REINHOLD INDUSTRIES, INC.
                                                              2000 ANNUAL REPORT

Picture - Products       Picture - Products       Picture - Building

<PAGE>


Picture - Board of Directors


Board of Directors, left to right: Michael T. Furry, President and CEO; Ralph R.
Whitney,  Jr., Chairman;  Andrew McNally IV; Thomas Brand; Richard A. Place; and
Glenn Scolnik.

<PAGE>

<TABLE>
<CAPTION>

                                                                Reinhold Industries, Inc. and Subsidiaries

Selected Financial Data

                                                2000         1999          1998          1997         1996
-----------------------------------------------------------------------------------------------------------
<S>                                       <C>              <C>           <C>           <C>          <C>
Summary of operations (in thousands)
Net sales                                 $   49,287       39,140        25,996        16,232       13,120
Gross profit                              $   14,789       10,783         6,503         4,699        3,046
Operating income                          $    5,364        5,704         2,196         1,595           17
Gain on sale of asset                     $      962            -             -             -            -
Interest (expense) income, net            $     (529)         100           (17)          103        1,159
Reorganization expenses                   $        -            -             -             -        3,139
Net income (loss)                         $    3,517        3,570         1,435         1,004       (2,353)
-----------------------------------------------------------------------------------------------------------
Year end position (in thousands)
Cash and marketable securities            $    7,121        9,419         3,622         3,169        2,522
Working capital                           $   14,589       13,256         8,961         6,314        3,602
Net property and equipment                $   11,280        5,726         5,476         4,526        5,158
Total assets                              $   40,709       25,234        20,215        13,215       12,540
Long-term debt                            $    8,721        1,125         1,550             -            -
Other long-term liabilities               $      449          204         2,559           873        3,314
Stockholders' equity                      $   22,905       18,423        11,263        10,905        7,284
-----------------------------------------------------------------------------------------------------------
Per share data (Note 2)
Net income (loss):
Basic (Note 1)                            $     1.60         1.62          0.65          0.46        N.M.*
Diluted (Note 1)                          $     1.58         1.62          0.65          0.46        N.M.*
Stockholders' equity                      $    10.28         8.36          5.12          4.96        N.M.*
Market price range:
High                                      $    13.00        11.93          9.25         10.00         4.13
Low                                       $     6.50         6.14          5.50          2.88         3.25
-----------------------------------------------------------------------------------------------------------
Other data (in thousands except stockholder & employee data)
Orders on hand                            $   16,442       13,841        16,194         5,989        4,935
Average shares outstanding - basic             2,198        2,198         2,198         2,198       Note 1
Average shares outstanding - diluted           2,229        2,205         2,198         2,198       Note 1
Average number of common stockholders          1,629        1,711         1,808         1,951        2,099
Average number of employees                      439          289           220           124          105
-----------------------------------------------------------------------------------------------------------
<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: All share  information  has been  adjusted for the  Company's  10% stock
dividend in 2000.

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


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.

                                       1

<PAGE>

MESSAGE FROM THE PRESIDENT

BRIEF SUMMARY OF THE YEAR The financial  results  achieved by the company in the
year 2000 were essentially as expected,  with net income down 1% from our strong
performance  in 1999.  A positive  aspect was gross sales of $49.3  million,  up
$10.1  million,  or 26%, over 1999.  The increase is  attributable  to the $18.3
million  in sales  contributed  by  Bingham  during  the 10 months  of  Reinhold
ownership.  It was particularly  important  because it enabled us to sustain our
five-year pattern of continuous sales growth.

      Individual  performance of the Business Units was mixed. The Aerospace and
Commercial  Units had excellent  years,  but their strong results were partially
eroded  by poor  results  from  CompositAir  and NP  Aerospace.  Details  of the
performance of each of the Business  Units will be reviewed  following the story
of the Bingham Acquisition.

THE BINGHAM  ACQUISITION The primary thrust of Reinhold's strategy for growth is
focused  acquisitions.  On  March  9,  2000,  we  took  a  significant  step  in
implementing this strategy by acquiring the Samuel Bingham Company. An immediate
effect of that acquisition was to invigorate the process of


Picture - Michael T. Furry

Michael T. Furry
President and CEO

                                       2

<PAGE>

                                         FOUNDED  IN  1848  BY  SAMUEL  BINGHAM,
                                         THE  COMPANY  WAS   ONE  OF  THE  FIRST
                                         MANUFACTURERS OF  RUBBER AND  COMPOSITE
                                         ROLLERS


aggressive revenue growth that began for Reinhold in 1996.

      Bingham  manufactures  rubber  rollers for virtually all sheet and web-fed
offset,  flexographic,  letterpress,  and  gravure  printers,  as well as  metal
decorators, manufacturers of film, packaging, converter products, and many other
types of processors.  Founded in 1848 by Samuel Bingham,  the company was one of
the first  manufacturers  of rubber and composite  rollers and over the next 130
years  built a  reputation  as an  industry  leader in  innovation  and  product
development.

      A century later, as competition  intensified over the last thirty years of
the 20th century,  Bingham  management relaxed their commitment to replacing and
maintaining equipment and facilities.  The consequence was a progressive loss of
market share of the more richly-priced products and a negative effect on company
morale.

         The  decline  of  Bingham's  fortunes  brought  them  into  focus  as a
potential  acquisition  for  Reinhold.  They met our criteria for a  turn-around
opportunity:  irresolute  management;  poor financial  performance;  a discrete,
definable  marketplace;  and a niche  in a  stable  industry  akin  to our  core
business.


Picture - Cores


Cores are cleaned and
polished prior to application
of new rubber.

                                       3

<PAGE>


                                              Against a stand of Bingham rollers
                     Picture - Press in       at Banta Publications in  Liberty,
                               action         Missouri, Jeff See,  left,   VP of
                                              Sales  at  Bingham's  Kansas  City
                                              plant,  and   Gary  Utt,   Banta's
                                              Maintenance   Manager,     observe
                                              Bingham's rollers at work.




A procession of rollers
moves into the auto-clave
for vulcanizing.


                              Picture - Autoclave



                                       4

<PAGE>
AN IMPORTANT ASPECT OF
OUR METHOD IS A REWARD
SYSTEM BASED ON PRODUCTIVITY,
AND WE PROMPTLY COMMUNICATE        Picture - Autoclave
FINANCIAL RESULTS TO ALL
EMPLOYEES EACH MONTH.

                                       5

<PAGE>
                                                       THE  REINHOLD  PHILOSOPHY
                                                       IS SIMPLY THE APPLICATION
                                                       OF   SOUND     MANAGEMENT
                                                       PRACTICES.

Carl Smith, Bingham
Rollers CEO,right,                Picture - Carl Smith
talks with Kevin Broady,                    and Kevin Broady
Director of Manufacturing
at Gardner Lithograph,a
sheetfed lithographer in
Buena Park, California.



      We  saw  in  Bingham  a  significant  opportunity  to  install  Reinhold's
management  philosophy  and  techniques  at the Plant  Manager and Sales Manager
levels.  The Reinhold  philosophy is simply the application of sound  management
practices:  safety and mutual respect in the workplace;  targeted production and
financial  goals with  incentives  and  rewards for  meeting  them;  continuous,
on-the-job training and cross-training of employees; the development and nurture
of team  concepts  that thrive in the culture of an  enlightened  work ethic;  a
sense of  controlled  urgency;  and a  commitment  to  producing  products  that
establish industry leadership in quality and on-time delivery.

      An  important   aspect  of  our  method  is  a  reward   system  based  on
productivity,  and we promptly  communicate  financial  results to all employees
each month.  In short,  Reinhold  provides an  environment  that  enables  every
employee to feel that they are an  important  contributor  to the success of the
company.

      The first step in the  integration of Bingham into the Reinhold family was
to find a leader.  Six months  after the  acquisition,  we found him. He is Carl
Smith,  and he  assumed  the  responsibilities  of Chief  Executive  Officer  in
September of 2000.  Carl was graduated  from San Diego State  University  with a
degree in engineering and has more than 30 years of technical and  manufacturing
experience.  His resume  includes  President  and Chief  Operating  Officer  for
Fiberite  Corporation and Senior  Vice-President  of the North American Business
Unit of Park Electro Chemical Corporation. He hit the ground running.

      At the time of the acquisition, there were 12 manufacturing facilities. In
December,  we closed  the two that were the least  efficient  -  Cincinnati  and
Montreal - and transferred production of that business to our Blacklick,  PA and
Palmyra, NY facilities.

                                       6

<PAGE>

PRODUCTION IS RISING
AND COSTS ARE COMING DOWN.



By end of the year,  production was rising and costs were coming down. Incentive
plans based on the financial performance of the business were installed.  Today,
all incentive and commission  plans are based on that criteria.  Employee morale
and customer confidence in Bingham are on the rise.

      Twenty-five  years ago, Bingham was the benchmark for industry  standards.
Our  immediate  goals are  improved  safety and product  quality,  100%  on-time
delivery, and lead times 50% faster than our competition. Their realization will
assure that Bingham will again be regarded as the most  knowledgeable and valued
supplier in the industry.

      OVERALL COMPANY  PERFORMANCE Profit for the year 2000 was augmented by the
sale of our property in Rancho Cucamonga,  California.  The appreciation to book
value that we received was approximately $1 million. The sale coincided with the
start of construction and renovation of our Santa Fe Springs facility.






                Picture - Rubber mill          Raw rubber is fed into the rubber
                                               mill with necessary   emollients,
                                               fillers, and colorizers.

                                       7

<PAGE>

MUCH OF THIS UNIT'S IMPROVEMENT
CAN BE ATTRIBUTED TO A CONTINUING                   Picture - In-Ground Lighting
EMPHASIS ON CREATIVE TOOLING AND                              Products
AGGRESSIVE PROCESS MANAGEMENT.


                                                 These three of 18 new in-ground
                                                 and water filtration   products
                                                 developed  by  the   Commercial
                                                 Unit during  the year exemplify
                                                 Reinhold's   expanding   design
                                                 and tooling expertise.


      The  Aerospace  Business  Unit  contributed  the most from  operations  to
earnings  before  interest and taxes (EBIT) in the year 2000.  Sales were up 44%
and EBIT was up 111%  over  1999.  These  results  reflect  an  across-the-board
increase  in  demand  as well as the  initial  production  order  for  Minuteman
ablative components.

      The  Commercial  Business Unit added 18 new  in-ground  lighting and water
filtration products during the year 2000. In the process,  their sales increased
27% and EBIT  increased 46% over 1999.  Much of this Unit's  improvement  can be
attributed to a continuing  emphasis on creative tooling and aggressive  process
management.

      The CompositAir  Business Unit  experienced a severe decline in both sales
and EBIT in the year 2000.  This poor result was due to the  continuing  lack of
order input from our principal  customer,  who suffered a decline in order input
in 1999  from  which  they have not fully  recovered.  In light of that,  we had
forecast a significant  reduction in sales for the year, but actual results were
worse than expected. Compared to this Unit's record performance in 1999, revenue
declined 38%




A small, specialty roller gets
a final quality verification check.          Picture - specialty roller


                                       8

<PAGE>

THE SILVER LINING TO THIS CLOUDED
YEAR WAS THAT WE WERE ABLE TO
STRENGTHEN OUR RELATIONSHIP IN EUROPE.



and EBIT 47%.  Anticipating a reduction in revenue, we responded early with cost
controls,  head-count reduction,  and efficiency improvement.  The result was an
EBIT of 17% of sales for the year.

      The silver lining to this clouded year was that we were able to strengthen
our  relationship  in  Europe.  For the  first  time,  CompositAir/NP  Aerospace
engineering  teams  collaborated  with the  customer to design and develop a new
seatback from concept to completion.  We expect 70% of the production to be done
at NP Aerospace and 30% to be done at CompositAir for delivery in the USA.

      NP Aerospace UK also suffered a significant  reduction in revenue and EBIT
compared  to a record  1999.  Revenue  was down 36% and EBIT was down  50%.  The
reduction  in revenue was  attributable  to two  principal  events.  First,  the
problems at our principal  seating products  customer affected this Unit as well
as CompositAir. Second, no new vehicle sales occurred in the year 2000. In 1999,
22  vehicles  were sold to  Botswana  and 12 to the  UK-RAF.  Such sales are not
predictable,





Picture - rollers                       Bingham offset lithography
                                        rollers ready for shipment.


                                       9

<PAGE>

                                                    WE  HAVE  DEVELOPED   UNIQUE
                                                    PRODUCT FEATURES THAT PUT US
                                                    IN  A  FAVORABLE COMPETITIVE
                                                    POSITION.



however,  for this is a volatile  marketplace.  Nevertheless,  we have developed
unique product features that put us in a favorable  competitive position and are
working on a number of potential vehicle sales. The timing and quantity continue
to be speculative.

      From its  acquisition  in March of 2000 to year end,  the  Samuel  Bingham
Company  contributed  $18.3  million  in revenue  for the 10 months of  Reinhold
ownership.  It also  contributed  more than $0.7  million to EBIT, a result that
fell short of our  pre-acquisition  projections but was in accord with Bingham's
recent  history  prior to  acquisition  - a  record  of  irresolute  management,
tolerance  of  mediocrity,  and nagging  customer  dissatisfaction  with product
quality.  This  acquisition  has  been a  classic  example  of the  difficulties
inherent in turn-around  situations where a sluggish culture has been allowed to
ferment too long.

      Some of the actions that management has taken to correct these  conditions
at Bingham have already been addressed in preceding paragraphs of this report.


                                                Picture - Aft insulation segment


                                                 This aft  insulation segment is
                                                 one of four major parts for the
                                                 Minuteman first stage  booster.
                                                 Quadrant-molded   into a single
                                                 piece,  the segment  is  unique
                                                 for  its  large   size.     The
                                                 Minuteman program calls for 644
                                                 booster      motors   over   an
                                                 eight-year  period  with   more
                                                 than 11,000  total  parts to be
                                                 supplied by Reinhold.


                                                 Five different  versions of the
                                                 latest  composite   designs  of
                                                 Reinhold   aircraft  seatbacks,
                                                 from  left  to  right:  typical
                                                 back  for  smaller,    regional
     Picture - Composite seatbacks               carriers  and  short   flights;
                                                 three different backs for  main
                                                 cabin, tourist class seats; and
                                                 a    premium,      long-flight,
                                                 lay-flat back with electrically
                                                 powered  amenities for business
                                                 or first class seats.

                                       10

<PAGE>

                               IN  ACCORD WITH OUR POLICY OF AGGRESSIVE  REVENUE
                               GROWTH,  REINHOLD  WILL CONTINUE TO  BE  ALERT TO
                               ACQUISITION OPPORTUNITIES THAT MEET OUR CRITERIA.



      NEW  ACQUISITIONS In accord with our policy of aggressive  revenue growth,
Reinhold will continue to be alert to  acquisition  opportunities  that meet our
criteria.  We look for  companies  that have a discrete,  definable  market in a
stable industry with some kinship to Reinhold's  core business,  and whose share
of that  market  can be  increased  through  the  implementation  of  Reinhold's
financial and  operational  disciplines.  Another key element of our acquisition
concerns is the  presence of  potential  leadership,  work-force  knowledge  and
motivation,  and  affinity for our  philosophy  and  culture.  We are  currently
exploring possibilities with more than one company.

     BOARD OF DIRECTORS  During the year 2000,  we began the process of securing
national listing on NASDAQ. One of the criteria for national listing is an audit
committee that includes a majority of independent outside directors.  In meeting
that  criteria,  we were  fortunate  to secure the  services  of three  seasoned
executives to join Reinhold's  Board. Mr. Glenn Scolnik,  attorney and president
and CEO of Hammond,  Kennedy,  Whitney & Company,  was appointed to the Board in
August of 2000.The  second to accept our  invitation  was Mr. Thomas Brand.  Mr.
Brand had been a Reinhold




                               In our hybrid seatback manufacturing processes in
 Picture - NC machine          Coventry, England  and  Santa  Fe  Springs,newly-
                               refined  NC  (numerically  controlled)   machines
                               perform secondary machining operations previously
                               done by hand.

                                       11


<PAGE>


Picture - Wet grinding and polishing



                                       12

<PAGE>

                                    THE LEASE PROVIDED, AMONG OTHER THINGS, THAT
                                    THREE SMALLER BUILDINGS BE RAZED  AND A NEW,
                                    50,000 SQ. FT. BUILDING  BE  CONSTRUCTED  ON
                                    THE SITE.



Board  member in the mid 1990s but was  required  to step down at the  effective
date of the Keene  Bankruptcy  to  accommodate  the  mandate of Keene's  Plan of
Reorganization.  He was a member of the Fiberite Corporation Executive Staff for
more than 30 years,  and,  for the last ten was  Executive  Vice  President  and
General Manager.

     In early 2001, we were pleased that Mr. Richard A. Place accepted our offer
to join the  Reinhold  Board.  Mr.  Place is a Navy  veteran and a  30-year-plus
executive with the Ford Motor Company.

      We look forward to active, independent advice and direction from these new
directors.

     NEW BUILDING  CONSTRUCTION  Reinhold has occupied its present  leasehold in
Santa Fe Springs for almost 50 years. We now have three Business Units occupying
the same  space,  and  CompositAir  operates a separate  manufacturing  plant of
18,000 sq. ft. in Camarillo, CA., 65 miles away.

      During those 50 years, the complexity and size of the business has changed
greatly.

     Our  Santa  Fe  Springs  lease  expired  in May  2000.  Pursuant  to  Board
authorization in late 1999, we negotiated a new, long-term lease with the owner.
The lease provided,  among other things,  that three smaller  buildings be razed
and a new, 50,000 sq. ft. building be constructed on the site.

      The  manufacturing  activities  now being  performed in Camarillo  will be
moved so that  all  CompositAir  manufacturing  will be  consolidated  in a new,
state-of-the-art  facility. This will enable us to produce approximately 200,000
seatbacks  per year.  CompositAir  is  already  the cost  leader in this  highly
competitive market, and the new facility will enable us to extend that advantage
and continue to increase our market share.





In the final stage of finishing,
a roller undergoes wet grinding
and polishing.


                                       13


<PAGE>

ALL REINHOLD HEADQUARTERS PERSONNEL
WILL BE HOUSED IN THE NEW FACILITY.




      We expect  production to begin in the new facility in the third quarter of
2001.  By the  fourth  quarter,  we expect  that the  Aerospace  and  Commercial
Business  Units will be relocated in existing  buildings in our Santa Fe Springs
facility.

      All Reinhold headquarters personnel will be housed in the new facility.

      RE-STATEMENT  OF  EARNINGS  Reinhold  was  merged up and into Keene at the
conclusion of the Keene Chapter 11 Bankruptcy  effective  July 31,1996.  At that
time, the company qualified for and adopted  "fresh-start"  reporting (i.e AICPA
Statement of Position 90-7,  "Financial  Reporting by Entities in Reorganization
under the Bankruptcy  Code").  This method is normal for companies emerging from
Chapter 11 bankruptcy.

      Reinhold's  financial  statements  from 1996  through 1999 were audited by
KPMG in accordance with generally accepted auditing  standards,  and, during the
year 2000, KPMG reviewed our unaudited interim financial statements. In Q1-2001,
KPMG  discovered  that a condition  for use of  "fresh-start"  reporting is that
earnings  be  reported  as if the  statutory  tax rate were in effect,  with the
benefit  of the net  operating  loss  carry  forward  (NOL)  being  recorded  as
additional paid-in capital. Although net income and earnings per share have been
decreased in the re-statement of earnings,  total  stockholders'  equity remains
unchanged.

      Taxes paid each year from 1996 through 1999 are also unchanged, and, until
our NOL is consumed,  our effective tax rate for filing returns in the U.S. will
continue to be approximately 3%.

     KEENE  RELATED  ASBESTOS  ISSUE On June 16, 2000,  the U.S.  Department  of
Justice notified the


Picture - Vulcraft truss

                                       14


<PAGE>

                              WE EXPECT TO SUSTAIN  REINHOLD'S
                              FIVE-YEAR  PATTERN OF GROWTH IN BOTH
                              SALES AND PROFIT IN 2001.



Company  that it may be a  responsible  party with  respect to the Valley  Forge
National  Historic Park and demanded payment of costs incurred by the government
in connection with the  investigation  and remediation of asbestos at the Valley
Forge  site.  On March 1, 2001,  the  Company  commenced  a lawsuit  against the
National Park Service and the U.S. Environmental Protection Agency in the United
States District Court for the Southern District of New York,  seeking a judicial
determination  that any claims for these costs  asserted  against it by the Park
Service,  EPA,  or any  third  party,  are  barred  as a matter of law under the
court-approved 1996 Plan of Reorganization of Keene Corporation.  The Company is
the  product of the merger of Keene and its  wholly-owned  subsidiary,  Reinhold
Industries, Inc. under that Plan.

      The Valley  Forge site was the location of the  manufacturing  facility of
Baldwin-Ehret-Hill,  Inc.,  a company  that Keene had  acquired  in 1968.  Keene
operated  this  facility  from  approximately  1968 to 1973,  continuing  to use
asbestos in its manufacturing  process consistent with facility practices dating
back to the early 1900s. Keene sold the facility and the surrounding land to the
U.S. Department of the Interior in or about 1977.

     At this time, we cannot predict the outcome of the litigation.  However, we
intend to prosecute the lawsuit vigorously.

     LOOKING AHEAD We expect to sustain  Reinhold's  five-year pattern of growth
in both sales and  profit in 2001. Total company backlog was $16.4 million as of
January 1, 2001,  up $2.6 million,  or 19%,  compared to January 1, 2000. A $4.8
million booking for the Minuteman ablative





Construction of new building is underway.
A Vulcraft truss is lifted into place.


                                       15

<PAGE>

                                                OUR COMPETITORS IN THE AEROSPACE
                                                INDUSTRY   HAVE  NOT  BEEN    AS
                                                SUCCESSFUL.



components in October of 2000 was a major contribution to the positive result.

      We expect the  Aerospace  Business Unit to continue to increase its market
share by winning business from weaker competitors.  The  aerospace/solid  rocket
ablative market is directly  dependent on Defense budgets and is,  therefore,  a
fluctuating   and   shrinking   market.   Reinhold's   policy  of   growth   and
diversification by acquisition  outside of the aerospace industry has enabled us
to retain key engineering  and other human resources  needed to meet the demands
of that  market at its peak  without  the burden of  excessive  costs when it is
down.  Our  competitors  in the aerospace  industry have not been as successful.
During the year 2000,  several large contracts that had not been included in our
forecast were obtained as a direct result of our technical  skills and financial
strength.  We expect these positive factors to continue to work to our advantage
in 2001.

      In the year 2000,  the  Commercial  Business  Unit  enjoyed a  substantial
increase in revenue as a result of tooling  orders for  eighteen  new  products.
Those  products will be in production in 2001,  and this Unit will show a modest
increase in sales and profit for the year.




                                                Picture - New construction


                                       16

<PAGE>

WE HAVE CONTINUED TO INVEST IN
AUTOMATION AND MANUFACTURING PROCESS
REFINEMENT.



      CompositAir  sales for the year 2000 were $7.5  million.  Compared to 1999
sales of $12.1 million, that was a disappointing  performance.  The cause, which
was outside of Reinhold's  control,  was a sharp  reduction in aircraft  seating
product  sales by our largest  customer  due to  organizational  and  scheduling
problems.  No seat sales means no seatback  structure  sales.  That situation is
gradually improving.

      On  another  front,  CompositAir  participated  as a  product  development
advisor on a new  product  offering  by the  largest  European  manufacturer  of
aircraft  seating   products.   The  process   included   technical  and  design
contributions  by NP  Aerospace  engineering.  That  product  is now in  initial
production   in  the  UK  for  delivery  to  Europe.   CompositAir   will  start
manufacturing the same product for delivery in America later in 2001.

      CompositAir/NP   Aerospace  is  now  solidly  positioned  as  the  primary
composite   seatback   supplier  to  the  world's  number  one  and  number  two
manufacturers of aircraft seating products.

     We have  continued  to  invest  in  automation  and  manufacturing  process
refinement. This is







 Picture - Roof structure            Roof structures are assembled
                                     on  site  and  installed   in
                                     8' x 60' sections.




                                       17

<PAGE>


<PAGE>




THE LONG-RANGE OUTLOOK
FOR NP AEROSPACE IS GOOD.





essential  to  maintaining  our present  position as the cost leader in a market
that considers aircraft seatbacks to be a commodity.

     We expect  sales to  increase  slightly in 2001 as we  experience  a steady
growth in market share based on cost reductions related to our new manufacturing
facility and our  "pull-through"  approach to marketing.  That means identifying
the benefits of product features  associated with composite seatbacks over those
made of metal.

      The long-range  outlook for NP Aerospace is good.  This Unit enjoys a core
business of commercial  molding,  medical  composites,  and "standard"  military
helmets that are UK Ministry of Defense related. In addition, this Unit produces
composite commercial aircraft seatback structures.

      The core  business  products  performed  according to forecast in the year
2000. However, because of difficulties experienced by our largest customer - the
same  difficulties  that  afflicted  CompositAir - seatback  sales were down. We
expect them to be better in 2001.





From an expandable boom forklift,
a pattern of skylights appears as            Picture - Building interior
tile on the plant floor.




                                       18

<PAGE>

THE  PIVOTAL  PRODUCT  THAT WILL HAVE
THE MOST  IMPACT ON SALES AND  PROFITS  IS
ARMORED VEHICLES.




      The pivotal  product that will have the most  significant  impact on sales
and profits for the year is armored  vehicles.  Sales are  dependent on eruptive
events  in the  world  where  military  conflicts  require  the  use of  armored
vehicles.  Such events are difficult to predict,  and it is equally difficult to
forecast sales and profits for these products.

     Nevertheless,  we think that vehicle sales will occur in the second half of
2001. We have completed a significant  proposal for armored  vehicles for the UK
MOD. Of six competitors  for this business,  we believe that NP Aerospace is the
only one proposing composite armor.

      We are cautiously optimistic.

      Earlier in this  report,  we covered  the  performance  of Bingham for the
first 10 months under  Reinhold  ownership.  It was profitable but less that our
forecast.  Success in such a turnaround situation,  as was so of our acquisition
of CompositAir in 1994, cannot be realized  overnight.  But it will be realized.
Our focus and our mandate are clear. In Carl Smith, we have the CEO we want.



                                       19

<PAGE>

WE ARE ALWAYS  THANKFUL FOR THE CONTINUED
SUPPORT OF OUR CUSTOMERS,  SUPPLIERS, AND
EMPLOYEE TEAMMATES.




We know where the strengths and weaknesses lie. Our immediate goals are improved
safety and product  quality,  100% on-time  delivery,  and 50% faster lead times
than  our  competition.  Incentive  and  commission  plans  based  on  financial
performance are in place. We have closed two  unprofitable  plants and moved the
business to more productive ones. Customer  satisfaction and employee morale are
improving as these Reinhold  concepts  become  manifest in the  workplace:  (1).
Fewer people working harder and smarter,  and (2).  Results,  not merely effort,
are what is expected of everyone.

     The year 2001 will be profitable for Bingham and the company's  position as
an industry leader will continue to be restored.

     SUMMATION The outlook is good for sustained growth through 2001 and beyond.
The balance of markets  served  enables  Reinhold  to  overcome  declines in one
market  through  improvement  in another.  Every  business unit will show modest
increases in sales and profit. NP Aerospace can have an excellent year if one of
several major international opportunities is realized. As in prior years, growth
through  acquisition  will continue to be the  cornerstone of building sales and
profits.

      We are  always  thankful  for  the  continued  support  of our  customers,
suppliers,  and employee teammates.  All of you are vital elements of Reinhold's
future success.



/s/ Michael T. Furry

Michael T. Furry
President and CEO

                                       20

<PAGE>

                                      Reinhold Industries, Inc. and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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

2000 COMPARED WITH 1999 Backlog at December 31, 2000 was $16.4  million,  up 19%
from  December 31, 1999,  primarily  due to increases in U.S.  military  related
business.  In 2000,  order input  increased  40% to $51.3  million and net sales
increased 26% to $49.3 million from $39.1 million in 1999,  due primarily to the
acquisition  of Samuel  Bingham  Company on March 9, 2000.  Sales also increased
$2.5 million for Aerospace  products and $0.7 million for  Commercial  products.
However,  there  was a $4.9  million  decrease  in  sales at NP  Aerospace,  due
primarily to the  reduction  of armored  vehicle  shipments,  and a $6.5 million
decrease  in sales  for  CompositAir  products,  due  mainly  to the  continuing
commercial difficulties at our primary customer, B/E Aerospace.

Gross  profit  margin  increased  to 30.0% from 27.5% due to higher sales in our
Aerospace  business  unit.  Gross margin  contribution  from Samuel  Bingham was
27.3%.  Gross profit margin in all other business units  increased to 26.6% from
26.0% due to better mix and tighter cost controls.

In 2000, selling,  general and administrative  expenses were $9.4 million (19.1%
of sales)  compared with $5.1 million (13.0% of sales) in 1999, due primarily to
the Samuel Bingham Company  acquisition ($4.3 million from date of acquisition).
Selling,  general  and  administrative  expenses  in 2000 were 23.2% of sales at
Samuel Bingham Company compared to 16.3% of sales for the other business units.

On December 29, 2000,  the Company sold its  undeveloped  land to Paragon  Santa
Anita LLC for a net gain of $0.962  million.  The selling price for the property
was  $2.05  million  with  $1.05  million  paid in cash at  closing.  Additional
consideration consisted of a 9% note receivable due in one year in the amount of
$1.0 million. The note is secured by the land.

Income before  income taxes was unchanged at $5.8 million,  although the percent
to sales  decreased to 11.8% in 2000 from 14.8% in 1999.  Income  before  income
taxes for NP  Aerospace  decreased to $1.2 million in 2000 (12.5% of sales) from
$2.5  million  in 1999  (17.0% of sales)  due  mainly to lower  sales of armored
vehicles and  commercial  aircraft  seatbacks.  Income  before  income taxes for
CompositAir decreased to $1.2 million in 2000 (12.6% of sales) from $2.1 million
in 1999 (13.1% of sales) due to lower sales of commercial  aircraft seatbacks to
our primary customer, B/E Aerospace.  However, income before income taxes at the
Aerospace  business  unit  increased to $2.6 million  (31.2% of sales) from $1.2
million  (21.2% of sales) due to higher sales and the  resulting  absorption  of
overhead expenses.  Income before income taxes for the Commercial  business unit
increased  to $0.4 million  (13.5% of sales) from $0.3 million  (11.8% of sales)
due to higher sales.  Income before income taxes for Samuel Bingham  Company was
$0.01 million (0.1% of sales).

In 2000,  net interest  expense was $0.5 million,  due to the $11.0 million loan
used to finance the Samuel Bingham Company acquisition, compared to net interest
income of $0.1 million in 1999.

A tax  provision of $2.3 million was recorded in 2000  compared with a provision
of $2.2 million in 1999. The effective tax rate in 2000 was 39.3% as compared to
38.5% in 1999. The change results  principally  from the rate difference on U.S.
income.  The  effective  tax rate in the United  Kingdom is 30%. At December 31,
2000 and 1999,  the Company had net  operating  loss  carryforwards  for Federal
income  tax  purposes  of   approximately   $26.8  million  and  $31.8  million,
respectively.  At December 31, 2000,  the Company  also had net  operating  loss
carryforwards for State income tax purposes of approximately  $1.7 million.  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. As more fully described in note 3 to
the  consolidated  financial  statements,  benefits  realized  from  loss  carry
forwards   and   deductible   temporary   differences   arising   prior  to  the
reorganization  (emergence from bankruptcy proceedings) are recorded directly to
additional paid-in capital.  Such benefits amounted to $1.81 million in 2000 and
$1.47 million in 1999.

Net income  totaled $3.5  million,  or $1.58 per diluted  share in 2000 compared
with $3.6 million, or $1.62 per diluted share in 1999.

LIQUIDITY  AND CAPITAL  RESOURCES As of December 31, 2000,  working  capital was
$14.6 million, up $1.3 million from December 31, 1999. Cash and cash equivalents
of $7.1 million held at December 31, 2000 were $2.3 million  lower than cash and
cash equivalents held at December 31, 1999, primarily due to $4.2 million of net
cash used to finance the Samuel Bingham Company acquisition.

Net cash provided by operating  activities  amounted to $4.2 million in 2000 and
$7.4 million in 1999.  The decrease over the prior period  relates mainly to the
note received on the sale of the undeveloped  land and the reduction of accounts
payable at the Samuel Bingham Company.

Net cash used in investing  activities  in 2000  totaled  $15.6  million,  which
consisted of the acquisition of the Samuel Bingham Company and associated  costs
($15.2 million) and capital  expenditures  ($1.4 million) offset by the proceeds
on the sale of the  undeveloped  land ($.9 million).  Net cash used in investing
activities in 1999 totaled $1.2 million, which consisted of capital expenditures
and deferred consideration payable to Courtaulds plc.

                                       21

<PAGE>

Reinhold Industries, Inc. and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT'D)

Net  cash  provided  by  financing  activities  in 2000  totaled  $9.9  million,
consisting of the proceeds from the Bank of America loan for the Samuel  Bingham
Company acquisition ($11.0 million) less subsequent repayment.  Net cash used in
financing  activities in 1999 totaled $0.4 million  relating to the repayment of
the CIT/ Bank of America loan.

The Company has  commitments  for capital  expenditures  of  approximately  $0.5
million at December 31, 2000  relating to the  construction  of a new 50,000 sq.
ft.  manufacturing/administration  building at its Santa Fe Springs,  California
location.

1999 COMPARED WITH 1998 Backlog at December 31, 1999 was $13.8 million, down 15%
from December 31, 1998, primarily due to a decrease in aircraft seatback orders.
In 1999,  order input increased 23% to $36.7 million and net sales increased 51%
to $39.1 million from $26.0 million in 1998, primarily reflecting a full year of
sales for NP  Aerospace.  Sales also  increased  $4.7  million  for  CompositAir
products and $0.5 million for  Commercial  products.  However,  there was a $0.3
million decrease in sales for Aerospace products.

Gross profit margin increased to 27.6% from 25.0% due to increased sales and the
resulting  absorption  of fixed  overhead  expenses.  Gross margin in the United
States increased to 31.3% in 1999 from 27.2% in 1998. Gross margin in the United
Kingdom increased to 23.4% in 1999 from 20.8% in 1998.

In 1999, selling,  general and administrative  expenses were $5.1 million (13.0%
of sales) compared with $4.3 million (16.6% of sales) in 1998. Although selling,
general  and  administrative  expenses  were  higher  in  1999,  these  expenses
decreased  3.6% as a  percent  of sales.  Selling,  general  and  administrative
expense  increases  are  primarily  associated  with the costs  incurred  for NP
Aerospace for a full year.

Income before income taxes  increased to $5.8 million (14.8% of sales) from $2.2
million  (8.4% of sales),  reflecting  higher  sales and gross  margins.  Income
before income taxes for the United  States was $3.6 million  (17.8% of sales) in
1999 compared with $1.8 million  (10.3% of sales) in 1998.  Income before income
taxes for the United  Kingdom was $2.2 million (11.6% of sales) in 1999 compared
with $0.4 million (4.6% of sales) in 1998.

In 1999, net interest  income was $0.1 million.  Interest income of $0.2 million
was offset by interest  expense of $0.1 million.  In 1998, net interest  expense
was $0.01  million.  The average  yield was 4.08% in 1999 compared with 4.18% in
1998.

A tax  provision of $2.2 million was recorded in 1999  compared with a provision
of $0.7 million in 1998, due primarily to increased  profitability in the United
Kingdom.  The effective tax rate in 1999 was 38% as compared to 34% in 1998. The
change  results  principally  from the rate  difference  on foreign  income.  At
December  31, 1999 and 1998,  the  Company  had  generated  net  operating  loss
carryovers  for Federal  income tax purposes of  approximately  $31,782,000  and
$34,664,000,  respectively. At December 31, 1999, the Company had also generated
net operating  loss  carryovers  for State income tax purposes of  approximately
$5,551,000. 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.  As more  fully
described  in note 3 to notes to  consolidated  financial  statements,  benefits
realized from loss carry forwards and deductible  temporary  differences arising
prior to the  reorganization  have been recorded directly to additional  paid-in
capital. Such benefits amounted to $1,471,000 in 1999 and $703,000 in 1998.

Net income  totaled $3.6  million,  or $1.62 per diluted  share in 1999 compared
with $1.4 million, or $0.65 per diluted share in 1998.

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  ((pounds)  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.  As of  December  31,  2000,
additional payments earned totalled (pounds) 140,000 ($227,000).

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 was a revolver of
One Million Seven Hundred Thirty-Two  Thousand Dollars  ($1,732,000),  which was
never used. 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.

On April 16, 1999,  the Company repaid the  outstanding  loan with the CIT Group
Credit/Finance  through a refinancing  with Bank of America  National  Trust and
Savings  Association  ("B of A") and  cancelled  the  revolver.  The new  credit
facility  with B of A is a term loan in the amount of  $1,861,478  payable in 48
equal monthly  principal  installments  of $38,780 plus interest at a rate which
approximates LIBOR plus 1.75% and is secured by fixed assets.

On March 9,  2000,  Reinhold  Industries,  Inc.  (the  "Company"),  through  its
wholly-owned   subsidiary,   Samuel  Bingham   Enterprises,   Inc.,  an  Indiana
corporation, purchased substantially all of the assets, including real, personal
and intellectual  properties,  and assumed certain liabilities of Samuel Bingham
Company,  an  industrial  and graphic arts roller  manufacturing  and  supplying
business, headquartered in


                                       22

<PAGE>

                                      Reinhold Industries, Inc. and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT'D)

Bloomingdale, Illinois ("Bingham").

On March 9, 2000, the Company borrowed $11,000,000 from B of A to fund a portion
of the purchase  consideration  due to Samuel  Bingham  Company.  The  principal
portion  of the loan is  payable  in twenty  successive  quarterly  installments
beginning  June  30,  2000.  Interest  is  payable  quarterly  at a  rate  which
approximates  LIBOR plus 1.75% and is  secured  by all  financial  assets of the
Company.

Both loan agreements with B of A are subject to various  financial  covenants to
which the Company must  comply.  The  covenants  require the Company to maintain
certain  ratios of cash flow to total  outstanding  debt,  mininum net worth and
limits on  capital  expenditures.  The  Company is in  compliance  with the loan
covenants at December 31, 2000.

Management  believes that the available cash and cash flows from operations will
be  sufficient  to  fund  the  Company's   operating  and  capital   expenditure
requirements.

CHANGE IN CONTROL On May 21, 1999,  pursuant to a Stock Purchase Agreement dated
May  18,  1999,  between  Keene  Creditors'  Trust,  the  holder  of  all of the
outstanding  shares  of the Class B Common  Stock of the  Company  and  Reinhold
Enterprises,  Inc., a newly formed Indiana corporation  ("REI"),  the Creditors'
Trust  sold  997,475  shares  of Class B  Common  Stock  owned by it to  certain
purchasers  designated  by  REI  (the  "Purchasers").   These  shares  represent
approximately 49.9% of the outstanding common stock of the Company.  Pursuant to
the Company's Certificate of Incorporation, upon consummation of the sale of the
shares to the  Purchasers,  all of the 1,020,000  outstanding  shares of Class B
Common  Stock   (including   those  retained  by  the  Creditors'   Trust)  were
automatically  converted into 1,020,000  shares of Class A Common Stock,  and at
the next meeting of the stockholders of the Company called for that purpose, the
holders of the Class A Common  Stock,  voting as a class,  will be  entitled  to
elect all of the  directors of the Company.  Prior to the sale,  the  Creditors'
Trust,  as the holder of all of the Class B Common Stock,  was entitled to elect
two  directors,  and the  holders of the Class A Common  Stock were  entitled to
elect one director. In connection with the Stock Purchase Agreement,  the amount
of authorized  Class A Common Stock changed from  1,480,000  shares to 2,500,000
shares.

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

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 all fiscal  quarters of fiscal years
beginning after June 15, 1999. In June 1999, the Financial  Accounting Standards
Board issued SFAS No. 137  "Accounting  for Derivative  Instruments  and Hedging
Activities - Deferral of the  Effective  date of FASB  Statement  No. 133" which
defers the effective date of SFAS No. 133 by one year. 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.

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

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

Management  believes  that in or about 1977,  the Company's  predecessor,  Keene
Corporation  ("Keene"),  sold to the U.S.  Department  of Interior  certain real
property and improvements now located within the Valley Forge Site. Prior to the
sale, Keene operated a manufacturing  facility on the real property and may have
used friable asbestos, the substance which gives rise to the claim at the Valley
Forge Site. The Company is in the process of analyzing the legal  foundations of
the Department of Justice claim in light of the bankruptcy  proceeding described
below.  The Company  believes that two injunctions  issued in 1996 in connection
with Keene's  bankruptcy  proceeding  under chapter 11 of Title 11 of the United
States Code ("Bankruptcy Code") are relevant to the Justice Department's claim.

                                       23

<PAGE>

                                      Reinhold Industries, Inc. and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT'D)


As previously  reported,  Keene acquired  Reinhold in 1984. On December 3, 1993,
Keene filed a voluntary  petition for relief under chapter 11 of the  Bankruptcy
Code in the United States Bankruptcy Court.  Keene's chapter 11 filing came as a
direct result of the demands on Keene of thousands of asbestos-related  lawsuits
that named Keene as a party.  On July 31,  1996 (the  "Effective  Date"),  Keene
consummated its Fourth Amended Plan of  Reorganization,  as modified,  under the
Bankruptcy Code (the "Plan").  On the Effective  Date,  Reinhold was merged into
and with Keene,  with Keene becoming the surviving  corporation.  Keene,  as the
surviving  corporation of the merger, was renamed Reinhold  Industries,  Inc. On
the Effective  Date,  pursuant to the Plan the Company issued its Class B Common
Stock to the Trustees of a Creditors'  Trust,  which was  established  under the
Plan to administer Keene's asbestos liabilities.  The Creditors' Trust has since
sold most of its Class B Common Stock.

The general bankruptcy  injunction issued in the chapter 11 proceeding generally
prohibits any entity from  commencing or  continuing  any action,  employment of
process or act to collect, offset, affect or recover any claim, demand, interest
or cause of action  satisfied,  released  or  discharged  under  the Plan.  Such
claims,  demands,  interests  and  causes of action  include,  whether  known or
unknown, all claims against Keene or the Company or their assets and all related
causes of action,  regardless  of whether a proof of claim or interest was filed
or allowed, and whether or not the holder of such claim or interest has voted on
the  Plan,  or any  causes of action  based on any act or  omission  of any kind
occurring  prior to the Effective  Date. In addition to this general  bankruptcy
injunction,  the  Company  received  the  benefit of a  supplemental  "Permanent
Channeling Injunction" as part of the Plan.

The  Permanent  Channeling   Injunction  bars   "Asbestos-Related   Claims"  and
"Demands," as defined in the Plan, against the Company and channels those Claims
and  Demands to the  Creditors'  Trust.  Pursuant  to the  Permanent  Channeling
Injunction, on or after the Effective Date of the Plan, any person or entity who
holds or may hold an  Asbestos-Related  Claim or Demand  against  Keene  will be
forever  stayed,  restrained,  and enjoined from taking certain  actions for the
purpose of, directly or indirectly, collecting, recovering, or receiving payment
of, on, or with respect to such  Asbestos-Related  Claims or Demands against the
Company.

It is difficult to estimate the timing and ultimate  costs to be incurred by the
Company in connection with  environmental  liability claims in the future due to
uncertainties  about  the  status  of laws  and  regulations,  the  adequacy  of
information  available for  individual  sites and the extended time periods over
which  site  remediation   occurs.   However,   based  on  currently   available
information,  if the environmental liability claims relating to the Valley Forge
Site arose  prior to the filing of Keene's  bankruptcy  case or if these  claims
were deemed to be  Asbestos-Related  Claims or Demands within the meaning of the
Plan,  then  the  Company  does  not  believe  that  environmental   liabilities
associated with the Valley Forge Site should result in a material adverse impact
on the  Company's  consolidated  financial  position  or results  of  operation.
However,  if these claims are deemed to have arisen  subsequent to the filing of
Keene's bankruptcy case -- i.e the "release" or "threatened release," within the
meaning of CERCLA,  is deemed to have occurred  after Keene filed its chapter 11
petition  with the  Bankruptcy  Court or the claims are held to have arisen when
the  response  costs  were  incurred  -- and these  claims  are not deemed to be
Asbestos-Related  Claims or Demands as defined under the Plan,  then the Company
could incur  liability  for the claims.  If a court were to  determine  that the
Company was liable for recoverable  costs  associated with the Valley Forge Site
under CERCLA,  the resulting  liability could have a material  adverse impact on
the Company's consolidated financial position and results of operations.

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

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.

                                       24

<PAGE>

                                      Reinhold Industries, Inc. and Subsidiaries


CONSOLIDATED STATEMENTS OF EARNINGS
(Amounts in thousands, except for per share data)

<TABLE>
<CAPTION>


                                                                             Years ended December 31,
                                                                           2000          1999         1998
-----------------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>          <C>
Net sales                                                             $  49,287        39,140       25,996
Cost of sales                                                            34,498        28,357       19,493
-----------------------------------------------------------------------------------------------------------
Gross profit                                                             14,789        10,783        6,503
Selling, general and administrative expenses                              9,425         5,079        4,307
-----------------------------------------------------------------------------------------------------------
Operating income                                                          5,364         5,704        2,196
Gain on sale of asset                                                       962             -            -
Interest income (expense), net                                             (529)          100          (17)
-----------------------------------------------------------------------------------------------------------
Income before income taxes                                                5,797         5,804        2,179
Income taxes                                                              2,280         2,234          744
-----------------------------------------------------------------------------------------------------------
Net income                                                            $   3,517         3,570        1,435


Earnings per share:
Basic                                                                 $    1.60          1.62         0.65
Diluted                                                               $    1.58          1.62         0.65
Weighted average common shares outstanding:
Basic                                                                     2,198         2,198        2,198
Diluted                                                                   2,229         2,205        2,198

<FN>

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




                                       25

<PAGE>

Reinhold Industries, Inc. and Subsidiaries



CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                                           December 31,
                                                                                         2000         1999
-----------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>             <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                        $   7,121        9,419
   Accounts receivable (less allowance for doubtful accounts of $165
      and $60, respectively)                                                            6,984        4,077
   Inventories                                                                          6,065        4,085
   Note receivable                                                                      1,000            -
   Prepaid expenses and other current assets                                            2,053        1,157
-----------------------------------------------------------------------------------------------------------
      Total current assets                                                             23,223       18,738

Property and equipment, at cost                                                        17,122       10,436
   Less accumulated depreciation and amortization                                       5,842        4,710
-----------------------------------------------------------------------------------------------------------
      Net property and equipment                                                       11,280        5,726

Cost in excess of fair value of net assets of acquired companies, net                   5,948          633
Other assets                                                                              258          137
-----------------------------------------------------------------------------------------------------------
                                                                                    $  40,709       25,234


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                                 $   2,278        1,825
   Accrued expenses                                                                     3,578        3,154
   Current installments of long term debt                                               2,778          503
-----------------------------------------------------------------------------------------------------------
      Total current liabilities                                                         8,634        5,482

Long-term debt, less current installments                                               8,721        1,125
Other long-term liabilities                                                               449          204
Commitments and contigencies                                                                -            -

Stockholders' equity:
   Preferred stock - Authorized: 250,000 shares
      Issued and outstanding: None                                                          -            -
   Common stock, $0.01 par value:
      Authorized: 4,750,000 shares
      Issued and outstanding: 2,198,058 and 1,998,956, respectively.                       22           20
   Additional paid-in capital                                                          15,931       12,328
   Retained earnings                                                                    7,972        6,255
   Accumulated other comprehensive loss                                                (1,020)        (180)
-----------------------------------------------------------------------------------------------------------
      Net stockholders' equity                                                         22,905       18,423
-----------------------------------------------------------------------------------------------------------
                                                                                    $  40,709       25,234


<FN>

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


                                       26

<PAGE>

                                      Reinhold Industries, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>

                                                                             Years ended December 31,
                                                                           2000          1999         1998
-----------------------------------------------------------------------------------------------------------
<S>                                                                   <C>              <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                         $   3,517         3,570        1,435
   Adjustments to reconcile net income to net cash
   provided by operating activities (net of effects
   of acquisitions):
      Depreciation and amortization of property and equipment             1,227           912          782
      Amortization of cost in excess of fair value of net assets
         of acquired companies                                              274           116          117
      Additions to paid-in capital resulting
         from tax benefits                                                1,813         1,471          703
      Changes in assets and liabilities:
         Accounts receivable, net                                           538           792         (359)
         Inventories                                                        320           300         (178)
         Note receivable                                                 (1,000)            -            -
         Prepaid expenses and other current assets                         (544)         (229)        (143)
         Accounts payable                                                (1,581)       (1,151)       1,007
         Accrued expenses                                                  (277)        1,741          (18)
         Other, net                                                        (100)         (146)        (234)
-----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                 4,187         7,376        3,112

CASH FLOWS USED IN INVESTING ACTIVITIES:
   Maturity of marketable securities                                          -             -          750
   Acquisitions                                                         (15,200)         (227)      (3,707)
   Capital expenditures                                                  (1,355)         (924)        (956)
   Proceeds from sale of asset                                              945             -            -
-----------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                   (15,610)       (1,151)      (3,913)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from long term debt                                          11,000             -        2,268
   Repayment of long term debt                                           (1,129)         (376)        (264)
   Cash dividends paid                                                       (8)            -            -
-----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                       9,863          (376)       2,004


Effect of exchange rate changes on cash                                    (738)          (52)           -
-----------------------------------------------------------------------------------------------------------

Net increase (decrease) in cash and cash equivalents                     (2,298)        5,797        1,203
-----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year                            9,419         3,622        2,419
-----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                              $   7,121         9,419        3,622



Supplementary  disclosures  of cash flow  information -
  Cash paid during the year
   for:
      Income taxes                                                    $     771             -           38
      Interest                                                        $     493           158          137

<FN>

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



                                       27

<PAGE>

Reinhold Industries, Inc. and Subsidiaries

<TABLE>
<CAPTION>

CONSOLIDATED  STATEMENTS OF STOCKHOLDERS'  EQUITY AND  COMPREHENSIVE  INCOME
(Amounts in thousands, except share data)

                                                                                    Common stock   $0.01 par value
                                                                           ----------------------------------------------------

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

                                                         Preferred          Class A                         Class B
                                                            Shares           Shares        Amount            Shares     Amount
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                             <C>       <C>                 <C>        <C>               <C>
Balance, December 31, 1997                                       -          978,956           $10         1,020,000        $10

Net income                                                                        -             -                 -          -

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

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

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

Comprehensive income

------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998                                       -          978,956           $10         1,020,000        $10

Net income                                                                        -             -                 -          -

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

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

Conversion of Class B shares to Class A shares                            1,020,000            10        (1,020,000)       (10)

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

Comprehensive income

------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999                                       -        1,998,956           $20                 -          -

Net income                                                                        -             -                 -          -

Additions to paid-in capital resulting
    from tax benefits

10% stock dividend                                                          199,102             2                 -          -

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

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

Comprehensive income

------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000                                       -        2,198,058           $22                 -          -
------------------------------------------------------------------------------------------------------------------------------------



<FN>

See accompanying notes to consolidated financial statements.

</FN>
</TABLE>

<PAGE>

                                      Reinhold Industries, Inc. and Subsidiaries





<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>                         <C>
                                $10,154             $1,250              $(519)                   -                      $10,905

                                      -              1,435                  -                1,435                        1,435


                                    703                  -                  -                    -                          703


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

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

                                                                                              (345)

------------------------------------------------------------------------------------------------------------------------------------
                                $10,857             $2,685            $(2,299)                                          $11,263

                                      -              3,570                  -                3,570                        3,570


                                  1,471                  -                  -                    -                        1,471


                                      -                  -              2,249                2,249                        2,249

                                      -                  -                  -                    -                            -

                                      -                  -               (130)                (130)                        (130)
------------------------------------------------------------------------------------------------------------------------------------

                                                                                             5,689

------------------------------------------------------------------------------------------------------------------------------------
                                $12,328             $6,255              $(180)                                          $18,423

                                      -              3,517                  -                3,517                        3,517


                                  1,813                  -                  -                    -                        1,813

                                  1,790             (1,800)                 -                    -                           (8)


                                      -                  -               (102)                   -                         (102)

                                      -                  -               (738)                (738)                        (738)
------------------------------------------------------------------------------------------------------------------------------------

                                                                                             2,677

------------------------------------------------------------------------------------------------------------------------------------
                                $15,931             $7,972            $(1,020)                                          $22,905
------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

                                       29

<PAGE>

Reinhold Industries, Inc. and Subsidiaries


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2000 and 1999


1 ORGANIZATION

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

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

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

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

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

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

Pursuant to the  guidelines  provided by the  American  Institute  of  Certified
Public  Accountants  in  Statement  of Position  90-7  "Financial  Reporting  by
Entities in  Reorganization  under the Bankruptcy  Code" (SOP 90-7), the Company
adopted  fresh start  reporting as of the close of business on July 31, 1996. In
accordance  with SOP 90-7,  benefits  from  loss  carryforwards  and  deductible
temporary differences arising prior to the Company's  reorganization  (emergence
from bankruptcy proceedings) are recorded as additional paid-in capital.

On May 21, 1999,  pursuant to a Stock  Purchase  Agreement,  dated May 18, 1999,
between the Creditors' Trust, the holder of all of the outstanding shares of the
Class B Common  Stock of the Company and  Reinhold  Enterprises,  Inc.,  a newly
formed Indiana corporation  ("REI"), the Creditors' Trust sold 997,475 shares of
Class B Common Stock owned by it to certain  purchasers  designated  by REI (the
"Purchasers").  These shares  represent  approximately  49.9% of the outstanding
common  stock  of  the  Company.   Pursuant  to  the  Company's  Certificate  of
Incorporation,  upon  consummation  of the sale of the shares to the Purchasers,
all of the 1,020,000 outstanding shares of Class B Common Stock (including those
retained by the Creditors'  Trust) were  automatically  converted into 1,020,000
shares of Class A Common Stock. In connection with the Stock Purchase Agreement,
the amount of authorized  Class A Common Stock changed from 1,480,000  shares to
2,500,000 shares.

                                       30

<PAGE>

                                      Reinhold Industries, Inc. and Subsidiaries


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)


2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

PRINCIPLES OF CONSOLIDATION The accompanying  consolidated  financial statements
include the accounts of Reinhold and its wholly owned  subsidiaries NP Aerospace
Limited ("NP Aerospace") and Samuel Bingham Enterprises,  Inc. ("Bingham").  All
material   intercompany  accounts  and  transactions  have  been  eliminated  in
consolidation.

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

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

                                       December 31, 2000       December 31, 1999
--------------------------------------------------------------------------------
Cash in banks                                     $1,417                     707
Money market funds                                 5,704                   8,712
--------------------------------------------------------------------------------
Total                                             $7,121                   9,419

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

                                       December 31, 2000       December 31, 1999
--------------------------------------------------------------------------------
Raw material                                      $4,205                   2,794
Work-in-process                                      744                     700
Finished goods                                     1,116                     591
--------------------------------------------------------------------------------
Total                                             $6,065                   4,085


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,  2000 and 1999  were  $1,536,000  and  $1,065,000,
respectively.



                                       31

<PAGE>

Reinhold Industries, Inc. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)

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

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

                          Useful life     December 31, 2000    December 31, 1999
--------------------------------------------------------------------------------
Undeveloped land                    -               $     -                  900
Land                                -                 1,283                    -
Buildings                 10-40 years                 2,809                  848
Leasehold improvements     5-15 years                 1,391                  838
Machinery and equipment    5-25 years                11,206                7,178
Furniture and fixtures     3-10 years                   381                  672
Construction in process             -                    52                    -
--------------------------------------------------------------------------------
                                                     17,122               10,436
Less accumulated depreciation and amortization        5,842                4,710
--------------------------------------------------------------------------------
                                                    $11,280                5,726


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

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

NOTE RECEIVABLE On December 29, 2000, the Company sold its  undeveloped  land to
Paragon  Santa Anita LLC for a net gain of $962,000.  The selling  price for the
property was  $2,050,000  with  $1,050,000  paid in cash at closing.  Additional
consideration consisted of a 9% note receivable due in one year in the amount of
$1,000,000. The note is secured by the land.

COST IN EXCESS OF FAIR VALUE OF NET ASSETS OF ACQUIRED  COMPANIES Cost in excess
of fair value of net assets of acquired  companies  (goodwill) is amortized on a
straight-line basis over 10 - 40 years. The gross amount and related accumulated
amortization  at December 31, 2000 and 1999 amounted to $6,725,000 and $777,000,
and $1,118,000 and $485,000, 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
((pounds)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  ((pounds)20,000,000).
Additional  payments will be capitalized as part of the purchase price, when and
if earned.  In the years ended December 31, 2000 and 1999,  additional  payments
earned totalled (pounds)0 and  (pounds)140,000  ($227,000).  The acquisition was
accounted for as a purchase.


                                       32

<PAGE>

                                      Reinhold Industries, Inc. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)


On March 9,  2000,  Reinhold  Industries,  Inc.  (the  "Company"),  through  its
wholly-owned   subsidiary,   Samuel  Bingham   Enterprises,   Inc.,  an  Indiana
corporation, purchased substantially all of the assets, including real, personal
and intellectual  properties,  and assumed certain liabilities of Samuel Bingham
Company,  an  industrial  and graphic arts roller  manufacturing  and  supplying
business, headquartered in Bloomingdale, Illinois ("Bingham").

The purchase price paid was $14,742,000 plus out-of-pocket expenses of $406,000.
The cost in excess of fair  value of net  assets is being  amortized  over forty
years.  A source of funds for the purchase  price was a five-year term loan with
the Bank of America for  $11,000,000  with the  balance  being paid from cash on
hand.

The acquisition of Samuel Bingham Company has been accounted for by the purchase
method and,  accordingly,  the results of  operations  have been included in the
consolidated financial statements from the date of acquisition.

The purchase price has been  allocated to net  identifiable  assets  acquired as
follows (in thousands):

                                                          Samuel Bingham Company
--------------------------------------------------------------------------------
Working capital                                                         $  3,362
Fixed assets                                                               6,231
--------------------------------------------------------------------------------
Net identifiable assets                                                    9,593
Purchase price (including deferred consideration)                         15,148
--------------------------------------------------------------------------------
Cost in excess of fair value of net assets of acquired companies        $  5,555


The pro forma  unaudited  results of operations for the years ended December 31,
2000 and 1999,  assuming  consummation of the purchase as of January 1, 1999 are
as follows (in thousands, except earnings per share data):

                                                        Years ended December 31,
                                                           2000             1999
--------------------------------------------------------------------------------
Net sales                                               $53,613           63,047
Net income                                              $ 3,749            4,329
Earnings per share - basic                              $  1.71             1.97
Earnings per share - diluted                            $  1.68             1.96


                                       33

<PAGE>

Reinhold Industries, Inc. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)


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

EARNINGS PER COMMON SHARE The Company  presents  basic and diluted  earnings per
share ("EPS"). Basic EPS includes no dilution and is computed by dividing income
available to common stockholders by the weighted average number of common shares
outstanding  for the period.  Diluted EPS reflects the  potential  dilution from
securities that could share in the earnings of the Company.

The reconciliations of basic and diluted weighted average shares are as follows:
<TABLE>
<CAPTION>

                                                                  Years ended December 31,
                                                            2000            1999            1998
------------------------------------------------------------------------------------------------
<S>                                                     <C>                <C>             <C>
Net income                                              $ 3,517            3,570           1,435
------------------------------------------------------------------------------------------------
Weighted average shares used in basic computation         2,198            2,198           2,198
Dilutive stock options                                       31                7               -
------------------------------------------------------------------------------------------------
Weighted average shares used for diluted calculation      2,229            2,205           2,198
</TABLE>

The Company has adjusted all share  information for the stock divided  described
in Note 5.

COMPREHENSIVE  INCOME Total comprehensive income is reported in the Consolidated
Statements of  Stockholders'  Equity and  Comprehensive  Income 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 The Company  accounts  for its  stock-based  compensation  in
accordance  with the  provisions  of SFAS No. 123  "Accounting  For  Stock-Based
Compensation".  Under the provisions of SFAS No. 123, 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.

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

The Samuel  Bingham  Company  Salaried  Employees'  401 (k) Profit  Sharing Plan
covers all eligible employees who have completed one year of service.  Employees
may make contributions to the Plan up to the maximum  limitations  prescribed by
the Internal  Revenue  Service.  At the  discretion  of the Company,  a matching
contribution  of up to 4% of the employees'  compensation  may be made per year.
The matching  contribution vests to the employee on a staggered basis over eight
years and is fully vested at the end of the employees' eighth year of service.


                                       34

<PAGE>

                                      Reinhold Industries, Inc. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)

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  accounting  principles
generally accepted in the United States of America.  Actual results could differ
from those estimates.

IMPAIRMENT  OF  LONG-LIVED  ASSETS AND  LONG-LIVED  ASSETS TO BE DISPOSED OF The
Company  accounts  for long  lived  assets  and  certain  intangibles  including
goodwill at amortized  cost.  As part of an ongoing  review of the valuation and
amortization  of long-lived  assets,  management  assesses the carrying value of
such  assets,  if facts and  circumstances  suggest  that they may be  impaired.
Recoverability  of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset.  If such assets are  considered to be impaired,  the impairment to be
recognized is measured by the amount by which the carrying  amount of the assets
exceeds the fair value of the assets.  Assets to be disposed of are  reported at
the lower of the carrying amount or fair value, less costs to sell.

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

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

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

3 INCOME TAXES

The income tax provision consists of (in thousands):

                                                  Years ended December 31,
                                         2000              1999             1998
--------------------------------------------------------------------------------
Federal                               $ 1,564             1,201              612
State                                     372               383              129
Foreign                                   344               650                3
--------------------------------------------------------------------------------
Total                                 $ 2,280             2,234              744



                                       35

<PAGE>

Reinhold Industries, Inc. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)

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

                                                                          Years ended December 31,
                                                                   2000              1999             1998
-----------------------------------------------------------------------------------------------------------
<S>                                                             <C>                <C>                <C>

Taxes at statutory Federal rate                                 $ 1,971            1,973               741
State taxes, net of Federal tax benefits                            245              253                86
Rate difference on foreign income                                   (46)             (85)             (137)
Non-deductible expenses                                              57               55                54
Other                                                                53               38                 -
-----------------------------------------------------------------------------------------------------------
Total provision for income tax expense                          $ 2,280            2,234               744

</TABLE>

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


                                                      December 31, 2000                  December 31, 1999
-----------------------------------------------------------------------------------------------------------
<S>                                                            <C>                                 <C>

Deferred tax assets:
           Adjustments from quasi-reorganization               $    634                                595
           Net operating loss carryforwards                       9,237                             11,083
           Inventory reserves                                       218                                210
           Other reserves                                           287                                 32
-----------------------------------------------------------------------------------------------------------
           Total gross deferred tax assets                       10,376                             11,920

           Less valuation allowance                              (9,386)                           (11,199)
-----------------------------------------------------------------------------------------------------------
           Net deferred tax assets                                  990                                721

Deferred tax liabilities:
           Pension                                                 (604)                              (376)
           Depreciation                                            (386)                              (345)
-----------------------------------------------------------------------------------------------------------
           Total gross deferred tax liabilities                    (990)                              (721)
           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, 2000.

At December 31, 2000 and 1999, the Company had net operating loss  carryforwards
for Federal income tax purposes of  approximately  $26,788,000 and  $31,782,000,
respectively.  At December 31, 2000,  the Company  also has net  operating  loss
carryforwards  for State income tax purposes of  approximately  $1,704,000.  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.  Benefits  realized  from  loss
carryforwards  and  deductible  temporary   differences  arising  prior  to  the
reorganization  are  recorded  directly  to  additional  paid-in  capital.  Such
benefits  amounted to  $1,813,000  in 2000,  $1,471,000  in 1999 and $703,000 in
1998.

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.



                                       36

<PAGE>

                                      Reinhold Industries, Inc. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)

4 LONG TERM DEBT

On  April  22,  1998,  the  Company  borrowed  $2,268,000  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)  was payable in equal
monthly principal  payments of $37,800 plus interest at prime plus 1.75% and was
secured by fixed assets and land. The remainder of the CIT credit facility was a
revolver of One Million Seven Hundred Thirty-Two Thousand Dollars  ($1,732,000),
which had never been used.

On April 16, 1999,  the Company repaid the  outstanding  loan with the CIT Group
Credit/Finance  through a refinancing  with Bank of America  National  Trust and
Savings  Association  ("B of A") and  cancelled  the  revolver.  The new  credit
facility  with B of A is a term loan in the amount of  $1,861,478  payable in 48
equal monthly  principal  installments  of $38,780 plus interest at a rate which
approximates  LIBOR  plus 1.75%  (8.45% in total at  December  31,  2000) and is
secured by fixed assets.

On March 9, 2000, the Company borrowed $11,000,000 from B of A to fund a portion
of the purchase  consideration  due to Samuel  Bingham  Company.  The  principal
portion  of the loan is  payable  in twenty  successive  quarterly  installments
beginning  June  30,  2000.  Interest  is  payable  quarterly  at a  rate  which
approximates  LIBOR  plus 1.75%  (8.37% in total at  December  31,  2000) and is
secured by all financial assets of the Company.

Both loan agreements with B of A are subject to various  financial  covenants to
which the Company must  comply.  The  covenants  require the Company to maintain
certain  ratios of cash flow to total  outstanding  debt,  mininum net worth and
limits on  capital  expenditures.  The  Company is in  compliance  with the loan
covenants at December 31, 2000.

At  December  31,  2000,  maturities  of long  term  debt  were as  follows  (in
thousands):

2001                                                 $  2,778
2002                                                    2,715
2003                                                    2,631
2004                                                    2,688
2005                                                      687
--------------------------------------------------------------------------------
                                                     $ 11,499

5 STOCKHOLDERS' EQUITY

On September 8, 2000, the  stockholders'  of the Company approved a reduction in
the  number of  authorized  shares of common  stock  from  45,000,000  shares to
4,750,000 shares and a reduction in the number of authorized shares of preferred
stock from 5,000,000  shares to 250,000 shares.  The changes were filed with the
State of Delaware and became effective on November 1, 2000.

On May 10, 2000, the Board of Directors approved the distribution of a 10% stock
dividend payable to stockholders of record on July 11, 2000, where an additional
199,102 shares were issued on July 28, 2000. The earnings per share computations
for all periods presented have been adjusted for the dividend.

6 STOCK OPTIONS

STOCK  INCENTIVE  PLAN On July 31, 1996,  the Company  established  the Reinhold
Stock  Incentive  Plan for key  employees.  The Reinhold  Stock  Incentive  Plan
permits the grant of stock  options,  stock  appreciation  rights and restricted
stock.  The  total  number  of shares of stock  subject  to  issuance  under the
Reinhold  Stock  Incentive  Plan may not exceed  100,000.  The maximum number of
shares of stock with respect to which options or stock  appreciation  rights may
be granted  to any  eligible  employee  during  the term of the  Reinhold  Stock
Incentive  Plan may not  exceed  10,000.  The shares to be  delivered  under the
Reinhold  Stock  Incentive  Plan may consist of authorized but unissued stock or
treasury stock, not reserved for any other purpose.



                                       37

<PAGE>

Reinhold Industries, Inc. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)

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

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

                                            2000                            1999
--------------------------------------------------------------------------------
Risk free interest rate                     6.2%                            6.5%
--------------------------------------------------------------------------------
Dividend yield                                -                               -
--------------------------------------------------------------------------------
Volitility factor                            81%                             70%
--------------------------------------------------------------------------------
Weighted average life (years)               4.1                              4.1

Using the  Black-Scholes  Option Pricing Model,  the estimated  weighted-average
grant date fair value of  options  granted in 2000 was $6.22.  The pro forma net
income  assuming the  amortization  of the estimated fair values over the option
vesting period and diluted  earnings per common share, had the fair value method
of  accounting  for stock  options  been used,  would  have been as follows  (in
thousands, except per share data):

                                            2000                            1999
--------------------------------------------------------------------------------
Pro forma net income                      $3,236                           3,147
Pro forma earnings per share:
Basic                                    $  1.47                         $  1.55
Diluted                                  $  1.45                         $  1.55

The  Black-Scholes  Option Pricing Model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation  models require highly  subjective
assumptions including the expected stock price volatility. Because the Company's
employee stock options have characteristics  significantly  different than those
of traded options,  and because changes in the assumptions can materially affect
the fair value estimate,  in management's  opinion,  the existing models may not
necessarily  provide a reliable single measure of the fair value of its employee
stock  options.  A summary of the  status of the option  plans as of and for the
changes during the year ended December 31, 2000 and 1999 is presented below:

<TABLE>
<CAPTION>

                                                                                          Weighted average
                                            Number of shares           Low         High     exercise price
----------------------------------------------------------------------------------------------------------
<S>                                                  <C>             <C>         <C>                 <C>
Outstanding December 31, 1998 and 1997                     -             -            -                  -
----------------------------------------------------------------------------------------------------------
Granted in 1999                                      169,000         $7.50       $10.23              $7.59
Forfeited during 1999                                  6,000         $7.50       $ 7.50              $7.50
----------------------------------------------------------------------------------------------------------
Outstanding December 31, 1999                        163,000         $7.50       $10.23              $7.59
10% stock dividend                                    16,100             -            -                  -
Granted in 2000                                       10,000         $9.75       $ 9.75              $9.75
Forfeited during 2000                                  3,100         $7.50       $ 7.50              $7.50
----------------------------------------------------------------------------------------------------------
Outstanding December 31, 2000                        186,000         $8.25       $11.25              $8.35
</TABLE>

At December 31, 2000, the weighted average remaining contractual life of options
outstanding is 8.4 years. No options were exercisable at December 31, 2000, 1999
and 1998.


                                       38

<PAGE>

                                      Reinhold Industries, Inc. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)

7 PENSION PLANS

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

Net pension cost included the following (in thousands):
<TABLE>
<CAPTION>

                                                                          Years ended December 31,
                                                                  2000               1999            1998
----------------------------------------------------------------------------------------------------------
<S>                                                             <C>                  <C>             <C>

Service cost                                                    $  167                142             113
Interest cost on benefits earned in prior years                    966                800             839
Expected return on assets                                         (900)              (921)           (972)
Amortization of net obligation at transition                        (3)                25              20
Amortization of net loss                                          (297)               129               6
----------------------------------------------------------------------------------------------------------
Net pension cost (benefit)                                      $  (67)               175               6

</TABLE>

The following  table sets forth a  reconciliation  of the pension plan's benefit
obligation at December 31, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>

                                                                  2000               1999
----------------------------------------------------------------------------------------------------------
<S>                                                            <C>                 <C>

Projected benefit obligation at beginning of year              $11,887             12,699
Projected benefit obligation at beginning of period -
  Samuel Bingham                                                 1,966                -
Service cost                                                       167                142
Interest cost                                                      966                800
Actuarial loss/(gain)                                              418               (649)
Benefits paid                                                   (1,261)            (1,105)
----------------------------------------------------------------------------------------------------------
Projected benefit obligation at end of year                    $14,143             11,887
</TABLE>


The following table sets forth a reconciliation  of the pension plan's assets at
December 31, 2000 and 1999 (in thousands):
<TABLE>
<CAPTION>


                                                                  2000              1999
----------------------------------------------------------------------------------------------------------
<S>                                                            <C>                <C>

Fair value of plan assets at beginning of year                 $11,814            10,755
Fair value of plan assets at beginning of period -
  Samuel Bingham                                                 2,389                 -
Actual return on assets                                            351             1,685
Employer contributions                                             257               479
Benefits paid                                                   (1,261)           (1,105)
----------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year                       $13,550            11,814
</TABLE>



                                       39

<PAGE>

Reinhold Industries, Inc. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)

The following  table sets forth a  reconciliation  of the pension  plan's funded
status at December 31, 2000 and 1999 (in thousands):

                                                   2000                    1999
--------------------------------------------------------------------------------
Projected benefit obligation at end of year     $14,143                  11,887
Fair value of plan assets at end of year         13,550                  11,814
--------------------------------------------------------------------------------
Funded status                                      (593)                    (73)
Unrecognized prior service cost                     148                      (4)
Unrecognized net obligation at transition           (36)                     20
Unrecognized net loss                             1,909                   1,020
--------------------------------------------------------------------------------
Prepaid pension cost at end of year            $  1,428                     963


Intangible asset at December 31,                   $156                       -
Additional minimum liability at December 31,       (258)                      -
--------------------------------------------------------------------------------
Additional pension liability in excess of
prior service cost at December 31,             $   (102)                      -


Assumptions used in accounting for the pension plan were:

                                       December 31, 2000       December 31, 1999
--------------------------------------------------------------------------------
Discount rate                                       7.00%                  7.25%
Rate of increase in compensation levels             5.0                    5.0
Expected long-term rate of return on assets         9.0                    9.0


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.

8 OPERATING SEGMENTS

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


                                       40

<PAGE>

                                      Reinhold Industries, Inc. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)

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

                                                     Years ended December 31,
                                                   2000        1999        1998
--------------------------------------------------------------------------------
Net sales
      Aerospace                                $  8,417       5,863       6,165
      CompositAir                                 9,462      15,955      11,214
      Commercial                                  3,093       2,433       1,978
      NP Aerospace                                9,999      14,889       6,639
      Samuel Bingham                             18,316           -           -
--------------------------------------------------------------------------------
Total sales                                    $ 49,287      39,140      25,996
--------------------------------------------------------------------------------

Income before income taxes
      Aerospace                                $  2,625       1,241       1,587
      CompositAir                                 1,196       2,088          94
      Commercial                                    419         287          72
      NP Aerospace                                1,247       2,536         747
      Samuel Bingham                                 13           -           -
      Unallocated corporate (expenses) income       297        (348)       (321)
--------------------------------------------------------------------------------
Total income before income taxes               $  5,797       5,804       2,179
--------------------------------------------------------------------------------

Depreciation and amortization
      Aerospace                                $    349         356         369
      CompositAir                                   275         272         220
      Commercial                                    150         155         150
      NP Aerospace                                  160         163          64
      Samuel Bingham                                519           -           -
      Unallocated corporate                          48          82          96
--------------------------------------------------------------------------------
Total depreciation and amortization            $  1,501       1,028         899
--------------------------------------------------------------------------------

Capital expenditures
      Aerospace                                $    688         117          63
      CompositAir                                     -         540         458
      Commercial                                     16          52         132
      NP Aerospace                                  222         215         303
      Samuel Bingham                                429           -           -
--------------------------------------------------------------------------------
Total capital expenditures                     $  1,355         924         956
--------------------------------------------------------------------------------

Total assets
      Aerospace                                $  4,963       4,735
      CompositAir                                 2,613       3,469
      Commercial                                  1,091       1,024
      NP Aerospace                                9,612       9,455
      Samuel Bingham                             18,077           -
      Unallocated corporate                       4,353       6,551
--------------------------------------------------------------------------------
Total assets                                   $ 40,709      25,234
--------------------------------------------------------------------------------

                                       41

<PAGE>

Reinhold Industries, Inc. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)

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

                      December 31, 2000    December 31, 1999   December 31, 1998
--------------------------------------------------------------------------------
Net sales
      United States            $ 36,068               18,662              14,920
      United Kingdom              9,098               14,188               8,579
      Botswana                       93                1,942                   -
      Germany                       865                1,916               1,797
      Canada                      1,073                    -                   -
      All other                   2,090                2,432                 700
--------------------------------------------------------------------------------
      Net sales                $ 49,287               39,140              25,996


9 COMMITMENTS AND CONTINGENCIES

LEASES The Company  leases  certain  facilities  and equipment  under  operating
leases  expiring  through 2014.  Total rental  expense on all  operating  leases
approximated   $803,000,   $514,000  and  $509,000  for  2000,  1999  and  1998,
respectively.

Minimum  future  rental  commitments  under  noncancelable  operating  leases at
December 31, 2000 are as follows (in thousands):

2001                                                $    911
2002                                                     961
2003                                                     921
2004                                                     798
2005                                                     798
Thereafter                                             8,493
--------------------------------------------------------------------------------
                                                    $ 12,882

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

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



                                       42

<PAGE>

                                      Reinhold Industries, Inc. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)

Management  believes  that in or about 1977,  the Company's  predecessor,  Keene
Corporation  ("Keene"),  sold to the U.S.  Department  of Interior  certain real
property and improvements now located within the Valley Forge Site. Prior to the
sale, Keene operated a manufacturing  facility on the real property and may have
used friable asbestos, the substance which gives rise to the claim at the Valley
Forge Site. The Company is in the process of analyzing the legal  foundations of
the Department of Justice claim in light of the bankruptcy  proceeding described
below.  The Company  believes that two injunctions  issued in 1996 in connection
with Keene's  bankruptcy  proceeding  under chapter 11 of Title 11 of the United
States Code ("Bankruptcy Code") are relevant to the Justice Department's claim.

As previously  reported,  Keene acquired  Reinhold in 1984. On December 3, 1993,
Keene filed a voluntary  petition for relief under chapter 11 of the  Bankruptcy
Code in the United States Bankruptcy Court.  Keene's chapter 11 filing came as a
direct result of the demands on Keene of thousands of asbestos-related  lawsuits
that named Keene as a party.  On July 31,  1996 (the  "Effective  Date"),  Keene
consummated its Fourth Amended Plan of  Reorganization,  as modified,  under the
Bankruptcy Code (the "Plan").  On the Effective  Date,  Reinhold was merged into
and with Keene,  with Keene becoming the surviving  corporation.  Keene,  as the
surviving  corporation of the merger, was renamed Reinhold  Industries,  Inc. On
the Effective  Date,  pursuant to the Plan the Company issued its Class B Common
Stock to the Trustees of a Creditors'  Trust,  which was  established  under the
Plan to administer Keene's asbestos liabilities.  The Creditors' Trust has since
sold most of its Class B Common Stock.

The general bankruptcy  injunction issued in the chapter 11 proceeding generally
prohibits any entity from  commencing or  continuing  any action,  employment of
process or act to collect, offset, affect or recover any claim, demand, interest
or cause of action  satisfied,  released  or  discharged  under  the Plan.  Such
claims,  demands,  interests  and  causes of action  include,  whether  known or
unknown, all claims against Keene or the Company or their assets and all related
causes of action,  regardless  of whether a proof of claim or interest was filed
or allowed, and whether or not the holder of such claim or interest has voted on
the  Plan,  or any  causes of action  based on any act or  omission  of any kind
occurring  prior to the Effective  Date. In addition to this general  bankruptcy
injunction,  the  Company  received  the  benefit of a  supplemental  "Permanent
Channeling Injunction" as part of the Plan.

The  Permanent  Channeling   Injunction  bars   "Asbestos-Related   Claims"  and
"Demands," as defined in the Plan, against the Company and channels those Claims
and  Demands to the  Creditors'  Trust.  Pursuant  to the  Permanent  Channeling
Injunction, on or after the Effective Date of the Plan, any person or entity who
holds or may hold an  Asbestos-Related  Claim or Demand  against  Keene  will be
forever  stayed,  restrained,  and enjoined from taking certain  actions for the
purpose of, directly or indirectly, collecting, recovering, or receiving payment
of, on, or with respect to such  Asbestos-Related  Claims or Demands against the
Company.

It is difficult to estimate the timing and ultimate  costs to be incurred by the
Company in connection with  environmental  liability claims in the future due to
uncertainties  about  the  status  of laws  and  regulations,  the  adequacy  of
information  available for  individual  sites and the extended time periods over
which  site  remediation   occurs.   However,   based  on  currently   available
information,  if the environmental liability claims relating to the Valley Forge
Site arose  prior to the filing of Keene's  bankruptcy  case or if these  claims
were deemed to be  Asbestos-Related  Claims or Demands within the meaning of the
Plan,  then  the  Company  does  not  believe  that  environmental   liabilities
associated with the Valley Forge Site should result in a material adverse impact
on the  Company's  consolidated  financial  position  or results of  operations.
However,  if these claims are deemed to have arisen  subsequent to the filing of
Keene's bankruptcy case -- i.e the "release" or "threatened release," within the
meaning of CERCLA,  is deemed to have occurred  after Keene filed its chapter 11
petition  with the  Bankruptcy  Court or the claims are held to have arisen when
the  response  costs  were  incurred  -- and these  claims  are not deemed to be
Asbestos-Related  Claims or Demands as defined under the Plan,  then the Company
could incur  liability  for the claims.  If a court were to  determine  that the
Company was liable for recoverable  costs  associated with the Valley Forge Site
under CERCLA,  the resulting  liability could have a material  adverse impact on
the Company's consolidated financial position and results of operations.



                                       43

<PAGE>

Reinhold Industries, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)

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

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

10 BUSINESS AND CREDIT CONCENTRATIONS

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

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

                                                Years ended December 31,
                                         2000              1999             1998
--------------------------------------------------------------------------------
B/E Aerospace                         $ 8,282           13,405             8,687
United Kingdom Ministry of Defense          *            6,356                 *
Alliant Techsystems                         *                              3,077


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

B/E  Aerospace  accounted  for  approximately  11%  of  the  Company's  accounts
receivable  balance at December 31, 2000 and  approximately  40% at December 31,
1999 before any  adjustments for the allowance for doubtful  accounts.  No other
customer exceeded 10% of the Company's gross accounts  receivable  balance.  The
Company   estimates  an   allowance   for   doubtful   accounts   based  on  the
creditworthiness  of its  customers  as well  as  general  economic  conditions.
Consequently,  an adverse  change in those  factors  could affect the  Company's
estimate of its bad debts.

11 RELATED PARTY TRANSACTIONS

On June 3,  1999,  Reinhold  entered  into a two year  agreement  with  Hammond,
Kennedy, Whitney and Company ("HKW"), a private equity firm, to provide Reinhold
and its subsidiaries  with advise regarding  strategic  direction and merger and
acquisition activities,  including identifying potential acquisition candidates,
for a fee of $20,000 per month.  Accordingly,  $240,000 and $140,000 was charged
to expense in 2000 and 1999, repectively. The agreement is automatically renewed
thereafter for successive one year periods,  unless termination  notification is
provided by either party within 120 days of the renewal  date.  Mssrs.  Ralph R.
Whitney,  Jr., Andrew McNally, IV and Glenn Scolnik, all members of the Board of
Directors of Reinhold, are principals of HKW. Additionally, the Company pays Mr.
Scolnik a monthly legal retainer of $4,000.



                                       44


<PAGE>

                                      Reinhold Industries, Inc. and Subsidiaries



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)


12 QUARTERLY SUMMARY OF INFORMATION (UNAUDITED)
Summarized  unaudited  financial  data is as follows (in  thousands,  except per
share data):

                                            Three Months Ended
                         March 31,      June 30,   September 30,    December 31,
--------------------------------------------------------------------------------
2000
Net sales                  $ 9,601        13,902          13,281          12,503
Gross profit               $ 2,737         4,344           3,995           3,713
Net income                 $   802           941             714           1,060
Net earnings per share:
    Basic                  $  0.36          0.43            0.32            0.49
    Diluted                $  0.36          0.42            0.32            0.48


1999
Net sales                  $ 8,688         9,574          11,659           9,219
Gross profit               $ 2,176         2,630           3,242           2,735
Net income                 $   767           952           1,219             632
Net earnings per share:
    Basic                  $  0.35          0.43            0.55            0.29
    Diluted                $  0.35          0.43            0.55            0.29




                                       45


<PAGE>

Reinhold Industries, Inc. and Subsidiaries



INDEPENDENT AUDITORS' REPORT


The Board of Directors
Reinhold Industries, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets  of  Reinhold
Industries, Inc. and Subsidiaries (the Company) as of December 31, 2000 and 1999
and the related  consolidated  statements of earnings,  stockholders' equity and
comprehensive  income  and cash  flows for each of the  years in the three  year
period ended December 31, 2000. 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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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  Subsidiaries as of December 31, 2000 and 1999 and the results of their
operations  and their cash flows for each of the years in the three year  period
ended  December 31, 2000 in  conformity  with  accounting  principles  generally
accepted in the United States of America.


/s/KPMG LLP

Los Angeles, California
March 16, 2001


                                       46

<PAGE>

                                      Reinhold Industries, Inc. and Subsidiaries

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

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

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

Glenn Scolnik
President
Hammond, Kennedy, Whitney & Company

Thomas A. Brand
Retired
Fiberite Corporation

Richard A. Place
Retired
Ford Motor Company

Corporate Officers
Michael T. Furry
President and CEO

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

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

Investor Relations
Contact Judy Sanson
Reinhold Industries, Inc.

Registrar
Continental Stock Transfer &
Trust Company
2 Broadway
New York, New York 10004

Annual Meeting
The Annual Stockholders'
Meeting  will be held at the offices of  Reinhold  Industries,  Inc.  12827 East
Imperial Hwy Santa Fe Springs, CA on May 8, 2001 at 2:30 p.m.

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

Transfer Agent
Continental Stock Transfer &
Trust Company
2 Broadway
New York, New York 10004
212 509-4000

Independent Auditors
KPMG LLP
355 South Grand Avenue
Los Angeles, CA 90071

Attorneys
Petillon & Hansen
1260 Union Bank Tower
21515 Hawthorne Boulevard
Torrance, California 90503

Wapnick & Alvarado
11268 W. Washington Blvd.
Suite 200
Culver City, CA 90230

Stock Listing
Reinhold common stock
is listed on the OTC Bulletin
Board
Symbol - RNHDA

Stockholder Information
                                                 2000                   1999
Market Price                               High        Low         High      Low
--------------------------------------------------------------------------------
First Quarter ended March 31,             10.91       9.09         7.39     6.14
Second Quarter ended June 30,             10.00       9.09         8.41     6.14
Third Quarter ended September 30,         13.00       8.18        10.91     7.27
Fourth Quarter ended December 31,         10.00       6.50        11.93     8.41

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 years ended  December 31, 2000 and 1999,  adjusted for the effect of the
10% stock dividend on July 28, 2000.

                                       47

<PAGE>


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