Reinhold Industries, Inc.









                               2001 Annual Report


<PAGE>


BOARD OF DIRECTORS


(Photo of Board of Directors)

Michael T. Furry
President and CEO

Ralph R. Whitney
Chairman

Andrew McNally IV

Thomas Brand

Richard A. Place

Glenn Scolnik

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries

SELECTED FINANCIAL DATA
-----------------------
<TABLE>
<CAPTION>


                                                            2001        2000        1999       1998        1997
---------------------------------------------------------------------------------------------------------------
<S>                                                     <C>           <C>         <C>        <C>         <C>
Summary of operations (in thousands)
Net sales                                               $ 48,947      49,287      39,140     25,996      16,232
Gross profit                                            $ 13,140      14,789      10,783      6,503       4,699
Write-down of long-lived assets                         $  5,351           -           -          -           -
Operating income (loss)                                 $ (2,921)      5,364       5,704      2,196       1,595
Gain on sale of asset                                   $      -         962           -          -           -
Interest (expense) income, net                          $   (532)       (529)        100        (17)        103
Net income (loss)                                       $ (3,723)      3,517       3,570      1,435       1,004
---------------------------------------------------------------------------------------------------------------
Year end position (in thousands)
Cash and marketable securities                          $  4,105       7,121       9,419      3,622       3,169
Working capital                                         $ 10,981      14,589      13,256      8,961       6,314
Net property and equipment                              $ 10,564      11,280       5,726      5,476       4,526
Total assets                                            $ 33,029      40,709      25,234     20,215      13,215
Long-term debt, net of current portion                  $  6,280       8,721       1,125      1,550           -
Long-term liabilities                                   $  4,178         449         204      2,559         873
Stockholders' equity                                    $ 15,077      22,905      18,423     11,263      10,905
---------------------------------------------------------------------------------------------------------------
Per share data (Note 1)
Net income (loss):
Basic                                                   $  (1.54)       1.46        1.48       0.59        0.42
Diluted                                                 $  (1.54)       1.43        1.47       0.59        0.42
Stockholders' equity                                    $   6.24        9.48        7.62       4.66        4.51
Market price range:
High                                                    $   8.64       11.82       10.85       7.64        8.26
Low                                                     $   5.17        5.45        5.37       4.55        2.27
---------------------------------------------------------------------------------------------------------------
Other data (in thousands except
     stockholder & employee data)
Orders on hand                                          $ 25,263      16,442      13,841     16,194       5,989
Average shares outstanding - basic                         2,417       2,417       2,417      2,417       2,417
Average shares outstanding - diluted                       2,417       2,451       2,425      2,417       2,417
Average number of common stockholders                      1,516       1,629       1,711      1,808       1,951
Average number of employees                                  418         439         289        220         124


<FN>

Note 1: All share information  presented has been adjusted for the Company's 10%
stock dividends in both 2001 and 2000.
</FN>
</TABLE>



                                       1

<PAGE>


                          A MESSAGE FROM THE PRESIDENT








(LEFT CAPTION)
WHERE THE HEART IS
The chart on the facing page  symbolizes  home to our global  operations.  It is
here where our progenitor company,  Reinhold Engineered Plastics, took residence
in 1951.  It is here, in our Santa Fe Springs,  CA facility,  where the heart of
Reinhold Industries has beat for more than half a century. In 2001, construction
was completed on a new,  50,000-square-foot-building,  and  renovation of 84,000
more will be  complete in  mid-2002.  Four of our six  Business  Units are fully
housed  here:  Aerospace,  CompositAir,   Commercial,  and  Thermal  Insulation.
Bingham,  a  wholly-owned  subsidiary  headquartered  here,  has 10 sales and/or
manufacturing  operations  throughout  the United States and one sales office in
Canada. NP Aerospace,  another wholly-owned subsidiary,  is located in Coventry,
West Midlands, England.  Construction Project B, to be completed in mid-2002, is
re-configuring  buildings to provide discrete work space for each Business Unit.
Home to Reinhold,  however, is more than a geographic location, more than a roof
overhead.  It is the core of who we are. It is the soul of our common  needs and
goals,  sinew of our disparate  parts. It is the source of ideas and innovation,
husband of  resources,  support  for the  beleaguered.  It is the focal point of
strategic planning. It is Home.
(END CAPTION)


2001
It was a bad year.
It was a good year.
Prophetic  of change,  a nick in time famous in our  culture  before it arrived,
2001 was insinuated  into our collective  imagination by a motion picture of its
own name in 1968.  A nick in infamy  now,  that  signal year was seared upon our
collective mind by unimagined  events, as capricious and terrifying as September
11, as unforeseen and unaccountable as Enron.

It was a bad  year,  igniting  hope and  affirming  faith.  It was a good  year,
exposing  malice and  dispatching  illusion.  It was a bad year,  our  five-year
pattern of continuous  sales growth  broken.  It was a good year, our philosophy
and methods  confirmed and our resolve  hardened in the fires of competition and
reform.


                                                (Picture)
                                                Michael T. Furry
                                                President and Chief
                                                Executive Officer

                                       2

<PAGE>

                                      Home
                               WHERE THE HEART IS




CompositAir                         Aerospace                    Bingham


                              Santa Fe Springs, CA
                                 Headquarters of
                            Reinhold Industries, Inc.




NP Aerospace                       Commercial              Thermal Insulation
                                                           (Edler Industries)


<PAGE>


                   Reinhold Industries, Inc. and Subsidiaries


(LEFT CAPTION)
RESILIENCE  IN  AN  UNSTABLE  WORLD
Dependence  on a market as turbulent  as  aerospace/defense  unnerves  financial
planners.  Like a  landlubber  on the deck of a ship in a storm,  they yearn for
stability.  Yet, though it rolls  unpredictably and is never the same twice, the
deck underfoot  Reinhold's aerospace business has been there for half a century,
older than space  travel,  old as ablative  materials.  That market  isn't solid
underfoot,  but neither is water and neither is air. Yet the sea supports  ships
and the air supports  planes.  It's just that to ride it, you have to be nimble.
You have to be resilient.  You have to react to change.  You have to go with the
wave.  And, like a Reinhold exit cone,  you have to be able to take the heat and
slough it off. A lot of companies have not been able to take the heat.  They are
not here  anymore.  Reinhold  is,  still  meeting  the felt  needs for  national
security.  The chart on the facing  page  depicts the sales  fluctuations  of 15
years on a pitching deck. And from this vantage point, it appears to be rising.
(END CAPTION)




Our loss of $3.7  million  on sales of $48.9  million  included  a $5.4  million
write-down of goodwill and fixed assets related to our acquisition of The Samuel
Bingham  Company  in  March  of  2000,  a  non-recurring   expense  of  no  cash
consequence.  Exclusive  of the  write-down,  the result from  operations  was a
profit of $1.6 million.

There is a  tomorrow.  We  entered  2002 with a backlog  of $25.3  million,  the
largest in our history, up 54% from $16.4 million in 2000.

The performance of our Aerospace Business Unit in 2001 was 7% better than budget
and  13%  better  than  the  year  2000,  as  sales  of $9.5  million  generated
significant   earnings.   This  Unit  manufactures  ablative  (heat  absorptive)
components  such as exit cones,  nozzles,  and motor case  insulation  for solid
propellant rockets.  Resiliency and staying power have characterized the history
of Aerospace, all of whose sales are essentially derived from military spending,
a notably turbulent and unpredictable marketplace. Sales have varied from a high
of $23  million in 1990,  when  military  spending  initiated  during the Reagan
administration  spilled  over to that of George H.  Bush,  to $5 million in 1995
under the Clinton administration.

In this violated world, a need for the special skills of the Aerospace  Business
Unit persists.  Sales,  from its nadir in 1995, rose to $8.4 million in the year
2000 and to $9.5 million in 2001.  The year 2002 is promising.  Shipments on the
new Minuteman  contract began in January of 2002.  Negotiations  have begun with
Alliant Aerospace Company for an order using Reinhold's  Taurus/Pegasus ablative
hardware.  This  hardware  will be one of the  candidates  for use in the Global
Missile  Defense  System  (GMDS).  Deliveries  will  begin  in Q4 of  2002.  Our
marketing focus has identified and we will pursue a number of other  significant
opportunities to augment future sales.

                                       4

<PAGE>

                                   Aerospace
                        RESILIENCE IN AN UNSTABLE WORLD




EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC


        Sales in Millions

'87     13
'88     15
'89     17
'90     23
'91      9
'92     10
'93      9
'94      8
'95      5
'96      5
'97      6
'98      6
'99      5
'00      8
'01      9


<PAGE>


                   Reinhold Industries, Inc. and Subsidiaries




(LEFT CAPTION)
A REFORMATION IN PROGRESS
When  Reinhold   acquired   Bingham  on  March  9,  2000,  the  company  had  11
manufacturing  plants in the  United  States and one  manufacturing  plant and a
sales/depot  in  Canada.  There  were 222  employees.  For the 22  months  since
acquisition, management has observed, analyzed operations, pinpointed and closed
unproductive  plants, and terminated people who are not needed,  with no loss of
sales. Plants in Montreal, Portland,  Cincinnati,  Dallas, and Atlanta have been
closed.  Property has been sold in Cincinnati,  Dallas, and Atlanta. Depots have
been  retained in Dallas,  Atlanta and Toronto.  Plants are operating in Searcy,
AK; San Leandro, CA; Palmyra, NY; Black Lick, PA; Houston, TX; and two in Kansas
City,  MO. The number of employees  has been  reduced to 175, a savings  against
payroll  of  21.2%.  Major  savings  have  been  achieved  in  scrap  reduction.
Productivity has been improved through  reorganization of work flow.  Production
is being  measured and goals are being set.  New, hot air  autoclaves  have been
installed in Palmyra and Searcy.  Improved  productivity is resulting in reduced
lead time.  Reduced lead time,  better  sales  service  follow-up,  and improved
quality are invigorating sales.
(END CAPTION)





The  reformation of The Samuel Bingham  Company  continues.  The  administrative
offices  have been moved to Santa Fe Springs.  The Bravo System (New Order Entry
and  Invoicing  Software)  "went live" at the beginning of 2002. We are bringing
nettlesome and neglected  accounting  problems under control,  particularly  the
collection  of over-aged  receivables.  Of 12 plants in North  America,  we have
closed five  unprofitable  ones.  In 2001 we reduced  head count from 222 to 175
while  improving  sales and service.  The Reinhold ethic of fewer people working
harder and smarter is being embraced.  We anticipate  essentially level sales in
2002 and a profitable year for Bingham.

It is widely  acknowledged that the effect of the catastrophe of September 11 on
our economy was more profound  than anyone  anticipated.  People and  industries
thought to be far removed from ground  zero,  geographically  and  economically,
still  feel the  effects.  That  stark fact puts in  magnified  perspective  the
effects that 9/11 had on companies  whose fortunes were directly and immediately
violated.  Our puny loss is not to be  compared  to that of the  people on those
planes,  nor companies and people who occupied the twin towers and the Pentagon,
but the  airline  industry  was  devastated,  and  Reinhold,  whose  CompositAir
Business Unit depends solely on the manufacture and sale of commercial  aircraft
seatbacks, was directly affected.

CompositAir  posted  record  sales of $12.1  million in 1999.  In the year 2000,
sales  dropped to $7.5  million.  The  cause,  which was  outside of  Reinhold's
control, was a severe reduction in aircraft seating product sales by our largest
customer due to  organizational  and  scheduling  problems.  As a consequence of
that,  plus  anticipated  inefficiencies  related to new personnel  training and
relocation of equipment and materials from Camarillo to Santa Fe Springs, we had
forecast a conservative $7.8 million in sales for 2001. Obviously,  actual sales
of $5.9 million were disappointing.


                                       6


<PAGE>

                                    Bingham
                           A REFORMATION IN PROGRESS




(Geographic representation of Bingham manufacturing, depot
 and closed facilities)



<PAGE>


                   Reinhold Industries, Inc. and Subsidiaries



(LEFT CAPTION)
BROADENING OUR CUSTOMER BASE
At CompositAir,  we have realized a major objective of our marketing  efforts: a
broadening of our customer base. Prior to 1999, we were largely dependent on one
customer for the sale of aircraft  seatbacks.  In 2000, in collaboration with NP
Aerospace,  we participated as a product  development advisor on a new composite
product  offering  by the largest  European  manufacturer  of  aircraft  seating
products.  Today,  production  orders are in house for that new customer and two
other new seating products customers.  We have worked as strategic partners with
engineers and management of these three  companies,  and their  recognition  and
acknowledgment  of the benefits of composites  over  aluminum is growing  apace.
Incipient  markets are opening in Asia, and one of our customers has established
a foothold  there.  We will no longer be  dependent  on a single  customer for a
dominant proportion of seatback sales.
(END CAPTION)





In early  September of 2001,  CompositAir  booked orders of $2.6 million and was
starting to  increase  forecasts  when  calamity  struck on 9/11.  Some of those
orders were  shipped in 2001 and the  balance  will be mostly  completed  in the
first  quarter of 2002,  with Q1 sales  expected to be better than budget.  What
will happen  after the first  quarter is  impossible  to predict.  Nevertheless,
opposed to the siege of problems  that we have  experienced,  there are positive
forces operating for CompositAir.

While  specific  sales figures  cannot be predicted,  this salient fact can: the
airline industry will recover.  People will travel sitting down. Our skills will
not  abate.  The  efficiency  benefits  from our new  facility  and  streamlined
manufacturing  processes will be immediate.  We will continue to be the industry
leader in technology and cost controls. When recovery comes, Reinhold will be in
the strongest position of any seatback manufacturer. Our broadened customer base
will invigorate our sales effort, and we will continue to distinguish composites
from the standard metal seatback.

Of this we are confident: our market share will grow.

We acquired  Edler  Industries  on April 20,  2001 with cash from our  treasury.
Edler  was  a  small  company  with  decades  of  experience   and  a  seasoned,
knowledgeable   work  force.   Engaged  in  the   manufacture   of   dependable,
high-integrity,  ablative composite  hardware used in solid propellant  rockets,
its business  life  parallels  that of Reinhold.  Its people and  equipment  now
resident intact in our Santa Fe Springs facility and renamed Thermal  Insulation
(TI), it complements our position in the Aerospace Industry. It is probable that
in time TI will be assimilated into our Aerospace Business Unit.

                                       8

<PAGE>

                                  CompositAir
                          BROADENING OUR CUSTOMER BASE


(GRAPHICAL REPRESENTATION OF PERCENTAGE OF SALES OF VARIOUS CUSTOMERS
 FROM 1994 - 2002)




<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries



(LEFT CAPTION)
AN AMERICAN ODYSSEY
This  is  the  tale  of An  American  Odyssey,  of  Reinhold  Industries,  whose
progenitor,  Reinhold Engineered Plastics,  was founded in 1928 by F.E. and L.W.
Reinhold.  Their  purpose  was to go into the  unheard  of  business  of molding
plastics,  long before "The Graduate" and Mrs.  Robinson,  before plastic was in
our   vocabulary.   Their   first   products   were   of   Bakelite,   for   its
thermal/electrical  insulation  properties.  In the  early  '40s,  the  brothers
parted,  L.W. lured away by injection molding.  F.E. stayed, and in 1951, in the
wake of World War II,  moved the  company to our  present  location  in Santa Fe
Springs  and sold it to a group of  employees.  After that it was thrice sold to
conglomerates,  twice to employees,  twice lost and regained its Reinhold  name,
and was finally set free under a Plan of  Reorganization  of the last  corporate
parent, which was rendered bankrupt in a blizzard of asbestos-related claims. On
the way, Reinhold, among the pioneers in ablative composites,  made hardware for
all three stages of the  Minuteman  missile,  hardware  for attitude  control of
Gemini and  Apollo  spacecraft,  the  nozzle for the engine  that took the space
capsule from lunar orbit to the moon, ablative hardware for the Patriot missile,
and mastered the use of fiberglass sheet molding compounds (SMC).  Under current
management,  the policy of growth by acquisition  began. It is now a part of the
Reinhold  mission.  The chart on the facing  page  depicts  the  acquisition  of
Reynolds  and  Taylor,  Inc.;  CompositAir;  NP  Aerospace;  The Samuel  Bingham
Company; and Edler Industries. There will be more.
(END CAPTION)




TI sales  were  slightly  in excess of $2 million  for a little  more than eight
months  under  Reinhold  ownership,  and earnings  exceeded our  pre-acquisition
forecast.  We were  disappointed  by the  cancellation  of the US  Navy's  Aegis
program and the delay until 2003 of the Space Shuttle Insulation contract, which
represented a significant  reduction in 2002 budgeted sales. Some unbudgeted new
business has been booked, however, and we expect TI to be profitable in 2002, as
headcount is reduced or transferred  to our Aerospace  Unit to cover  high-skill
needs related to a significant increase in sales volume.

The Commercial  business unit performed  slightly  better than budget,  but fell
short of the year 2000,  when sales of $3.1 million  represented  an increase of
26% over 1999. The primary cause of that increase was the introduction of 18 new
in-ground and water filtration products. We will focus our efforts again in 2002
on expanding our product offerings and we will work to increase awareness of and
exploit the benefits of advanced composites over aluminum for in-ground lighting
installations. Little change is anticipated in 2002.

The performance of NP Aerospace in 2001 was a disappointment, with sales of $9.3
million, a significant shortfall compared to budget. A major reason for this was
our failure to make any armored vehicle sales. The outlook for 2002, however, is
promising,  as one  vehicle  order is in house,  negotiations  are  ongoing  for
others,  and a  significant  order for helmets from a European  Union country is
expected to be booked and billed in this calendar year.

Concurrent with on-going  business is  Construction  Project B, the objective of
which is to locate  each Santa Fe  Springs  Business  Unit in its own  exclusive
space  and to  eliminate  the need for work  force  movement  from  building  to
building.  The job  entails  moving  walls,  reinforcing  and pouring new slabs,
wiring and ducting, moving heavy

                                       10

<PAGE>

                                  Acquisitions
                              AN AMERICAN ODYSSEY



April 2001                      Edler Industries
                                (Thermal Insulation)

March 2000                      Bingham

May 1998                        NP Aerospace

May 1994                        CompositAir

April 1992                      Reynolds and Taylor, Inc.



<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries




machinery,  and  bringing  everything  up to code in our 134,000  square feet of
manufacturing  space,  50,000  of which is new.  The  process  is  managed  by a
Reinhold  team  headed by Ari Aleong,  who doubles as manager of the  Commercial
Business Unit. It will be completed in mid 2002.

In June of 2000 the U.S.  Department of Justice notified Reinhold that it may be
a responsible  party and demanded  payment for costs incurred in the remediation
of  property  related to asbestos  contamination  at the Valley  Forge  National
Historic Park. Reinhold countered with a motion for summary judgment,  asserting
that  claims  against  it are  barred  by the  normal  injunction  and a special
channeling  injunction  granted to Keene in connection  with the  court-approved
1996 Fourth Plan of  Reorganization  of Keene  Corporation.  All pleadings  were
filed by September 26, 2001. A request for oral argument was filed on October 9,
2001. Our lawyers expect a response as late as Q3-2002.

Poor investment performance of the Reinhold and Bingham pension plan funds had a
negative effect on the Company's going forward net worth at year-end.  The value
of the funds,  however,  is subject to fluctuations in the stock market and will
rise and fall accordingly. This has no cash consequence for the company.

The year 2001 has been a stormy and eventful  one, but we think that the company
has weathered it well. We expect 2002 to be better.

We are  grateful  for the  support  of our  customers,  our  suppliers,  and our
teammates. You make it happen!


/s/MICHAEL T. FURRY


Michael T. Furry, President and CEO


                                       12

<PAGE>


                   Reinhold Industries, Inc. and Subsidiaries



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


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

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

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

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

FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED IN PURCHASE COMBINATIONS
The purchase combinations carried out by us require management to estimate the
fair value of the assets acquired and liabilities assumed in the combinations.
These estimates of fair value are based on our business plan for the entities
acquired including planned redundancies, restructuring, use of assets acquired
and assumptions as to the ultimate resolution of obligations assumed for which
no future benefit will be received. Should actual use of assets or resolution of
obligations differ from our estimates, revisions to the estimated fair values
would be required. If a change in estimate occurs after one year of the
acquisition, the change would be recorded in our statement of operations.

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

VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS We assess the fair value and
recoverability of our long-lived assets, including goodwill, whenever events and
circumstances indicate the carrying value of an asset may not be recoverable
from estimated future cash flows expected to result from its use and eventual
disposition. In doing so, we make assumptions and estimates regarding future
cash flows and

                                       13
<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS (con'd)
--------------------------------------------

other factors to make our determination. The fair value of our long-lived assets
and goodwill is dependent  upon the  forecasted  performance of our business and
the overall economic  environment.  When we determine that the carrying value of
our  long-lived  assets and  goodwill  may not be  recoverable,  we measure  any
impairment  based  upon a  forecasted  discounted  cash  flow  method.  If these
forecasts are not met, we may have to record additional  impairment  charges not
previously recognized.

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

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

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

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

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

Based on our assessment of the factors discussed above, we consider NP
Aerospace's local currency to be the functional currency. Accordingly, we had
foreign currency translation losses of approximately $437,000 and $738,000 that
were included as part of "accumulated other comprehensive loss" within our
balance sheet at December 31, 2001 and 2000, respectively.

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

2001 Compared with 2000
Backlog at December 31, 2001 was $25.3 million, up 54% from December 31, 2000,
primarily due to a $13.0 million contract received from Thiokol Propulsion for
components related to the Minuteman III Propulsion Replacement Program. In 2001,
order input increased 10% to $56.2 million. However, net sales decreased less
than 1% to $48.9 million from $49.3 million in 2000, due primarily to lower
sales of commercial aircraft seatbacks at CompositAir ($1.7 million) and reduced
sales across all product lines at NP Aerospace ($2.6 million). Sales increased
$1.1 million for Aerospace products due to increased shipments of Minuteman III
components. Sales increased $0.8 million at Bingham. Bingham was acquired on
March 9, 2000. Sales for Thermal Insulation totaled $2.0 million from the
acquisition date of April 20, 2001.

Gross profit margin decreased to 26.8% from 30.0% due to lower sales and the
resulting underabsorption of overhead expenses at both NP Aerospace and
CompositAir. Gross profit margin from Aerospace decreased to 40.2% from 45.7%
due mainly to product

                                       14
<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries


mix.  Gross profit margin from Bingham  decreased to 24.5% from 27.3% due mainly
to higher  costs of workers  compensation  and medical  insurance.  Gross profit
margin from Thermal Insulation was 35.5%.

In 2001, selling, general and administrative expenses were $10.7 million (21.9%
of sales) compared with $9.4 million (19.1% of sales) in 2000, due primarily to
an additional two months of costs at Bingham, which was acquired on March 9,
2000. Selling, general and administrative expenses in 2001 were 27.6% of sales
at Bingham compared to 18.4% of sales for the other business units.

In 2001, the Company recorded a charge of approximately $5.4 million to
write-down long-lived assets associated with the Bingham operating segment.
Included in the $5.4 million charge was approximately $1.3 million write-down of
fixed assets related to the seven manufacturing and administrative locations of
Bingham that were closed or were in the process of being closed. The fixed
assets were written down to their estimated fair value which was determined
based on the proceeds received and estimated to be received from the sales of
the respective facilities. The Company then determined that the estimated future
undiscounted operating cash flows of the remaining Bingham operations were less
than the carrying amount of Bingham's remaining long-lived assets. Based on its
evaluation, the Company determined Bingham's long-lived assets, with a carrying
value of $10.7 million, were impaired and wrote them down by approximately $4.0
million to their estimated fair value. This write-down was charged against
goodwill. Fair value was based on estimated discounted future operating cash
flows of the Bingham operations.

On December 29, 2000, the Company sold their  undeveloped  land to Paragon Santa
Anita LLC for a net gain of $0.962  million.  The selling price for the property
was  $2.05  million  with  $1.05  million  paid in cash at  closing.  Additional
consideration consisted of a 9% note receivable due in one year in the amount of
$1.0  million.  The note was  secured by the land.  The note was paid in full in
December 2001.

In 2001, net interest expense was unchanged at $0.5 million.

A loss before income taxes of $3.5 million (-7.1% of sales) was realized in 2001
compared to a profit of $5.8 million (11.8% of sales) in 2000. A loss before
income taxes of $6.6 million (-34.6% of sales) was realized at Bingham due
mainly to the $5.4 million write-down of long-lived assets and lower annualized
sales. Income before income taxes for NP Aerospace decreased to $0.4 million in
2001 (3.9% of sales) from $1.1 million in 2000 (9.6% of sales) due mainly to
lower sales across all product segments. Income before income taxes for
CompositAir decreased to $0.2 million in 2001 (3.0% of sales) from $1.3 million
in 2000 (17.2% of sales) due to lower sales of commercial aircraft seatbacks and
the resulting underabsorption of overhead expenses. Income before income taxes
at the Aerospace business unit increased to $2.7 million (28.3% of sales) from
$2.6 million (31.2% of sales) due to higher sales and the resulting absorption
of overhead expenses offset by a less favorable product mix. Income before
income taxes for the Commercial business unit decreased to $0.3 million (10.1%
of sales) from $0.4 million (13.5% of sales) due to higher manufacturing costs.
Income before income taxes for Thermal Insulation was $0.4 million (21.1% of
sales).

A tax provision of $0.3 million was recorded in 2001 compared with a provision
of $2.3 million in 2000. The effective tax rate in 2001 was 7.5% as compared to
39.3% in 2000. The change primarily results from the rate difference on U.S.
income and the increase in the valuation allowance. The effective tax rate in
the United Kingdom was 58%. This rate differs from the statutory rate as a
result of the Company recording a liability in connection with a property
revaluation in the United Kingdom. At December 31, 2001 and 2000, the Company
had generated net operating loss carryforwards for Federal income tax purposes
of approximately $25.6 million and $26.8 million, respectively. At December 31,
2001, the Company's net operating loss carryforwards for State income tax
purposes expired. The Company may utilize the Federal net operating losses by
carrying them forward to offset future Federal taxable income, if any, through
2011. As more fully described in note 3 of notes to consolidated financial
statements, benefits realized from loss carryforwards and deductible temporary
differences arising prior to the reorganization have been recorded directly to
additional paid-in capital. Such benefits amounted to zero in 2001 and $1.8
million in 2000.

Net loss totaled $3.7 million, or ($1.54) per diluted share in 2001 compared
with net income of $3.5 million, or $1.43 per diluted share in 2000.

                                       15
<PAGE>

                  Reinhold Industries, Inc. and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS (con'd)
--------------------------------------------

2000 Compared with 1999
Backlog at December 31, 2000 was $16.4 million, up 19% from December 31, 1999,
primarily due to increases in U.S. military related business. In 2000, order
input increased 40% to $51.3 million and net sales increased 26% to $49.3
million from $39.1 million in 1999, due primarily to the acquisition of Bingham
on March 9, 2000. Sales also increased $2.5 million for Aerospace products and
$0.7 million for Commercial products. However, there was a $6.8 million decrease
in sales at NP Aerospace, due primarily to the reduction of armored vehicle
shipments, and a $4.6 decrease in sales for CompositAir products, due mainly to
the continuing commercial difficulties at our primary customer, B/E Aerospace.

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

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

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

Income before income taxes was unchanged at $5.8 million, although the percent
to sales decreased to 11.8% in 2000 from 14.8% in 1999. Income before income
taxes for NP Aerospace decreased to $1.1 million in 2000 (9.6% of sales) from
$2.2 million in 1999 (11.6% of sales) due mainly to lower sales of armored
vehicles and commercial aircraft seatbacks. Income before income taxes for
CompositAir decreased to $1.3 million in 2000 (17.2% of sales) from $2.5 million
in 1999 (20.2% of sales) due to lower sales of commercial aircraft seatbacks to
our primary customer, B/E Aerospace. However, income before income taxes at the
Aerospace business unit increased to $2.6 million (31.2% of sales) from $1.2
million (21.2% of sales) due to higher sales and the resulting absorption of
overhead expenses. Income before income taxes for the Commercial business unit
increased to $0.4 million (13.5% of sales) from $0.3 million (11.8% of sales)
due to higher sales. Income before income taxes for Bingham was $0.01 million
(0.1% of sales).

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

A tax provision of $2.3 million was recorded in 2000 compared with a provision
of $2.2 million in 1999. The effective tax rate in 2000 was 39.3% as compared to
38.5% in 1999. The change results principally from the rate difference on U.S.
income. The effective tax rate in the United Kingdom is 30%. At December 31,
2000 and 1999, the Company had generated net operating loss carryforwards for
Federal income tax purposes of approximately $26.8 million and $31.8 million,
respectively. At December 31, 2000, the Company had also generated net operating
loss carryforwards for State income tax purposes of approximately $1.74 million.
The Company may utilize the Federal net operating losses by carrying them
forward to offset future Federal taxable income, if any, through 2011. The
Company may utilize the State net operating losses by carrying them forward to
offset future State taxable income, if any, through 2001. As more fully
described in note 3 to notes to consolidated financial statements, benefits
realized from loss carryforwards and deductible temporary differences arising
prior to the reorganization have been recorded directly to additional paid-in
capital. Such benefits amounted to $1.81 million in 2000 and $1.47 million in
1999.

Net income totaled $3.5 million, or $1.43 per diluted share in 2000 compared
with $3.6 million, or $1.47 per diluted share in 1999.

Liquidity and Capital Resources
As of December 31, 2001,  working  capital was $11.0 million,  down $3.6 million
from  December  31,  2000.  Cash and cash  equivalents  of $4.1  million held at
December 31, 2001 were $3.0 million lower than cash and cash equivalents held at
December  31,  2000 due  primarily  to $2.6  million of cash used to finance the
Thermal Insulation acquisition and $2.3 million repayment of long-term debt.

Net cash provided by operating activities amounted to $3.5 million in 2001 and
$4.2 million in 2000. The decrease over the prior

                                       16
<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries


period  relates mainly to the decreased  profitability  of the Company offset by
non-cash related asset write-offs.

Net cash used in investing activities in 2001 totaled $3.8 million, which
consisted of the acquisition of the Thermal Insulation business unit ($2.6
million) and capital expenditures ($2.4 million) offset by the proceeds on the
sale of various assets ($1.3 million). Net cash used in investing activities in
2000 totaled $15.6 million, which consisted of the acquisition of the Samuel
Bingham Company and associated costs ($15.2 million) and capital expenditures
($1.4 million) offset by the proceeds on the sale of the undeveloped land ($.9
million).

Net cash used in financing activities in 2001 totaled $2.3 million, consisting
of the repayment of the Bank of America loans. Net cash provided by financing
activities in 2000 totaled $9.9 million, consisting of the proceeds from the
Bank of America loan for the Samuel Bingham Company acquisition ($11.0 million)
less subsequent repayment

The Company does not have any current significant commitments for capital
expenditures at December 31, 2001.

The Company believes that its current working capital of $11.0 million and
anticipated working capital to be generated by future operations will be
sufficient to support the Company's working capital requirements through at
least December 31, 2002.

Acquired Businesses
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 years ended December 31,
2001 and 2000, no additional payments were earned.

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

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

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

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

Both loan agreements with B of A are subject to various financial covenants to
which the Company must comply. The covenants require the Company to maintain
certain ratios of profitability or cash flow to total outstanding debt, minimum
net worth and limits on capital expenditures. The Company has breached certain
covenants at December 31, 2001 due to lower than expected earnings and higher
than expected capital expenditures for its new administrative and production
building. The Company did not request and has not received waivers to these
covenants from B of A. See note 4 of notes to consolidated financial statements.

                                       17
<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries

MANAGEMENT'S DISCUSSION AND ANALYSIS (con'd)
--------------------------------------------

On April 20, 2001, Reinhold, purchased certain assets and assumed certain
liabilities of Edler Industries, Inc. ("Edler"). Edler is a manufacturer of
structural and ablative composite components mainly for subcontractors of the
U.S. defense industry. The operation has been renamed the "Thermal Insulation"
division of Reinhold. The purchase price was $2.6 million consisting of $1.6
million cash paid at closing and a $1.0 million, 8% interest bearing note paid
in September 2001.

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.

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

Recent Accounting Pronouncements
In June 2001,  the Financial  Accounting  Standards  Board issued  Statements of
Financial Accounting Standards ("SFAS") No. 141 "Business  Combinations" and No.
142 "Goodwill and Other  Intangible  Assets".  SFAS No. 141 addresses  financial
accounting  and  reporting  for business  combination  and requires all business
combinations  to be  accounted  for using the purchase  method.  SFAS No. 141 is
effective for any business combinations  initiated after June 30, 2001. SFAS No.
142,  effective  for  the  Company  January  1,  2002,   addresses  the  initial
recognition and measurement of goodwill and other intangible  assets acquired in
a business  combination.  Goodwill and other  intangible  assets with indefinite
lives will no longer be amortized  but instead  subject to  impairment  tests at
least annually.  The Company has determined that the impact of adopting SFAS No.
142 will have a favorable  impact of $336,000  to its results of  operations  in
2002.

In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS 144, effective for the Company January
1, 2002, supersedes FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business (as previously
defined in that opinion). SFAS 144 requires that one accounting model be used
for long-lived assets to be disposed of by sale, whether previously held and
used or newly acquired, and broadens the presentation of discontinued operations
to include more disposal transactions than were included under the previous
standards. The Company has determined that there will be no impact of adopting
SFAS No. 144.

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

                                       18
<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries

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

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

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

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

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

On March 1, 2001, the Company commenced an action against EPA and the NPS in the
United States District Court for the Southern District of New York seeking a
declaratory judgment that any claims asserted against it in connection with the
Valley Forge site were barred as a matter of law due to two injunctions issued
in 1996 in the bankruptcy case against its predecessor, Keene Corporation. On
July 20, 2001, the United States served its answer and counterclaim to the
Company's complaint on behalf of the NPS. In its answer, the government withdrew
its request for reimbursement of the EPA's CERCLA response costs ($616,878) and
objected to the relief sought by the Company. Its counterclaim seeks the
recovery of past and present CERCLA response costs incurred by the NPS at the
Valley Forge site and a declaratory judgment on liability that will be binding
in future actions to recover future response costs.

On August 3, 2001, the Company served a motion for summary judgment in its favor
on its complaint and dismissal of the counterclaim.

                                       19

<PAGE>


                   Reinhold Industries, Inc. and Subsidiaries

On September 10, 2001, the United States served its response in opposition to
the Company's summary judgment motion. In its response, the government submitted
that (i) the NPS's claim for recovery of past and present CERCLA response costs
at the Valley Forge Site does not constitute an Asbestos-Related Claim; and (ii)
neither the Plan nor the Confirmation Order govern its claim because Keene
failed to give the NPS actual notice of the bankruptcy proceeding. The
government sought a denial of the summary judgment motion or a continuance to
allow discovery on its defense of actual notice.

On September 26, 2001, the Company served its reply to the government's response
and asserted, among other things, that summary judgment was not premature as the
undisputed facts establish that the NPS was an "unknown creditor" at the time of
the Keene bankruptcy case such that publication notice - which indisputably was
given - was legally sufficient to subject the NPS to the terms of the two
injunctions issued under the Plan. The Company also reiterated that the plain
meaning and purpose of the Plan and Confirmation Order compel the conclusion
that the NPS claim was an Asbestos-Related Claim.

As of December 31, 2001, the summary judgment motion is pending before the
Court.

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

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

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

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

                                       20

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>

                                                                               Years ended December 31,
(Amounts in thousands, except for per share data)                      2001              2000             1999
--------------------------------------------------------------------------------------------------------------
<S>                                                                <C>                 <C>              <C>

Net sales                                                          $ 48,947            49,287           39,140
Cost of sales                                                        35,807            34,498           28,357
--------------------------------------------------------------------------------------------------------------
Gross profit                                                         13,140            14,789           10,783
Selling, general and administrative expenses                         10,710             9,425            5,079
Write-down of long-lived assets                                       5,351                 -                -
--------------------------------------------------------------------------------------------------------------
Operating income (loss)                                              (2,921)            5,364            5,704
Gain on sale of asset                                                     -               962                -
Interest income (expense), net                                         (532)             (529)             100
--------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes                                    (3,453)            5,797            5,804
Income taxes                                                            270             2,280            2,234
--------------------------------------------------------------------------------------------------------------
Net income (loss)                                                  $ (3,723)            3,517            3,570

Earnings (loss) per share:
Basic                                                              $  (1.54)             1.46             1.48
Diluted                                                            $  (1.54)             1.43             1.47
--------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding:
Basic                                                                 2,417             2,417            2,417
Diluted                                                               2,417             2,451            2,425


<FN>

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

                                       21
<PAGE>

<TABLE>
<CAPTION>

                   Reinhold Industries, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
---------------------------


                                                                            December 31,           December 31,
(Amounts in thousands, except per share data)                                       2001                   2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                      <C>

ASSETS
Current assets:
   Cash and cash equivalents                                                    $  4,105                  7,121
   Accounts receivable (less allowance for doubtful accounts
      of $166 and $165, respectively)                                              5,596                  6,984
   Inventories                                                                     6,275                  6,065
   Note receivable                                                                     -                  1,000
   Prepaid expenses and other current assets                                       2,499                  2,053
----------------------------------------------------------------------------------------------------------------
Total current assets                                                              18,475                 23,223

Property and equipment, at cost                                                   17,570                 17,122
   Less accumulated depreciation and amortization                                  7,006                  5,842
----------------------------------------------------------------------------------------------------------------
Net property and equipment                                                        10,564                 11,280

Cost in excess of fair value of net assets of acquired companies, net              3,786                  5,948
Other assets                                                                         204                    258
----------------------------------------------------------------------------------------------------------------
                                                                                $ 33,029                 40,709
----------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                             $  2,389                  2,278
   Accrued expenses                                                                1,687                  3,578
   Current installments of long term debt                                          3,418                  2,778
----------------------------------------------------------------------------------------------------------------
Total current liabilities                                                          7,494                  8,634

Long-term debt, less current installments                                          6,280                  8,721
Long-term pension liability                                                        3,899                    258
Other long-term liabilities                                                          279                    191
Commitments and contingencies

Stockholders' equity:
   Preferred stock - Authorized: 250,000 shares
      Issued and outstanding: None                                                     -                      -
   Common stock, $0.01 par value:
      Authorized: 4,750,000 shares
      Issued and outstanding: 2,416,722 and 2,198,058, respectively                   24                     22
   Additional paid-in capital                                                     17,514                 15,931
   Retained earnings                                                               2,655                  7,972
   Accumulated other comprehensive loss                                           (5,116)                (1,020)
----------------------------------------------------------------------------------------------------------------
Net stockholders' equity                                                          15,077                 22,905
----------------------------------------------------------------------------------------------------------------
                                                                                $ 33,029                 40,709
----------------------------------------------------------------------------------------------------------------
<FN>

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

                                       22
<PAGE>
<TABLE>
<CAPTION>

                   Reinhold Industries, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------

                                                                               Years ended December 31,
(Amounts in thousands)                                                 2001              2000             1999
---------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>               <C>               <C>

Cash flows from operating activities:
   Net income (loss)                                                $(3,723)            3,517            3,570
   Adjustments to reconcile net income (loss) to net
   cash provided by operating activities (net of effects
   of acquisitions):
      Depreciation and amortization                                   1,658             1,501            1,028
      Additions to paid-in capital resulting
          from tax benefits                                               -             1,813            1,471
      Write-down of long-lived assets                                 5,351                 -                -
      Changes in assets and liabilities:
          Accounts receivable, net                                    1,639               538              792
          Inventories                                                    18               320              300
          Note receivable                                             1,000            (1,000)               -
          Prepaid expenses and other current assets                    (446)             (544)            (229)
          Accounts payable                                             (116)           (1,581)          (1,151)
          Accrued expenses                                           (1,891)             (277)           1,741
          Other, net                                                     33              (100)            (146)
---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                             3,523             4,187            7,376

Cash flows used in investing activities:
   Acquisitions and deferred consideration                           (2,645)          (15,200)            (227)
   Capital expenditures                                              (2,377)           (1,355)            (924)
   Proceeds from sale of assets                                       1,256               945                -
---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities                                (3,766)          (15,610)          (1,151)

Cash flows from financing activities:
   Proceeds from long term debt                                           -            11,000                -
   Repayment of long term debt                                       (2,327)           (1,129)            (376)
   Dividends paid                                                        (9)               (8)               -
---------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities                  (2,336)            9,863             (376)

Effect of exchange rate changes on cash                                (437)             (738)             (52)
---------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                 (3,016)           (2,298)           5,797
---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year                        7,121             9,419            3,622
---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                            $ 4,105             7,121            9,419
---------------------------------------------------------------------------------------------------------------
Supplementary disclosures of cash flow information -
Cash paid during the year
   for:
      Income taxes                                                  $   394               771                -
      Interest                                                      $   867               493              158

<FN>

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

                                       23

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries

<TABLE>
<CAPTION>

CONSOLIDATED  STATEMENTS OF STOCKHOLDERS'  EQUITY AND  COMPREHENSIVE  INCOME (LOSS)
(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, 1998                                       -          978,956           $10         1,020,000        $10
------------------------------------------------------------------------------------------------------------------------------------
Net income                                                                        -             -                 -          -

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

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

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

Foreign currency translation adjustment                                           -             -                 -          -
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999                                       -        1,998,956           $20                 -          -
------------------------------------------------------------------------------------------------------------------------------------
Net income                                                                        -             -                 -          -

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

10% stock dividend                                                          199,102             2                 -          -

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

Foreign currency translation adjustment                                           -             -                 -          -
------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income
------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000                                       -        2,198,058           $22                 -          -
------------------------------------------------------------------------------------------------------------------------------------
Net loss                                                                          -             -                 -          -

10% stock dividend                                                          218,664             2                 -          -

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

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



<FN>

See accompanying notes to consolidated financial statements.

</FN>
</TABLE>

                                       24

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries





<TABLE>
<CAPTION>

                                                                 Comprehensive Income (Loss)
                                                           ----------------------------------------
                                                                   Accumulated
                                                           other comprehensive  Total comprehensive
             Additional paid-in capital  Retained earnings                loss         income (loss)    Net stockholders' equity
------------------------------------------------------------------------------------------------------------------------------------
<S>                             <C>                 <C>               <C>                   <C>                         <C>
                                $10,857             $2,685            $(2,299)                   -                      $11,263
------------------------------------------------------------------------------------------------------------------------------------
                                      -              3,570                  -                3,570                        3,570


                                  1,471                  -                  -                    -                        1,471


                                      -                  -              2,249                2,249                        2,249



                                      -                  -               (130)                (130)                        (130)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                             5,689
------------------------------------------------------------------------------------------------------------------------------------
                                $12,328             $6,255            $  (180)                                          $18,423
------------------------------------------------------------------------------------------------------------------------------------
                                      -              3,517                  -                3,517                        3,517


                                  1,813                  -                  -                    -                        1,813

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


                                      -                  -               (102)                (102)                        (102)

                                      -                  -               (738)                (738)                        (738)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                             2,677
------------------------------------------------------------------------------------------------------------------------------------
                                $15,931             $7,972            $(1,020)                                          $22,905
------------------------------------------------------------------------------------------------------------------------------------
                                      -             (3,723)                 -               (3,723)                      (3,723)

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


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

                                      -                  -               (437)                (437)                        (437)
------------------------------------------------------------------------------------------------------------------------------------
                                                                                            (7,819)
------------------------------------------------------------------------------------------------------------------------------------
                                $17,514             $2,655            $(5,116)                                          $15,077
------------------------------------------------------------------------------------------------------------------------------------




</TABLE>

                                       25

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2001 and 2000

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

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

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

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

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

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

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.

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

2 Summary of Significant Accounting Policies and Practices
CRITICAL ACCOUNTING POLICIES The Company's consolidated financial statements and
related public financial information are based on the application of generally
accepted accounting principles ("GAAP"). GAAP requires the use of estimates,
assumptions, judgments and subjective interpretations of accounting principles
that have an impact on the assets, liabilities, revenue and expense amounts
reported. These estimates can also affect supplemental information contained in
the external disclosures of the Company including information regarding
contingencies, risk and financial condition. The Company believes its use of
estimates and underlying accounting assumptions adhere to generally accepted
accounting principles and are consistently and conservatively applied.
Valuations based on estimates are reviewed for reasonableness and conservatism
on a consistent basis throughout the Company. Primary areas where financial
information of the Company is subject to the use of estimates, assumptions and
the application of judgment include revenues, receivables, inventories,
acquisitions, valuation of

                                       26
<PAGE>
                   Reinhold Industries, Inc. and Subsidiaries


long-lived and intangible  assets,  pension and  post-retirement  benefits,  the
realizability of deferred tax assets, and foreign exchange translation.  We base
our estimates on historical  experience and on various other assumptions that we
believe to be  reasonable  under the  circumstances.  Actual  results may differ
materially from these estimates under different assumptions or conditions.

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

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

FAIR VALUE OF ASSETS ACQUIRED AND LIABILITIES ASSUMED IN PURCHASE COMBINATIONS
The purchase combinations carried out by us require management to estimate the
fair value of the assets acquired and liabilities assumed in the combinations.
These estimates of fair value are based on our business plan for the entities
acquired including planned redundancies, restructuring, use of assets acquired
and assumptions as to the ultimate resolution of obligations assumed for which
no future benefit will be received. Should actual use of assets or resolution of
obligations differ from our estimates, revisions to the estimated fair values
would be required. If a change in estimate occurs after one year of the
acquisition, the change would be recorded in our statement of operations.

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

VALUATION  OF  LONG-LIVED  AND  INTANGIBLE  ASSETS We assess  the fair value and
recoverability of our long-lived assets, including goodwill, whenever events and
circumstances  indicate  the carrying  value of an asset may not be  recoverable
from  estimated  future cash flows  expected to result from its use and eventual
disposition.  In doing so, we make  assumptions and estimates  regarding  future
cash flows and other  factors to make our  determination.  The fair value of our
long-lived  assets and goodwill is dependent upon the forecasted  performance of
our business and the overall  economic  environment.  When we determine that the
carrying value of our long-lived assets and goodwill may not be recoverable,  we
measure any impairment based upon a forecasted  discounted cash flow method.  If
these forecasts are not met, we may have to record additional impairment charges
not previously recognized.

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

                                       27

<PAGE>
                   Reinhold Industries, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)

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

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

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

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

Based on our assessment of the factors discussed above, we consider NP
Aerospace's local currency to be the functional currency. Accordingly, we had
foreign currency translation losses of approximately $437,000 and $738,000 that
were included as part of "accumulated other comprehensive loss" within our
balance sheet at December 31, 2001 and 2000, respectively.

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

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

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

Cash and cash equivalents consist of
the following (in thousands):         December 31,           December 31,
                                              2001                   2000
--------------------------------------------------------------------------------
Cash in banks                               $2,138                 $1,417
Money market funds                           1,967                  5,704
--------------------------------------------------------------------------------
     Total                                  $4,105                 $7,121

                                       28

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries

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

                                      December 31,           December 31,
                                              2001                   2000
--------------------------------------------------------------------------------
Raw material                               $ 4,557                $ 4,205
Work-in-process                                919                    744
Finished goods                                 799                  1,116
--------------------------------------------------------------------------------
     Total                                 $ 6,275                $ 6,065

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

Amounts billed to contractors of the U.S. Government included in accounts
receivable at December 31, 2001 and 2000 were $1,010,000 and $1,536,000,
respectively.

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

Property and equipment, at cost, consists of the following (in thousands):
<TABLE>
<CAPTION>

                                                                            December 31,           December 31,
                                                     Useful Life                    2001                   2000
---------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                        <C>                      <C>
Land                                                 -                          $  1,283                  1,283
Buildings                                            10-40 years                   1,429                  2,809
Leasehold improvements                               5-15 years                    2,459                  1,391
Machinery and equipment                              5-25 years                   10,814                 11,206
Furniture and fixtures                               3-10 years                    1,226                    381
Construction in process                              -                               359                     52
---------------------------------------------------------------------------------------------------------------
                                                                                  17,570                 17,122
Less accumulated depreciation and amortization                                     7,006                  5,842
---------------------------------------------------------------------------------------------------------------
                                                                                $ 10,564                 11,280
</TABLE>

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

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

                                       29

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)

Note Receivable On December 29, 2000, the Company sold their undeveloped land to
Paragon Santa Anita LLC for a net gain of $962,000. The selling price for the
property was $2,050,000 with $1,050,000 paid in cash at closing. Additional
consideration consisted of a 9% note receivable due in one year in the amount of
$1,000,000. The note was secured by the land. The note was paid in full in
December 2001.

Cost in excess of fair value of net assets of acquired companies Cost in excess
of fair value of net assets
of acquired companies (goodwill) is amortized on a straight-line basis over 10 -
40 years. The gross amount and related accumulated amortization at December 31,
2001 and 2000 amounted to $8,921,000 and $5,135,000, and $6,725,000 and
$777,000, respectively. In September 2001, the Company determined that the
estimated future undiscounted operating cash flows of the remaining Bingham
operations were less than the carrying amount of Bingham's remaining long-lived
assets. Based on its evaluation, the Company determined Bingham's long-lived
assets, with a carrying value of $10.7 million, were impaired and wrote them
down by $4.0 million to their estimated fair value. This write-down was charged
against goodwill. Fair value was based on estimated discounted future operating
cash flows of the Bingham operations.

Acquired Businesses 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 years ended December 31, 2001 and 2000, no additional payments were
earned. The acquisition was accounted for as a purchase.

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

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

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

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

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


                                       30

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries


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

                                                 Years ended December 31,
                                               2000                   1999
--------------------------------------------------------------------------------
Net sales                                  $ 53,613                 63,047
Net income                                 $  3,749                  4,329
Earnings per share - basic                    $1.55                   1.79
Earnings per share - diluted                  $1.53                   1.79

On April 20,  2001,  Reinhold,  purchased  certain  assets and  assumed  certain
liabilities of Edler  Industries,  Inc.  ("Edler").  Edler is a manufacturer  of
structural and ablative  composite  components mainly for  subcontractors of the
U.S. defense industry.  The operation has been renamed the "Thermal  Insulation"
division of Reinhold.  The purchase  price was $2.6 million  consisting  of $1.6
million cash paid at closing and a $1.0 million,  8% interest  bearing note paid
in September 2001. The acquisition has been accounted for by the purchase method
and,  accordingly,   the  results  of  operations  have  been  included  in  the
consolidated  financial  statements  from the date of  acquisition.  The cost in
excess of fair  value of net  assets of $2.2  million  is being  amortized  on a
straight-line basis over twenty years.

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

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

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

                                                                            Years ended December 31,
                                                             2001                   2000                   1999
---------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                      <C>                    <C>
Net income (loss)                                         $(3,723)                 3,517                  3,570
Weighted average shares used in basic computation           2,417                  2,417                  2,417
Dilutive stock options                                          -                     34                      8
---------------------------------------------------------------------------------------------------------------
Weighted average shares used for diluted calculation        2,417                  2,451                  2,425

</TABLE>


Other Comprehensive  Income (Loss) Other  comprehensive  income (loss) refers to
items that under accounting  principles  generally accepted in the United States
are included in comprehensive  income (loss) but excluded from net income (loss)
as those amounts are recorded directly as an adjustment to stockholders' equity,
net of tax.  The  Company's  other  comprehensive  income  (loss) is composed of
changes in the  additional  pension  liability in excess of  unrecognized  prior
service  cost and foreign  currency  translation  adjustments.  The  accumulated
balance of additional  pension liability in excess of unrecognized prior service
cost and foreign currency translation  adjustments at December 31, 2001 and 2000
is $3,761,000 and  $1,355,000,  and $102,000 and $918,000,  respectively.

                                       31

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)

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

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

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

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.

In 2001, the Company recorded a charge of approximately $5.4 million to
write-down long-lived assets associated with the Bingham operating segment.
Included in the $5.4 million charge was approximately $1.3 million write-down of
fixed assets related to the seven manufacturing and administrative locations of
Bingham that were closed or were in the process of being closed. The fixed
assets were written down to their estimated fair value which was determined
based on the proceeds received and estimated to be received from the sales of
the respective facilities. The sales of these facilities are expected to be
completed prior to December 31, 2002. At December 31, 2001, the carrying value
of assets to be disposed of totaled approximately $425,000.

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

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

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

                                       32

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries


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

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

Recent Accounting Pronouncements In June 2001, the Financial Accounting
Standards Board issued Statements of Financial Accounting Standards ("SFAS") No.
141 "Business Combinations" and No. 142 "Goodwill and Other Intangible Assets".
SFAS No. 141 addresses financial accounting and reporting for business
combination and requires all business combinations to be accounted for using the
purchase method. SFAS No. 141 is effective for any business combinations
initiated after June 30, 2001. SFAS No. 142, effective for the Company January
1, 2002, addresses the initial recognition and measurement of goodwill and other
intangible assets acquired in a business combination. Goodwill and other
intangible assets with indefinite lives will no longer be amortized but instead
subject to impairment tests at least annually. The Company has determined that
the impact of adopting SFAS No. 142 will have a favorable impact of $336,000 to
its results of operations in 2002.

In August 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS 144, effective for the Company January
1, 2002, supersedes FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business (as previously
defined in that opinion). SFAS 144 requires that one accounting model be used
for long-lived assets to be disposed of by sale, whether previously held and
used or newly acquired, and broadens the presentation of discontinued operations
to include more disposal transactions than were included under the previous
standards. The Company has determined that there will be no impact of adopting
SFAS No. 144.

3 Income Taxes
The income tax provision consists of (in thousands):
<TABLE>
<CAPTION>

                                                                            Years ended December 31,
                                                              2001                  2000                   1999
----------------------------------------------------------------------------------------------------------------
<S>                                                           <C>                  <C>                    <C>
Federal                                                       $ 43                 1,564                  1,201
State                                                           15                   372                    383
Foreign                                                        212                   344                    650
----------------------------------------------------------------------------------------------------------------
Total                                                         $270                 2,280                  2,234
</TABLE>


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

                                                                            Years ended December 31,
                                                              2001                  2000                   1999
----------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                     <C>                    <C>
Taxes at statutory Federal rate                            $(1,086)                1,971                  1,973
State taxes, net of Federal tax benefits                        10                   245                    253
Rate difference on foreign income                               88                   (46)                   (85)
Non-deductible expenses                                         82                    57                     55
Change in valuation allowance                                1,183                     -                      -
Other                                                           (7)                   53                     38
----------------------------------------------------------------------------------------------------------------
Total provision for income tax expense                     $  270                  2,280                  2,234
</TABLE>

                                       33

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)

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,           December 31,
                                                    2001                   2000
--------------------------------------------------------------------------------
Deferred tax assets:
    Adjustments from quasi-reorganization        $   634                    634
    Asset impairment                               1,649                      -
    Net operating loss carryforwards               8,713                  9,237
    Inventory reserves                               378                    218
    Other reserves                                   337                    287
--------------------------------------------------------------------------------
      Total gross deferred tax assets             11,711                 10,376

    Less valuation allowance                     (10,857)                (9,386)
--------------------------------------------------------------------------------
      Net deferred tax assets                        854                    990

Deferred tax liabilities:
    Pension                                         (854)                  (604)
    Depreciation                                       -                   (386)
--------------------------------------------------------------------------------
      Total gross deferred tax liabilities          (854)                  (990)
      Net deferred tax assets                    $     -                      -

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, 2001.

At December 31, 2001 and 2000, the Company had generated net operating loss
carryforwards for Federal income tax purposes of approximately $25,628,000 and
$26,788,000, respectively. At December 31, 2001, the Company's net operating
loss carryforwards for State income tax purposes expired. The Company may
utilize the Federal net operating losses by carrying them forward to offset
future Federal taxable income, if any, through 2011. Benefits realized from loss
carryforwards and deductible temporary differences arising prior to the
reorganization have ~been recorded directly to additional paid-in capital. Such
benefits amounted to zero in 2001, $1,813,000 in 2000 and $1,471,000 in 1999.

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.

                                       34

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries


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% (3.95%) and is secured by all fixed assets.

On March 9, 2000, the Company borrowed $11,000,000 from B of A to fund a portion
of the purchase consideration due to Samuel Bingham Company. The principal
portion of the loan is payable in twenty successive quarterly installments
beginning June 30, 2000. Interest is payable quarterly at a rate which
approximates LIBOR plus 1.75% (5.58%) and is secured by all financial assets of
the Company.

Both loan agreements with B of A are subject to various financial covenants to
which the Company must comply. The covenants require the Company to maintain
certain ratios of profitability or cash flow to total outstanding debt, minimum
net worth and limits on capital expenditures. The Company has breached certain
covenants at December 31, 2001 due to lower than expected earnings and higher
than expected capital expenditures for its new administrative and production
building. The Company did not request and has not received waivers to these
covenants from B of A. At December 31, 2001, the outstanding debt balance with B
of A was $9.285 million.

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

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

At December 31, 2001, maturities of long term debt were as follows (in
thousands):

                                          Obligations
                                 under capital leases         Secured term loans
2002                                          $   174                      3,278
2003                                              168                      2,631
2004                                              101                      2,688
2005                                               31                        688
2006                                                -                          -
--------------------------------------------------------------------------------
                                                  474                      9,285
--------------------------------------------------------------------------------
Less amount representing interest                  61
-----------------------------------------------------
Present value of minimum lease payments       $   413
-----------------------------------------------------

                                       35

<PAGE>


                   Reinhold Industries, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)

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

On May 10, 2000, the Board of Directors approved the distribution of a 10% stock
dividend payable to stockholders of record on July 11, 2000, where an additional
199,102 shares were issued on July 28, 2000.

On May 8, 2001, the Board of Directors approved the distribution of a 10% stock
dividend payable to stockholders of record on July 13, 2001, where an additional
218,664 shares were issued on July 31, 2001. All common stock information and
earnings per share computations for all periods presented have been adjusted for
the dividends.

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

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

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

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:
<TABLE>
<CAPTION>

                                                              2001                  2000                   1999
---------------------------------------------------------------------------------------------------------------
<S>                                                            <C>                  <C>                   <C>
Risk free interest rate                                        N/A                  6.2%                  6.5%
---------------------------------------------------------------------------------------------------------------
Dividend yield                                                   -                     -                      -
---------------------------------------------------------------------------------------------------------------
Volitility factor                                              N/A                  81%                   70%
---------------------------------------------------------------------------------------------------------------
Weighted average life (years)                                  N/A                  4.1                   4.1

</TABLE>

                                       36

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries



Using the Black-Scholes Option Pricing Model, the estimated weighted-average
grant date fair value of options granted in 2000 and 1999 was $6.22 and $4.86,
respectively. No options were granted to employees during 2001. 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):
<TABLE>
<CAPTION>

                                                              2001                   2000                  1999
---------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                      <C>                   <C>
Pro forma net income (loss)                                ($4,003)                 3,236                 3,147
---------------------------------------------------------------------------------------------------------------
Pro forma earnings per share:
Basic                                                      ($ 1.66)                  1.34                  1.30
Diluted                                                    ($ 1.66)                  1.32                  1.30

</TABLE>


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, 2001 and 2000 is presented below:
<TABLE>
<CAPTION>


                                                                                               Weighted average
                                  Number of shares                 Low                 High      exercise price
---------------------------------------------------------------------------------------------------------------
<S>                                        <C>                    <C>                <C>                  <C>
Outstanding December 31, 1999              163,000                $8.25              $11.25               $8.36
---------------------------------------------------------------------------------------------------------------
Options issued in connection with
     10% stock dividend                     16,100                $7.50              $10.23               $7.59
Granted in 2000                             10,000                $9.75               $9.75               $9.75
Forfeited during 2000                        3,100                $7.50               $7.50               $7.50
---------------------------------------------------------------------------------------------------------------
Outstanding December 31, 2000              186,000                $7.50              $10.23               $7.72
---------------------------------------------------------------------------------------------------------------
Options issued in connection with
     10% stock dividend                     18,600                $6.82               $9.30               $7.01
Granted in 2001                                  -                 -                   -                   -
Forfeited during 2001                            -                 -                   -                   -
---------------------------------------------------------------------------------------------------------------
Outstanding December 31, 2001              204,600                $6.82               $9.30               $7.01
---------------------------------------------------------------------------------------------------------------

</TABLE>


At December 31, 2001, the weighted average remaining contractual life of options
outstanding is 7.4 years. No options are currently exercisable.

                                       37

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)


7 Pension Plans
The Company currently has four pension plans 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.

Net pension cost included the following (in thousands):

<TABLE>
<CAPTION>

                                                                                     Years ended December 31,
                                                                                    2001                   2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                        <C>
Service cost                                                                    $    212                    167
Interest cost on benefits earned in prior years                                      953                    966
Expected return on assets                                                         (1,159)                  (900)
Amortization of net obligation at transition                                         (18)                    (3)
Amortization of net loss (gain)                                                       83                   (297)
----------------------------------------------------------------------------------------------------------------
Net pension cost (benefit)                                                      $     71                    (67)

</TABLE>


The following table sets forth a reconciliation of the pension plan's benefit
obligation at December 31, 2001 and 2000 (in thousands):

<TABLE>
<CAPTION>

                                                                                    2001                   2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                      <C>
Projected benefit obligation at beginning of year                               $ 14,143                 11,887
Projected benefit obligation at beginning of period -
    Samuel Bingham                                                                     -                  1,966
Service cost                                                                         212                    167
Interest cost                                                                        953                    966
Actuarial loss                                                                       443                    418
Benefits paid                                                                     (1,215)                (1,261)
----------------------------------------------------------------------------------------------------------------
Projected benefit obligation at end of year                                     $ 14,536                 14,143

</TABLE>


The following table sets forth a reconciliation of the pension plan's assets at
December 31, 2001 and 2000 (in thousands):

<TABLE>
<CAPTION>


                                                                                    2001                   2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                      <C>
Fair value of plan assets at beginning of year                                  $ 13,550                 11,814
Fair value of plan assets at beginning of period -
    Samuel Bingham                                                                     -                  2,389
Actual return on assets                                                             (778)                   351
Employer contributions                                                               675                    257
Benefits paid                                                                     (1,215)                (1,261)
----------------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year                                        $ 12,232                 13,550

</TABLE>

                                       38

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries



The following  table sets forth a  reconciliation  of the pension  plan's funded
status at December 31, 2001 and 2000 (in thousands):
<TABLE>
<CAPTION>


                                                                                    2001                   2000
----------------------------------------------------------------------------------------------------------------
<S>                                                                             <C>                      <C>
Projected benefit obligation at end of year                                     $ 14,536                 14,143
Fair value of plan assets at end of year                                          12,232                 13,550
Funded status                                                                     (2,304)                  (593)
Unrecognized prior service cost                                                      133                    148
Unrecognized net obligation at transition                                            (17)                   (36)
Unrecognized net loss                                                              4,220                  1,909
----------------------------------------------------------------------------------------------------------------
Prepaid pension cost at end of year                                             $  2,032                  1,428

Intangible asset at December 31,                                                    $138                    156
Additional minimum liability at December 31,                                      (3,899)                  (258)
----------------------------------------------------------------------------------------------------------------
Additional pension liability in excess of
prior service cost at December 31,                                              $ (3,761)                  (102)

</TABLE>


Assumptions used in accounting for the pension plan were:
<TABLE>
<CAPTION>

                                                                             December 31,          December 31,
                                                                                     2001                  2000
---------------------------------------------------------------------------------------------------------------
<S>                                                                                 <C>                   <C>
Discount rate                                                                       6.75%                 7.00%
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 reports segment data pursuant to SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information". Reinhold is a manufacturer
of advanced custom composite components, sheet molding compounds and rubber
rollers for a variety of applications in the United States and Europe. The
Company generates revenues from six operating segments: Aerospace, CompositAir,
Commercial, Thermal Insulation, NP Aerospace and Bingham. Management has
determined these to be Reinhold's operating segments based upon the nature of
their products. Aerospace and Thermal Insulation produce a variety of products
for the U.S. military and space programs. CompositAir produces components for
the commercial aircraft seating industry. The Commercial segment produces
lighting housings and pool filter tanks. NP Aerospace produces products for law
enforcement, lighting, military, automotive and commercial aircraft. Bingham
manufactures rubber rollers for graphic arts and industrial applications.
Certain amounts from the prior years have been reclassified from NP Aerospace to
CompositAir to conform to information used by the chief operating decision maker
in accordance with SFAS 131.

                                       39


<PAGE>


                   Reinhold Industries, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)


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

<TABLE>
<CAPTION>



                                                                            Years ended December 31,
                                                              2001                  2000                   1999
----------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                      <C>                    <C>
Net sales
   Aerospace                                             $   9,511                 8,417                  5,863
   CompositAir                                               5,877                 7,547                 12,143
   Commercial                                                3,072                 3,093                  2,433
   Thermal Insulation                                        2,004                     -                      -
   NP Aerospace                                              9,322                11,914                 18,701
   Bingham                                                  19,161                18,316                      -
----------------------------------------------------------------------------------------------------------------
Total sales                                              $  48,947                49,287                 39,140

Income (loss) before income taxes
   Aerospace                                             $   2,696                 2,625                  1,241
   CompositAir                                                 174                 1,297                  2,458
   Commercial                                                  311                   419                    287
   Thermal Insulation                                          422                     -                      -
   NP Aerospace                                                366                 1,146                  2,166
   Bingham                                                  (6,622)                   13                      -
   Unallocated corporate (expenses) income                    (800)                  297                   (348)
----------------------------------------------------------------------------------------------------------------
Total income (loss) before income taxes                  $  (3,453)                5,797                  5,804

Depreciation and amortization
   Aerospace                                             $     328                   349                    356
   CompositAir                                                 273                   275                    272
   Commercial                                                  138                   150                    155
   Thermal Insulation                                          121                     -                      -
   NP Aerospace                                                172                   160                    163
   Bingham                                                     542                   519                      -
   Unallocated corporate                                        84                    48                     82
----------------------------------------------------------------------------------------------------------------
Total depreciation and amortization                      $   1,658                 1,501                  1,028

Capital expenditures
   Aerospace                                             $     891                   688                    117
   CompositAir                                                 158                     -                    540
   Commercial                                                   29                    16                     52
   Thermal Insulation                                          296                     -                      -
   NP Aerospace                                                239                   222                    215
   Bingham                                                     764                   429                      -
----------------------------------------------------------------------------------------------------------------
Total capital expenditures                               $   2,377                 1,355                    924

Total assets
   Aerospace                                             $   5,026                 4,963
   CompositAir                                               2,453                 2,613
   Commercial                                                  914                 1,091
   Thermal Insulation                                        3,431                     -
   NP Aerospace                                              6,023                 9,612
   Bingham                                                  10,947                18,077
   Unallocated corporate                                     4,235                 4,353
----------------------------------------------------------------------------------------------------------------
Total assets                                               $33,029                40,709

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

</TABLE>

                                       40

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries


The tables below present information related to geographic areas in which
Reinhold operated (in thousands):
<TABLE>
<CAPTION>

                                                                            Years ended December 31,
                                                              2001                  2000                   1999
----------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                       <C>                    <C>
Net sales
   North America                                        $   38,319                37,141                 18,662
   United Kingdom                                            8,294                 9,098                 14,188
   Botswana                                                      -                    93                  1,942
   Germany                                                   1,096                   865                  1,916
   All other                                                 1,238                 2,090                  2,432
----------------------------------------------------------------------------------------------------------------
   Net sales                                            $   48,947                49,287                 39,140

Net assets
   North America                                        $   27,006                31,097
    United Kingdom                                           6,023                 9,612
----------------------------------------------------------------------------------------------------------------
   Net assets                                           $   33,029                40,709

Long-lived assets
   North America                                        $   12,948                15,947
   United Kingdom                                            1,606                 1,539
----------------------------------------------------------------------------------------------------------------
   Long-lived assets                                    $   14,554                17,486

</TABLE>


9 Commitments and Contingencies
Leases The Company leases certain facilities and equipment under operating
leases expiring through 2014. Certain facility leases are subject to annual
escalations of approximately 1% to 3%. Total rental expense on all operating
leases approximated $1,192,000, $803,000 and $514,000 for 2001, 2000 and 1999,
respectively.

Minimum future rental commitments under noncancelable operating leases at
December 31, 2001 are as follows (in thousands):

2002                                                       $ 1,479
2003                                                         1,242
2004                                                           939
2005                                                           818
2006                                                           776
Thereafter                                                   7,623
--------------------------------------------------------------------------------
                                                          $ 12,877

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

                                       41


<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)


more than its proportional share of such costs. Liability among PRPs, however,
is subject to equitable allocation through contribution actions.

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

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

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

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

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

On March 1, 2001, the Company commenced an action against EPA and the NPS in the
United States District Court for the Southern District of New York seeking a
declaratory judgment that any claims asserted against it in connection with the
Valley Forge site were barred as a matter of law due to two injunctions issued
in 1996 in the bankruptcy case against its predecessor, Keene Corporation. On
July 20, 2001, the United States served its answer and counterclaim to the
Company's complaint on behalf of the NPS. In its answer, the government withdrew
its request for reimbursement of the EPA's CERCLA response costs ($616,878) and
objected to the relief sought by

                                       42


<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries


the Company.  Its  counterclaim  seeks the  recovery of past and present  CERCLA
response  costs  incurred by the NPS at the Valley Forge site and a  declaratory
judgment on liability  that will be binding in future  actions to recover future
response costs.

On August 3, 2001, the Company served a motion for summary judgment requesting
judgment in its favor on its complaint and dismissal of the counterclaim.

On September 10, 2001, the United States served its response in opposition to
the Company's summary judgment motion. In its response, the government submitted
that (i) the NPS's claim for recovery of past and present CERCLA response costs
at the Valley Forge Site does not constitute an Asbestos-Related Claim; and (ii)
neither the Plan nor the Confirmation Order govern its claim because Keene
failed to give the NPS actual notice of the bankruptcy proceeding. The
government sought a denial of the summary judgment motion or a continuance to
allow discovery on its defense of actual notice.

On September 26, 2001, the Company served its reply to the government's response
and asserted, among other things, that summary judgment was not premature as the
undisputed facts establish that the NPS was an "unknown creditor" at the time of
the Keene bankruptcy case such that publication notice - which indisputably was
given - was legally sufficient to subject the NPS to the terms of the two
injunctions issued under the Plan. The Company also reiterated that the plain
meaning and purpose of the Plan and Confirmation Order compel the conclusion
that the NPS claim was an Asbestos-Related Claim.

As of December 31, 2001, the summary judgment motion is pending before the
Court.

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

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

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

                                       43

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont'd)


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

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

                                                                            Years ended December 31,
                                                              2001                  2000                   1999
---------------------------------------------------------------------------------------------------------------
<S>                                                         <C>                    <C>                   <C>
B/E Aerospace (CompositAir and NP Aerospace)                $6,050                 8,282                 13,405
United Kingdom Ministry of Defense (NP Aerospace)                *                     *                  6,356
Thiokol Propulsion (Aerospace)                               5,078                     *                      *


<FN>

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


B/E Aerospace accounted for approximately 12% of the Company's accounts
receivable balance at December 31, 2001 and approximately 11% at December 31,
2000 before any adjustments for the allowance for doubtful accounts. No other
customer exceeded 10% of the Company's gross accounts receivable balance. The
Company estimates an allowance for doubtful accounts based on the
creditworthiness of its customers as well as general economic conditions.
Consequently, an adverse change in those factors could affect the Company's
estimate of its bad debts.

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

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

<TABLE>
<CAPTION>


                                                                    Three Months Ended
                                           March 31,            June 30,      September 30,       December 31,
---------------------------------------------------------------------------------------------------------------
<S>                                        <C>                    <C>                <C>                <C>
2001
Net sales                                  $ 12,162               13,336             12,096             11,353
Gross profit                               $  3,487                3,597              3,283              2,773
Net income (loss)                          $    518                  642             (4,729)              (154)
Net earnings (loss) per share:
   Basic                                   $   0.21                 0.27              (1.96)             (0.06)
   Diluted                                 $   0.21                 0.26              (1.96)             (0.06)

2000
Net sales                                  $  9,601               13,902             13,281             12,503
Gross profit                               $  2,737                4,344              3,995              3,713
Net income                                 $    802                  941                714              1,060
Net earnings per share:
   Basic                                   $   0.33                 0.39               0.30               0.44
   Diluted                                 $   0.33                 0.38               0.29               0.43

</TABLE>


                                       44

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries


INDEPENDENT AUDITORS' REPORT
----------------------------



The Board of Directors
Reinhold Industries, Inc.

We have audited the accompanying consolidated balance sheet of Reinhold
Industries, Inc. and Subsidiaries (the Company) as of December 31, 2001 and the
related consolidated statements of operations, stockholders' equity and
comprehensive income (loss) and cash flows for the year ended December 31, 2001.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Reinhold
Industries, Inc. and Subsidiaries at December 31, 2001, and the consolidated
results of their operations and their cash flows for the year ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States.




/S/ ERNST & YOUNG LLP




Orange County, California
February 19, 2002, except for
Note 4, as to which the date
is March 27, 2002



                                       45


<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries


INDEPENDENT AUDITORS' REPORT
----------------------------


The Board of Directors
Reinhold Industries, Inc.

We have audited the accompanying consolidated balance sheet of Reinhold
Industries, Inc. and Subsidiaries (the Company) as of December 31, 2000 and the
related consolidated statements of operations, stockholders' equity and
comprehensive income and cash flows for each of the years in the two year period
ended December 31, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Reinhold Industries,
Inc. and Subsidiaries as of December 31, 2000 and the results of their
operations and their cash flows for each of the years in the two year period
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States of America.




/S/ KPMG LLP



Los Angeles, California
March 16, 2001


                                       46

<PAGE>

                   Reinhold Industries, Inc. and Subsidiaries



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

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

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

Glenn Scolnik
President
Hammond, Kennedy,
Whitney & Company

Thomas A. Brand
Retired
Fiberite Corporation

Richard A. Place
Retired
Ford Motor Company

Corporate Officers
Michael T. Furry
President and CEO

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

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

Investor Relations
Contact Judy Sanson
Reinhold Industries, Inc.

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

Annual Meeting
The Annual Stockholders'
Meeting will be held at the offices of
Reinhold Industries, Inc.
12827 East Imperial Hwy
Santa Fe Springs, CA
on May 1, 2002
at 3:00 p.m.

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

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

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

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

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

Stock Listing
Reinhold common stock
is listed on the Nasdaq
National Market
Symbol - RNHDA
Stockholder Information                   2001                         2000

Market Price                       High           Low            High        Low
--------------------------------------------------------------------------------
First Quarter ended March 31,      8.64          6.36            9.92       8.26
Second Quarter ended June 30,      8.64          7.27           10.74       8.26
Third Quarter ended September 30,  8.00          5.17           11.82       8.18
Fourth Quarter ended December 31,  6.52          5.24            9.09       5.45


The Class A Common Stock of the Company is listed on the Nasdaq  National Market
under the ticker symbol RNHDA.  The table above sets forth the high and low sale
prices of the Company's  Class A Common Stock for each of the quarterly  periods
for the year ended  December 31, 2001,  adjusted for the effect of the 10% stock
dividend on July 31, 2001.

<PAGE>

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