  generally  accepted
accounting principles.  Actual results could differ from those estimates.

24
<PAGE>

Reinhold Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements (cont'd)

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 under the provisions of SFAS No. 121, "Accounting for the Impairment of
Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed  Of." SFAS No. 121
requires that long-lived assets and certain identifiable  intangibles  including
goodwill be reviewed for impairment  whenever events or changes in circumstances
indicate  that  the  carrying  amount  of  an  asset  may  not  be  recoverable.
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.  As of
December 31, 1998 and 1997, no assets were considered impaired.

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, other current
assets,   other  assets,   accounts   payable,   accrued  expenses  and  current
installments  of long term debt.  The fair values of marketable  securities  are
based on the quoted market prices at the reporting  date for those  investments.
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  statement of income is translated at the average  exchange rate in
effect  from  the  date of  acquisition  through  December  31,  1998.  Exchange
differences arise from the valuation rates of the intercompany  accounts and are
taken directly to Stockholders'  equity.  The exchange rate at December 31, 1998
was $1.66 for both the balance sheet and the consolidated statement of income.

RECLASSIFICATIONS  Certain  amounts in the prior period  consolidated  financial
statements have been reclassified to conform with the current presentation.

3 INCOME TAXES
<TABLE>
<CAPTION>

The income tax provision consists of (in thousands):
                                                              Year ended               Year ended
                                                       December 31, 1998        December 31, 1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>                       <C>
Federal                                                              $ 35                      39
State                                                                   3                      12
Foreign                                                                 3                       -
Deferred                                                                -                       -
-------------------------------------------------------------------------------------------------------------------
Total                                                                $ 41                      51
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>

The  income tax  expense  for the years  ended  December  31,  1998 and 1997 was
$41,000 and $51,000,  respectively,  and 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):

                                                               Year ended              Year ended
                                                       December 31, 1998        December 31, 1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                       <C>
Statutory taxes at Federal rate                                     $ 601                     594
Federal and State Alternative Minimum Tax                              -                       51
State taxes, net of Federal tax benefits                               52                       -
Permanent differences                                                (247)                      -
Change in valuation allowance                                        (403)                   (643)
Other                                                                  38                      49
-------------------------------------------------------------------------------------------------------------------
Total provision for income tax expense                              $  41                      51
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              25
<PAGE>
Reinhold Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements (cont'd)
<TABLE>
<CAPTION>

The  significant  components of deferred  income tax benefit were as follows (in
thousands):

                                                              Year ended               Year ended
                                                       December 31, 1998        December 31, 1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                           <C>
Current deferred tax benefit                                   $      403                     643
Change in valuation allowance for deferred tax asset                 (403)                   (643)
-------------------------------------------------------------------------------------------------------------------
Total deferred tax benefit                                     $        -                       -
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>

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, 1998       December 31, 1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                        <C>
Deferred tax assets:
            Adjustments from quasi-reorganization              $      595                     595
            Net operating loss carryforwards                       12,305                  13,416
            Inventory reserves                                        240                     363
            Other reserves                                            996                     886
-------------------------------------------------------------------------------------------------------------------
                Total gross deferred tax assets                    14,136                  15,260

            Less valuation allowance                              (13,388)                (14,593)
-------------------------------------------------------------------------------------------------------------------
                Net deferred tax assets                               748                     667

Deferred tax liabilities:
            Pension                                                  (268)                   (207)
            Depreciation                                             (480)                   (460)
-------------------------------------------------------------------------------------------------------------------
                Total gross deferred tax liabilities                 (748)                   (667)
-------------------------------------------------------------------------------------------------------------------
                Net deferred tax assets                        $        -                       -
</TABLE>

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 it
is more  likely than not the  Company  will not  realize  the  benefits of these
deductible differences at December 31, 1998.

At December 31, 1998 and 1997,  the Company had  generated  net  operating  loss
carryovers  for Federal  income tax purposes of  approximately  $34,857,000  and
$38,331,000,  respectively. At December 31, 1998, the Company has also generated
net operating  loss  carryovers  for State income tax purposes of  approximately
$8,988,000. The Company may utilize the Federal net operating losses by carrying
them forward to offset future Federal taxable income,  if any, through 2011. The
Company may utilize the State net  operating  losses by carrying them forward to
offset future State taxable income, if any, through 2001.

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 April 22, 1998,  the Company  borrowed  $2,268,000,  of which  $2,004,000  is
outstanding as of December 31, 1998, from The CIT Group  Credit/Finance (CIT) to
fund a portion of the purchase  consideration due to Courtaulds  Aerospace.  The
Company had previously entered into a Five Year Loan and Security Agreement with
CIT in the amount of Four Million Dollars ($4,000,000).  The term portion of the
loan ($2,268,000) is payable in equal monthly principal payments of $37,800 plus
interest  at prime  plus 1.75% and is  secured  by fixed  assets  and land.  The
remainder of the CIT credit  facility is a revolver of One Million Seven Hundred
Thirty-Two Thousand Dollars ($1,732,000), which has not been used at this time.

26
<PAGE>
Reinhold Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements (cont'd)
<TABLE>
<CAPTION>

At  December  31,  1998,  maturities  of long  term  debt  were as  follows  (in
thousands):

<S>                                                   <C>    
1999                                                  $   454
2000                                                      454
2001                                                      454
2002                                                      454
2003                                                      188
-------------------------------------------------------------------------------------------------------------------
                                                      $ 2,004
-------------------------------------------------------------------------------------------------------------------
</TABLE>

5 STOCKHOLDERS' EQUITY
Common stock consists of 2,500,000 authorized shares, $0.01 par value per share,
of which  1,020,000  shares of Class B and  978,956  of Class A were  issued and
outstanding  at December  31, 1998 and 1997.  At such time as the Class B Common
Stock shall represent less than 10% of the aggregate shares of Common Stock then
outstanding, all the shares of the Class B Common Stock shall convert to Class A
Common Stock.

6 STOCK OPTIONS
As of the Effective  Date, the Company  established a stock  incentive plan (the
Stock  Plan)  for key  employees.  The  Stock  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 Stock 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 Stock Plan may not exceed 10,000. The shares to be delivered under the Stock
Plan may consist of authorized but unissued stock or treasury stock not reserved
for any other purpose.

The  exercise  price  of the  options  is  established  at the  discretion  of a
Committee of the Board of Directors (the Committee), provided that it may not be
less than the estimated fair value at the time of grant. The Stock 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.

The Committee,  in its discretion,  in connection  with grant of an option,  may
grant to the optionee stock  appreciation  rights (SARs). A SAR will entitle the
holder of the related option,  upon exercise of the stock appreciation right, to
surrender such option and receive payment of an amount determined by multiplying
(i) the  excess  of the  fair  market  value  of a share of stock on the date of
exercise  of such SAR  over the  purchase  price of a share of stock  under  the
related  option,  by (ii) the  number  of  shares as to which the SARs have been
exercised.

The Committee may grant shares of restricted stock to eligible  employees and in
such amounts as it shall determine in its sole discretion.

No options, SARs or restricted stock were granted under the Stock Plan.

7 PENSION PLAN
The  Company  has a pension  plan  covering  substantially  all  employees.  The
benefits paid under the pension plan 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 plan 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.

The measurement  date used for the valuation of the pension plan and calculation
of projected  benefits and fair value of assets was changed from September 30 to
December 31 in 1998. The 1997  information was not restated.  The fourth quarter
1997 information is included in 1998.

                                                                              27
<PAGE>
Reinhold Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements (cont'd)
<TABLE>
<CAPTION>

Net pension cost included the following (in thousands):

                                                           Year Ended                         Year Ended
                                                    December 31, 1998                  December 31, 1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                               <C>
Service cost                                                      $113                                96
Interest cost on benefits earned in prior years                    839                               846
Expected return on assets                                         (972)                             (839)
Amortization of net obligation at transition                        20                                20
Amortization of net loss                                             6                               112
-------------------------------------------------------------------------------------------------------------------
Net pension cost                                                  $  6                               235
</TABLE>
<TABLE>
<CAPTION>

The following  table sets forth a  reconciliation  of the pension plan's benefit
obligation at December 31, 1998 and September 30, 1997 (in thousands):

                                                                  1998                              1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                                <C>   
Projected benefit obligation at beginning of period            $11,812                            11,947
Service cost                                                       137                               102
Interest cost                                                    1,051                               846
Actuarial loss/(gain)                                            1,049                              (256)
Benefits paid                                                   (1,350)                             (827)
-------------------------------------------------------------------------------------------------------------------
Projected benefit obligation at end of period                  $12,699                            11,812
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>

The following table sets forth a reconciliation  of the pension plan's assets at
December 31, 1998 and September 30, 1997 (in thousands):
                                                                  1998                              1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                                 <C>  
Fair value of plan assets at beginning of period               $11,432                             9,311
Actual return on assets                                            345                             2,483
Employer contributions                                             328                               465
Benefits paid                                                   (1,350)                             (827)
-------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of period                     $10,755                            11,432
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>


The following  table sets forth a  reconciliation  of the pension  plan's funded
status at December 31, 1998 and September 30, 1997 (in thousands):
                                                                  1998                              1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                                <C>   
Projected benefit obligation at end of period                  $12,699                            11,812
Fair value of plan assets at end of period                      10,755                            11,432
-------------------------------------------------------------------------------------------------------------------
Funded status                                                   (1,944)                             (380)
Unrecognized prior service cost                                      1                                 8
Unrecognized net obligation at transition                           40                                65
Unrecognized net loss                                            2,562                               704
-------------------------------------------------------------------------------------------------------------------
Prepaid pension cost at end of period                          $   659                               397
-------------------------------------------------------------------------------------------------------------------

Intangible asset at December 31,                               $    41                                73
Additional minimum liability at December 31,                    (2,290)                             (592)
-------------------------------------------------------------------------------------------------------------------
Additional pension liability in excess of prior
  service cost at December 31,                                 $(2,249)                             (519)
-------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>

Assumptions used in accounting for the pension plan were:
                                                      December 31, 1998                 December 31, 1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                               <C> 
Discount rate                                                       6.5%                              7.5%
Rate of increase in compensation levels                             5.0                               5.0
Expected long-term rate of return on assets                         9.0                               9.0
</TABLE>

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.

28
<PAGE>
Reinhold Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements (cont'd)

8 OPERATING SEGMENTS
The Company  adopted SFAS No. 131  "Disclosures  about Segments of an Enterprise
and Related  Information"  as of December 31, 1998. SFAS No. 131 establishes new
standards  for  reporting  information  about  operating  segments  and  related
disclosures about products and services, geographic areas and major customers.

Reinhold is a manufacturer  of advanced  custom  composite  components and sheet
molding compounds for a variety of applications in the United States and Europe.
The  Company  generates  revenues  from  four  operating  segments:   Aerospace,
CompositAir,  Commercial and NP Aerospace. 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 filters. NP Aerospace
is our  subsidiary  located in Coventry,  England and produces  products for law
enforcement, lighting, military, automotive and commercial aircraft.
<TABLE>
<CAPTION>

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

                                                         December 31, 1998           December 31, 1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                            <C>
Net sales
     Aerospace                                                   $   6,165                      6,391
     CompositAir                                                     8,997                      8,340
     Commercial                                                      1,978                      1,501
     NP Aerospace                                                    8,856                          -
-------------------------------------------------------------------------------------------------------------------
Total sales                                                      $  25,996                     16,232
-------------------------------------------------------------------------------------------------------------------

Income before income taxes
     Aerospace                                                   $   1,587                      1,994
     CompositAir                                                       431                        304
     Commercial                                                         72                       (198)
     NP Aerospace                                                      410                          -
     Unallocated corporate expenses                                   (321)                      (402)
-------------------------------------------------------------------------------------------------------------------
Total income before income taxes                                 $   2,179                      1,698
-------------------------------------------------------------------------------------------------------------------

Depreciation and amortization
     Aerospace                                                   $     369                        424
     CompositAir                                                       220                        214
     Commercial                                                        150                        137
     NP Aerospace                                                       64                          -
     Unallocated corporate                                              96                         69
-------------------------------------------------------------------------------------------------------------------
Total depreciation and amortization                              $     899                        844
-------------------------------------------------------------------------------------------------------------------

Capital expenditures
     Aerospace                                                   $      63                        117
     CompositAir                                                       458                        100
     Commercial                                                        132                        133
     NP Aerospace                                                      303                          -
-------------------------------------------------------------------------------------------------------------------
Total capital expenditures                                       $     956                        350
-------------------------------------------------------------------------------------------------------------------

Total assets
     Aerospace                                                   $   4,869                      5,590
     CompositAir                                                     3,419                      2,541
     Commercial                                                      1,144                      1,134
     NP Aerospace                                                    8,015                          -
     Unallocated corporate                                           2,768                      3,950
-------------------------------------------------------------------------------------------------------------------
Total assets                                                     $  20,215                     13,215
-------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              29
<PAGE>

Reinhold Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements (cont'd)
<TABLE>
<CAPTION>

The table  below  presents  information  related  to  geographic  areas in which
Reinhold operated in 1998 and 1997 (in thousands):

                                                         December 31, 1998           December 31, 1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                         <C>
Net sales
     United States                                                 $14,920                     13,794
     United Kingdom                                                  8,579                        266
     Germany                                                         1,797                      2,172
     Switzerland                                                       336                          -
     Sweden                                                            238                          -
     Other Europe                                                      126                          -
-------------------------------------------------------------------------------------------------------------------
Net sales                                                          $25,996                     16,232
-------------------------------------------------------------------------------------------------------------------

Total assets
     United States                                                 $12,200                     13,215
     United Kingdom                                                  8,015                          -
-------------------------------------------------------------------------------------------------------------------
Total assets                                                       $20,215                     13,215
-------------------------------------------------------------------------------------------------------------------
</TABLE>

9 COMMITMENTS AND CONTINGENCIES
LEASES The Company  leases  certain  facilities  and equipment  under  operating
leases  expiring  through 2002.  Total rental  expense on all  operating  leases
approximated $509,000 and $447,000 for 1998 and 1997, respectively.
<TABLE>

Minimum  future  rental  commitments  under  noncancelable  operating  leases at
December 31, 1998 are as follows (in thousands):

<S>                                                                 <C>   
1999                                                                $  449
2000                                                                   254
2001                                                                   104
2002                                                                    44
-------------------------------------------------------------------------------------------------------------------
                                                                    $  851
-------------------------------------------------------------------------------------------------------------------
</TABLE>

LEGAL  PROCEEDINGS  The Company is involved in various  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.

10 BUSINESS AND CREDIT CONCENTRATIONS
As the United  States  Government  continues to reduce  budget  allocations  for
defense  expenditures,  sales to  customers  operating  in the defense  contract
industry may be adversely affected. The Company has been successful in replacing
sales  lost  to  customers  in the  defense  contract  industry  with  companies
operating  in the  aerospace  and other  commercial  industries.  Changes in the
marketplace  of any of  the  above-named  industries  may  significantly  affect
management's estimates and the Company's performance.

The Company's principal customers are prime contractors to the U.S.  Government,
other foreign governments and aircraft seat manufacturers.
<TABLE>
<CAPTION>

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

                                                                Year ended                  Year ended
                                                         December 31, 1998           December 31, 1997
-------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                           <C>  
B/E Aerospace                                                     $ 8,687                       5,736
Alliant Techsystems                                                 3,077                       1,929
Recaro Aircraft Seating                                                 *                       2,173
-------------------------------------------------------------------------------------------------------------------
<FN>
 *Sales to these customers were less than 10% of total net sales for the period.
</FN>
</TABLE>

B/E  Aerospace  accounted  for  approximately  39%  of  the  Company's  accounts
receivable  balance  before  any  adjustments  for the  allowance  for  doubtful
accounts and the United Kingdom Ministry of Defense  accounted for approximately
12%. 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.

30
<PAGE>
Reinhold Industries, Inc. and Subsidiary

INDEPENDENT AUDITORS' REPORT


The Board of Directors
Reinhold Industries, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets  of  Reinhold
Industries,  Inc. and Subsidiary  (the Company) as of December 31, 1998 and 1997
and the related consolidated statements of operations,  stockholders' equity and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  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 consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Reinhold Industries,
Inc.  and  Subsidiary  as of December 31, 1998 and 1997 and the results of their
operations  and their cash flows for the years  then  ended in  conformity  with
generally accepted accounting principles.



/s/ KPMG LLP

Los Angeles, California
January 29, 1999


                                                                              31
<PAGE>
Reinhold Industries, Inc. and Subsidiary
<TABLE>
<CAPTION>

CORPORATE DIRECTORY


<S>                           <C>                                <C>                                <C>
BOARD OF DIRECTORS            CORPORATE OFFICES                  FORM 10-KSB                        STOCK LISTING
Lawrence H. Diamond           12827 East Imperial Highway        Stockholders may obtain a          Reinhold common stock
Chairman                      Santa Fe Springs, CA 90670         copy of Reinhold's 10-KSB          is listed on the OTC Bulletin
Retired,                      562 944-3281                       without charge by writing to       Board
Ernst & Young LLP             562 944-7238 (fax)                 Investor Relations Department      Symbol - RNHDA

Michael T. Furry              INVESTOR RELATIONS                 TRANSFER AGENT
President and CEO             Contact Judy Sanson                Continental Stock Transfer &
Reinhold Industries, Inc.     Reinhold Industries, Inc.          Trust Company
                                                                 2 Broadway
Robert B. Steinberg           REGISTRAR                          New York, New York 10004
Senior Partner                Continental Stock Transfer &       212 509-4000
Rose, Klein & Marias          Trust Company
                              2 Broadway                         INDEPENDENT AUDITORS
Corporate Officers            New York, New York 10004           KPMG LLP
Michael T. Furry                                                 725 South Figueroa Street
President and CEO             ANNUAL MEETING                     Los Angeles, CA 90017
                              The Annual Stockholders'
Brett R. Meinsen              Meeting will be held at the        ATTORNEYS
Vice President - Finance      offices of                         Petillon & Hansen
Administration, Treasurer     Reinhold Industries, Inc.          1260 Union Bank Tower
and Secretary                 12827 East Imperial Hwy            21515 Hawthorne Boulevard
                              Santa Fe Springs, CA               Torrance, California 90503
                              on April 30, 1999
                              at 10:00 a.m.                      Wapnick & Alvarado
                                                                 11268 W. Washington Blvd.
                                                                 Suite 200
                                                                 Culver City, CA 90230


</TABLE>





<TABLE>
<CAPTION>

Stockholder Information

Market Price                                 High         Low
-------------------------------------------------------------------------------------------------------------------
<S>                                            <C>        <C>
First Quarter ended March 31, 1998             8 7/8      5 1/2
Second Quarter ended June 30, 1998             9 1/4      8
Third Quarter ended September 30, 1998         8 1/4      6 1/8
Fourth Quarter ended December 31, 1998         8 1/2      6 3/4
<FN>

The Class A Common  Stock of the  Company  is listed on the OTC  Bulletin  Board
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 year ended December 31, 1998.
</FN>
</TABLE>

32
<PAGE>

Inside Back Cover
This page is blank
<PAGE>


Reinhold Industries, Inc.
12827 East Imperial Highway
Santa Fe Springs, CA 90670
562 944-3281