Reinhold Industries, Inc.


Picture - Michael T. Furry   Picture - Roger Medwell   Picture - Joe Ball

          Picture - Joe Savage    Picture - Ari Aleong   Picture - Brett Meinsen

                                        1999 Annual Report

It is who we are



<PAGE>



Picture of Board of Directors

Reinhold Industries Board of Directors
(left to right): President and Chief Executive
Officer Michael T. Furry, Chairman of the
Board Ralph R. Whitney, Jr., and Director
Andrew McNally IV.



<PAGE>

<TABLE>
<CAPTION>


Selected Financial Data (as restated)

                                                       1999      1998       1997      1996      1995
-----------------------------------------------------------------------------------------------------
<S>                                               <C>          <C>        <C>       <C>       <C>

Summary of operations (in thousands)
Net sales                                         $  39,140    25,996     16,232    13,120    11,122
Gross profit                                      $  10,783     6,503      4,699     3,046     1,728
Operating income (loss)                           $   5,704     2,196      1,595        17    (1,832)
Interest (expense) income, net                    $     100       (17)       103     1,159     2,202
Reorganization expenses                           $       -         -          -     3,139     9,492
Net income (loss) (Note 3)                        $   3,570     1,435      1,004    (2,353)   (8,983)

------------------------------------------------------------------------------------------------------
Year end position (in thousands)
Cash and marketable securities                    $   9,419     3,622      3,169     2,522    34,660
Working capital                                   $  13,256     8,961      6,314     3,602    39,105
Net property and equipment                        $   5,726     5,476      4,526     5,158     5,607
Total assets                                      $  25,234    20,215     13,215    12,540    64,705
Long-term debt                                    $   1,125     1,550          -         -         -
Long-term liabilities                             $     204     2,559        873     3,314     3,168
Stockholder equity                                $  18,423    11,263     10,905     7,284    43,555

------------------------------------------------------------------------------------------------------
Per share data Net income (loss):

Basic (Note 1)                                    $    1.79       0.72      0.50     N.M.*     (0.86)
Diluted (Note 1)                                  $    1.78       0.72      0.50     N.M.*     (0.86)
Stockholders' equity                              $    9.18       5.63      5.46     N.M.*      4.17
Market price range: (Note 2)
High                                              $   13 1/8     9 1/4     10       4 1/8       N.M.*
Low                                               $    6 3/4     5 1/2     2 7/8    3 1/4       N.M.*

------------------------------------------------------------------------------------------------------------------------------------
Other data (in thousands except stockholder & employee data)
Orders on hand                                    $  13,841    16,194      5,989     4,935     6,635
Average shares outstanding - basic                    1,999     1,999      1,999    Note 1    10,442
Average shares outstanding - diluted                  2,006     1,999      1,999    Note 1    10,442
Average number of common stockholders                 1,711     1,808      1,951     2,099     2,396
Average number of employees                             289       220        124       105       104

<FN>

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

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

Note 3: Selected financial data for all years presented have been restated.  See
note 13 to  the  consolidated  financial  statements for information   regarding
the restatement of the consolidated financial statements for  income  taxes  and
certain accrued liabilities.

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

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

                                                                               1


<PAGE>



Picture of Michael T. Furry

Michael T. Furry
President and Chief
Executive Officer

TO OUR STOCKHOLDERS
The confluence of a number of favorable events resulted in an excellent year for
Reinhold  Industries in 1999, only our third full year as a public company.  The
charts  on the  following  pages  illustrate  this  success  according  to these
criteria: net sales, net income,  earnings per share, return on capital employed
(ROCE),  cash balances,  and stockholder equity. My purpose here is to call your
attention to these significant  facts.  Primary among them are a 50% increase in
net sales from $26 million in 1998 to $39 million in 1999 and a 157% increase in
net  income  from $1.4  million  in 1998 to $3.6  million  in 1999. For complete
financial  details,  I urge you to read pages 17 and 18 - Management  Discussion
and Analysis of Financial  Condition  and Results of Operations - as well as the
subsequent tables.

2


<PAGE>



Reinhold  revenue  is  derived  from  four  business  units:   Aerospace  (USA),
Commercial  (USA),  CompositAir  (USA-UK),  and NP Aerospace  (UK).  Each made a
positive contribution to the company's success in 1999.

AEROSPACE  (USA) This unit's  products are made of structural and ablative (heat
absorbing)  composites and are related to the solid rocket propulsion  industry.
Most of them are sold  directly  or  indirectly  to the  United  States  Defense
Department. This unit has experienced a 10-year drought resulting primarily from
reductions in defense  spending.  Sales dropped from $23 million in 1990 to $9.6
million in

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Net Sales (in millions)
1997     $16.2
1998     $26.0
1999     $39.1
141% increase

1991 and has averaged $5 to $6 million for the balance of the decade.  Sales for
1999 were $5.9 million,  down 5% from $6.2 million in 1998,  and profit was $1.2
million, down 22% from $1.6 million in 1998.

COMMERCIAL  (USA) This unit serves a regional  swimming pool  customer,  the USA
lighting market, and various other commercial  customers.  All products are made
using  Reinhold-manufactured  sheet  molding  compound  (SMC) as the  basic  raw
material.  In the past  year,  this  unit  was  able to  bring to  manufacturing
maturity all of our previously introduced products, an improvement in efficiency
that is reflected in the improved  performance in 1999, and management is on the
alert for new product design and  development  opportunities.  Orders for six or
seven new  products  are now in process.  Sales  increased by 23% over  1998  to
$2.4  million,  but profit  leaped by 300% from  $72,000 in 1998 to  $287,000 in
1999.

COMPOSITAIR  (USA-UK)  This  unit,  acquired  in 1994,  has  been in  continuous
production  of  composite  seatback  frames  since  1980.  Composites  of epoxy,
phenolic,  or other resin  systems,  reinforced  with carbon,  aramid,  or glass
fibers,   are   laminated   into  the   complex   shapes   required  of  today's
features-packed  commercial  aircraft  seats.  Our ability to manufacture  these
composite  materials  with  preferred  shapes and  weight  savings of 30% to 40%
distinguishes  our seatback  products  from  aluminum  frames.  Sales and profit
contribution for 1999 were $16 million and $2.1 million respectively.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Net Income (in millions)
1997     $1.0
1998     $1.4
1999     $3.6
260% increase

NP AEROSPACE (UK) This business  segment was acquired from Courtaulds  Aerospace
in the United  Kingdom  in April of 1998,  so this is the first full year of its
effect on  operations.  As it did for eight months of 1998,  performance in 1999
exceeded  forecasts.  This  acquisition  was first pursued because of our mutual
presence in the aircraft  seating  business,  but it also  brought  other market
niches:  ballistic-protection  products,  a  family  of  medical  products,  and
products  for the trade  molding  market for  lighting,  communications,  United
Kingdom defense,  and automotive  after-market  industries.  Ballistic  products
include military helmets for ground forces and air crews, armored vehicles, body
armor, and ballistic shields. Medical products include graphite tables for X-ray
and MRI treatment. Sales and profit contribution for 1999 were $14.9 million and
$2.5  million  respectively,  a pro-rated  increase of 133% in sales and 131% in
profit.

                                                                               3


<PAGE>



A GLOBAL  CONSORTIUM  CompositAir  (USA)  and NP  Aerospace  (UK) have long been
rooted in the aircraft seatback business.  Now, our worldwide marketing strategy
in pursuit of that business and the  combination of USA and UK  engineering  and
manufacturing  resources in developing a superior  hybrid product have led us to
treat those two units as one for that  segment of  business.  In our 1998 annual
report, we predicted that the hybrid technology resulting from the fusion of two
unique  processes for making seatbacks would result in a better product at lower
cost.  That has been  realized.  Reinhold  is now the world  cost  leader in the
aircraft seatback field and can

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Earnings per share (in dollars)
1997     $0.50
1998     $0.72
1999     $1.78
276% increase

offer that cost advantage to our customers in a collaborative effort to secure a
greater  share of the worldwide  market.  The  increasing  benefits of composite
seatbacks in lieu of metal are  described in more detail on pages 6 and 7 and 10
and 11.

THE REINHOLD PHILOSOPHY We cannot expect to sustain indefinitely the growth that
we have  enjoyed  for the  past  three  years - 141% in net  sales,  260% in net
income,  276% in earnings per share,  193% in cash balance,  69% in  stockholder
equity, and from 17% in 1997 to a lofty 29% return on capital employed (ROCE) in
1999.  Conditions that cannot be anticipated,  such as the effects of a military
crisis in Botswana or the breakdown of peace talks in Northern Ireland - to name
two that have  impacted  our  business  recently - make  forecasts  around  them
imprudent.  What we can do is sustain and extend the  management  philosophy and
strategy  that have made it possible  for us to  capitalize  on the good fortune
that comes our way and,  at the same time,  protect  against  the  vagaries of a
volatile world.

Human resource  management is a vital part of the Reinhold style. By adhering to
sound management practices, we have developed a team concept that thrives in the
culture of an  enlightened  work ethic,  a sense of controlled  urgency,  mutual
respect, and targeted financial goals. Our credo is "fewer people working harder
and smarter."  People are our most valuable asset, and our future growth depends
on a work force of highly skilled and motivated

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

ROCE* (in percentages)
1997     17%
1998     15%
1999     29%
71% increase
*Return on capital employed

people. They are the primary feature of this annual report.

ACQUISITIONS  A major  element of  Reinhold's  long-range  business  strategy is
growth  through  acquisitions.  On March 9, 2000,  Reinhold  acquired the Samuel
Bingham  Company.  Founded  in 1826  under  that  name,  it is one of the oldest
continuously-operated  companies  in  the  country.  It  will  be  managed  as a
wholly-owned  subsidiary.   Headquartered  in  Bloomingdale,  Illinois,  Bingham
manufactures and distributes  rubber and  polyurethane  rollers for graphic arts
and industrial applications, employing 250 people in 12 plants in the US and two
in  Canada.  Gross  sales in 1999  were  $24.2  million.  This will be a year of
consolidation,  but Bingham's position in a stable industry,  with a steady flow
of income,  will contribute to year 2000 earnings and have a positive  long-term
effect on shareholder value.

4


<PAGE>



CHANGE IN  CONTROL  On May 21,  1999,  Keene  Creditors'  Trust sold most of its
Reinhold stock to a group of individual and institutional  investors. Two of the
investors,  Ralph R. Whitney and Andrew McNally IV, were elected to our Board of
Directors at a special Board  meeting on June 3, 1999.  The new directors are in
accord with Reinhold  management and company  goals.  We consider this change in
ownership a liberating and informative event that will have a positive effect on
our future.

NEW  FACILITY A  long-term  lease has been  secured  and plans  approved  by the
planning commission for new and renovated buildings

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Cash Balance (in millions)
1997     $3.2
1998     $3.6
1999     $9.4
193% increase

at our Santa Fe Springs  location.  We currently occupy eight buildings in Santa
Fe Springs and one 65 miles away in Camarillo, where certain seatback operations
occur. The new and renovated buildings comprise 134,000 square feet, an increase
of 24,000.  Each of the three business units, which now share work spaces,  will
occupy its own space, and procurement,  inventory control, warehousing, and work
flow will be greatly  enhanced.  Construction  is expected to be complete within
the year,  and the  results  will have a positive  impact on the bottom  line in
2001.

FORECAST Backlog at December 31, 1999 was $13.8 million,  down 15% from December
31, 1998,  primarily due to a softening of aircraft  production  and a temporary
reduction in demand from our principal seating products customer.  The concerted
marketing and sales effort of CompositAir  (USA-UK)  should capture some part of
the 65% market  share now held by metal  seatbacks,  but we still  anticipate  a
downturn in sales and earnings for this  business  segment in 2000. NP Aerospace
(UK)  experienced  a surge in sales of armored  vehicles  in 1999 that cannot be
again predicted,  but that anticipated shortfall could be made up by an expected
increase in sales of military  helmets and medical tables,  and what promises to
be an expansion of our lighting  products market.  This unit will be profitable,
but we anticipate little if any overall growth in 2000.

We expect  both sales and  profits  for  Aerospace  (USA) and  Commercial  (USA)
Business Units to be up in 2000 and beyond.

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

Stockholder Equity (in millions)
1997     $10.9
1998     $11.3
1999     $18.4
69% increase

In summation, we do not expect to reprise our 1999 performance, but we expect to
be profitable  and are bullish about our prospects for  accelerating  growth and
profit in the immediate years to follow.

For the nexus of our  customers,  our  suppliers,  and our skilled and committed
employees, we are grateful. It is vital to our success.

It is who we are.

/s/ Michael T. Furry

Michael T. Furry

President and Chief Executive Officer
March 20, 2000

                                                                               5


<PAGE>



NP AEROSPACE UK
It is who we are
Picture NP Aerospace team

(left to right) Mike Linton, Ian Paterson, Martin
Cheese, Gavin Friell, Roger Medwell, Debbie
Wadge, Jim Cantes, Vaughan Collins

Roger Medwell, Managing Director,
NP Aerospace (UK) Business Unit

Roger Medwell is Managing  Director of NP Aerospace in Coventry,  West Midlands,
England,  a position he held with  Courtaulds  Aerospace  when that business was
acquired in 1998. That acquisition  brought to Reinhold a significant segment of
aircraft seatback business and market niches for ballistic  protection products,
including  military  helmets for ground and air crews,  armored  vehicles,  body
armor,  and ballistic  shields.  Complementary  technology and new market niches
were not the only  benefits of the  acquisition,  however.  In the course of due
diligence, a kinship of shared

Picture - Products         Picture - Products

Values  and  methods  emerged,  such as  team  concepts  and  work  forces  with
overlapping skills and compatible techniques.  It was also revealed that in 1926
Courtaulds  was doing  pioneering  work with  bakelite  molding  similar to what
Reinhold was doing in 1928. With more than 40 years of direct  experience in the
industry,  Roger has a  well-informed  vision and  enthusiasm  for the future of
composites  remarkably  akin  to that  of  Reinhold.  "the  potential  has  been
stifled," he says,  "because most composites  manufacturers  have been under the
control of large  petrochemical  companies out of touch with the entrepreneurial
spirit." All of these kinships made  assimilation of this business unit into the
Reinhold  culture of targeted goals, an enlightened  work ethic,  and a sense of
controlled urgency a smooth process.  With an expanded view of the potential for
growth  of the  combined  businesses,  Roger  is also  on the  alert  for  other
companies in the UK that might be apt candidates for acquisition.

6


<PAGE>




                             Picture - Roger Medwell

Picture - Products          Picture - Products                Picture - Products






                                                                               7


<PAGE>




                               Picture - Joe Ball

Picture - Products              Picture - Products            Picture - Products







8


<PAGE>



Joe Ball, Manager,
Aerospace USA Business Unit

Joe Ball has been  with  Reinhold  for 20  years,  a  product  of our  policy of
promoting from within. He became manager of this Business Unit in 1998. Reinhold
has been developing and building  ablative (heat  absorbing)  components for the
U.S.  space program  since its  inception.  Current  contracts  include  initial
production  of the  insulation  components  for  the  Minuteman  III  Propulsion
Replacement  Program,  airfoils for BAT  anti-tank  weapons,  small  nozzles for
booster  separation  rockets,  and  aircraft  structural   composites  for  both
government and commercial applications.

Picture - Products         Picture - Products

Our continuing  ability to do so is attributable to a team of highly skilled and
motivated  employees.  Upon that base,  we are building for the future.  Through
generous  employee  benefit  programs,   on-the-job  training,   education,  and
discriminating  recruitment we are sustaining and invigorating a work force that
prepares us for a new  generation  of  exploration  and  discovery.  Our goal is
continued  growth  through an increasing  share of existing  markets and further
successful acquisitions. The window of opportunity is open.

                                     AEROSPACE USA
                                     It is who we are
                                     Picture Aerospace team
                                     (left to right) Saul Osuna, Van Dreng, Dave
                                     Fuller,  Rick  Olson, Rich  Ciauri, Gilbert
                                     Torres, Subinh Chanthavongsouk

                                                                               9


<PAGE>



COMPOSITAIR USA-UK
It is who we are
Picture CompositAir team
(left to right) Steve Carmichael, Don
Carmichael, Bob Buchanon, Paka Aina,
Lester Gray, Hamid Gholami

Joe Savage, Manager,
CompositAir (USA-UK) Business Unit

Joe  Savage is a  Reinhold  veteran  of more than 20 years and has  managed  the
CompositAir  Business Unit, whose primary product is aircraft  seatbacks,  since
November,  1998.  Joe  believes  that the  passage of  controlling  interest  in
Reinhold to private  investors in 1999 was a  liberating  event,  initiating  an
aggressive  policy of growth that was the natural  tendency of management.  This
policy compliments  Reinhold people,  the company's  greatest  strength.  "Their
capability is unmatched,  their experience,  expertise,  and process  innovation
make us the industry leader in technology and

Picture - Products         Picture - Products

cost  controls,"  says Joe. As the world leader,  this team strives to develop a
more  robust  manufacturing  process  and to  distinguish  composites  from  the
standard metal  seatback.  The estimated  worldwide  market for new and retrofit
seatbacks is 300,000 for the year 2000. Of that, 65% is projected as metal.  Our
goal is to increase  the market share for  composites,  and the product is here.
The  CompositAir  USA   and   UK  teams   have  collaborated  to  develop a new,
hybrid seatback that is lighter,  stronger,  more comfortable,  more pleasing in
shape and design,  and can  accommodate  more  features,  all at a price that is
equal to or  better  than  metal  seatbacks.  With  pressure  mapping  and other
sophisticated  testing  methods,  the benefits of composites can be convincingly
demonstrated. Our goal for this year is to work in concert with our customers to
assure that those  benefits  are made  compellingly  clear to the  specification
writers and airline companies.

10


<PAGE>




                              Picture - Joe Savage

Picture - Products              Picture - Products            Picture - Products







                                                                              11


<PAGE>




                              Picture - Ari Aleong

Picture - Products              Picture - Products            Picture - Products






12


<PAGE>



Ari Aleong, Manager,
Commercial Business Unit

Ari  Aleong  has been  with  Reinhold  since  1989  and  became  Manager  of the
Commercial  Business Unit in 1999. This  tightly-knit  unit makes products for a
regional  swimming pool filter  company,  the USA lighting  market,  and various
other  commercial  customers.  On this  team,  every  employee  is  trained  and
cross-trained  for a  cellular-type  manufacturing  process in which an operator
performs more than one function.  Every  employee is empowered to make decisions
in the  process  of  manufacturing  a product  from  start to finish -  molding,
testing, packaging, and palletizing. Every employee is,

Picture - Products         Picture - Products

in effect, a manager.  In this environment,  where  understanding of company and
team goals is fostered through open  communication  in daily meetings,  there is
little  evidence of a hierarchy  of  authority.  A sense of purpose and pride in
workmanship  runs  deep.   Achievement  is  recognized  in  a  performance-based
compensation program called PIE - an acronym for Performance,  Incentive, Equity
- in which production  employees receive a bonus for each week the company meets
forecast  sales.  Cash awards are  disbursed to proud  recipients at monthly PIE
barbecue luncheons.  Always, the focus is constant and urgent:  embrace customer
needs, embrace company goals, make a better product.

                                     COMMERCIAL USA
                                     It is who we are
                                     Picture Commercial team
                                     (left to right) Davood Taslimi, Maria Muro,
                                     Bob Bockman, Maria Hernandez,
                                     Hector Gamboa, Danny Radillo

                                                                              13


<PAGE>



NEW FACILITY

Picture - New Facility

New and Renovated Facility

Reinhold's USA operations  currently  occupy eight buildings in two locations 65
miles apart, with headquarters in Santa Fe Springs and manufacturing of aircraft
seatbacks  divided  between there and Camarillo,  the only facility less than 50
years old. Three Business Units now share work spaces where parts are moved from
building to building in a circuitous manufacturing process. Moving materials and
people  long  distances  was  tolerable  when  transportation  costs and surface
traffic were minor  matters,  but that is no longer so. A major  project for the
year 2000 is the  consolidation  of  operations  in Santa Fe  Springs in new and
reconfigured  buildings  comprising  134,000 square feet - an increase of 24,000
over the present. The utilization of space has been further enhanced by thorough
space management.  In the new facility,  each Business Unit will be distinct and
work flow, materials procurement and control,  warehousing, and shipping will be
much more efficient.  Plans have been approved by the planning  commission,  and
construction  is expected to be complete  within the year. A positive  impact on
the bottom line will be realized in 2001.

14


<PAGE>




                             Picture - New Facility

Engineering
Gerry Gore, Chief Engineer

This  team of  five  engineers  headed  by  Gerry  Gore  is a key  component  of
Reinhold's  expertise in solving challenging design and manufacturing  problems.
Engineering is responsible for reviewing  plans and preparing  estimates for all
projects and designing special tools and dies for unique manufacturing needs. It
serves  all three  business  units at  Reinhold  USA and  collaborates  with the
engineering  team at NP Aerospace in the United Kingdom in seeking  solutions to
common problems.

                 It is who we are
                 Picture Engineering team

                 (left to right) Tony Swezey, Jed Merrill, Fred Ngo, Bob Briggs,
                 Gerry Gore


                                                                              15


<PAGE>




                           Picture - Brett R. Meinsen

It is who we are
Picture Administration team
(left to right) Bruce Nguyen, Debbie Nicol,
Judy Sanson, Brent Marcus, Linda Crawford

Brett R. Meinsen

Vice President - Finance and Administration,
Treasurer and Secretary

Brett  Meinsen has been with  Reinhold  for only three  years but brings  almost
twenty years of diversified  accounting  and finance  experience to the company.
His responsibilities include accounting,  human resources,  information systems,
purchasing, and logistics. "With such a wide scope of responsibilities, it would
be impossible to be effective without an outstanding team of dedicated  people,"
he said. "The  Administration team exemplifies the Reinhold philosophy of `fewer
people  working  harder and smarter.'" The goal for this team in the coming year
is to  continue  to manage our working  capital  aggressively,  to assist in the
assimilation  of our  Bingham  acquisition  into the  Reinhold  work  ethic  and
management style, and to provide our employees with a challenging and satisfying
work environment that offers ample opportunity for advancement.

16


<PAGE>


                                        Reinhold Industries, Inc. and Subsidiary

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

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

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

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

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

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

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

A tax  provision of $2.2 million was recorded in 1999  compared with a provision
of $0.7 million in 1998, due primarily to increased  profitability in the United
Kingdom.  The effective tax rate in 1999 was 38% as compared to 34% in 1998. The
change  results  principally  from the rate  difference  on foreign  income.  At
December 31, 1999 and 1998, the Company had net operating loss carryforwards for
Federal  income tax  purposes  of  approximately  $31,782,000  and  $34,664,000,
respectively.  At December 31, 1999,  the Company  also had net  operating  loss
carryforwards  for State income tax purposes of  approximately  $5,551,000.  The
Company may utilize the Federal net operating losses by carrying them forward to
offset future  Federal  taxable  income,  if any,  through 2011. The Company may
utilize the State net operating losses by carrying them forward to offset future
State taxable income,  if any,  through 2001. As more fully described in note 13
to  the  consolidated   financial   statements,   benefits  realized  from  loss
carryforwards arising prior to the reorganization have been recorded directly to
additional  paid-in  capital.  Such benefits  amounted to $1,471,000 in 1999 and
$703,000 in 1998.

Net income  totaled $3.6  million,  or $1.78 per diluted  share in 1999 compared
with $1.4 million, or $0.72 per diluted share in 1998.

LIQUIDITY  AND CAPITAL  RESOURCES As of December 31, 1999,  working  capital was
$13.3 million, up $4.3 million from December 31, 1998. Cash and cash equivalents
of $9.4 million held at December 31, 1999 were $5.8 million higher than cash and
cash  equivalents held at December 31, 1998 primarily due to $7.4 million of net
cash provided by operating activities.

Net cash provided by operating  activities  amounted to $7.4 million in 1999 and
$3.1  million  in 1998.  The  increase  over the  prior  period  relates  to the
increased profitability of the Company.

Net cash used in  investing  activities  in 1999  totaled  $1.2  million,  which
consisted  of  capital  expenditures  and  deferred   consideration  payable  to
Courtaulds  plc.  Net cash used in  investing  activities  in 1998  totaled $3.9
million , which consisted of the NP Aerospace  acquisition totaling $3.7 million
and property and equipment  expenditures  of $1.0 million offset by the maturity
of $0.8 million of marketable securities.

Net cash used in financing  activities in 1999 totaled $0.4 million  relating to
the repayment of the CIT/ Bank of America  loan.  Net cash provided by financing
activities  in 1998  totaled  $2.0  million  consisting  of the $2.3  million of
proceeds from the CIT loan, less subsequent repayments.

The  Company  does not have any  current  significant  commitments  for  capital
expenditures at December 31, 1999.

As discussed in the notes to the consolidated financial statements,  the Company
acquired  certain  assets and assumed  certain  liabilities of the Ballistic and
Performance  Composites  Division of Courtaulds  Aerospace Ltd on April 24, 1998
(the Closing  Date).  On the Closing Date,  Reinhold paid to Courtaulds  plc Two
Million Two Hundred  Thousand  pounds  sterling  ((pound)2,200,000)  ($3,706,340
based on an exchange  rate of $1.6847) and may make  additional  payments in the
future as required by the Asset Sale  Agreement.  In the year ended December 31,
1999, additional payments earned totalled (pound)140,000 ($227,000).

The  source of funds  for a portion  of the  Purchase  Consideration  due on the
Closing  Date was a Five Year  Loan and  Security  Agreement  with The CIT Group
Credit/Finance  (CIT) in the amount of Four Million  Dollars  ($4,000,000) at an
interest rate of prime plus 1.75%  (9.50%).  The term portion of the loan in the
amount of Two Million Two Hundred Sixty-Eight  Thousand Dollars ($2,268,000) was
received  from CIT. The  remainder of the CIT credit  facility was a revolver of
One Million Seven Hundred Thirty-Two  Thousand Dollars  ($1,732,000),  which was
never used. The remaining  portion of the purchase  consideration  not funded by
the CIT loan was funded by Reinhold's cash on hand.  Future payments required by
the Agreement are expected to be financed from operating cash flows.

                                                                              17


<PAGE>


Reinhold Industries, Inc. and Subsidiary

MANAGEMENT'S DISCUSSION AND ANALYSIS (CONT'D)

On April 16, 1999,  the Company repaid the  outstanding  loan with the CIT Group
Credit/Finance  through a refinancing  with Bank of America  National  Trust and
Savings  Association  ("B of A") and  cancelled  the  revolver.  The new  credit
facility  with B of A is a term loan in the amount of  $1,861,478  payable in 48
equal monthly  principal  installments  of $38,780 plus interest at a rate which
approximates  LIBOR plus 1.75% and is secured by fixed assets.The  Company had a
credit  facility  with the Keene  Creditors'  Trust  whereby the Company had the
ability to draw on a $1.5 million line of credit.  However, this credit facility
expired on July 31, 1998. No amounts had been used under this facility.

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

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

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

The stock purchase  agreement provided that it was a condition to the closing of
the sale of the shares that  Lawrence H.  Diamond and Robert B.  Steinberg,  the
members of the Board of Directors  elected by the Creditors'  Trust (as the sole
holder  of Class B Common  Stock),  resign as  directors.  Messrs.  Diamond  and
Steinberg  resigned as  directors  on May 21,  1999.  On June 3, 1999,  Ralph R.
Whitney,  Jr. and Andrew  McNally IV were  appointed by the remaining  director,
Michael T. Furry, as successor directors.  The Board of Directors of the Company
now consists of: Michael T. Furry, Ralph R. Whitney, Jr., and Andrew McNally IV.

RECENT  ACCOUNTING   PRONOUNCEMENTS  In  June  1998,  the  Financial  Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative  Instruments and
Hedging  Activities."  SFAS No. 133 modifies the accounting for  derivatives and
hedging  activities and is effective for fiscal years  beginning  after June 15,
2000. At this time,  the Company does not expect the adoption of SFAS No. 133 to
have a significant impact on its financial position or results of operations.

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

YEAR 2000 Many existing computer programs use only two digits to identify a year
in a date. If not corrected,  many computer  applications and systems could fail
or create erroneous results before or after the year 2000. In The United States,
the  Company  had  anticipated  the year  2000  problem  in the  mid-1980's  and
therefore created compliant systems. The internal computer systems in the United
States are Year 2000 compliant.  In the United Kingdom,  the Company  identified
and remediated or replaced any other computer  systems and software that may not
function correctly in the year 2000. Additionally, the Company planned a program
of  communications  with its  significant  suppliers,  customers and  affiliated
companies to determine  the  readiness of these third  parties and the impact on
the Company as a consequence of their own year 2000 issues. The Company's manual
assessment  of the impact of the year 2000 date change was completed by December
31, 1999. The Company was able to identify,  and, modify or replace such systems
and  software  before any year 2000  associated  problems.  The  Company has not
experienced any significant Year 2000 issues to date.

Due to the way the leap year occurs, the company believes that February 29, 2000
is the only remaining significant date on which potential Year 2000 issues could
arise.

18


<PAGE>


                                        Reinhold Industries, Inc. and Subsidiary

INDEPENDENT AUDITORS' REPORT


The Board of Directors
Reinhold Industries, Inc.

We have  audited  the  accompanying  consolidated  balance  sheets  of  Reinhold
Industries,  Inc. and Subsidiary  (the Company) as of December 31, 1999 and 1998
and the related  consolidated  statements of earnings,  stockholders' equity and
comprehensive income and cash flows for the years then ended. These consolidated
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements based on our audit.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Reinhold Industries,
Inc.  and  Subsidiary  as of December 31, 1999 and 1998 and the results of their
operations  and their cash flows for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States of America.

As discussed in note 13 to the consolidated financial  statements,  the  Company
has restated its 1999 and 1998 financial  statements  to  record  certain income
tax benefits directly to additional  paid-in capital  pursuant  to  Statement of
Position 90-7 "Financial  Reporting  by  Entities  in  Reorganization  under the
Bankruptcy Code" and to reverse certain accrued liabilities.

/S/KPMG LLP

Los Angeles,  California
February 16, 2000, except for Note 12
which is as of March 9, 2000 and
Note 13 which is as of March 16, 2001

                                                                              19


<PAGE>


Reinhold Industries, Inc. and Subsidiary


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20



<PAGE>


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

Consolidated Statements of Earnings (as restated)
(Amounts in thousands, except for per share data)

------------------------------------------------------------------------------------------------------------------------------------
                                                                   Year ended                        Year ended
                                                            December 31, 1999                 December 31, 1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                                <C>
Net sales                                                             $39,140                            25,996
Cost of sales                                                          28,357                            19,493
------------------------------------------------------------------------------------------------------------------------------------
Gross profit                                                           10,783                             6,503
Selling, general and administrative expenses                            5,079                             4,307
------------------------------------------------------------------------------------------------------------------------------------
Operating income                                                        5,704                             2,196
Interest income (expense), net                                            100                               (17)
------------------------------------------------------------------------------------------------------------------------------------
Income before income taxes                                              5,804                             2,179
Income taxes                                                            2,234                               744
------------------------------------------------------------------------------------------------------------------------------------
Net income                                                            $ 3,570                             1,435
------------------------------------------------------------------------------------------------------------------------------------


Earnings per share:
Basic                                                                 $  1.79                              0.72
Diluted                                                               $  1.78                              0.72
------------------------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding:

Basic                                                                   1,999                             1,999
Diluted                                                                 2,006                             1,999
------------------------------------------------------------------------------------------------------------------------------------
<FN>

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

                                                                              21


<PAGE>



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

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

------------------------------------------------------------------------------------------------------------------------------------
                                                                           December 31, 1999     December 31, 1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>                    <C>

Assets
Current assets:

   Cash and cash equivalents                                                         $ 9,419                 3,622
   Accounts receivable (less allowance for doubtful accounts of $60
      and $287, respectively)                                                          4,077                 4,869
   Inventories                                                                         4,085                 4,385
   Prepaid expenses and other current assets                                           1,157                   928
------------------------------------------------------------------------------------------------------------------------------------
      Total current assets                                                            18,738                13,804
------------------------------------------------------------------------------------------------------------------------------------
Property and equipment, at cost                                                       10,436                 9,532
   Less accumulated depreciation and amortization                                      4,710                 4,056
------------------------------------------------------------------------------------------------------------------------------------
      Net property and equipment                                                       5,726                 5,476
------------------------------------------------------------------------------------------------------------------------------------

Other assets, less applicable amortization                                               770                   935
------------------------------------------------------------------------------------------------------------------------------------
                                                                                     $25,234                20,215
------------------------------------------------------------------------------------------------------------------------------------


Liabilities and stockholders' equity
 Current liabilities:
   Accounts payable                                                                  $ 1,825                 2,976
   Accrued expenses                                                                    3,154                 1,413
   Current installments of long term debt                                                503                   454
------------------------------------------------------------------------------------------------------------------------------------
      Total current liabilities                                                        5,482                 4,843
------------------------------------------------------------------------------------------------------------------------------------

Long-term pension liability                                                                -                 2,290
Long-term debt, less current installments                                              1,125                 1,550
Other long-term liabilities                                                              204                   269

Stockholders' equity:
   Preferred stock - Authorized: 5,000,000 shares

      Issued and outstanding: None                                                         -                     -
   Common stock, $0.01 par value:
      Class A -  Authorized: 45,000,000 shares.
      Issued and outstanding:  1,998,956 and 978,956 shares, respectively.                20                    10
      Class B - Authorized, issued and outstanding:  1,020,000 shares
       at December 31, 1998                                                                -                    10
   Additional paid-in capital                                                         12,328                10,857
   Retained earnings                                                                   6,255                 2,685
   Accumulated other comprehensive loss                                                 (180)               (2,299)
------------------------------------------------------------------------------------------------------------------------------------
      Stockholders' equity                                                            18,423                11,263
------------------------------------------------------------------------------------------------------------------------------------
                                                                                     $25,234                20,215
------------------------------------------------------------------------------------------------------------------------------------
<FN>

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

22


<PAGE>


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

Consolidated Statements of Cash Flows (as restated)
(Amounts in thousands)

------------------------------------------------------------------------------------------------------------------------------------
                                                                             Year ended             Year ended
                                                                      December 31, 1999      December 31, 1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                     <C>

Cash flows from operating activities:

   Net income                                                                   $3,570                   1,435
   Adjustments to reconcile net income to net cash
   provided by operating activities:
      Depreciation and amortization                                              1,028                     899
      Additions to paid-in capital resulting from tax benefits                   1.471                     703
      Accounts receivable, net                                                     792                    (359)
      Inventories                                                                  300                    (178)
      Prepaid expenses and other current assets                                   (229)                   (143)
      Other assets                                                                   -                      32
      Accounts payable                                                          (1,151)                  1,007
      Accrued expenses                                                           1,741                     (18)
      Other, net                                                                  (146)                   (266)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                        7,376                   3,112
------------------------------------------------------------------------------------------------------------------------------------

Cash flows used in investing activities:

   Maturity of marketable securities                                                 -                     750
   Acquisitions and deferred consideration                                        (227)                 (3,707)
   Capital expenditures                                                           (924)                   (956)
------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                           (1,151)                 (3,913)
------------------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:

   Proceeds from long term debt                                                      -                   2,268
   Repayment of long term debt                                                    (376)                   (264)
------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                               (376)                  2,004
------------------------------------------------------------------------------------------------------------------------------------

Effect of exchange rate changes on cash and cash equivilents                       (52)                      -

Net increase in cash and cash equivalents                                        5,797                   1,203
------------------------------------------------------------------------------------------------------------------------------------

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

Cash and cash equivalents at end of year                                        $9,419                   3,622
------------------------------------------------------------------------------------------------------------------------------------

Supplementary  disclosures of cash flow  information - Cash paid during the year
   for:

      Income taxes                                                                   -                      38
      Interest                                                                  $  158                     137
------------------------------------------------------------------------------------------------------------------------------------
<FN>

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

                                                                              23


<PAGE>



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

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


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

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

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

Adjustment to correct income tax expense
    in prior periods (Note 13)                                                    -             -                 -          -

Adjustment to reverse certain accrued
    liabilities (Note 13)                                                         -             -                 -          -
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997, as restated                          -          978,956            10         1,020,000         10

Net income                                                                        -             -                 -          -

Additions to paid-in capital resulting
    from tax benefits (Note 13)                                                   -             -                 -          -

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

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

Comprehensive income

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


Net income                                                                        -             -                 -          -

Additions to paid-in capital resulting
    from tax benefits (Note 13)                                                   -             -                 -          -

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

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

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

Comprehensive income

------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999, as restated                          -        1,998,956           $20                 -          -
------------------------------------------------------------------------------------------------------------------------------------
<FN>

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

24


<PAGE>


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

                                                            Comprehensive Income
                                         ----------------------------------------------------------
                                                                   Accumulated
                                                           other comprehensive  Total comprehensive
             Additional paid-in capital  Retained earnings                loss               income    Net stockholders' equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>                <C>                <C>                  <C>                         <C>
                                  7,791              2,048               (519)                                            9,340


                                    798               (798)                 -                                                 -


                                  1,565                  -                  -                    -                        1,565
------------------------------------------------------------------------------------------------------------------------------------
                                 10,154              1,250               (519)                   -                       10,905

                                      -              1,435                  -                1,435                        1,435


                                    703                  -                  -                    -                          703


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

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

                                                                                              (345)

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


                                       -             3,570                  -                3,570                        3,570


                                   1,471                 -                  -                    -                        1,471


                                       -                 -              2,249                2,249                        2,249



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

                                                                                             5,689

------------------------------------------------------------------------------------------------------------------------------------
                                 $12,328            $6,255              $(180)                                          $18,423
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                                                              25


<PAGE>



Reinhold Industries, Inc. and Subsidiary

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1999 and 1998

1 ORGANIZATION

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

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

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

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

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

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

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

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION The accompanying  consolidated  financial statements
as of and for the years ended  December 31, 1999 and 1998,  include the accounts
of Reinhold and its wholly owned subsidiary NP Aerospace  Limited (NP Aerospace)
which was acquired on April 24, 1998.  All  material  intercompany  accounts and
transactions have been eliminated in consolidation.

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

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

                                                            December 31, 1999                    December 31, 1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                                    <C>
Cash in banks                                                         $   707                                  722
Money market funds                                                      8,712                                2,900
------------------------------------------------------------------------------------------------------------------------------------
Total                                                                 $ 9,419                                3,622
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

Amounts  billed to  contractors  of the U.S.  Government  included  in  accounts
receivable  at  December  31,  1999  and  1998  were  $1,065,000  and  $889,000,
respectively.

26


<PAGE>


                                        Reinhold Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements (cont'd)


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

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

                                                     Useful life  December 31, 1999        December 31, 1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                    <C>                        <C>
Undeveloped land                                     -                      $   900                      900
Buildings                                            10 years                   848                      352
Leasehold improvements                               5-6 years                  838                      838
Machinery and equipment                              5-25 years               7,178                    6,763
Furniture and fixtures                               3-10 years                 672                      674
Construction in process                              -                            -                        5
------------------------------------------------------------------------------------------------------------------------------------
                                                                             10,436                    9,532
Less accumulated depreciation and amortization                                4,710                    4,056
------------------------------------------------------------------------------------------------------------------------------------
                                                                            $ 5,726                    5,476
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

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

The undeveloped land aggregating $900,000 is held for sale by the Company.

OTHER ASSETS Other assets consist primarily of goodwill. Goodwill represents the
excess  of  purchase  price  over  fair  value of net  assets  acquired,  and is
amortized  on  a  straight-line  basis  over  10  years.  Goodwill  and  related
accumulated  amortization included in other assets at December 31, 1999 and 1998
amounted to $1,118,000 and $485,000, and $1,118,000 and $369,000, respectively.

ACQUIRED  BUSINESS  On April 24,  1998,  NP  Aerospace  Limited  purchased  from
Courtaulds Aerospace Limited (CAL), a U.K. Corporation,  which is a wholly owned
subsidiary of Courtaulds plc, a U.K. Corporation,  certain assets (consisting of
Accounts Receivable,  Inventory,  Machinery and Equipment, Land and Intellectual
Property and Patents)  and assumed  certain  liabilities  of the  Ballistic  and
Performance  Composites  Division  of CAL.  Reinhold,  as the  Guarantor  for NP
Aerospace,   became  obligated  to  pay  to  Courtaulds  plc  net  consideration
consisting   of  (a)  Two   Million  Two  Hundred   Thousand   pounds   sterling
((pound)2,200,000) ($3,706,340 based on an exchange rate of $1.6847) cash on the
Closing Date and (b) within 120 days  following  the end of each of the calendar
years 1998 through 2001, a cash amount equal to 25% of the Pre-tax Profit on the
light armored vehicle business only, the maximum aggregate amount of which shall
not  exceed  Twenty  Million  pounds  sterling  ((pound)20,000,000).  Additional
payments will be capitalized as part of the purchase price,  when and if earned.
In the year  ended  December  31,  1999,  additional  payments  earned  totalled
(pound)140,000 ($227,000).

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

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

Working capital                                                         $ 3,360
Severance costs                                                            (403)
--------------------------------------------------------------------------------
Net identifiable assets                                                   2,957
--------------------------------------------------------------------------------
Purchase price                                                            3,707
Deferred consideration                                                      227
--------------------------------------------------------------------------------
Allocated to property, plant and equipment                              $   977
--------------------------------------------------------------------------------


                                                                              27


<PAGE>


Reinhold Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements (cont'd)

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

                                                                      Year ended
                                                               December 31, 1998
--------------------------------------------------------------------------------
Net sales                                                                $30,918
Net income                                                               $ 1,567
Basic and diluted earnings per share                                     $  0.78

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 13 of  notes to
consolidated financial statements, income tax benefits  realized from  temporary
differences  and   operating  loss  carry  forwards  prior  to   the  chapter 11
reorganization  described  above  are  recorded  directly  to additional paid-in
capital.

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

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


                                                            December 31, 1999   December 31, 1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                   <C>
Net income                                                            $3,570                1,435
------------------------------------------------------------------------------------------------------------------------------------
Weighted  average shares used in basic computation                     1,999                1,999
Dilutive stock options                                                     7                    -
------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares used for diluted calculation                    2,006               1,999
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

STOCK  OPTION PLAN The Company  accounts  for its  stock-based  compensation  in
accordance  with the  provisions  of SFAS No. 123  "Accounting  For  Stock-Based
Compensation".  Under the provisions of SFAS No. 123, the Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.

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

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

28


<PAGE>

                                        Reinhold Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements (cont'd)

IMPAIRMENT  OF  LONG-LIVED  ASSETS AND  LONG-LIVED  ASSETS TO BE DISPOSED OF The
Company  accounts  for long  lived  assets  and  certain  intangibles  including
goodwill at amortized  cost.  As part of an ongoing  review of the valuation and
amortization  of long-lived  assets,  management  assesses the carrying value of
such  assets,  if facts and  circumstances  suggest  that they may be  impaired.
Recoverability  of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset.  If such assets are  considered to be impaired,  the impairment to be
recognized is measured by the amount by which the carrying  amount of the assets
exceeds the fair value of the assets.  Assets to be disposed of are  reported at
the  lower of the  carrying  amount or fair  value,  less  costs to sell.  As of
December 31, 1999 and 1998, no assets were considered impaired.

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

FOREIGN  CURRENCY  The  reporting  currency of the Company is the United  States
dollar.  The functional  currency of NP Aerospace is the UK pound sterling.  For
consolidation  purposes,  the assets and liabilities of the Company's subsidiary
are  translated at the exchange  rate in effect at the balance  sheet date.  The
consolidated  statements of earnings are translated at the average exchange rate
in effect for the year ended  Dember 31,  1999 and from the date of  acquisition
through December 31, 1998.  Exchange  differences arise from the valuation rates
of the intercompany accounts and are taken directly to Stockholders' equity. The
exchange  rate at December  31, 1999 and 1998 was $1.62 and $1.66,  respectively
for both the balance sheet and consolidated statement of earnings.

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

3 INCOME TAXES
<TABLE>
<CAPTION>

The income tax provision consists of (in thousands):


                                                              Year ended               Year ended
                                                       December 31, 1999        December 31, 1998
                                                            (as restated)            (as restated)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                       <C>
Federal                                                            $1,201                     612
State                                                                 383                     129
Foreign                                                               650                       3
------------------------------------------------------------------------------------------------------------------------------------
Total                                                              $2,234                     744
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>

The  income tax  expense  for the years  ended  December  31,  1999 and 1998 was
$2,234,000 and $744,000, respectively, and differed from the amounts computed by
applying the U.S. Federal income tax rate of 34% to pretax income as a result of
the following (in thousands):


                                                               Year ended              Year ended
                                                        December 31, 1999       December 31, 1998
                                                             (as restated)           (as restated)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                        <C>
Taxes at statutory Federal rate                                   $ 1,973                     741
State taxes, net of Federal tax benefits                              253                      86
Rate difference on foreign income                                     (85)                   (137)
Non-deductible expenses                                                55                      54
Other                                                                  38                       -
------------------------------------------------------------------------------------------------------------------------------------
Total provision for income tax expense                            $ 2,234                     744
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>



                                                                              29


<PAGE>

Reinhold Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements (cont'd)



<TABLE>
<CAPTION>

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


                                                        December 31, 1999       December 31, 1998
                                                            (as restated)           (as restated)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                      <C>
Deferred tax assets:
            Adjustments from quasi-reorganization                $    595                     595
            Net operating loss carryforwards                       11,083                  12,221
            Inventory reserves                                        210                     240
            Other reserves                                             32                     396
------------------------------------------------------------------------------------------------------------------------------------
                Total gross deferred tax assets                    11,920                  13,452

            Less valuation allowance                              (11,199)                (12,789)
------------------------------------------------------------------------------------------------------------------------------------
                Net deferred tax assets                               721                     663

Deferred tax liabilities:
            Pension                                                  (376)                   (183)
            Depreciation                                             (345)                   (480)
------------------------------------------------------------------------------------------------------------------------------------
                Total gross deferred tax liabilities                 (721)                   (663)
                Net deferred tax assets                           $     -                       -
</TABLE>

In assessing  the  realizability  of deferred tax assets,  management  considers
whether it is more likely than not that some  portion or all of the deferred tax
assets will not be realized.  The ultimate realization of deferred tax assets is
dependent  upon the  generation of future  taxable  income during the periods in
which  those  temporary  differences  become  deductible.  Based on the level of
historical  taxable  income and  projections  of future  taxable income over the
periods in which the deferred tax assets are deductible,  management believes it
is more  likely than not the  Company  will not  realize  the  benefits of these
deductible differences at December 31, 1999.

At December 31, 1999 and 1998, the Company had net operating loss  carryforwards
for Federal income tax purposes of  approximately  $31,782,000 and  $34,664,000,
respectively.  At December 31, 1999,  the Company  also had net  operating  loss
carryforwards  for State income tax purposes of  approximately  $5,551,000.  The
Company may utilize the Federal net operating losses by carrying them forward to
offset future  Federal  taxable  income,  if any,  through 2011. The Company may
utilize the State net operating losses by carrying them forward to offset future
State  taxable  income,  if any,  through  2001.  Benefits  realized  from  loss
carryforwards arising prior to the reorganization have been recorded directly to
additional  paid-in  capital.  Such benefits  amounted to $1,471,000 in 1999 and
$703,000 in 1998. See note 13 to notes to consolidated financial statements.

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.

30
<PAGE>


                                        Reinhold Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements (cont'd)


4 LONG TERM DEBT

On  April  22,  1998,  the  Company  borrowed  $2,268,000  from  The  CIT  Group
Credit/Finance  (CIT) to fund a portion  of the  purchase  consideration  due to
Courtaulds  Aerospace.  The Company had previously entered into a Five Year Loan
and  Security  Agreement  with  CIT  in  the  amount  of  Four  Million  Dollars
($4,000,000).  The term  portion of the loan  ($2,268,000)  was payable in equal
monthly principal  payments of $37,800 plus interest at prime plus 1.75% and was
secured by fixed assets and land. The remainder of the CIT credit facility was a
revolver of One Million Seven Hundred Thirty-Two Thousand Dollars  ($1,732,000),
which had never been used.

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

At  December  31,  1999,  maturities  of long  term  debt  were as  follows  (in
thousands):

2000                                                   $  503
2001                                                      465
2002                                                      465
2003                                                      195
--------------------------------------------------------------------------------
                                                       $1,628

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

5 STOCKHOLDERS' EQUITY
Capital stock  consists of 45,000,000  and 2,500,000  authorized  common shares,
$0.01 par value per share, of which 1,998,956 and 978,956 of Class A were issued
and  outstanding  at December  31, 1999 and 1998,  respectively,  and  1,020,000
shares of Class B were  outstanding  at December 31, 1998.  There were 5,000,000
preferred shares authorized at December 31, 1999,  however,  none were issued or
outstanding.

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.

On June 3, 1999, the  Compensation  Committee of the Board of Directors  granted
73,000 stock options to key employees at an option price of $8.25 per share, the
prevailing  market rate on that date.  The options shall not be  exercisable  in
whole or in part until three years after the grant date and are  exercisable  up
to ten years from the grant date.

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  theAgreement  are equivalent to those in
the Reinhold Stock Incentive Plan.

                                                                              31


<PAGE>


Reinhold Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements (cont'd)


The Company has elected to follow  Accounting  Principles  Board Opinion No. 25,
"Accounting  for  Stock  Issued  to  Employees"  ("APB  25"),  and  the  related
interpretations  in  accounting  for its  employee  stock  options  because,  as
discussed below,  the alternative fair value accounting  provided for under SFAS
No. 123,  "Accounting  for  Stock-Based  Compensation,"  requires  use of option
valuation  models  that were not  developed  for use in valuing  employee  stock
options.  Under APB 25,  because the exercise  price of the  Company's  employee
stock options approximates the fair value of the underlying stock on the date of
grant, no compensation  expense is recognized.  Pro forma information  regarding
net income and  earnings  per share is required  by SFAS No.  123,  and has been
determined as if the Company had accounted for its employee  stock options under
the fair value method of that  Statement.  The fair value for these  options was
estimated at the date of grant using the Black-Scholes Option Pricing Model with
the following weighted-average assumptions for 1999:

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

Using the  Black-Scholes  Option Pricing Model,  the estimated  weighted-average
grant date fair value of  options  granted in 1999 was $4.86.  The pro forma net
income  assuming the  amortization  of the estimated fair values over the option
vesting period and diluted  earnings per common share, had the fair value method
of  accounting  for stock  options  been used,  would  have been as follows  (in
thousand, except per share data):

--------------------------------------------------------------------------------
Pro forma net income                                                      $3,417
--------------------------------------------------------------------------------
Pro forma earnings per share:

Basic                                                                      $1.71
Diluted                                                                    $1.70
--------------------------------------------------------------------------------

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

------------------------------------------------------------------------------------------------------------------------------------
                                                  Number of shares             Low           High        Weighted average
                                                                                                           exercise price
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>               <C>           <C>                      <C>
Outstanding December 31, 1998                                    -               -              -                       -
------------------------------------------------------------------------------------------------------------------------------------
Granted in 1999                                            169,000           $8.25         $11.25                   $8.35
Forfeited during 1999                                        6,000           $8.25         $ 8.25                   $8.25
------------------------------------------------------------------------------------------------------------------------------------
Outstanding December 31, 1999                              163,000           $8.25         $11.25                   $8.35
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

At December 31, 1999, the weighted average remaining contractual life of options
outstanding is 9.4 years. No options are currently exercisable.

7 PENSION PLAN

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

Net pension cost included the following (in thousands):

                                                           Year Ended                  Year Ended
                                                    December 31, 1999           December 31, 1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                        <C>

Service cost                                                     $ 142                       113
Interest cost on benefits earned in prior years                    800                       839
Expected return on assets                                         (921)                     (972)
Amortization of net obligation at transition                        25                        20
Amortization of net loss                                           129                         6
------------------------------------------------------------------------------------------------------------------------------------
Net pension cost                                                 $ 175                         6
</TABLE>


32


<PAGE>



                                        Reinhold Industries, Inc. and Subsidiary

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

The following  table sets forth a  reconciliation  of the pension plan's benefit
obligation at December 31, 1999 and 1998 (in thousands):


                                                                  1999                              1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                                <C>
Projected benefit obligation at beginning of period            $12,699                            11,812
Service cost                                                       142                               137
Interest cost                                                      800                             1,051
Actuarial loss/(gain)                                             (649)                            1,049
Benefits paid                                                   (1,105)                           (1,350)
------------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation at end of period                  $11,887                            12,699
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

The following table sets forth a reconciliation  of the pension plan's assets at
December 31, 1999 and 1998 (in thousands):

                                                                  1999                              1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                                <C>
Fair value of plan assets at beginning of period               $10,755                            11,432
Actual return on assets                                          1,685                               345
Employer contributions                                             479                               328
Benefits paid                                                   (1,105)                           (1,350)
------------------------------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of period                     $11,814                            10,755
</TABLE>

<TABLE>
<CAPTION>

The following  table sets forth a  reconciliation  of the pension  plan's funded
status at December 31, 1999 and 1998 (in thousands):

                                                                  1999                              1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                                <C>
Projected benefit obligation at end of period                  $11,887                            12,699
Fair value of plan assets at end of period                      11,814                            10,755
------------------------------------------------------------------------------------------------------------------------------------
Funded status                                                      (73)                           (1,944)
Unrecognized prior service cost                                     (4)                                1
Unrecognized net obligation at transition                           20                                40
Unrecognized net loss                                            1,020                             2,562
------------------------------------------------------------------------------------------------------------------------------------
Prepaid pension cost at end of period                          $   963                               659
------------------------------------------------------------------------------------------------------------------------------------

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

Assumptions used in accounting for the pension plan were:

                                                       December 31, 1999                December 31, 1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                               <C>
Discount rate                                                       7.25%                             6.5%
Rate of increase in compensation levels                             5.0                               5.0
Expected long-term rate of return on assets                         9.0                               9.0
</TABLE>

The  unrecognized  prior  service cost and the  unrecognized  net loss are being
amortized on a straight-line  basis over the average future service of employees
expected to receive benefits under the plans. The unrecognized net obligation at
transition is being amortized on a straight-line basis over 15 years.

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

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

                                                                              33


<PAGE>



Reinhold Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements (cont'd)

<TABLE>
<CAPTION>

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


                                                         December 31, 1999           December 31, 1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                          <C>
Net sales

     Aerospace                                                    $  5,863                      6,165
     CompositAir                                                    15,955                     11,214
     Commercial                                                      2,433                      1,978
     NP Aerospace                                                   14,889                      6,639
------------------------------------------------------------------------------------------------------------------------------------
Total sales                                                       $ 39,140                     25,996

Income before income taxes
     Aerospace                                                    $  1,241                      1,587
     CompositAir                                                     2,088                         94
     Commercial                                                        287                         72
     NP Aerospace                                                    2,536                        747
     Unallocated corporate expenses                                   (348)                      (321)
------------------------------------------------------------------------------------------------------------------------------------
Total income before income taxes                                  $  5,804                      2,179

Depreciation and amortization

     Aerospace                                                    $    356                        369
     CompositAir                                                       272                        220
     Commercial                                                        155                        150
     NP Aerospace                                                      163                         64
------------------------------------------------------------------------------------------------------------------------------------
     Unallocated corporate                                              82                         96
Total depreciation and amortization                               $  1,028                        899
------------------------------------------------------------------------------------------------------------------------------------

Capital expenditures

     Aerospace                                                    $    117                         63
     CompositAir                                                       540                        458
     Commercial                                                         52                        132
     NP Aerospace                                                      215                        303
------------------------------------------------------------------------------------------------------------------------------------
Total capital expenditures                                        $    924                        956
------------------------------------------------------------------------------------------------------------------------------------

Total assets

     Aerospace                                                    $  4,735                      4,869
     CompositAir                                                     3,469                      3,419
     Commercial                                                      1,024                      1,144
     NP Aerospace                                                    9,455                      8,015
     Unallocated corporate                                           6,551                      2,768
------------------------------------------------------------------------------------------------------------------------------------
Total assets                                                      $ 25,234                     20,215
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>

The table  below  presents  information  related  to  geographic  areas in which
Reinhold operated in 1999 and 1998 (in thousands):

                                                         December 31, 1999           December 31, 1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                         <C>
Net sales

     United States                                                 $18,662                     14,920
     United Kingdom                                                 14,188                      8,579
     Botswana                                                        1,942                          -
     Germany                                                         1,916                      1,797
     Northern Ireland                                                1,557                          -
     Other Europe                                                      875                        700
------------------------------------------------------------------------------------------------------------------------------------
     Net sales                                                     $39,140                     25,996
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


34


<PAGE>



                                        Reinhold Industries, Inc. and Subsidiary

Notes to Consolidated Financial Statements (cont'd)


9 COMMITMENTS AND CONTINGENCIES
LEASES The Company  leases  certain  facilities  and equipment  under  operating
leases  expiring  through 2002.  Total rental  expense on all  operating  leases
approximated $514,000 and $509,000 for 1999 and 1998, respectively.

Minimum  future  rental  commitments  under  noncancelable  operating  leases at
December 31, 1999 are as follows (in thousands):

2000                                                                $  284
2001                                                                   133
2002                                                                    60
2003                                                                     4
--------------------------------------------------------------------------------
                                                                    $  481
--------------------------------------------------------------------------------

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

10 BUSINESS AND CREDIT CONCENTRATIONS

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

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

                                                                Year ended                  Year ended
                                                         December 31, 1999           December 31, 1998
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>                           <C>
B/E Aerospace                                                     $13,405                       8,687
United Kingdom Ministry of Defense                                  6,356                           *
Alliant Techsystems                                                     *                       3,077
------------------------------------------------------------------------------------------------------------------------------------
<FN>

* Sales to these customers were less than 10% of total net sales for the period.
</FN>
</TABLE>

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

11 RELATED PARTY TRANSACTIONS On June 3, 1999,  Reinhold entered into a two year
agreement with Hammond,  Kennedy,  Whitney and Company ("HKW"), a private equity
firm, to provide Reinhold and its subsidiaries  with advise regarding  strategic
direction and merger and acquisition activities, including identifying potential
acquisition  candidates,  for a fee of  $20,000  per  month.  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. and Andrew McNally, IV, both members
of the Board of Directors of Reinhold, are principals of HKW. Additionally,  the
Company pays a monthly legal  retainer of $4,000 to Mr. Glenn  Scolnick,  also a
principal of HKW.

12  SUBSEQUENT  EVENT On March 9, 2000,  Samuel  Bingham  Enterprises,  Inc.,  a
newly-formed  wholly-owned  subsidiary of Reinhold  Industries,  Inc., purchased
certain assets and assumed  certain  liabilities  of Samuel Bingham  Company for
$15.5 million in cash. A majority of the purchase  price was financed  through a
five-year  term loan with the Bank of America for $11.0 million with the balance
being  paid from cash on hand.  Samuel  Bingham  Company is a  manufacturer  and
supplier of graphic arts and industrial rollers for a variety of applications.

13  RESTATEMENT  On  July  31,  1996,  the  Company  consummated  its  Plan   of
Reorganization under the Bankruptcy Code and emerged from  bankruptcy.  Pursuant
to  the  guidelines  provided  by  the  American  Institute  of Certified Public
Accountants in  Statement  of  Position 90-7 "Financial Reporting by Entities in
Reorganization under the Bankruptcy Code" (SOP 90-7), the Company adopted  fresh
start reporting as of the close of business on July 31, 1996.

In accordance  with SOP 90-7,  benefits from net  operating  loss  carryforwards
arising  prior  to  the  Company's  reorganization  (emergence  from  bankruptcy
proceedings)  should be  recorded as  additional  paid-in  capital.  The Company
misapplied  such benefits as  reductions of income tax expense.  The Company has
recorded  adjustments  to  restate  its  financial  statements  to  correct  the
misapplication  of such benefits.  The effect of these adjustments was to reduce
net income by $1,471,000 ($0.73 diluted earnings per share) in 1999 and $703,000
($0.35 diluted  earnings per share) in 1998. The impact of this  restatement did
not change total stockholders' equity for any period presented herein.

Prior to 1995,  the Company  recorded  liabilities  of $1,565,000  for estimated
costs  related  to  a  proposed  plant  relocation.  The  recognition  of  these
liabilities  did  not  meet  the  requirements  of  EITF  No.  94-3,  "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity."  Accordingly,  the Company has  recorded  adjustments  to restate its
financial  statements  to  reverse  these  liabilities.   The  effect  of  these
adjustments was to increase  stockholders'  equity and decrease accrued expenses
by $1,565,000 for all periods  presented.  These  adjustments did not impact the
Company's results of operations for 1999 and 1998.



                                                                              35


<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

CORPORATE OFFICERS
Michael T. Furry
President and CEO

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

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

INVESTOR RELATIONS
Contact Judy Sanson
Reinhold Industries, Inc.

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

ANNUAL MEETING
The  Annual  Stockholders'  Meeting  will  be held at the  offices  of  Reinhold
Industries, Inc. 12827 East Imperial Hwy Santa Fe Springs, CA on May 10, 2000 at
10:00 a.m.

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

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

INDEPENDENT AUDITORS
KPMG LLP
355 South Grand Avenue
Los Angeles, CA 90071

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

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

STOCK LISTING
Reinhold common stock is listed on the OTC Bulletin Board Symbol - RNHDA

STOCKHOLDER INFORMATION

Market Price                                 High         Low
--------------------------------------------------------------------------------
First Quarter ended March 31, 1999             8 1/8      6 3/4
Second Quarter ended June 30, 1999             9 1/4      6 3/4
Third Quarter ended September 30, 1999        12          8
Fourth Quarter ended December 31, 1999        13 1/8      9 1/4

The Class A Common  Stock of the  Company  is listed on the OTC  Bulletin  Board
under the ticker symbol RNHDA.  The table above sets forth the high and low sale
prices of the Company's  Class A Common Stock for each of the quarterly  periods
for the year ended December 31, 1999.

36


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<PAGE>


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