EXHIBIT 13

                           Reinhold Industries, Inc.
                               2004 Annual Report

<PAGE>



Selected Financial Data
<TABLE>
<CAPTION>

                                                       2004     2003     2002     2001    2000
-----------------------------------------------------------------------------------------------
<S>                                              <C>          <C>      <C>      <C>     <C>
Summary of operations (in thousands) (Note 1)
Net sales                                        $   57,739   50,295   41,950   29,786  30,971
Gross profit                                     $   20,111   17,779   13,831    8,443   9,794
Operating income                                 $   10,679   10,148    7,435    3,030   4,627
Gain on sale of asset                            $        -        -        -        -     962
Interest income (expense), net                   $       93       50      (29)     139     195
Minority interest                                $       30        -        -        -       -
Income from continuing operations                $    5,947    6,385    4,601    2,899   3,504
Income (loss) from discontinued operations       $   (4,837)    (661)    (449)  (6,622)     13
Net income (loss)                                $    1,110    5,724    4,152   (3,723)  3,517
-----------------------------------------------------------------------------------------------

Year-end position (in thousands)
Cash and cash equivalents                        $    4,015    6,172    3,037    4,105   7,121
Working capital                                  $   12,482   17,855   10,495   10,981  14,589
Net property and equipment                       $    8,171   12,664   11,307   10,564  11,280
Total assets                                     $   39,446   43,790   36,610   33,029  40,709
Long-term debt                                   $   24,229       30      124    6,280   8,721
Long-term liabilities                            $    6,591    7,297    5,872    4,178     449
Stockholders' equity (deficit)                   $   (3,190)  29,066   19,802   15,077  22,905
-----------------------------------------------------------------------------------------------

Per share data (Note 2)
Net income (loss):
Basic - continuing operations                    $     1.95     2.18     1.57     0.99    1.20
Diluted - continuing operations                  $     1.89     2.05     1.56     0.99    1.18

Basic - discontinued operations                  $    (1.59)   (0.23)   (0.15)   (2.26)   0.00
Diluted - discontinued operations                $    (1.59)   (0.23)   (0.15)   (2.26)   0.01

Basic                                            $     0.36     1.95     1.42    (1.27)   1.20
Diluted                                          $     0.35     1.83     1.41    (1.27)   1.19

Stockholders' equity (deficit)                   $    (1.05)    9.91     6.77     5.16    7.84

Market price range (Note 3):
High                                             $    28.71    20.23     8.17     7.14    9.77
Low                                              $    15.46     7.52     4.30     4.27    4.50

Cash dividends declared                          $    12.75        -        -        -       -

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

Other data (in thousands except stockholder
 & employee data) (Note 2)
Orders on hand                                   $   52,527   22,607   34,468   24,596  15,691
Average shares outstanding - basic                    3,048    2,932    2,926    2,923   2,923
Average shares outstanding - diluted                  3,151    3,122    2,948    2,923   2,964
Average number of common stockholders                 1,314    1,414    1,465    1,516   1,629
Average number of employees                             234      228      215      243     286

<FN>

Note 1: The summary of operations has been adjusted to reflect the sale of the
Company's Samuel Bingham Enterprises, Inc. subsidiary in December 2004.

Note 2: All share information  presented has been adjusted for the Company's 10%
stock dividends in 2003, 2002, 2001 and 2000.

Note 3: Market prices in 2004 have been adjusted for the Company's extraordinary
dividend of $11.75 per share declared and paid in December 2004.
</FN>
</TABLE>

Reinhold Industries, Inc.                                                     1

<PAGE>


The Board of Directors

(Picture of the Board of Directors)


(Data Points of Chart, in millions)

          2000   2001  2002  2003  2004
Sales     31.0   29.8  42.0  50.3  57.7


(Data Points of Chart, in millions)

                            2000   2001  2002  2003  2004
Income before taxes from
  continuing operations      5.8    3.2   7.4  10.2  10.8


2


<PAGE>


1 Michael T. Furry
president and ceo

2 Ralph R. Whitney, Jr.
chairman of the board

3 Andrew McNally, IV

4 Glenn Scolnik

5 Thomas A. Brand

6 Richard A. Place

7 Richard C. Morrison

8 C. Miles Schmidt, Jr.

9 Matthew C. Hook



                          A Message from the President

The year  2004 has been the most  eventful  one in the  76-year  history  of our
company.

Most  noteworthy of this eventful year was the soaring sales of our NP
Aerospace  subsidiary in the UK, whose product lines  accounted for $25.5 of the
Reinhold  total of $57.7  million.  The  total  does not  include  any  sales by
Bingham.  Following  closely  was the Santa Fe  Springs  Aerospace  line,  which
accounted  for $24.2  million.  Approximately  half of that was derived from the
on-going  contract for the  Minuteman  III  Propulsion  Replacement  Program,  a
contract that extends through 2008.
         The wars in Iraq and Afghanistan - and the Gulf war before them - have
given rise to an increasing number and sophistication of products designed to
minimize risks of injury or death. NP Aerospace is the leader in making those
products, and the Ministry of Defense of the United Kingdom (MOD) is their
primary customer. The first swell of revenue from this line of products came
when NP Aerospace


(Data Points of Chart, in millions)

            2000   2001  2002  2003  2004
Backlog     15.7   24.6  34.5  22.6  52.5


(Data Points of Chart, in dollars per share)

                            2000   2001  2002   2003   2004
Market Price Range - High    9.77  7.14  8.17  20.23  28.71
Market price Range - Low     4.50  4.27  4.30   7.52  15.46


                                                                              3

A Message from the President (continued)

signed a $3.5 million  contract  with the MOD early in 2002 for delivery in 2003
of Iniba plates,  a composite  bullet-proof  insert that fits into existing body
armor. That order was fulfilled on schedule, and a second order followed in 2004
for delivery in 2005.
         Going back to 1992-1993, NP Aerospace built 1,000 composite armored
vehicles for the MOD that were then consigned to Northern Ireland for
peace-keeping purposes. A number of them were later joined with UK forces in
Iraq, but after a season of searing heat, the MOD recalled 200 for an air
conditioning retrofit, a design problem that turned out to be more complex than
was anticipated. When the solution came, it was as simple as it first appeared
complex. Instead of conditioning the entire vehicle, they used a flexible heat
barrier to separate and cool a discrete space, a conditioned cocoon within the
vehicle where three soldiers at a time could work.

Our 2004 had a decidedly British accent

While the vehicles were in custody, the MOD, responding to the recommendations
of soldiers who had been in combat, ordered a number of other features,
including new chassis for 300 vehicles. Only the retrofit air conditioning was
completed in 2004. The new chassis and other features were part of the $33
million backlog with which NP Aerospace entered 2005. Ultimately, the entire
fleet will be so equipped.

Sales of medical  patient  couches  were also  significant  to 2004 sales.  They
increased by 30% over 2003, and we expect an 80% increase over that in 2005. The
increased revenue is a result of our customer's strategy to reduce the number of
suppliers.  We were  successful in winning a "value added"  contract to assemble
our product to a higher  completion  level.  This assembly  work was  previously
performed by our customer.

a. armored
vehicle

NP Aerospace armored vehicles are custom designed
for defense and internal security, civic and media
purposes, VIP protection, and special operations. To
varying degrees and designs, they employ CAMAC
composite armor systems based on composites incorporating
advanced reinforced fibers, such as S-2 glass,
E glass, aramid, and ultra high modulus polyethylene,
possibly combined with ceramic and metal facings
to achieve higher performance with lower weight than
traditional metallic armor systems.


4

<PAGE>


(Illustration of armored vehicle)

<PAGE>

A Message from the President (continued)

         Helmet sales to the British army are ongoing. We have made helmets for
Greece and Switzerland in the past and are expecting follow-on orders from both
countries.

A new subsidiary is born

In August of 2004, we finalized a shareholders agreement to form a joint venture
with King Abdullah II Design and Development Bureau (KADDB) to develop a
facility in Jordan that will manufacture protective gear. The name of the new
company is NP Aerospace Jordan. Fifty-one percent of the stock is held by NP
Aerospace and 49% by KADDB. The facility will manufacture military helmets, body
armor, and other composite products in Jordan. Upon formation of the joint
venture, the new company received an order for 50,000 newly designed helmets for
the Jordanian Armed Forces. The initial 25,000 will be manufactured at our NP
Aerospace plant in the UK, where we will train Jordanian management and workers
during their manufacture. The second 25,000 will be manufactured in Jordan.
     Meanwhile, a building has been leased in Jordan in the Free Zone, equipment
is being  installed,  and employees,  including the English  training crew, will
begin work in July. Their first products will be ready for shipment in Q4 2005.

The fruits of keeping cool: NP Aerospace Jordan

The consummation of this joint agreement with KADDB is the result of six to
seven months of patient, dogged negotiations involving people at the highest
levels of the government of Jordan and their attorneys. Roger Medwell, Managing
Director of NP Aerospace; Brett Meinsen, Vice President of Finance and
Administration and Treasurer and


                                    INTERNAL
                                    SECURITY

                                                                              5

<PAGE>

A Message from the President (continued)


Secretary of Reinhold  Industries;  our  attorneys,  and I have  represented  NP
Aerospace.
         I have been present at every meeting with the team in Jordan, and every
aspect of the agreement bears my imprematur as well as that of KADDB.
         The Board of Directors of NP Aerospace Jordan is comprised of five. Two
were appointed by KADDB and three by NP Aerospace: Medwell, Meinsen, and I.
         This joint venture opens up the Middle East
and North African markets for NP Aerospace Jordan products. For all of our
products, we can meet the world-wide price point. We estimate that market to be
in the range of $4 to $5 million annually.

Say goodbye to Samuel Bingham Enterprises

In December of 2004, four months after the new subsidiary,  NP Aerospace Jordan,
was  confirmed,  the tenure of Samuel  Bingham  Enterprises,  Inc. as a Reinhold
subsidiary was ended. The 156-year-old manufacturer of industrial rollers, which
we acquired in March of 2000, was sold to Finzer Roller,  whose headquarters are
in Chicago, Illinois.
         Bingham was struggling when we bought it and proved less amenable to
change, less absorptive of the Reinhold culture, more distant from our core
business, and their market less pervious than we had adjudged it to be. It is
hoped that the company, who did little business west of the Mississippi, can
draw upon their traditional roots to invigorate them-selves in that part of the
country that they know best. It is possible to be old in business without being
decrepit, and we wish Finzer and our many friends at Bingham well.

There is life after Minuteman

There is a timorous element in the business community that is apprehensive about
what will happen to Reinhold Industries when the Minuteman



b. helmet

NP Aerospace, our subsidiary in Coventry, England,
manufactures a line of protective gear. Their new
AC1200J/500 combat helmet is produced using NP
Aerospace's Multi-Axial Preform Technology (MAPT),
patent pending. It is the highest performance helmet
for its projected area of coverage in the world. Its
features include high anti-ballistics protection, high
impact performance, high structural strength, a
rapid liner release system, a washable liner system,
and a ventilated suspension system.


6

<PAGE>

(illustration of helmet)

<PAGE>

A Message from the President (continued)

contract  expires  in 2008.  We are more  inclined  to regard  the  future  with
optimism because this contract will not expire until 2008.
         Since the year 2000, the Minuteman III contract with ATK Thiokol has,
as a stage, enabled Reinhold Industries to demonstrate our ability to manage
major contracts for the defense/aerospace industry, to deliver flawless products
on-time, and, at the same time, to prepare ourselves for more complex and
challenging programs in the future. The years remaining on that contract will be
fruitful as we continue to cultivate the financial, material, technical, and
human resources needed to sustain ourselves as a vital resource to this
industry.
         The prospects for sales and earnings for Reinhold Industries, Inc. over
the next decade are more promising than any I have seen since I joined the
company in 1986.

Kick Rings came with Edler Industries Acquisition

There are numerous programs currently in
process or development that will fuel our future. One example, which is featured
in this report, is a contract with United Space Alliance for 18 sets of Kick
Rings for the space shuttle. The contract accrued to Reinhold as a result of the
acquisition of Edler Industries, Inc. and the employment of Vern Edler in 2001.
Edler Industries fulfilled the contract for the prior order of Rings.
     Kick Rings are composite insulators that shield the steel flanges where the
three segments of each of the two solid rocket boosters are joined. The boosters
append to and supplement  the main booster in every launch of the shuttle.  Each
Kick Ring is  comprised  of 50  segments.  Two Kick Rings  constitute a set. One
rocket booster utilizes one set and two


                                    PREFORM
                                   TECHNOLOGY

                                                                              7

<PAGE>

A Message from the President (continued)

boosters two sets,  which are consumed in every  launch.  The 18 sets covered in
our contract  will suffice for nine  launches.  This  contract  will recur every
three to four years for as long as the shuttle flies.
         Our contract was completed late in December and was a significant part
of 2004 income.

Like Halley's comet, they'll come
around again

The precision of the Rings required a basic  manufacturing  process but one that
was greatly complicated by their design. It specified a safety factor many times
over the norm in order to satisfy the requirements of man-rated flight.
         The stringent schedule and the absolute uniformity, strength, and
durability demanded of the Rings went right to the soul of Reinhold's method:
how we lay up, cure, and machine parts. Prior to beginning work on the contract
we had completely refurbished and automated our cure vessels. That foresight and
precaution were validated by the results: on-time delivery of 18 sets of Kick
Rings comprising 1800 individual parts.

Even dormant rockets have a limited life

There are programs already in effect for the refurbishment of the Navy Standard
Missile 1 (SM-1). Among other things, refurbishment entails replacement of the
solid rocket fuel for the MK-56 motor. The fuel has a life of 25 to 30 years.
Aerojet has recently been awarded the contract for that refurbishment.
         The SM-1 is the most plentiful in the nation's arsenal. Most of them
were built in the 70s and 80s. Reinhold built the aft closure and Edler the exit
cone for the original SM-1. Those components will also be refurbished, and that
contract is imminent. It will be fulfilled at the rate of approximately 200 per
year for the next seven or eight years. As the


c. kick ring

For the Kick Ring contract, we ran one autoclave
24 hours a day, seven days a week, for three months
without a breakdown. All of that time there was
another autoclave standing by, just in case. The significance
of this example transcends the dollars involved.
It signifies the maturity of our management team,
and it affirms the nurturing power of the 76-year-old
composite roots from which we sprang in 1928.


8

<PAGE>

(Illustration of kick ring)

<PAGE>

A Message from the President (continued)

incumbent manufacturer of the aft closure and exit cone, we anticipate receiving
that order.
         We are currently producing, under a yearly contract for Raytheon, the
radome shrouds and radome sleeves for the new SM-3 missile now in an advanced
stage of development for the National Missile Defense (NMD) program. Pratt and
Whitney was the original contractor for the MK-72, which is the motor for the
SM-3. When they shut down their plant in San Jose in December of 2004, that
contract was awarded to Aerojet. Other composite components of the SM-3,
including the aft closure assembly, the nozzle assembly, and approximately 10
other miscellaneous components, had been produced by Edler Industries, Inc.
Because of the Edler acquisition, Reinhold is now the incumbent manufacturer for
those components. Approximately 20 missiles per year are being built during this
development phase.
         Full production at the rate of 30 per year is not expected to begin
until 2008 - 2010. As the incumbent supplier, we expect to be awarded that
contract.

Seek and ye shall find

In response to evolving threats and an expanding mission, Raytheon and the US
Navy are developing the next generation of Extended Range Anti-air Warfare
Missile (ER-AAW), designated the SM-6. The Navy has awarded a $440M sole-source
development contract to Raytheon Missile Systems. It will be propelled by the
same MK-72 motor that propels the SM-3.
         The initial, baseline SM-6 program provides an ER-AAW missile
capability against fixed and rotary wing aircraft, unmanned aerial vehicles, and
land attack anti-ship cruise missiles in flight, over both sea and land.
         The Navy believes that the SM-6 can be operational in 2010. It will
utilize many of the same


                                    MATURITY

                                                                              9

<PAGE>

A Message from the President (continued)


components  as  the  SM-3.  Production  capability  will  be  200-300  per  year
throughout most of the next decade.

Attrition: manufacturers reduced from many to two

In addition to the contract for refurbishment of the MK-56, which is the motor
for the SM-1, Aerojet also inherited a significant amount of other work as a
result of the Pratt and Whitney closure of its San Jose facility in December of
2004. Now, the solid rocket propulsion industry, which had consisted of numerous
manufacturers of solid rockets, has been reduced to two. They are ATK Thiokol
and Aerojet.
         Aerojet has also acquired Atlantic Research Corporation, obtaining in
the process two plants that manufacture small tactical rockets, one in Arkansas
and one in Virginia.
         We expect Aerojet to become a customer of consequence in 2005.
         ATK Thiokol Utah is devoted  principally to large  missiles,  but they
have  two  business  units,  one in  Maryland  and  one in West  Virginia,  that
manufacture  tactical  rockets.  All three of those ATK Thiokol entities are our
customers now.
         Another source of income for 2004, and a prospect for years to come, is
the annual renewable contract with ATK Thiokol for nozzle components for the
three stages of the Orion rocket, which is the rocket that serves the
Ground-based Midcourse Defense program (GMD).

We've got your numbers, and we like them

In the Annual Reports of 2002 and 2003, we anticipated the benefits of "Project
B." That project consisted of inhabiting the new building, renovating the old
ones, streamlining job flows for all our product lines, creating discrete work
space for every



d. in-ground lighting


Among our line of commercial products are in-ground
lighting fixtures from Reinhold-made Rhinolite composite
sheet molding compounds: UL 94, V6, 5V rated. The
accompanying drawing suggests the complexities and
possibilities: insular, water tight, flame retardent, deep
drawn, complex geometry, molded-in details, custom
curves, variable thicknesses, molded-in brass, bonding. First,
you have to be able to make it. Second, you may have to
make the tools to make it. First stop: Reinhold engineering.


10
<PAGE>

(Illustration of in-ground lighting)

<PAGE>


A Message from the President (continued)


function,  refurbishing  equipment,  and reducing  material and employee traffic
from operation to operation.
         Because our line of in-ground lighting products consists of so many
parts, we predicted that that line of products would benefit most from "Project
B," not because of increased volume but from operating efficiencies. Our
predictions were correct. Although gross sales decreased from $3.5 million in
2003 to $3.3 million in 2004, gross margin as a percent of sales rose from 19.3%
in 2003 to 28.8% in 2004, and EBIT rose from 3.1% and $108,000 in 2003 to 11.5%
and $376,000 in 2004.
         One objective for this product line is to increase the sales of our
sheet molding compounds. Our manufacturing capacity greatly exceeds our in-house
needs, we enjoy a geographical advantage over suppliers in the midwest and
Canada, and we are price competitive. We have hired a new manager of
manufacturing, Brian Witt, whose knowledge and experience in SMC compounding
make it possible for product line manager Ari Aleong to spend more time in the
field, meeting with customers and delivering the Reinhold message. We expect of
this product an increase in sales in 2005.

Composite Airline Seating products:
rising from the trough

The severe decline in demand for Airline Seating products has been chronicled in
the past three annual reports, so it is known to most readers that 2001 was the
second year in history with negative growth in the airline industry. Obviously,
the industry was suffering prior to the events of 9/11, when decline congealed
into disaster. Still, this line of products yielded a modest profit in each of
those years. A further decline of gross sales, however - from $5.25 million in
2003 to $4.7 million in 2004 - plus the imperative of keeping our dedicated work
force


                                 COMPLEXITIES &
                                 POSSIBILITIES

                                                                              11

<PAGE>

A Message from the President (continued)

intact to meet the resurgence of the airline seating market that we were certain
would come, resulted in a loss of $546 thousand for the year.
         Nevertheless, the outlook for this beleaguered product line is
positive. There are more than signs, there are events that proclaim a resurgence
of this market. Both Airbus and Boeing have released figures showing increases
of 45% in new aircraft sales from 2005-2006 and another 45% increase from
2006-2007. We will benefit from those increases, but we will also benefit from
an industry-wide shift from aluminum to composite seatbacks. A market shift that
we have been trumpeting for years has been visited upon us.

We could be sitting pretty with future air travelers

This shift is not a plea. It is a mandate. Boeing with their 787 and Airbus with
their A380 have made it so by compelling  aircraft seating contractors to reduce
the weight of aircraft  interiors by 15%. The most  efficient and economical way
to do that is to switch from aluminum to composite seat structures.
         Aluminum accounted for 70% and composites 30% of the seatback market in
2001. That ratio will change to something closer to 50-50 in the near term.
         We have tried  unsuccessfully  for 18 years to sell  seatbacks to one
major  seating  contractor  but could not overcome the fact that they made their
own aluminum  seatbacks.  However, in response to the mandated weight reduction,
they are now  working  with us on the  design  and  development  of a  composite
seatback.  Based on the needs for the 787 and A380 alone, our business with this
contractor is expected to increase significally in 2005-2006.
         Our number one customer has also made their own aluminum seatbacks. We
are now working with them on a new design for composite seat structures.



e. seatback

Airline seating products are changing but the Reinhold
mission isn't: replacing metal with advanced composites
where light weight, uncommon shapes, and corrosion
resistance are required. Finally, the times are catching up.
Our decades-old mantras, like immortal echoes, resound
in the board rooms and palaces of design where features,
costs, contours, comfort, the weight of aluminum, and the
price of fuel are pondered as composite solutions ascend.



12

<PAGE>

(Illustration of seatback)

<PAGE>


A Message from the President (continued)


         The basic seatback has not changed for 45 years. It consists of a
ladder back, aluminum frame, and legs with the back and the pan attached to
them. That does not comport, however, with demands for lighter weight and more
innovative features. One solution that does comport is to make the entire seat
structure - legs, frame, beam, and back - of composites. In collaboration with
this contractor, we have built such a structure. It will be unveiled at the
Aircraft Interiors Show in Hamburg, Germany April 5, 6, and 7. We will soon be
entering phase one FAA certification testing and expect this program to launch
late in 2005.

This dividend speaks for itself

Pursuant to a meeting of the Board of Directors of Reinhold Industries,  Inc. in
September of 2003, the Board announced a plan to engage an investment  banker to
investigate  strategic  alternatives  for the future of the company.  One option
considered was the sale of the company. Interest was expressed by a considerable
number of buyers,  and the field was eventually  reduced to one, whose tentative
offer, pending due diligence, was acceptable to the Board. When, at the eleventh
hour, after due diligence,  the suitor requested  significant changes, the Board
declined and promptly took Reinhold off the table.
     The  object of the plan to sell had been to  effect a return on  investment
for our  shareholders.  There are only 3.25 million  shares of Reinhold's  stock
outstanding  and average daily  trading is only 1,000 shares.  When the sale was
aborted the dilemma,  common to companies whose stock is closely held and thinly
traded, remained: how to effect a return on investment for our shareholders.

A bold stroke by the Board

The Board solved the problem by announcing an $11.75 per share special dividend
to be paid in the fourth quarter of 2004. The stock price was $26.00



                                   COMPOSITE
                                   SOLUTIONS

                                                                              13

A Message from the President (continued)


per share at the time.  Quarterly  dividends  of $.50 per share had already been
paid for Q2 and Q3, and it was announced that the same quarterly dividends would
be ongoing.
         How did the Board determine a dividend of $11.75, and where did the
money come from? The Board studied the company's future opportunities and
determined that future cash flows would justify borrowing money for the dividend
and using those cash flows to repay the debt over the next five years. The
result was that stockholders realized a handsome return on their investment and
still retained their stock.

The Board of Directors

The Sarbanes Oxley Act and the requirements of Nasdaq and the Securities and
Exchange Commission mandate that a majority of the Board of Directors be made up
of outside, independent directors. In Q3 of 2004, Reinhold expanded the Board
from 6 to 9 members. The Board now consists of five outside, independent
directors and four inside directors.
         For this fruitful year, we are grateful to our customers, our
employees, and our suppliers.


/s/ Michael T. Furry

Michael T. Furry
President, CEO and Director

14

<PAGE>


                                       Management's Discussion and Analysis


<PAGE>


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

Reinhold Industries, Inc. (Reinhold or the Company) is a manufacturer of
advanced custom composite components and sheet molding compounds for a variety
of applications in the United States and Europe. The Company generates revenues
from four operating segments: Aerospace, CompositAir, Commercial and NP
Aerospace. Management has determined these to be Reinhold's operating segments
based upon the nature of their products. Aerospace produces a variety of
products for the U.S. military and space programs. CompositAir produces
components for the commercial aircraft seating industry. The Commercial segment
produces lighting housings and pool filter tanks. NP Aerospace produces products
for law enforcement, lighting, military, automotive and commercial aircraft.

Critical Accounting Policies The Company's consolidated financial statements and
related public financial information are based on the application of U.S.
generally accepted accounting principles ("GAAP"). GAAP requires the use of
estimates, assumptions, judgments and subjective interpretations of accounting
principles that have an impact on the assets, liabilities, revenue and expense
amounts reported. These estimates can also affect supplemental information
contained in the external disclosures of the Company including information
regarding contingencies, risk and financial condition. The Company believes its
use of estimates and underlying accounting assumptions adhere to generally
accepted accounting principles and are consistently and conservatively applied.
Valuations based on estimates are reviewed for reasonableness and conservatism
on a consistent basis throughout the Company. Primary areas where financial
information of the Company is subject to the use of estimates, assumptions and
the application of judgment include revenues, receivables, inventories,
acquisitions, valuation of long-lived and intangible assets, pension and
post-retirement benefits, the realizability of deferred tax assets, and foreign
exchange translation. The Company bases our estimates on historical experience
and on various other assumptions that the Company believes to be reasonable
under the circumstances. Actual results may differ materially from these
estimates under different assumptions or conditions.
         Revenue Recognition and Allowance for Doubtful Accounts The Company
recognizes revenue when persuasive evidence of an arrangement exists, the price
is fixed or determinable, collection is reasonably assured and delivery of
products has occurred or services have been rendered. Allowance for doubtful
accounts is estimated based on estimates of losses related to customer
receivable balances. Estimates are developed by using standard quantitative
measures based on historical losses, adjusting for current economic conditions
and, in some cases, evaluating specific customer accounts for risk of loss. The
establishment of reserves requires the use of judgment and assumptions regarding
the potential for losses on receivable balances. Though the Company considers
these balances adequate and proper, changes in economic conditions in specific
markets in which the Company operates could have a material effect on reserve
balances required.
         Inventories We value our inventories at lower of cost or market. Cost
is determined by the first-in, first-out (FIFO) method, including material,
labor and factory overhead. The Company writes down its inventory for estimated
obsolescence equal to the cost of the inventory. Product obsolescence may be
caused by shelf-life expiration, discontinuance of a product line, replacement
products in the marketplace or other competitive situations.
         Fair Value of Assets Acquired and Liabilities Assumed in Purchase
Combinations The purchase combinations carried out by the Company require
management to estimate the fair value of the assets acquired and liabilities
assumed in the combinations. These estimates of fair value are based on our
business plan for the entities acquired including planned redundancies,
restructuring, use of assets acquired and assumptions as to the ultimate
resolution of obligations assumed for which no future benefit will be received.
Should actual use of assets or resolution of obligations differ from our
estimates, revisions to the estimated fair values



Reinhold Industries, Inc.                                                     15

<PAGE>

Management's Discussion and Analysis (cont'd)

would  be  required.  If a  change  in  estimate  occurs  after  one year of the
acquisition, the change would be recorded in our statement of operations.
         Pensions and Post-Retirement Benefits The valuation of the Company's
pension and other post-retirement plans requires the use of assumptions and
estimates that are used to develop actuarial valuations of expenses and
assets/liabilities. These assumptions include discount rates, investment
returns, projected salary increases and benefits, and mortality rates. The
actuarial assumptions used in the Company's pension reporting are reviewed
annually and compared with external benchmarks to assure that they accurately
account for our future pension obligations. Changes in assumptions and future
investment returns could potentially have a material impact on the Company's
pension expenses and related funding requirements.
         Valuation of Long-lived and Intangible Assets In accordance with SFAS
No. 142, "Goodwill and Other Intangible Assets" and SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-lived Assets," the Company assesses the
fair value and recoverability of its long-lived assets, including goodwill,
whenever events and circumstances indicate the carrying value of an asset may
not be recoverable from estimated future cash flows expected to result from its
use and eventual disposition. In doing so, the Company makes assumptions and
estimates regarding future cash flows and other factors to make our
determination. The fair value of the Company's long-lived assets and goodwill is
dependent upon the forecasted performance of its business and the overall
economic environment. When the Company determines that the carrying value of its
long-lived assets and goodwill may not be recoverable, it measures any
impairment based upon a forecasted discounted cash flow method. If these
forecasts are not met, the Company may have to record additional impairment
charges not previously recognized.
         Discontinued Operations During the three months ended September 30,
2004, management committed to a plan of action to sell its wholly-owned
subsidiary, Samuel Bingham Enterprises, Inc. The decision to sell was based on
continuing losses from operations and a negative long-term outlook in the
marketplaces this subsidiary serves. On September 30, 2004, management
determined that the plan of sale criteria in FASB No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," had been met. Accordingly, the
carrying value of its fixed assets was adjusted to its fair value less costs to
sell and goodwill was determined to be impaired in accordance with the criteria
of FASB No 142. Fair value was determined based on the highest offer received
from several potential strategic suitors. The resulting $5.7 million impairment
charge was included in "Loss on discontinued operations" in the statement of
operations.
         On December 17, 2004, Samuel Bingham Enterprises, Inc. sold certain
assets and transferred certain liabilities to Finzer Roller, L.L.C. for $3.1
million in cash, subject to post-closing adjustments. The assets sold included
accounts receivable, inventories, prepaid expenses, equipment, real property,
tangible personal property, intellectual and other intangible property.
Liabilities transferred include accounts payable, accrued expenses and defined
benefit pension plan obligations. The purchase price was adjusted based on the
computation of closing date working capital.
         Assets held for sale included in the consolidated balance sheet as of
December 31, 2004 and 2003 are as follows:

                                            December 31,      December 31,
                                                    2004              2003
---------------------------------------------------------------------------
Accounts receivable                                 $  -             2,197
Inventory                                              -             1,445
Prepaid expenses                                       -               230
Property, plant and equipment, net                     -             4,010
Other assets                                           -             1,284
Accounts payable                                       -              (829)
Accrued expenses                                       -              (338)
---------------------------------------------------------------------------
Net assets held for sale                            $  -              7,999


16                                                     Reinhold Industries, Inc.

<PAGE>

Management's Discussion and Analysis (cont'd)

Operating  results of the  discontinued  operations for the years ended December
31, 2004, 2003 and 2002 are summarized as follows:
                                              2004     2003     2002
--------------------------------------------------------------------
Net sales                                  $15,075   16,706   17,092
--------------------------------------------------------------------
Loss from operations                        (1,316)  (1,101)    (748)
Impairment loss                             (5,692)       -        -
Additional loss on sale                       (465)       -        -
Tax benefit                                  2,636      440      299
---------------------------------------------------------------------
Loss on discontinued operations            ($4,837)    (661)    (449)

Income Taxes The Company recognizes deferred tax assets and liabilities based on
the differences between the financial statement carrying amounts and the tax
bases of assets and liabilities. The Comapny regularly reviews its deferred tax
assets for recoverability and establishs a valuation allowance based upon
historical losses, projected future taxable income and the expected timing of
the reversals of existing temporary differences.
         Cumulative Foreign Exchange Translation Accounting In preparing our
consolidated financial statements, the Company is required to translate the
financial statements of NP Aerospace from the currency in which it keeps its
accounting records, the British Pound Sterling, into United States dollars. This
process results in exchange gains and losses which are either included within
the statement of operations or as a separate part of our net equity under the
caption "foreign currency translation adjustment."
         Under the relevant accounting guidance, the treatment of these
translation gains or losses is dependent upon management's determination of the
functional currency of NP Aerospace. Generally, the currency in which the
subsidiary transacts a majority of its transactions, including billings,
financing, payroll and other expenditures would be considered the functional
currency but any dependency upon the parent and the nature of the subsidiary's
operations must also be considered.
         If any subsidiary's functional currency is deemed to be the local
currency, then any gain or loss associated with the translation of that
subsidiary's financial statements is included in cumulative translation
adjustments. However, if the functional currency is deemed to be the United
States dollar then any gain or loss associated with the translation of these
financial statements would be included within our statement of operations.
         Based on our assessment of the factors discussed above, the Company
considers NP Aerospace's local currency to be the functional currency.
Accordingly, the Company recorded foreign currency translation gains of
approximately $1,021,000 and $727,000 that were included as part of "accumulated
other comprehensive loss" within its balance sheet at December 31, 2004 and
2003, respectively.
         Accounting for Investment in Majority Owned Subsidiary In August 2004,
NP Aerospace Ltd. ("NPA"), the Company's wholly-owned U.K. subsidiary, and King
Abdullah II Design and Development Bureau ("KADDB"), a Jordanian company,
entered into a joint venture agreement to establish a composites manufacturing
facility in the country of Jordan. NP Aerospace Jordan WLL ("NPAJ"), a Jordanian
limited liability company, was created as a result of the agreement. NPAJ is
owned 51% by NPA and 49% by KADDB. In accordance with SFAS 94, " Consolidation
of All Majority-Owned Subsidiaries," the Company is required to consolidate all
majority-owned subsidiaries unless control is temporary or does not rest with
the majority owner. This Statement requires consolidation of a majority-owned
subsidiary even if it has "nonhomo-geneous" operations, a large minority
interest, or a foreign location. As of December 31, 2004, the financial
statements of NPAJ have been consolidated into the financial statements of NP
Aerospace.
         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.When property is sold or otherwise
disposed of, the asset cost and accumulated depreciation are removed from the
accounts and any


Reinhold Industries, Inc.                                                     17

<PAGE>

Management's Discussion and Analysis (cont'd)



resulting gain or loss is included in the statement of earnings. Maintenance and
repairs are expensed as incurred.  Improvements which significantly increase the
useful life of the asset are capitalized.
         Environmental Liabilities With respect to outstanding actions that are
in preliminary procedural stages, as well as any actions that may be filed in
the future, insufficient information exists upon which judgments can be made as
to the validity or ultimate disposition of such actions, thereby making it
difficult to reasonably estimate what, if any, potential liability or costs may
be incurred. Accordingly, no estimate of future liability has been included for
such claims. See note 9 of the accompanying consolidated financial statements
for additional discussion of legal proceedings.

2004 Compared with 2003 Backlog at December 31, 2004 was $52.5 million, up 132%
from December 31, 2003, due primarily to new orders received by NP Aerospace for
military helmets and armored vehicle chassis replacements. In 2004, order input
increased 133% to $88.6 million. Total net sales increased by 15% to $57.7
million from $50.3 million in 2003. Sales increased by $2.0 million (9%) for the
Aerospace business unit compared to 2003 due primarily to increased shipments of
composite structures related to the Space Shuttle program. Sales also increased
by $6.2 million (32%) for NP Aerospace due primarily to additional retrofitting
of armored vehicles for the UK Ministry of Defence. Sales for the CompositAir
business unit decreased by $0.5 million (11%) due to economic problems in the
commercial airline industry. Sales for the Commercial business unit decreased by
$0.2 million (6%) due primarily to decreased shipments of pool heater covers.
         Gross profit margin decreased to 34.7% from 35.3% due primarily to
unfavorable product mix and labor inefficiencies on start up of new programs.
Gross profit margin from NP Aerospace decreased to 28.0% from 31.4% due to labor
inefficiencies. Gross profit margin from Aerospace increased to 47.3% from 44.8%
due primarily to favorable product mix. Gross profit margin from CompositAir
decreased to 10.3% from 20.5% due to unfavorable product mix. Gross profit
margin from Commercial increased to 28.8% from 19.3% due to lower manufacturing
overhead costs and higher labor efficiencies.
         In 2004, selling, general and administrative expenses were $9.4 million
(16.3% of sales) compared with $7.6 million (15.2% of sales) in 2003. The
increase is due to higher pension related expenses,management incentive
compensation costs, additional sales headcount, professional fees related to the
potential sale of the Company and higher costs of public company compliance.
         In 2004, net interest income increased to $93 thousand from $50
thousand due to higher average cash balances.
         Income before income taxes was $10.8 million or 18.7% of sales in 2004
and $10.2  million or 20.3% of sales in 2003.  Income before income taxes at the
Aerospace  business unit increased to $8.1 million (33.2% of sales) in 2004 from
$7.1 million (31.9% of sales) in 2003 due to higher sales and favorable  product
mix. A loss before  income  taxes for  CompositAir  of $0.5  million  (-11.6% of
sales) was  realized in 2004  compared  to income  before  income  taxes of $0.3
million  in 2003  (5.0% of  sales)  due to  lower  sales,  higher  manufacturing
overhead  costs and higher  selling  and general  and  administrative  expenses.
Income before income taxes for the  Commercial  business unit  increased to $0.4
million (11.5% of sales) from $0.1 million (3.1% of sales) due to higher average
selling  prices and lower overhead  expenses.  Income before income taxes for NP
Aerospace  increased  to $4.6 million in 2003 (18.1% of sales) from $3.8 million
in 2003 (19.8% of sales) due mainly to higher sales of armored vehicle  retrofit
components.
         A tax provision of $4.9 million was recorded in 2004 compared with a
provision of $3.8 million in 2003 due to higher income before income taxes and a
higher effective tax rate. The effective tax rate in 2004 was 45.0% as compared
to 37.4% in 2003 due to additional federal income taxes recorded on repatriated
U.K. earnings. The effective tax rate in the United Kingdom was 30% in 2004 and
31% in 2003. At December 31, 2004 and 2003, the


18                                                     Reinhold Industries, Inc.

<PAGE>

Management's Discussion and Analysis (cont'd)


Company had net operating loss  carryforwards for Federal income tax purposes of
approximately  $23.9 million and $20.6  million,  respectively.  The Company may
utilize the  federal net  operating  losses by carrying  them  forward to offset
future  federal  taxable  income,  if any.  These losses will begin to expire in
2011.  As more  fully  described  in note 3 to notes to  consolidated  financial
statements,  benefits realized from loss carryforwards and deductible  temporary
differences  arising prior to the reorganization  have been recorded directly to
additional  paid-in capital.  Such benefits amounted to $1.3 million in 2004 and
$4.1 million in 2003.  Future domestic  taxable income  totalling  approximately
$15.2  million  must be generated in order to realize net deferred tax assets at
December 31, 2004.
         As of January 1, 2005, the Company has determined that a portion of the
future earnings from NP Aerospace will be remitted to the U.S. at some time in
the future in order to meet business requirements which primarily include the
repayment of U.S. debt obligations. The Company will be required to provide
residual U.S. income taxes on these future earnings.
         Net income from continuing operations totaled $5.9 million, or $1.89
per diluted share in 2004 compared with $6.4 million, or $2.05 per diluted share
in 2003.

Liquidity and Capital Resources As of December 31, 2004, working capital was
$12.5 million, down $5.4 million from December 31, 2003. Cash and cash
equivalents of $4.0 million held at December 31, 2004 were $2.2 million lower
than cash and cash equivalents held at December 31, 2003 due primarily due to
the increased dividends paid by the Company.
         Net cash provided by operating activities amounted to $6.6 million in
2004 and $5.1 million in 2003. The increase over the prior period relates mainly
to lower cash flows used in discontinued operations.
         Net cash provided by investing activities totaled $1.8 million in 2004
consisting of capital expenditures of $0.7 million, loan fees of $0.6 million
offset by proceeds from the sale of Bingham of $3.1 million. Net cash used in
investing activities in 2003 totaled $2.3 million consisting of capital
expenditures.
         Net cash used in financing activities in 2004 totaled $11.1 million,
consisting of the proceeds on long term debt from LaSalle Bank ($31.5 million),
repayment of long term debt and capital leases ($3.0 million), proceeds from
exercise of employee stock options ($1.9 million) and the payment of dividends
to shareholders ($41.5 million). Net cash used in financing activities in 2003
totaled $0.1 million, consisting of the payment of capital leases. The Company
does not have any current significant commitments for capital expenditures at
December 31, 2004.
         The Company believes that its current working capital of $12.5 million,
the available line of credit, and anticipated working capital to be generated by
future operations will be sufficient to support the Company's working capital
require-ments through at least December 31, 2005.
         Contingent  commercial  commitments at December 31, 2004 are as follows
(in thousands):
                             TOTAL           AMOUNT           EXPIRATION
DESCRIPTION                 AMOUNT       OUSTANDING                 DATE
------------------------------------------------------------------------
Credit agreement           $36,500          $28,633           12/08/2009

Contractual Obligations The following is a summary of contractual obligations at
December 31, 2004 (in thousands):

                                                PAYMENTS DUE BY PERIOD
                                    --------------------------------------------
CONTRACTUAL                         LESS THAN        1-3        3-5    MORE THAN
OBLIGATION                  TOTAL      1 YEAR      YEARS      YEARS      5 YEARS
--------------------------------------------------------------------------------

Capital lease
obligations                   $30          30          -          -            -

Credit agreement           28,633       4,404      8,808     15,421            -

Operating lease
obligations                 9,166         766      1,487      1,483        5,430

Purchase
obligations                 6,022       6,022          -          -            -

Pension plan
obligation*                 1,726       1,726          -          -            -
--------------------------------------------------------------------------------
Total                     $45,577      12,948     10,295     16,904        5,430


*The total pension liability, net of taxes, as of December 31, 2004 is $5,614.
Cash contributions to the plan after 2005 are indeterminable.


Reinhold Industries, Inc.                                                     19

<PAGE>

Management's Discussion and Analysis (cont'd)


2003 Compared with 2002 Backlog at December 31, 2003 was $22.6 million, down 34%
from December 31, 2002, due to a delay in the receipt of annual orders for the
Minuteman III Propulsion Replacement Program. In 2003, order input decreased 27%
to $38.1 million. Total net sales increased by 20% to $50.3 million from $42.0
million in 2002. Sales increased by $3.0 million (16%) for the Aerospace
business unit compared to 2002 due mainly to increased shipments of missile
components for the Minuteman III Propulsion Replacement Program. Sales also
increased by $6.0 million (45%) for NP Aerospace due to increased shipments of
body armor and military helmets. Sales for the CompositAir business unit
decreased by $1.3 million (20%) due to economic problems in the commercial
airline industry. Sales for the Commercial business unit increased by $0.6
million (21%) due to increased shipments of in-ground lighting housings, pool
filter tanks and heater covers.
         Gross profit margin increased to 35.3% from 33.0% due primarily to
higher sales and the resulting absorption of overhead expenses for NP Aerospace.
Gross profit margin from NP Aerospace increased to 31.4% from 26.7%. Gross
profit margin from Aerospace increased to 44.8% from 44.6%. Gross profit margin
from CompositAir increased to 20.5% from 17.1% due to elimination of labor
inefficiencies resulting from our 2002 consolidation of production facilities in
Santa Fe Springs, California. Gross profit margin from Commercial decreased to
19.3% from 20.4% due to higher overhead expenses.
         In 2003, selling, general and administrative expenses were $7.6 million
(15.2% of sales) compared with $6.4 million (15.2% of sales) in 2002. The
increase is due to higher pension expenses and management incentive compensation
costs.
         In 2003, net interest income increased to $50 thousand from interest
expense in 2003 of $29 thousand due to higher cash balances and lower debt.
         Income before income taxes was $10.2 million or 20.3% of sales in 2003
and $7.4 million or 17.7% of sales in 2002. Income before income taxes at the
Aerospace business unit increased to $7.1 million (31.9% of sales) in 2003 from
$6.8 million (35.3% of sales) in 2002 due to higher sales. Income before income
taxes for CompositAir decreased to $0.3 million in 2003 (5.0% of sales) from
$0.5 million in 2002 (6.9% of sales) due to lower sales caused by economic
problems in the commercial airline industry. Income before income taxes for the
Commercial business unit decreased to $0.1 million (3.1% of sales) from $0.2
million (7.7% of sales) due to higher overhead expenses. Income before income
taxes for NP Aerospace increased to $3.8 million in 2003 (19.8% of sales) from
$1.6 million in 2002 (12.1% of sales) due mainly to higher sales of body armor
and military helmets.
         A tax provision of $3.8 million was recorded in 2003 compared with a
provision of $2.8 million in 2002 due to higher income before income taxes. The
effective tax rate in 2003 was 37.4% as compared to 37.9% in 2002. The effective
tax rate in the United Kingdom was 31% in 2003 and 30% in 2002. At December 31,
2003 and 2002, the Company had net operating loss carryforwards for Federal
income tax purposes of approximately $20.6 million and $21.2 million,
respectively. The Company may utilize the Federal net operating losses by
carrying them forward to offset future Federal taxable income, if any, through
2011. As more fully described in note 3 to notes to consolidated financial
statements, benefits realized from loss carry-forwards and deductible temporary
differences arising prior to the reorganization have been recorded directly to
additional paid-in capital. Such benefits amounted to $4.1 million in 2003 and
$1.8 million in 2002. Future domestic taxable income totalling approximately
$6.6 million must be generated in order to realize net deferred tax assets at
December 31, 2003.
         Net income from continuing operations totaled $6.4 million, or $2.05
per diluted share in 2003 compared with $4.6 million, or $1.56 per diluted share
in 2002.


20                                                    Reinhold Industries, Inc.

<PAGE>


Management's Discussion and Analysis (cont'd)


Liquidity and Capital Resources As of December 31, 2003, working capital was
$17.9 million, up $7.4 million from December 31, 2002. Cash and cash equivalents
of $6.2 million held at December 31, 2003 were $3.1 million higher than cash and
cash equivalents held at December 31, 2002 due primarily to the increased
profitability of the Company.
         Net cash provided by operating activities amounted to $5.1 million in
2003 and $1.3 million in 2002. The increase over the prior period relates mainly
to the increased profitability of the Company and lower cash used in
discontinued operations.
         Net cash used in investing activities totaled $2.3 million in 2003 and
$2.1 million in 2002 consisting of capital expenditures in each year.
         Net cash used in financing activities in 2003 totaled $0.1 million
consisting primarily of capital lease payments. Net cash used in financing
activities in 2002 totaled $0.7 million consisting primarily of the payoff of
bank loans. The Company did not have any current significant commitments for
capital expenditures at December 31, 2003.

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

Change in Control On May 21, 1999, pursuant to a Stock Purchase Agreement dated
May 18, 1999, between Keene Creditors' Trust, the holder of all of the
outstanding shares of the Class B Common Stock of the Company and Reinhold
Enterprises, Inc., a newly formed Indiana corporation ("REI"), the Creditors'
Trust sold 997,475 shares of Class B Common Stock owned by it to certain
purchasers designated by REI (the "Purchasers"). These shares represented
approximately 49.9% of the outstanding common stock of the Company.
         The sale of shares to the Purchasers constitutes an "ownership shift"
within the meaning of Section 382 of the Internal Revenue Code of 1986, as
amended. Section 382 limits the utilization of net operating loss carryforwards
upon certain accumulations of stock of corporate issuers. Additional purchases
of shares by the Purchasers prior to May 22, 2002, or purchases of shares by
other shareholders that result in those shareholders owning more than 5% of the
outstanding Common Stock of the Company prior to May 22, 2002, may have resulted
in significant limitations on the Company's ability to utilize its net operating
loss carryforwards to offset its future income for federal income tax purposes.
         Between May 21, 1999 and May 22, 2002, no additional purchases of
shares were made by the Purchasers or by other shareholders that resulted in
those shareholders owning more than 5% of the outstanding Common Stock of the
Company.

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


Reinhold Industries, Inc.                                                     21

<PAGE>

Management's Discussion and Analysis (cont'd)


addresses  the  initial  recognition  and  measurement  of  goodwill  and  other
intangible  assets  acquired  in a  business  combination.  Goodwill  and  other
intangible  assets with indefinite lives will no longer be amortized but instead
subject to impairment  tests at least annually.  The Company has determined that
the impact of adopting  SFAS No. 142 had a favorable  impact of $202,000 (net of
related tax effects) to its results of operations in 2002.
         In November 2002, the Financial Accounting Standards Board (FASB)
issued Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN
45"). FIN 45 requires that a liability be recognized at fair value at the
inception of certain guarantees for the obligations undertaken by the guarantor.
FIN 45 also requires additional disclosures for certain guarantee contracts. The
disclosure provisions of FIN 45 were effective for financial statements ending
after December 15, 2002, while the recognition and initial measurement
provisions were applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The adoption of FIN 45 was not material to our
results of operations or financial condition.
         In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150 (FAS 150), "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity." This statement establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. This statement
requires an issuer to classify a financial instrument issued in the form of
shares that are mandatorily redeemable - i.e., that embody an unconditional
obligation requiring the issuer to redeem them by transferring its assets at a
specified or determinable date - as a liability. This Statement is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of this statement did not have a material impact on the
Company's consolidated financial position, liquidity, or results of operations.
         In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities, an interpretation of ARB No. 51,"
which expands upon and strengthens existing accounting guidance concerning when
a company should include in its financial statements the assets, liabilities and
activities of another entity. Prior to the issuance of FIN 46, a company
generally included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. FIN 46 now requires a
variable interest entity, as defined in FIN 46, to be consolidated by a company
if that company is subject to a majority of the risk of loss from the variable
interest entity's activities or entitled to receive a majority of the entity's
residual returns or both. FIN 46 also requires disclosures about variable
interest entities that the company is not required to consolidate but in which
it has a significant variable interest. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January 31, 2003,
and to older entities in the first fiscal year or interim period beginning after
June 15, 2003. Certain of the disclosure requirements apply to all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. As of December 31, 2003, the Company had
adopted FIN 46, and the effects of adoption were not material to our financial
position, results of operations or cash flows.
         In December 2003, the FASB revised FIN 46 (FIN 46R), delaying the
effective dates for certain entities created before February 1, 2003, and making
other amendments to clarify application of the guidance. For potential variable
interest entities other than any Special Purpose Entities (SPEs), FIN 46R is now
required to be applied no later than the end of the first fiscal year or interim
reporting period ending after March 15, 2004. The original guidance under FIN 46
is still applicable, however, for all SPEs created prior to February 1, 2003 at
the end of the first


22                                                     Reinhold Industries, Inc.

<PAGE>

Management's Discussion and Analysis (cont'd)

interim or annual reporting period ending after December 15, 2003. FIN 46 may be
applied  prospectively with a cumulative-effect  adjustment as of the date it is
first applied,  or by restating  previously  issued financial  statements with a
cumulative-effect adjustment as of the beginning of the first year restated. FIN
46R also requires certain disclosures of an entity's  relationship with variable
interest entities.  The adoption of FIN 46R as of January 1, 2004 did not have a
material impact on our results of operations, financial position, or cash flows.
         In December 2003, the FASB revised Statement No. 132 (FAS 132R),
"Employers' Disclosure about Pensions and Other Postretirement Benefits." FAS
132R expands employers' disclosure requirements for pension and post-retirement
benefits to enhance information about plan assets, obligations, benefit
payments, contributions and net benefit cost. FAS 132R does not change the
accounting require-ments for pensions and other postretirement benefits. This
statement is effective for fiscal years ending after December 15, 2003, and the
Company had included these disclosures in note 7 to our consolidated financial
statements.
         In November 2004, the FASB revised Statement No. 151 (FAS 151)
"Inventory Costs, an amendment of ARB No. 43, Chapter 4." FAS 151 clarifies that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges and requires
the allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The guidance is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during fiscal years
beginning after November 23, 2004. The impact to the Company has not yet been
determined.
         In December 2004, the FASB revised Statement No. 123 (FAS 123R),
"Share-Based Payment." FAS 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an
alternative. The new standard will be effective for public entities (excluding
small business issuers) in the first interim or annual reporting period
beginning after June 15, 2005. The impact to the Company has not yet been
determined.

Legal Proceedings The Company has been informed that it may be a potentially
responsible party ("PRP") under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), with respect to
certain environmental liabilities arising at the Valley Forge National
Historical Park Site ("Valley Forge Site") located in Montgomery County,
Pennsylvania and at a site formerly known as the Casmalia Resources Hazardous
Waste Management Facility, located in Santa Barbara County, California
("Casmalia Site"). CERCLA imposes liability for the costs of responding to a
release or threatened release of "hazardous substances" into the environment.
CERCLA liability is imposed without regard to fault. PRPs under CERCLA include
current owners and operators of the site, owners and operators at the time of
disposal, as well as persons who arranged for disposal or treatment of hazardous
substances sent to the site, or persons who accepted hazardous substances for
transport to the site. Because PRPs' CERCLA liability to the government is joint
and several, a PRP may be required to pay more than its proportional share of
such costs. Liability among PRPs, however, is subject to equitable allocation
through contribution actions.
         On June 16, 2000 the U.S. Department of Justice notified the Company
that it may be a PRP with respect to the Valley Forge Site and demanded payment
for past costs incurred by the United States in connection with the site, which
the Department of Justice estimated at $1,753,726 incurred by the National Park
Service ("NPS") as of May 31, 2000 and $616,878 incurred by the United States
Environmental Protection Agency ("EPA") as of November 30, 1999. Payment of
these past costs would not release the Company from liability for future
response costs.


Reinhold Industries, Inc.                                                     23

<PAGE>

Management's Discussion and Analysis (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.
         On December 30, 2002, the United States District Court for the Southern
District of New York approved and entered a Consent Decree agreed upon by the
United States and the Company settling the claims asserted by the National Park
Service against the Company. The United States and the Company stipulated that
the EPA will not seek reimbursement of its response costs with respect to the
Valley Forge Site and that the Company's claim for a declaratory judgement with
respect to those costs may be dismissed with prejudice.
         Under the terms of the Consent Decree, the Company was obligated to pay
$500,000 to the Department of the Interior. In return, the Company has received
from the United States a covenant not to sue, subject to certain limited
exceptions, for claims under CERCLA Sections 106, 107 and 113 and RCRA Section
7003 relating to the Site. The payment to the Department of the Interior was
made on January 23, 2003.
         In September 2002, in accordance with SFAS No. 5, Accounting for
Contingencies, the Company had recorded a reserve of $500,000 for the estimated
cost to conclude this matter. These costs were included in the December 31, 2002
balance sheet as a component of "Accrued Expenses."
         Pursuant to the Consent Decree and CERCLA Section 113(f)(2), the
Company's settlement with the United States bars any other party from asserting
claims for contribution for any response costs incurred with respect to the
Valley Forge Site by the United States, any State or other governmental entity,
or any other party.
         With respect to the Casmalia Site, on August 11, 2000, the EPA notified
the Company that it is a PRP by virtue of waste materials deposited at the site.
The EPA has designated the Company as a "de minimis" waste generator at this
site, based on the amount of waste at the Casmalia Site attributed to the
Company. The Company is not currently a party to any litigation concerning the
Casmalia Site, and based on currently available data, the Company believes that
the Casmalia Site is not likely to have a material adverse impact on the
Company's consolidated financial position or results of operations.
         The Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material effect on the
Company's financial position, results of operations, or liquidity.

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


24                                                     Reinhold Industries, Inc.

<PAGE>




Consolidated Statements of Operations

                                                       YEARS ENDED DECEMBER 31,
(Amounts in thousands, except for per share data)        2004     2003     2002
--------------------------------------------------------------------------------
Net sales                                             $57,739   50,295   41,950
Cost of sales                                          37,628   32,516   28,119
--------------------------------------------------------------------------------
Gross profit                                           20,111   17,779   13,831
Selling, general and administrative expenses            9,432    7,631    6,396
--------------------------------------------------------------------------------
Operating income                                       10,679   10,148    7,435
Interest income (expense), net                             93       50      (29)
--------------------------------------------------------------------------------
Income before minority interest and income taxes       10,772   10,198    7,406
Minority interest, net of income taxes                     30        -        -
--------------------------------------------------------------------------------
Income before income taxes                             10,802   10,198    7,406
Income taxes                                            4,855    3,813    2,805
--------------------------------------------------------------------------------
Income from continuing operations                       5,947    6,385    4,601
--------------------------------------------------------------------------------


Discontinued operations:
Loss from operation of discontinued segment            (1,316)  (1,101)    (748)
Impairment loss                                        (5,692)       -        -
Loss on disposition                                      (465)       -        -
Income tax benefit                                      2,636      440      299
--------------------------------------------------------------------------------
Loss on discontinued operations                        (4,837)    (661)    (449)
--------------------------------------------------------------------------------
Net income                                            $ 1,110    5,724    4,152

--------------------------------------------------------------------------------
Earnings (loss) per share:

Basic  - continuing operations                        $  1.95     2.18     1.57
Diluted  - continuing operations                      $  1.89     2.05     1.56

Basic  - discontinued operations                      $ (1.59)   (0.23)   (0.15)
Diluted  - discontinued operations                    $ (1.59)   (0.23)   (0.15)

Basic                                                 $  0.36     1.95     1.42
Diluted                                               $  0.35     1.83     1.41
--------------------------------------------------------------------------------
Weighted average common shares outstanding:
Basic                                                   3,048    2,932    2,926
Diluted                                                 3,151    3,122    2,948


Dividends per common share                            $ 12.75        -        -


See accompanying notes to consolidated financial statements.


Reinhold Industries, Inc.                                                     25

<PAGE>


Consolidated Balance Sheets

(Amounts in thousands, except share data)            DECEMBER 31,   DECEMBER 31,
                                                            2004           2003
--------------------------------------------------------------------------------
Assets
Current assets:
   Cash and cash equivalents                            $  4,015          6,172
   Accounts receivable (less allowance for
     doubtful accounts of $15 and $53, respectively)       8,758          8,584
   Inventories                                             8,214          7,472
   Prepaid pension                                         1,278          2,006
   Deferred taxes                                          1,312            325
   Other prepaid expenses and current assets                 721            693
--------------------------------------------------------------------------------
Total current assets                                      24,298         25,252

Property and equipment, at cost                           18,079         22,478
   Less accumulated depreciation and amortization          9,908          9,814
--------------------------------------------------------------------------------
Net property and equipment                                 8,171         12,664

Goodwill                                                   2,521          3,786
Deferred taxes                                             3,851          1,915
Other assets                                                 605            173
--------------------------------------------------------------------------------
                                                        $ 39,446         43,790

Liabilities and stockholders' equity (deficit)
Current liabilities:
   Accounts payable                                     $  4,030          3,414
   Accrued expenses                                        3,352          3,881
   Current installments of long term debt                  4,434            102
--------------------------------------------------------------------------------
Total current liabilities                                 11,816          7,397

Long-term debt, less current installments                 24,229             30
Long-term pension liability                                5,879          6,978
Minority interest                                            409              -
Other long-term liabilities                                  303            319
Commitments and contingencies                                  -              -

Stockholders' equity (deficit):
   Preferred stock - Authorized: 250,000 shares
     Issued and outstanding: None                              -              -
   Common stock, $0.01 par value:
     Authorized: 4,750,000 shares
     Issued and outstanding:  3,251,222
       and 2,935,201, respectively                            32             29
   Additional paid-in capital                              1,371         28,303
   Retained earnings (deficit)                                 -          7,721
   Accumulated other comprehensive loss                   (4,593)        (6,987)
--------------------------------------------------------------------------------
Net stockholders' equity (deficit)                        (3,190)        29,066
--------------------------------------------------------------------------------
                                                        $ 39,446         43,790

See accompanying notes to consolidated financial statements.


26                                                     Reinhold Industries, Inc.

<PAGE>

<TABLE>
<CAPTION>


Consolidated Statements of Cash Flows

                                                                    Years Ended December 31,
(Amounts in thousands)                                             2004      2003      2002
---------------------------------------------------------------------------------------------
<S>                                                            <C>         <C>       <C>
Cash flows from operating activities:
   Net income from continuing operations                       $  5,947     6,385     4,601
   Adjustments to reconcile net income to net cash
     provided by operating activities:
       Depreciation and amortization                              1,330     1,276     1,092
       Additions to paid-in capital resulting from
         tax benefits                                             3,616     4,138     1,756
       Non-cash compensation                                        226        54        18
       Loss on disposal of discontinued operation                   465         -         -
       Changes in assets and liabilities:
         Accounts receivable, net                                (2,360)    1,211    (4,544)
         Inventories                                             (2,187)   (1,528)       28
         Prepaid expenses and other current assets                  475      (632)      199
         Accounts payable                                         1,445      (741)    1,715
         Accrued expenses                                           557       709     1,846
         Deferred tax assets                                     (2,923)   (2,240)        -
         Minority interest                                          409         -         -
         Other, net                                                 235        56       (15)
         Cash flows used in discontinued operations                (679)   (3,597)   (5,382)
--------------------------------------------------------------------------------------------
Net cash provided by operating activities                         6,556     5,091     1,314

Cash flows from investing activities:
   Capital expenditures                                            (706)   (2,250)   (2,102)
   Loan fees                                                       (605)        -         -
   Proceeds from sale of discontinued operation                   3,127         -         -
--------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities               1,816    (2,250)   (2,102)

Cash flows from financing activities:
   Proceeds from long term debt                                  31,500         -         -
   Repayment of long term debt                                   (2,969)     (141)     (739)
   Proceeds from exercise of stock options                        1,918        33         -
   Dividends paid                                               (41,524)       (9)       (6)
--------------------------------------------------------------------------------------------
Net cash used in financing activities                           (11,075)     (117)     (745)

Effect of exchange rate changes on cash                             546       411       465
--------------------------------------------------------------------------------------------

Net (decrease) increase in cash and cash equivalents             (2,157)    3,135    (1,068)
--------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year                    6,172     3,037     4,105
--------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                       $  4,015     6,172     3,037
--------------------------------------------------------------------------------------------

<FN>
Supplementary disclosures of cash flow information - Cash paid during the year
   for:
     Income taxes                                              $  2,235     1,136       352
     Interest                                                  $     77        41       272

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

Reinhold Industries, Inc.                                                     27

<PAGE>


Consolidated Statements of Stockholders' Equity (Deficit) and
 Comprehensive Income



<TABLE>
<CAPTION>

                                                                                   Common stock
                                                                                 $0.01 par value
                                                               Preferred      Class A
(Amounts in thousands, except share data)                         Shares      Shares        Amount
--------------------------------------------------------------------------------------------------
<S>                                                                    <C>  <C>                <C>
Balance, December 31, 2001                                             -    2,416,722          $24
--------------------------------------------------------------------------------------------------
Net income                                                                          -            -

10% stock dividend                                                            240,933            3

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

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

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

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

10% stock dividend                                                            265,418            2

Shares issued or reserved in conjunction with
  Director's Deferred Stock Plan                                                4,248            -

Stock options exercised                                                         5,723            -

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

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

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

Cash dividends paid and accrued                                                     -            -

Shares issued or reserved in conjunction with
    Directors Deferred Stock Plan                                               4,635            -

Stock options exercised                                                       311,386            3

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

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

Foreign currency translation adjustment                                             -            -
--------------------------------------------------------------------------------------------------
Comprehensive income
--------------------------------------------------------------------------------------------------
Balance, December 31, 2004                                             -    3,251,222          $32


<FN>

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


28                                                    Reinhold Industries, Inc.


<PAGE>


<TABLE>
<CAPTION>



                                                 Retained          Accumulated
                                                 earnings  other comprehensive  Total comprehensive            Net stockholders'
             Additional paid-in capital          (deficit)                loss         income (loss)            equity (deficit)
------------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>                 <C>               <C>                  <C>                          <C>
                                $17,514             $2,655            $(5,116)                                          $15,077
------------------------------------------------------------------------------------------------------------------------------------
                                      -              4,152                  -              $ 4,152                        4,152

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


                                     18                  -                  -                    -                           18


                                  1,756                  -                  -                    -                        1,756


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

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

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


                                     54                  -                  -                    -                           54

                                     33                  -                  -                    -                           33


                                  4,138                  -                  -                    -                        4,138


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

                                      -                  -                727                  727                          727
------------------------------------------------------------------------------------------------------------------------------------
                                                                                           $ 5,048
------------------------------------------------------------------------------------------------------------------------------------
                                $28,303             $7,721            $(6,987)                                          $29,066
------------------------------------------------------------------------------------------------------------------------------------
                                      -              1,110                  -                1,110                        1,110

                                (32,692)            (8,831)                 -                    -                      (41,523)


                                    226                  -                  -                    -                          226

                                  1,918                  -                  -                    -                        1,921


                                  3,616                  -                  -                    -                        3,616


                                      -                  -              1,210                1,210                        1,210

                                      -                  -              1,184                1,184                        1,184
------------------------------------------------------------------------------------------------------------------------------------
                                                                                           $ 3,504
------------------------------------------------------------------------------------------------------------------------------------
                                $ 1,371             $    -            $(4,593)                                          $(3,190)



</TABLE>

See accompanying notes to consolidated financial statements.


Reinhold Industries, Inc.                                                   29


<PAGE>


Notes to Consolidated Financial Statements
December 31, 2004

1 Organization
DESCRIPTION OF BUSINESS Reinhold Industries, Inc. (Reinhold or the Company) is a
manufacturer of advanced custom composite components and sheet molding compounds
for a variety of applications in the United States and Europe. Reinhold derives
revenues from the defense, aerospace, and other commercial industries.
         Chapter 11 Reorganization Reinhold was acquired by Keene Corporation
(Keene) in 1984 and operated as a division of Keene until 1990, when Reinhold
was incorporated in the state of Delaware as a wholly-owned subsidiary of Keene.
         On December 3, 1993, Keene filed a voluntary petition for relief under
Chapter 11 of Title 11 of the United States Code (the Bankruptcy Code) in the
United States Bankruptcy Court (Bankruptcy Court). Keene's Chapter 11 filing
came as a direct result of the demands on Keene of thousands of asbestos-related
lawsuits which named Keene as a party.
         On July 31, 1996 (the Effective Date), Keene consummated its Plan of
Reorganization under the Bankruptcy Code (the Plan) and emerged from bankruptcy.
On the Effective Date, Reinhold was merged into and with Keene, with Keene
becoming the surviving corporation. Pursuant to the merger, all of the issued
and outstanding capital stock of Reinhold was canceled. Keene, as the surviving
corporation of the merger, was renamed Reinhold.
         On the Effective Date, Reinhold issued 1,998,956 shares of Common
Stock, of which 1,020,000 of Class B Common Stock was issued to the Trustees of
a Creditors' Trust (the Creditors' Trust) set up to administer Keene's asbestos
claims. The remaining 978,956 shares of Class A Common Stock were issued to
Keene's former stockholders as of record date, June 30, 1996. All of Keene's
previous outstanding Common Stock was canceled.
         The payments and distributions made to the Creditors' Trust pursuant to
the terms and conditions of the Plan were made in complete satisfaction, release
and discharge of all claims and demands against, liabilities of, liens on,
obligations of and interest in Reinhold (Reorganized Company).
         On May 21, 1999, pursuant to a Stock Purchase Agreement, dated May 18,
1999, between the Creditors' Trust, the holder of all of the outstanding shares
of the Class B Common Stock of the Company and Reinhold Enterprises, Inc., a
newly formed Indiana corporation ("REI"), the Creditors' Trust sold 997,475
shares of Class B Common Stock owned by it to certain purchasers designated by
REI (the "Purchasers"). These shares represent approximately 49.9% of the
outstanding common stock of the Company.

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

Revenue Recognition and Allowance for Doubtful Accounts The Company recognizes
revenue when persuasive evidence of an arrangement exists, the price is fixed or
determinable, collection is reasonably assured and delivery of products has
occurred or services have been rendered. Allowance for doubtful accounts is
estimated based on estimates of losses related to customer receivable balances.
Estimates are developed by using standard quantitative measures based on
historical losses, adjusting for current economic conditions and, in some cases,
evaluating specific customer accounts for risk of loss. The establishment of
reserves requires the use of judgment and assumptions regarding the potential
for losses on receivable balances. Though the Company


30                                                     Reinhold Industries, Inc.

<PAGE>


Notes to Consolidated Financial Statements (cont'd)

considers these balances adequate and proper,  changes in economic conditions in
specific  markets in which the Company  operates could have a material effect on
reserve balances required.

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

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

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

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

Discontinued Operations During the three months ended September 30, 2004,
management committed to a plan of action to sell its wholly-owned subsidiary,
Samuel Bingham Enterprises, Inc. The decision to sell was based on continuing
losses from operations and a negative long-term outlook in the marketplaces this
subsidiary serves. On September 30, 2004, management determined that the plan of
sale criteria in FASB No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," had been met. Accordingly, the carrying value of its fixed
assets was adjusted to its fair value less costs to sell and goodwill was
determined to be impaired in accordance with the criteria of FASB No 142. Fair
value was determined based on the highest offer received from several potential
strategic suitors. The resulting $5.7 million impairment charge was included in
"Loss on discontinued operations" in the statement of operations.
         On December 17, 2004, Samuel Bingham Enterprises, Inc. sold certain
assets and transferred certain liabilities to Finzer Roller, L.L.C. for $3.1
million cash, subject to post-closing adjustments. The assets sold included
accounts receivable, inventories, prepaid expenses, equipment, real property,
tangible personal property, intellectual and other intangible property.
Liabilities transferred include accounts payable, accrued expenses and defined
benefit pension plan obligations. The purchase price was adjusted based on the
computation of closing date working capital.


Reinhold Industries, Inc.                                                     31

<PAGE>

Notes to Consolidated Financial Statements (cont'd)

Assets held for sale included in the consolidated balance sheet as of December
31, 2004 and 2003 are as follows (in thousands):

                                        DECEMBER 31, 2004     DECEMBER 31, 2003
--------------------------------------------------------------------------------
Accounts receivable                                  $  -                 2,197
Inventory                                               -                 1,445
Prepaid expenses                                        -                   230
Property, plant and equipment, net                      -                 4,010
Other assets                                            -                 1,284
Accounts payable                                        -                  (829)
Accrued expenses                                        -                  (338)
--------------------------------------------------------------------------------
Net assets held for sale                             $  -                 7,999

Operating results of the discontinued operations for the years ended December
31, 2004, 2003 and 2002 are summarized as follows (in thousands):
                                                         2004     2003     2002
--------------------------------------------------------------------------------
Net sales                                             $15,075   16,706   17,092
--------------------------------------------------------------------------------
Loss from operations                                   (1,316)  (1,101)    (748)
Impairment loss                                        (5,692)       -        -
Additional loss on sale                                  (465)       -        -
Tax benefit                                             2,636      440      299
--------------------------------------------------------------------------------
Loss on discontinued operations                       $(4,837)    (661)    (449)

Additional loss on sale resulted from legal fees and working capital adjustments
as per the asset sale agreement.

Income Taxes The Company recognizes deferred tax assets and liabilities based on
the differences between the financial statement carrying amounts and the tax
bases of assets and liabilities. The Company regularly reviews its deferred tax
assets for recoverability and establishes a valuation allowance based upon
historical losses, projected future taxable income and the expected timing of
the reversals of existing temporary differences.

Cumulative Foreign Exchange Translation Accounting In preparing our consolidated
financial statements, the Company is required to translate the financial
statements of NP Aerospace from the currency in which they keep their accounting
records, the British Pound Sterling, into United States dollars. This process
results in exchange gains and losses which are either included within the
statement of operations or as a separate part of our net equity under the
caption "foreign currency translation adjustment."
         Under the relevant accounting guidance, the treatment of these
translation gains or losses is dependent upon management's determination of the
functional currency of NP Aerospace. Generally, the currency in which the
subsidiary transacts a majority of its transactions, including billings,
financing, payroll and other expenditures would be considered the functional
currency but any dependency upon the parent and the nature of the subsidiary's
operations must also be considered.
         If any subsidiary's functional currency is deemed to be the local
currency, then any gain or loss associated with the translation of that
subsidiary's financial statements is included in cumulative translation
adjustments. However, if the functional currency is deemed to be the United
States dollar then any gain or loss associated with the translation of these
financial statements would be included within our statement of operations.
         Based on our assessment of the factors discussed above, the Company
considers NP Aerospace's local currency to be the functional currency.
Accordingly, the Company recorded a foreign currency translation gains of
approximately $1,021,000 and $346,000 that were included as part of accumulated
other comprehensive loss within its balance sheet at December 31, 2004 and 2003,
respectively.

32                                                     Reinhold Industries, Inc.

<PAGE>

Notes to Consolidated Financial Statements (cont'd)


Accounting for Investment in Majority Owned Subsidiary In August 2004, NP
Aerospace Ltd. ("NPA"), the Company's wholly-owned U.K. subsidiary, and King
Abdullah II Design and Development Bureau ("KADDB"), a Jordanian company,
entered into a joint venture agreement to establish a composites manufacturing
facility in the country of Jordan. NP Aerospace Jordan WLL ("NPAJ"), a Jordanian
limited liability company, was created as a result of the agreement. NPAJ is
owned 51% by NPA and 49% by KADDB. In accordance with SFAS 94, " Consolidation
of All Majority-Owned Subsidiaries," the Company is required to consolidate all
majority-owned subsidiaries unless control is temporary or does not rest with
the majority owner. This Statement requires consolidation of a majority-owned
subsidiary even if it has "nonhomogeneous" operations, a large minority
interest, or a foreign location. As of December 31, 2004, the financial
statements of NPAJ have been consolidated into the financial statements of NP
Aerospace.

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.When property is sold or otherwise
disposed of, the asset cost and accumulated depreciation are removed from the
accounts and any resulting gain or loss is included in the statement of
earnings. Maintenance and repairs are expensed as incurred. Improvements which
significantly increase the useful life of the asset are capitalized.

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

PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements
include the accounts of Reinhold and its wholly-owned subsidiary, NP Aerospace.
The financial statements of NP Aerospace include the accounts of NP Aerospace
Jordan. The 49% interest in NP Aerospace Jordan that is not owned by NP
Aerospace is reflected in the financial statements under the heading "Minority
interest." 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, 2004          DECEMBER 31, 2003
--------------------------------------------------------------------------------
Cash in banks                             $ 1,657                      3,320
Money market funds                          2,358                      2,852
--------------------------------------------------------------------------------
Total                                     $ 4,015                      6,172


Reinhold Industries, Inc.                                                     33

<PAGE>

Notes to Consolidated Financial Statements (cont'd)


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, 2004          DECEMBER 31, 2003
--------------------------------------------------------------------------------
Raw material                              $ 5,921                      3,791
Work-in-process                             1,506                      1,843
Finished goods                                787                        393
Assets held for sale                            -                      1,445
--------------------------------------------------------------------------------
Total                                     $ 8,214                      7,472

ACCOUNTING FOR GOVERNMENT CONTRACTS Substantially all of the Company's
government contracts are firm fixed price. Sales and cost of sales on such
contracts are recorded as units are delivered. Estimates of cost to complete are
reviewed and revised periodically throughout the contract term, and adjustments
to profit resulting from such revisions are recorded in the accounting period in
which the revisions are made. Losses on contracts are recorded in full as they
are identified.
         Amounts billed to contractors of the U.S. Government included in
accounts receivable at December 31, 2004 and 2003 were $3,384,000 and
$1,733,000, respectively.

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,      DECEMBER 31,
                                                         2004              2003
--------------------------------------------------------------------------------
Buildings                         10-40 years        $  1,090             1,012
Leasehold improvements             5-15 years           4,179             4,096
Machinery and equipment            5-25 years          11,276            10,656
Furniture and fixtures             3-10 years           1,518             1,328
Construction in process                     -              16                76
Assets held for sale                                        -             5,310
--------------------------------------------------------------------------------
Property and equipment, at cost                        18,079            22,478
Accumulated depreciation and amortization               9,908             8,514
Accumulated depreciation and amortization
         on assets held for sale                            -             1,300
--------------------------------------------------------------------------------
Net property and equipment                           $  8,171            12,664

When property is sold or otherwise disposed of, the asset cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
included in the statement of earnings.
         Maintenance and repairs are expensed as incurred. Improvements which
significantly increase the useful life of the asset are capitalized.

GOODWILL Prior to January 1, 2002, costs in excess of fair value of net assets
of acquired companies (goodwill) was amortized on a straight-line basis over 10
- 40 years. The gross amount of goodwill and related accumulated amortization at
December 31, 2004 and 2003 amounted to $3,313,000 and $8,921,000, and $792,000
and $5,135,000, respectively.


34                                                    Reinhold Industries, Inc.

<PAGE>

Notes to Consolidated Financial Statements (cont'd)

         In June 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 142 "Goodwill and Other
Intangible Assets." SFAS No. 142, effective for the Company January 1, 2002,
addresses the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. Goodwill and other
intangible assets with indefinite lives are no longer amortized but instead
subject to impairment tests at least annually.
         In accordance with SFAS No. 142, the Company performed the first part
of the two-step goodwill impairment test. For each of the Company's reporting
units for which goodwill was recorded, the Company determined that the fair
value exceeded the carrying amount at December 31, 2004. As a result, the second
step of the impairment test was not required.

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

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

The reconciliations of basic and diluted weighted average shares are as follows
(in thousands):

                                                       YEARS ENDED DECEMBER 31,
                                                          2004     2003    2002
--------------------------------------------------------------------------------
Net income (loss)                                      $ 1,110    5,724   4,152
--------------------------------------------------------------------------------
Weighted average shares used in basic computation        3,048    2,932   2,926
Dilutive stock options                                     103      190      22
--------------------------------------------------------------------------------
Weighted average shares used for diluted calculation     3,151    3,122   2,948

ACCUMULATED OTHER COMPREHENSIVE LOSS Other comprehensive loss refers to
revenues, expenses, gains and losses that under accounting principles generally
accepted in the United States are included in other comprehensive loss but
excluded from net income (loss) as those amounts are recorded directly as an
adjustment to stockholders' equity, net of tax. The Company's other
comprehensive loss is composed of changes in the additional pension liability in
excess of unrecognized prior service cost and foreign currency translation
adjustments. The accumulated balance of additional pension liability in excess
of unrecognized prior service cost and foreign currency translation gains
(losses) at December 31, 2004 and 2003 is $5,614,000 and $6,824,000, and
$1,021,000 and ($163,000), respectively.

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

Reinhold Industries, Inc.                                                    35

<PAGE>

Notes to Consolidated Financial Statements (cont'd)


         The following table illustrates the effect on net income and earnings
per share had compensation expense for the employee based plans been recorded
based on the fair value method under SFAS 123 (in thousands, except per share
data):

                                                       YEARS ENDED DECEMBER 31,
                                                          2004     2003    2002
--------------------------------------------------------------------------------
Net income as reported                                $  1,110    5,724   4,152

Deduct, Total stock-based employee compensation
  expense determined under fair value based
  method for all awards, net of related tax effects       (106)    (115)   (134)
--------------------------------------------------------------------------------
Net income, as adjusted                               $  1,004    5,609   4,018

Earnings per share:
Basic - as reported                                   $   0.36     1.95    1.42
Basic - as adjusted                                   $   0.33     1.91    1.37

Diluted - as reported                                 $   0.35     1.83    1.41
Diluted - as adjusted                                 $   0.32     1.80    1.36


PENSION AND OTHER POSTRETIREMENT PLANS In the United States, the Company has one
defined benefit pension plan and a 401(k) retirement and profit sharing plan
covering substantially all of its employees. The Reinhold Industries, Inc.
Retirement Plan benefits are based on years of service and the employee's
compensation during the last years of service before retirement. The cost of
these programs is being funded currently. On December 31, 2004, the Reinhold
Industries, Inc. Retirement Plan was frozen. No additional years of service or
future salary increases will accrue to active employees in determining plan
benefits. There will be no change in benefit levels to terminated vested and
retired employees.
         On January 1, 2002, the Company established the Reinhold Industries,
Inc. 401(k) Plan covering all Reinhold employees in the United States who have
completed six months of service and attained 21 years of age. Employees may make
contributions to the Plan up to the maximum limitations prescribed by the
Internal Revenue Service. The Company may, at its sole discretion, contribute
and allocate to each eligible participant, a percentage of the participant's
elective deferral. Matching contributions, if any, shall be determined as of the
end of the Plan year. On January 1, 2005, the Company decided that it would
match 50% of the participant's elective deferral in 2005 up to a maximum of
3%.The matching contribution vests to the employee immediately. No
matching contributions had been made in 2004, 2003 or 2002.


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

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.


36                                                     Reinhold Industries, Inc.

<PAGE>


Notes to Consolidated Financial Statements (cont'd)


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

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

SHIPPING AND HANDLING COSTS Shipping and handling costs are included in cost of
sales.

RESEARCH AND DEVELOPMENT Research and development expenditures were
approximately $497,000, $425,000 and $314,000 for the years ended December 31,
2004, 2003 and 2002, respectively.

LABOR SUBJECT TO COLLECTIVE BARGAINING AGREEMENTS Approximately 43 of the
employees at NP Aerospace in Coventry, England are represented by a labor union.
The total percentage of employees represented by a labor union is approximately
15%. The total percentage of union contracts expiring within one year as a
percentage of labor represented by a union is 0%. Reinhold believes its
workforce to be relatively stable and considers its employee relations to be
excellent.

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

RECENT ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards ("SFAS") No.
141 "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets".
SFAS No. 141 addresses financial accounting and reporting for business
combinations and requires all business combinations to be accounted for using
the purchase method. SFAS No. 141 is effective for any business combinations
initiated after June 30, 2001. SFAS No. 142, effective for the Company January
1, 2002, addresses the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. Goodwill and other
intangible assets with indefinite lives will no longer be amortized but instead
subject to impairment tests at least annually. The impairment test is comprised
of two parts. The first step compares the fair value of a reporting unit with
its carrying amount, including goodwill. If the carrying amount exceeds the fair
value of the reporting unit, the second step of the goodwill impairment test
must be performed. The second step compares the implied fair value of the
reporting unit's goodwill with the respective carrying amount in order to
determine the amount of impairment loss, if any. In accordance with SFAS No.
142, the Company performed the first part of the two-step goodwill impairment
test. For each of the Company's reporting units for which goodwill was recorded,
the Company determined that the fair value exceeded the carrying amount at
December 31, 2003. As a result, the second step of the impairment test was not
required.
         Under SFAS No. 142, the Company discontinued amortization of its cost
in excess of fair value of net assets acquired (goodwill) beginning January 1,
2002, which resulted in reduced expense of approximately $202,000 (net of
related tax effects) in fiscal 2002.
         The gross amount of goodwill and related accumulated amortization at
December 31, 2004 and 2003 amounted to $3,313,000 and $8,921,000, and $792,000
and $5,135,000, respectively.


Reinhold Industries, Inc.                                                    37

<PAGE>

Notes to Consolidated Financial Statements (cont'd)


         In May 2003, the FASB issued Statement of Financial Accounting
Standards No. 150 (FAS 150), "Accounting for Certain Financial Instruments with
Characteristics of Both Liabilities and Equity." This statement establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. This statement
requires an issuer to classify a financial instrument issued in the form of
shares that are mandatorily redeemable-- i.e., that embody an unconditional
obligation requiring the issuer to redeem them by transferring its assets at a
specified or determinable date--as a liability. This Statement is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
effective at the beginning of the first interim period beginning after June 15,
2003. The adoption of this statement did not have a material impact on the
Company's consolidated financial position, liquidity, or results of operations.
         In November 2002, the Financial Accounting Standards Board (FASB)
issued Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN
45"). FIN 45 requires that a liability be recognized at fair value at the
inception of certain guarantees for the obligations undertaken by the guarantor.
FIN 45 also requires additional disclosures for certain guarantee contracts. The
disclosure provisions of FIN 45 were effective for financial statements ending
after December 15, 2002, while the recognition and initial measurement
provisions were applicable on a prospective basis to guarantees issued or
modified after December 31, 2002. The adoption of FIN 45 was not material to our
results of operations or financial condition.
         In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
"Consolidation of Variable Interest Entities, an interpretation of ARB No. 51,"
which expands upon and strengthens existing accounting guidance concerning when
a company should include in its financial statements the assets, liabilities and
activities of another entity. Prior to the issuance of FIN 46, a company
generally included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. FIN 46 now requires a
variable interest entity, as defined in FIN 46, to be consolidated by a company
if that company is subject to a majority of the risk of loss from the variable
interest entity's activities or entitled to receive a majority of the entity's
residual returns or both. FIN 46 also requires disclosures about variable
interest entities that the company is not required to consolidate but in which
it has a significant variable interest. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January 31, 2003,
and to older entities in the first fiscal year or interim period beginning after
June 15, 2003. Certain of the disclosure requirements apply to all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. As of December 31, 2003, the Company had
adopted FIN 46, and the effects of adoption were not material to our financial
position, results of operations or cash flows.
         In December 2003, the FASB revised FIN 46 (FIN 46R), delaying the
effective dates for certain entities created before February 1, 2003, and making
other amendments to clarify application of the guidance. For potential variable
interest entities other than any Special Purpose Entities (SPEs), FIN 46R is now
required to be applied no later than the end of the first fiscal year or interim
reporting period ending after March 15, 2004. The original guidance under FIN 46
is still applicable, however, for all SPEs created prior to February 1, 2003 at
the end of the first interim or annual reporting period ending after December
15, 2003. FIN 46 may be applied prospectively with a cumulative-effect
adjustment as of the date it is first applied, or by restating previously issued
financial statements with a cumulative-effect adjustment as of the beginning of
the first year restated. FIN 46R also requires certain disclosures of an
entity's relationship with variable interest entities. The adoption of FIN 46R
as of January 1, 2004 did not have a material impact on our results of
operations, financial position, or cash flows.
         In December 2003, the FASB revised Statement No. 132 (FAS 132R),
"Employers' Disclosure about Pensions and Other Postretirement Benefits." FAS
132R expands employers' disclosure requirements for pension and postretirement
benefits to enhance information about plan assets, obligations, benefit
payments, contributions and net benefit cost. FAS 132R does not change the
accounting requirements for pensions and other postretirement benefits. This
statement is effective for fiscal years ending after December 15, 2003, and the
Company had included these disclosures in note 7 to our consolidated financial
statements.
         In November 2004, the FASB revised Statement No. 151 (FAS 151)
"Inventory Costs, an amendment of ARB No. 43, Chapter 4." FAS 151 clarifies that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges and requires
the allocation of fixed production overheads to inventory based on


38                                                    Reinhold Industries, Inc.

<PAGE>


Notes to Consolidated Financial Statements (cont'd)


the normal capacity of the production facilities.  The guidance is effective for
inventory  costs  incurred  during fiscal years  beginning  after June 15, 2005.
Earlier  application  is permitted for inventory  costs  incurred  during fiscal
years  beginning  after November 23, 2004. The impact to the Company has not yet
been determined.
         In December 2004, the FASB revised Statement No. 123 (FAS 123R),
"Share-Based Payment." FAS 123R requires all share-based payments to employees,
including grants of employee stock options, to be recognized in the income
statement based on their fair values. Pro forma disclosure is no longer an
alternative. The new standard will be effective for public entities (excluding
small business issuers) in the first interim or annual reporting period
beginning after June 15, 2005. The impact to the Company has not yet been
determined.


3 Income Taxes
The income tax expense consists of the following (in thousands):

                                                   YEARS ENDED DECEMBER 31,
                                                      2004      2003     2002
--------------------------------------------------------------------------------
Current:
         Federal                                  $  3,556     3,796    1,529
         State                                         189       628      493
         Foreign                                     1,397     1,189      484
--------------------------------------------------------------------------------
Total current                                     $  5,142     5,613    2,506

Deferred:
         Federal                                  $ (2,617)   (2,240)       -
         State                                        (306)        -        -
         Foreign                                         -         -        -
--------------------------------------------------------------------------------
Total deferred                                    $ (2,923)   (2,240)       -
--------------------------------------------------------------------------------
Total income tax expense                          $  2,219     3,373    2,506



The income tax expense (benefit) applicable to continuing operations and
discontinued operations is as follows (in thousands):

                                                       YEARS ENDED DECEMBER 31,
                                                            2004    2003   2002
--------------------------------------------------------------------------------
Provision (benefit) for income taxes
  from continuing operations:
    Current                                             $  5,183   6,053  2,805
    Deferred                                                (328) (2,240)     -
--------------------------------------------------------------------------------
Total provision for income taxes from
  continuing operations                                    4,855   3,813  2,805
--------------------------------------------------------------------------------
Benefit for income taxes from discontinued operations:
    Current                                                  (42)   (440)  (299)
    Deferred                                              (2,594)      -      -
--------------------------------------------------------------------------------
Total benefit for income taxes from discontinued
  operations                                              (2,636)   (440)  (299)
--------------------------------------------------------------------------------
Total income tax expense                                $  2,219   3,373  2,506


Reinhold Industries, Inc.                                                    39

<PAGE>

Notes to Consolidated Financial Statements (cont'd)


A reconciliation of the U.S. statutory federal income tax expense to income tax
expense on income from continuing operations is as follows (in thousands):

                                                       YEARS ENDED DECEMBER 31,
                                                          2004     2003    2002
--------------------------------------------------------------------------------
Taxes at statutory Federal rate                        $ 3,673    3,467   2,518
State taxes, net of Federal tax benefits                   371      465     359
Rate difference on foreign income                          848     (114)    (65)
Non-deductible expenses                                     20       22      29
Change in valuation allowance                             (118)       -       -
Other                                                       61      (27)    (36)
--------------------------------------------------------------------------------
Total provision for income taxes from
  continuing operations                                $ 4,855    3,813   2,805

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

                                           DECEMBER 31, 2004  DECEMBER 31, 2003
--------------------------------------------------------------------------------
Deferred tax assets:
         Net operating loss carryforwards            $ 8,123              6,411
         Tax credits                                     898                974
         Goodwill                                          -                959
         Underfunded pension obligation                2,263                  -
         Other reserves                                  330              1,377
--------------------------------------------------------------------------------
Total gross deferred tax assets                       11,614              9,721
         Less valuation allowance                     (4,229)            (6,711)
--------------------------------------------------------------------------------
Deferred tax assets, net of valuation allowance        7,385              3,010
--------------------------------------------------------------------------------
Deferred tax liabilities:
         Pension                                        (492)              (770)
         US income tax on foreign earnings              (746)                 -
         Fixed assets                                   (599)                 -
         Other                                          (385)                 -
--------------------------------------------------------------------------------
Total gross deferred tax liabilities                  (2,222)              (770)
--------------------------------------------------------------------------------
Net deferred tax assets                              $ 5,163              2,240


In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Based on the level of
historical taxable income and projections of future taxable income over the
periods in which the deferred tax assets are deductible, management believes
that it is more likely than not the Company will realize a portion of these
deductible temporary differences at December 31, 2004.
         At December 31, 2004 , the Company had net operating loss carryforwards
for federal income tax purposes of approximately $23,891,000. The Company may
utilize the federal net operating losses by carrying them forward to offset
future federal taxable income, if any. These losses will begin to expire in
2011. Benefits realized from these net operating loss carryforwards and
deductible temporary differences arising prior to the reorganization have been
recorded directly to additional paid-in capital. Such benefits amounted to
$3,524,000 in 2004 and $4,138,000 in 2003. The Company also recorded $92,000 of
state tax benefit related to the exercise of employee stock options in 2004. The
tax credit carryforward of $898,000 consists primarily of federal and state
alternative minimum tax credits which carryforward indefinitely.


40                                                     Reinhold Industries, Inc.

<PAGE>

Notes to Consolidated Financial Statements (cont'd)


         The Company has a valuation allowance of $4.2 million against its
deferred tax assets as of December 31, 2004. When recognized, $1.1 million of
the tax benefits relating to any reversal of the valuation allowance will be
accounted for as an increase in additional paid-in capital related to both the
reorganization and stock option net operating loss carryforwards, $1.8 million
will reduce accumulated other comprehensive loss and $1.3 million will be
accounted for as a reduction of income tax expense.
         The Company has not provided for U.S. taxes or foreign withholding
taxes on approximately $6.3 million of undistributed earnings from non-U.S.
subsidiaries because such earnings are intended to be reinvested indefinitely.
If these earnings were distributed, foreign tax credits may become available
under current law to reduce the resulting U.S. income tax liability.
Deter-mination of the potential amount of unrecognized deferred U.S. tax
liability is not practicable because of the complexities associated with its
hypothetical calculation.
         As of January 1, 2005, the Company has determined that a portion of the
future earnings from NP Aerospace will be remitted to the U.S. at some time in
the future in order to meet business requirements which primarily include the
repayment of U.S. debt obligations. The Company will be required to provide
residual U.S. income taxes on these future earnings.
         On October 22, 2004, the American Jobs Creation Act of 2004 ("AJCA")
was signed into law. The AJCA provides incentives for U.S. multinational
corporations, subject to certain limitations. The incentives include an 85%
dividends received deduction for certain dividends from controlled foreign
corporations that repatriate accumulated income abroad. The U.S. Treasury
Department is expected to issue guidance with regards to these provisions. Until
this guidance is issued, the Company will not be able to evaluate whether to
take advantage of this opportunity and the potential impact on our income tax
provision, if any.
         United States and foreign earnings from continuing operations before
income taxes are as follows (in thousands):

                                                       YEARS ENDED DECEMBER 31,
                                                         2004     2003     2002
--------------------------------------------------------------------------------
United States                                         $ 6,175    6,366    5,792
Foreign                                                 4,627    3,832    1,614
--------------------------------------------------------------------------------
Total                                                 $10,802   10,198    7,406

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


4 Long Term Debt
On March 20, 2002, the Company entered into a one year $10,000,000 revolving
credit facility with LaSalle Bank National Association ("LaSalle"). On March 21,
2002, the Company received $7,200,000 from LaSalle against this credit facility.
The proceeds from the credit facility and additional cash on hand were used to
extinguish all outstanding debt with a previous bank.
         On March 21, 2003, the Company amended the credit facility to extend
the termination date to June 20, 2003. No changes were made to any other terms
and conditions. On June 20, 2003 the Company amended the credit facility to
extend the termination date to June 20, 2004. The line of credit under the
facility was reduced from $10,000,000 to $8,000,000. On June 19, 2003 the
Company paid off the remaining outstanding balance.

          On December 7, 2004, the Company  amended the existing credit facility
with  LaSalle.The new credit  facility  consists of a five year term loan in the
amount of $24,500,000 and a revolving  credit facility of up to  $12,000,000.The
credit  facility is secured by all of the Company's  financial  assets.The  term
loan is payable in equal monthly principal installments of $367,000 plus accrued
interest.  Interest is at a rate which  approximates  LIBOR plus 3%.  Borrowings
against  the  revolving  credit  facility  are  not  due  until  2009,  but  are
voluntarily  repayable at any time.  Accrued  interest on the  revolving  credit
facility is payable monthly and is at a rate



Reinhold Industries, Inc.                                                     41

<PAGE>

Notes to Consolidated Financial Statements (cont'd)


which  approximates  LIBOR  plus  2.50%.A  monthly  fee of  0.5%  of the  unused
revolving credit facility is also payable. Borrowings under the revolving credit
facility  are  limited  to  the  lower  of  $12,000,000  or  a  baseline  amount
("borrowing  base") which is computed monthly and includes  qualifying  accounts
receivable and inventories. If outstanding borrowings under the revolving credit
facility exceed the borrowing base, then a mandatory repayment of the difference
would be required.The borrowing base at December 31, 2004 was approximately $8.6
million. Letters of credit are included in the revolving credit facility and are
subject to a fee of 2.5% of the face  amount.  Outstanding  letters of credit at
December 31, 2004 were  $600,000.Amounts  available  under the revolving  credit
facility at December 31, 2004 were approximately $1.0 million.

     The credit facility is subject to various financial  covenants to which the
Company must comply.The covenants require the Company to maintain certain ratios
of profitability, total outstanding debt, and limits on cash dividends.The first
measurement  date for covenant  compliance is March 31, 2005.The Company expects
to be in compliance with all covenants as of March 31, 2005.

     Prior to December 31, 2004, the Company  received  $31,500,000 from LaSalle
against  this  credit  facility.The   proceeds  from  the  credit  facility  and
additional cash on hand were used to pay the special cash dividend of $11.75 per
share on December 28, 2004 totaling approximately $38,200,000.

     The outstanding  balance with LaSalle was $28,633,000 at December 31, 2004.
The average and year-end interest rate was 5.42%.

At December 31, 2004, maturities of long term debt were as follows (in
thousands):

              Obligations Under            Obligations Under  Obligations Under
        Total         Term Loan    Revolving Credit Facility     Capital Leases
--------------------------------------------------------------------------------
2005  $ 4,434             4,404                            -                 30
2006    4,404             4,404                            -                  -
2007    4,404             4,404                            -                  -
2008    4,404             4,404                            -                  -
2009   11,017             4,017                        7,000                  -
--------------------------------------------------------------------------------
      $28,663            21,633                        7,000                 30


5 Stockholders' Equity
On May 1, 2002, the Board of Directors approved the distribution of a 10% stock
dividend payable to stockholders of record on May 31, 2002, where an additional
240,933 shares were issued on June 21, 2002.
         On April 30, 2003, the Board of Directors approved the distribution of
a 10% stock dividend to shareholders of record as of May 16, 2003. As a result,
an additional 265,418 shares were issued on May 29, 2003. All common stock
information and earnings per share computations for all periods presented have
been adjusted for the stock dividend. The number of stock options outstanding
and the exercise price were also adjusted for the impact of the 10% stock
dividend.

The following is a schedule of cash dividends declared and paid in 2004 (in
thousands, except per share data):

Declaration Date  Record Date   Payment Date   Amount Per Share  Total Dividend
--------------------------------------------------------------------------------
       August 12  September 1   September 15              $0.50          $1,596
      October 28  November 12    November 24              $0.50           1,625
      December 8  December 17    December 28             $11.75          38,302
--------------------------------------------------------------------------------
TOTALS                                                   $12.75         $41,523

On December 8, 2004, the Board of Directors declared a special cash dividend on
shares of its Class A common stock. The cash dividend of $11.75 per share was
paid on December 28, 2004, to all stockholders of record as of the close of
business on December 17, 2004. The Company paid the dividend from its cash on
hand and from a new credit facility of approximately $36.5 million. The payment
of the special dividend resulted in a $3.2 million deficit to shareholders'
equity at December 31, 2004. Based on the projected future earnings and cash
flows, this deficit is expected to reverse prior December 31, 2005.


42                                                     Reinhold Industries, Inc.


<PAGE>

Notes to Consolidated Financial Statements (cont'd)


6 Stock Options
STOCK INCENTIVE PLAN On July 31, 1996, the Company established the Reinhold
Stock Incentive Plan for key employees. The Reinhold Stock Incentive Plan
permits the grant of stock options, stock appreciation rights and restricted
stock. The total number of shares of stock subject to issuance under the
Reinhold Stock Incentive Plan may not exceed 100,000. The maximum number of
shares of stock with respect to which options or stock appreciation rights may
be granted to any eligible employee during the term of the Reinhold Stock
Incentive Plan may not exceed 10,000. The shares to be delivered under the
Reinhold Stock Incentive Plan may consist of authorized but unissued stock or
treasury stock, not reserved for any other purpose. The Plan provides that the
options are exercisable based on vesting schedules, provided that in no event
shall such options vest more rapidly than 33 1/3 % annually. The options expire
no later than ten years from the date of grant.
         On June 3, 1999, the Board of Directors approved and adopted the
Reinhold Industries, Inc. Stock Option Agreement by and between the Company and
Michael T. Furry, granting Mr. Furry the option, effective June 3, 1999, to
acquire up to 90,000 shares of Class A common stock of the Company at fair
market value at that date ($8.25 per share). Terms of the Agreement are
equivalent to those in the Reinhold Stock Incentive Plan.
         The number of stock options outstanding and the exercise price were
adjusted for the impact of the 10% stock dividends.
         On  September  30,  2002,  the Company  adopted  the  Amended and
Restated  Reinhold Stock  Incentive  Plan.  This  amendment  increases the total
number of shares of stock subject to issuance under the Reinhold Stock Incentive
Plan from  100,000  to  286,523  (including  the  impact of the stock  dividends
declared in 2000,  2001,  2002 and 2003).  The maximum number of shares of stock
with respect to which options or stock appreciation rights may be granted to any
eligible  employee  during the term of the Reinhold  Stock  Incentive  Plan were
increased from 10,000 to 60,000. Vesting occurs ratably over the vesting period.
All other terms remain unchanged. As of December 31, 2004, options granted under
the Amended and Restated Reinhold Stock Incentive Plan totalled 121,000.
         The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and the related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation", as amended by SFAS No. 148,
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options approximates the fair value of the underlying
stock on the date of grant, no compensation expense is recognized. Pro forma
information regarding net income and earnings per share is required by SFAS No.
123, as amended, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using the
Black-Scholes Option Pricing Model with the following weighted-average
assumptions:

                                                         2004     2003     2002
--------------------------------------------------------------------------------
Risk free interest rate                                   6.0%     6.0%     N/A
Dividend yield                                              -        -        -
Volitility factor                                          70%      70%     N/A
Weighted average life (years)                             4.1      4.1      N/A

Using the Black-Scholes Option Pricing Model, the estimated weighted-average
grant date fair value of options granted in 2003 was $4.80. No options were
granted to employees during 2004 or 2002. See note 2 for the Company's
accounting policy for its Employee Stock-Based Plans, as well as the effect on
net income and earnings per share had the Employee Stock-Based Plans been
recorded based on the fair value method under SFAS 123.
         The Black-Scholes Option Pricing Model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require highly
subjective assumptions including


Reinhold Industries, Inc.                                                     43

<PAGE>


Notes to Consolidated Financial Statements (cont'd)


the  expected  stock price  volatility.  Because the  Company's  employee  stock
options  have  characteristics  significantly  different  than  those of  traded
options,  and because changes in the assumptions can materially  affect the fair
value estimate, in management's opinion, the existing models may not necessarily
provide a  reliable  single  measure  of the fair  value of its  employee  stock
options.
         A summary of the status of the option plans as of and for the changes
during the years ended December 31, 2004 and 2003 is presented below:

                                 NUMBER                       WEIGHTED AVERAGE
                              OF SHARES      LOW      HIGH      EXERCISE PRICE
--------------------------------------------------------------------------------
Outstanding December 31, 2002   218,405   $ 6.20      8.06                6.31
--------------------------------------------------------------------------------
Options issued in connection
  with 10% stock dividend        33,207     5.63      9.64                6.32
Granted in 2003                 115,000     8.05     12.50                8.55
Forfeited during 2003             5,500     9.64      9.64                9.64
Exercised during 2003             5,723     5.63      6.20                5.77
--------------------------------------------------------------------------------
Outstanding December 31, 2003   355,389   $ 5.63     11.36                6.28
--------------------------------------------------------------------------------
Granted in 2004                       -        -         -                   -
Forfeited during 2004                 -        -         -                   -
Exercised during 2004           311,385     5.63     11.36                6.17
--------------------------------------------------------------------------------
Outstanding December 31, 2004    44,004   $ 7.32     11.36                7.99

At December 31, 2004, the weighted average remaining contractual life of options
outstanding is 7.8 years. No outstanding options are currently exercisable.

DIRECTORS' DEFERRED STOCK PLAN On September 30, 2002, the Company established
the Reinhold Industries, Inc. Director's Deferred Stock Plan. The Plan allows
the non-employee Directors of the Company to elect to receive stock in lieu of
cash payment for their services on the Board of Directors. If the Director
elects to receive Company stock, he has the option of receiving the shares
immediately or deferring receipt of those shares to a future date. The value of
the services performed are charged to the statement of operations in the year
incurred. As of December 31, 2004, 8,155 shares have been reserved for future
issuance under this Plan.
         On October 28, 2004, the Plan was amended to compensate the Director's
on a quarterly basis in advance rather than in arrears. The Plan also allows
those Director's who defer receipt of their shares to accrue dividends declared.
Dividends accrued at December 31, 2004 on unissued shares under the amended plan
total approximately $100,000.

7 Defined Benefit Pension Plans
As of December  31,  2004,  the Company had one  defined  benefit  pension  plan
covering  substantially all employees.  The benefits paid under the pension plan
generally are based on an employee's  years of service and  compensation  during
the last years of employment  (as  defined).  Annual  contributions  made to the
pension 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.
         On December 31, 2004, the Reinhold Industries, Inc. Retirement Plan was
frozen. No additional years of service or future salary increases will accrue to
active employees in determining plan benefits. There will be no change in
benefit levels to terminated vested and retired employees.
         On December 17, 2004, in conjunction with the sale of Samuel Bingham
Enterprises, Inc., the assets and obligations of two defined benefit pension
plans were transferred to the new buyer.


44                                                     Reinhold Industries, Inc.

<PAGE>

Notes to Consolidated Financial Statements (cont'd)


Net pension cost included the following (in thousands):

                                                       YEARS ENDED DECEMBER 31,
                                                         2004     2003     2002
--------------------------------------------------------------------------------
Service cost                                           $  307      232      235
Interest cost on benefits earned in prior years         1,058      969      945
Expected return on assets                                (942)    (869)  (1,025)
Amortization of net obligation at transition                -        1      (18)
Amortization of net loss                                  570      464      278
Curtailment loss                                           17        -        -
--------------------------------------------------------------------------------
Net pension cost                                       $1,010      797      415

The following table sets forth a reconciliation of the pension plans' benefit
obligation at December 31, 2004 and 2003 (in thousands):

                                                                  2004     2003
--------------------------------------------------------------------------------
Projected benefit obligation at beginning of year             $ 17,254   14,624
Service cost                                                       307      232
Interest cost                                                    1,058      969
Actuarial loss                                                   1,353    2,614
Benefits paid                                                   (1,235)  (1,185)
Curtailments                                                    (1,200)       -
Divestiture                                                     (2,721)       -
--------------------------------------------------------------------------------
Projected benefit obligation at end of year                   $ 14,816   17,254

The following table discloses the target allocation and actual percentage of the
fair value of total plan assets represented by each asset category at December
31, 2004 and 2003:

                  TARGET ALLOCATION                  2004     2003
--------------------------------------------------------------------------------
Equity securities          60 - 70%                   61%      64%
Debt securities            30 - 40%                   37%      34%
Real estate                0%                          0%       0%
Other                      0%                          2%       2%
--------------------------------------------------------------------------------
Totals                                               100%     100%

The projected benefit obligation at December 31, 2004 decreased by approximately
$2.4 million from December 31, 2003 due primarily to the divestiture of the
defined benefit plans for Samuel Bingham Enterprises, Inc.

The following table sets forth a reconciliation of the pension plans' assets at
December 31, 2004 and 2003 (in thousands):

                                                                2004     2003
--------------------------------------------------------------------------------
Fair value of plan assets at beginning of year              $ 11,586   10,173
Actual return on assets                                        1,222    1,479
Employer contributions                                           453    1,119
Benefits paid                                                 (1,235)  (1,185)
Divestiture                                                   (1,811)       -
--------------------------------------------------------------------------------
Fair value of plan assets at end of year                    $ 10,215   11,586


Reinhold Industries, Inc.                                                     45

<PAGE>

Notes to Consolidated Financial Statements (cont'd)


The following table sets forth a reconciliation of the pension plans' funded
status at December 31, 2004 and 2003 (in thousands):

                                                                2004     2003
--------------------------------------------------------------------------------
Projected benefit obligation at end of year                 $ 14,816   17,254
Fair value of plan assets at end of year                      10,215   11,586
Funded status                                                 (4,601)  (5,668)
Unrecognized prior service cost                                    -      153
Unrecognized net loss                                          5,879    7,521
--------------------------------------------------------------------------------
Prepaid pension cost at end of year                         $  1,278    2,006

Intangible asset at December 31,                            $      -      153
Additional minimum liability at December 31,                  (5,879)  (6,978)
--------------------------------------------------------------------------------
Additional pension liability in excess of
prior service cost at December 31,                          $ (5,879)  (6,825)

Amounts recognized as prepaid benefit costs at December 31, 2004 and 2003
amounted to $1,278 and $2,062, respectively.
Amounts  recognized as accrued benefit  obligation at December 31, 2004 and 2003
amounted to $0 and $56, respectively.

Assumptions used in accounting for the pension plan were:

                                                      DECEMBER 31,  DECEMBER 31,
                                                              2004         2003
--------------------------------------------------------------------------------
Weighted-average discount rate                               5.75%         6.25%
Weighted-average rate of increase in compensation levels      4.0           4.0
Weighted-average expected long-term rate of return on assets  8.5           9.0

The weighted average expected long term rate of return on assets was established
as of January 1, of each year presented and was changed on January 1, 2004 to
8.5%. The long-term rate of return was developed using a financial model which
computes the historical rate of return on the various asset classes (equities,
debt, others) contained in the portfolio and projects the inflation adjusted
real rate of return for the future. Assumptions concerning discount rates and
rates of increase in compensation levels are determined based on the current
economic environment at the end of each respective annual reporting period. The
company evaluates the funded status of each of its retirement plans using these
current assumptions and determines the appropriate funding level considering
applicable regulatory requirements, reporting considerations and other factors.
Recent decreases in long-term interest rates have the effect of increasing plan
liabilities and if expected returns on plan assets are not achieved, future
funding obligations could increase substantially. Assuming no changes in current
assumptions, the company expects to contribute approximately $1,726,000 for the
calendar year 2005.

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

2005                     $ 1,143
2006                       1,119
2007                       1,116
2008                       1,095
2009                       1,069
2010-2014                  5,116
---------------------------------
Totals                   $10,658


46                                                    Reinhold Industries, Inc.

<PAGE>

Notes to Consolidated Financial Statements (cont'd)


The pension plan's accumulated benefit obligation was $14,816,000 at December
31, 2004 and $16,558,000 at December 31, 2003. The unrecognized prior service
cost and the unrecognized net loss are being amortized on a straight-line basis
over the average future service of employees expected to receive benefits under
the plans. The unrecognized net obligation at transition is being amortized on a
straight-line basis over 15 years. The measurement dates used to determine
pension benefits were December 31, 2004 and 2003.
         The company maintains a trust which holds the assets of the plan. The
investment of assets in defined benefit plans is based on the expected long-term
capital market outlook. Asset return assumptions utilizing historical returns
and investment manager forecasts are set forth for each major asset category
including domestic equities and government and corporate market debt. Investment
allocations are determined by the Board of Directors. Long-term allocation
guidelines are set and expressed in terms of a target range allocation for each
asset class to provide portfolio management flexibility. The asset allocation is
diversified to maintain risk at a reasonable level without sacrificing return.
Factors including the future growth in the number of plan participants and
forecasted benefit obligations, inflation and the rate of salary increases are
also considered in developing asset allocations and target return assumptions.


8 Operating Segments
The Company reports segment data pursuant to SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information. Reinhold is a manufacturer of
advanced custom composite components and sheet molding compounds for a variety
of applications in the United States and Europe. The Company generates revenues
from four operating segments: Aerospace, CompositAir, Commercial and NP
Aerospace. Management has determined these to be Reinhold's operating segments
based upon the nature of their products. Aerospace produces a variety of
products for the U.S. military and space programs. CompositAir produces
components for the commercial aircraft seating industry. The Commercial segment
produces lighting housings and pool filter tanks. NP Aerospace produces products
for law enforcement, lighting, military, automotive and commercial aircraft.
         As of January 1, 2003, the Thermal  Insulation  operating  segment has
been consolidated with the Aerospace  operating  segment.  On December 17, 2004,
the Company sold its Samuel Bingham  Enterprises,  Inc.  subsidiary,  previously
reported as a separate operating  segment.  All prior periods have been adjusted
to conform with the current presentation.
         The information in the following table is derived directly from the
segment's internal financial reporting for corporate management purposes (in
thousands).
                                                       YEARS ENDED DECEMBER 31,
                                                         2004     2003     2002
--------------------------------------------------------------------------------
Net sales
         Aerospace                                  $  24,234   22,255   19,250
         CompositAir                                    4,716    5,250    6,538
         Commercial                                     3,281    3,473    2,877
         NP Aerospace                                  25,508   19,317   13,285
--------------------------------------------------------------------------------
Total sales                                         $  57,739   50,295   41,950

Income before income taxes from continuing
  operations
         Aerospace                                  $   8,051    7,106    6,792
         CompositAir                                     (546)     261      450
         Commercial                                       376      108      221
         NP Aerospace                                   4,627    3,832    1,614
         Unallocated corporate expenses                (1,706)  (1,109)  (1,671)
--------------------------------------------------------------------------------
Total income before income taxes from continuing
  operations                                        $  10,802   10,198    7,406


Reinhold Industries, Inc.                                                     47

<PAGE>

Notes to Consolidated Financial Statements (cont'd)


                                                       YEARS ENDED DECEMBER 31,
                                                         2004     2003     2002
--------------------------------------------------------------------------------
Depreciation and amortization
         Aerospace                                  $     340      367      355
         CompositAir                                      229      216      194
         Commercial                                       148      129      127
         NP Aerospace                                     276      324      282
         Unallocated corporate                            337      240      134
--------------------------------------------------------------------------------
Total depreciation and amortization                 $   1,330    1,276    1,092

Capital expenditures
         Aerospace                                  $     394    1,113    1,054
         CompositAir                                       52      214       95
         Commercial                                        31      358      437
         NP Aerospace                                      64      327      382
         Unallocated corporate                            165      238      134
--------------------------------------------------------------------------------
Total capital expenditures                          $     706    2,250    2,102

Total assets
         Aerospace                                  $  12,266   11,077
         CompositAir                                    2,564    2,635
         Commercial                                     1,503    1,598
         NP Aerospace                                  13,858   11,220
         Assets held for sale                               -    7,999
         Unallocated corporate                          9,255    9,261
--------------------------------------------------------------------------------
Total assets                                        $  39,446   43,790

Goodwill
         Aerospace                                  $   2,360    2,360
         CompositAir                                      161      161
         Assets held for sale                               -    1,265
--------------------------------------------------------------------------------
Total goodwill                                      $   2,521    3,786


48                                                    Reinhold Industries, Inc.

<PAGE>

Notes to Consolidated Financial Statements (cont'd)

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

                                                       YEARS ENDED DECEMBER 31,
                                                         2004     2003     2002
--------------------------------------------------------------------------------
Net sales
         North America                              $  29,564   27,296   23,767
         United Kingdom                                24,315   19,726   13,807
         Greece                                           586        -    2,518
         Germany                                        1,901    1,526    1,706
         Italy                                              -      914        -
         All other                                      1,373      833      152
--------------------------------------------------------------------------------
Net sales                                           $  57,739   50,295   41,950


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

                                                     DECEMBER DECEMBER
                                                          31,      31,
                                                         2004     2003
--------------------------------------------------------------------------------
Total assets
         North America                              $  25,588   24,571
         United Kingdom                                13,858   11,220
         Assets held for sale                               -    7,999
--------------------------------------------------------------------------------
         Total assets                               $   39,446  43,790

Long-lived assets
         North America                              $   13,235  11,260
         United Kingdom                                  1,913   1,984
         Assets held for sale                                -   5,294
--------------------------------------------------------------------------------
         Long-lived assets                          $   15,148  18,538


9 Commitments and Contingencies
leases The Company leases certain facilities and equipment under operating
leases expiring through 2014. Certain facility leases are subject to annual
escalations of approximately 1% to 3%. Total rental expense on all operating
leases approximated $888,000, $716,000 and $737,000 for 2004, 2003 and 2002,
respectively.
         Minimum future rental commitments under noncancelable operating leases
and aggregate future minimum rentals under noncancelable subleases at December
31, 2004 are as follows (in thousands):

                           OPERATING LEASE COMMITMENTS        SUBLEASE INCOME
--------------------------------------------------------------------------------
2005                                            $  766                     46
2006                                               749                     31
2007                                               738                      -
2008                                               739                      -
2009                                               744                      -
Thereafter                                       5,430                      -
--------------------------------------------------------------------------------
                                                $9,166                     77


Reinhold Industries, Inc.                                                     49

<PAGE>


Notes to Consolidated Financial Statements (cont'd)


LEGAL PROCEEDINGS The Company has been informed that it may be a potentially
responsible party ("PRP") under the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA"), with respect to
certain environmental liabilities arising at the Valley Forge National
Historical Park Site ("Valley Forge Site") located in Montgomery County,
Pennsylvania and at a site formerly known as the Casmalia Resources Hazardous
Waste Management Facility, located in Santa Barbara County, California
("Casmalia Site"). CERCLA imposes liability for the costs of responding to a
release or threatened release of "hazardous substances" into the environment.
CERCLA liability is imposed without regard to fault. PRPs under CERCLA include
current owners and operators of the site, owners and operators at the time of
disposal, as well as persons who arranged for disposal or treatment of hazardous
substances sent to the site, or persons who accepted hazardous substances for
transport to the site. Because PRPs' CERCLA liability to the government is joint
and several, a PRP may be required to pay more than its proportional share of
such costs. Liability among PRPs, however, is subject to equitable allocation
through contribution actions.
         On June 16, 2000 the U.S. Department of Justice notified the Company
that it may be a PRP with respect to the Valley Forge Site and demanded payment
for past costs incurred by the United States in connection with the site, which
the Department of Justice estimated at $1,753,726 incurred by the National Park
Service ("NPS") as of May 31, 2000 and $616,878 incurred by the United States
Environmental Protection Agency ("EPA") as of November 30, 1999. Payment of
these past costs would not release the Company from liability for future
response costs.
         Management believes that in or about 1977, the Company's predecessor,
Keene Corporation ("Keene"), sold to the U.S. Department of Interior certain
real property and improvements now located within the Valley Forge Site. Prior
to the sale, Keene operated a manufacturing facility on the real property and
may have used friable asbestos, the substance which gives rise to the claim at
the Valley Forge Site.
         On December 30, 2002, the United States District Court for the Southern
District of New York approved and entered a Consent Decree agreed upon by the
United States and the Company settling the claims asserted by the National Park
Service against the Company. The United States and the Company stipulated that
the EPA will not seek reimbursement of its response costs with respect to the
Valley Forge Site and that the Company's claim for a declaratory judgment with
respect to those costs may be dismissed with prejudice.
         Under the terms of the Consent Decree, the Company was obligated to pay
$500,000 to the Department of the Interior. In return, the Company has received
from the United States a covenant not to sue, subject to certain limited
exceptions, for claims under CERCLA Sections 106, 107 and 113 and RCRA Section
7003 relating to the Site. The payment to the Department of the Interior was
made on January 23, 2003.
         In September 2002, in accordance with SFAS No. 5, Accounting for
Contingencies, the Company recorded a reserve of $500,000 for the estimated cost
to conclude this matter. These costs were included in the December 31, 2002
balance sheet as a component of "Accrued Expenses."
         Pursuant to the Consent Decree and CERCLA Section 113(f)(2), the
Company's settlement with the United States bars any other party from asserting
claims for contribution for any response costs incurred with respect to the
Valley Forge Site by the United States, any State or other governmental entity,
or any other party.
         With respect to the Casmalia Site, on August 11, 2000, the EPA notified
the Company that it is a PRP by virtue of waste materials deposited at the site.
The EPA has designated the Company as a "de minimis" waste generator at this
site, based on the amount of waste at the Casmalia Site attributed to the
Company. The Company is not currently a party to any litigation concerning the
Casmalia Site, and based on currently available data, the Company believes that
the Casmalia Site is not likely to have a material adverse impact on the
Company's consolidated financial position or results of operations.
         The Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material effect on the
Company's financial position, results of operations, or liquidity.


50                                                    Reinhold Industries, Inc.

<PAGE>

Notes to Consolidated Financial Statements (cont'd)

INSURANCE Due to a significant increase in workers compensation insurance
premiums, on November 1, 2003, the Company changed its insurance for workers
compensation costs from fully insured to a partially self-insured basis. The
Company is now responsible for payment of all workers compensation costs to a
maximum of $250,000 per individual claim and $1,250,000 in the aggregate. Claims
paid by the insurance company as well as the estimated future costs to be
incurred are recorded as expenses on a monthly basis. In addition, the Company
was required to provide our insurance company with a irrevocable Letter of
Credit in the amount of $600,000. As of December 31, 2004, $600,000 of the
Letter of Credit was unused.
         The policy period extended through October 2004. At that time, claims
experience was reviewed and a determination was made to not continue on a
partially self-insured basis. As of December 31, 2004, based on information
provided to us by the insurance company, approximately $118,000 was accrued for
future losses associated with the expired policy period.

PURCHASE  COMMITMENTS  Obligations  under  non-cancellable  purchase  orders  at
December 31, 2004 totalled approximately $ 6.0 million.


10 Business and Credit Concentrations
The Company's principal customers are prime contractors to the U.S. Government,
other foreign governments and aircraft seat manufacturers.
         Sales to each customer that exceed 10% of total net sales for the
periods presented and the operating segment that realized the sale were as
follows (in thousands):
                                                      YEARS ENDED DECEMBER 31,
                                                        2004     2003    2002
--------------------------------------------------------------------------------
Alliant Techsystems (Aerospace)                     $ 18,256   19,324  14,853
Ministry of Defence - United Kingdom (NP Aerospace) $ 15,772   10,802   4,344
B/E Aerospace (CompositAir and NP Aerospace)               *        *   4,935

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

Alliant Techsystems accounted for approximately 14% of the Company's accounts
receivable balance at December 31, 2004 and December 31, 2003 before any
adjustments for the allowance for doubtful accounts. B/E Aerospace accounted for
approximately 8% of the Company's accounts receivable balance at December 31,
2002 before any adjustments for the allowance for doubtful accounts. The United
Kingdom's Ministry of Defence accounted for approximately 34% of the Company's
accounts receivable balance at December 31, 2004 and 20% of the Company's
accounts receivable balance at December 31, 2003 before any adjustments for the
allowance for doubtful accounts. No other customer exceeded 10% of the Company's
gross accounts receivable balance. The Company estimates an allowance for
doubtful accounts based on the creditworthiness of its customers as well as
general economic conditions. Consequently, an adverse change in those factors
could affect the Company's estimate of its bad debts.


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

Reinhold Industries, Inc.                                                     51

<PAGE>

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):
<TABLE>
<CAPTION>

                                                                    Three Months Ended
                                                  March 31,          June 30,     September 30,     December 31,
----------------------------------------------------------------------------------------------------------------
<S>                                              <C>                   <C>               <C>              <C>

2004                                                                                      **
Net sales                                        $   12,616            15,532            13,841           15,750
Gross profit                                     $    3,976             5,358             4,727            6,050
Net income from continuing operations            $    1,349             1,919             1,579            1,100
Net income                                       $    1,179             1,686            (2,171)             416
Net earnings per share:
         Basic - continuing operations           $     0.46              0.65              0.52             0.34
         Diluted - continuing operations         $     0.42              0.60              0.50             0.33

         Basic - discontinued operations         $    (0.06)            (0.08)            (1.23)           (0.21)
         Diluted - discontinued operations       $    (0.06)            (0.08)            (1.23)           (0.21)

         Basic                                   $     0.40              0.57             (0.71)            0.13
         Diluted                                 $     0.37              0.53             (0.71)            0.13

** As restated
-----------------------------------------------------------------------------------------------------------------
2003
Net sales                                        $   11,963            13,526            11,988           12,818
Gross profit                                     $    4,199             5,055             4,173            4,352
Net income from continuing operations            $    1,624             1,970             1,419            1,371
Net income                                       $    1,524             1,880             1,211            1,109
Net earnings per share:
         Basic - continuing operations           $     0.56              0.67              0.48             0.47
         Diluted - continuing operations         $     0.54              0.64              0.45             0.43

         Basic - discontinued operations         $    (0.03)            (0.03)            (0.07)           (0.09)
         Diluted - discontinued operations       $    (0.03)            (0.03)            (0.07)           (0.09)

         Basic                                   $     0.52              0.64             0.41              0.38
         Diluted                                 $     0.50              0.61             0.39              0.35

</TABLE>


52                                                     Reinhold Industries, Inc.


<PAGE>

Report of Independent Registered Public Accounting Firm



The Board of Directors and Shareholders
Reinhold Industries, Inc.

We have audited the accompanying consolidated balance sheets of Reinhold
Industries, Inc. as of December 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders' equity (deficit)and comprehensive income
and cash flows for each of the three years in the period ended December 31,
2004. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. We were not engaged to perform an
audit of the Company's internal control over financial reporting. Our audit
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Reinhold
Industries, Inc. at December 31, 2004 and 2003, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended December 31, 2004, in conformity with accounting principles generally
accepted in the United States.



/s/ Ernst & Young  LLP


Orange County, California
February 22, 2005



Reinhold Industries, Inc.                                                    53

<PAGE>



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

Richard C. Morrison
Retired
Babson Capital Management, Inc.

C. Miles Schmidt, Jr.
Retired
Halcore Group, Inc.

Matthew C. Hook
Managing Director
Centerfield Capital Partners L.P.

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 Wanda Morrison
Reinhold Industries, Inc.

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

ANNUAL MEETING
The Annual Stockholders' Meeting will be held at the offices of Reinhold
Industries, Inc.
12827 East Imperial Hwy
Santa Fe Springs, CA
On May 5, 2005
at 8:30 a.m.

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

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

INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Ernst & Young LLP
18111 Von Karman Avenue
Suite 1000
Irvine, CA 92612

ATTORNEYS
Sommer Barnard Attorneys, PC
One Indiana Square, Suite 3500
Indianapolis, Indiana 46204

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


54                                                    Reinhold Industries, Inc.

<PAGE>



STOCK LISTING
Reinhold common stock is listed on the Nasdaq National Market
Symbol - RNHDA


                                                                      DIVIDENDS
STOCKHOLDER INFORMATION                 2004            2003          PER SHARE
--------------------------------------------------------------------------------
Market Price                         High    Low    High    Low      2004   2003
--------------------------------------------------------------------------------
First Quarter ended March 31,       23.26  18.70   11.14   7.52     $0.00  $0.00
Second Quarter ended June 30,       20.50  18.60   12.01   9.59      0.00   0.00
Third Quarter ended September 30,   23.20  15.46   19.10  11.25      0.50   0.00
Fourth Quarter ended December 31,   28.71  22.36   20.23  17.90     12.25   0.00

The Class A Common Stock of the Company is listed on the Nasdaq National Market
under the ticker symbol RNHDA. The table above sets forth the high and low sale
prices of the Company's Class A Common Stock for each of the quarterly periods
for the years ended December 31, 2004 and 2003, adjusted for the effect of the
10% stock dividend on May 16, 2003, and the special dividend of $11.75 per share
declared and paid in December 2004.

Reinhold Industries, Inc.                                                    55


<PAGE>

REINHOLD INDUSTRIES, 1NC.
12827 East Imperial Highway
Santa Fe Springs, CA 90670
(562) 944-3281