<PAGE>


                                    FORM 10-K

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

     For the fiscal year ended December 31, 2001

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

    For the transition period from ________________ to _______________

                         Commission file number 0-27309

                        AAVID THERMAL TECHNOLOGIES, INC.
             (Exact name of registrant as specified in its charter)

          DELAWARE                                             02-0466826
  (State or other jurisdiction of                            (I.R.S. Employer
   incorporation or organization)                           Identification No.)

EAGLE SQUARE, SUITE 509, CONCORD, NEW HAMPSHIRE                   03301
    (Address of principal executive offices)                    (Zip Code)

Registrant's telephone number, including area code: (603) 224-1117

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act: NONE

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorted period that the
registrant was required to file such report, and (2) has been subject to such
filing requirements for the past 90 days.

                                     Yes [X] No [ ]

    Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [X]

    Aggregate market value of the Registrant's common stock held by
non-affiliates: N/A. The number of outstanding shares of the registrant's Common
Stock as of March 15, 2002 was 940 shares of class A, 1000 shares of Class B and
40 shares of Class H, all of which are owned by Heat Holdings Corp. On February
2, 2000, a wholly-owned subsidiary of Heat Holdings Corp. was merged with and
into the Registrant with the Registrant becoming a wholly-owned subsidiary of
Heat Holdings Corp. and each share of Registrant's then outstanding common stock
was converted into $25.50 in cash. The Registrant's Common Stock is no longer
publicly traded; however, the Registrant's Senior Subordinated Notes are
publicly traded.

    Documents incorporated by reference: none


                                       1
<PAGE>

                                     PART I

ITEM 1. BUSINESS

COMPANY INTRODUCTION

    We are a leading global provider of thermal management solutions for
electronic products and the leading developer and marketer of computational
fluid dynamic ("CFD") software. We design, manufacture and distribute on a
worldwide basis thermal management products that dissipate unwanted heat, which
can degrade system performance and reliability, from microprocessors and
industrial electronics products. Our products, which include heat sinks, heat
pipes, interface materials and attachment accessories, fans, heat spreaders and
liquid cooling and phase change devices that we configure to meet
customer-specific needs, serve the critical function of conducting, convecting
and radiating away unwanted heat. CFD software is used in complex
computer-generated modeling of fluid flows, heat and mass transfer and chemical
reactions. Our CFD software is used in a variety of industries, including the
automotive, aerospace, chemical processing, power generation, material
processing, electronics and HVAC industries.

    Our thermal management products are used in a wide variety and growing
number of computer and networking and industrial electronics applications,
including computer systems (desktops, laptops, disk drives, printers and
peripheral cards), network devices (servers, routers, set top boxes and local
area networks), telecommunications equipment (wireless base stations, satellite
stations and PBXs), instrumentation (semiconductor test equipment, medical
equipment and power supplies), transportation and motor drives (braking and
traction systems) and consumer electronics (stereo systems and video games). Our
CFD software is used for a wide variety of computer-based analyses, including
the design of electronic components and systems, automotive design, combustion
systems modeling and process plant troubleshooting. We have longstanding
relationships with a highly diversified base of more than 3,500 national and
international customers, including original equipment manufacturers (commonly
referred to as OEMs), electronics distributors and contract manufacturers. Our
customers include 3M, Arrow, Agilent Technologies, Bobardier, Boeing, Cisco
Systems, Compaq Computer, Dell, Dow Chemical, Ericsson, Flextronics, Ford,
Fujitsu, Gateway, General Electric, General Motors, Hewlett-Packard, IBM, Intel,
Lockheed Martin, Lucent, Motorola, NASA, Nortel, Rockwell Automation, Rolls
Royce, Sanmina-SCI, Siemens, Solectron and Sun Microsystems.

    On February 2, 2000 we were acquired in a merger with Heat Holdings Corp., a
corporation newly formed by Willis Stein & Partners II, L.P. the "Purchaser").
Pursuant to the merger, Aavid stockholders received $25.50 in cash for each
outstanding share of common stock. In addition, all outstanding stock options
and warrants were cashed out. The merger was accounted for using the purchase
method. In connection with the merger, we consolidated our business into two
operating segments: Aavid Thermalloy LLC, which designs, manufacturers and
distributes thermal management products that dissipate unwanted heat from
microprocessors and industrial electronics products, and includes Applied
Thermal Technologies, Inc.'s thermal design, validation and consulting services;
and Fluent, which develops and markets CFD software.

INDUSTRY OVERVIEW

    THERMAL MANAGEMENT

    In today's electronic environment, microprocessors and their associated
power supplies, hard drives, advanced video chips and other peripheral devices
draw large amounts of power and, consequently, must dissipate a significant
amount of heat. The same heat generation occurs in semiconductors and integrated
circuits in motor controls, telecommunications switches and other electronics.
Because these electronic components can only operate efficiently in narrow
temperature bands, heat is an absolute constraint in electronic system design.
The excessive heat generated within a component not only degrades semiconductor
and system performance and reliability, but can also cause semiconductor and
system failure.

                                       2
<PAGE>


    Increasingly, neither externally generated off-the-shelf thermal management
products nor internally designed and produced parts have been able to
effectively address the expanding complexity of thermal management problems
resulting from the increasing amount of heat required to be dissipated by
electronic products. The complexity of thermal management problems has been
intensified by reductions in system size, shorter time-to-market, shorter
product life cycles and more demanding operating environments. These factors
have led to the development and growth of the thermal management industry.

    Electronics manufacturers seek to respond to end user demands and increasing
competition by offering new products with improved performance (functionality
and speed) and greater reliability in smaller forms and at lower prices. This
greater functionality, speed and the miniaturization of component housing has
resulted in an increase in unwanted heat generated by electronics products. The
demand for thermal management products is driven by the need to dissipate the
increasing amount of heat generated by electronic products.

    We believe that future growth of the thermal management products market will
be driven by the following factors:

    -   Inherent unit growth in end-user products, such as desktop computers,
        laptops and telecommunications equipment. In particular, the volume of
        microprocessors and support chip units is increasing on an absolute and
        on a per product basis.

    -   The wider use of electronic controls in numerous areas due to the
        general increase in automation.

    -   The increasing use of microprocessors in industrial electronics
        applications, fueling the need for thermal management products to manage
        the different operating temperature characteristics of these devices.

    -   The increased need for reliable power supplies. The quality of power can
        be adversely affected by thermal overload arising from ineffective
        thermal management. This is becoming increasingly important within the
        industrial, computer and telecommunications sectors where "irregular"
        power surges can damage equipment and cause productivity loss.

    -   The complexity of thermal management problems, which has been
        intensified by the increasing amount of heat to be dissipated,
        reductions in system size, shorter time-to-market product cycles and
        more demanding temperature operating environments.

    COMPUTATIONAL FLUID DYNAMICS SOFTWARE

    CFD software is used in a wide range of industries for complex
computer-based analysis of engineering designs involving fluid flows, heat and
mass transfer, chemical reaction and other fluid flow phenomena. CFD software
tools allow the analysis and evaluation of design modifications without the
physical prototyping of each design modification, thereby reducing engineering
cost, improving product performance and decreasing time-to-market for new
products. Specific uses of CFD-based flow analysis include the design of
electronic components and systems, automotive design, combustion systems
modeling and process plant troubleshooting.

    Over the past decade, increases in computing power have made CFD-based
computer analysis of complex fluid flows feasible on computers that are readily
available to research and development and engineering departments. Development
of CFD software technology is expanding that market beyond its traditional user
base of Ph.D-level engineers in corporate research and development centers to
the larger base of design engineers working in product development. Finally, CFD
software tools are part of the growing trend toward improved engineering
efficiency through computer-aided analysis and design by integrating CFD
software with geometric modeling and design.

                                       3
<PAGE>


    The CFD software market, which has been growing rapidly over the past
decade, continued to grow in 2001, although at a reduced rate. Based upon
publicly available information from a number of our key competitors and internal
management estimates, we believe that in 2001 the size of the developed market
for CFD software applications was approximately $170 million. We further expect
to benefit from the anticipated continued growth of this market. Based on a
market study we conducted in connection with our acquisition of Fluent, we
estimate that the size of the potential market for CFD software products is
currently approximately $500 million. We also believe that, through Fluent, we
have approximately 35% of the developed market for CFD software applications.

    We expect that future growth of the CFD software market will be driven by
the following factors:

    -   The ability of customers using CFD software to reduce their product
        development costs, minimize time-to-market for their new products and
        improve product performance.

    -   The ability to analyze fluid flows is becoming increasingly important
        across a wide range of industries.

    -   The development of more powerful and affordable computers that are
        capable of running CFD software.

    -   The growing trend among customers to improve the engineering efficiency
        of product development and improvement through computer-aided analysis
        and design.

    -   Expansion of the traditional user base for CFD software beyond
        Ph.D.-level engineers in corporate research and development centers to
        the larger base of design engineers.

COMPETITIVE STRENGTHS

    We believe that the following competitive strengths have enabled us to
become a worldwide leader in both the thermal management market and the CFD
software market.

    TOTAL INTEGRATED SOLUTIONS PROVIDER

    The increasing complexity of heat dissipation problems and the growing trend
among manufacturers to outsource development of thermal management solutions has
stimulated demand for total integrated solutions. We provide total integrated
solutions by analyzing customers' thermal management problems at the device-,
board- and system-level, designing, simulating and prototyping thermal
management solutions and manufacturing, distributing and supporting these
solutions worldwide.

    VALUE-ADDED PARTNERING WITH OUR CUSTOMERS

    We work closely with our customers to develop customized thermal management
solutions. We believe that our close relationships with customers and their
design and development teams, as well as our worldwide manufacturing
capabilities, allow us to anticipate customers' needs and, through our
engineering expertise and experience, provide quality product solutions more
quickly than our competitors.

    WORLDWIDE LOW COST MANUFACTURER

    We have manufacturing operations in the United States, Canada, Mexico,
Europe and Asia, including China. As an increasing number of electronics systems
are being manufactured outside the United States, our low cost foreign
manufacturing operations enable us to supply products directly to our customers
at their geographically dispersed manufacturing locations.

                                       4
<PAGE>


    LEADERSHIP IN CFD SOFTWARE

    We believe that we are the technology leader in CFD software. As a result of
our technological leadership, we develop software that enables our customers to
generate the increasingly complex computer models they demand for more
cost-efficient product design. This factor, as well as the relative ease-of-use
and predictive accuracy of our CFD software, are of primary importance to our
customers.

    RECURRING REVENUES FROM SOFTWARE BUSINESS

    Our CFD software business is characterized by high customer retention and
recurring revenues. In recent years, approximately 80% of our annual software
license revenue was renewed in the following year. This is driven by the
significant value added by our CFD software to the design process and the high
cost of switching to a competitor's software.

    EXPERIENCED MANAGEMENT TEAM

    Our senior management team has extensive operating and marketing experience
in the thermal management and CFD software markets. This management team has
grown our business, both organically and through strategic acquisitions, and has
been responsible for improving operating efficiencies. Bharatan R. Patel, our
chief executive officer who founded our CFD software business, has 28 years of
experience in the area of fluid flows and thermal management and H. Ferit
Boysan, president of our CFD software business, has 21 years of experience in
the area of fluid flows and CFD software.

    BUSINESS STRATEGY

    Our business strategy is to continue to be a market leader in both the
thermal management and CFD software markets. We intend to continue this business
strategy and strengthen our competitive position through the following
initiatives:

    CAPITALIZE ON THERMAL MANAGEMENT INDUSTRY GROWTH

    We believe that our existing thermal management markets will continue to
experience growth in the long term. Growth will be driven by the need to
dissipate the increasing amount of heat being generated by electronic products,
as well as unit growth in these products. We believe our competitive strengths
position us to capitalize on these growth trends.

    TAKE ADVANTAGE OF OUTSOURCING TREND

    The increasing complexity of heat dissipation problems is driving a trend
among manufacturers to outsource the development of thermal management solutions
to companies with high levels of expertise in solving these problems. We intend
to capitalize on this trend by leveraging our technical expertise in designing
thermal management products and through continuing to partner with our customers
in creating customized solutions.

    EXPAND OUR ADDRESSED THERMAL MANAGEMENT MARKET

    We believe we have significant opportunities to expand the portion of the
outsourced thermal management market that we address. Our strategy is to expand
into the part of the outsourced thermal management market that we do not
currently serve by entering into new geographic markets and introducing new
products that complement our existing product offerings.

                                       5
<PAGE>


    ACCELERATE GROWTH IN COMPUTATIONAL FLUID DYNAMICS SOFTWARE MARKET

    Growth in the CFD software market will be driven by customers' needs to
reduce product development costs, minimize the time-to-market for their new
products and improve product performance, as well as by increasing applications
for CFD software. We intend to grow our CFD software business through internal
product development and possibly strategic acquisitions to leverage our core
technological competence in the development of computerized design and
simulation software. Our goal is to further expand this market beyond its
traditional user base of Ph.D.-level engineers in corporate research and
development centers to the larger base of design engineers by providing them
relatively easy-to-use industry-specific software.

    PROVIDE TOTAL THERMAL MANAGEMENT SOLUTIONS ON A GLOBAL BASIS

    We intend to continue capitalizing on our state-of-the-art worldwide
manufacturing capabilities and to further leverage our expertise and technology
to offer our customers a complete global solution to their thermal management
problems. The increasing number of electronics systems manufactured outside of
the United States has forced many electronics manufacturers to seek a highly
integrated, worldwide provider of thermal solutions. We plan to continue to
expand our quick-ramp, high-volume manufacturing and our design, sales and
distribution activities globally as our customers continue to expand their
operations overseas.

    LEVERAGE OUR TECHNOLOGICAL LEADERSHIP

    Our approximately 199 Ph.D.s and 290 engineers focus on new technology
initiatives as well as developing new and enhancing existing products, processes
and materials to address the evolving needs of our customers. We seek to enhance
our internal research and development activities through collaborations with our
customers and third parties in order to gain access to, or to pursue the
development of, new technologies for thermal management applications and CFD
software.

    MARKETS AND CUSTOMERS

    We sell our thermal management products and services to a highly-diversified
base of customers across a wide range of industries and applications. We
currently sell our thermal management products and services to over 2,500
customers. The following chart shows our largest customers for thermal
management products and services by market sector:

                MARKET                                  CUSTOMERS
                ------                                  ---------

COMPUTERS AND NETWORKING:
  Computers............................    Intel              Gateway
                                           Dell               Hewlett-Packard
                                           EMC                IBM

  Contract Manufacturing...............    Celestica          Sanmina - SCI
                                           Jabil Circuit      Solectron
                                           Flextronics        Benchmark

  Networking...........................    Cisco Systems      Sun Microsystems

INDUSTRIAL ELECTRONICS:
  Communications.......................    Ciena              Hughes Network
                                           Lucent             Motorola
                                           Technologies
                                           Nortel             Nokia
                                           Ericsson           Marconi

  Electronics Distributors.............    Arrow              Future Electronics
                                           Avnet              Sager

  Other................................    Agilent            American
                                           Technologies       Biophysics
                                           Bombardier         General Electric
                                           Liebert Corp.      Rockwell
                                                              Automation
                                           Siemens            Schneider Toshiba
                                           SMA                B&O
                                           Philips            Chloride
                                           Tyco


                                       6
<PAGE>


    No customer represented more than 10% of our thermal management net sales
during 2001, 2000 or 1999.

    We currently have more than 2,000 licensees of our CFD software. License
revenue is diversified by market sector and geographical market. The following
chart shows our largest customers for CFD software applications by market
sector:

                MARKET                                 CUSTOMERS
                ------                                 ---------


Aerospace..............................  Boeing             Lockheed Martin
                                         British Aerospace  NASA
                                         Komatsu
Automotive.............................  Cummins Engine     Mitsubishi Motor
                                                            Corporation
                                         Ford               Renault
                                         General Motors
Chemical Process.......................  Bayer              3M
                                         Dow Chemical       Shell KSLA
                                         DuPont
Electronics............................  Fujitsu            IBM
                                         Hewlett-Packard    Motorola
HVAC/Appliance.........................  Carrier            Welbilt
                                         Hoover             Whirlpool
                                         Osram/Sylvania
Power Generation.......................  Asea Brown Boveri  Mitsubishi Heavy
                                                            Industries
                                         General Electric   Rolls Royce
                                         Power Systems      Westinghouse


THERMAL MANAGEMENT PRODUCTS AND SERVICES

    We provide total integrated solutions to our thermal management customers.
We have the thermal design know-how to first analyze customers' thermal
management problems at the device-, board- and system-level, to then design,
simulate and prototype thermal management solutions and to finally manufacture,
distribute and support these solutions around the world.

    Our design and applications engineers work concurrently with our customers'
design teams to develop optimal thermal solutions, which are increasingly being
outsourced by our customers. Working as an extension of the product design team,
Applied Thermal Technologies' engineers give customers easy access to our system
design expertise in thermal management on a time-and-materials consulting basis.
Additionally, Applied Thermal Technologies provides for a smooth transition from
system design and validation to complete outsourced product solutions provided
by Aavid Thermalloy.

    We design, manufacture and sell both standard and customized thermal
management products. We seek to become a strategic supplier to our customers and
to differentiate ourselves from our competitors by offering a higher level of
service. We currently offer heat sinks, interface materials and attachment
accessories, fans, heat spreaders and liquid cooling and phase change devices
that we configure to meet customer-specific needs. The prices for our thermal
management products (including attachment devices and interface materials),
depend primarily on cost, the technology used to make the part and its value in
the customer's application. Because of the continued shrinking time-to-market
for most new products and the corresponding contraction of design cycles, we
also offer simulation and modeling software to assist our customers in handling
the complexity of the design of a thermal solution.

                                       7
<PAGE>


     The following is a brief description of our thermal management products and
services:
<TABLE>
<CAPTION>

             PRODUCT OR SERVICE                                DESCRIPTION                                 APPLICATION
             ------------------                                -----------                                 -----------
<S>                                            <C>                                            <C>
Heat Sinks, Fan Heat Sinks and Heat Spreaders  These products are typically made from       -  Removes potentially damaging
                                               aluminum extrusions, stampings, castings        heat from microprocessors and
                                               or multi-technology assemblies. These           integrated circuits in electronics
                                               products have high surface area to volume       applications
                                               ratios and may rely on a fan mounted
                                               directly on the heat sink to increase the
                                               movement of air.

Interface Materials and Attachment             Attachment devices are the spring clips,     -  Increases the effectiveness of
Accessories                                    tapes, adhesives, tabs and similar devices      heat sinks
                                               which are used to attach the heat
                                               sink to the semiconductor or                 -  Promotes a highly efficient
                                               integrated circuit device and/or                thermal transfer between the
                                               to the customer's printed circuit               microprocessor or integrated circuit
                                               board or system chassis.                        and heat sink
                                               Interface materials include                  -  Reduces the cost of the
                                               greases, silicon pads and other                 customer's installation and repair
                                               materials which have desirable               -  Transfers heat from the
                                               thermal and electrical                          component being cooled to the heat
                                               properties. We purchase most of                 sink
                                               these materials on a private
                                               label basis from a number of
                                               suppliers.

Liquid Cooling and Phase Change Devices        These devices include cold plates, heat      -  Moves highly concentrated heat
                                               pipes and other liquid cooling designs          from microprocessors and integrated
                                               that dissipate heat by conducting or            circuits to a location where a
                                               convecting the heat into a liquid, which        traditional heat sink can dissipate
                                               then transfers the heat away from the           heat
                                               source to the ultimate heat sink.

Applied Thermal Technologies' Design Centers   Applied Thermal Technologies' facilities     -  Analyzes customers' thermal
                                               are staffed by technicians with thermal         problems at the device-, board-and
                                               engineering and flow analysis expertise         system-level
                                               and utilize a variety of sophisticated
                                               design, test and validation hardware and
                                               software.
                                                                                            -  Designs, simulates and
                                                                                               prototypes thermal management
                                                                                               solutions efficiently
</TABLE>

COMPUTATIONAL FLUID DYNAMICS SOFTWARE PRODUCTS

    We are the leading provider of general purpose CFD software used to predict
fluid flow, heat and mass transfer, chemical reaction and related phenomena. We
provide CFD-based flow analysis software and consulting services that are used
by engineers in corporations worldwide for the design and analysis of products
and processes. Our software and services help engineers reduce engineering and
product development costs, improve product performance and reduce time-to-market
for new products.

    We currently license our software products to more than 2,000 licensees
worldwide. In North America, we typically license our software products under
one year, renewable agreements. In Europe and the Far East, a significant
portion of our CFD software sales are derived from licenses of this software for
one-time fees; in such situations, we also typically receive annual maintenance
and support fees.

    We have also introduced CFD-based industry-specific products, such as
Icepak, for use by designers and engineers in the electronics cooling industry,
Airpak, for use by designers and engineers in the HVAC industry and Mixsim, for
use by designers and engineers in the chemical mixing industry. We believe that
our relatively easy-to-use, industry-specific products are expanding the CFD
total market beyond its traditional user base of Ph.D.-level engineers in
corporate research and development centers to the larger base of design
engineers.

    We also market engineering consulting services. With over 15 years of CFD
and engineering consulting experience, our worldwide team of CFD professionals
supports clients with senior engineering consultants, experienced CFD analysts,
leading CFD software developers and mesh generation experts. Support services
include expertise in the physics of heat, fluid flow and related phenomena, in
CFD modeling and analysis, and in selection of engineering design solutions. In
addition to providing CFD software expertise and access to high-performance
computing systems, our CFD software consulting group works under contract to
develop software with specific features required by individual clients.

                                       8
<PAGE>


    We provide a complete suite of CFD software products, with each product
designed for a specific task or for optimal performance on a specific class of
problems. The following is a brief description of our CFD software products:

<TABLE>
<CAPTION>

PRODUCT                                                        DESCRIPTION                                   FEATURES
-------                                                        -----------                                   --------
<S>                                             <C>                                         <C>
Fluent                                         Fluent is general purpose CFD software       -  Provides a choice of solver
                                               used across a wide range of industries and      options for optimum convergence and
                                               is ideally suited for incompressible and        accuracy for a wide range of flow
                                               mildly compressible (transonic) and highly      regimes
                                               compressible (supersonic and hypersonic)     -  Structured and solution-adaptive
                                               flows. Fluent contains physical models for      unstructured mesh capability
                                               a wide range of applications including       -  Enables easier problem setup
                                               turbulent flows, heat transfer, reacting
                                               flows, chemical mixing, combustion and
                                               multi-phase flows.

Fidap                                          Fidap is general purpose CFD software for    -  Offers complete mesh flexibility
                                               the simulation of incompressible or          -  Provides a wide range of physical
                                               compressible flows, including prediction        models, with particular strength
                                               of liquid-free surfaces, non-Newtonion          for application in the materials
                                               rheology and advanced radiation modeling.       processing, biomedical,
                                                                                               semiconductor, food paper and
                                                                                               chemical industries

Icepak                                         Icepak is a fully-interactive,               -  Used for component-, board- and
                                               object-based CFD software tool                  cabinet- level design
                                               specifically designed to analyze air flow    -  Reduces design costs
                                               and thermal management in electronics        -  Reduces the time-to-market of
                                               design.                                         high-performance electronic systems

Airpak                                         Airpak, like Icepak, is a                    -  Used to determine the layout of
                                               fully-interactive, object-based CFD             ventilation systems in rooms and
                                               software tool. Airpak is specifically           buildings in order to provide maximum
                                               designed to analyze air flow,                   comfort and air quality.
                                               contamination and thermal comfort in room    -  Assesses the risk of airborn
                                               and building designs.                           contamination
                                                                                            -  Improves the energy performance of
                                                                                               heating and cooling designs.

GAMBIT                                         GAMBIT supports a single user interface      -  Reduces the time to create a CFD
                                               for geometry creation and meshing.              model
                                               Different CFD problems require different     -  Allows users to import geometries
                                               mesh types, and GAMBIT brings together all      created under other CAD/CAE
                                               of Fluent's options in one environment.         packages into the Fluent suite of
                                                                                               software products.

                                                                                            -  Enables users to automatically
                                                                                               create unstructured tetrahedral
                                                                                               meshes for extremely complex
                                                                                               geometries
                                                                                            -  Provides a concise and powerful
                                                                                               set of solid modeling-based geometry
                                                                                               tools with both geometry and
                                                                                               "clean-up" functions
</TABLE>


SALES AND SUPPORT

    We sell our thermal management products and CFD software primarily through a
global network of direct sales personnel, manufacturers' representatives, agents
and a network of independent distributors. We provide support services to our
customers, particularly in the CFD software area where we believe that
high-quality support service is critical to the success of the CFD software
business. Aavid Thermalloy (including Applied Thermal Technologies) and Fluent
both have their own sales, support and marketing personnel, all of whom
cross-sell each other's products and services where appropriate. We currently
employ approximately 240 sales, support and marketing personnel.

TECHNOLOGY

    We believe that technology leadership is essential to our growth strategy
and have focused our approximately 199 Ph.D.s and 290 engineers on the
development of technology in two areas:

                                       9
<PAGE>


THERMAL MANAGEMENT TECHNOLOGY

    We believe that we are a technology leader in thermal management due to our
extensive design expertise, technical manufacturing capabilities and process
technology. We intend to develop new technologies and to enhance existing
technologies in order to meet our customers' needs for higher performance
products on a timely basis.

    We have developed proprietary software tools (analytical models) which
enable fast approximation answers for a large class of thermal management
problems which, in turn, permits quicker design and prototyping of thermal
solutions. We have extensive prototyping capabilities and state-of-the-art
thermal laboratory facilities, including a wind tunnel which allows us to test
and validate the design of thermal solutions.

    As part of Aavid Thermalloy, Applied Thermal Technologies leverages Aavid
Thermalloy's capabilities and Icepak's technology to assist customers in
analyzing their thermal problems at the device-, board- and system-levels and to
efficiently design, simulate and prototype thermal management solutions. By
entering into the customer relationship at the onset of the product design
cycle, Applied Thermal Technologies greatly enhances our knowledge of future
industry trends, including technology development and acceptance. Additionally,
Applied Thermal Technologies provides a smooth transition from design and
validation to outsourced manufacturing with Aavid Thermalloy.

COMPUTATIONAL FLUID DYNAMIC SOFTWARE TECHNOLOGY

    We believe that we are the technology leader in CFD software. Fluent's CFD
software includes:

    -   automatic unstructured mesh generation, which allows the automatic
        creation of meshes,

    -   numerical algorithms for the accurate solution of fluid flow equations
        on structured and unstructured meshes,

    -   solution adaptive mesh which allows for interactive mesh refinement to
        provide improved solution accuracy,

    -   state-of-the-art physical models for important fluid flow phenomena such
        as turbulence, turbulence-chemistry interactions, free surface flows and
        multiphase flows,

    -   algorithms for efficient execution on multi-processor computers and
        distributed computer networks,

    -   interactive client/server architecture with a flexible and customizable
        user interface, and

    -   post-processing and data analysis tools.

PRODUCT DEVELOPMENT

    Our thermal management product development activities are focused on
lowering production costs, improving thermal characteristics and ease of
attachment of conventional heat sinks, and developing new thermal management
products and technologies to address the emerging and anticipated thermal
management problems of our customers. We are developing new products, both
internally as well as through collaborative efforts with third parties. These
development efforts are directed toward: heat sink characterization and
optimization; fan designs; air flow management; boundary layer optimization and
focused flow; re-circulating passive and active cooling systems including heat
pipes; thermoelectric coolers, which use electricity to create a temperature
difference across an interface between the electronic device and a heat sink;
liquid and sub-ambient cooling systems; tab and surface mount heat sink
attachment methods; vacuum die casting; engineered materials and net shape part
manufacturing technology; direct chip mounting to extruded heat sinks; and
highly thermally conductive adhesive and interface systems.

                                       10
<PAGE>


    Our CFD product development activities are focused on enhancing the
capabilities of its solvers, implementing new physical models to increase the
range of applications and developing front-end user interfaces that are easy to
use for engineers in specific industries. We are also focusing on various
application and industry-specific CFD software projects which we believe will
enable us to penetrate the design engineering market.

SUPPLIERS

    We purchase raw aluminum, aluminum extrusion, aluminum coil and various
components from a limited number of outside sources. We purchase substantially
all of our aluminum coil stock from a single supplier. We believe that
purchasing aluminum extrusion and coil stock from a limited number of suppliers
is necessary to obtain lower prices and to consistently achieve the tolerances
and design and delivery flexibility that we require.

    For raw aluminum extrusion and coil stock, we typically make purchasing
commitments to key suppliers of up to 24 months. In return, these suppliers
commit to maintaining local inventory and to reserving run-time on their
critical machines. The cost of aluminum extrusion is generally negotiated
annually, with the price adjusted monthly, based upon the changes in the price
of aluminum ingot, which has historically been highly cyclical.

COMPETITION

    Our thermal management products business competes with a number of major
providers of thermal management products located in the United States, Asia and
Europe. Two of our most significant competitors are Hon Hai Precision Components
Manufacturing (d/b/a Foxconn) and Wakefield Engineering, Inc. Foxconn is a
Taiwan-based company that sells thermal management products as part of its
broader electronic components products portfolio. Wakefield is a subsidiary of
publicly traded Alpha Technologies Group, Inc. and mainly focuses on thermal
management products for industrial electronics applications.

    In addition, there are a large number of smaller heat sink companies, as
well as hundreds of machine shops, that fabricate heat sinks, usually under
subcontract with an OEM customer. Further, some aluminum die casters offer cast
heat sinks, and a number of aluminum extruders sell heat sink products and
fabrication capability, including aluminum extruders serving the automotive
industry and the power conversion market.

    Fluent currently competes with a number of privately held companies,
primarily on the basis of product performance. To the extent that Fluent expands
into additional application and industry-specific markets, it will encounter
additional competition from software companies already serving such specific
markets. In addition, certain CFD software is available in the public domain.

BACKLOG AND LICENSE RENEWAL

    Our hardware products typically are produced and shipped within two months
of the receipt of orders and, accordingly, we operate with little backlog. As a
result, net sales in any quarter generally are dependent on orders booked and
shipped in that quarter. All orders are subject to cancellation or rescheduling
by customers. Because of our quick turn of orders to shipments, the timing of
orders, delivery intervals, customer and product mix and the possibility of
customer changes in delivery schedules, we do not believe our backlog at a
particular date is a reliable indicator of actual sales for any succeeding
period.

    Our software products are typically sold under annual license agreements. In
recent years, approximately 80% of our annual software license revenue was
renewed in the following year.

EMPLOYEES

    As of December 31, 2001 we had a total of 2,218 employees including
approximately 500 contract employees in China. Except for the employees in our
manufacturing facility in Mexico, none of our employees are represented by labor
unions or collective bargaining units. We believe that our relationship with our
employees is good.

                                       11
<PAGE>


RISK FACTORS

    This Annual Report on Form 10-K contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. All statements regarding our expected
future financial position, results of operations, cash flows, financing plans,
business strategy, competitive position, plans and objectives and words such as
"anticipate," "believe," "estimate," "expect," "intend," "plan" and other
similar expressions are forward-looking statements. Such forward looking
statements are inherently uncertain, and holders of our securities must
recognize that actual results could differ materially from those projected or
contemplated in the forward-looking statements as a result of a variety of
factors, including the factors set forth below. Holders of our securities should
not place undue reliance on these forward-looking statements.

    The forward-looking statements speak only as of the date on which they are
made, and we undertake no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which the statement is made or
to reflect the occurrence of unanticipated events. In addition, we cannot assess
the effect of each factor on our business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.

RISKS RELATING TO OUR BUSINESS

    WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR INTERNAL GROWTH.

    Having recently gone through a reduction of our workforce and capacity due
to economic events in 2001, we intend to increase our thermal products and
software businesses overseas, expand the products and services we offer, and
possibly make selective acquisitions as the economy improves. This growth and
expansion may place a significant strain on our production, technical, financial
and other management resources. To manage growth effectively, we must maintain a
high level of manufacturing quality, efficiency, delivery and performance and
must continue to enhance our operational, financial and management systems, and
attract, train, motivate and manage our employees. We may not be able to
effectively manage this expansion, and any failure to do so could have a
material adverse effect on our business and financial condition.

    OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY.

    Our quarterly and annual operating results are affected by a wide variety of
factors, many of which are outside our control, that have in the past and could
in the future materially and adversely affect our net sales, gross margins and
profitability. These factors include:

    -    the volume and timing of orders received;

    -    competitive pricing pressures;

    -    the availability and cost of raw materials;

    -    changes in the mix of products and services sold;

    -    potential cancellation or rescheduling of orders;

    -    general economic conditions;

    -    changes in the level of customer inventories of our products;

    -    the timing of new product and manufacturing process technology
         introductions by us or our competitors;

    -    the availability of manufacturing capacity; and

    -    market acceptance of new or enhanced products introduced by us.

                                       12
<PAGE>


    Additionally, our growth and results of operations have in the past been,
are currently being and would in the future be, adversely affected by downturns
in the semiconductor or electronics industries. Our ability to reduce costs
quickly in response to revenue shortfalls is limited, and this limitation will
be exacerbated to the extent we continue to add additional manufacturing
capacity. The need for continued investment in research and development could
also limit our ability to reduce expenses accordingly. As a result of these
factors, we expect our operating results to continue to fluctuate. Results of
operations in any one quarter should not be considered indicative of results to
be expected for any future period, and fluctuations in operating results may
also cause fluctuations in the market price of the senior subordinated notes. We
cannot provide assurance that the overall thermal management market, the
segments of the market served by us or we will continue to grow in the future.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations."

    OUR BUSINESS IS DEPENDENT ON THE SEMICONDUCTOR MARKET.

    A significant portion of our net sales has been, and is expected to continue
to be, dependent upon sales of thermal management products for industrial
electronics applications, consisting primarily of integrated circuits and for
computer and networking applications, consisting primarily of microprocessors
and related chip sets. Our sales for industrial electronics applications
accounted for approximately 52%, 51% and 34% of our net sales in 2001, 2000 and
1999, respectively. Our sales for computer and networking applications accounted
for approximately 15%, 29% and 41% of our net sales in 2001, 2000 and 1999,
respectively. The thermal management market for computer and networking
applications is characterized by rapid technological change, short product life
cycles, greater pricing pressure and increasing foreign and domestic competition
as compared to the thermal management market for industrial electronics
applications.

    Future growth will, to a significant extent, depend upon increased demand
for semiconductor devices and products that require thermal solutions. The
semiconductor industry (both computer and networking and industrial) has
historically been cyclical and subject to significant economic downturns
characterized by diminished product demand and eroding average selling prices. A
decrease in demand for semiconductor products would reduce demand for our
products and have an adverse impact on our results of operations. Further,
semiconductor manufacturers and their customers, in developing and designing new
products, typically seek to eliminate or minimize thermal problems, and such
efforts could have the effect of reducing or eliminating demand for certain of
our products. Additionally, we believe that many of our OEM customers compete in
intensely competitive markets characterized by declining prices and low margins.

    These OEMs apply continued pricing pressure on their component suppliers,
including us. We cannot provide assurance that we will not be adversely affected
by cyclical conditions in the semiconductor and electronics industries.

    The semiconductor industry continues to be in an economic slump and demand
for industrial and consumer electronics contracted significantly during 2001.
This situation adversely affected our results of operation for 2001, and will
likely adversely affect our results of operation into at least the second half
of 2002.

    CHANGES IN THE AVAILABILITY OR PRICE OF ALUMINUM CAN SIGNIFICANTLY AFFECT
    OUR BUSINESS AND RESULTS OF OPERATIONS.

    Aluminum is the principal raw material used in our products and represents a
significant portion of our cost of goods sold. We purchase raw aluminum,
aluminum extrusion, aluminum coil and various components from a limited number
of outside sources. During the years ended December 31, 2001, 2000 and 1999, we
purchased a significant portion of our aluminum coil stock from a single
supplier. We believe that purchasing aluminum extrusion and coil stock from a
limited number of suppliers is necessary in order to obtain lower prices and to
achieve, consistently, the tolerances and design and delivery flexibility that
we require. If the available supply of aluminum declines, or if one or more of
our current suppliers is unable for any reason to meet our requirements, is
acquired by a competitor or determines to compete with us, we could experience
cost increases, a deterioration of service from our suppliers, or interruptions,
delays or a reduction in raw material supply that may cause us to fail to meet
delivery schedules to customers. Although we believe that viable alternate
suppliers exist for the aluminum coil stock and components, any unanticipated
interruption of supply would have a short-term material adverse effect on us.

                                       13
<PAGE>


    In addition, our ability to pass price increases for aluminum or other raw
materials along to our customers may be limited by competitive pressures,
customer resistance and price adjustment limitations in our product purchase
contracts with our customers. Even if we are able to pass along all or a portion
of raw material price increases, there is typically a lag of three to twelve
months between the actual cost increase of raw material and the corresponding
increase in the prices of our products. We cannot provide assurance that in the
future we will be able to recover increased aluminum or other raw material costs
through higher prices to our customers. Market prices for raw aluminum, which
have historically been cyclical and highly volatile, have a significant effect
on our gross margin. An increase in the market price for aluminum could have a
material adverse effect upon our results of operations and business. See "Our
operating results may fluctuate significantly."

    WE SUPPLY PRODUCTS AND SERVICES TO INDUSTRIES THAT EXPERIENCE RAPID
    TECHNOLOGICAL CHANGE, WHICH MAY MAKE OUR PRODUCTS OBSOLETE.

    The markets for our products are characterized by rapidly changing
technology, frequent new product introductions and enhancements and rapid
product obsolescence. Our future success will be highly dependent upon our
ability to continually enhance or develop new thermal and software products,
materials, manufacturing processes and services in order to keep pace with the
technological advancements of our customers and their corresponding increasingly
complex thermal management and computational fluid dynamics software needs. We
may not be able to identify new product trends or opportunities, develop and
bring to market new products or respond effectively to new technological changes
or product announcements by others, develop or obtain access to advanced
materials, or achieve commercial acceptance of our products. In addition, other
companies, including our customers, may develop products or technologies which
render our products or technologies noncompetitive or obsolete.

    WE FACE INTENSE COMPETITION, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO
    MAINTAIN OR INCREASE SALES OF OUR PRODUCTS.

    The markets for thermal management products and computational fluid dynamics
software are highly competitive. Certain of our competitors, which include
divisions or subsidiaries of large companies, may have greater technical,
financial, research and development and marketing resources than we do. Further,
we expect that as the trend toward outsourcing continues, a number of new
competitors may emerge, some of which may have greater technical, financial,
research and development and marketing resources than we do. Our ability to
compete successfully depends upon a number of factors, including price, customer
acceptance of our products, cost effective high-volume manufacturing, proximity
to customers, lead times, ease of installation of our products, new product and
manufacturing process technology introductions by us and our competitors, access
to new technologies and general market and economic conditions. We cannot
provide assurance that we will be able to compete successfully in the future
against existing or potential competitors, or that our operating results will
not be adversely affected by increased price competition. In addition, our
customers for thermal management and software products may manufacture or
develop such products internally or actively support new entrants into our
market rather than purchase thermal products from us. Further, many of our
customers like to maintain dual sources for thermal management products.

    OUR BUSINESS EXPERIENCES SEASONAL VARIATIONS.

    Our CFD software business has experienced and is expected to continue to
experience significant seasonality due to, among other things, the second and
third quarter slowdown in software revenues primarily due to the purchasing and
budgeting patterns of Fluent's software customers. In addition, our thermal
management business has experienced slight seasonal variations due to the
slowdown during the third quarter's summer months which historically has
occurred in the electronics industry. Typically, our revenues are lowest during
the second and third quarters of the fiscal year, which ends in December.

    WE DEPEND ON KEY PERSONNEL AND SKILLED EMPLOYEES WHO MAY NOT REMAIN WITH US
    IN THE FUTURE.

    Our success depends to a large extent upon the continued services of our
senior management and technical personnel. Our business also depends upon our
ability to retain skilled and semi-skilled employees. There is intense
competition for qualified management and skilled and semi-skilled employees and
our failure to recruit, train and retain such employees could adversely affect
our business.

                                       14

<PAGE>


    OUR INTERNATIONAL OPERATIONS EXPOSE US TO ADDITIONAL RISKS.

    We currently have multiple international manufacturing locations to better
service our customers, many of whom have moved their manufacturing operations
and expanded their business overseas. International operations are subject to a
number of risks, including:

    -    greater difficulties in controlling and administering business;

    -    less familiarity with business customs and practices;

    -    increased reliance on key local personnel;

    -    the imposition of tariffs and import and export controls;

    -    changes in governmental policies (including U.S. policy toward
         these countries);

    -    difficulties caused by language barriers;

    -    increased difficulty in collecting receivables;

    -    availability of, and time required for, the transportation of products
         to and from foreign countries;

    -    political instability;

    -    foreign currency fluctuations; and

    -    expropriation and nationalization.

    The occurrence of any of these or other factors may have a material adverse
effect on our results of operations and could have an adverse effect on our
relationships with our customers. Furthermore, the occurrence of certain of
these factors in countries in which we operate could result in the impairment or
loss of our investment in such countries. The trend by our customers to move
manufacturing operations and expand their business overseas may have an adverse
impact on our sales of domestically manufactured products.

    A part of our net sales is currently derived from products manufactured at
our manufacturing facility in Guang Dong Province in The People's Republic of
China. We commenced manufacturing at this facility in early 1998 and currently
maintain 120,000 square feet of manufacturing space. We only have limited
experience in managing operations in China and, although we have focused
significant management resources on this operation, we cannot provide assurance
that this business will be successful. An inability to successfully manage this
business or an interruption in the operations at this facility could have a
material adverse effect on our overall financial performance until we are able
to obtain substitute production capability with similar low operating costs. We
have additional manufacturing facilities in North America, Southern Asia and
Europe.

    WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY.

    Our success depends in part on our proprietary technology. We attempt to
protect our proprietary technology through patents, copyrights, trademarks,
trade secrets and license agreements. We believe, however, that our success will
depend to a greater extent upon innovation, technological expertise and
distribution strength. We cannot provide assurance that we will be able to
protect our technology, or that our competitors will not be able to develop
similar technology independently. We cannot provide assurance that the claims
allowed on any patents held by us will be sufficiently broad to protect our
technology. In addition, no assurance can be given that any patents issued to us
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide competitive advantages to us. In addition, effective
patent, copyright and trade secret protection may be unavailable or limited in
certain foreign countries in which we conduct business. Although we believe that
our products and technology do not infringe upon proprietary rights of others,
there can be no assurance that third parties will not assert infringement claims
in the future. Moreover, litigation may be necessary in the future to enforce
our patents, copyrights and other intellectual property rights, to protect our
trade secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on our financial condition and results of
operations.

                                       15
<PAGE>


    WE ARE SUBJECT TO EXTENSIVE ENVIRONMENTAL AND OTHER REGULATIONS.

    We are subject to a variety of United States and foreign environmental laws
and regulations, including those relating to the use, storage, treatment,
discharge and disposal of hazardous materials, substances and wastes used to
manufacture our products and remediation of soil and groundwater contamination.
Public attention has increasingly been focused on the environmental impact of
operations that use hazardous materials. Some of the environmental laws impose
strict, and in certain cases joint and several, liability for response costs at
contaminated properties on their owners or operators, or on persons who arranged
for the disposal of regulated materials at these properties. Our operations are
also governed by laws and regulations relating to workplace safety and worker
health, principally the Occupational Safety and Health Act and regulations
thereunder which, among other requirements, establish noise and dust standards.
We believe we are in material compliance with applicable environmental, health
and safety requirements. Our failure to comply with present or future laws or
regulations could result in substantial liability to us. We cannot predict the
nature, scope or effect of legislation or regulatory requirements that could be
imposed or how existing or future laws or regulations will be administered or
interpreted with respect to products or activities to which they have not
previously applied. Enactment of more stringent laws or regulations, as well as
more vigorous enforcement policies of regulatory agencies or discovery of
previously unknown conditions requiring remediation, could require substantial
expenditures by us and could adversely affect our results of operations.

RISKS RELATED TO OUR INDEBTEDNESS

    OUR SUBSTANTIAL DEBT COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND
    PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE SENIOR SUBORDINATED
    NOTES.

    We have a substantial amount of debt. The following chart shows certain
important credit statistics:

                                                     AS OF DECEMBER 31,
                                                           2001
                                                  ----------------------
                                                  (DOLLARS IN THOUSANDS)

Total debt (including current portion)                  $ 175,832
Stockholders' deficit                                     (56,956)
Debt to stockholders' equity                                N/A

    Since September 29, 2001 the Company has not been in compliance with certain
financial covenants under the amended and restated credit facility. The Company
has notified its lenders concerning the noncompliance. The resulting event of
default has not been waived by the Company's lenders; accordingly, following the
forbearance period described below, the lenders could demand full payment of all
amounts outstanding under the amended and restated credit facility. As a result
of the event of default, the Company classified $17.0 million outstanding under
the revolving credit facility, $38.2 million outstanding under the term facility
and $119.7 million of 12 3/4 % Senior Subordinated Notes as current on its
December 31, 2001 balance sheet. On January 29th, 2002, the Company entered into
a forbearance agreement with its senior lenders pursuant to which Aavid's senior
lenders will forbear through May 31, 2002 with respect to certain covenant
noncompliance issues. The forbearance agreement, among other things, also
required the Company's owners to contribute $12.0 million of additional equity
and allowed the Company to pay its semi-annual interest payment due February 1,
2002 on its 12 3/4% Senior Subordinated Notes. The forbearance agreement also
required the Company to accelerate a principal payment of $2.0 million on the
term loan that was originally due on March 31, 2002. This payment of $2.0
million was made at the time of the signing of the forbearance agreement. We are
seeking to either amend our current Senior Credit Facility with our existing
lenders or secure a new Senior Credit Facility with new lenders by May 31, 2002.
There can be no assurance that the Company will be successful in negotiating
favorable terms with its existing lenders or securing a new financing
arrangement. As a result of the uncertainty with respect to the new financing,
the Company's auditors, for the year ended December 31, 2001, have rendered a
"going concern" opinion for the Company. See page 47.

                                       16
<PAGE>


    Our substantial indebtedness and our need to restructure our existing credit
facility with our senior lenders or with new lenders could have important
consequences to holders of our senior subordinated notes. For example, it could:

    -   make it difficult for us to satisfy our obligations with respect to the
        senior subordinated notes and our obligations under our amended and
        restated credit facility;

    -   require us to dedicate a substantial portion of our cash flow from
        operations to payments on our debt, which will reduce amounts available
        for working capital, capital expenditures, research and development and
        other general corporate purposes;

    -   limit our flexibility in planning for, or reacting to, changes in our
        business and the industry in which we operate;

    -   increase our vulnerability to general adverse economic and industry
        conditions;

    -   place us at a competitive disadvantage compared to our competitors
        with less debt; and

    -   limit our ability to borrow additional funds.

    The terms of the indenture governing our senior subordinated notes do not
fully prohibit us or our subsidiaries from incurring substantial additional debt
in the future. Our amended and restated credit facility also permits additional
borrowing. All of the borrowings under the amended and restated credit facility
are senior to the senior subordinated notes. If new debt is added to our current
debt levels, the related risks that we now face could intensify.

    In addition, a portion of our debt, including debt incurred under our
amended and restated credit facility, bears interest at variable rates. An
increase in the interest rates on our debt will reduce the funds available to
repay the senior subordinated notes and our other debt and for operations and
future business opportunities and will intensify the consequences of our
leveraged capital structure. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations" for a description of our
amended and restated credit facility and the senior subordinated notes.

    TO SERVICE OUR DEBT, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH, WHICH
    DEPENDS ON MANY FACTORS BEYOND OUR CONTROL.

    Our ability to make payments on and to refinance our debt, including the
senior subordinated notes and the amended and restated credit facility, will
depend on our ability to generate cash in the future. This, to an extent, is
subject to general economic, financial, competitive, legislative, regulatory and
other factors that are beyond our control.

    We cannot provide assurance that our business will generate sufficient cash
flow or that future borrowings will be available to us in an amount sufficient
to enable us to pay our debt, including the senior subordinated notes, or to
fund our other liquidity needs. If our future cash flow from operations and
other capital resources are insufficient to pay our obligations as they mature
or to fund our liquidity needs, we may be forced to reduce or delay our business
activities and capital expenditures, sell assets, obtain additional equity
capital or restructure or refinance all or a portion of our debt, including the
senior subordinated notes, on or before maturity. We cannot assure noteholders
that we will be able to refinance any of our debt, including the senior
subordinated notes, on a timely basis or on satisfactory terms if at all.

    In addition, the terms of our existing debt, including the senior
subordinated notes and the amended and restated credit facility, and other
future debt may limit our ability to pursue any of these alternatives.

                                       17
<PAGE>


    OUR AMENDED AND RESTATED CREDIT FACILITY AND THE INDENTURE IMPOSE
    OPERATIONAL AND FINANCIAL RESTRICTIONS ON US.

Our amended and restated credit facility and the indenture under which our
senior subordinated notes were issued include restrictive covenants that, among
other things, restrict our ability to:

    -        incur more debt;

    -        pay dividends and make distributions;

    -        issue stock of subsidiaries;

    -        make certain investments;

    -        repurchase stock;

    -        create liens;

    -        enter into transactions with affiliates;

    -        enter into sale-leaseback transactions;

    -        merge or consolidate; and

    -        transfer and sell assets.

    Our amended and restated credit facility also requires us to maintain
financial ratios. All of these restrictive covenants may restrict our ability to
expand or to pursue our business strategies. Our ability to comply with these
and other provisions of our indenture and amended and restated credit facility
may be affected by changes in our business condition or results of operations,
adverse regulatory developments or other events beyond our control. As discussed
above, we are currently not in compliance with several of these ratios which has
resulted in a default under our debt. We could be prohibited from making
payments with respect to the senior subordinated notes until the default is
cured or all debt under the amended and restated credit facility or other senior
debt is paid in full. This default could allow our creditors to accelerate the
related debt, as well as any other debt to which a cross-acceleration or
cross-default provision applies. If our indebtedness were to be accelerated, we
cannot provide assurance that we would be able to repay it. In addition, a
default could give the lenders the right to terminate any commitments they had
made to provide us with further funds.

RISKS RELATED TO THE SENIOR SUBORDINATED NOTES

    OUR CONTROLLING STOCKHOLDER, WILLIS STEIN, MAY HAVE INTERESTS THAT CONFLICT
    WITH HOLDERS OF THE SENIOR SUBORDINATED NOTES.

    We are a wholly owned subsidiary of Heat Holdings Corp., whose equity
securities are held by Willis Stein and some co-investors. Through its
controlling interest in Aavid and pursuant to the terms of the security holders'
agreement among the equity investors, Willis Stein has the ability to control
the operations and policies of Aavid. Circumstances may occur in which the
interests of Willis Stein, as the controlling equity holder, could be in
conflict with the interests of the holders of the senior subordinated notes. In
addition, the equity investors may have an interest in pursuing acquisitions,
divestitures or other transactions that, in their judgment, could enhance their
equity investment, even though such transactions might involve risks to the
holders of the senior subordinated notes.

    THE SENIOR SUBORDINATED NOTES ARE CONTRACTUALLY SUBORDINATED IN RIGHT OF
    PAYMENT TO OUR SENIOR DEBT.

    The senior subordinated notes are senior subordinated obligations of Aavid
ranking junior to all of our existing and future senior debt, equal in right of
payment with all of our existing and future senior subordinated debt and senior
in right of payment to any of our subordinated debt. The senior subordinated
notes are contractually subordinated in right of payment to borrowings under our
amended and restated credit facility.

    As of December 31, 2001, we had $55.2 million of senior debt outstanding,
all of which was secured debt. The indenture limits, and in some (but not all)
instances prohibits, the incurrence of additional debt.

                                       18
<PAGE>


    In addition, all payments on the senior subordinated notes will be blocked
in the event of a payment default under the amended and restated credit facility
and may be blocked for up to 179 consecutive days in any given year in the event
of non-payment defaults on senior debt. In the event of a default on the senior
subordinated notes and any resulting acceleration of the senior subordinated
notes, the holders of senior debt then outstanding will be entitled to payment
in full in cash of all obligations in respect of such senior debt before any
payment or distribution may be made with respect to the senior subordinated
notes.

    In a bankruptcy, liquidation or reorganization or similar proceeding
relating to us, holders of the senior subordinated notes will participate with
trade creditors and all other holders of subordinated debt in the assets
remaining after we have paid all of the senior debt. However, because the
indenture requires that amounts otherwise payable to holders of the senior
subordinated notes in a bankruptcy or similar proceeding be paid to holders of
senior debt instead, holders of the senior subordinated notes may receive
proportionately less than holders of trade payables in any such proceeding. In
any of these cases, we cannot provide assurance that sufficient assets will
remain to make any payments on the senior subordinated notes.

    WE ARE A HOLDING COMPANY AND OUR ONLY SOURCE OF CASH TO PAY INTEREST ON AND
    THE PRINCIPAL OF THE SENIOR SUBORDINATED NOTES IS DISTRIBUTIONS FROM OUR
    SUBSIDIARIES.

    We are a holding company with no business operations of our own. Our only
significant asset is and will be our equity interests in our subsidiaries. We
conduct all of our business operations through our subsidiaries. Accordingly,
our only source of cash to make payments of interest on and principal of the
senior subordinated notes is distributions with respect to our ownership
interest in our subsidiaries from the net earnings and cash flows generated by
such subsidiaries.

    WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS NECESSARY TO FINANCE THE
    CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE.

    If we undergo a "change of control," as defined in the indenture under which
the senior subordinated notes were issued, we must offer to buy back the senior
subordinated notes for a price equal to 101% of the principal amount, plus
interest that has accrued but has not been paid as of the repurchase date. We
cannot assure note holders that we will have sufficient funds available to make
the required repurchases of the senior subordinated notes in that event, or that
we will have sufficient funds to pay our other debts. In addition, our amended
and restated credit facility prohibits us from repurchasing the senior
subordinated notes after a change of control until we have repaid in full our
debt under such credit facility. If we fail to repurchase the senior
subordinated notes upon a change of control, we will be in default under both
the senior subordinated notes and our amended and restated credit facility. Any
future debt that we incur may also contain restrictions on repurchases in the
event of a change of control or similar event.

    THE SENIOR SUBORDINATED NOTES AND THE GUARANTEES COULD BE VOIDED OR
    SUBORDINATED TO OUR OTHER DEBT IF THE ISSUANCE OF THE SENIOR SUBORDINATED
    NOTES OR THE GUARANTEES CONSTITUTED A FRAUDULENT CONVEYANCE.

    If a bankruptcy case or lawsuit is initiated by our unpaid creditors, the
debt represented by the senior subordinated notes and the guarantees of the
senior subordinated notes by certain of our subsidiaries may be reviewed under
the federal bankruptcy laws and comparable provisions of state fraudulent
transfer laws. Under these laws, the debt could be voided, or claims in respect
of the senior subordinated notes and the guarantees could be subordinated to all
other debts of Aavid or its subsidiaries if, among other things, the court found
that, at the time we incurred the debt represented by the senior subordinated
notes and the subsidiaries incurred the debt represented by the guarantee, we or
any subsidiary:

    -   received less than reasonably equivalent value or fair consideration
        for the incurrence of such debt; and

    -   were insolvent or rendered insolvent by reason of such incurrence; or

    -   were engaged in a business or transaction for which the remaining assets
        constituted unreasonably small capital; or

    -   intended to incur, or believed that we or a subsidiary executing a
        guarantee thereof would incur, debts beyond the ability to pay such
        debts as they matured; or

    -   intended to hinder, delay or defraud creditors.

                                       19
<PAGE>


    The measure of insolvency for purposes of fraudulent transfer laws varies
depending on the law applied. Generally, however, a debtor would be considered
insolvent if:

    -   the sum of its debts, including contingent liabilities, were greater
        than the fair saleable value of all of its assets; or

    -   the present fair saleable value of its assets was less than the amount
        that would be required to pay its probable liability on its existing
        debts, including contingent liabilities, as they become absolute and
        mature; or

    -   it could not pay its debts as they become due.

    EFFECT OF ORIGINAL ISSUE DISCOUNT ON HOLDERS OF THE SENIOR SUBORDINATED
    NOTES.

    The senior subordinated notes are considered to have been issued with
original issue discount. Holders of the senior subordinated notes are required
to include the accretion of the original issue discount in gross income for U.S.
federal income tax purposes in advance of receipt of the cash payments to which
such income is attributable. If a bankruptcy case is commenced by or against us
under the United States Bankruptcy Code, the claim of a holder of senior
subordinated notes with respect to the principal amount thereof may be limited
to an amount equal to the sum of (i) the purchase price and (ii) that portion of
the original issue discount which has been amortized as of the date of any such
bankruptcy filing.

ITEM 2. PROPERTIES

    Aavid Thermalloy has a total of approximately 580,000 square feet of
manufacturing space with locations in Laconia, New Hampshire; Monterrey, Mexico;
the United Kingdom; Italy; Germany (Curamik facility); Malaysia; Singapore;
Taiwan; China; and Toronto, Canada. We employ a broad range of aluminum
fabrication and processing capabilities. Manufacturing operations consist of
cutting, stamping, machining, assembling and finishing, including anodizing
capabilities. We have a substantial in-house tool and die capability that
enables us to create our own extrusion and progressive stamping dies and other
production tooling. A key element of our business strategy has been to expand
internationally. Many of our customers have short product cycles that demand
facilities to support quick-ramp, high-volume, high-quality manufacturing at
their geographically dispersed manufacturing locations. We plan to continue to
build or acquire additional manufacturing facilities overseas to better service
our customers, many of whom have moved manufacturing operations and expanded
their business overseas. Fluent's total sales, marketing, development, and
support facilities consist of approximately 170,000 square feet.

    There can be no assurance that our expansion of our foreign operations will
be successful. Foreign operations are subject to a number of risks including:
work stoppages; transportation delays and interruptions; expropriation;
nationalization; misappropriation of intellectual property; imposition of
tariffs, foreign currency fluctuations and import and export controls; changes
in governmental policies (including U.S. policy toward these countries); and
other factors which could have an adverse effect on our business. In addition,
we may be subject to risks associated with the availability of, and time
required for, the transportation of products to and from foreign countries. The
occurrence of any of these factors may delay or prevent the delivery of goods
ordered by customers, and such delay or inability to meet customers'
requirements would have a materially adverse effect our results of operations
and could have an adverse effect on the our relationships with our customers.
Furthermore, the occurrence of certain of these factors in countries where we
own or operate manufacturing facilities could result in the impairment or loss
of our investment in such countries.

    In 2001, due to excess capacity resulting from a significant slowdown in the
primary industries serviced by our customers, we closed the Dallas and Terrell,
Texas facilities. In addition, on December 28, 2001 we sold our Franklin, NH
extrusion facility.

                                       20
<PAGE>


We currently operate in the following locations:

<TABLE>
<CAPTION>

U.S. LOCATIONS                            PRINCIPAL ACTIVITY
--------------                            ------------------
<S>                                       <C>
Concord, NH.............................  Corporate Offices, Aavid Thermalloy Corporate Offices
Chicago, IL.............................  Fluent-Software Development, Sales and Marketing
Dallas, TX..............................  Curamik-Sales and Marketing
Laconia, NH.............................  Aavid Thermalloy-Manufacturing
Lebanon, NH.............................  Fluent-Software Development, Sales and Marketing
Santa Clara, CA.........................  Applied Thermal Technologies-Research and Development and
                                          Consulting

INTERNATIONAL LOCATIONS                   PRINCIPAL ACTIVITY
-----------------------                   ------------------
Toronto, Canada.........................  Aavid Thermalloy-Manufacturing
Monterrey, Mexico.......................  Aavid Thermalloy-Manufacturing
Eschenbach, Germany.....................  Curamik-Manufacturing
Darmstadt, Germany......................  Fluent-Software Sales and Marketing
Swindon, U.K............................  Aavid Thermalloy-Manufacturing
Sheffield, U.K..........................  Fluent-Software Development, Sales and Marketing
Bologna, Italy..........................  Aavid Thermalloy-Manufacturing
Le Bretonneaux, France..................  Fluent-Software Sales and Marketing
Malacca, Malaysia.......................  Aavid Thermalloy-Manufacturing
Guang Dong Prov., PRC...................  Aavid Thermalloy-Manufacturing
Singapore...............................  Aavid Thermalloy-Manufacturing
Taipei, Taiwan..........................  Aavid Thermalloy-Manufacturing
Pune, India.............................  Fluent-Software Development, Sales and Marketing
Tokyo, Japan............................  Fluent-Software Development, Sales and Marketing
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

    Following the public announcement of the merger with Heat Merger Corp.,
lawsuits were filed against us, Willis Stein, our directors, and one former
director in the Court of Chancery of the State of Delaware by certain of our
stockholders. The complaints alleged, among other things, that our directors
breached their fiduciary duties and sought to enjoin, preliminarily and
permanently, the merger and also sought compensatory damages. The stockholder
plaintiffs, on behalf of our public stockholders, also sought class action
certification for their lawsuits. On March 11, 2001 the Court granted the
plaintiffs motion to dismiss the class action without prejudice.

    We are involved in various other legal proceedings that are incidental to
the conduct of our business, none of which we believe could reasonably be
expected to have a materially adverse effect on our financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

                                       21
<PAGE>


                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

                       MARKET PRICES OF AAVID COMMON STOCK

Our Common Stock traded on the Nasdaq National Market under the symbol "AATT"
until February 2, 2000, the date we were acquired by Heat Holdings. As a result
of the merger, our Common Stock is no longer publicly traded.

    We have never paid a cash dividend on our Common Stock, and we currently
intend to retain all earnings for use in our business and do not anticipate
paying cash dividends in the foreseeable future. Our current amended and
restated credit facility and senior subordinated notes indenture contain
restrictive covenants which, among other things, impose limitations on the
payment of dividends.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA(1)

    The following tables set forth selected statement of operations and balance
sheet data derived from the consolidated financial statements of the Company and
the Predecessor for the periods indicated. The following tables should be read
in conjunction with "Management Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements, and related
Notes thereto of the Company and the Predecessor included elsewhere herein.

    The purchase method of accounting was used to record assets acquired and
liabilities assumed by the Company. Such accounting generally results in
increased amortization and depreciation reported in future periods. Accordingly,
the accompanying financial statements of the Predecessor and the Company are not
comparable in all material respects since those financial statements report
financial position, results of operations, and cash flows for these two separate
entities.

                                       22
<PAGE>


<TABLE>
<CAPTION>


                                                                                        THE PERIOD      THE PERIOD
                                                                                        JANUARY 1,     FEBRUARY 2,
                                                                                       2000 THROUGH      THROUGH        YEAR ENDED
                                                       YEARS ENDED DECEMBER 31,          FEBRUARY        DECEMBER      DECEMBER 31,
                                               1997(1)        1998(1)     1999(1)(2)    1, 2000(1)     31, 2000(1)       2001(1)
                                             ------------  ------------  ------------- ------------   ------------    ------------
                                             (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR)  (THE COMPANY)   (THE COMPANY)
<S>                                           <C>            <C>            <C>           <C>            <C>              <C>
STATEMENT OF OPERATIONS DATA:
(AMOUNTS IN THOUSANDS)

Net sales...................................  $167,745       $209,078      $214,243       $23,442        $270,184       $ 208,840
Cost of goods sold..........................   107,401        138,431       138,558        15,516         176,982         136,788
                                              --------       --------      --------       -------        --------       ---------

   Gross profit.............................    60,344         70,647        75,685         7,926          93,202          72,052
Selling, general and administrative expenses    36,709         43,783        51,970         5,214          95,748          96,423
Research and development....................     6,939          6,756         7,528           752           9,935          12,886
Intangible asset impairment charge(3).......        --             --            --            --              --         116,616
Restructuring and buyout of compensation
  agreement charges (credit)(4).............        --          5,740          (630)           --              --          17,017
Loss on sale of division(5).................        --             --            --            --              --           4,931
Acquired in-process research and
  development(6)............................        --             --            --            --          15,000              --
                                              --------       --------      --------       -------        --------       ---------
   Income (loss) from operations............    16,696         14,368        16,817         1,960         (27,481)       (175,821)
Interest expense, net.......................    (2,178)        (1,342)       (1,629)         (816)        (23,115)        (23,563)
Other income (expense), net.................    (1,201)          (520)          218            22             379            (582)
                                              --------       --------      --------       -------        --------       ----------
   Income (loss) before income taxes,
    minority interest, and extraordinary
    item....................................    13,317         12,506        15,406         1,166         (50,217)       (199,966)
Benefit (provision) for income taxes........    (4,824)        (4,385)       (8,852)         (547)         (1,127)          9,553
                                              --------       --------      --------       -------        --------       ---------

   Income (loss) before minority interest
   and extraordinary item...................     8,493          8,121         6,554           619         (51,344)       (190,413)
Minority interest...........................        --             --           132             6           1,364           3,057
                                              --------       --------      --------       -------        --------       ---------

   Income (loss) before extraordinary item..     8,493          8,121         6,686           625         (49,980)       (187,356)
Gain on extinguishment of debt, net of
 tax (7)....................................        --             --            --            --              --           3,287
                                              --------       --------      --------       -------        --------       ---------
Net income (loss)(8)........................  $  8,493       $  8,121      $  6,686       $   625        $(49,980)      $(184,069)
                                              ========       ========      ========       =======        ========       =========

OTHER FINANCIAL DATA:
Adjusted EBITDA(9)..........................  $ 23,135       $ 23,728      $ 27,239       $ 3,706        $ 36,881        $  8,905
Adjusted EBITDA margin(10)..................      13.8%          11.3%         12.7%         15.8%           13.7%            4.3%
Depreciation and amortization...............  $  7,640       $  9,880      $ 10,072       $ 1,155        $ 43,998        $ 49,121
Capital expenditures........................    15,992         10,407        12,364           308          11,242           8,126
Charge related to the write-up of inventory
  to fair value.............................        --             --         2,857           569           3,963              --
Minority interest...........................        --             --          (132)           (6)         (1,364)         (3,057)
Write-off of acquired in-process research
  and development...........................        --             --            --            --          15,000              --
Other one-time accruals.....................        --             --            --            --             999              --

BALANCE SHEET DATA AT YEAR END:
Working capital.............................  $ 22,296       $ 30,635      $ 47,050                      $ 24,768       $(156,689)
Total assets................................   110,796        126,866       228,952                       386,288         173,278
Total long term debt, including current
  portion...................................    23,956         14,650        88,945                       204,002         175,832
Stockholders' (deficit) equity..............    50,415         71,351        79,568                       100,159         (56,956)
</TABLE>

                                       23

<PAGE>


NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA (amounts in thousands)

(1)  This financial data reflects the consolidated financial position of the
     Company as of December 31, 2001 and 2000 and the consolidated results of
     operations of the Predecessor for the period from January 1, 2000 to
     February 1, 2000 and the years ended December 31, 1999, 1998 and 1997
     (collectively "Predecessor financial statements"). The Predecessor
     financial statements have been prepared using the historical cost of the
     Company's assets and have not been adjusted to reflect the merger with Heat
     Holdings Corp on February 2, 2000. The accompanying financial data as of
     and for the year ended December 31, 2001 and as of December 31, 2000 and
     for the period from February 2, 2000 to December 31, 2000 reflect the
     consolidated financial position and results of operations of the Company
     subsequent to the date of the merger and include adjustments required under
     the purchase method of accounting.

(2)  Includes the results of operations of Thermalloy and Curamik from October
     21, 1999 (the date of acquisition of Thermalloy).

(3)  In the fourth quarter of 2001 and in accordance with SFAS 121, we recorded
     an impairment charge related to goodwill and intangible assets acquired in
     connection with the Merger.

(4)  Represents the charges in 1998 related to (i) the estimated restructuring
     costs incurred with our closure of our Manchester, New Hampshire facility,
     (ii) the termination of the management agreement with Sterling Ventures
     Limited and (iii) a bonus due a former President and Chief Executive
     Officer, based on profits in excess of certain thresholds. The 1999 credit
     of $630 relates to the reversal of excess restructuring reserves which were
     no longer required upon the completion of the Manchester restructuring in
     the fourth quarter of 1999. Restructuring charges of $17,017 in 2001 were
     recorded in connection with the cessation of manufacturing activities at
     the Dallas, Texas, Terrell, Texas and Loudwater, United Kingdom facilities,
     reduction of the New Hampshire workforce and reduction of China workforce
     including closure of the fan factory and write-off of associated fixed
     assets.

(5)  Represents loss realized on sale of Franklin, New Hampshire extrusion plant
     that occurred in the fourth quarter of 2001.

(6)  The $15,000 charge in 2000 represents the amount of the purchase price
     allocated to technology acquired by Heat Holdings related to Fluent, Inc.,
     which was not fully commercially developed and had no alternative future
     use at the time of acquisition.

(7)  Represents gain related to early retirement of debt, net of related tax
     effect.

(8)  On December 31, 2000 and 2001, the Company's common stock was not publicly
     traded; therefore, earnings per share information is not presented.

(9)  Represents net income before interest, income taxes, depreciation and
     amortization and extraordinary items. Adjusted EBITDA for 2000 also
     includes the following add-backs, as defined in the amended and restated
     credit facility, to net income: non-cash charge to cost of sales related to
     the write-up of inventory to fair value associated with purchase
     accounting, minority interest, non-cash write-off of in-process technology,
     one-time accruals related to increases in inventory and receivables
     reserves related to the Thermalloy acquisition and severance associated
     with a senior executive. Adjusted EBITDA in 2001 also includes add-backs
     for restructuring charges, intangible asset impairment charge and loss on
     sale of division, and excludes the gain on extinguishments of debt. Each of
     these components of Adjusted EBITDA can significantly affect our results of
     operations and liquidity and should be considered in evaluating our
     financial performance. Adjusted EBITDA is included because we understand
     that such information is considered to be an additional basis on which to
     evaluate our ability to pay interest, repay debt and make capital
     expenditures. Adjusted EBITDA is not intended to represent and should not
     be considered more meaningful than, or as an alternative to, measures of
     performance, profitability or liquidity determined in accordance with
     generally accepted accounting principles.

(10) Represents Adjusted EBITDA as a percentage of net sales.

                                       24
<PAGE>

ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

    You should read the following discussion of our financial condition and
results of operations together with the financial statements and the notes to
such statements included elsewhere in this Annual Report on Form 10-K. This
discussion contains forward-looking statements based on our current
expectations, assumptions, estimates and projections about us and our
industries. These forward-looking statements involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these
forward-looking statements, as more fully described in "Item 1. Business - Risk
Factors". We undertake no obligation to update publicly any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.

OVERVIEW

    We are a leading global provider of thermal management solutions for
electronic products and the leading developer and marketer of CFD software.
Historically, we were organized as three operating segments: Aavid Thermal
Products, Fluent and Applied Thermal Technologies; however, in connection with
the merger, we consolidated our business into two operating units: Aavid Thermal
Products (including Applied Thermal Technologies), which following the merger is
known as Aavid Thermalloy, and Fluent. Aavid Thermalloy designs, manufactures
and distributes thermal management products that dissipate unwanted heat from
microprocessors and industrial electronics products. Fluent develops and markets
CFD software that is used in complex computer-generated modeling of fluid flows,
heat and mass transfer and chemical reactions for a variety of industries
including, among others, the automotive, aerospace, chemical processing, power
generation, material processing, electronics and HVAC industries.

    We and our predecessors have been engaged in the development and manufacture
of heat sinks and related thermal management products since 1964. In August
1995, we acquired all the outstanding capital stock of Fluent for $12.8 million.
In February 1996, we completed our initial public offering, whereby we sold an
aggregate of 2,645,000 shares of common stock at a price of $9.50 per share,
from which we received net proceeds of approximately $21.7 million. During 1996,
we further expanded our operations through the acquisitions of (1) Fluid
Dynamics International, Inc., a provider of computational fluid dynamics
software, (2) an aluminum extrusion manufacturing facility located in Franklin,
New Hampshire and (3) Beaver Industries, a manufacturer of heat sinks and
related thermal management products for electrical and electronics parts,
components, ensembles and systems in Toronto, Canada.

    On October 21, 1999, the Company purchased all of the stock of the
Thermalloy Division of Bowthorpe plc ("Thermalloy") and 85.4% of the stock of
Curamik Electronics Gmbh ("Curamik") (the "Thermalloy acquisition") for a cash
purchase price of $84.6 million, including transaction costs of $2.8 million.
Thermalloy designs, manufactures and sells a wide variety of standard and
proprietary heat sinks and associated products, similar to those produced by
Aavid Thermal Products, our thermal management business, within the computer and
networking and industrial electronics (including telecommunications) industries.
Curamik is a German corporation that manufactures direct bonded copper ceramic
substrates that are used in the power semiconductor and other industrial
electronics industries. Aavid used $12.6 million of its cash on hand and $84.6
million of borrowings under its new credit facility to complete the Thermalloy
acquisition, repay $12.6 million of outstanding debt, and pay transaction costs.
The acquisition of Thermalloy created significant opportunities to realize cost
savings through certain plant closings, the elimination of duplicative selling,
general and administrative functions and the reduction of unnecessary corporate
expenses. The increased goodwill amortization and other purchase accounting
adjustments resulting from our acquisition of Thermalloy decreased our net
income in the fourth quarter of 1999 and in 2000 as compared to the respective
prior year periods. Following the acquisition of Thermalloy, we changed the name
of Aavid Thermal Products to Aavid Thermalloy. See Note C. of notes to our
consolidated financial statements for pro forma information for the acquisition.

    On February 2, 2000, we were acquired in a merger by Heat Holdings Corp., a
corporation newly formed by Willis Stein & Partners II, L.P. (the "Purchaser").
Pursuant to the merger, Aavid stockholders received $25.50 in cash for each
outstanding share of common stock, and outstanding stock options and warrants
were cashed out. The merger was accounted for using the purchase method.

                                       25
<PAGE>


RESULTS OF OPERATIONS

    The following table is derived from our consolidated statements of
operations and sets forth the percentage relationship of certain items to net
sales for the periods indicated. The purchase method of accounting was used to
record assets acquired and liabilities assumed by the Company. Such accounting
generally results in increased amortization and depreciation reported in future
periods. Accordingly, the accompanying financial statements of the Predecessor
and the Company are not comparable in all material respects since those
financial statements report financial position, results of operations, and cash
flows for these two separate entities. The 2000 results include the combined
results of the Predecessor for the period January 1, 2000 through February 1,
2000 and the Company from February 2, 2000 through December 31, 2000.

<TABLE>
<CAPTION>
                                                                                                    YEAR ENDED DECEMBER 31,
                                                                                             ------------------------------------
                                                                                              1999           2000           2001
                                                                                             -----           -----          -----
<S>                                                                                          <C>             <C>            <C>
Net sales...........................................................................         100.0%          100.0%         100.0%
Cost of goods sold..................................................................          64.7            65.6           65.5
                                                                                             -----           -----          -----

  Gross profit......................................................................          35.3            34.4           34.5
Selling, general and administrative expenses........................................          24.3            34.4           46.2
Research and development............................................................           3.5             3.6            6.2
Intangible asset impairment charge..................................................            --              --           55.8
Restructuring and buyout of compensation arrangements...............................          (0.3)             --            8.1
Loss on sale of division............................................................            --              --            2.4
Acquired in-process research and development charge.................................            --             5.1             --
                                                                                             -----           -----          -----

  Income (loss) from operations.....................................................           7.8            (8.7)         (84.2)
Interest expense, net...............................................................          (0.7)           (8.2)         (11.3)
Other income (expense) and net......................................................           0.1             0.1           (0.3)
                                                                                             -----           -----          -----
  Income (loss) before income taxes, minority interest and extraordinary item.......           7.2           (16.7)         (95.8)
Benefit (provision) for income taxes................................................          (4.1)           (0.6)           4.6
                                                                                             -----           -----          -----
  Income before minority interest and extraordinary item............................           3.1           (17.3)         (91.2)
Gain on extinguishment of debt......................................................            --              --            1.6
Minority interest in loss of consolidated subsidiaries..............................            --             0.5            1.5
                                                                                             -----           -----          -----
   Net income (loss)................................................................           3.1%          (16.8)%        (88.1)%
                                                                                             =====           =====          =====
</TABLE>


2001 COMPARED WITH 2000
<TABLE>
<CAPTION>
                                                                                         YEAR ENDED
                             NET SALES (DOLLARS IN MILLIONS)                            DECEMBER 31,
                             -------------------------------                       -----------------------
                                                                                    2000            2001           CHANGE
                                                                                   -------         -------        --------
<S>                                                                                <C>             <C>            <C>
Computer and Networking..........................................................  $  85.5         $  32.2         (62.3)%
Industrial Electronics...........................................................    130.4            86.1         (40.0)%
Curamik GmbH.....................................................................     17.9            22.1          23.5%
Consulting and Design (Applied)..................................................      1.8             1.8            --%
                                                                                   -------         -------        ------

  Total Aavid Thermalloy.........................................................    235.6           142.2         (39.6)%
  Total Fluent...................................................................     58.0            66.6          14.8%
                                                                                   -------         -------        ------
  Total Aavid Thermal Technologies ..............................................  $ 293.6         $ 208.8         (28.9)%
                                                                                   =======         =======        ======
</TABLE>

    Net sales for 2001 were $208.8 million, a decrease of 28.9% compared with
$293.6 million for 2000. The overall decrease in sales stems from Aavid
Thermalloy and is primarily the result of the significant decline experienced by
the semi-conductor and electronics industries during 2001. Sales to the Computer
and Network industry segment experienced a decline of $53.3 million from 2000
levels and Industrial Electronics experienced a $44.3 million decrease from
2000. This decrease was primarily due to a decline in the semi-conductor
industry as a whole, which adversely impacted 2001 performance and which will
likely adversely impact the first half of 2002 and may adversely impact the
second half of 2002. Aavid Thermalloy's German subsidiary, Curamik GmbH, a
supplier of direct-bonded copper substrate products, saw revenues increase $4.2
million over 2000. Fluent's sales increased $8.6 million and consulting services
were flat at $1.8 million. Foreign exchange rates in 2001 also had a negative
impact on revenues. Had foreign exchange rates over the course of 2001 remained
consistent with the exchange rates at the end of 2000, the Company's revenues
would have been approximately $4.2 million higher than reported.

                                       26
<PAGE>


    Aavid Thermalloy's net sales were $142.2 million for 2001, a decrease of
$93.4 million, or 39.6% compared with $235.6 million for 2000. This decrease, as
discussed above, was primarily the result of the significant decline experienced
by the semi-conductor and electronics industries in 2001.

    Fluent's net sales were $66.6 million for 2001, an increase of $8.6 million
or 14.8% over 2000 sales of $58.0 million. The increase was spread among all
product offerings due primarily to increased sales to new customers for
computational fluid dynamics software, as well as the success of
application-specific products.

    International net sales (which include North American exports) increased to
57.5% of net sales for the year ended December 31, 2001 as compared with 42.2%
for the year ended December 31, 2000.

    Our gross profit in 2001 was $72.1 million, a decrease of $29.0 million, or
28.7% lower than 2000 gross profit of $101.1 million. Our gross margin in 2001
was 34.5%, which compares with 34.4% in 2000. While the overall Company gross
margin remained consistent from year to year, Aavid Thermalloy saw a significant
decrease in gross profit in 2001 which was caused primarily by excess factory
capacity in the U.S. and abroad due to the significant slowdown in the
semi-conductor and electronic industries. This underutilization has been
addressed through the shut-down in 2001 of the Loudwater, U.K. facility and the
Dallas and Terrell, Texas facilities. However, due to Fluent's revenue and gross
profit becoming a larger percentage of the overall Company's revenue and gross
profit in 2001, the overall gross margin of the Company remained consistent in
spite of the slow down experienced by Aavid Thermalloy. Our gross margin in the
first quarter of 2000 was negatively impacted by certain purchase accounting and
acquisition related adjustments which decreased gross profit by $4.5 million in
acquisition related charges. Our gross margin in 2000 would have been 36.0%
without these charges.

    Our selling, general and administrative expenses, excluding amortization of
intangibles, were $62.2 million, or 29.8% of sales for 2001, as compared with
$69.4 million, or 23.6% of net sales, for 2000. The net decrease in selling,
general and administrative expenses in dollars resulted primarily from S,G&A
expense reductions at Aavid Thermalloy, including personnel reductions in the
Concord, New Hampshire headquarters as well as personnel reductions associated
with the closure of the Dallas, Texas facility which was completed during the
second quarter of 2001. Aavid Thermalloy's (exclusive of Curamik) 2001 S,G&A
expenses were down $11.2 million from 2000 levels. Fluent's 2001 S,G&A increased
$2.2 million from 2000 levels as Fluent continued to enhance its sales and
support infrastructure to support its revenue growth. Curamik saw an increase of
$0.9 million over 2000 also associated with improving its sales and
administrative infrastructure to manage its revenue growth. Lastly, the
Company's corporate offices also experienced an $0.6 million increase primarily
related to increased legal costs associated with debt refinancings and foreign
corporate reorganizations. On a percentage of net sales basis, S,G&A in 2001 was
6.2% higher than in 2000. Much of this increase relates to Aavid Thermalloy as
their overall S,G&A rate as a percentage of sales increased in 2001 due to the
significant reduction in revenues from the previous year. The remaining increase
in percentage is primarily the result of Fluent becoming a much larger component
of the consolidated results of the Company. Fluent in general has a higher S,G&A
rate than Aavid Thermalloy.

    $34.2 million of intangible asset amortization was recorded in 2001 compared
with $31.5 million recorded in 2000, primarily related to intangible assets
established as part of the acquisition of Aavid by Heat Holdings Corp. The
increase in 2001 is due to the fact that in 2001, the Company recorded a full 12
months of amortization. In 2000, the merger occurred on February 2nd and,
therefore, the Company only recorded approximately 11 months of amortization in
2000.

    Our research and development expenses consist primarily of funding for
internal product development activities as well as product development
activities conducted by third parties on our behalf. Research and development
expenses also include the costs of obtaining patents on the technology developed
in research and development activities. Research and development expenses were
$12.9 million, or 6.2% of net sales which compares with $10.7 million, or 3.6%
of net sales in 2000. The increase in research and development expenses was
primarily due to increased expenditures at Fluent.

                                       27
<PAGE>


    In connection with the Merger in February, 2000, the Company allocated $15.0
million of the purchase price to in-process research and development projects.
This allocation represented the estimated fair value based on risk-adjusted cash
flows related to the incomplete software research and development projects of
Fluent, Inc. At the date of the merger, the development of these projects had
not yet reached technological feasibility and the research and development in
progress had no alternative future uses. Accordingly, these costs were expensed
as of the merger date.

    The Company allocated values to the in-process research and development
based on an in-depth assessment of the R&D projects. The value assigned to these
assets was limited to significant research projects for which technological
feasibility had not been established, including development, engineering and
testing activities associated with the introduction of the acquired in-process
technologies.

    The value assigned to purchased in-process technology was determined by
estimating the costs to develop the acquired technology into commercially viable
products, estimating the resulting net cash flows from the projects, and
discounting the net cash flows to their present value. The revenue projection
used to value the in-process research and development was based on historical
results, estimates of relevant market sizes and growth factors, expected trends
in technology, and the nature and expected timing of new product introductions
by the Company and its competitors. The resulting net cash flows from such
projects are based on management's estimates of cost of sales, operating
expenses, and income taxes from such projects.

    The nature of the efforts to develop the acquired in-process technologies
into commercially viable products and services principally related to the
completion of certain planning, designing, coding, prototyping, and testing
activities that were necessary to establish that the developmental software
technologies met their design specifications including functional, technical,
and economic performance requirements. At the merger date, the technologies
under development were between 40% and 80% complete, based upon project
man-month and cost data. Anticipated completion dates ranged from 6 to 18
months, at which times the Company expects to begin selling the developed
products. Development costs to complete the R&D were estimated at approximately
$4.0 million.

    Fluent's primary in-process R&D projects involved developing: (i) Fluent
version 6.0; (ii) Gambit version 2.0; (iii) materials processing functionality;
and (iv) advanced infrastructure technology. Fluent 6.0 represented the
Company's next-generation computational fluid dynamics (CFD) software engine.
Gambit 2.0 includes new pre-processor CFD technologies. The development of
materials processing technologies is designed to address CFD needs in new
markets. The advanced infrastructure technology establishes a new platform upon
which future products will be more efficiently and rapidly developed.

    Aggregate revenues for the developmental Fluent products were estimated to
peak within three years of acquisition and then decline steadily as other new
products and technologies are expected to enter the market. Operating expenses
were estimated based on historical results and management's analysis of Fluent's
cost structure. Projected operating expenses as a percentage of revenues were
expected to be stable for the foreseeable future.

    The rates utilized to discount the net cash flows to their present value
were based on estimated cost of capital calculations. A discount rate of 18
percent was considered appropriate for the in-process R&D, and a discount rate
of 15 percent was appropriate for the existing products and technologies. These
discount rates were commensurate with the Fluent's long history and market
leadership position. The discount rate utilized for the in-process technology
was higher than Aavid's cost of capital due to the inherent uncertainties
surrounding the successful development of the purchased in-process technology,
the useful life of such technology, the profitability levels of such technology
and the uncertainty of technological advances that are unknown at this time.

    With respect to the acquired in-process technology, the calculations of
value were adjusted to reflect the development efforts of Fluent prior to the
close of the merger. In doing so, consideration was given to each major
project's stage of completion, the complexity of the work completed to date, the
difficulty of completing the remaining development, costs already incurred, and
the projected cost to complete the projects.

                                       28
<PAGE>


    The Company believes that the foregoing assumptions used in the forecasts
were reasonable at the time of the merger. No assurance can be given, however,
that the underlying assumptions used to estimate sales, development costs or
profitability, or the events associated with such projects, will transpire as
estimated. For these reasons, actual results may vary from projected results.
The most significant and uncertain assumptions relating to the in-process
projects relate to the projected timing of completion of, and revenues
attributable to, each project.

    If these projects are not successfully developed, the sales and
profitability of the Fluent division may be adversely affected in future
periods. Additionally, the value of other acquired intangible assets may become
impaired.

    During 2001, global macroeconomic conditions weakened and the demand for
industrial and consumer electronics contracted significantly. Coupled with the
closing of three manufacturing facilities in the U.S. and abroad as discussed
below, we determined that our ability to achieve our original long term
financial forecast had been negatively impacted. We determined that a triggering
event, as defined by SFAS 121, had occurred related to the intangible assets
initially acquired in connection with the Merger. Based on cash flow projections
related to the acquired assets, we concluded that all of the acquired intangible
assets related to Aavid Thermalloy and certain intangible assets related to
Fluent had been impaired. During the fourth quarter of 2001, upon completion of
our analysis of the impairment, we wrote down the assets, along with any
allocated goodwill, to fair value based on the related discounted cash flow. In
order to measure the impairment loss related to goodwill, the difference between
the carrying value and the fair value of goodwill was calculated using a
business enterprise methodology. This method of goodwill measurement entails
calculating the total enterprise value of each of Aavid's business units.
Goodwill and intangible assets were then estimated by subtracting the allocated
tangible assets (normal levels of working capital and fixed assets) from the
total enterprise value. The total impairment charge recorded in 2001 totaled
$116.6 million and is recorded in the accompanying statement of operations as a
component of loss from operations.

    A breakout of this charge by asset type and by business unit is as follows:

<TABLE>
<CAPTION>

  -------------------------------------------------------------------------------------------------------
                                                                                    TOTAL IMPAIRMENT
     INTANGIBLE ASSET CATEGORY        AAVID THERMALLOY            FLUENT                 CHARGE
  -------------------------------------------------------------------------------------------------------
  ($ MILLIONS)
  -------------------------------------------------------------------------------------------------------
<S>                                      <C>                      <C>                   <C>
  -------------------------------------------------------------------------------------------------------
  Goodwill                               $   94.3                 $    -                $   94.3
  -------------------------------------------------------------------------------------------------------
  Assembled workforce                         1.5                      -                     1.5
  -------------------------------------------------------------------------------------------------------
  Developed technology                       18.1                    2.7                    20.8
  -------------------------------------------------------------------------------------------------------

  -------------------------------------------------------------------------------------------------------
         Total                           $  113.9                $   2.7                $  116.6
  -------------------------------------------------------------------------------------------------------
</TABLE>


    During 2001, in response to the global slowdown in the semi-conductor and
electronics industries, we took significant steps to reduce our cost structure
and appropriately size our business to match current revenue levels. These cost
reduction activities included the cessation of manufacturing activities at the
Dallas, Texas, Terrell, Texas and Loudwater, United Kingdom facilities and the
reduction of our New Hampshire workforce, which included a reduction of both
direct labor and S,G&A personnel. The total number of personnel reduced due to
2001 restructuring activities was 507. In connection with these actions, we
recorded restructuring charges totaling $17.0 million over the course of 2001.
These restructuring charges consisted of the following components: (1) severance
of $5.0 million, (2) write-off of fixed assets of $7.1 million, (3) write-off of
a prepaid rent asset of $3.8 million related to the Dallas facility and (4)
lease termination and other accruals of $1.1 million.

                                       29
<PAGE>

    Our loss from operations in 2001 was $175.8 million, an increase of $150.3
million from the operating loss in 2000 of $25.5 million. The operating loss in
2001 includes a write-off of intangible assets of $116.6 million as discussed
above, restructuring charges of $17.0 million, loss on disposal of a division
(further discussed below) of $4.9 million and increased intangible amortization
of $2.7 million related to having a full twelve months of amortization in 2001
results, compared with 11 months of amortization in 2000. In 2000, as mentioned
above, the Company wrote-off $15.0 million of in-process technology related to
Fluent acquired in the Merger. Aavid Thermalloy (exclusive of Curamik),
excluding intangible write-offs, loss on sale of division, amortization and
restructuring charges, had an operating loss of $19.2 million in 2001 compared
with operating income of $12.1 million in 2000. This decline is related to the
significant reduction in revenues that occurred during 2001 associated with the
global semi-conductor and electronics industry slow down. Fluent's operating
income, excluding intangible write-offs and amortization increased $3.3 million
in 2001 compared with 2000. Fluent's operating income, excluding intangible
write-offs and amortization, as a percentage of net sales increased to 22.5%
compared with 20.3% in 2000. Fluent's operating margins increased primarily
because selling, general and administrative expenditures grew at a slower rate
than sales. Curamik's operating income increased $0.9 million in 2001 over 2000
and its operating margin increased to 14.0% in 2001 from 12.6% in 2000.

    In the fourth quarter of 2001, the Company recognized a loss on disposal of
a division of $4.9 million. This loss was related to the sale of our aluminum
extrusion facility located in Franklin, NH. The facility was sold for $3.0
million. Of this amount, $2.5 million was paid in cash and the remainder was
taken as a note due the Company and payable in 12 equal installments of
principal and interest beginning March 1, 2002. The note bears interest at 8%.
The $2.5 million in cash proceeds was remitted to our senior lending group as
required by the amended and restated credit agreement and was applied against
our final term loan payment due on March 31, 2005.

    Our net interest charges were $23.6 million in 2001 compared with $23.9
million in 2000. This decrease in interest expense resulted primarily from lower
interest rates in 2001, as well as a reduction in the face amount of our Senior
Subordinated Notes. The savings from lower interest rates and lower debt
balances was partially offset by the fact that in 2001, we recorded a full
twelve months of interest expense related to the 12 3/4% senior subordinated
notes. In 2000, the notes initially were offered on February 2, 2000 and
therefore only eleven months of interest expense related to the Notes was
included in 2000 net interest expense.

    The Company recorded a tax benefit of $9,553 in 2001 compared to a tax
provision of $1,674 in 2000. The net tax benefit recorded in 2001 is a result of
an increased tax benefit from domestic federal net operating loss carryforwards,
partially offset by an increase in the valuation allowance on net deferred tax
assets, combined with a reduced tax provision on lower foreign earnings in 2001
compared to 2000. The Company incurred a tax provision in 2000 despite having
significant operating losses because of significant non-deductible goodwill
amortization and in-process R&D charges and a foreign tax provision of $5.1
million on foreign earnings. We had to record a tax provision on foreign
earnings which are expected to be repatriated into the U.S. to service debt.
Because the Company is in a net operating loss carryforward position for U.S.
tax purposes, the Company will not receive any tax benefit from foreign tax
credits. These repatriated earnings will therefore incur both foreign income
taxes and U.S. income taxes, effectively doubling up the tax rate on the foreign
earnings. The significant net operating loss carryforwards in the U.S. will help
offset the actual cash paid for taxes in the U.S. when the foreign earnings are
repatriated.

                                       30
<PAGE>


2000 COMPARED WITH 1999

Our results of operations in 1999 include the operations of Thermalloy and
Curamik from October 21, 1999, the date of acquisition of the business.

<TABLE>
<CAPTION>

                                                                                              YEAR ENDED
                             NET SALES (DOLLARS IN MILLIONS)                                 DECEMBER 31,
                             -------------------------------                            -----------------------
                                                                                         1999            2000          CHANGE
                                                                                        -------         -------        -------

<S>                                                                                     <C>             <C>              <C>
Computer and Networking...........................................................      $  88.0         $  85.5          (2.8)%
Industrial Electronics............................................................         73.0           148.3         103.2%
Consulting and Design (Applied)...................................................          1.4             1.8          28.6%
                                                                                        -------         -------        ------

                                                                                          162.4           235.6          45.1%
Computer and Networking-Intel Special Product.....................................          2.6             --         (100.0%)
                                                                                        -------         ------         ------
  Total Aavid Thermalloy..........................................................        165.0           235.6          42.8%
  Total Fluent....................................................................         49.2            58.0          17.9%
                                                                                        -------         -------        ------
  Total Aavid Thermal Technologies (including Intel Special Product)..............      $ 214.2         $ 293.6          37.1%
                                                                                        =======         =======        ======
  Total Aavid Thermal Technologies (excluding Intel Special Product)..............      $ 211.6         $ 293.6          38.8%
                                                                                        =======         =======        ======
</TABLE>

    Net sales for 2000 were $293.6 million, an increase of $79.4 million, or
37.1%, compared with $214.2 million for 1999. The increase in sales was
primarily the result of having a full year's worth of results from the
Thermalloy Division, which contributed approximately $99.4 million in sales in
2000, versus the $19.4 million contributed in 1999 (from October 21 through
December 31). Additionally, Fluent's sales increased $8.8 million and consulting
services increased $0.4 million. Sales to the Computer and Network industry
segment experienced a decline from 1999 levels of $2.5 million ($9.8 million
after excluding the increase of revenues from the acquisition of Thermalloy).
This decrease was primarily due to a decline in the semi-conductor industry as a
whole, which adversely impacted 2000 performance and which will likely adversely
impact the first half of 2001 and may adversely impact the second half of 2001.
In addition, the Company has deferred expansion of a new fan business in Asia
and does not anticipate significant revenues to be generated from this business
until the second half of 2001. Foreign exchange rates in 2000 also had a
negative impact on revenues. Had foreign exchange rates in 2000 remained
consistent with 1999 exchange rates, the Company's revenues would have been
approximately $5.3 million higher than reported.

    Aavid Thermalloy's net sales were $235.6 million for 2000, an increase of
$70.6 million, or 42.8%, compared with $165.0 million for 1999. This increase
was primarily the result of having 12 months of Thermalloy sales included in
2000 results which contributed an additional $80 million of sales and an
increase of $0.4 million of consulting services sales, offset by a reduction of
approximately $9.8 million in Computer and Networking sales as mentioned above.
Industrial electronics net sales increased 103.2% for the year ended December
31, 2000 compared to the year ended December 31, 1999, primarily due to the
inclusion of Thermalloy revenues for an entire year. 1999 sales included
Thermalloy sales from October 22, 1999 through December 31, 1999.

    Fluent's net sales were $58.0 million for 2000, an increase of $8.8 million,
or 17.9%, over $49.2 million for 1999. The increase was spread among all product
offerings due primarily to increased sales to new customers for computational
fluid dynamics software, as well as the success of application-specific
products.

    Excluding net sales for the Intel Special Product, international net sales
(which include North American exports) increased to 42.2% of net sales for the
year ended December 31, 2000 as compared with 37.7% for the year ended December
31, 1999.

    Our gross profit in 2000 was $101.1 million, an increase of $25.4 million,
or 33.6% higher than $75.7 million in 1999. Our gross margin decreased from
35.3% in 1999 to 34.4% in 2000. Our gross margin in the fourth quarter of 1999
was negatively impacted by certain purchase accounting and acquisition related
adjustments which decreased gross profit by $3.8 million. Excluding these
purchase accounting and acquisition related adjustments, gross margin for 1999
was 37.1%. Our gross margin in the first quarter of 2000 was similarly impacted
and was reduced by $4.5 million in acquisition related charges. Our gross margin
in 2000 would have been 36.0% without these charges. A small part of the
decrease in gross margin resulted from the acquisition of Thermalloy which
caused Fluent's higher gross margin business to become a smaller percentage of
the overall Company's gross profit. Furthermore, underutilization of factories
contributed to the decrease in margins.

                                       31
<PAGE>


    Our selling, general and administrative expenses were $71.4 million, or
24.3% of net sales, for 2000 as compared to $52.0 million, or 24.3% of net
sales, for 1999. The increase in selling, general and administrative expenses in
gross dollars resulted primarily from S,G&A expenses related to Thermalloy which
was included in our results for an entire year, whereas in 1999 we only included
the S,G&A of Thermalloy from October 22, 1999 through December 31, 1999. Also,
Fluent's S,G&A has increased $4.4 million as Fluent enhanced their sales and
support infrastructure to accommodate their revenue growth. On a percentage of
net sales basis, S,G&A in 2000 remained consistent with 1999.

    $31.3 million of intangible asset amortization recorded in 2000 related to
intangible assets established as part of the acquisition of Aavid by Heat
Holdings Corp.

    Our research and development expenses consist primarily of funding for
internal product development activities as well as product development
activities conducted by third parties on our behalf. Research and development
expenses also include the costs of obtaining patents on the technology developed
in research and development activities. Research and development expenses were
$10.7 million, or 3.6% of net sales, in 2000 as compared to $7.5 million, or
3.5% of net sales, in 1999. The increase in research and development expenses
was primarily due to increased expenditures at Fluent.

    In connection with the Merger, the Company allocated $15.0 million of the
purchase price to in-process research and development projects. This allocation
represented the estimated fair value based on risk-adjusted cash flows related
to the incomplete software research and development projects of Fluent, Inc. At
the date of the merger, the development of these projects had not yet reached
technological feasibility and the research and development in progress had no
alternative future uses. Accordingly, these costs were expensed as of the merger
date.

    Our loss from operations in 2000 was $25.5 million, a decline of $41.7
million from operating income of $16.2 million in 1999 (excluding non-recurring
charges (credits)). The decrease in income from operations is primarily the due
to amortization related to goodwill and other intangible assets resulting from
the Merger of $31.2 million. In addition, as mentioned above, the Company
wrote-off $15.0 million of in-process technology related to Fluent. These two
charges were partially off-set by an increase in income from operations at
Fluent of $4.2 million. Fluent's income from operations as a percentage of net
sales increased to 20.1% in 2000, compared with 15.3% in 1999. Fluent's
operating margins increased primarily because selling, general and
administrative expenditures grew at a slower rate than sales.

    Our net interest charges were $23.9 million in 2000, a $22.3 million
increase over interest charges of $1.6 million in 1999. This increase in
interest charges resulted from significantly higher levels of indebtedness
incurred in connection with the Willis Stein merger and the acquisition of
Thermalloy in October of 1999.

    The Company incurred a tax provision in 2000 despite having significant
operating losses because of significant non-deductible goodwill amortization and
in-process R&D charges and a foreign tax provision of $5.1 million on foreign
earnings. We had to record a tax provision on foreign earnings which are
expected to be repatriated into the U.S. to service debt incurred subsequent to
year end. Because the Company is in a net operating loss carryforward position
for U.S. tax purposes, the Company will not receive any tax benefit from foreign
tax credits. These repatriated earnings will therefore incur both foreign income
taxes and U.S. income taxes, effectively doubling up the tax rate on the foreign
earnings. The significant net operating loss carryforwards in the U.S. will help
offset the actual cash paid for taxes in the U.S. when the foreign earnings are
repatriated.

                                       32
<PAGE>


CRITICAL ACCOUNTING POLICIES

    We prepare the consolidated financial statements of Aavid Thermal
Technologies, Inc. in conformity with accounting principles generally accepted
in the United States of America. As such, we are required to make certain
estimates, judgements and assumptions that we believe are reasonable based on
the information available. These estimates and assumptions affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the periods presented. The
significant accounting policies which we believe are the most critical to aid in
fully understanding and evaluating our financial reporting results include the
following:

REVENUE RECOGNITION AND SALES RETURNS AND ALLOWANCES

Thermal Products

    Revenue is recognized when products are shipped. We offer certain
distributors limited rights of return and stock rotation rights. Due to these
return rights, we continuously monitor and track product returns and we record a
provision for the estimated future amount of such future returns, based on
historical experience and any notification we receive of pending returns. While
such returns have historically been within our expectations and provisions
established, we cannot guarantee that we will continue to experience the same
return rates that we have in the past. Any significant decrease in product
demand experienced by our distributor customers and the resulting credit returns
could have a material adverse impact on our operating results for the period or
periods in which such returns materialize.

Software

    Our software subsidiary, Fluent, Inc. licenses its software products under
both annual and perpetual license arrangements. Software license revenue is
recognized upon the execution of the license arrangements and shipment of the
product, provided that no significant vendor post-contract support obligations
remain outstanding, and collection of the resulting receivable is deemed
probable. Fluent recognizes revenue from post-contract support, which consists
of telephone support and the right to software upgrades, ratably over the period
of the post-contract arrangement.

    Fluent recognizes software revenue in accordance with Statement of Position
(SOP) 97-2, "Software Revenue Recognition" and SOP 98-9, "Modification of SOP
97-2; Software Revenue Recognition, With Respect to Certain Transactions." These
statements provide specific industry guidance and stipulate that revenue
recognized from software arrangements is to be allocated to each element of the
arrangement based on the relative fair values of the elements, such as software
products, upgrades, enhancements, post-contract customer support, installation
or training. SOP 98-9 modified SOP 97-2 to require the use of the "residual
method" in situations where vendor specific objective evidence (VSOE) exists for
all undelivered elements but does not exist for one or more of the delivered
elements. Under the residual method, the undiscounted VSOE of fair value of the
undelivered elements is deferred and the difference (residual) between the total
fee and the amount deferred for the undelivered elements is recognized as
revenue related to the delivered elements. Revenue related to the software
element is recognized upon signing of the contract and delivery of the product.
Post-contract support is recognized ratably over the life of the contract.

                                       33
<PAGE>


ACCOUNTS RECEIVABLE

We perform ongoing credit evaluations of our customers and adjust credit limits
based on payment history and the customer's current credit worthiness, as
determined by our review of their current credit information. We continuously
monitor collections and payments from our customers and maintain a provision for
estimated credit losses based on our historical experience and any specific
customer collection issues we have identified. While such credit losses have
historically been within our expectations and the provisions established, we
cannot guarantee that we will continue to experience the same credit loss rates
we have in the past. In the event that economic or other conditions cause a
change in liquidity or financial condition in multiple customers, there could be
a material adverse effect on our collection of receivables and future results of
operations.

INVENTORIES

    We value our inventory, which consists of materials, labor and overhead, at
the lower of the actual cost to purchase and/or manufacture the inventory or the
current estimated market value of the inventory. We regularly review inventory
quantities on hand and record a provision for excess and obsolete inventory
based primarily on our estimated forecast of product demand and production
demand for the next twelve months. As demonstrated in 2001, demand for our
products can fluctuate significantly. A significant increase in demand for our
products could result in a short-term increase in the cost of inventory
purchases and production costs while a significant decrease in demand could
result in an increase in the amount of excess inventory quantities on hand. In
addition, our industry is characterized by rapid technological change, frequent
new product development and rapid product obsolescence that could result in an
increase in the amount of obsolete inventory quantities on hand. Additionally,
our estimates of future product demand may prove to be inaccurate, in which case
we may have understated or overstated the provision required for excess or
obsolete inventory. In the future, if our inventory is determined to be
overvalued, we would be required to recognize such costs in our cost of goods
sold at the time of determination. Likewise, if our inventory is determined to
be undervalued, we may have over-reported our cost of sales in previous periods
and would be required to recognize such additional operating income at the time
of sale. Therefore, although we make every effort to ensure the accuracy of our
forecasts of future product demand, any significant unanticipated changes in
demand or technological developments could have a significant impact on the
value of our inventory and reported operating results.

VALUATION OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS AND GOODWILL

    During 2001 and prior periods, we assessed the impairment of identifiable
intangibles, long-lived assets and related goodwill whenever events or changes
in circumstances indicate that the carrying value may not be recoverable as
required under SFAS 121. Factors we considered important which could trigger an
impairment review included the following:

    -    significant underperformance relative to expected historical or
         projected future operating results;

    -    significant changes in the manner of our use of the acquired assets or
         the strategy for our overall business;

    -    significant negative industry or economic trends.

    Under SFAS 121, when we determine that the carrying value of intangibles,
long-lived assets and related goodwill may not be recoverable based on the
existence of one or more of the above indicators of impairment, we measure any
impairment based on a projected discounted cashflow method using a discount rate
determined by our management to be commensurate with the risk inherent in our
business model. During 2001, global macroeconomic conditions weakened and the
demand for industrial and consumer electronics contracted significantly and as a
result we determined that our ability to achieve our long term financial
forecast had been negatively impacted. We determined that a triggering event, as
defined by SFAS 121, had occurred related to the intangible assets initially
acquired in connection with the Merger. Based on cash flow projections related
to the acquired assets, we concluded that all of the acquired intangible assets
related to Aavid Thermalloy and certain intangible assets related to Fluent had
been impaired. During the fourth quarter of 2001, upon completion of our
analysis of the impairment, we wrote down the assets, along with any allocated
goodwill, to fair value based on the related discounted cash flow. In order to
measure the impairment loss related to goodwill, the difference between the
carrying value and the fair value of goodwill was calculated using a business
enterprise methodology. This method of goodwill measurement entails calculating
the total enterprise value of each of Aavid's business units. Goodwill and
intangible assets were then estimated by subtracting the allocated tangible
assets (normal levels of working capital and fixed assets) from the total
enterprise value.

                                       34
<PAGE>


    The total impairment charge recorded in 2001 totaled $116.6 million and is
recorded in the accompanying statement of operations as a component of loss from
operations.

    In 2002, Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets" became effective and as a result, we will
cease to amortize approximately $45.1 million of goodwill (the amount remaining
after the impairment charge discussed above). In lieu of amortization, we are
required to perform an initial impairment review, using a fair value based
methodology, of our goodwill in 2002 and an annual impairment review thereafter.
We expect to complete our initial review during the first quarter of 2002. In
2001, we recorded $25.7 million of amortization related to goodwill that will
not be recorded in 2002 under the provisions of SFAS No. 142.

    We currently do not expect to record an impairment charge upon completion of
the initial review of goodwill during the first quarter of 2002. However, there
can be no assurance that at the time the review is completed a material
impairment charge will not be recorded.

LIQUIDITY AND CAPITAL RESOURCES

    Historically, we have used internally generated funds and proceeds from
financing activities to meet our working capital and capital expenditure
requirements. As a result of the Thermalloy acquisition and the merger, we have
significantly increased our cash requirements for debt service relating to the
notes and our amended and restated credit facility. We intend to use amounts
available under our amended and restated credit facility, future debt and equity
financings and internally generated funds to finance our working capital
requirements, capital expenditures and potential acquisitions.

    Net cash used in operating activities for the year ended December 31, 2001
was $6.5 million compared to $24.2 million provided by operating activities for
the year ended December 31, 2000. We had $156.7 million in negative working
capital as of December 31, 2001 compared with $24.8 million of working capital
for the prior year period. At December 31, 2001, accounts receivable days sales
outstanding ("DSO") were 62.5 days, compared with 66 days at December 31, 2000.
At December 31, 2001, inventory turns were 7.4, which compares with 6.4 times at
December 31, 2000.

    During the year ended December 31, 2001, we made capital expenditures of
$8.8 million compared with $11.7 million in 2000. Of these amounts, $0.7 million
and $0.2 million related to assets acquired under capital leases in 2001 and
2000, respectively.

    In connection with the Merger, pursuant to which we became a wholly-owned
subsidiary of Heat Holdings Corp., we amended and restated our credit facility
to, among other things, add Heat Holdings as a guarantor, permit the issuance of
the senior subordinated notes and amend certain of the financial ratios and
restrictive covenants to reflect such issuance. The amended and restated credit
facility, which replaced our $100 million revolving credit and term loan
facility, currently consists of a $53 million term loan facility (the "Term
Facility") and a $17 million revolving credit facility, including a $2 million
letter of credit subfacility (the "Revolving Facility"). The Term Facility, all
of which was borrowed on February 2, 2000 to repay amounts outstanding under our
existing credit facility, matures on March 31, 2005, and is being amortized in
18 consecutive quarterly installments, commencing December 31, 2000, as follows:
five quarterly payments of $2 million each; four quarterly payments of $2.5
million each; four quarterly payments of $2.75 million each; two quarterly
payments of $3.2 million each; two quarterly payments of $3.9 million; and a
final payment of $7.8 million, of which $2.5 million was paid in December 2001
with the proceeds from the sale of the Company's aluminum extrusion facility in
December 2001. The Revolving Facility matures on March 31, 2005. The Credit
Facility bears interest at a rate equal to, at our option, either (1) in the
case of Eurodollar loans, the sum of (x) the interest rate in the London
interbank market for loans in an amount substantially equal to the amount of
borrowing and for the period of borrowing selected by us and (y) a margin of
between one and one-half percent and two and one-quarter percent (depending on
our consolidated leverage ratio (as defined in the credit agreement)) or (2) the
sum of (A) the higher of (x) Canadian Imperial Bank of Commerce's prime or base
rate or (y) one-half percent plus the latest overnight federal funds rate plus
(y) a margin of between one quarter percent and one percent (depending on our
consolidated leverage ratio). The Credit Facility may be prepaid at any time in
whole or in part without penalty, and must be prepaid to the extent of certain
equity or asset sales and excess cash flow. On May 4, 2001, in response to the
Company not being in compliance with a leverage ratio covenant at December 31,
2000, certain of the Company's stockholders and their affiliates made an equity
contribution of $8.0 million in cash. In addition, the Company and the lenders
amended the facility to provide that the last three required quarterly principal
payments in 2001 under the facility were


                                       35
<PAGE>


prepaid with $6.0 million of the proceeds of the equity contribution, and the
four required principal payments in 2002 were reduced by $0.5 million each,
reflecting application of the remaining cash equity contribution. Further,
certain covenant ratios and ratio definitions were amended and the available
line of credit was reduced to $17.0 million from $22.0 million.

    The Credit Facility limits our ability to incur debt, to sell or dispose of
assets, to create or incur liens, to make additional acquisitions, to pay
dividends, to purchase or redeem our stock and to merge or consolidate with any
other person. In addition, the Credit Facility requires that we meet certain
financial ratios, and provides the banks with the right to require the payment
of all amounts outstanding under the facility, and to terminate all commitments
thereunder, if we undergo a change in control. The Credit Facility is guaranteed
by Heat Holdings Corp., Heat Holdings II Corp. and all of our subsidiaries and
secured by our assets (including the assets and stock of our domestic
subsidiaries and a portion of the stock of our foreign subsidiaries), and a
pledge of our stock by Heat Holdings.

    On February 2, 2000, as part of the transactions relating to the Merger, we
issued 150,000 units (the "Units"), consisting of $150 million aggregate
principal amount of our 12 3/4 % Senior Subordinated Notes due 2007 (the "Senior
Subordinated Notes") and warrants (the "Warrants") to purchase an aggregate of
60 shares of our Class A Common Stock, par value $0.01 per share, and 60 shares
of our Class H Common Stock, par value $0.01 per share. The Senior Subordinated
Notes are fully and unconditionally guaranteed on a joint and several basis by
each of our domestic subsidiaries. The senior subordinated notes were issued
pursuant to an Indenture (the "Indenture") among us, the subsidiary guarantors
and Bankers Trust Company, as trustee. Approximately $4.6 million of the
proceeds from the sale of the Units was allocated to the fair value of the
Warrants and approximately $143.7 million was allocated to the Senior
Subordinated Notes, net of original issue discount of approximately $1.7
million. In May, 2001 certain of the Company's stockholders purchased $26.2
million principal amount of Senior Subordinated Notes and contributed them to
the Company for cancellation in satisfaction of their obligations resulting from
the Company's failure to achieve their required leverage ratio as of December
31, 2000.

    The Indenture limits our ability to incur additional debt, to pay dividends
or make other distributions, to purchase or redeem our stock or make other
investments, to sell or dispose of assets, to create or incur liens, and to
merge or consolidate with any other person. The Indenture also contains
provisions requiring additional equity investments by Willis Stein & Partners in
the event the Company does not achieve certain leverage to EBITDA ratios, as
defined, in years 2000 and 2001. The Indenture provides that upon a change in
control of Aavid, we must offer to repurchase the Notes at 101% of the face
value thereof, together with accrued and unpaid interest. The Notes are
subordinated in right of payment to amounts outstanding under the Credit
Facility and certain other permitted indebtedness.

    As of September 29, 2001 and continuing through December 31, 2001, the
Company was not in compliance with certain financial covenants under the amended
and restated credit facility. The Company has notified its lenders concerning
the noncompliance. The resulting event of default has not been waived by the
Company's lenders, accordingly, following the forbearance period described
below, the lenders could demand full payment of all amounts outstanding under
the amended and restated credit facility. As a result of the event of default,
the Company classified $17.0 million outstanding under the revolving credit
facility, $38.2 million outstanding under the term facility and $119.7 million
of 12 3/4 % Senior Subordinated Notes as current within the accompanying balance
sheet. On January 29, 2002, the Company entered into a forbearance agreement
with its senior lenders pursuant to which agreement Aavid's senior lenders will
forbear through May 31, 2002 with respect to certain covenant noncompliance
issues. The forbearance agreement, among other things, also required the
Company's owners to contribute $12.0 million of additional equity and allowed
the Company to pay its semi-annual interest payment due February 1, 2002 on its
12 3/4% Senior Subordinated Notes. The forbearance agreement also required the
Company to accelerate a principal payment of $2.0 million on the term loan that
was originally due on March 31, 2002. This payment of $2.0 million was made at
the time of the signing of the forbearance agreement. The Company expects to
either amend its current Senior Credit Facility with its existing lenders or
secure a new Senior Credit Facility with new lenders by May 31, 2002. There can
be no assurance that the Company will be successful in negotiating favorable
terms with its existing lenders or securing a new financing arrangement. As a
result of the uncertainty with respect to the new financing, the Company's
auditors, for the year ended December 31, 2001, have rendered a "going concern"
opinion for the Company. See page 47.


                                       36
<PAGE>


    The Company has an obligation to purchase from one of its key suppliers a
minimum quantity of aluminum coil stock. The Company believes that purchasing
aluminum coil stock from this supplier is necessary to achieve consistently low
tolerances, design, delivery flexibility, and price stability. Under the terms
of this agreement the Company has agreed to purchase certain minimum quantities
which approximates $1.2 million at December 31, 2001; however, there are no
required dates within which these quantities may be purchased, as such, this
purchase commitment is not included in the table below. Additionally, the
Company has entered into various long-term debt, capital lease and operating
lease arrangements. The future payments required by these arrangements are as
follows:

<TABLE>
<CAPTION>

    ------------------------------------------------------------------------------------------------------------------
    CONTRACTUAL OBLIGATIONS                                    PAYMENTS DUE BY PERIOD ($ IN THOUSANDS)
    ------------------------------------------------------------------------------------------------------------------
                                                                1 YR
                                                TOTAL         OR LESS(1)       1-3 YRS       4-5 YRS          5+ YRS
    ------------------------------------------------------------------------------------------------------------------
<S>                                            <C>             <C>             <C>            <C>             <C>
    Long-term debt and capital leases          $ 175,832      $ 175,382        $  422         $   25            $ 3
    ------------------------------------------------------------------------------------------------------------------
    Operating leases                              25,932          7,804         8,055          4,118          5,955
    ------------------------------------------------------------------------------------------------------------------
            Total contractual obligations        201,764        183,186         8,477          4,143          5,958
    ------------------------------------------------------------------------------------------------------------------
</TABLE>

    Because of our on-going default related to our Senior Credit Facility, we
cannot be certain that existing sources of liquidity and funds expected to be
generated from operations will be sufficient to meet our debt service, capital
expenditure and working capital requirements for the foreseeable future. As
mentioned previously, we hope to secure a new financing arrangement in May,
2002, although there can be no assurances that we will be successful in
obtaining new financing. Further expansion of our business or the completion of
any material strategic acquisitions may require additional funds which, to the
extent not provided by internally generated sources, could require us to seek
access to debt and equity markets. There can be no assurance that such funds
would be available to the Company at favorable terms or at all.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

    Upward or downward changes in market interest rates and their impact on the
reported interest expense of the Company's variable rate borrowings will affect
the our future earnings; however, a ten percent change in 2001 effective
interest rates would have an approximate $0.04 million impact on our earnings
for 2002, based on debt composition and rates in effect at December 31, 2001.

    The Company is exposed to certain foreign currency risks in connection with
its foreign operations. The Company does not currently engage in foreign
currency hedging activities.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

    Financial Statements and supplementary data required pursuant to this Item
begin on page 46 of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

    Not applicable.

---------

(1) Of the $175.8 million of debt classified as due in one year or less, $166.9
million relates to our senior credit facility and 12 3/4% senior subordinated
notes that are classified as due in 1 year or less due to the Company being out
of compliance with certain financial covenants in its senior credit agreement.

                                       37
<PAGE>




                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

    The following table sets forth the names of each of the our directors as of
March 15, 2002, their ages, the year in which each became a director and their
principal occupations during the past five years:


<TABLE>
<CAPTION>

                                        YEAR
                                        FIRST
                                       BECAME                                     PRINCIPAL OCCUPATION
         NAME                AGE      DIRECTOR                                 DURING THE PAST FIVE YEARS
------------------------------------------------------------------------------------------------------------------------------------
<S>                          <C>        <C>         <C>
Bharatan R. Patel            53         1996        Mr. Patel has been the Chief Executive Officer of the Company since January 1,
                                                    2000. He served as President and Chief Operating Officer of the Company from
                                                    October 1997 to December 1999 and the President until 1998 and Chief Executive
                                                    Officer of Fluent, Inc., a subsidiary of the Company ("Fluent"), since 1988,
                                                    when Fluent was formed as a subsidiary of Creare Inc. ("Creare"), an engineering
                                                    consulting firm; various capacities at Creare since 1976, including principal
                                                    engineer and vice president, and established the Fluent division upon its
                                                    formation in 1983; senior engineer from 1971 to 1976 in the Power Systems Group
                                                    of Westinghouse Electric Corporation.

Daniel H. Blumenthal         38         2000        Mr. Blumenthal became a director upon consummation of the Merger on February 2,
                                                    2000. Mr. Blumenthal has been a managing director of Willis Stein & Partners
                                                    since its inception in 1994. Prior to that time, he served as vice president of
                                                    Continental Illinois Venture Corporation, or CIVC, a private equity investment
                                                    firm, from 1993 to 1994, and as a corporate tax attorney with Latham & Watkins,
                                                    a national law firm, from 1988 to 1993.

John  R. Willis              52         2001        Mr. Willis became a director in October, 2001.  Mr. Willis has been a managing
                                                    director of Willis Stein & Partners since its inception in 1994.  Prior to that
                                                    time, he served as the president and a managing director of CIVC, a private
                                                    investment firm from 1989 to 1994.  Prior to his tenure at CIVC, he founded
                                                    Continental Mezzanine Investment Group in 1988, and was its manager through
                                                    1990.

Charles A. Dickinson         78         1997        Mr. Dickinson has twice served as chairman of the board of Solectron
                                                    Corporation, from 1986 to 1990 and from 1993 to 1996, where he has been a
                                                    director since 1984; from 1991 until February 1996, he was responsible for
                                                    establishing Solectron Europe. Mr. Dickinson has held various management
                                                    positions in manufacturing and technology companies. From 1986 until 1990 he
                                                    served as chief executive officer and chairman of Vermont Microsystems; prior
                                                    thereto he was chief executive officer and president of Dataproducts
                                                    Corporation, having been promoted from vice president of operations, a position
                                                    he had held since 1978.

David R. A. Steadman         63         1994        Mr. Steadman served as Chairman of the Board from February 1995 until October
                                                    1996;  Director of Tech/Ops Sevcon, Inc., a manufacturing company; Chairman of
                                                    Visibility, Inc., a software company, from November 1996 until July, 2000;
                                                    Chairman of Brookwood Companies Incorporated, a textile converter, dyer and
                                                    finisher, since March 1989; chairman of Technology Service Group, Inc., a
                                                    manufacturer of coin-operated telephones, from November 1994 to December 1997;
                                                    president of Atlantic Management Associates, Inc., a management services and
                                                    investment group, since November 1988; chairman and chief executive officer of
                                                    Integra-A Hotel and Restaurant Company from July 1990 to March 1994; chairman
                                                    and chief executive officer of GCA Corporation from 1987 to July 1990; various
                                                    positions within the Raytheon Company from 1975 to 1978 and 1980 to 1987; and
                                                    Mr. Steadman served as chairman of a group of subsidiaries of EMI Ltd. in the
                                                    United Kingdom, Australia and the United States from 1978 to 1980.
</TABLE>


MEETINGS OF THE BOARD OF DIRECTORS

    Our business affairs are managed under the direction of the Board of
Directors. Members of the Board are kept informed through various reports and
documents sent to them, through operating and financial reports routinely
presented at Board and committee meetings by the Chairman and other officers,
and through other means. In addition, our directors discharge their duties
throughout the year not only by attending Board meetings, but also through
personal meetings and other communications, including considerable telephone
contact, with the Chief Executive Officer and others regarding matters of
interest and concern to Aavid.


                                       38
<PAGE>
    During the fiscal year ended December 31, 2001, our Board of Directors held
4 formal meetings. Each director attended at least 75% of the meetings of the
Board of Directors held during 2001.

BOARD COMMITTEES

    Our Board of Directors did not have committees during the year ending
December 31, 2001.

EXECUTIVE OFFICERS

    Our executive officers are as follows:

<TABLE>
<CAPTION>

NAME                                           AGE                                      POSITION
----                                           ---                                      ---------
<S>                                             <C>    <C>
Bharatan R. Patel..........................     53     Chairman of the Board,  President and Chief Executive Officer, Aavid Thermal
                                                       Technologies, Inc. and Aavid Thermalloy; Chief Executive Officer, Fluent;
                                                       Director
Bryan A. Byrne.............................     54     Vice President and Chief Financial Officer
John W. Mitchell...........................     53     Vice President and General Counsel, Aavid
H. Ferit Boysan............................     54     President and Chief Operating Officer, Fluent
Peter L. Christie..........................     56     Vice President and Chief Financial Officer of Fluent
</TABLE>

    BHARATAN R. PATEL, PH.D. became our and Aavid Thermalloy's Chief Executive
Officer on January 1, 2000. He served as one of our directors since April 1996,
our President since October 15, 1997 and Chief Executive Officer of Fluent since
he helped form it in 1988 as a subsidiary of Creare, Inc. He served as our Chief
Operating Officer from October 15, 1997 until December 31, 1999. Dr. Patel
worked at Creare, Inc., an engineering consulting firm, from 1976 to 1988,
serving in various capacities including Principal Engineer and Vice President.
From 1971 to 1976, Dr. Patel was employed as a Senior Engineer in the Power
Systems Group of Westinghouse Electric Corporation.

    BRIAN BYRNE joined Aavid Thermal Technologies, Inc. in April, 2000 as its
Chief Financial Officer. Mr. Byrne comes to Aavid from Jabil Circuits, Inc.,
where he served as Operations Manager. Prior to his position at Jabil, Mr. Byrne
served as the Vice President Business Development for Altron Incorporated's
(subsequently Sanmina Corporation) and its Massachusetts' printed circuit
assembly division for 3 years. Prior to that, he spent 20 years at Compangnie
Des Machines Bull in increasingly senior financial and executive positions, most
recently as Division General Manager of Bull Electronics.

    JOHN W. MITCHELL joined us in December 1995 as Vice President and General
Counsel. From 1979 until he joined us, Mr. Mitchell was a corporate and business
attorney at Sulloway & Hollis, a Concord, New Hampshire law firm, where he
served as our principal outside legal counsel since May 1985.

    H. FERIT BOYSAN, PH.D. became Chief Operating Officer of Fluent in July 1997
and President of Fluent in December 1998. Since 1991, he had been Managing
Director of Fluent's European operations, headquartered in Sheffield, England.
From 1986 to 1991, Dr. Boysan was the Managing Director of Flow Simulations,
Ltd., the European distributor of Fluent products until the formation of Fluent
Europe in 1991. Dr. Boysan was one of the original developers of Fluent's CFD
software.

    PETER CHRISTIE joined Fluent in 1998 as its Vice President and Chief
Financial Officer. From 1984 to 1998, Mr. Christie held several senior
management positions, including President and Chief Financial Officer, at Verax
Corporation, a bioprocessing company. Prior to joining Verax, Mr. Christie was
employed at Creare Inc., an engineering consulting firm, where he held the
position of Chief Financial Officer from 1973 to 1978 and was President and
founder of Creare Products Inc., a medical instruments manufacturer, from 1978
to 1984.

                                       39
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION

COMPENSATION OF EXECUTIVE OFFICERS

    The following table summarizes all compensation earned by or paid to our
Chief Executive Officer and the four other most highly paid executive officers
whose annual salary and bonus exceeded $100,000 (collectively, the "Named
Executive Officers") for services rendered in all capacities to Aavid during the
fiscal years indicated.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                                     LONG-TERM
                                                                                                                   COMPENSATION
                                                                               COMPENSATION                           AWARDS
                                                                       -----------------------------           ---------------------
                                                                        ANNUAL                                 SECURITIES UNDERLYING
     NAME AND PRINCIPAL POSITION                    FISCAL YEAR         SALARY                BONUS                   OPTIONS
     ---------------------------                    -----------        --------             --------           ---------------------
<S>                                                <C>                <C>             <C>                  <C>
Bharatan R. Patel(1).........................          2001            $352,431             $     --                      --
Chief Executive Officer                                2000            $346,858             $     --                      --
                                                       1999             244,115              125,000                  24,950

Brian A. Byrne (2)...........................          2001            $209,679             $     --                      --
Vice President and Chief Financial Officer             2000            $120,577             $     --                      --
                                                       1999                 N/A                  N/A                     N/A

H. Ferit Boysan(3)...........................          2001            $200,414             $141,222                      --
President and Chief Operating Officer of Fluent        2000            $171,875             $149,213                      --
                                                       1999             169,365              137,300                  24,950

John W. Mitchell.............................          2001            $281,805             $     --                      --
Vice President, General Counsel and Secretary          2000            $210,422             $     --                      --
                                                       1999             196,088               75,000                  10,000

Peter L. Christie............................          2001            $142,115             $104,927                      --
Chief Financial Officer of Fluent                      2000            $137,914             $100,427                      --
                                                       1999             125,077               27,920                   3,000
</TABLE>


(1) Mr. Patel became President and Chief Operating Officer of Aavid in October
    1997, and became Chief Executive Officer of Aavid on January 1, 2000.

(2) Mr. Byrne became joined the Company as Chief Financial Officer in April,
    2000.

(3) Mr. Boysan became President of Fluent in December 1998.

EMPLOYMENT AGREEMENTS

    Aavid has entered into an employment agreements with Messrs. Patel, Byrne
and Mitchell, which currently expire on July 1, 2005 and Fluent has entered into
an employment agreement with Mr. Boysan, which currently expires on July 1,
2005.

    The employment agreements require each employee to devote his full business
time and best efforts, business judgment, skill and knowledge exclusively to the
advancement of the business and interests of Aavid. The employment agreements
currently provide for the payment of a base salary to Messrs. Patel, Boysan,
Mitchell and Byrne equal to $350,000, $200,000, $210,000, and $210,000,
respectively, subject to increase at the discretion of the board of directors of
their respective employers. Each employment agreement provides that the employee
will continue to receive his base salary, benefits and other compensation for a
specified period in the event their respective employers terminate their
employment other than for "cause" or under certain other circumstances.


                                       40

<PAGE>
    Each of Messrs. Byrne, Mitchell, and Patel is entitled to an annual bonus of
30%, 33.33% and 50%, respectively, based on Aavid's performance. Mr. Boysan is
entitled to an annual bonus based on our actual performance against budgeted
performance. We may renegotiate our obligation to make the payments under those
employment agreements in connection with certain public offering or acquisition
transactions.

    The employment agreements contain non-competition covenants.

COMPENSATION OF DIRECTORS

    Each of Messrs. Steadman and Dickinson receives an annual fee of $15,000 and
$1,000 for each Board of Directors meeting attended. In addition, each of Mr.
Steadman and Mr. Dickinson purchased 0.05% of the non-voting common equity of
Aavid Thermalloy LLC.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                      BENEFICIAL OWNERSHIP OF COMMON STOCK

    Heat Holdings Corp. currently owns all of the issued and outstanding common
and preferred stock of Aavid. Aavid also has issued detachable warrants, sold to
noteholders in connection with the sale of the senior subordinated notes, to
acquire, in the aggregate, 60 shares of Aavid's Class A common stock,
representing 3% of the common stock of Aavid (on a fully diluted basis) and 60
shares of Aavid's Class H common stock (representing rights to less than 1% of
the equity securities of Aavid Thermalloy, LLC). Holdings currently owns a
portion of such warrants.

    The following table sets forth certain information regarding the beneficial
ownership of the issued and outstanding common stock of Holdings as of March 1,
2002.

                             BENEFICIAL OWNERSHIP(1)

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                                                   Series A               Series C                Fully
                                            Class A                Preferred              Preferred            Diluted, as
                                          Common and                  and                    and                 converted
                                            Class B                Series B               Series D             (each common
Name of Security Holder                  Common Stock   Percent    Preferred    Percent   Preferred   Percent    class)(2)   Percent
------------------------------------------------------------------------------------------------------------------------------------

<S>                                       <C>            <C>     <C>            <C>      <C>          <C>      <C>           <C>
Willis Stein & Partners Management II,    4,358,846.57   66.73%          0.00    55.43%        0.00    0.00%    4,358,846.57  46.83%
L.L.C. (3)

Willis Stein & Partners Management III,           0.00    0.00%  1,039,748.31    12.36%  512,805.48  100.00%    2,416,249.87  25.96%
L.L.C.  (4)

The Chase Manhattan Bank, as Trustee      1,068,344.75   16.35%    232,909.15    16.35%        0.00    0.00%    1,286,016.85  13.82%
for First Plaza Group Trust (5)

Abbott Capital (6)                          427,337.90    6.54%     93,163.66     6.54%        0.00    0.00%      514,406.74   5.53%

Nassau Capital (7)                          427,337.90    6.54%     50,266.51     6.03%        0.00    0.00%      474,315.95   5.10%

BancBoston Investments, Inc. (8)            213,668.95    3.27%          0.00     2.72%        0.00    0.00%      213,668.95   2.30%

Bharatan R. Patel                            21,366.89    0.33%      4,658.18     0.33%        0.00    0.00%       25,720.34   0.28%

H. Ferit Boysan                               6,410.07    0.10%      1,397.45     0.10%        0.00    0.00%        7,716.10   0.08%

John W. Mitchell                              6,410.07    0.10%      1,397.45     0.10%        0.00    0.00%        7,716.10   0.08%

Michael Engelman                              1,282.01    0.02%        279.49     0.02%        0.00    0.00%        1,543.22   0.02%

Peter L. Christie                             1,068.34    0.02%        232.91     0.02%        0.00    0.00%        1,286.02   0.01%

Swaminathan Subbiah                             427.34    0.01%         93.16     0.01%        0.00    0.00%          514.41   0.01%
-----------------------------------------------------------------------------------------------------------------------------------
Total                                     6,532,500.80  100.00%   1,424,146.28  100.00%  512,805.48  100.00%    9,308,001.11 100.00%
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                      41

<PAGE>
(1) "Beneficial ownership" generally means any person who, directly or
    indirectly, has or shares voting or investment power with respect to a
    security or has the right to acquire such power within 60 days. Unless
    otherwise indicated, we believe that each holder has sole voting and
    investment power with regard to the equity interests listed as beneficially
    owned.

(2) Each share of Series A preferred stock is convertible into approximately
    .9346 shares of Class A common stock and each share of Series B preferred
    stock is convertible into approximately .9346 shares of Class B common
    stock. Each share of Series C preferred stock is convertible into
    approximately 2.817 shares of Class A common stock, and each share of Series
    D preferred stock is convertible into approximately 2.817 shares of Class B
    common stock.

(3) Consists of 4,096,770.66 shares of each of Class A common stock and Class B
    common stock directly beneficially held by Willis Stein & Partners II, L.P.
    and 262,075.91 shares of each of Class A common stock and Class B common
    stock directly beneficially held by Willis Stein & Partners Dutch, L.P.
    Willis Stein & Partners Management II, L.L.C. is the general partner of the
    general partner both partnerships and may be deemed to beneficially own such
    shares. John R. Willis and Daniel H. Blumenthal, as managing directors of
    Willis Stein & Partners Management II, L.L.C., may be deemed to beneficially
    own the shares of common stock beneficially owned by the partnerships and
    their general partner. Messrs. Willis and Blumenthal disclaim beneficial
    ownership of any of such shares. The address of Willis Stein & Partners
    Management II, L.L.C. and each partnership is One North Wacker Drive, Suite
    4800, Chicago, IL 60606.

(4) Consists of (a) 972,735.80 shares of each of Series A preferred stock and
    Series B preferred stock and 479,754.81 shares of each of Series C preferred
    stock and Series D preferred stock directly beneficially held by Willis
    Stein & Partners III, L.P., (b) 29,288.68 shares of each of Series A
    preferred stock and Series B preferred stock and 14,445.22 shares of each of
    Series C preferred stock and Series D preferred stock directly beneficially
    held by Willis Stein & Partners Dutch III-A, L.P., (c) 29,288.68 shares of
    each of Series A preferred stock and Series B preferred stock and 14,445.22
    shares of each of Series C preferred stock and Series D preferred stock
    directly beneficially held by Willis Stein & Partners Dutch III-B, L.P. and
    (d) 8,435.15 shares of each of Series A preferred stock and Series B
    preferred stock and 4,160.23 shares of each of Series C preferred stock and
    Series D preferred stock directly beneficially held by Willis Stein &
    Partners III-C, L.P. Willis Stein & Partners Management III, L.L.C. is the
    general partner of the general partner of each partnership and may be deemed
    to beneficially own such shares. John R. Willis and Daniel H. Blumenthal, as
    managing directors of Willis Stein & Partners Management III, L.L.C., may be
    deemed to beneficially own the shares of common stock beneficially owned by
    the partnerships and their general partner. Messrs. Willis and Blumenthal
    disclaim beneficial ownership of any of such shares. . The address of Willis
    Stein & Partners Management III, L.L.C. and each partnership is One North
    Wacker Drive, Suite 4800, Chicago, IL 60606.

(5) The Chase Manhattan Bank acts as the trustee for the First Plaza Group
    Trust, a trust under and for the benefit of certain employee benefit plans
    of General Motors Corporation ("GM"), its subsidiaries and unrelated
    employers. These shares may be deemed to be owned beneficially by General
    Motors Investment Management Corporation ("GMIMCo"), a wholly-owned
    subsidiary of GM. GMIMCo's principal business is providing investment advice
    and investment management services with respect to the assets of certain
    employee benefit plans of GM, its subsidiaries and unrelated employers, and
    with respect to the assets of certain direct and indirect subsidiaries of GM
    and associated entities. GMIMCo is serving as the trust's investment manager
    with respect to these shares and in that capacity it has the sole power to
    direct the trustee as to the voting and disposition of these shares. Because
    of the trustee's limited role, beneficial ownership of the shares by the
    trustee is disclaimed. First Plaza Group Trust's address is c/o GMIMCo, 767
    Fifth Ave., 16th Floor, New York, NY 10153.

(6) Consists of (a) 333,857.73 shares of each of Class A common stock and Class
    B common stock directly beneficially held by Abbott Capital 1330 Investors
    II, L.P., (b) 66,771.55 shares of each of Class A common stock and Class B
    common stock and 93,163.66 shares of each of Series A preferred stock and
    Series B preferred stock directly beneficially held by Abbott Capital
    Private Equity Fund III, L.P. and (c) 26,708.62 shares of each of Class A
    common stock and Class B common stock directly beneficially held by BNY
    Partners Fund, L.L.C. The address of such funds is c/o Abbott Capital
    Management, LLC, 1330 Avenue of the Americas, Suite 2800, New York, New York
    10019.

                                       42
<PAGE>
(7) Consists of (a) 424,061.76 shares of each of Class A common stock and Class
    B common stock, and 49,881.15 shares of each of Series A preferred stock and
    Series B preferred stock directly beneficially held by Nassau Capital
    Partners III, L.P., and (b) 3,276.14 shares of each of Class A common stock
    and Class B common stock and 385.36 shares of each of Series A preferred
    stock and Series B preferred stock directly beneficially held by NAS
    Partners I L.L.C. Such funds' address is 22 Chambers Street, Princeton, New
    Jersey 08542.

(8) BancBoston's address is 175 Federal Street, 10th Floor, Boston,
    Massachusetts 02110.

Each of the stockholders listed in the table above currently holds Class A and
Class B common stock and Series A, Series B, Series C and Series D preferred
stock of Heat Holdings II Corp. in a percentage equal to such stockholder's
ownership of the corresponding class and series of Holdings shares. Heat
Holdings II Corp. holds or has the rights to acquire approximately 98% of the
outstanding common and convertible preferred membership interests in Aavid
Thermalloy, LLC. Our executive officers and certain of our employees currently
own approximately 1.5% of the non-voting common equity of Aavid Thermalloy, LLC
and approximately 9.5% of the non-voting common equity of Fluent Holdings, Inc.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

NONE

















                                       43
<PAGE>

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 10-K

(a) Financial Statements and Financial Schedules

    (1) and (2) See "Index to Consolidated Financial Statements" beginning on
        page 47. Schedule II - Valuation and Qualifying Accounts and the
        Financial Data Schedule are filed herewith. All other schedules for
        which provision is made in the applicable accounting regulations of the
        Securities and Exchange Commission are not required under the related
        instructions or are inapplicable and, therefore, have been omitted.

    (3) The following exhibits are filed or incorporated by reference as part of
        this Annual Report are management contracts, compensatory plans or
        arrangements: Exhibits 10.1, 10.2, 10.5, 10.6 and 10.7.

 NO.     DESCRIPTION
-----    -----------

 2.1     Stock Purchase Agreement by and among Bowthorpe plc, Bowthorpe B.V.,
         Bowthorpe International Inc., Bowthorpe GmbH (collectively,
         "Bowthorpe") and Aavid Thermal Technologies, Inc., dated as of August
         23, 1999(1)

 2.2     Agreement and Plan of Merger, dated as of August 23, 1999, by and among
         Heat Holdings Corp., Heat Merger Corp. and Aavid Thermal Technologies,
         Inc.(1)

 3.1     Certificate of Incorporation (2)

 3.2     By-laws(2)

 4.1     Indenture dated as of February 2, 2000, among Aavid Thermal
         Technologies, Inc., the subsidiary guarantors and Bankers Trust
         Company, as trustee.(3)

 4.2     Warrant Agreement, dated as of February 2, 2000, by and between Aavid
         Thermal Technologies, Inc. and Bankers Trust Company, as Warrant
         Agent.(3)

10.1     Amendment No. 1 and Consent to Amended and Restated Credit Agreement
         dated April 30, 2001 among Aavid Thermal Technologies, Inc., Heat
         Holdings Corp., Heat Holdings II Corp., the several lenders from time
         to time parties hereto, CIBC World Markets Corp., as lead arranger and
         bookrunner, Fleet National Bank, as documentation agent, and Canadian
         Imperial Bank of Commerce, as issuer of certain letters of credit, and
         as issuer and administrative agent. (5)

10.2     Omnibus Amendment dated April 30, 2001 among Aavid Thermal
         Technologies, Inc., Heat Holdings Corp., Heat Holdings II Corp., the
         several lenders from time to time parties hereto, CIBC World Markets
         Corp., as lead arranger and bookrunner, Fleet National Bank, as
         documentation agent, and Canadian Imperial Bank of Commerce, as issuer
         and administrative agent. (5)

10.3     Forbearance and Amendment Agreement to Amended and Restated Credit
         Agreement dated January 29, 2002 among Aavid Thermal Technologies,
         Inc., Heat Holdings Corp., Heat Holdings II Corp., the several lenders
         from time to time parties thereto, CIBC World Markets Corp., as lead
         arranger and bookrunner, Canadian Imperial Bank of Commerce, as issuer
         of letters of credit, Fleet National Bank (formerly known as
         BankBoston, N.A.), as Documentation Agent and Canadian Imperial Bank of
         Commerce, as Administrative Agent.

10.5     Form of indemnification agreement for the Company's officers and
         directors(4)

10.8     Credit Agreement, dated as of October 21, 1999, among Aavid Thermal
         Technologies, Inc., as Borrower, the several lenders from time to time
         party hereto, CIBC World Markets Corp., as Lead Arranger and
         Bookrunner, and Canadian Imperial Bank of Commerce, as Issuer and
         Administrative Agent.(6)

10.9     Amended and Restated Credit Agreement, dated as of February 2, 2000,
         among Aavid Thermal Technologies, Inc., Heat Holdings Corp., Heat
         Holdings II Corp., the several lenders from time to time parties
         hereto, CIBC World Markets Corp., as lead arranger and bookrunner,
         BankBoston, N.A., as documentation agent, and Canadian Imperial Bank of
         Commerce, as issuer and administrative agent. (3)

10.10    Registration Rights Agreement dated as of February 2, 2000, among Aavid
         Thermal Technologies, Inc., the subsidiary guarantors, CIBC World
         Markets Corp. and Fleet Boston Robertson Stephens Inc., as initial
         purchasers.(3)

10.26    Common Stock Registration Rights Agreement dated as of February 2,
         2000, among Aavid Thermal Technologies, Inc., Heat Holdings Corp. and
         CIBC World Markets Corp. and Fleet Boston Robertson Stephens Inc., as
         initial purchasers.(3)

21.0     Subsidiaries of Registrant(2)

99.1     Letter to Commission pursuant to Temporary Note 3T

                                       44

<PAGE>
(1)      Incorporated by reference to Exhibits to the Company's Current Report
         on Form 8-K dated August 23, 1999.
(2)      Incorporated by reference to Exhibits to the Company's Registration
         Statement on Form S-4 (No. 333-33126).
(3)      Incorporated by reference to Exhibits to the Company's Current Report
         on Form 8-K dated February 2, 2000.
(4)      Incorporated by reference to Exhibits to the Company's Registration
         Statement on Form S-1 (No. 33-99232).
(5)      Incorporated by reference to Exhibits to the Company's Quarterly Report
         on Form 10-Q for the quarter ended March 31, 1999.
(6)      Incorporated by reference to Exhibits to the Company's Current Report
         on Form 8-K dated October 21, 1999.

                                   SIGNATURES

    Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                    AAVID THERMAL TECHNOLOGIES, INC.

                                    By: /s/ Bharatan R. Patel
                                        ----------------------------------------
                                        Bharatan R. Patel President and Chief
                                        Executive Officer

                                        April 16, 2002

Dated April 16, 2002

    Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

SIGNATURE                                      TITLE                                                      DATE
---------                                      -----                                                      -----
<S>                                            <C>                                                        <C>
/s/ Bharatan R.  Patel                         Director, President and CEO                                April 16, 2002
-------------------------------                (Principal Executive Officer)
Bharatan R. Patel

/s/ Brian A. Byrne                             Chief Financial Officer                                    April 16, 2002
-------------------------------                (Principal Financial and Accounting Officer)
Brian A. Byrne

/s/ John R. Willis                             Director                                                   April 16, 2002
-------------------------------
John R. Willis

/s/ Daniel H. Blumenthal                       Director                                                   April 16, 2002
-------------------------------
Daniel H. Blumenthal
</TABLE>

                                       45

<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AAVID THERMAL TECHNOLOGIES, INC.

<TABLE>
<CAPTION>
                                                                                                                   PAGE
                                                                                                                   ----
<S>                                                                                                                 <C>
Report of Independent Public Accountants.........................................................................   47

Consolidated Balance Sheets as of December 31, 2001 and 2000.....................................................   48

Consolidated Statements of Operations for the year ended December 31, 2001, the Period from February 2, 2000
 Through December 31, 2000, the Period from January 1, 2000 Through February 1, 2000 and the year ended
 December 31, 1999...............................................................................................   49

Consolidated Statements of Changes in Stockholders' (Deficit) Equity for the  year ended December 31, 2001,
 the Period from February 2, 2000 Through December 31, 2000, the Period from January 1, 2000 Through
 February 1, 2000 and the year ended December 31, 1999...........................................................   50

Consolidated Statements of Cash Flows for the year ended December 31, 2001, the Period from February 2, 2000
 Through December 31, 2000, the Period from January 1, 2000 Through February 1, 2000 and the year ended
 December 31, 1999...............................................................................................   52

Notes to Consolidated Financial Statements.......................................................................   53

Schedule II -- Valuation and Qualifying Accounts.................................................................   82
</TABLE>







                                       46

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO AAVID THERMAL TECHNOLOGIES, INC.:

We have audited the accompanying consolidated balance sheets of Aavid Thermal
Technologies, Inc. and subsidiaries (a Delaware Corporation) as of December 31,
2001 and 2000, and the related consolidated statements of operations, changes in
stockholders' (deficit) equity and cash flows for the year ended December 31,
2001 and the period from February 2, 2000 through December 31, 2000. We have
also audited the related consolidated statements of operations, changes in
stockholders' equity and cash flows of the Predecessor for the period from
January 1, 2000 through February 1, 2000 and the year ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. We did not audit the financial statements of Curamik GmbH, which
statements reflect total assets and total revenues of 6% and 9% in 2001, and 2%
and 5% in 2000, respectively, of the related consolidated totals. These
statements were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to the amounts included for that entity
is based solely on the report of the other auditors.

We conducted our audits 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
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, and the
report of other auditors, provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Aavid Thermal Technologies, Inc. and subsidiaries as
of December 31, 2001 and 2000 and the results of their operations and their cash
flows for the year ended December 31, 2001 and for the period from February 2,
2000 through December 31, 2000 and the financial position of the Predecessor as
of December 31, 1999 and the results of their operations and their cash flows
for the period from January 1, 2000 through February 1, 2000 and the year ended
December 31, 1999 in conformity with accounting principles generally accepted in
the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, as of December 31, 2001, the Company was not in compliance
with certain financial covenants under the amended and restated credit facility.
The Company has notified its lenders concerning the noncompliance. The resulting
event of default has not been waived by the Company's lenders, accordingly, the
lenders could demand full payment of all amounts outstanding under the amended
and restated credit facility. On January 29, 2002, the Company entered into a
forbearance agreement with its senior lenders pursuant to which agreement
Aavid's senior lenders will forbear through May 31, 2002 with respect to certain
covenant noncompliance issues. As a result, the Company may not have sufficient
resources to finance its operations without additional funding from stockholders
or other sources through December 31, 2002. These matters, among others, raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note A. The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts and the amounts or
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.

Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of financial
statements is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subject to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

/s/ ARTHUR ANDERSEN LLP
BOSTON, MASSACHUSETTS
April 2, 2002


                                       47
<PAGE>

                        AAVID THERMAL TECHNOLOGIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
ASSETS                                                                                     DECEMBER 31, 2001      DECEMBER 31, 2000
------                                                                                     -----------------      -----------------
<S>                                                                                             <C>                   <C>
Cash and cash equivalents..............................................................         $  16,059             $  23,849
Accounts receivable-trade, less allowance for doubtful accounts........................            32,930                49,094
Notes receivable.......................................................................               480                    --
Inventories............................................................................            12,560                25,203
Refundable taxes.......................................................................               118                    --
Deferred financing fees................................................................             5,385                    --
Prepaid and other current assets.......................................................             4,099                 4,625
                                                                                                ---------             ---------
Total current assets...................................................................            71,631               102,771
Property, plant and equipment, net.....................................................            39,269                57,013
Goodwill, net of accumulated amortization of $140,161 and $21,247 at December 31, 2001
and 2000, respectively.................................................................            45,055               162,430
Developed technology and assembled workforce, net of accumulated amortization of
$43,262 and $9,985 at December 31, 2001 and 2000.......................................            15,738                49,015
Other assets, net......................................................................             1,585                15,059
                                                                                                ---------             ---------

Total assets...........................................................................         $ 173,278             $ 386,288
                                                                                                =========             =========

LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS' (DEFICIT) EQUITY
------------------------------------------------------------------
Accounts payable-trade.................................................................         $  14,505             $  18,582
Current portion of long term debt obligations..........................................           175,382                10,768
Income taxes payable...................................................................             4,680                 6,250
Restructuring charges..................................................................             2,387                 1,274
Deferred revenue.......................................................................             8,428                 9,390
Deferred income taxes..................................................................                --                 1,741
Accrued expenses and other current liabilities.........................................            22,938                29,998
                                                                                                ---------             ---------
Total current liabilities..............................................................           228,320                78,003
Revolving line of credit...............................................................                --                 7,700
Term loan..............................................................................                --                41,000
12 3/4% senior subordinated notes......................................................                --               144,290
Other long term debt obligations.......................................................               450                   244
Deferred income taxes..................................................................                --                 9,977
                                                                                                ---------             ---------
Total liabilities......................................................................           228,770               281,214

Commitments and contingencies (Note K)

Minority interests in consolidated subsidiaries........................................             1,464                 4,915

Stockholders' (deficit) equity:
Class A Common Stock, $.0001 par value; authorized 1,200 shares; 1,018.71 and 940
shares issued and outstanding at December 31, 2001 and 2000, respectively..............                --                    --
Class B Common Stock, $.0001 par value; authorized 1,200 shares; 1,078.71 and 1,000
shares issued and outstanding at December 31, 2001 and 2000, respectively..............                --                    --
Class H Common Stock, $.0001 par value; authorized 1,000 shares; 40 shares issued and
outstanding at December 31, 2001 and 2000, respectively................................                --                    --
Warrants to purchase 49.52 and 60 shares of Class A common stock and 49.52 and 60
shares of Class H common stock at December 31, 2001 and 2000, respectively.............             3,764                 4,560
Additional paid-in capital.............................................................           176,007               147,187
Cumulative translation adjustment......................................................            (2,678)               (1,608)
Accumulated deficit....................................................................          (234,049)              (49,980)
                                                                                                ----------            ---------
Total stockholders' (deficit) equity...................................................           (56,956)              100,159
                                                                                                ----------            ---------

Total liabilities, minority interests and stockholders' (deficit) equity...............         $ 173,278             $ 386,288
                                                                                                =========             =========
</TABLE>





              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       48

<PAGE>

                        AAVID THERMAL TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                            THE PERIOD         THE PERIOD FROM
                                                                            FEBRUARY 2,        JANUARY 1, 2000
                                                    YEAR ENDED            2000 THROUGH             THROUGH            YEAR ENDED
                                                DECEMBER 31, 2001        DECEMBER 31, 2000     FEBRUARY 1, 2000    DECEMBER 31, 1999
                                                -----------------        -----------------     ----------------    -----------------
                                                    (COMPANY)                (COMPANY)            (PREDECESSOR)       (PREDECESSOR)

<S>                                                 <C>                      <C>                    <C>                <C>
Net sales........................................   $208,840                 $270,184               $ 23,442           $ 214,243
Cost of goods sold...............................    136,788                  176,982                 15,516             138,558
                                                   ---------                 --------               --------           ---------
Gross profit.....................................     72,052                   93,202                  7,926              75,685
Selling, general and administrative expenses.....     62,179                   64,410                  5,032              51,970
Amortization of intangible assets................     34,244                   31,338                    182                  --
Research and development.........................     12,886                    9,935                    752               7,528
Intangible asset impairment charge...............    116,616                       --                     --                  --
Restructuring charges............................     17,017                       --                     --                  --
Loss on sale of division.........................      4,931                       --                     --                  --
Acquired in-process research and development.....         --                   15,000                     --                  --
Buyout of compensation agreements................         --                       --                     --                (630)
                                                   ---------                 --------               --------           ---------

(Loss) income from operations....................   (175,821)                 (27,481)                 1,960              16,817
Interest expense, net............................    (23,563)                 (23,115)                  (816)             (1,629)
Other income (expense), net......................       (582)                     379                     22                 218
                                                   ---------                 --------               --------           ---------
(Loss) income before income taxes, minority
  interest and extraordinary item................   (199,966)                 (50,217)                 1,166              15,406
Benefit (provision) for income taxes.............      9,553                   (1,127)                  (547)             (8,852)
                                                   ---------                 --------               --------           ---------
(Loss) income before minority interest and
  extraordinary item.............................   (190,413)                 (51,344)                   619               6,554
Minority interest in loss of consolidated
 Subsidiaries....................................       3,057                    1,364                      6                 132
                                                    ---------                 --------               --------           ---------
(Loss) income before extraordinary item..........   (187,356)                 (49,980)                   625               6,686
Extraordinary item:
  Gain on extinguishment of debt, net of tax.....      3,287                       --                     --                  --
                                                   ---------                 --------               --------           ---------
Net (loss) income................................  $(184,069)                $(49,980)              $    625           $   6,686
                                                   =========                 ========               ========           =========
</TABLE>

The purchase method of accounting was used to record assets acquired and
liabilities assumed by the Company in the Merger. Such accounting generally
results in increased amortization and depreciation reported in future periods.
Accordingly, the accompanying financial statements of the Predecessor and the
Company are not comparable in all material respects since those financial
statements report financial position, results of operations, and cash flows for
these two separate entities.

              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       49
<PAGE>

                        AAVID THERMAL TECHNOLOGIES, INC.
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
                        (in thousands, except share data)
<TABLE>
<CAPTION>

                                                                         CLASS A              CLASS B               CLASS H
                                                  COMMON STOCK         COMMON STOCK         COMMON STOCK          COMMON STOCK
                                                ------------------    ---------------      ---------------       ---------------
                                                 SHARES    AMOUNT     SHARES   AMOUNT      SHARES   AMOUNT       SHARES   AMOUNT
                                                ---------  ------     -------  ------      ------   ------       ------   ------
<S>                                             <C>         <C>        <C>       <C>       <C>         <C>       <C>       <C>
Balance, December 31, 1998 (Predecessor)..      9,251,391   $  93        --      $--           --      $--         --      $--
                                                =========   =====      ====      ===        =====      ===         ==      ===

Comprehensive income:
  Net income..............................            --       --        --       --           --       --         --       --
  Cumulative translation adjustment.......            --       --        --       --           --       --         --       --
Comprehensive income......................            --       --        --       --           --       --         --       --
Proceeds from exercise of options.........       311,916        3        --       --           --       --         --       --
Proceeds from the issuance of common stock        45,561       --        --       --           --       --         --       --
Income tax benefit from stock options.....            --       --        --       --           --       --         --       --
                                              ----------    -----     -----      ---        -----      ---                 ---
Balance, December 31, 1999 (Predecessor)..      9,608,868   $  96        --      $--           --      $--         --      $--
                                              ==========    =====     =====      ===        =====      ===         ==      ===

Comprehensive income:
  Net income..............................            --       --        --       --           --       --         --       --
  Cumulative translation adjustment.......            --       --        --       --           --       --         --       --
Comprehensive income......................            --       --        --       --           --       --         --       --
Proceeds from exercise of options.........     1,391,254       14        --       --           --       --         --       --
Proceeds from the issuance of common stock        17,164       --        --       --           --       --         --       --
Income tax benefit from stock options.....            --       --        --       --           --       --         --       --
                                              ----------    -----     -----      ---        -----      ---                 ---
Balance, February 1, 2000 (Predecessor)...    11,017,286    $ 110        --      $--           --      $--         --      $--
                                              ==========    =====     =====      ===        =====      ===         ==      ===

-------------------------------------------------------------------------------------------------------------------------------
Willis Stein merger re-capitalization
(Company).................................            --       --       940       --        1,000       --         40       --
Issuance of warrants in association with
  12.75% subordinated notes...............            --       --        --       --           --       --         --       --
Comprehensive loss:.......................            --       --        --       --           --       --         --       --
  Net loss................................            --       --        --       --           --       --         --       --
  Cumulative translation adjustment.......            --       --        --       --           --       --         --       --
                                              ----------    -----     -----      ---        -----      ---                 ---
Comprehensive loss
Balance, December 31, 2000 (Company)......            --    $  --       940      $--        1,000      $--         40      $--
                                              ==========    =====     =====      ===        =====      ===         ==      ===
Capital contribution and bond retirement..            --       --        79       --           79       --         --       --
Comprehensive loss:
  Net loss................................            --       --        --       --           --       --         --       --
  Cumulative translation adjustment.......            --       --        --       --           --       --         --       --
Comprehensive loss........................            --       --        --       --           --       --         --       --
                                              ----------    -----     -----      ---        -----      ---                 ---
Balance, December 31, 2001 (Company)......            --    $  --     1,019      $--        1,079      $--         40      $--
                                              ==========    =====     =====      ===        =====      ===         ==      ===

</TABLE>

The purchase method of accounting was used to record assets acquired and
liabilities assumed by the Company in the Merger. Such accounting generally
results in increased amortization and depreciation reported in future periods.
Accordingly, the accompanying financial statements of the Predecessor and the
Company are not comparable in all material respects since those financial
statements report financial position, results of operations, and cash flows for
these two separate entities.

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       50

<PAGE>

                        AAVID THERMAL TECHNOLOGIES, INC.
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
                                   (CONTINUED)
                        (in thousands, except share data)

<TABLE>
<CAPTION>
                                                               ADDITIONAL                    CUMULATIVE      RETAINED
                                                                PAID-IN     COMPREHENSIVE    TRANSLATION     EARNINGS
                                                 WARRANTS       CAPITAL     INCOME (LOSS)    ADJUSTMENT      (DEFICIT)    TOTAL
                                                 --------      ----------   -------------    ------------    ---------   --------

<S>                                               <C>           <C>           <C>                 <C>            <C>        <C>
Balance, December 31, 1998 (Predecessor)...       $    --       $ 56,740                       $   (902)      $ 15,420   $  71,351
                                                  =======       ========                       ========       ========   =========

Comprehensive income:
  Net income...............................            --             --      $   6,686              --          6,686       6,686
  Cumulative translation adjustment........            --             --           (392)           (392)            --        (392)
                                                                              ---------
Comprehensive income.......................                                   $   6,294
                                                                              =========
Proceeds from exercise of options..........            --          1,162                             --             --       1,165
Proceeds from the issuance of common stock.            --            634                             --             --         634
Income tax benefit from stock options......            --            124                             --             --         124
                                                  -------       --------                       --------       --------   ---------
Balance, December 31, 1999 (Predecessor)...       $    --       $ 58,660                       $ (1,294)      $ 22,106   $  79,568
                                                  =======       ========                       ========       ========   =========
Comprehensive income:
  Net income...............................            --             --      $     625              --            625         625
  Cumulative translation adjustment........            --             --            (89)            (89)            --         (89)
                                                                              ---------
Comprehensive income.......................                                   $     536
                                                                              =========
Proceeds from exercise of options..........            --         20,243                             --             --      20,257
Proceeds from the issuance of common stock.            --            330                             --             --         330
Income tax benefit from stock options......            --          6,213                             --             --       6,213
                                                  -------       --------                       --------       --------   ---------
Balance, February 1, 2000 (Predecessor)....       $    --       $ 85,446                       $ (1,383)      $ 22,731   $ 106,904
                                                  =======       ========                       ========       ========   =========
----------------------------------------------------------------------------------------------------------------------------------
  Willis Stein merger re-capitalization
   (Company)...............................            --        147,187                             --             --     147,187
  Issuance of warrants in association with
   12.75% subordinated notes...............         4,560             --             --              --             --       4,560
Comprehensive loss:
  Net loss.................................            --             --      $ (49,980)             --        (49,980)    (49,980)
  Cumulative translation adjustment........            --             --         (1,608)         (1,608)            --      (1,608)
                                                  -------       --------      ---------        --------       --------   ---------
Comprehensive loss.........................                                   $ (51,588)
                                                                              =========
Balance, December 31, 2000 (Company).......       $ 4,560       $147,187                       $ (1,608)      $(49,980)  $ 100,159
                                                  =======       ========                       ========       ========   =========
  Capital contribution and bond retirement.          (796)        28,820                             --             --      28,024
Comprehensive loss:
  Net loss................................             --             --      $(184,069)             --       (184,069)   (184,069)
  Cumulative translation adjustment.......             --             --         (1,070)         (1,070)            --      (1,070)
                                                                              ---------
Comprehensive loss........................             --             --      $(185,139)             --             --          --
                                                  -------       --------      =========        --------       --------   ---------
Balance, December 31, 2001 (Company)......        $ 3,764        $176,007                      $ (2,678)      $(234,049) $ (56,956)
                                                  =======        ========                      ========       =========  ==========
</TABLE>
The purchase method of accounting was used to record assets acquired and
liabilities assumed by the Company in the Merger. Such accounting generally
results in increased amortization and depreciation reported in future periods.
Accordingly, the accompanying financial statements of the Predecessor and the
Company are not comparable in all material respects since those financial
statements report financial position, results of operations, and cash flows for
these two separate entities.

              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       51

<PAGE>

                        AAVID THERMAL TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                          THE PERIOD           THE PERIOD
                                                                           FEBRUARY 2,          JANUARY 1,
                                                        YEAR ENDED        2000 THROUGH         2000 THROUGH          YEAR ENDED
                                                         DECEMBER           DECEMBER             FEBRUARY             DECEMBER
                                                         31, 2001           31, 2000              1, 2000              31, 1999
                                                       THE COMPANY)      (THE COMPANY)       (THE PREDECESSOR)     (THE PREDECESSOR)
                                                       ------------      -------------       -----------------     -----------------

<S>                                                        <C>                <C>                    <C>              <C>
Cash flows (used in)  provided by operating
  activities:
Net (loss) income                                        $(184,069)           $ (49,980)             $625             $  6,686
Adjustments to reconcile net (loss) income to net
  cash provided by operating activities:
   Depreciation and amortization                            48,527               43,998             1,155               10,072
   Acquired in-process research and development                 --               15,000                --                   --
   Charge from inventory write-up to fair value                 --                3,963               569                   --
   Loss (gain) on sale of property, plant
    and equipment                                              277                 (135)               --                  284
   Deferred income taxes                                   (13,390)               3,834               (22)               4,081
   Accretion of discount on senior subordinated
    notes to interest expense                                  594                  539                --                   --
   Minority interests in loss of consolidated
    subsidiaries                                            (3,057)              (1,364)               (6)                (132)
   Restructuring charges                                    17,017                   --                --                   --
   Gain on extinguishment of debt                           (3,287)                  --                --                   --
   Loss on sale of division                                  4,931                   --                --                   --
   Intangible asset impairment charge                      116,616                   --                --                   --

Changes in assets and liabilities, net of effects
 from acquisitions:
   Accounts receivable-trade                                14,973                5,267              (578)              (3,596)
   Inventories                                              11,737                5,402              (499)                (996)
   Refundable taxes                                           (118)                  --                --                   72
   Prepaid and other current assets                         (5,114)              (1,224)              (53)                (450)
   Notes receivable                                           (480)                  --                --                   --
   Other long term assets                                    5,566              (10,971)              137               (4,386)
   Accounts payable-trade                                   (3,686)              (5,419)            2,346               (4,325)
   Income taxes payable                                     (1,353)                 399               337                1,128
   Deferred revenue                                           (673)               1,516               109                2,304
   Accrued expenses and other current liabilities          (11,514)               9,768              (473)               5,065
                                                           --------           ---------             -----             --------
         Total adjustments                                 177,566               70,573             3,022                9,121
                                                           -------            ---------             -----             --------
         Net cash (used in) provided by operating
           activities                                       (6,503)              20,593             3,647               15,807

Cash flows used in investing activities:
   Payments for acquisitions, net of cash acquired              --                   --                --              (82,759)
   Proceeds from sale of property, plant and
    equipment                                                  709                1,119                --                  158
   Purchases of property, plant and equipment               (8,126)             (11,242)             (308)             (12,364)
   Purchase of minority interest in Curamik                   (882)                  --                --                   --
   Proceeds from sale of division                            2,500                   --                --                   --
   Note receivable                                              --                   --                --                1,459
                                                           -------            ---------              ----             --------
         Net cash used in investing activities              (5,799)             (10,123)             (308)             (93,506)

Cash flows provided by (used in) financing
 activities:
   Issuance of common stock, net of expenses                    --                   --               349                1,799
   Advances under line of credit                             9,334                7,700                --                8,182
   Repayments of line of credit                               (430)              (8,182)               --                  (21)
   Advances under other debt obligations                       252               53,176                --               79,201
   Principal payments under debt obligations               (13,395)             (82,000)              (25)             (13,275)
   Payment of merger and financing expenses                     --              (17,192)               --                   --
   Repurchase of common stock, options and warrants             --             (261,267)               --                   --
   Equity contribution                                      34,028                   --                --                   --
   Retirement of 12 3/4% senior subordinated notes
     and warrants                                          (26,028)                  --                --                   --
   Net proceeds from 12 3/4% senior subordinated
    notes and warrants                                          --              148,312                --                   --
   Proceeds from investors                                      --              152,000                --                   --
                                                           -------            ---------              ----             --------
         Net cash provided by (used in)  financing
          activities                                         3,761               (7,453)              324               75,886

Foreign exchange effect on cash and cash equivalents           751               (1,015)              (89)                  59
                                                           -------            ---------              ----             --------

Net (decrease) increase in cash and cash equivalents        (7,790)               2,002             3,574               (1,754)
Cash and cash equivalents, beginning of period              23,849               21,847            18,273               20,027
                                                           -------            ---------            ------             --------

Cash and cash equivalents, end of period                   $16,059            $  23,849           $21,847             $ 18,273
                                                           =======            =========           =======             ========

Supplemental disclosure of cash flow information:
Interest paid                                              $22,455            $  17,595              $834             $  2,592
                                                           =======            =========              ====             ========
Income taxes paid                                            4,791                3,895               117                2,818
                                                           =======            =========              ====             ========

Supplemental disclosure of non-cash investing
 activities:
Reconciliation of assets acquired and liabilities
 assumed in acquisitions:
   Fair value of assets acquired                           $    --            $ 434,686              $ --             $107,026
   Cash paid for assets                                         --             (156,560)               --              (84,593)
                                                           -------            ---------              ----             --------
         Liabilities assumed                               $    --            $ 278,126              $ --             $ 22,433
                                                           =======            =========              ====             ========
Notes receivable for stock issued                          $    --            $     664              $ --             $     --
Capital lease obligations incurred for purchases of
  new equipment                                            $   710            $     156              $ --             $    733

</TABLE>

The purchase method of accounting was used to record assets acquired and
liabilities assumed by the Company in the Merger. Such accounting generally
results in increased amortization and depreciation reported in future periods.
Accordingly, the accompanying financial statements of the Predecessor and the
Company are not comparable in all material respects since those financial
statements report financial position, results of operations, and cash flows for
these two separate entities.

                The accompanying notes are an integral part of these
consolidated financial statements.

                                       52
<PAGE>

                        AAVID THERMAL TECHNOLOGIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (in thousands, except share and per share data)

A.  OPERATIONS AND MERGER

    Aavid Thermal Technologies, Inc. (the "Company" or "Aavid") is a leading
global provider of thermal management solutions for electronic products and the
leading developer and marketer of computational fluid dynamic ("CFD") software.
Each of these businesses has an established reputation for high product quality,
service excellence and engineering innovation in its market. Aavid designs,
manufactures and distributes on a worldwide basis thermal management products
that dissipate unwanted heat, which can degrade system performance and
reliability, from microprocessors and industrial electronics products. Aavid's
products, which include heat sinks, interface materials and attachment
accessories, fans, heat spreaders and liquid cooling and phase change devices
that it configures to meet customer-specific needs, serve the critical function
of conducting, convecting and radiating away unwanted heat. CFD software is used
in complex computer-generated modeling of fluid flows, heat and mass transfer
and chemical reactions. Aavid's CFD software is used in a variety of industries,
including the automotive, aerospace, chemical processing, power generation,
material processing, electronics and HVAC industries.

    Overall, the Company services a highly diversified base of more than 3,500
national and international customers including OEMs, distributors, and contract
manufacturers through a highly integrated network of software, development,
manufacturing, sales and distribution locations throughout North America,
Europe, and the Far East.

    The Company has suffered losses in 2001 and 2000 and the losses continue
into 2002. As further discussed in Note H, as of December 31, 2001 the Company
was not in compliance with certain financial covenants under the Amended and
Restated Credit Facility. The Company has notified its lenders concerning the
noncompliance. The resulting event of default has not been waived by the
Company's lenders; accordingly, following the forbearance period described
below, the lenders could demand full payment of all amounts outstanding under
the amended and restated credit facility. On January 29, 2002, the Company
entered into a forbearance agreement with its senior lenders pursuant to which
agreement Aavid's senior lenders will forbear through May 31, 2002 with respect
to certain covenant noncompliance issues. The Company also projects insufficient
cashflows from operations in 2002 to satisfy its debt service requirements.
These matters, among others, raise substantial doubt about the Company's ability
to continue as a going concern.

    The Company is currently negotiating with its senior lenders and is also
seeking alternative financing sources as well as other options to provide
liquidity to the Company. There can be no assurance that the Company will be
successful in these endeavors. Management is also actively reviewing its
strategic plan to attempt to bring the Company back to profitability. As
discussed in Notes N and P, the Company has restructured its operations and is
seeking alternative sources of liquidity. There can be no assurance that
management's plan will be successful in returning the Company to profitability.
The accompanying financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts and the amounts
or classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.

    On February 2, 2000, the Company was acquired by Heat Holdings Corp., a
corporation newly formed by Willis Stein & Partners II, L.P. Pursuant to the
merger, Aavid stockholders received $25.50 in cash for each outstanding share of
common stock. In addition, all outstanding stock options and warrants were
cashed out. The Merger was accounted for using the purchase method.

    The Merger and related transaction costs were funded by a cash contribution
from Heat Holdings and an affiliate of $152,000, proceeds of $148,312, net of
original issue discount, from the sale by the Company of 12 3/4% senior
subordinated notes and warrants due 2007, $54,700 pursuant to a new credit
facility entered into by the Company, and approximately $4,653 of cash on hand.
Additionally, the Company used $7,085 of cash on hand to pay financing fees
associated with the senior credit facility and 12 3/4% senior subordinated
notes. Net assets on the date of acquisition were $156,560. Based upon fair
value of assets acquired and liabilities assumed, goodwill of $183,676 was
established. Approximately $113,705 of this goodwill is attributable to Aavid
Thermalloy, the hardware business, and was being amortized over 20 years. The
remainder, $69,971, is attributable to Fluent, the CFD software business, and
was being amortized over 4 years. The fair value of assets acquired and
liabilities assumed at February 2, 2000 was as follows:


                                       53

<PAGE>
Cash                                                                $   11,619
Inventory                                                               33,799
Accounts receivable                                                     54,161
Other current assets                                                     4,618
Fixed assets                                                            57,743
Goodwill                                                               183,676
In-process research and development                                     15,000
Developed technology                                                    49,000
Assembled workforce                                                     10,000
Deferred financing fees                                                  8,707
Other non-current assets                                                 6,363
Trade payables                                                         (24,152)
Accrued expenses and taxes payable                                     (28,964)
Deferred tax liabilities                                               (17,144)
Deferred revenue                                                        (7,874)
Long term debt, including current portion                             (199,190)
Minority Interest                                                         (802)
                                                                    ----------
  Fair market value of net assets acquired                          $  156,560
                                                                    ==========

    Of the $152,000 cash contribution, $4,811 was invested by Heat Holdings II
Corp., an affiliate of Heat Holdings, to acquire 95% of the common equity of
Aavid Thermalloy, LLC, the thermal management hardware business. The Company
controls Aavid Thermalloy, LLC through a preferred equity interest and holds a
5% common equity interest and thus consolidates Aavid Thermalloy LLC in its
results within the accompanying financial statements. The investment by Heat
Holdings II Corp. has been recorded as minority interest within the accompanying
financial statements. Based on the allocation methodology as defined within the
Aavid Thermalloy LLC Agreement, $3,294 and $1,519 of the losses at Aavid
Thermalloy, LLC were allocated to the minority interest held by Heat Holdings II
Corp. for the years ended December 31, 2001 and 2000, respectively.

B.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

These financial statements reflect the consolidated results of operations and
cash flows of the Company for the period from January 1, 2000 to February 1,
2000 and the year ended December 31, 1999 (collectively "Predecessor financial
statements"). The Predecessor financial statements have been prepared using the
historical cost of the Company's assets and have not been adjusted to reflect
the merger with Heat Holdings Corp. The accompanying financial statements as of
December 31, 2001 and 2000 and for the period from February 2, 2000 to December
31, 2000 reflect the consolidated financial position, results of operations, and
cash flows of the Company subsequent to the date of the merger and include
adjustments required under the purchase method of accounting. The purchase
method of accounting was used to record assets acquired and liabilities assumed
by the Company. Such accounting generally results in increased amortization and
depreciation reported in future periods. Accordingly, the accompanying financial
statements of the Predecessor and the Company are not comparable in all material
respects since those financial statements report financial position, results of
operations, and cash flows for these two separate entities. The 2000 amounts
included in the following notes include the combined results of the Predecessor
for the period from January 1, 2000 through February 1, 2000 and the Company
from February 2, 2000 through December 31, 2000.

PRINCIPLES OF CONSOLIDATION

    The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. All material intercompany
transactions have been eliminated.

RECLASSIFICATIONS

     Certain reclassifications have been made to 1999 and 2000 financial
statements to conform to the 2001 presentation.


                                       54

<PAGE>
CONCENTRATION OF CREDIT RISK

    Financial instruments that potentially subject the Company to significant
concentration of credit risk consist principally of trade accounts receivable.
The risk is limited due to the relatively large number of customers comprising
the Company's customer base and their dispersion across many industries within
the United States, Europe, and Asia. The Company performs ongoing credit
evaluations of its customers' financial condition and generally requires no
collateral from its customers. The Company maintains an allowance for
uncollectible accounts receivable based upon expected collectibility of all
accounts receivable. The Company's write-offs of accounts receivable have not
been significant during the periods presented. At December 31, 2001 and 2000,
there were no individual customer accounts receivable balances greater than 10%
of total accounts receivable. The Company's sales have been primarily
denominated in U.S. dollars, and the effects of foreign exchange fluctuations
are not considered to be material.

INCOME TAXES

    The Company accounts for income taxes under Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under this
method, the amount of deferred tax liabilities or assets is calculated by
applying the provisions of enacted tax laws to determine the amount of taxes
payable or refundable currently or in future years. SFAS No. 109 requires a
valuation allowance against deferred tax assets if, based upon the available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realizable.

RESEARCH AND DEVELOPMENT

    Research and development costs are charged to operations as incurred. SFAS
No. 86, "Accounting for the Costs of Computer Software To Be Sold, Leased, or
Otherwise Marketed," requires capitalization of certain software development
costs subsequent to the establishment of technological feasibility. Based on the
Company's product development process, technological feasibility is established
upon completion of a working model. Costs incurred by the Company between
completion of the working model and the point at which the product is ready for
general release have not been material. Accordingly, all research and software
development costs have been expensed.

IN-PROCESS RESEARCH AND DEVELOPMENT

    In connection with the merger, the Company allocated $15,000 of the purchase
price to in-process research and development projects. This allocation
represented the estimated fair value based on risk-adjusted cash flows related
to the incomplete software research and development projects of Fluent, Inc. At
the date of the merger, the development of these projects had not yet reached
technological feasibility and the research and development in progress had no
alternative future uses. Accordingly, these costs were expensed as of the merger
date.

    The Company allocated values to the in-process research and development
based on an in-depth assessment of the R&D projects. The value assigned to these
assets was limited to significant research projects for which technological
feasibility had not been established, including development, engineering and
testing activities associated with the introduction of the acquired in-process
technologies.

    The value assigned to purchased in-process technology was determined by
estimating the costs to develop the acquired technology into commercially viable
products, estimating the resulting net cash flows from the projects, and
discounting the net cash flows to their present value. The revenue projection
used to value the in-process research and development was based on historical
results, estimates of relevant market sizes and growth factors, expected trends
in technology, and the nature and expected timing of new product introductions
by the Company and its competitors. The resulting net cash flows from such
projects are based on management's estimates of cost of sales, operating
expenses, and income taxes from such projects.


                                       55

<PAGE>
    The nature of the efforts to develop the acquired in-process technologies
into commercially viable products and services principally related to the
completion of certain planning, designing, coding, prototyping, and testing
activities that were necessary to establish that the developmental software
technologies met their design specifications including functional, technical,
and economic performance requirements. At the merger date, the technologies
under development were between 40% and 80% complete, based upon project
man-month and cost data. Anticipated completion dates ranged from 6 to 18
months, at which times the Company expects to begin selling the developed
products. Development costs to complete the R&D were estimated at approximately
$4,000.

    Fluent's primary in-process R&D projects involved developing: (i) Fluent
version 6.0; (ii) Gambit version 2.0; (iii) materials processing functionality;
and, (iv) advanced infrastructure technology. Fluent 6.0 represents the
Company's latest computational fluid dynamics (CFD) software engine. Gambit 2.0
includes new pre-processor CFD technologies. The development of materials
processing technologies is designed to address CFD needs in new markets. The
advanced infrastructure technology establishes a new platform upon which future
products will be more efficiently and rapidly developed.

    Aggregate revenues for the developmental Fluent products were estimated to
peak within three years of acquisition and then decline steadily as other new
products and technologies are expected to enter the market. Operating expenses
were estimated based on historical results and management's analysis of Fluent's
cost structure. Projected operating expenses as a percentage of revenues were
expected to be stable for the foreseeable future.

    The rates utilized to discount the net cash flows to their present value
were based on estimated cost of capital calculations. A discount rate of 18
percent was considered appropriate for the in-process R&D, and a discount rate
of 15 percent was appropriate for the existing products and technologies. These
discount rates were commensurate with the Fluent's long history and market
leadership position. The discount rate utilized for the in-process technology
was higher than Aavid's cost of capital due to the inherent uncertainties
surrounding the successful development of the purchased in-process technology,
the useful life of such technology, the profitability levels of such technology
and the uncertainty of technological advances that are unknown at this time.

    With respect to the acquired in-process technology, the calculations of
value were adjusted to reflect the development efforts of Fluent prior to the
close of the merger. In doing so, consideration was given to each major
project's stage of completion, the complexity of the work completed to date, the
difficulty of completing the remaining development, costs already incurred, and
the projected cost to complete the projects.

    The Company believes that the foregoing assumptions used in the forecasts
were reasonable at the time of the merger. No assurance can be given, however,
that the underlying assumptions used to estimate sales, development costs or
profitability, or the events associated with such projects, will transpire as
estimated. For these reasons, actual results may vary from projected results.
The most significant and uncertain assumptions relating to the in-process
projects relate to the projected timing of completion of, and revenues
attributable to, each project.

    If these projects are not successfully developed, the sales and
profitability of the Fluent division may be adversely affected in future
periods. Additionally, the value of other acquired intangible assets may become
impaired.

CASH AND CASH EQUIVALENTS AND FINANCIAL INSTRUMENTS

    For purposes of the consolidated statements of cash flows, cash and cash
equivalents consist of highly liquid investments with original maturities at
date of purchase of three months or less.

    The estimated fair value of the Company's financial instruments including
accounts receivable, accounts payable and cash equivalents equals carrying
value. The fair value of the Company's long-term debt instruments under the
Company's amended and restated credit facility is also estimated at carrying
value due to their variable interest rates and relatively short maturities. The
fair value of the Company's 12 3/4% senior subordinated notes was $74,285 at
December 31, 2001 and $128,250 at December 31, 2000.


                                       56

<PAGE>

INVENTORIES

    Inventory is valued at the lower of the actual cost to purchase and/or
manufacture the inventory or the current estimated market value of the inventory
and consists of materials, labor and overhead. The Company regularly reviews its
inventory quantities on hand and records a provision for excess and obsolete
inventory based primarily on the estimated forecast of product demand and
production demand for the next twelve months. As demonstrated in 2001, demand
for the Company's products can fluctuate significantly. A significant increase
in demand for the Company's products could result in a short-term increase in
the cost of inventory purchases and production costs while a significant
decrease in demand could result in an increase in the amount of excess inventory
quantities on hand. In addition, the Company's industry is characterized by
rapid technological change, frequent new product development and rapid product
obsolescence that could result in an increase in the amount of obsolete
inventory quantities on hand. Additionally, the Company's estimates of future
product demand may prove to be inaccurate, in which case the Company may have
understated or overstated the provision required for excess or obsolete
inventory. In the future, if the Company's inventory is determined to be
overvalued, the Company would be required to recognize such costs in our cost of
goods sold at the time of determination. Likewise, if the Company's inventory is
determined to be undervalued, the Company may have over-reported our cost of
sales in previous periods and would be required to recognize such additional
operating income at the time of sale. Therefore, although the Company makes
every effort to ensure the accuracy of its forecasts of future product demand,
any significant unanticipated changes in demand or technological developments
could have a significant impact on the value of the Company's inventory and
reported operating results.

PROPERTY, PLANT AND EQUIPMENT

    Property, plant, and equipment are stated at cost. The Company depreciates
property, plant and equipment over their estimated remaining useful lives
(buildings -- 30 to 40 years; machinery and equipment, -- 1 to 10 years; and
vehicles -- 4 to 5 years) using both the straight-line and accelerated methods
of depreciation.

    Repairs and maintenance are charged against income when incurred; renewals
and betterments are capitalized. When property, plant, and equipment are retired
or sold, their cost and related accumulated depreciation are removed from the
accounts and any resulting gain or loss is recognized.

INTANGIBLE ASSETS

    Costs incurred in connection with the issuance of the Company's debt
obligations have been deferred and are being amortized over the term of the
respective debt obligations. Other intangible assets consist principally of
goodwill, developed technology, assembled workforce and prepaid rent.
Intangibles are being amortized on a straight-line basis over the following
estimated useful lives:

INTANGIBLE ASSETS                                               YEARS

Goodwill                                                      4 to 20
Developed Technology                                           4 to 7
Assembled Workforce                                                 4
Prepaid Rent                                                        9
Deferred Financing Fees                                        5 to 7

    SFAS No. 121, "Accounting For the Impairment of Long-Lived Assets and For
Long-Lived Assets To Be Disposed Of" requires that long-lived assets, including
intangibles, be reviewed for impairment whenever events or changes in
circumstances, such as a change in market value, indicate that the asset
carrying amounts may not be recoverable. In performing the review for
recoverability, if future undiscounted cash flows (without interest charges)
from the use and ultimate dispositions of the assets are less than their
carrying values, an impairment loss is recognized. Impairment losses are to be
measured based on the fair value of the asset.


                                       57
<PAGE>
    During 2001 and prior periods, we assessed the impairment of identifiable
intangibles, long-lived assets and related goodwill whenever events or changes
in circumstances indicate that the carrying value may not be recoverable as
required under SFAS 121. Factors we considered important which could trigger an
impairment review included the following:

-   significant underperformance relative to historical or projected future
    operating results;

-   significant changes in the manner of our use of the acquired assets or the
    strategy for our overall business;

-   significant negative industry or economic trends.

    Under SFAS 121, when we determine that the carrying value of intangibles,
long-lived assets and related goodwill may not be recoverable based on the
existence of one or more of the above indicators of impairment, we measure any
impairment based on a projected discounted cashflow method using a discount rate
determined by our management to be commensurate with the risk inherent in our
business model. During 2001, global macroeconomic conditions weakened and the
demand for industrial and consumer electronics contracted significantly. Coupled
with the closing of three manufacturing facilities in the U.S. and abroad, the
Company determined that its ability to achieve its original long term financial
forecast had been negatively impacted. The Company determined that a triggering
event, as defined by SFAS 121, had occurred related to the intangible assets
initially acquired in connection with the Merger. Based on cash flow projections
related to the acquired assets, the Company concluded that all of the acquired
intangible assets related to Aavid Thermalloy and certain intangible assets
related to Fluent had been impaired. During the fourth quarter of 2001, the
Company wrote down the assets, along with any allocated goodwill, to fair value
based on the related discounted cash flow. In order to measure the impairment
loss related to goodwill, the difference between the Company's carrying value
and the fair value of goodwill was calculated using a business enterprise
methodology. This method of goodwill measurement entails calculating the total
enterprise value of each of the Company's business units. Goodwill and
intangible assets were then estimated by subtracting the allocated tangible
assets (normal levels of working capital and fixed assets) from the total
enterprise value. The total impairment charge recorded in 2001 totaled $116,616
and is recorded in the accompanying statement of operations as a component of
income from operations. A breakout of this charge by asset type and by business
unit is as follows:

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
                                                                                    TOTAL IMPAIRMENT
    INTANGIBLE ASSET CATEGORY        AAVID THERMALLOY            FLUENT                  CHARGE
----------------------------------------------------------------------------------------------------------

<S>                                  <C>                         <C>                <C>
Goodwill                                $  94,233                  $    --             $   94,233
----------------------------------------------------------------------------------------------------------
Assembled workforce                         1,495                       --                  1,495
----------------------------------------------------------------------------------------------------------
Developed technology                       18,203                    2,685                 20,888
----------------------------------------------------------------------------------------------------------
       Total                            $ 113,931                  $ 2,685             $  116,616
----------------------------------------------------------------------------------------------------------
</TABLE>

    In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) 141, "Business Combinations" and SFAS 142,
"Goodwill and Other Intangible Assets". SFAS 141 requires business combinations
initiated after June 30, 2001 to be accounted for using the purchase method of
accounting. It also specifies the types of acquired intangible assets that are
required to be recognized and reported separately from goodwill. SFAS 142 will
require that goodwill and certain intangibles, including assembled workforce, no
longer be amortized, but instead tested for impairment at least annually. SFAS
142 is required to be applied starting with fiscal years beginning after
December 15, 2001, with early application permitted in certain circumstances.
The Company expects to complete its initial review during the first quarter of
2002. Because goodwill and some intangible assets will no longer be amortized
starting January 1, 2002, the reported amounts of goodwill and intangible assets
(as well as total assets) will not decrease at the same time and in the same
manner as under previous standards. There may be more volatility in future
earnings of the Company than under previous standards because impairment losses
are likely to occur irregularly and in varying amounts. As discussed above, the
Company recorded a $116,616 impairment charge in the fourth quarter of 2001.
Accordingly, the Company does not expect to record an additional impairment
charge upon completion of the initial SFAS 142 review of goodwill during the
first quarter of 2002, although there can be no assurance that a material
impairment charge will not be recorded. In 2001, we recorded $25.7 million of
amortization related to goodwill that will not be recorded in 2002 under the
provisions of SFAS No. 142.


                                       58

<PAGE>

REVENUE RECOGNITION

THERMAL PRODUCTS

    Revenue is recognized when products are shipped. We offer certain
distributors limited rights of return and stock rotation rights. Due to these
return rights, we continuously monitor and track product returns and we record a
provision for the estimated future amount of such future returns, based on
historical experience and any notification we receive of pending returns. While
such returns have historically been within our expectations and provisions
established, we cannot guarantee that we will continue to experience the same
return rates that we have in the past. Any significant decrease in product
demand experienced by our distributor customers and the resulting credit returns
could have a material adverse impact on our operating results for the period or
periods in which such returns materialize.

SOFTWARE

    The Company's software subsidiary, Fluent, Inc. licenses its software
products under both annual and perpetual license arrangements. Software license
revenue is recognized upon the execution of the license arrangements and
shipment of the product, provided that no significant vendor post-contract
support obligations remain outstanding, and collection of the resulting
receivable is deemed probable. Fluent recognizes revenue from post-contract
support, which consists of telephone support and the right to software upgrades,
ratably over the period of the post-contract arrangement.

    Fluent recognizes software revenue in accordance with Statement of Position
(SOP) 97-2, "Software Revenue Recognition" and SOP 98-9, "Modification of SOP
97-2; Software Revenue Recognition, With Respect to Certain Transactions." These
statements provide specific industry guidance and stipulate that revenue
recognized from software arrangements is to be allocated to each element of the
arrangement based on the relative fair values of the elements, such as software
products, upgrades, enhancements, post-contract customer support, installation
or training. SOP 98-9 modified SOP 97-2 to require the use of the "residual
method" in situations where vendor specific objective evidence (VSOE) exists for
all undelivered elements but does not exist for one or more of the delivered
elements. Under the residual method, the undiscounted VSOE of fair value of the
undelivered elements is deferred and the difference (residual) between the total
fee and the amount deferred for the undelivered elements is recognized as
revenue related to the delivered elements. Revenue related to the software
element is recognized upon signing of the contract and delivery of the product.
Post-contract support is recognized ratably over the life of the contract.


COMPREHENSIVE INCOME

    Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income" requires reporting and display of comprehensive income and
its components. SFAS 130 requires companies to report all changes in
stockholders' equity during a period, except those resulting from investment by
owners and distribution to owners, in comprehensive income in the period in
which they are recognized. Accordingly, the foreign currency translation
adjustments are included in other comprehensive income.

NET INCOME PER SHARE

    At December 31, 2001 the Company's common stock was not publicly traded;
therefore, earnings per share information is not presented.

USE OF ACCOUNTING ESTIMATES

    The preparation of the consolidated financial statements, in conformity with
accounting principles generally accepted in the United States, requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, and the reported amounts of revenues and expenses during
the reporting period, and to disclose contingent assets and liabilities at the
date of the financial statements. Actual results could differ from those
estimates.

                                       59
<PAGE>
TRANSLATION OF FOREIGN CURRENCY

    The financial statements of the Company's foreign subsidiaries are
translated in accordance with SFAS 52, "Foreign Currency Translation". The
financial statements of the Company's subsidiaries are translated from their
functional currency into U.S. dollars utilizing the current rate method.

    Accordingly, assets and liabilities are translated at exchange rates in
effect at the end of the year, and revenues and expenses are translated at the
weighted average exchange rate during the year. All cumulative translation gains
and losses from the translation into U.S. dollars are included as a separate
component of stockholder's equity in the consolidated balance sheets.
Transaction gains and losses are included in the consolidated income statements
and have not been material.

RECENT ACCOUNTING PRONOUNCEMENTS

    In June, 1998 the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities". This statement
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the value of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. SFAS 133, as
amended by SFAS 137 and 138, was adopted by the Company in the first quarter of
2001. The adoption of this statement did not have a significant impact on the
Company.

    The Company did not enter into foreign currency forward exchange contracts
or any other derivatives during 2001 or 1999. However, in 2000 the Company
entered into forward exchange contracts to hedge certain intercompany sales
transactions between a German operating company and a United States operating
company. The Company had contracts outstanding for the sale of 1,200 U.S.
Dollars for 2,466 German Marks. As these derivatives were intended to hedge
anticipated transactions, they did not qualify for hedge accounting as of
December 31, 2000 under Statement of Financial Accounting Standards No. 52 and
thus the related loss on these contracts was recognized currently. On this basis
of valuation, the loss on the contracts were approximately $22. The fair value
of open forward exchange contracts at December 31, 2000 was a liability of
approximately $22, as determined by the counterparty financial institution and
represents the present value of the gain/(loss) as if the settlement were to
have taken place on December 31, 2000.

    In December, 1999 the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements.
SAB No. 101 provides interpretative guidance on the recognition, presentation
and disclosure of revenue. The Company adopted SAB No. 101 on January 1, 2000.
The application of SAB No. 101 did not have a material effect on the Company's
financial position or results of operations.

    In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial accounting
and reporting for the impairment or disposal of long-lived assets and supercedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of". This Statement is effective for financial statements
issued for fiscal years beginning after December 15, 2001 and interim periods
within those fiscal years. The Company does not expect the adoption of this
Statement to have a significant impact on the Company.

C.  ACQUISITIONS AND DISPOSITIONS OF BUSINESSES

    On October 21, 1999, the Company purchased all of the stock of the
Thermalloy Division of Bowthorpe plc (Thermalloy) and 85.4% of the stock of
Curamik Electronics Gmbh (Curamik) (the Thermalloy Acquisition) for a cash
purchase price of $84,593, including transaction costs of $2,804. Thermalloy
designs, manufactures and sells a wide variety of standard and proprietary heat
sinks and associated products, similar to those produced by our thermal
management business, within the computer and networking and industrial
electronics (including telecommunications) industries. Curamik is a German
corporation that manufactures direct bonded copper ceramic substrates that are
used in the power semiconductor and other industrial electronics industries.
Aavid used $12,619 of its cash on hand and $84,593 of borrowings under a new
credit facility to complete the Thermalloy Acquisition, repay $12,619 of
outstanding debt, and pay transaction costs.

                                       60
<PAGE>
    The Thermalloy acquisition has been accounted for under the purchase method
of accounting. The results of operations for Thermalloy and Curamik since
October 21, 1999 have been presented in the accompanying consolidated statement
of operations for the year ended December 31, 1999. Goodwill acquired was
amortized on a straight-line basis using a 20 year life from October 21, 1999
through February 2, 2000. The fair value of assets acquired and liabilities
assumed at October 21, 1999 was as follows:

Cash                                                                 $  1,834
Inventory                                                              13,780
Accounts receivable                                                    18,829
Other current assets                                                    3,512
Fixed assets                                                           18,168
Goodwill                                                               45,014
Other non-current assets                                                5,889
Trade payables                                                         (8,754)
Accrued expenses and taxes payable                                     (6,399)
Deferred tax liabilities                                               (4,011)
Thermalloy restructuring accruals                                      (2,130)
Other non-current liabilities                                            (198)
Minority Interest                                                        (941)
                                                                     --------
                                                                     $ 84,593

    Approximately $2,130 was recorded as restructuring charges in connection
with the acquisition. The restructuring plans included initiatives to integrate
the operations of the Company and Thermalloy and reduce overhead. The primary
components of these plans related to (a.) the closure of duplicative operations
in Hong Kong and the United Kingdom, (b.) the elimination of duplicative
selling, general and administration functions on a global basis and (c.) the
termination of certain contractual obligations. These activities resulted in a
workforce reduction of approximately 136 individuals. The Company finalized
these plans during 2000 and the majority of the restructuring activities were
completed by the end of 2000. See Note N.

    The following table presents selected unaudited pro forma financial
information for Aavid, Thermalloy and Curamik, assuming the companies had
combined on January 1, 1998:

                UNAUDITED PROFORMA CONDENSED STATEMENTS OF INCOME

                                           DECEMBER 31,
                                               1999
                                           ------------

Pro forma net sales                         $  296,659

Pro forma net income                        $    4,625

    The pro forma results are not necessarily indicative of either actual
results of operations that would have occurred had the acquisition been made on
January 1, 1998 or future results.

    In the fourth quarter of 2001, the Company recognized a loss on disposal of
a division of $4,931. This loss was related to the sale of the Company's
aluminum extrusion facility located in Franklin, NH. The facility was sold for
$2,980. Of this amount, $2,500 was paid in cash and the remainder was taken as a
note due the Company and payable in 12 equal installments of principal and
interest in the amount of $42 beginning March 1, 2002. The note bears interest
at 8.0%. The $2,500 in cash proceeds were remitted to our Senior Lending group
as required by the Amended and Restated Credit Agreement and were applied
against the final term loan payment due on March 31, 2005.

D.  ACCOUNTS RECEIVABLE

    The components of accounts receivable at December 31, 2001 and 2000 are as
follows:

                                                            DECEMBER 31,
                                                     --------------------------
                                                       2001              2000
                                                     --------          --------

Accounts receivable                                  $ 36,246          $ 52,187
Allowance for doubtful accounts                        (3,316)           (3,093)
                                                     --------          --------
Net accounts receivable                              $ 32,930          $ 49,094
                                                     ========          ========



                                       61
<PAGE>
E.  INVENTORIES

    The components of inventories at December 31, 2001 and 2000 are as follows:

                                                             DECEMBER 31,
                                                     -------------------------
                                                       2001             2000
                                                     --------         --------
Raw materials                                        $  4,804         $ 12,675
Work-in-process                                         2,564            6,168
Finished goods                                          5,192            6,360
                                                     --------         --------
                                                     $ 12,560         $ 25,203
                                                     ========         ========


F.  PROPERTY, PLANT, AND EQUIPMENT

    Property, plant, and equipment, recorded at cost, by major classification as
of December 31, 2001 and 2000 consist of the following:

                                                             DECEMBER 31,
                                                      --------------------------
                                                        2001             2000
                                                      --------         --------
Land                                                  $  1,262         $  1,768
Building and improvements                               16,245           17,407
Machinery and equipment                                 31,957           36,520
Furniture and fixtures                                   8,656            7,525
Vehicles                                                   607              415
Machinery-in-progress                                      906            2,076
                                                      --------         --------
                                                        59,633           65,711
Less accumulated depreciation                          (20,364)          (8,698)
                                                      --------         --------
                                                      $ 39,269         $ 57,013
                                                      ========         ========

    Substantially all property, plant, and equipment serve as collateral under
the Company's borrowing arrangements.

G.  ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

    Included in accrued expenses and other current liabilities at December 31,
2001 and 2000 are the following:

                                                             DECEMBER 31,
                                                      --------------------------
                                                        2001              2000
                                                      --------          --------
Employee related                                      $  9,152          $ 11,428
Accrued interest                                         6,689             8,071
Accrued sales and property taxes                         1,137             1,503
Other accrued expenses                                   5,960             8,996
                                                      --------          --------
                                                      $ 22,938          $ 29,998
                                                      ========          ========

                                       62

<PAGE>
H.  DEBT OBLIGATIONS

    Debt obligations as of December 31, 2001 and 2000 consist of the following:


<TABLE>
<CAPTION>
                                                                                                DECEMBER 31,
                                                                                      ------------------------------
                                                                                         2001                 2000
                                                                                      ---------            ---------
<S>                                                                                   <C>                  <C>
Amended and Restated Term Facility payable in 18 consecutive quarterly
installments, commencing December 31, 2000, ranging from $1,985 to $5,241
each. At December 31, 2001, the interest rate on the Senior Credit Term
Facility was 6.50%............................................................        $  38,192            $  51,000

Amended and Restated Revolving Facility which matures on March 31, 2005. At
December 31, 2001, the interest rate on the Senior Revolving Credit Facility
was 6.50%.....................................................................           17,000                7,700

12 3/4% Senior Subordinated Notes due February 1, 2007........................          119,653              144,290

Revolving Credit Facility which matured on various dates through May 25,
2001.  At December 31, 2000, interest rates on the Revolving Credit Facility
ranged from 9.75-10.0%........................................................               --                  400

Term loan maturing December 2004, payable in monthly installments of $8
commencing March 2002.  At December 31, 2001 the interest rate on the term
loan was 5.125%...............................................................              252                   --

Capitalized lease obligations.................................................              735                  612
                                                                                      ---------            ---------
                                                                                        175,832              204,002

Less current portion..........................................................          175,382               10,768
                                                                                      ---------            ---------

Debt Obligations, net of current portion......................................        $     450            $ 193,234
                                                                                      =========            =========
</TABLE>


    On February 2, 2000, as part of the transactions relating to the Merger, the
Company issued 150,000 units (the "Units"), consisting of $150,000 aggregate
principal amount of its 12 3/4% Senior Subordinated Notes due 2007 (the "Notes")
and warrants (the "Warrants") to purchase an aggregate of 60 shares of the
Company's Class A Common Stock, par value $0.0001 per share, and 60 shares of
the Company's Class H Common Stock, par value $0.0001 per share. The Notes are
fully and unconditionally guaranteed on a joint and several basis by each of the
Company's domestic subsidiaries (the "Subsidiary Guarantors") (see note (Q) for
selected consolidating financial statements of parent, guarantors and
non-guarantors). The Notes were issued pursuant to an Indenture (the
"Indenture") among the Company, the Subsidiary Guarantors and Bankers Trust
Company, as trustee. $4,560 of the proceeds from the sale of the Units was
allocated to the fair value of the Warrants and $143,752 was allocated to the
Notes, net of original issue discount of $1,688. The total discount of $6,248 is
being accreted over the term of the notes, using the effective interest rate
method. This accretion is recorded as interest expense within the accompanying
statement of operations for the year ended December 31, 2001 and the period
February 2, 2000 to December 31, 2000. In May, 2001 certain of the Company's
stockholders purchased $26.2 million principal amount of Senior Subordinated
Notes and contributed them to the Company for cancellation in satisfaction of
their obligations resulting from the Company's failure to achieve their required
leverage ratio as of December 31, 2000.


                                       63

<PAGE>
    In connection with the Merger, the Company repaid all of the outstanding
term loan and revolving line of credit under its existing credit facility, which
aggregated approximately $88,200 at December 31, 1999, and entered into an
amended and restated credit facility (the "Amended and Restated Credit
Facility"). The Amended and Restated Credit Facility provides for a $22,000
revolving credit facility (the "Revolving Facility") (of which $1,700 was drawn
at the closing of the Merger) and a $53,000 term loan facility (the "Term
Facility") (which was fully drawn at the closing of the Merger). Subject to
compliance with the terms of the Amended and Restated Credit Facility,
borrowings under the Revolving Facility are available for working capital
purposes, capital expenditures and future acquisitions. The Revolving Facility
will terminate, and all amounts outstanding thereunder will be payable, on March
31, 2005. Principal on the Term Facility is required to be repaid in quarterly
installments commencing December 31, 2000 and ending March 31, 2005 as follows:
five installments of $2,000; four installments of $2,500; four installments of
$2,750; two installments of $3,200; two installments of $3,900; and a final
installment of $7,800, of which $2,500 was paid in December 2001 with the
proceeds from the sale of the Company's aluminum extrusion facility (see note
(C) for further discussion on the disposition of the Company's aluminum
extrusion facility). In addition, commencing with the fiscal year ending
December 31, 2001, the Company is required to apply 50% of excess cash flow, as
defined, to permanently reduce the Term Facility. The Amended and Restated
Credit Facility bears interest at a rate equal to, at the Company's option,
either (1) in the case of Eurodollar loans, the sum of (x) the interest rate in
the London interbank market for loans in an amount substantially equal to the
amount of borrowing and for the period of borrowing selected by Aavid and (y) a
margin of between 1.50% and 2.25% (depending on the Company's consolidated
leverage ratio (as defined in the Amended and Restated Credit Facility)) or (2)
the sum of the higher of (x) Canadian Imperial Bank of Commerce's prime or base
rate or (y) one-half percent plus the latest overnight federal funds rate plus
(z) a margin of between .25% and 1.00% (depending on the Company's consolidated
leverage ratio). On May 4, 2001, in response to the Company not being in
compliance with a leverage ratio covenant at December 31, 2000, certain of the
Company's stockholders and their affiliates made an equity contribution of
$8,000 in cash. In addition, the Company and the lenders amended the facility to
provide that the last three required quarterly principal payments in 2001 under
the facility were prepaid with $6,000 of the proceeds of the equity
contribution, and the four required principal payments in 2002 were reduced by
$500 each, reflecting application of the remaining cash equity contribution.
Further, certain covenant ratios and ratio definitions were amended and the
available line of credit was reduced to $17,000 from $22,000. At December 31,
2001, the interest rates on the Term Facility and the Revolving Facility were
6.5%.

    The Amended and Restated Credit Facility may be prepaid at any time in whole
or in part without penalty, and must be prepaid to the extent of certain equity
or asset sales. The Amended and Restated Credit Facility limits the Company's
ability to incur additional debt, to sell or dispose of assets, to create or
incur liens, to make additional acquisitions, to pay dividends, to purchase or
redeem its stock and to merge or consolidate with any other party. In addition,
the Amended and Restated Credit Facility requires that the Company meet certain
financial ratios, and provides the lenders with the right to require the payment
of all amounts outstanding under the facility, and to terminate all commitments
thereunder, if there is a change in control of Aavid. The Amended and Restated
Credit Facility is guaranteed by each of Heat Holdings Corp. and Heat Holdings
II Corp., and all of the Company's domestic subsidiaries and secured by the
Company's assets (including the assets and stock of its domestic subsidiaries
and a portion of the stock of its foreign subsidiaries).

    The Company incurred approximately $7,085 in underwriting, legal and other
professional fees in connection with the issuance of the Notes and the
establishment of the Amended and Restated Credit Facility. These costs have been
capitalized as deferred financing fees and are being amortized over the
respective terms of the related debt. This amortization is recorded in interest
expense in the accompanying statement of operations for the year ended December
31, 2001 and the period from February 2, 2000 to December 31, 2000.

    The Company had no letters of credit outstanding at December 31, 2001 or
2000.

                                       64

<PAGE>
    Debt maturities payable for the five years and thereafter subsequent to
December 31, 2001 are as follows:

              2002                                $ 175,382
              2003                                      290
              2004                                      132
              2005                                       13
              2006                                       12
        Thereafter                                        3
                                                  ---------
             Total                                $ 175,832
                                                  =========

    As of December 31, 2001, the Company was not in compliance with certain
financial covenants under the Amended and Restated Credit Facility. The Company
notified its lenders concerning the noncompliance. The resulting event of
default has not been waived by the Company's lenders; accordingly, following the
forbearance period described below, the lenders could demand full payment of all
amounts outstanding under the Amended and Restated Credit Facility. As a result
of the event of default, the Company classified $17,000 outstanding under the
revolving credit facility, $38,192 outstanding under the term facility and
$119,653 of 12 3/4 % Senior Subordinated Notes as current within the
accompanying balance sheet. On January 29, 2002 the Company and its Senior
lenders entered into a forbearance agreement with an expiration date of May 31,
2002. The forbearance agreement, among other things, required the Company's
owners to contribute $12,000 of additional equity and allowed the Company to pay
its semi-annual interest payment due February 1, 2002 on its 12 3/4% Senior
Subordinated Notes. The forbearance agreement also required the Company to
accelerate a principal payment of $1,985 on the term loan that was originally
due on March 31, 2002. This payment of $1,985 was made at the time of the
signing of the forbearance agreement.

I. EQUITY

COMMON STOCK

    The Company's amended and restated certificate of incorporation authorizes
the Company to issue 1400 shares of Class A Common Stock, par value $0.0001 per
share; 1,400 shares of Class B Common Stock, par value $0.0001 per share; 200
shares of Class H Common Stock, par value $0.0001 per share; 100 shares of
Series A Preferred Stock, par value $0.0001 per share and 100 shares of Series B
Preferred Stock, par value $0.0001 per share. As of December 31, 2001 the
Company had issued and outstanding 1,019 shares of Class A Common Stock, 1,079
shares of Class B Common Stock and 40 shares of Class H Common Stock.

    In the election of directors, the holders of Class B Common Stock will be
entitled to elect two directors or a greater number established in our Bylaws
(the "Class B Directors") and the Class A Common Stock and the Class H Common
Stock, voting together as a single class, will be entitled to elect the number
of directors established in our Bylaws (the "Class A Directors").

    Except as otherwise provided by law, the vote of any class of Common Stock,
voting as a separate class, will be necessary to approve a merger of Aavid into
another corporation if the merger would adversely affect the rights of the
class. In addition, except as otherwise provided by law, the vote of the holders
of at least 66 2/3% of the holders of Class H Common Stock, voting as a separate
class, is necessary for certain transactions, including dividends made with
proceeds from the disposition of Aavid Thermalloy, LLC in any of our businesses
other than a business operated by Aavid Thermalloy, LLC or its successors.

    The Company is permitted to pay dividends on the Class H Common Stock only
out of the lesser of (a) our funds legally available therefor and (b) the
Available Hardware Dividend Amount, as defined in the amended and restated
certificate of incorporation. Dividends payable in a class or series of our
capital stock may be paid only in the same class or series.

    If the Company disposes of all of its assets and liabilities to a
wholly-owned subsidiary (a "Corporate Subsidiary"), the Company's board of
directors may declare that all of the outstanding shares of Class A Common Stock
and/or Class B Common Stock will be exchanged on a pro rata basis for all of the
outstanding shares of the common stock of the Corporate Subsidiary having
substantially similar rights, qualifications, limitations and restrictions to
the Class A Common Stock and Class B Common Stock, respectively. Any share of
Class A Common Stock or Class B Common Stock that is issued on conversion or
exercise of any convertible securities will immediately upon issuance pursuant
to such conversion or exercise be redeemed for $0.0001 in cash.


                                       65
<PAGE>
    If the Company consummates a disposition of Aavid Thermalloy, LLC to any
person, the Company will, on or prior to the first business day following the
60th day following the consummation of the disposition (a) declare and pay a
dividend in cash and/or in securities or other property received as proceeds of
the disposition to the holders of Class H Common Stock in any amount equal to
the net proceeds of the disposition; (b) exchange the number of whole shares of
outstanding Class H Common Stock that have an aggregate average market value of
the net proceeds of such disposition, for the property received as proceeds of
such disposition in an amount equal to such net proceeds; or (c) exchange each
outstanding share of Class H Common Stock for a number of shares of Class A
Common Stock or, if there are no shares of Class A Common Stock outstanding,
Class B Common Stock, equal to the average daily ratio of the market value of
the Class H Common Stock to the market value of the Class A Common Stock or
Class B Common Stock, as the case may be.

    The Company's board of directors may, at any time after a dividend or
redemption, declare that each of the remaining outstanding shares of Class H
Common Stock will be exchanged for a number of shares of Class A Common Stock
or, if there are no shares of Class A Common Stock outstanding and shares of
Class B Common Stock are then outstanding, of Class B Common Stock, equal to the
market value ratio of one share of Class H Common Stock to one share of Class A
Common Stock or one share of Class B Common Stock, as the case may be. If all of
the Company's indirect or directly owned common membership interest in Aavid
Thermalloy, LLC (and no other assets or liabilities) is held, directly or
indirectly, by a wholly-owned subsidiary of Aavid (the "Aavid Thermalloy
Subsidiary"), the Company's board of directors may declare that all of the
outstanding shares of Class H Common Stock will be exchanged for all of the
outstanding shares of common stock of the Aavid Thermalloy Subsidiary, on a pro
rata basis.

    After any exchange date or redemption date on which all outstanding Class H
Common Stock was exchanged or redeemed, any share of Class H Common Stock that
is issued on conversion or exercise of any convertible securities will be
(a) exchanged for the kind and amount of shares of capital stock and other
securities and property that the holder would have received had the convertible
security been converted immediately prior thereto; or (b) redeemed for $0.001 in
cash.

    In the event the Company dissolves, liquidates or winds up, the holders of
the outstanding shares of each class of Common Stock will be entitled to receive
a fraction of the funds remaining based on the Market Value of each class of
stock.

WARRANTS AND BOND RETIREMENT

    In connection with the issuance of the 12 3/4% Senior Subordinated Notes,
the Company issued warrants to purchase 60 shares of Class A common stock and 60
shares of Class H common stock. The warrants are exercisable on or after an
exercise event, as defined, and will expire on February 1, 2007. Each warrant
entitles its holder to purchase 0.0004 shares of Class A common stock and 0.0004
shares of Class H common stock, subject to adjustment, as defined, at an
exercise price of $0.01 per share.

    On May 4, 2001 certain of the Company's stockholders and their affiliates
made an equity contribution of $8,000 in cash and $26,191 in principal amount of
senior subordinated notes in order to cure an event of non-compliance with
certain financial ratio covenants related to the Company's senior credit
facility. As part of the equity contribution discussed above, Heat Holdings
contributed to Aavid Thermal Technologies, Inc. an aggregate of $8,000 in cash
and $26,191 in principal amount of Aavid Thermal Technologies, Inc.'s 12 -3/4%
senior subordinated notes due 2007 in exchange for: (a) a warrant to purchase
2,224,472.5 Series B Preferred Units of Aavid Thermalloy, LLC held beneficially
and of record by Aavid Thermal Technologies, Inc. and (b) 78.871 shares of Aavid
Thermal Technologies, Inc. Class A Common Stock and 78.871 shares of Aavid
Thermal Technologies, Inc. Class B Common Stock, par value $.01 per share. The
portion of the equity contribution related to the warrants has been recorded in
additional paid in capital in the accompanying balance sheet as of December 31,
2001. The Company recognized a gain on the retirement of senior subordinated
notes of $4,979, which is recorded as an extraordinary gain on extinguishment of
debt, net of the related tax effect, in the accompanying statement of operations
for the year ended December 31, 2001.



                                       66

<PAGE>
MANAGEMENT INCENTIVE PURCHASE PROGRAM

    During 2000, the Board of Directors approved the Management Incentive
Purchase Program (the "Program"). The Program provides for the grant and
purchase of non-voting restricted stock of Fluent, Aavid Thermalloy and
Enductive Solutions to and by certain employees and directors of the Company.
Shares acquired pursuant to the Program are subject to a right of repurchase by
the Company, which lapses as the stock vests. In the event of termination of
services, the Company has the right to repurchase unvested shares at the
original issuance price.

    The vesting is generally five years. The Board of Directors set aside
approximately 10% of the common equity ownership in Aavid Thermalloy, Fluent and
Enductive Solutions for the Program. The 10% of common equity in each company is
equal to approximately 56,296 shares in Aavid Thermalloy, LLC, 28,149 shares in
Fluent, Inc. and 500 shares in Enductive Solutions, Inc.

<TABLE>
<CAPTION>


                                      AAVID THERMALLOY SHARES               FLUENT SHARES               ENDUCTIVE SOLUTIONS SHARES
                                    ---------------------------       --------------------------       ----------------------------
                                                    WEIGHTED                         WEIGHTED                            WEIGHTED
                                    NUMBER OF        AVERAGE          NUMBER OF       AVERAGE          NUMBER OF         AVERAGE
RESTRICTED STOCK AWARDS              SHARES      EXERCISE PRICE        SHARES     EXERCISE PRICE        SHARES       EXERCISE PRICE
-----------------------             ---------    --------------       ---------   --------------       ---------     --------------

<S>                                 <C>             <C>             <C>               <C>               <C>            <C>
   Issued during 2000                31,807          $ 10.00           26,684        $ 10.00                --              N/A
                                     ------          -------           ------        -------             -----          -------
   Balance at December 31, 2000      31,807          $ 10.00           26,684        $ 10.00                --              N/A


   Issued during 2001                    --              N/A               --            N/A               500          $ 10.00
   Canceled during 2001              (1,126)         $ 10.00               --            N/A                --              N/A
                                     -------         -------           ------        -------             -----          -------
    Balance at December 31, 2001       30,681         $ 10.00          26,684        $ 10.00               500          $ 10.00
                                      ======         =======           ======        =======             =====          =======



   Vested at December 31, 2001         6,136         $ 10.00            5,337        $ 10.00               --               N/A
                                       =====         =======            =====        =======             =====          =======
</TABLE>

    As of December 31, 2001 the Company held notes receivable for stock in the
amount of $579 from employees in consideration for the purchase of common stock.
The notes bear interest at 7%. Notes issued in connection with Aavid Thermalloy
shares are due October 1, 2007 or upon termination of employment and are
collateralized by the underlying common stock. Notes issued in connection with
Fluent and Enductive Solutions shares are due November 1, 2007 or upon
termination of employment and are collateralized by the underlying common stock.
In addition, the interest due and the 60% of the note balance are full recourse
to the employee. These notes are recorded in other long term assets in the
accompanying balance sheet.

STOCK OPTIONS

    During 1993, an officer of the Company was granted non-qualified stock
options to acquire 249,205 shares of Common Stock at an exercise price of $0.19
per share, and 1,268,795 shares of Common Stock at an exercise price of $2.20
per share. These options vested and became exercisable as to 25% of the
applicable shares immediately, with the remainder ratably in October 1994, 1995,
and 1996, respectively. During 1999 and 1998, respectively, 268,000 and
1,025,000 options were exercised. In addition, between 1993 and 1999, the
Company issued 556,875 non-qualified stock options to Directors of the Company
and certain executives outside of the plans discussed below, at exercise prices
ranging from $0.19 to $16.50. The exercise price of all these options equaled or
exceeded the fair market value on the date of grant, as determined by the Board
of Directors for issuance prior to its initial public offering or market prices
thereafter.

    During 1994, the Company's Board of Directors adopted and approved a stock
option plan for officers and key employees ("1994 Stock Option Plan"). The 1994
Stock Option Plan provided for the grant to officers and key employees of the
Company of stock options intended to qualify as incentive stock options under
the applicable provisions of the Internal Revenue Code, as well as non-qualified
options. The Company had reserved 894,326 shares of its Common Stock for
issuance under this plan.

    The 1994 Stock Option Plan provided that the exercise price of all options
shall be at least equal to the fair market value of the Company's shares, as of
the date on which the grant is made. The term of options issued under the plan
could not exceed ten years. Options were generally exercisable in installments
beginning on the date of grant. With respect to incentive stock options granted
to a participant owning more than 10% of the Company's shares, the exercise
price thereof is at least 110% of the fair market value of the Company's stock.


                                       67
<PAGE>
    During 1995, the Company's Board of Directors adopted and approved a stock
option plan for non-employee directors ("Directors' Plan"). The Company had
reserved 200,000 shares of its Common Stock for issuance under this plan. The
Directors' Plan provided for the automatic grant to non-employee directors of
options to purchase shares of Common Stock reserved for issuance under the
Directors' Plan. Options granted under the Directors' Plan did not qualify as
incentive stock options under the applicable provisions of the Internal Revenue
Code. The options had an exercise price of 100% of the fair market value of the
Common Stock on the date of grant and have a ten-year term. Initial options
became fully exercisable six (6) months after the date of grant. All other
options granted under the Directors' Plan became fully exercisable from and
after the first anniversary of the grant date.

    During 1995, the Company's Board of Directors adopted and approved an
employee stock purchase plan ("Purchase Plan"). Under the Purchase Plan, the
Company would grant rights to purchase shares of Common Stock to eligible
employees on a date or series of dates designated by the Board of Directors. The
Company had reserved 250,000 shares of its Common Stock for issuance under this
plan. The price per share with respect to each grant of rights under the
Purchase Plan was the lesser of:

    (i) 85% of the fair market value on the offering date on which such rights
        were granted, or

    (ii) 85% of the fair market value on the date such right is exercised.

    The Purchase Plan was intended to qualify as an employee stock purchase plan
under the applicable provisions of the Internal Revenue Code. During 1999 and
1998, the Company sold 45,561 and 34,282, shares under this plan, respectively.

    As was discussed in Note A, on February 2, 2000 all outstanding stock
options were cashed out based on a value of $25.50 per share in connection with
the Willis Stein merger. The 1994 Stock Option Plan, the Director's Plan and the
Purchase Plan were all terminated in connection with the Merger. At December 31,
2000 there were no stock options outstanding. Due to the insignificant level of
stock option activity during the period January 1, 2000 through February 1,
2000, such activity is not presented in this footnote.

    A summary of historical stock option activity follows:


<TABLE>
<CAPTION>
                                                           NUMBER OF      WEIGHTED AVERAGE
                                                            SHARES         EXERCISE PRICE
                                                          ----------      ----------------
<S>                                                       <C>                 <C>
Outstanding at December 31, 1998                          1,430,171           $  12.16
Granted during 1999                                         320,714              15.73
Exercised during 1999                                      (311,916)              3.73
Canceled during 1999                                        (47,715)             21.41
                                                          ---------           --------
Outstanding at December 31, 1999                          1,391,254           $  14.56
                                                          =========           ========
</TABLE>

    At December 31, 1999 options for 916,086 shares were exercisable, with a
weighted average exercise price of $13.20.

    During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation", which defines a fair value based
method of accounting for employee stock options, or similar equity instruments,
and encourages all entities to adopt that method of accounting for all of their
employee stock compensation plans; however, it also allows an entity to continue
to measure compensation costs for those plans using the intrinsic method of
accounting prescribed by APB Opinion 25. Entities electing to remain with the
accounting in APB Opinion 25 must make pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting defined in
SFAS No. 123 has been applied.


                                       68

<PAGE>
    The Company has elected to account for its stock-based compensation plan
under APB Opinion 25; however, the Company has computed, for pro forma
disclosure purposes, the value of all options granted during 1999 using the
Black-Scholes option-pricing model as prescribed by SFAS No. 123, using the
following weighted-average assumptions for grants in 1999:

                                                                      1999
                                                                    -------
Risk-free interest rate                                                 5.2%
Expected dividend yield                                                 --
Expected life                                                       4 years
Expected volatility                                                     65%

    The weighted average fair value of options granted in 1999 was $8.43.

    The total value of options granted during 1995 through 1999 would be
amortized on a pro forma basis over the vesting period of the options. Options
generally vest equally over two to four years. If the Company had accounted for
these plans, including the Employee Stock Purchase Plan, in accordance with SFAS
No. 123, the Company's net income and net income per share would have decreased
or increased, as reflected in the following pro forma amounts:

                                                           YEAR ENDED
                                                          DECEMBER 31,
                                                              1999
                                                       -----------------
                                                       (THE PREDECESSOR)

Net income -
   As reported                                              $ 6,686
   Pro forma                                                  2,816
Net income per share, diluted -
   As reported                                              $  0.68
   Pro forma                                                   0.29


J.  INCOME TAXES

    Income (loss) before income taxes and minority interest for domestic and
foreign operations are as follows:

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                  --------------------------------------------------------------
                                                       2001                   2000                   1999
                                                  -------------           -------------        -----------------
                                                  (THE COMPANY)           (THE COMPANY)        (THE PREDECESSOR)

<S>                                                 <C>                     <C>                    <C>
Domestic                                            $(202,981)              $(60,783)              $  4,425
Foreign                                                 3,015                 11,732                 10,981
                                                    ---------               --------               --------
                                                    $(199,966)              $(49,051)              $ 15,406
                                                    =========               ========               ========
</TABLE>

    The income tax provision (benefit) included in the consolidated statements
of operations consists of the following:

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                  --------------------------------------------------------------
                                                       2001                   2000                   1999
                                                  -------------           -------------        -----------------
                                                  (THE COMPANY)           (THE COMPANY)        (THE PREDECESSOR)

<S>                                                 <C>                     <C>                    <C>
Federal provision (benefit):
   Current                                            $    --                 $    --               $1,095
   Deferred                                           (11,306)                 (3,736)               3,265
                                                      -------                 -------               ------
                                                      (11,306)                 (3,736)               4,360
State provision (benefit):
   Current                                                515                     422                  252
   Deferred                                            (2,084)                    (98)                 816
                                                      -------                 -------               ------
                                                       (1,569)                    324                1,068
Foreign provision:
   Current                                              3,322                   5,086                3,424
                                                      -------                 -------               ------

Total provision (benefit)                             $(9,553)                $ 1,674               $8,852
                                                      ========                =======               ======

</TABLE>


                                       69

<PAGE>

    The Company has approximately $68,000 of U.S. federal net operating loss
carryforwards available to reduce future taxable income, if any. These net
operating loss carryforwards expire through 2021, and are subject to the review
and possible adjustment by the Internal Revenue Service. Section 382 of the
Internal Revenue Code also contains provisions that could place annual
limitations on the utilization of these net operating loss carryforwards in the
event of a change in ownership, as defined. These loss carryforwards have an
annual limitation of approximately $13,000 per year as a result of the Merger
described in Note A. A reconciliation of the income tax expense at the statutory
federal income tax rate to the Company's actual income tax expense (benefit) is
as follows:

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                  --------------------------------------------------------------
                                                       2001                   2000                   1999
                                                  -------------           -------------        -----------------
                                                  (THE COMPANY)           (THE COMPANY)        (THE PREDECESSOR)

<S>                                                 <C>                     <C>                    <C>
Expected federal tax                                $(67,988)               $(16,677)               $5,392
State income taxes, net                                  515                     214                   694
Benefit of tax credits                                    --                      --                  (100)
Non-deductible goodwill                               41,100                   7,197                   253
Non-deductible write-off of in-process
 research and development                                 --                   5,250                    --
Foreign related                                        2,298                   1,031                  (420)
Provision on unremitted foreign earnings               1,025                   4,550                 3,400
Increase in valuation allowance                       13,794                      --                    --
Other                                                   (297)                    109                  (367)
                                                    ---------               --------                ------

         Total income tax (benefit) expense         $ (9,553)               $  1,674                $8,852
                                                    =========               ========                ======
</TABLE>
    Deferred tax assets and liabilities are measured as the difference between
the financial statement and the tax bases of assets and liabilities at the
applicable enacted tax rates. In 2001 and 2000, the Company provided for U.S.
income taxes on $3,015 and $11,732, respectively, of undistributed earnings from
its foreign subsidiaries as it is the Company's intention to repatriate those
earnings from its foreign operations in future years.

    The components of the net deferred asset consist of the following:


<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                              ---------------------------
                                                                2001               2000
                                                              --------           --------
<S>                                                           <C>                <C>
Tax credits                                                   $  1,373           $  1,373
Inventory reserves and capitalization                            1,311              1,035
Accounts receivable reserves                                       934              1,256
Vacation and benefit reserves                                      696                897
Unremitted foreign earnings                                     (8,424)            (7,317)
Restructuring reserves                                           2,208                132
Other liabilities and reserves                                     562              1,807
Depreciation                                                    (2,641)            (2,302)
Favorable lease                                                     --             (2,264)
Net operating loss carryforwards                                24,882             14,036
Acquired intangibles                                            (6,183)           (19,447)
Valuation allowance                                            (14,718)              (924)
                                                              ---------          ---------
Net deferred tax assets (liabilities)                         $     --           $(11,718)
                                                              =========          =========
</TABLE>


    The Company has provided a full valuation allowance against its net deferred
tax assets in 2001 because their future realization is uncertain. The Company
had provided a valuation allowance of $924 in 2000 for certain pre-merger tax
credits whose future realization is uncertain. Any future reduction in the
valuation allowance related to pre-merger tax credits will be recorded as a
reduction of goodwill.


                                       70

<PAGE>
K.  COMMITMENTS AND CONTINGENCIES

LEASES

    The Company leases various equipment and facilities under the terms of
non-cancelable operating leases. Future lease commitments are as follows:

       YEARS ENDING DECEMBER 31,
       -------------------------
                 2002                                $  7,804
                 2003                                   4,933
                 2004                                   3,122
                 2005                                   2,606
                 2006                                   1,512
           Thereafter                                   5,955
                                                     --------
                                                     $ 25,932


    Lease expense was approximately $4,836, $6,955 and $5,634 for the years
ended December 31, 2001, 2000 and 1999, respectively.

LITIGATION

    Following the public announcement of the merger with Heat Merger Corp.,
lawsuits were filed against the Company, Willis Stein, the Company's directors,
and one former director in the Court of Chancery of the State of Delaware by
certain of our stockholders. The complaints alleged, among other things, that
the Company's directors breached their fiduciary duties and sought to enjoin,
preliminarily and permanently, the Merger and also sought compensatory damages.
The stockholder plaintiffs, on behalf of the Company's public stockholders, also
sought class action certification for their lawsuits. On March 11, 2001, the
Court granted the plaintiffs' motion to dismiss the class action without
prejudice.

    The Company is involved in various other legal proceedings that are
incidental to the conduct of its business, none of which it believes could
reasonably be expected to have a materially adverse effect on the Company's
financial condition.

PURCHASE COMMITMENT

    The Company has an obligation to purchase from one of its key suppliers a
minimum quantity of aluminum coil stock. The Company believes that purchasing
aluminum coil stock from this supplier is necessary to achieve consistently low
tolerances, design, delivery flexibility, and price stability. Under the terms
of this agreement the Company has agreed to purchase certain minimum quantities
which approximates $1,225 at December 31, 2001.

L.  401(K) PROFIT SHARING PLAN

    The Company has profit sharing plans, which permit participants to make
contributions by salary reduction pursuant to Section 401(k) of the Internal
Revenue Code. Employee eligibility is based on a minimum age and employment
requirement. Annual employer contributions are determined by the Board of
Directors, but cannot exceed the amount allowable for federal income tax
purposes. The Company's contribution was approximately $692, $823 and $535 for
the years ended December 31, 2001, 2000 and 1999, respectively.

M.  SEGMENT REPORTING

    Aavid provides thermal management solutions for microprocessors and
integrated circuits ("ICs") for digital and power applications. In connection
with the merger, we consolidated our business into two operating segments:
thermal management products and computational fluid dynamics ("CFD") software.
Aavid's thermal management products consist of products and services that solve
problems associated with the dissipation of unwanted heat in electronic and
electrical components and systems. The Company develops and offers CFD software
for computer modeling and fluid flow analysis of products and processes that
reduce time and expense associated with physical models and the facilities to
test them. The Company also provides thermal design services to customers who
choose to outsource their thermal design needs.


                                       71

<PAGE>
    The accounting policies of the segments are the same as those described in
the summary of significant accounting policies.

    The Company accounts for inter-segment sales and transfers as if the sales
or transfers were to third parties, that is, at current market prices.

    Aavid's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
segment requires different marketing and sales strategies. Most of the
businesses were acquired as a unit and the management at the time of acquisition
has generally been retained.

    The following summarizes the operations of each reportable segment for the
years ending December 31, 2001, 2000 and 1999. 2000 results include the combined
operations of the Company (February 2, 2000 through December 31, 2000) and the
Predecessor (January 1, 2000 through February 1, 2000):

<TABLE>
<CAPTION>
                                                                                                       RESTRUCTURING
                                                REVENUES FROM                       DEPRECIATION       AND BUYOUT OF
                                                  EXTERNAL          INTEREST             AND           COMPENSATION
                                                  CUSTOMERS       EXPENSE, NET      AMORTIZATION       ARRANGEMENTS
                                                -------------     ------------      ------------       --------------

<S>                                              <C>                <C>               <C>                 <C>
2001
  Thermal Products                               $ 120,106          $ 19,542          $ 21,441            $16,884
  CFD Software                                      66,593             6,161            23,074                 --
  Curamik                                           22,141                54             1,119                133
  Corporate Office                                      --            (2,194)              519                 --
                                                 ---------          ---------         --------            -------
  Total....................................        208,840            23,563            46,153             17,017

2000
  Thermal Products                               $ 217,959          $ 15,713          $ 22,966            $    --
  CFD Software                                      57,891             6,660            20,896                 --
  Curamik                                           17,776                68               971                 --
  Corporate Office                                      --             1,490               320                 --
                                                 ---------          --------          --------            -------
  Total....................................        293,626            23,931            45,153                 --

1999 (the Predecessor)
  Thermal Products                               $ 162,343          $  1,427          $  8,020            $  (630)
  CFD Software                                      49,236               (31)            1,743                 --
  Curamik                                            2,664               233               286                 --
  Corporate Office                                      --                --                23                 --
                                                 ---------          --------          --------            -------
  Total....................................        214,243             1,629            10,072               (630)

</TABLE>

<TABLE>

                                                                     SEGMENT
                                                                  INCOME BEFORE
                                                 INCOME TAX         TAXES AND        ASSETS (NET OF
                                                 PROVISION          MINORITY          INTERCOMPANY       CAPITAL
                                                 (BENEFIT)          INTEREST            BALANCES)      EXPENDITURES
                                                 ---------     ------------------  ------------------ ---------------
<S>                                                <C>              <C>                 <C>                <C>
2001
   Thermal Products                                $(1,462)         $(188,049)          $ 40,227           $ 4,141
   CFD Software                                      6,013           (15,934)             83,028             1,575
   Curamik                                           1,104             2,968              26,320             2,410
   Corporate Office                                (15,208)            1,049              23,703                --
                                                   -------          --------            --------           -------
   Total...................................         (9,553)         (199,966)            173,278             8,126

2000
   Thermal Products                                $ 2,294          $(19,952)           $233,879           $ 6,510
   CFD Software                                      4,957           (29,275)            101,649             3,455
   Curamik                                           1,137             2,170              18,831             1,741
   Corporate Office                                 (6,714)           (1,994)             31,929                --
                                                   -------          --------            --------           -------
   Total...................................          1,674           (49,051)            386,288            11,706

1999 (the Predecessor)
   Thermal Products                                $ 4,824          $  8,301            $178,752           $ 9,394
   CFD Software                                      4,224             7,821              30,734             2,855
   Curamik                                            (147)             (594)             16,074                97
   Corporate Office                                    (49)             (122)              3,392                18
                                                   -------          --------            --------           -------
   Total...................................          8,852            15,406             228,952            12,364

</TABLE>

                                       72

<PAGE>
    The following table provides geographic information about the Company's
operations. Revenues are attributable to an operation based on the location the
product was shipped from. Long-lived assets are attributable to a location based
on physical location.

<TABLE>
<CAPTION>
                                                                      YEAR ENDING DECEMBER 31,
                                    ---------------------------------------------------------------------------------------
                                              2001                           2000                             1999
                                    ----------------------         ------------------------        ------------------------
                                        (THE COMPANY)                   (THE COMPANY)                 (THE PREDECESSOR)

                                                LONG-LIVED                       LONG-LIVED                      LONG-LIVED
                                    REVENUES      ASSETS           REVENUES        ASSETS          REVENUES        ASSETS
                                    --------    ----------         --------      ----------        --------      ----------
<S>                                 <C>          <C>               <C>            <C>              <C>            <C>
United States                       $122,953     $ 84,137          $196,828       $266,437         $146,547       $ 71,436
Taiwan                                 9,334        1,471            13,485          1,567           17,422          1,748
China                                 13,064        1,886            24,378          3,547           29,899          2,114
United Kingdom                        21,851        1,812            34,195          1,572           21,509         17,682
Germany                               27,654        5,244            21,448          4,255            6,739          3,913
Other International                   59,421        7,162            51,884          6,139           34,201         23,749
Intercompany eliminations            (45,437)         (65)          (48,592)            --          (42,074)            --
                                    --------     --------          --------       --------         ---------      --------
Consolidated Revenue                $208,840     $101,647          $293,626       $283,517         $214,243       $120,642
                                    ========     ========          ========       ========         ========       ========
</TABLE>


    There were no individual customers who made up more than 10% of consolidated
revenues for the years ended December 31, 2001, 2000 or 1999.

N.  RESTRUCTURING CHARGES AND RESERVES

    During the third quarter of 1998, the Company recorded a non-recurring
pre-tax charge of $4,882 reflecting the costs associated with the closure of the
Company's Manchester, New Hampshire, facility. This facility was dedicated to
manufacturing a specific large volume product for a single customer. Following a
change in product design by the customer, demand significantly decreased during
the fourth quarter of 1998 to $8,600, from a level of $15,000 in the second
quarter of 1998. The Manchester restructuring was concluded at the end of 1999.

    The costs associated with the closure of the Manchester facility include the
write-down and disposal of surplus equipment, totaling $2,823, settlement of
certain purchase commitments of $1,127, provisions for leased property expenses
of $382, and employee separation costs of $550. While the number of employees
has been significantly reduced through natural attrition, the plan included the
termination of 120 employees comprised of 90 direct and 30 indirect employees.
The charge is offset by a $1,000 reduction in the previous estimate of
obligations to pay a former director a bonus, paid on profits in excess of
certain thresholds.

    The following amounts have been provided to and charged against the
Manchester restructuring reserves as of December 31, 2000 and 1999:

<TABLE>
<CAPTION>

                                   RESERVE BALANCE,       CHARGES TO EXPENSE       CHARGES AGAINST THE        RESERVE BALANCE,
       DESCRIPTION                 DECEMBER 31, 1999          OR (INCOME)               RESERVES              DECEMBER 31, 2000
       -----------                 -----------------      ------------------       -------------------        -----------------
<S>                                <C>                      <C>                       <C>                     <C>
Lease terminations and
 leasehold Improvements reserve         $  203                    --                       (203)                      --
                                        ------                   ---                     ------                     ----

Total                                   $  203                   $--                     $ (203)                    $ --
                                        ======                   ===                     ======                     ====
</TABLE>

<TABLE>
<CAPTION>
                                     RESERVE BALANCE       CHARGES TO EXPENSE       CHARGES AGAINST THE        RESERVE BALANCE,
       DESCRIPTION                   JANUARY 1, 1999           OR (INCOME)               RESERVES              DECEMBER 31, 1999
       -----------                  -----------------      ------------------       -------------------        -----------------

<S>                                         <C>                      <C>                    <C>                        <C>
Surplus equipment                        $ 2,823                  $(504)                 $ (2,319)                  $   --

Purchase commitments                         691                    (12)                     (679)                      --

Lease terminations and leasehold
  Improvements reserve                       328                    181                      (306)                     203

Employee separation                          327                   (295)                      (32)                      --
                                         -------                  -----                  --------                   ------

Total                                    $ 4,169                  $(630)                 $ (3,336)                  $  203
                                         =======                  =====                  ========                   ======
</TABLE>


                                       73


<PAGE>
    In the fourth quarter of 1999, the Company completed its restructuring of
the Manchester facility. As a result, excess reserves totaling $630 were
reversed into income in 1999.

    Approximately $2,130 of restructuring charges have been recorded in
connection with the Company's October 1999 acquisition of Thermalloy, the
thermal management business of Bowthorpe plc. The restructuring plan included
initiatives to integrate the operations of the Company and Thermalloy and reduce
overhead. The primary components of these plans related to (a) the closure of
duplicative Thermalloy operations in Hong Kong and the United Kingdom, (b) the
elimination of duplicative selling, general and administration functions of
Thermalloy on a global basis and (c) the termination of certain contractual
obligations. During the year ended December 31, 2000, 136 individuals were
terminated under the restructuring plan. The following amounts have been charged
against the Thermalloy restructuring reserves during the years ended December
31, 2001 and 2000:

<TABLE>
<CAPTION>
                                                                                           DECREASES TO
                                                                                             RESERVES
                                                                                            CHARGED TO
                                                                      CHARGES AGAINST      GOODWILL FOR
                                                                     RESERVES FOR THE          THE             RESTRUCTURING
                                              RESTRUCTURING             YEAR ENDED          YEAR ENDED        RESERVES BALANCE
                                           RESERVES BALANCE AT         DECEMBER 31,        DECEMBER 31,        AT DECEMBER 31,
                                             JANUARY 1, 2001               2001                2001                 2001
                                           -------------------       -----------------     ------------       ----------------
<S>                                         <C>                        <C>                   <C>                    <C>
Lease terminations and leasehold
  improvements reserve                           $  735                  $   (150)             $(284)               $   301
Employee separation                                 493                      (354)                --                    139
                                                 ------                  --------              -----                -------
Total                                            $1,228                  $   (504)             $(284)               $   440
                                                 ======                  ========              ======               =======
<CAPTION>

                                                                                            INCREASES TO
                                                                                              RESERVES
                                                                                             CHARGED TO
                                                                      CHARGES AGAINST       GOODWILL FOR
                                                                     RESERVES FOR THE           THE             RESTRUCTURING
                                              RESTRUCTURING             YEAR ENDED           YEAR ENDED        RESERVES BALANCE
                                           RESERVES BALANCE AT         DECEMBER 31,         DECEMBER 31,        AT DECEMBER 31,
                                             JANUARY 1, 2000               2000                 2000                 2000
                                           -------------------       -----------------      ------------       ----------------
<S>                                         <C>                        <C>                   <C>                    <C>
Lease terminations and leasehold
  improvements reserve                           $  670                  $    (95)             $ 160                $   735
Employee separation                               1,460                    (1,606)               639                    493
                                                 ------                  --------              -----                -------
Total                                            $2,130                  $ (1,701)             $ 799                $ 1,228
                                                 ======                  ========              =====                =======
</TABLE>

    Approximately $716 of restructuring charges were recorded in connection with
the Merger. The restructuring plans included initiatives to integrate the
operations of the Company and reduce overhead. The primary components of these
plans related to (a) the closure of operations in California and the United
Kingdom and (b) the termination of certain contractual obligations. During the
year ended December 31, 2000, 89 individuals were terminated under the
restructuring plan. The following amounts have been charged against the merger
restructuring reserves during the years ended December 31, 2001 and 2000:

<TABLE>
<CAPTION>

                                                                      INCREASES TO
                                                                        RESERVES
                                                                       CHARGED TO
                                                                      GOODWILL FOR        CHARGES AGAINST
                                                                          THE            RESERVES FOR THE       RESTRUCTURING
                                              RESTRUCTURING            YEAR ENDED            YEAR ENDED       RESERVES BALANCE
                                           RESERVES BALANCE AT        DECEMBER 31,          DECEMBER 31,         AT DECEMBER
                                             JANUARY 1, 2001              2001                  2001              31, 2001
                                           -------------------       -----------------      ------------      -----------------
<S>                                         <C>                        <C>                   <C>                    <C>
Lease terminations and leasehold
  improvements reserve                            $ 12                   $  --                $  (12)               $  --
Employee separation                                 34                      --                   (34)                  --
                                                  ----                   -----                ------                -----
Total                                             $ 46                   $  --                $  (46)               $  --
                                                  ====                   =====                ======                =====
<CAPTION>

                                                                      INCREASES TO
                                                                        RESERVES
                                                                       CHARGED TO
                                                                      GOODWILL FOR        CHARGES AGAINST
                                                                          THE            RESERVES FOR THE      RESTRUCTURING
                                              RESTRUCTURING            YEAR ENDED           YEAR ENDED        RESERVES BALANCE
                                           RESERVES BALANCE AT        DECEMBER 31,         DECEMBER 31,          AT DECEMBER
                                             JANUARY 1, 2000              2000                 2000               31, 2000
                                           -------------------       -----------------      ------------      -----------------
<S>                                         <C>                        <C>                   <C>                    <C>
Lease terminations and leasehold
  improvements reserve                            $ --                   $ 262                $ (250)               $  12
Employee separation                                 --                     454                  (420)                  34
                                                  ----                   -----                ------                -----
Total                                             $ --                   $ 716                $ (670)               $  46
                                                  ====                   =====                ======                =====
</TABLE>

                                       74
<PAGE>
    During the first half of 2001 the Company ceased manufacturing activities at
its Dallas, Texas facility and reduced its New Hampshire workforce. In
connection with this action, the Company recorded a restructuring charge within
the statement of operations for the first quarter of 2001. This restructuring
charge totaled $12,073 and included estimated amounts related to employee
severance, write-off of fixed assets and write-off of a prepaid lease intangible
asset that was originally recorded as part of the Thermalloy acquisition. 81
individuals were terminated under the restructuring plan. The following amounts
have been charged against these restructuring reserves during the 2001:



<TABLE>
<CAPTION>
                                                                    INCREASES TO
                                                                       RESERVES
                                                                      CHARGED TO
                                                                  RESTRUCTURING FOR           CHARGES AGAINST       RESTRUCTURING
                                                                         THE                 RESERVES FOR THE         RESERVES
                                             RESTRUCTURING            YEAR ENDED                YEAR ENDED             BALANCE
                                          RESERVES BALANCE AT        DECEMBER 31,              DECEMBER 31,          AT DECEMBER
                                            JANUARY 1, 2001              2001                      2001               31, 2001
                                          -------------------     -----------------           ---------------        ------------
<S>                                         <C>                        <C>                   <C>                    <C>
Employee separation                             $ --                  $ 2,754                    $ (2,398)              $   356
Prepaid rent write-off                            --                    3,819                      (3,819)                   --
Fixed asset reserve                               --                    5,500                      (5,500)                   --
                                                ----                  -------                    --------               -------
Total                                           $ --                  $12,073                    $(11,717)              $   356
                                                ====                  =======                    ========               =======
</TABLE>


    During the second quarter of 2001 the Company ceased operations at its
Loudwater, United Kingdom facility and further reduced its New Hampshire
workforce. In connection with this action, the Company recorded a restructuring
charge within the statement of operations for the second quarter of 2001. This
restructuring charge totals $408 and includes estimated amounts related to
employee severance and the termination of certain contractual obligations.
During the quarter ended June 30, 2001, 68 individuals were terminated under the
restructuring plan. The following amounts have been recorded during 2001 related
to this restructuring:

<TABLE>
<CAPTION>
                                                                    INCREASES TO
                                                                       RESERVES
                                                                      CHARGED TO
                                                                  RESTRUCTURING FOR           CHARGES AGAINST       RESTRUCTURING
                                                                         THE                 RESERVES FOR THE         RESERVES
                                             RESTRUCTURING            YEAR ENDED                YEAR ENDED             BALANCE
                                          RESERVES BALANCE AT        DECEMBER 31,              DECEMBER 31,          AT DECEMBER
                                            JANUARY 1, 2001              2001                      2001               31, 2001
                                          -------------------     -----------------           ---------------        ------------
<S>                                         <C>                        <C>                   <C>                    <C>
Employee separation                               $ --                  $ 356                      $ (356)                $ --
Lease terminations and
  leasehold improvements  reserve                   --                     52                         (52)                  --
                                                  ----                  -----                      ------                 ----
Total                                             $ --                  $ 408                      $ (408)                $ --
                                                  ====                  =====                      ======                 ====

</TABLE>

    During the third quarter of 2001 the Company made the decision to cease
manufacturing operations at its Terrell, Texas facility and further reduce its
New Hampshire workforce. In connection with this action, the Company recorded a
restructuring charge within the statement of operations for the third quarter of
2001. This restructuring charge totals $1,222 and includes estimated amounts
related to employee severance and the write-off of fixed assets.


                                       75

<PAGE>
    During the quarter ended September 29, 2001, 105 individuals were terminated
under the restructuring plan. The following amounts have been recorded during
2001 related to this restructuring:

<TABLE>
<CAPTION>
                                                                     INCREASES TO
                                                                       RESERVES
                                                                      CHARGED TO
                                                                  RESTRUCTURING FOR           CHARGES AGAINST       RESTRUCTURING
                                                                         THE                 RESERVES FOR THE         RESERVES
                                             RESTRUCTURING            YEAR ENDED                YEAR ENDED             BALANCE
                                          RESERVES BALANCE AT        DECEMBER 31,              DECEMBER 31,          AT DECEMBER
                                            JANUARY 1, 2001              2001                      2001               31, 2001
                                          -------------------     -----------------           ---------------        ------------
<S>                                               <C>                   <C>                      <C>                    <C>
Employee separation                              $ --                  $   990                   $ (789)                $  201
Fixed asset reserve                                --                      232                     (232)                    --
                                                 ----                  -------                  -------                 ------
Total                                            $ --                  $ 1,222                  $(1,021)                $  201
                                                 ====                  =======                  =======                 ======
</TABLE>

    During the fourth quarter of 2001 the Company made the decision to cease
manufacturing operations at its fan facility in China and reduce its workforce
in North America, Europe and Asia. In connection with this action, the Company
recorded a restructuring charge within the statement of operations for the
fourth quarter of 2001. This restructuring charge totals $3,314 and includes
estimated amounts related to employee severance, the write-off of fixed assets
and charges related to certain contractual obligations. During the quarter ended
December 31, 2001, 253 individuals were terminated under this restructuring
plan. The following amounts have been recorded during 2001 related to this
restructuring:

<TABLE>
<CAPTION>
                                                                     INCREASES TO
                                                                       RESERVES
                                                                      CHARGED TO
                                                                  RESTRUCTURING FOR           CHARGES AGAINST       RESTRUCTURING
                                                                         THE                 RESERVES FOR THE         RESERVES
                                             RESTRUCTURING            YEAR ENDED                YEAR ENDED             BALANCE
                                          RESERVES BALANCE AT        DECEMBER 31,              DECEMBER 31,          AT DECEMBER
                                            JANUARY 1, 2001              2001                      2001               31, 2001
                                          -------------------     -----------------           ---------------        ------------
<S>                                              <C>                 <C>                         <C>                   <C>
Employee separation                              $ --                  $ 1,680                    $ (503)               $ 1,177
Fixed asset reserve                                --                    1,393                        --                  1,393
Lease obligations                                  --                      241                       (28)                   213
                                                 ----                  -------                    -------               -------
Total                                            $ --                  $ 3,314                    $ (531)               $ 2,783
                                                 ====                  =======                    ======                =======

</TABLE>

O.  QUARTERLY DATA (UNAUDITED)

    Following is a summary of the quarterly results of operations for the years
ended December 31, 2001 and 2000. First quarter of 2000 results include the
combined operations of the Company (February 2, 2000 through March 31, 2000) and
the Predecessor (January 1, 2000 through February 1, 2000). The second, third
and fourth quarter of 2000 and all quarters of 2001 are the results of the
Company:

<TABLE>
<CAPTION>
                                                                                       FISCAL QUARTER
                                                      ------------------------------------------------------------------------------
                                                         FIRST             SECOND           THIRD          FOURTH            TOTAL
                                                      ---------           --------        --------        --------         ---------
<S>                                                   <C>                 <C>             <C>             <C>              <C>
2001
Net sales                                             $  61,611           $ 53,319        $ 46,473        $ 47,437         $208,840
Gross profit                                             23,467             18,179          13,797          16,609           72,052
Net loss                                                (22,561)           (11,865)        (21,298)       (128,345)        (184,069)

2000
Net sales                                             $  78,002           $ 78,418        $ 68,908        $ 68,298         $293,626
Gross profit                                             22,435             27,641          25,802          25,250          101,128
Net loss                                                (25,369)            (7,993)         (9,636)         (6,357)         (49,355)
</TABLE>

                                       76

<PAGE>
P.       SUBSEQUENT EVENTS

   On April 1, 2002, the Company sold its Terrell, Texas manufacturing facility
for $1,500. $1,226 of the proceeds from the sale was used to pay down amounts
owed on the Senior Credit Facility. The balance of the proceeds was used to pay
expenses of the sale.


Q.  SELECTED CONSOLIDATING FINANCIAL STATEMENTS OF PARENT, GUARANTORS AND
    NON-GUARANTORS

    The Company's wholly-owned domestic subsidiaries have jointly and severally
guaranteed, on a senior subordinated basis, the principal amount of the
Company's 12 3/4% Senior Subordinated Notes, due 2007. The guarantors include
the combined domestic operations of Aavid Thermalloy, LLC, which directly or
indirectly owns all of the Company's thermal management operations and Fluent,
Inc., which directly or indirectly owns all of the Company's CFD operations, and
the Company's subsidiary Applied Thermal Technologies, Inc. The non-guarantors
include the combined foreign operations of Aavid Thermalloy, LLC and Fluent,
Inc. The consolidating condensed financial statements of the Company depict
Aavid Thermal Technologies, Inc., the Parent, carrying its investment in
subsidiaries under the equity method and the guarantor and non-guarantor
subsidiaries are presented on a combined basis. Management believes that there
are no significant restrictions on the Parent's and guarantors' ability to
obtain funds from their subsidiaries by dividend or loan. The principal
elimination entries eliminate investment in subsidiaries and intercompany
balances and transactions.

<TABLE>
<CAPTION>

                                                              CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2001
                                                      ----------------------------------------------------------------------------
                                                                   U.S. GUARANTOR     NON-GUARANTOR
                                                        PARENT      SUBSIDIARIES      SUBSIDIARIES    ELIMINATIONS    CONSOLIDATED
                                                      ---------    --------------     --------------  ------------    ------------
ASSETS
<S>                                                   <C>             <C>               <C>              <C>             <C>
Cash and cash equivalents.......................      $     849       $   5,953         $  9,257         $      --       $  16,059
Accounts receivable-trade, net..................             --          13,539           19,023               368          32,930
Notes receivable................................             --             480               --                --             480
Inventories.....................................             --           4,196            8,322                42          12,560
Due (to) from affiliate, net....................         95,115         (48,374)         (13,091)          (33,650)             --
Refundable taxes................................           (180)             --              118               180             118
Deferred income taxes...........................         11,687          (3,065)             333            (8,955)             --
Prepaid and other current assets................            151           6,254            3,090               (11)          9,484
                                                      ---------       ---------         --------         ---------       ---------
Total current assets............................        107,622         (21,017)          27,052           (42,026)         71,631
Property, plant and equipment, net..............             33          22,861           16,391               (16)         39,269
Investment in subsidiaries......................        (26,551)             --               --            26,551              --
Deferred taxes..................................            974              --              410            (1,384)             --
Other assets, net...............................         23,802          46,376           15,192           (22,992)         62,378
                                                      ---------       ---------         --------         ----------      ---------
Total assets....................................      $ 105,880       $  48,220         $ 59,045         $ (39,867)      $ 173,278
                                                      =========       =========         ========         =========       =========

LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS'
(DEFICIT) EQUITY
Current portion of debt obligations.............      $ 174,845       $     444         $     93         $      --       $ 175,382
Accounts payable-trade..........................            834           5,388            8,283                --          14,505
Income taxes payable............................        (10,240)         13,122            2,501              (703)          4,680
Deferred revenue................................             --           4,871            3,557                --           8,428
Deferred taxes..................................             --              --               --                --              --
Accrued expenses and other current liabilities..          7,668          10,157            7,468                32          25,325
                                                      ---------       ---------         --------         ---------       ---------
Total current liabilities.......................        173,107          33,982           21,902              (671)        228,320
                                                      ---------       ---------         --------         ---------       ---------
Debt obligations, net of current portion........             --             221              229                --             450
Deferred income taxes...........................        (10,849)         15,463               22            (4,636)             --
                                                      ---------       ---------         --------         ---------       ---------
Total liabilities...............................        162,258          49,666           22,153            (5,307)        228,770
                                                      ---------       ---------         --------         ---------       ---------
Commitments and contingencies
Minority interests..............................            578              85            1,502              (701)          1,464
Stockholders' equity:
Common Stock, par value.........................             --              --               --                --              --
Warrants........................................          3,764              --               --                --           3,764
Additional paid-in capital......................        176,007         207,604            4,021          (211,625)        176,007
Cumulative translation adjustment...............         (2,678)          1,954           (3,231)            1,277          (2,678)
Retained earnings (deficit).....................       (234,049)       (211,089)          34,600           176,489        (234,049)
                                                      ---------       ---------         --------         ---------       ---------
Total stockholders' equity (deficit)............        (56,956)         (1,531)          35,390           (33,859)        (56,956)
                                                      ----------      ----------        --------         ---------       ----------
Total liabilities, minority interests and
 stockholders' (deficit) equity.................      $ 105,880       $  48,220         $ 59,045         $ (39,867)      $ 173,278
                                                      =========       =========         ========         =========       =========
</TABLE>

                                       77
<PAGE>

<TABLE>
<CAPTION>

                                                             CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2000
                                                      ----------------------------------------------------------------------------
                                                                   U.S. GUARANTOR     NON-GUARANTOR
                                                       PARENT       SUBSIDIARIES       SUBSIDIARIES   ELIMINATIONS    CONSOLIDATED
                                                      ---------    --------------     --------------  ------------    ------------
ASSETS
<S>                                                   <C>             <C>               <C>              <C>             <C>
Cash and cash equivalents.......................      $   9,443       $   4,193         $ 10,213         $      --       $  23,849
Accounts receivable-trade, net..................             --          25,904           22,822               368          49,094
Inventories.....................................             --          14,273           10,624               306          25,203
Due (to) from affiliate, net....................         81,116          (8,630)            (378)          (72,108)             --
Refundable taxes................................           (180)             --               --               180              --
Deferred income taxes...........................         10,757          (2,194)             613            (9,176)             --
Prepaid and other current assets................            201           1,882            2,551                (9)          4,625
                                                      ---------       ---------         --------         ---------       ---------
Total current assets............................        101,337          35,428           46,445           (80,439)        102,771
Property, plant and equipment, net..............            536          40,613           15,875               (11)         57,013
Investment in subsidiaries......................        168,457              --               --          (168,457)             --
Deferred taxes..................................          1,102          (1,102)              --                --              --
Other assets, net...............................         23,444         168,376           12,992            21,692         226,504
                                                      ---------       ---------         --------         ---------       ---------
Total assets....................................      $ 294,876       $ 243,315         $ 75,312         $(227,215)      $ 386,288
                                                      =========       =========         ========         =========       =========

LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS'
EQUITY
Current portion of debt obligations.............      $   8,000       $     350         $    418         $      --       $   8,768
Accounts payable-trade..........................            103           7,381           11,098                --          18,582
Income taxes payable............................        (15,253)         17,711            4,490              (698)          6,250
Deferred revenue................................             --           5,751            3,639                --           9,390
Deferred taxes..................................          1,741              --               --                --           1,741
Accrued expenses and other current liabilities..          9,225          13,633            8,387                27          31,272
                                                      ---------       ---------         --------         ---------       ---------
Total current liabilities.......................          3,816          44,826           28,032              (671)         76,003
                                                      ---------       ---------         --------         ---------       ---------
Debt obligations, net of current portion........        194,990             214               30                --         195,234
Deferred income taxes...........................         (4,753)         19,410              (41)           (4,639)          9,977
                                                      ---------       ---------         --------         ---------       ---------
Total liabilities...............................        194,053          64,450           28,021            (5,310)        281,214
                                                      ---------       ---------         --------         ---------       ---------
Commitments and contingencies
Minority interests..............................            664           3,359            1,283              (391)          4,915
Stockholders' equity:
Common Stock, par value.........................             --              --               --                --              --
Warrants........................................          4,560              --               --                --           4,560
Additional paid-in capital......................        147,187         207,508            6,129          (213,637)        147,187
Cumulative translation adjustment...............         (1,608)          1,861           (2,638)              777          (1,608)
Retained earnings (deficit).....................        (49,980)        (33,863)          42,517            (8,654)        (49,980)
                                                      ---------       ---------         --------         ---------       ---------
Total stockholders' equity (deficit)............        100,159         175,506           46,008          (221,514)        100,159
                                                      ---------       ---------         --------         ---------       ---------
Total liabilities, minority interests and
 stockholders' equity...........................      $ 294,876       $ 243,315         $ 75,312         $(227,215)      $ 386,288
                                                      =========       =========         ========         =========       =========
</TABLE>

                                       78

<PAGE>
<TABLE>
<CAPTION>

                                                                  CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                                                                       FOR THE YEAR ENDED DECEMBER 31, 2001
                                                ------------------------------------------------------------------------------------
                                                               U.S. GUARANTOR      NON-GUARANTOR
                                                    PARENT      SUBSIDIARIES       SUBSIDIARIES       ELIMINATIONS     CONSOLIDATED
                                                  ---------    --------------      -------------      ------------     ------------
<S>                                               <C>             <C>                 <C>               <C>              <C>
Net sales.................................        $      --       $ 123,831           $131,325          $ (46,316)       $ 208,840
Cost of goods sold........................               --          82,171             83,737            (29,120)         136,788
                                                  ---------       ---------           --------          ---------        ---------
Gross profit..............................               --          41,660             47,588            (17,196)          72,052
Selling, general and administrative expenses          1,154          72,704             28,343             (5,778)          96,423
Restructuring charges.....................               --          15,078              1,939                 --           17,017
Loss on sale of division..................               --           4,931                 --                 --            4,931
Intangible asset impairment charge........               --          83,954                 --             32,662          116,616
Research and development..................               --          10,576             13,928            (11,618)          12,886
                                                  ---------       ---------           --------          ---------        ---------
Income (loss) from operations.............           (1,154)       (145,583)             3,378            (32,462)        (175,821)
Interest income (expense) net.............            2,194         (24,699)            (1,059)                 1          (23,563)
Other income (expense), net...............                9             (24)              (106)              (461)            (582)
Equity in income of subsidiaries..........         (203,613)             --                 --            203,613               --
                                                  ---------       ---------           --------          ---------        ---------
Income (loss) before income taxes, minority
  interest and extraordinary item.........         (202,564)       (170,306)             2,213            170,691         (199,966)
Income tax benefit (expense)..............           15,208          (3,150)            (2,505)                --            9,553
                                                  ---------       ---------           --------          ---------        ---------
Income (loss) before minority interest and
extraordinary item........................         (187,356)       (173,456)              (292)           170,691         (190,413)
Minority interest in (income) loss of
  subsidiaries consolidated subsidiaries..               --           3,275               (218)                --            3,057
                                                  ---------       ---------           --------          ---------        ---------
Income (loss) before extraordinary item...         (187,356)       (170,181)              (510)           170,691         (187,356)
Extraordinary item:
Gain on extinguishment of debt, net of
 tax......................................            3,287              --                 --                 --            3,287
                                                  ---------       ---------           --------          ---------        ---------
Net income (loss).........................        $(184,069)      $(170,181)          $   (510)         $ 170,691        $(184,069)
                                                  =========       =========           =========         =========        =========
</TABLE>


<TABLE>
<CAPTION>

                                                                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                                                               FOR THE PERIOD FROM FEBRUARY 2, TO DECEMBER 31, 2000
                                                  ----------------------------------------------------------------------------------
                                                                U.S. GUARANTOR       NON-GUARANTOR
                                                   PARENT       SUBSIDIARIES         SUBSIDIARIES      ELIMINATIONS     CONSOLIDATED
                                                  ---------     --------------       ------------      ------------     ------------
<S>                                               <C>              <C>                  <C>              <C>              <C>
Net sales.................................        $      --        $ 182,016            $133,725         $ (45,557)       $ 270,184
Cost of goods sold........................               --          126,909              85,208           (35,135)         176,982
                                                  ---------        ---------            --------         ---------        ---------
Gross profit..............................               --           55,107              48,517           (10,422)          93,202
Selling, general and administrative
 expenses.................................            2,937           68,199              31,320            (6,708)          95,748
Acquired research and development.........               --           15,000                  --                --           15,000
Research and development..................               --            7,565               8,689            (6,319)           9,935
                                                  ---------        ---------            --------         ---------        ---------
Income (loss) from operations.............           (2,937)         (35,657)              8,508             2,605          (27,481)
Interest income (expense) net.............           (7,718)         (14,702)               (684)              (11)         (23,115)
Other income (expense), net...............            2,247            1,335               2,034            (5,237)             379
Equity in income of subsidiaries..........          (51,220)              --                  --            51,220               --
                                                  ---------        ---------            --------         ---------        ---------
Income (loss) before income taxes and
minority                                            (59,628)         (49,024)              9,858            48,577          (50,217)
  interests...............................
Income tax benefit (expense)..............            9,648           (3,471)             (3,954)           (3,350)          (1,127)
                                                  ---------        ---------            --------         ---------        ---------
Income (loss) before minority interests...          (49,980)         (52,495)              5,904            45,227          (51,344)
Minority interests in income of consolidated
  subsidiaries............................               --            1,514                (150)               --            1,364
                                                  ---------        ---------            --------         ---------        ---------
Net income (loss).........................        $ (49,980)       $ (50,981)           $  5,754         $  45,227        $ (49,980)
                                                  =========        =========            ========         =========        =========
</TABLE>

                                       79

<PAGE>


<TABLE>
<CAPTION>
                                                                    CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR
                                                             THE PERIOD FROM JANUARY 1, TO FEBRUARY 1, 2000 (PREDECESSOR)
                                                   ---------------------------------------------------------------------------------
                                                                U.S. GUARANTOR        NON-GUARANTOR
                                                    PARENT       SUBSIDIARIES         SUBSIDIARIES      ELIMINATIONS    CONSOLIDATED
                                                   -------      --------------        -------------     ------------    ------------
<S>                                                <C>              <C>                 <C>                <C>             <C>
Net sales.................................         $    --          $14,810             $ 11,662           $(3,030)        $23,442
Cost of goods sold........................              --            9,912                7,796            (2,192)         15,516
                                                   -------          -------             --------           -------         -------
Gross profit..............................              --            4,898                3,866              (838)          7,926
Selling, general and administrative expenses            19            3,324                2,157              (286)          5,214
Research and development..................              --              577                  824              (649)            752
                                                   -------          -------             --------           -------         -------
Income (loss) from operations.............             (19)             997                  885                97           1,960
Interest (expense), net...................            (818)              (9)                  --                11            (816)
Other income (expense), net...............             206               13                  (21)             (176)             22
Equity in income of subsidiaries..........           1,256               --                   --            (1,256)             --
                                                   -------          -------             --------           -------         -------
Income (loss) before income taxes and
minority                                               625            1,001                  864            (1,324)          1,166
  interests...............................
Income tax benefit (expense)..............              --             (540)                (419)              412            (547)
                                                   -------          -------             --------           -------         -------
Income (loss) before minority interests...             625              461                  445              (912)            619
Minority interests in loss of consolidated
  subsidiaries............................              --               --                    6                --               6
                                                   -------          -------             --------           -------         -------
Net income (loss).........................         $   625          $   461             $    451           $  (912)        $   625
                                                   =======          =======             ========           =======         =======
</TABLE>

<TABLE>
<CAPTION>
                                                                          CONDENSED CONSOLIDATING STATEMENT OF INCOME
                                                                      FOR THE YEAR ENDED DECEMBER 31, 1999 (PREDECESSOR)
                                                    --------------------------------------------------------------------------------
                                                                U.S. GUARANTOR        NON-GUARANTOR
                                                    PARENT       SUBSIDIARIES         SUBSIDIARIES      ELIMINATIONS    CONSOLIDATED
                                                    -------     --------------        -------------     ------------    ------------
<S>                                                 <C>            <C>                  <C>               <C>             <C>
Net sales.....................................      $    --        $ 145,915            $109,918          $(41,590)       $214,243
Cost of goods sold............................           --           99,948              71,922           (33,312)        138,558
                                                    -------        ---------            --------          --------        --------
Gross profit..................................           --           45,967              37,996            (8,278)         75,685
Selling, general and administrative expenses..        3,847           35,815              19,742            (8,064)         51,340
Research and development......................           --            6,585               6,178            (5,235)          7,528
                                                    -------        ---------            --------          --------        --------
Income (loss) from operations.................       (3,847)           3,567              12,076             5,021          16,817
Interest income (expense), net................           --             (459)                110            (1,280)         (1,629)
Other income (expense), net...................        3,724              731              (1,117)           (3,120)            218
Equity in income of subsidiaries..............        6,760               --                  --            (6,760)             --
                                                    -------        ---------            --------          --------        --------
Income (loss) before income taxes.............        6,637            3,839              11,069            (6,139)         15,406
Income tax benefit (expense)..................           49           (2,969)             (3,094)           (2,838)         (8,852)
                                                    -------        ---------            --------          --------        --------
Income (loss) before minority interests.......        6,686              870               7,975            (8,977)          6,554
Minority interests in loss of consolidated               --               53                  79                --             132
                                                    -------        ---------            --------          --------        --------
subsidiaries..................................
Net income (loss).............................      $ 6,686        $     923            $  8,054          $ (8,977)       $  6,686
                                                    =======        =========            ========          ========        ========
</TABLE>


<TABLE>
<CAPTION>
                                                                       CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                                                                            FOR THE YEAR ENDED DECEMBER 31, 2001
                                                   ---------------------------------------------------------------------------------
                                                                U.S. GUARANTOR      NON-GUARANTOR
                                                    PARENT       SUBSIDIARIES       SUBSIDIARIES      ELIMINATIONS      CONSOLIDATED
                                                   ---------    --------------      -------------     ------------      ------------
<S>                                                <C>             <C>                <C>                 <C>             <C>
Net cash provided by (used in) operating
 activities....................................    $ (12,204)      $   1,512          $  4,190            $  (1)          $  (6,503)
Cash flows used in investing activities:
Proceeds from sale of fixed assets.............           --             466               243               --                 709
Purchase of minority interest in Curamik.......         (882)             --                --               --                (882)
Proceeds from sale of division.................           --           2,500                --               --               2,500
Purchases of property, plant and equipment.....           --          (2,263)           (5,863)              --              (8,126)
                                                   ---------       ---------          --------            -----           ---------
Net cash provided by (used in) investing
 activities....................................         (882)            703            (5,620)              --              (5,799)
Cash flows provided by (used in) financing
 activities:
Advances under other debt obligations..........           --              --               252               --                 252
Principal payments on other debt obligations...      (12,808)           (544)              (43)              --             (13,395)
Advances under line of credit..................        9,300              --                34               --               9,334
Repayments of line of credit...................           --              --              (430)              --                (430)
Make-well contribution.........................       34,028              --                --               --              34,028
Retirement of 12 3/4% senior subordinated
 notes and warrants............................      (26,028)             --                --               --             (26,028)
                                                   ----------      ---------          --------            -----           ----------
Net cash provided by (used in) financing
 activities....................................        4,492            (544)             (187)              --               3,761
Foreign exchange effect on cash and cash
 equivalents...................................           --              92               659               --                 751
                                                   ---------       ---------          --------            -----           ---------
Net increase (decrease) in cash and cash
equivalents....................................       (8,594)          1,763              (958)              (1)             (7,790)
Cash and cash equivalents, beginning of
 period........................................        9,443           4,190            10,215                1              23,849
                                                   ---------       ---------          --------            -----           ---------
Cash and cash equivalents, end of period.......    $     849       $   5,953          $  9,257            $  --           $  16,059
                                                   =========       =========          ========            =====           =========
</TABLE>

                                       80

<PAGE>

<TABLE>
<CAPTION>


                                                                       CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                                                                  FOR THE PERIOD FROM FEBRUARY 2, 2000 TO DECEMBER 31, 2000
                                                   ---------------------------------------------------------------------------------
                                                                U.S. GUARANTOR       NON-GUARANTOR
                                                    PARENT       SUBSIDIARIES        SUBSIDIARIES      ELIMINATIONS     CONSOLIDATED
                                                   ----------   --------------       --------------    ------------     ------------
<S>                                                <C>             <C>                 <C>                 <C>            <C>
Net cash provided by (used in) operating
 activities....................................    $ (13,974)      $  20,033           $ 14,576            $ (42)         $  20,593
Cash flows used in investing activities:
Proceeds from sale of fixed assets.............           --              --              1,119               --              1,119
Purchases of property, plant and equipment.....           --          (6,730)            (4,494)             (18)           (11,242)
                                                   ---------       ---------           --------            -----          ---------
Net cash provided by (used in) investing
 activities....................................           --          (6,730)            (3,375)             (18)           (10,123)
Cash flows provided by (used in) financing
 activities:
Advances under other debt obligations..........       83,937         (23,054)            (7,707)              --             53,176
Principal payments on other debt obligations...      (82,025)             25                 --               --            (82,000)
Advances under line of credit..................        7,700              --                 --               --              7,700
Repayments of line of credit...................       (8,182)             --                 --               --             (8,182)
Payment of merger and financing expense........      (17,192)             --                 --               --            (17,192)
Repurchase of common stock, options and
 warrants......................................     (261,267)             --                 --               --           (261,267)
Net proceeds from 12 3/4% senior
 subordinated notes............................      148,312              --                 --               --            148,312
Proceeds from investors........................      152,000              --                 --               --            152,000
                                                   ---------       ---------           --------            -----          ---------
Net cash provided by (used in) financing
 activities....................................       23,283         (23,029)            (7,707)              --             (7,453)
Foreign exchange effect on cash and cash
 equivalents...................................           --              --             (1,015)              --             (1,015)
                                                   ---------       ---------           --------            -----          ---------
Net increase (decrease) in cash and cash
 equivalents...................................        9,309          (9,726)             2,479              (60)             2,002
Cash and cash equivalents, beginning of
 period.........................................         138          14,352              7,294               63             21,847
                                                   ---------       ---------           --------            -----          ---------
Cash and cash equivalents, end of period.......    $   9,447       $   4,626           $  9,773            $   3          $  23,849
                                                   =========       =========           ========            =====          =========
</TABLE>

<TABLE>
<CAPTION>

                                                                    CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR
                                                               THE PERIOD FROM JANUARY 1, TO FEBRUARY 1, 2000 (PREDECESSOR)
                                                     -------------------------------------------------------------------------------
                                                                U.S. GUARANTOR      NON-GUARANTOR
                                                      PARENT     SUBSIDIARIES       SUBSIDIARIES      ELIMINATIONS      CONSOLIDATED
                                                     --------   --------------      -------------     ------------      ------------
<S>                                                  <C>            <C>               <C>                <C>              <C>
Net cash provided by (used in) operating
 activities...................................       $ (363)        $ 9,533           $ (5,614)          $  91            $  3,647
Cash flows used in investing activities:
Purchases of property, plant and equipment....           --            (288)               (38)             18                (308)
                                                     ------         -------           --------           -----            --------
Net cash used in investing activities.........           --            (288)               (38)             18                (308)
Cash flows provided by (used in) financing
 activities:
Issuance of common stock, net of expenses.....          349              --                 --              --                 349
Principal payments on debt obligations........           --             (25)                --              --                 (25)
                                                     ------         -------           --------           -----            --------
Net cash provided by (used in) financing
 activities...................................          349             (25)                --              --                 324
Foreign exchange effect on cash and cash
 equivalents..................................           --              --                (89)             --                 (89)
                                                     ------         -------           --------           -----            --------
Net increase (decrease) in cash and cash
 equivalents..................................          (14)          9,220             (5,741)            109               3,574
Cash and cash equivalents, beginning of
 period.......................................          152           5,132             13,035             (46)             18,273
Cash and cash equivalents, end of period......       ------         -------           --------           -----            --------
                                                     $  138         $14,352           $  7,294           $  63            $ 21,847
                                                     ======         =======           ========           =====            ========
</TABLE>

<TABLE>
<CAPTION>
                                                                       CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                                                                     FOR THE YEAR ENDED DECEMBER 31, 1999 (PREDECESSOR)
                                                   --------------------------------------------------------------------------------
                                                                U.S. GUARANTOR      NON-GUARANTOR
                                                     PARENT      SUBSIDIARIES       SUBSIDIARIES     ELIMINATIONS      CONSOLIDATED
                                                   ----------   --------------      -------------    ------------      ------------
<S>                                                <C>             <C>                <C>               <C>              <C>
Net cash provided by (used in) operating
 activities...................................     $    (370)      $  12,082          $  4,132          $  (37)          $ 15,807
Cash flows used in investing activities:
Payments for acquisitions, net of cash
 acquired                                            (82,759)             --                --              --            (82,759)
Notes receivable..............................         1,459              --                --              --              1,459
Proceeds from sale of property, plant and
 equipment....................................            --             158                --              --                158
Purchases of property, plant and equipment....            --          (9,340)           (3,024)             --            (12,364)
                                                   ---------       ---------          --------          ------           --------
Net cash used in investing activities.........       (81,300)         (9,182)           (3,024)             --            (93,506)
Cash flows provided by (used in) financing
 activities:
Issuance of common stock, net of expenses.....         1,799              --                --              --              1,799
Advances under line of credit.................         8,182              --                --              --              8,182
Repayments of line of credit..................           (21)             --                --              --                (21)
Advances under debt obligations...............        71,778             769             6,783            (129)            79,201
Principal payments on debt obligations........            --         (11,394)           (1,881)             --            (13,275)
                                                   ---------       ---------          --------          ------           --------
Net cash provided by (used in) financing
 activities...................................        81,738         (10,625)            4,902            (129)            75,886
Foreign exchange effect on cash and cash
 equivalents..................................            --              --                59              --                 59
Net increase in cash and cash equivalents.....     ---------       ---------          --------          ------           --------
                                                          68          (7,725)            6,069            (166)            (1,754)
Cash and cash equivalents, beginning of period            84          12,857             6,966             120             20,027
                                                   ---------       ---------          --------          ------           --------
Cash and cash equivalents, end of period......     $     152       $   5,132          $ 13,035          $  (46)          $ 18,273
                                                   =========       =========          ========          ======           ========
</TABLE>


                                       81
<PAGE>

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

ALLOWANCE FOR DOUBTFUL ACCOUNTS:

<TABLE>
<CAPTION>
                                                                        THERMALLOY
                                                   BALANCE AT            RESERVES                                     BALANCE AT
                                                BEGINNING OF YEAR        ACQUIRED       PROVISIONS     WRITE-OFFS     END OF YEAR
                                                -----------------       ----------      ----------     ----------     -----------
<S>                                                 <C>                   <C>             <C>           <C>             <C>
 2001                                               $ 3,093               $  --           $1,061        $   (838)       $ 3,316
 2000                                               $ 2,182               $  --           $2,082        $ (1,171)       $ 3,093
 1999                                               $   921               $ 755           $  692        $   (186)       $ 2,182
</TABLE>

MANCHESTER RESTRUCTURING RESERVES:

<TABLE>
<CAPTION>
                                    RESERVE BALANCE,       CHARGES TO EXPENSE          CHARGES AGAINST THE       RESERVE BALANCE,
          DESCRIPTION               DECEMBER 31, 1999          OR (INCOME)                  RESERVES             DECEMBER 31, 2000
          -----------               -----------------      ------------------          -------------------       -----------------
<S>                                      <C>                     <C>                        <C>                       <C>
Lease terminations and
 leasehold improvements reserve          $  203                     --                         (203)                     --
                                         ------                    ---                       ------                    ----

  Total                                  $  203                    $--                       $ (203)                   $ --
                                         ======                    ===                       ======                    ====
</TABLE>

<TABLE>
<CAPTION>
                                     RESERVE BALANCE       CHARGES TO EXPENSE         CHARGES AGAINST THE       RESERVE BALANCE,
          DESCRIPTION                JANUARY 1, 1999           OR (INCOME)                 RESERVES             DECEMBER 31, 1999
          -----------               -----------------      ------------------         -------------------       -----------------

<S>                                     <C>                       <C>                      <C>                       <C>
Surplus equipment                       $ 2,823                   $(504)                   $ (2,319)                 $   --

Purchase commitments                        691                     (12)                       (679)                     --

Lease terminations and
leasehold
  improvements reserve                      328                     181                        (306)                    203

Employee separation                         327                    (295)                        (32)                     --
                                        -------                   -----                    --------                  ------

Total                                   $ 4,169                   $(630)                   $ (3,336)                 $  203
                                        =======                   =====                    ========                  ======
</TABLE>

THERMALLOY RESTRUCTURING RESERVES:

<TABLE>
<CAPTION>

                                     RESERVE BALANCE,        REDUCTIONS OF                 PAYMENTS OF            RESERVE BALANCE,
          DESCRIPTION                  JANUARY 1, 2001          GOODWILL               RESTRUCTURING COSTS        DECEMBER 31, 2001
          -----------               -----------------      ------------------          -------------------        -----------------

<S>                                     <C>                     <C>                        <C>                       <C>
Employee separation                     $  493                  $  --                      $  (354)                  $  139

Lease terminations                         735                   (284)                        (150)                     301
                                        ------                  ------                     -------                   ------

Total                                   $1,228                  $(284)                     $  (504)                  $  440
                                        ======                  ======                     =======                   ======

</TABLE>

<TABLE>
<CAPTION>
                                     RESERVE BALANCE,                                     PAYMENTS OF            RESERVE BALANCE,
          DESCRIPTION                JANUARY 1, 2000       CHARGES TO GOODWILL        RESTRUCTURING COSTS        DECEMBER 31, 2000
          -----------               -----------------      -------------------        -------------------        -----------------

<S>                                   <C>                       <C>                        <C>                       <C>
Employee separation                   $1,460                    $ 639                      $(1,606)                  $  493

Lease terminations                       670                      160                          (95)                     735
                                      ------                    -----                      -------                   ------

Total                                 $2,130                    $ 799                      $(1,701)                  $1,228
                                      ======                    =====                      =======                   ======
</TABLE>

<TABLE>
<CAPTION>
                                     RESERVE BALANCE,                                     PAYMENTS OF            RESERVE BALANCE,
          DESCRIPTION                JANUARY 1, 1999       CHARGES TO GOODWILL        RESTRUCTURING COSTS        DECEMBER 31, 1999
          -----------               -----------------      -------------------        -------------------        -----------------

<S>                                   <C>                     <C>                           <C>                     <C>
Employee separation                   $ --                    $ 1,460                       $ --                    $1,460

Lease terminations                      --                        670                         --                       670
                                      ----                    -------                       ----                    ------

Total                                 $ --                    $ 2,130                       $ --                    $2,130
                                      ====                    =======                       ====                    ======
</TABLE>


                                       82

<PAGE>
WILLIS STEIN RESTRUCTURING RESERVES:

<TABLE>
<CAPTION>
                                     RESERVE BALANCE,                                    PAYMENTS OF             RESERVE BALANCE,
          DESCRIPTION                JANUARY 1, 2001       CHARGES TO GOODWILL        RESTRUCTURING COSTS        DECEMBER 31, 2001
          -----------               -----------------      -------------------        -------------------        -----------------

<S>                                      <C>                    <C>                        <C>                        <C>
Employee separation                      $ 34                   $  --                      $  (34)                    $ --

Lease terminations                         12                      --                         (12)                      --
                                         ----                   -----                      ------                     ----

Total                                    $ 46                   $  --                      $  (46)                    $ --
                                         ====                   =====                      ======                     ====
</TABLE>


<TABLE>
<CAPTION>
                                     RESERVE BALANCE,                                    PAYMENTS OF             RESERVE BALANCE,
           DESCRIPTION               JANUARY 1, 2000       CHARGES TO GOODWILL        RESTRUCTURING COSTS        DECEMBER 31, 2000
          -----------               -----------------      -------------------        -------------------        -----------------

<S>                                    <C>                      <C>                        <C>                        <C>
Employee separation                      $ --                    $ 454                      $ (420)                    $ 34

Lease terminations                         --                      262                        (250)                      12
                                         ----                    -----                      ------                     ----

Total                                    $ --                    $ 716                      $ (670)                    $ 46
                                         ====                    =====                      ======                     ====
</TABLE>


Q1 2001 RESTRUCTURING RESERVES:

<TABLE>
<CAPTION>

                                                                        INCREASES TO
                                                                          RESERVES
                                                                         CHARGED TO
                                                                       RESTRUCTURING            CHARGES AGAINST       RESTRUCTURING
                                                                          FOR THE               RESERVES FOR THE         RESERVES
                                                RESTRUCTURING            YEAR ENDED                YEAR ENDED             BALANCE
                                             RESERVES BALANCE AT        DECEMBER 31,              DECEMBER 31,          AT DECEMBER
                                               JANUARY 1, 2001              2001                      2001               31, 2001
                                             -------------------      ----------------          ----------------        ------------
<S>                                                <C>                  <C>                        <C>                    <C>
Employee separation                                 $ --                 $ 2,754                    $ (2,398)              $   356
Prepaid rent write-off                                --                   3,819                      (3,819)                   --
Fixed asset reserve                                   --                   5,500                      (5,500)                   --
                                                    ----                 -------                    --------               -------
Total                                               $ --                 $12,073                    $(11,717)              $   356
                                                    ====                 =======                    ========               =======

</TABLE>

Q2 2001 RESTRUCTURING RESERVES:

<TABLE>
<CAPTION>
                                                                        INCREASES TO
                                                                          RESERVES
                                                                         CHARGED TO
                                                                       RESTRUCTURING            CHARGES AGAINST       RESTRUCTURING
                                                                          FOR THE               RESERVES FOR THE         RESERVES
                                                RESTRUCTURING            YEAR ENDED                YEAR ENDED             BALANCE
                                             RESERVES BALANCE AT        DECEMBER 31,              DECEMBER 31,          AT DECEMBER
                                               JANUARY 1, 2001              2001                      2001               31, 2001
                                             -------------------      ----------------          ----------------        ------------
<S>                                               <C>                   <C>                     <C>                      <C>
Employee separation                               $ --                     $ 356                    $ (356)                $ --
Lease terminations and
  leasehold improvements  reserve                   --                        52                       (52)                  --
                                                  ----                     -----                    ------                 ----
Total                                             $ --                     $ 408                    $ (408)                $ --
                                                  ====                     =====                    ======                 ====
</TABLE>



                                       83

<PAGE>


Q3 2001 RESTRUCTURING RESERVES:

<TABLE>
<CAPTION>
                                                                        INCREASES TO
                                                                          RESERVES
                                                                         CHARGED TO
                                                                       RESTRUCTURING            CHARGES AGAINST       RESTRUCTURING
                                                                          FOR THE               RESERVES FOR THE         RESERVES
                                                RESTRUCTURING            YEAR ENDED                YEAR ENDED             BALANCE
                                             RESERVES BALANCE AT        DECEMBER 31,              DECEMBER 31,          AT DECEMBER
                                               JANUARY 1, 2001              2001                      2001               31, 2001
                                             -------------------      ----------------          ----------------        ------------
<S>                                                 <C>                    <C>                     <C>                  <C>
Employee separation                              $ --                    $   990                   $ (789)                $   201
Fixed asset reserve                                --                        232                     (232)                     --
                                                 ----                    -------                   -------                -------
Total                                            $ --                    $ 1,222                   $(1,021)               $   201
                                                 ====                    =======                   =======                =======
</TABLE>

Q4 2001 RESTRUCTURING RESERVES:

<TABLE>
<CAPTION>
                                                                        INCREASES TO
                                                                          RESERVES
                                                                         CHARGED TO
                                                                       RESTRUCTURING            CHARGES AGAINST       RESTRUCTURING
                                                                          FOR THE               RESERVES FOR THE         RESERVES
                                                RESTRUCTURING            YEAR ENDED                YEAR ENDED             BALANCE
                                             RESERVES BALANCE AT        DECEMBER 31,              DECEMBER 31,          AT DECEMBER
                                               JANUARY 1, 2001              2001                      2001               31, 2001
                                             -------------------      ----------------          ----------------        ------------
<S>                                               <C>                    <C>                     <C>                  <C>
Employee separation                                 $ --                 $ 1,680                     $ (503)               $ 1,177
Fixed asset reserve                                   --                   1,393                         --                $ 1,393
Lease obligations                                     --                     241                        (28)                   213
                                                    ----                 -------                     -------               -------
Total                                               $ --                 $ 3,314                     $ (531)               $ 2,783
                                                    ====                 =======                     ======                =======

</TABLE>



                                       84