<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, 2003

                                       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.)

ONE 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 shorter 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 [ ] No [X](1)

         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]

         Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act).

                                 Yes [ ] No [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, 2004 was 1,018.87 shares of class A, 1,078.87 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) Although the Company has not been subject to such filing requirements for
the past 90 days, it has filed all reports required to be filed by Section 15(d)
of the Securities Exchange Act (the "Act") of 1934 during the preceding twelve
months. Pursuant to Section 15(d) of the Act, the Company's duty to file reports
is automatically suspended as a result of having fewer than 300 holders of
record of each class of its debt securities outstanding, as of January 1, 2003,
but the Company agreed under the terms of certain long-term debt covenants to
continue these filings.

<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 dynamics ("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 for complex computer
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 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, Bombardier, 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 ("Merger") with Heat
Holdings Corp., a corporation newly formed by Willis Stein & Partners II, L.P.
(together with affiliated funds, "Willis Stein") and other investors
(collectively the "Purchaser"). 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 includes Applied Thermal
Technologies, Inc.'s thermal design, validation and consulting services; and
Fluent.

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.

         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.

         The CFD software market, which has been growing rapidly over the past
decade, continued to grow in 2003, although at a reduced rate. We believe that,
through Fluent, we have approximately 35-40% of the developed market for CFD
software applications.

                                       3
<PAGE>

         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.

         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

                                       4
<PAGE>

         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 30 years of experience in the area of fluid flows and thermal
management and H. Ferit Boysan, president of our CFD software business, has 23
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

         Despite current economic conditions, 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.

         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, licensing of externally developed technology, 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 180 Ph.D.s and 267 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.

                                       5
<PAGE>

         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 major customers for thermal
management products and services by market sector:

<TABLE>
<CAPTION>
                            MARKET                                                    CUSTOMERS
                            ------                                                    ---------
<S>                                                                 <C>                             <C>
Computers........................................................   Intel Corporation               Apple Computer, Inc.
                                                                    Dell Computer Corp              Hewlett-Packard/ Compaq
                                                                    EMC                             IBM
                                                                    Compal                          Quanta
                                                                    Samsung

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

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

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

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

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

         One customer represented approximately 10.2% of our thermal management
net sales during 2003. No customer represented more than 10% of our thermal
management net sales in 2002 or 2001.

                                       6
<PAGE>

         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:

<TABLE>
<CAPTION>
                             MARKET                                                      CUSTOMERS
                             ------                                                      ---------
<S>                                                                   <C>                             <C>
Aerospace..........................................................   Boeing                          Lockheed Martin
                                                                      Rolls Royce Plc                 NASA
                                                                      Honeywell International

Automotive.........................................................   Daimler Chrysler                Visteon
                                                                      Ford Motor Company              Ferrari
                                                                      General Motors

Chemical Process...................................................   L'Air Liquide                   3M
                                                                      Dow Chemical Co.                Air Products
                                                                      DuPont

Electronics........................................................   Fujitsu                         IBM
                                                                      Hewlett-Packard/Compaq          Motorola

Consumer Products..................................................   Proctor & Gamble                Philip Morris
                                                                      Corning Inc.

Power Generation...................................................   ABB                             Siemens Westinghouse
                                                                      Alstom
</TABLE>

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.

         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 and hardware prototyping and testing
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            These products are typically made          -    Removes potentially damaging
Spreaders                                      from  aluminum extrusions, stampings,           heat from microprocessors and
                                               castings or multi-technology                    integrated circuits in electronics
                                               assemblies. These products have high            applications
                                               surface area to volume 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          -    Increases the effectiveness of
Accessories                                    clips,  tapes, adhesives, tabs and              heat sinks
                                               similar devices which are used to          -    Promotes a highly efficient
                                               attach the heat sink to the                     thermal transfer between the
                                               semiconductor or integrated circuit             microprocessor or integrated circuit
                                               device and/or to the customer's                 and heat sink
                                               printed circuit board or system            -    Reduces the cost of the
                                               chassis. Interface materials include            customer's installation and repair
                                               greases, silicon pads and other            -    Transfers heat from the
                                               materials which have desirable                  component being cooled to the heat
                                               thermal and electrical properties. We           sink
                                               purchase most of these materials on a
                                               private label basis from a number of
                                               suppliers.

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

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

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

Fidap                                        Fidap is general purpose CFD software      -    Offers complete mesh flexibility
                                             for the simulation of incompressible       -    Provides a wide range of
                                             or compressible flows, including                physical models, with particular
                                             prediction of liquid-free surfaces,             strength for application in the
                                             non-Newtonion rheology and advanced             materials processing, biomedical,
                                             radiation modeling.                             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       -    Reduces design costs
                                             flow and thermal management in             -    Reduces the time-to-market of
                                             electronics design.                             high-performance electronic systems

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

GAMBIT                                       GAMBIT supports a single user              -    Reduces the time to create a CFD
                                             interface for geometry creation and             model
                                             meshing. Different CFD problems            -    Allows users to import
                                             require different mesh types, and               geometries created under other
                                             GAMBIT brings together all of                   CAD/CAE packages into the Fluent
                                             Fluent's options in one environment.            suite of software products.
                                                                                        -    Enables users to automatically
                                                                                             create unstructured meshes for
                                                                                             extremely complex geometries
                                                                                        -    Provides a concise and powerful
                                                                                             set of solid modeling-based geometry
                                                                                             tools with both geometry and
                                                                                             "clean-up" functions

MixSim                                       MixSim is a fully interactive,             -    Reduces the time to create a CFD
                                             object-based CFD software tool                  model: The geometry is interactively
                                             specifically designed to analyze the            assembled from application-specific
                                             fluid flow and blending in stirred tank         objects (impeller library); the mesh
                                             reactors. Based on, and fully compatible        and FLUENT solver case setup is
                                             with FLUENT and GAMBIT, it fully                created fully automatic by the
                                             automates and thus simplifies their             software
                                             application to stirred tank reactors       -    Flexible interface for the
                                             for both CFD beginners and expert users.        addition of new objects (e.g.
                                                                                             arbitrary new agitators) by the
                                                                                             user, including import of CAD files
                                                                                             Application-specific results
                                                                                             examination and evaluation
</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 325 sales, support and marketing personnel.

                                       9
<PAGE>

TECHNOLOGY

         We believe that technology leadership is essential to our growth
strategy and have focused our approximately 180 Ph.D.s and 267 engineers on the
development of technology in two areas:

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; and adhesive and interface systems that have a high degree
of thermal conductivity.

                                       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 a
purchasing commitment to a key supplier of up to 24 months. In return, this
supplier commits to maintaining local inventory and to reserving run-time on
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 throughout the world. 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 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 30 days
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 or with annual maintenance agreements. In recent years, greater than
80% of our annual software license revenue was renewed in the following year.

EMPLOYEES

         As of December 31, 2003, we had a total of 1,837 employees including
approximately 375 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.

         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 any 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 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. 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, in
developing and designing new products, semiconductor manufacturers and their
customers 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 has been in an economic slump. While there
were moderate economic improvements in the industry during 2003, this situation
continues to adversely affect our results of operations and could possibly
adversely affect our results of operations in 2004.

         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, 2003,
2002 and 2001, 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 decides 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 billings 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 billings are lowest during
the second and third quarters of the fiscal year, which ends in December.

                                       14
<PAGE>

         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.

         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 approximately 140,000 square feet of manufacturing space. We 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 and Europe.

                                       15
<PAGE>

         As of the date of this filing, there has been significant speculation
that the People's Republic of China may elect to adjust the exchange rate of the
Chinese Yuan against the U.S. Dollar. While there have been no official
decisions made, or timetables established, current press reports indicate that
some form of revaluation is likely in 2004. Currently, the Chinese Yuan has a
fixed exchange rate against the U.S. dollar. Should China adjust the exchange
rate of the Yuan, or allow the value of the Yuan to float, it is possible that
this change could negatively impact our operation in China by making it more
expensive for us to do business there. A revaluation of the Yuan could also
result in foreign currency exchange gains or losses within our statement of
operations in 2004 or future periods. It is impossible, based on current facts
or circumstances, to estimate the impact on our business in 2004 or future
periods of a revaluation of the Chinese Yuan.

         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.

         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:

<TABLE>
<CAPTION>
                                                                     AS OF DECEMBER 31,
                                                                            2003
                                                                   ----------------------
                                                                   (DOLLARS IN THOUSANDS)
<S>                                                                <C>
Total debt (including current portion)......................             $   138,810
Stockholders' deficit.......................................                 (75,331)
Debt to stockholders' equity................................                     N/A
</TABLE>

                                       16
<PAGE>

         Our substantial indebtedness 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 current senior credit facility (the "Loan and
                  Security Agreement");

         -        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 loan and security agreement also permits additional
borrowing. All of the borrowings under our Loan and Security Agreement 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
Loan and Security Agreement, 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 Discussion and Analysis of
Financial Condition and Results of Operations" for a description of our Loan and
Security Agreement 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 Loan and Security Agreement, 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 Loan and Security Agreement, and other future debt
may limit our ability to pursue any of these alternatives.

                                       17
<PAGE>

         OUR LOAN AND SECURITY AGREEMENT AND THE INDENTURE IMPOSE OPERATIONAL
         AND FINANCIAL RESTRICTIONS ON US.

         Our Loan and Security Agreement 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 Loan and Security Agreement 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 Loan and Security Agreement may be affected by
changes in our business condition or results of operations, adverse regulatory
developments or other events beyond our control.

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 Loan and Security Agreement.

                                       18
<PAGE>

         As of December 31, 2003, we had $16.7 million of senior debt
outstanding under the Loan and Security Agreement, all of which was secured
debt. The indenture limits, and in some (but not all) instances prohibits, the
incurrence of additional debt.

         In addition, all payments on the senior subordinated notes will be
blocked in the event of a payment default under the Loan and Security Agreement
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 Loan
and Security Agreement 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 Loan and Security Agreement. Any future debt that we incur may
also contain restrictions on repurchases in the event of a change of control or
similar event.

                                       19
<PAGE>

         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.

         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.

                                       20
<PAGE>

ITEM 2. PROPERTIES

         Aavid Thermalloy has a total of approximately 480,000 square feet of
manufacturing space with locations in Laconia, New Hampshire; Monterrey, Mexico;
the United Kingdom; Italy; China; and Toronto, Canada. We employ a broad range
of aluminum and copper fabrication and processing capabilities. Manufacturing
operations consist of cutting, stamping, machining, joining, brazing, soldering,
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 233,000 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.

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....................................                  Aavid Thermalloy -Sales and Marketing
Laconia, NH...................................                  Aavid Thermalloy-Manufacturing
Lebanon, NH...................................                  Fluent-Software Development, Sales and Marketing
Santa Clara, CA...............................                  Fluent -- Software Sales and Marketing; Applied Thermal
                                                                Technologies-Research and Development and Consulting
</TABLE>

<TABLE>
<CAPTION>
INTERNATIONAL LOCATIONS                                         PRINCIPAL ACTIVITY
-----------------------                                         ------------------
<S>                                                             <C>
Toronto, Canada...............................                  Aavid Thermalloy-Manufacturing
Monterrey, Mexico.............................                  Aavid Thermalloy-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
Guang Dong Prov., PRC.........................                  Aavid Thermalloy-Manufacturing
Singapore.....................................                  Aavid Thermalloy-Sales and Marketing
Taipei, Taiwan................................                  Aavid Thermalloy-Sales and Marketing
Pune, India...................................                  Fluent-Software Development, Sales and Marketing;
                                                                Applied Thermal Technologies-Research and Development and Consulting
Tokyo, Japan..................................                  Fluent-Software Development, Sales and Marketing
</TABLE>

ITEM 3. LEGAL PROCEEDINGS

         We are involved in various 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.

                                       21
<PAGE>

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

None

                                     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 Loan and
Security Agreement 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 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
                                                      JANUARY 1,     THE PERIOD
                                                         2000       FEBRUARY 2,
                                    YEAR ENDED         THROUGH        THROUGH        YEAR ENDED       YEAR ENDED       YEAR ENDED
                                   DECEMBER 31,      FEBRUARY 1,    DECEMBER 31,    DECEMBER 31,     DECEMBER 31,      DECEMBER 31
                                    1999(1)(2)         2000(1)        2000(1)         2001(1)           2002(1)          2003(1)
                                  -------------     -------------  -------------    -------------   -------------     -------------
                                  (PREDECESSOR)     (PREDECESSOR)  (THE COMPANY)    (THE COMPANY)   (THE COMPANY)     (THE COMPANY)
<S>                               <C>               <C>            <C>              <C>             <C>               <C>
STATEMENT OF OPERATIONS DATA:
(AMOUNTS IN THOUSANDS)
Net sales                          $   214,243        $  22,437     $   253,414     $    170,892      $  161,942       $  188,167
Cost of goods sold                     138,558           14,879         166,801          124,000          88,532           97,061
                                   -----------        ---------     -----------     ------------      ----------       ----------
   Gross profit                         75,685            7,558          86,613           46,892          73,410           91,106
Selling, general and
   administrative expenses              51,970            4,952          92,849           92,742          58,835           62,565
Research and development                 7,528              631           8,495           10,775          12,492           15,004
Intangible asset impairment
   charge(3)                                 -                -               -          115,210               -                -
Restructuring charge (credit)(4)          (630)               -               -           16,885             858              (90)
Loss on sale of division(5)                  -                -               -            4,322               -                -
Acquired in-process research
   and development(6)                        -                -          15,000                -               -                -
                                   -----------        ---------     -----------     ------------      ----------       ---------
   Income (loss) from
     continuing operations              16,817            1,975         (29,731)        (193,042)          1,225           13,627
Interest expense, net                   (1,629)            (816)        (23,136)         (22,217)        (20,141)         (18,137)
Other income (expense), net                218               68          (1,012)           1,098             453            2,483
                                   -----------        ---------     -----------     ------------      ----------       ----------
   Income (loss) from continuing
    operations before income
    taxes and minority interest         15,406            1,227         (53,879)        (214,161)        (18,463)          (2,027)
Benefit (provision) for income
    taxes                               (8,852)            (533)             (5)          10,959            (817)          (1,627)
                                   -----------        ---------     -----------     ------------      ----------       ----------
   Income (loss) from continuing
    operations before minority
    interest                             6,554              694         (53,884)        (203,202)        (19,280)          (3,654)
Minority interest                          132                -           1,519            3,294              -                -
                                   -----------        ---------     -----------     ------------      ----------       ---------
   Income (loss) from
     continuing operations               6,686              694         (52,365)        (199,908)        (19,280)          (3,654)
Income (loss) from discontinued
    operations, net (including
    gain on disposal of $7,082
    in 2002)(7)                              -              (69)          1,040            1,445           6,725               --
                                   -----------        ---------     -----------     ------------      ----------       ----------
Net income (loss)(8)               $     6,686        $     625     $   (51,325)    $   (198,463)     $  (12,555)      $   (3,654)
                                   ===========        =========     ===========     ============      ==========       ==========
BALANCE SHEET DATA AT YEAR END:
Working capital                    $    47,050                      $    37,359     $   (152,980)     $  (19,359)      $  (18,276)
Total assets                           228,952                          386,288          175,294         139,052          145,693
Total long term debt, including         88,945                          204,002          175,832         139,450          138,810
   current portion
Stockholders' (deficit) equity          79,568                          100,160          (70,888)        (70,416)         (75,331)
</TABLE>

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, 2003, 2002, 2001 and 2000, and of the
         Predecessor as of December 31, 1999, and the consolidated results of
         operations of the Company for the years ended December 31, 2003, 2002
         and 2001 and the period February 2, 2000 through December 31, 2000 and
         of the Predecessor for the period from January 1, 2000 to February 1,
         2000 and the year ended December 31, 1999. 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 years ended December 31, 2003, 2002 and 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 credit in 1999 of $630 related 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 $16,885 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. Restructuring charges of $858 in 2002 were
         recorded in the fourth quarter of 2002 in connection with the reduction
         in workforce and cessation of manufacturing activities in Singapore and
         Malaysia. Restructuring credit of $90 in 2003 consists of excess
         accruals originally recorded in Singapore that were reversed once
         actual restructuring activities were concluded in 2003.

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

                                       23
<PAGE>

(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)      On July 17, 2002, the Company sold all of the outstanding shares of
         Aavid Thermalloy Holdings, GmbH, which in turn owned approximately
         89.5% of the outstanding shares of curamik electronics GmbH, pursuant
         to a Share Sale and Purchase Agreement between the Company and
         Electrovac Fabrikation Electrotechnischer Spezialartikel GesmbH dated
         July 10, 2002 (the "Sale Agreement"). The sale of Curamik and its
         related operating results have been excluded from income (losses) from
         continuing operations and is classified as a discontinued operation for
         all periods presented, in accordance with the requirements of Statement
         of Financial Accounting Standards (SFAS) No. 144 "Accounting for
         Impairment or Disposal of Long-Lived Assets".

(8)      Because the Company's common stock is not publicly traded, earnings
         per share information is not presented.

                                       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 AND EXECUTIVE SUMMARY

         We are a leading global provider of thermal management solutions for
electronic products and the leading developer and marketer of CFD software.
Prior to February 2, 2000 we were a publicly traded company, listed on the
NASDAQ National Market under the trading symbol "AATT". Since February 2, 2000,
we have been a privately held company, owned by Heat Holdings Corp., a
corporation formed by Willis Stein and other investors. Our acquisition by
Willis Stein was accounted for under the purchase method of accounting and was
financed through a combination of 12-3/4% senior subordinated notes and senior
bank debt.

         We are organized as two operating units 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. These two business units, while complementary,
are quite different from each other and as a result, Aavid Thermalloy and Fluent
will be discussed separately when analyzing performance and industry trends.

         Aavid Thermalloy is a global manufacturing business. Revenues are
generated through the sale of fabricated and purchased thermal management
products and components. Our thermal management products are used in a wide
variety of computer, 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
primary raw materials include extruded aluminum and copper and our business can
be greatly affected by changes in the prices of aluminum and copper. We have
manufacturing operations in the U.S., Canada, Mexico, U.K., Italy and China.
Additionally, we have several other sales offices throughout the world. The
electronics industry in which Aavid Thermalloy operates is very cost
competitive. We compete in this market by manufacturing many of our products in
low cost regions, such as China and Mexico. We also compete by offering state of
the art engineering and design services to our customers to assist them in
solving difficult and complex thermal management problems. These design services
are carried out or assisted through our specialized engineering and design
consulting offices in New Hampshire, California and India. We partner very
closely with many of our customers in the design phase of product development in
order to assist in prototype development and to develop relationships that allow
us to maintain a strong position as a primary supplier for new products. The
operating environment for Aavid Thermalloy over the past several years has been
very difficult due to the global economic slowdown experienced by the
electronics industry. We have adjusted to the slowdown through significant cost
cutting and consolidation of manufacturing operations that have occurred over
the period of 2000 through 2002. By the end of 2002, we had completed our
restructuring efforts and achieved an appropriate cost structure to support the
current market environment. In 2003, Aavid Thermalloy achieved revenue growth of
over 13% when compared with 2002 while keeping our administrative cost structure
flat, allowing us to significantly improve cash flows.

         Fluent's 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. Fluent's
software is used in a variety of industries including, among others, the
automotive, aerospace, chemical processing, power generation, material
processing, electronics and HVAC industries. Fluent develops and markets their
CFD software products worldwide and currently maintains sales, support and
design centers in North America, Europe and Asia. Fluent markets their product
using two different licensing options. Annual licenses, which make up the
majority of the overall licenses sold, allow the user to use the software and
obtain support and other services for a period of one year. Each year the entire
license must be renewed or the software can no

                                       25
<PAGE>

longer be used. Perpetual licenses allow the customer to use the software for
life, however, in order to continue to receive support, upgrades etc, the
customer must purchase an annual maintenance contract. Revenue from annual
licenses (and the bundled maintenance) is recognized ratably over the term of
the license. However, in most cases, the entire fee for the license and
maintenance is billed and collected at the beginning of the contract period.
Software license revenue for perpetual licenses is recognized immediately upon
the signing of the contract and delivery of the software, while the related
maintenance revenue is recognized ratably over the term of the maintenance
agreement. Similar to the annual licenses, the entire perpetual license and
related maintenance contracts are billed and collected at the beginning of the
contract term. Historically, Fluent has achieved an annual contract renewal rate
of greater than 80% and overall annual revenue growth of better than 14%. The
nature of Fluent's products allow for a very consistent recurring revenue base
and associated cash flows. Fluent is one of the larger companies within the CFD
market space. Fluent has achieved consistent growth by penetrating new
industries and also by achieving greater penetration within companies in
existing industries. In the past, CFD software was a generalized software that
required complex customization to be adapted for use within a particular
industry. As a result, the primary user base was limited to upper level PhD
caliber engineers. In the past few years, Fluent has worked to develop industry
specific tools that come with many pre-loaded templates that simplify the
overall use of the CFD software. This has opened up the use of CFD software to a
much broader range of customer employee skill sets and therefore has allowed
Fluent to sell more seat licenses per customer. This strategy is ultimately
leading to a much greater penetration of customer R&D departments.

         Both Fluent and Aavid Thermalloy have significant operations outside
the United States. As a result, financial performance can be affected by changes
in foreign currency exchange rates.

         As of the date of this filing, there has been significant speculation
that the People's Republic of China may elect to adjust the exchange rate of the
Chinese Yuan against the U.S. Dollar. While there have been no official
decisions made, or timetables established, current press reports indicate that
some form of revaluation is likely in 2004. Currently, the Chinese Yuan has a
fixed exchange rate against the U.S. dollar. Should China adjust the exchange
rate of the Yuan, or allow the value of the Yuan to float, it is possible that
this change could negatively impact our operation in China by making it more
expensive for us to do business there. A revaluation of the Yuan could also
result in foreign currency exchange gains or losses within our statement of
operations in 2004 or future periods. It is impossible, based on current facts
or circumstances, to estimate the impact on our business in 2004 or future
periods of a revaluation of the Chinese Yuan.

                                       26
<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.

<TABLE>
<CAPTION>
                                                                                             YEAR ENDED DECEMBER 31,
                                                                                             -----------------------
                                                                                          2001       2002       2003
                                                                                          ----       ----       ----
<S>                                                                                      <C>         <C>        <C>
Net sales.........................................................................        100.0%     100.0%     100.0%
Cost of goods sold................................................................         72.6       54.7       51.6
                                                                                         ------       ----       ----
  Gross profit....................................................................         27.4       45.3       48.4
Selling, general and administrative expenses......................................         54.3       36.3       33.2
Research and development..........................................................          6.3        7.7        8.0
Intangible asset impairment charge................................................         67.4          -          -
Restructuring charge..............................................................          9.9        0.5          -
Loss on sale of division..........................................................          2.5          -          -
Acquired in-process research and development charge...............................            -          -          -
                                                                                         ------       ----       ----
  Income (loss) from continuing operations........................................       (113.0)       0.8        7.2
Gain on extinguishment of debt....................................................          1.2          -          -
Interest expense, net.............................................................        (13.0)     (12.4)      (9.6)
Other income (expense), net.......................................................         (0.4)       0.2        1.3
                                                                                         ------       ----       ----
  Loss from continuing operations before income taxes and minority interest.......       (125.2)     (11.4)      (1.1)
Benefit (provision) for income taxes..............................................          6.4       (0.5)      (0.8)
                                                                                         ------       ----       ----
  Loss from continuing operations before minority interest........................       (118.8)     (11.9)      (1.9)
Minority interest in loss of consolidated subsidiaries............................          1.9          -          -
                                                                                         ------       ----       ----
  Loss from continuing operations.................................................       (116.9)     (11.9)      (1.9)
Income from discontinued operations, net..........................................          0.8        4.1          -
                                                                                         ------       ----       ----
   Net loss.......................................................................       (116.1)%     (7.8)%     (1.9)%
                                                                                         ======       ====       ====
</TABLE>

2003 COMPARED WITH 2002

<TABLE>
<CAPTION>
                                                                  YEAR ENDED
                                                                 DECEMBER 31,
                                                                 -----------
              NET SALES (DOLLARS IN MILLIONS)                  2002       2003     CHANGE
              -------------------------------                  ----       ----     ------
<S>                                                          <C>        <C>        <C>
Computer, Networking and Industrial Electronics.....         $   88.3   $  100.5    13.8%
Consulting and Design (Applied).....................              1.3        1.1   (15.4)%
                                                             --------   --------   -----

  Total Aavid Thermalloy............................             89.6      101.6    13.4%
  Total Fluent......................................             72.2       86.5    19.7%
  Total Enductive Solutions.........................              0.1        0.1       -
                                                             --------   --------    ----
  Total Aavid Thermal Technologies..................         $  161.9   $  188.2    16.2%
                                                             ========   ========   =====
</TABLE>

         Net sales for 2003 were $188.2 million, an increase of $26.3 million,
or 16.2%, compared with $161.9 million for 2002. The overall increase in sales
was a combination of increasing revenues at both Aavid Thermalloy and Fluent as
well as the benefit received due to the significant weakening of the U.S. Dollar
versus foreign currencies, including the Euro, British Pound, and Canadian
Dollar, that occurred over the course of 2003. Had 2003 revenues in local
currencies been translated at the exchange rates in effect during 2002, revenues
would have been $9.4 million dollars lower.

         Aavid Thermalloy's net sales were $101.6 million for 2003, an increase
of $12.0 million, or 13.4%, compared with $89.6 million for 2002. Excluding
foreign exchange rate fluctuations from year to year, the increase was primarily
the result of a moderate improvement in the semiconductor and electronics
industries in 2003, as well as an improvement in the Company's market share
position.

                                       27
<PAGE>

         Fluent's net sales were $86.5 million for 2003, an increase of $14.3
million, or 19.8%, over 2002 sales of $72.2 million. Excluding foreign exchange
rate fluctuations from year to year, the increase was primarily due to an
overall increase in sales across all of Fluent's offerings.

         International net sales (which include North American exports)
increased to 53.1% of net sales for the year ended December 31, 2003 as compared
with 50.3% for the year ended December 31, 2002.

         Our gross profit in 2003 was $91.1 million, an increase of $17.7
million, or 24.1% higher than 2002 gross profit of $73.4 million. Our gross
margin in 2003 was 48.4%, which compares with 45.3% in 2002. Aavid Thermalloy
saw a significant improvement in gross profit and gross margin in 2003 primarily
due to the restructuring activities that occurred over the prior two years.
Additionally, Fluent's revenue and gross profit continued to become a larger
percentage of the overall Company's revenue and gross profit in 2003. As
Fluent's gross margin tends to be much greater than the gross margin of Aavid
Thermalloy, the increase of Fluent as a percentage of overall Company revenues
also serves to increase the overall gross margin of the Company.

         Our selling, general and administrative expenses, excluding
amortization of intangibles, were $59.1 million, or 31.4% of sales for 2003, as
compared with $55.4 million, or 34.2% of net sales, for 2002. Aavid Thermalloy's
2003 S,G&A expenses were down $0.6 million from 2002 levels primarily due to a
Company wide effort to maintain costs consistent with 2002 levels. Fluent's 2003
S,G&A increased $5.9 million from 2002 levels as Fluent continued to enhance its
sales and support infrastructure to support its revenue growth. Lastly, the
Company's corporate offices experienced a $1.6 million decrease in
administrative costs primarily related to lower legal and accounting costs
incurred in 2003. In 2002, the Company incurred higher than normal legal and
accounting costs associated with debt refinancings, re-audits of prior years due
to the dissolution of the Company's previous audit firm, Arthur Andersen, and
foreign corporate reorganizations.

         Intangible asset amortization of $3.5 million was recorded in 2003
compared with $3.4 million recorded in 2002. This amortization is primarily
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
$15.0 million, or 8.0% of net sales, which compares with $12.5 million, or 7.7%
of net sales, in 2002. The increase in research and development expense was
primarily due to increased expenditures at Fluent in connection with the
development of next generation software.

         Our income from continuing operations in 2003 was $13.6 million, an
increase of $12.4 million over 2002 income from continuing operations of $1.2
million. Aavid Thermalloy, excluding intangible asset amortization and
restructuring costs had an operating loss of $0.2 million in 2003 compared with
an operating loss of $6.2 million in 2002. This improvement stemmed primarily
from the Aavid Thermalloy's ability to increase its sales and gross profit in
2003, while holding S,G&A costs in line with 2002 levels. Fluent's operating
income, excluding intangible asset amortization, increased to $17.7 million in
2003, compared with an operating income of $14.1 million in 2002. Fluent
experienced an increase in operating profit primarily due to its ability to hold
S,G&A growth to a lower rate than the growth rate seen in revenue and gross
profit.

         Our foreign exchange gains were $2.5 million in 2003 compared with $0.5
million in 2002. Foreign exchange gains increased primarily due to the
significant weakening of the U.S. Dollar versus the Euro, British Pound, and
Canadian Dollar that occurred over the course of 2003. Aavid Thermalloy and
Fluent have significant long-term inter-company notes due to certain U.S.
locations from certain foreign locations. These inter-company notes are the
primary contributor to the foreign exchange gains recorded in 2003. Should the
U.S. dollar strengthen in 2004, it is likely that the Company will realize
foreign currency losses associated with these inter-company notes.

         Our net interest charges were $18.1 million in 2003 compared with $20.1
million in 2002. This decrease in interest expense was a combination of lower
interest rates in 2003 and a small reduction in outstanding balances of senior
debt in 2003 compared with 2002.

                                       28
<PAGE>

         The Company recorded a tax provision of $1.6 million in 2003 compared
to a tax provision of $0.8 million in 2002. The Company incurred a tax provision
in 2003 despite having significant operating losses because of state tax
provisions on applicable state components of U.S. income and foreign tax
provisions 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.

         The Company's EBITDA, as defined in the Loan and Security Agreement
with the Company's senior lenders, was $35.7 million in 2003 compared with $22.0
million in 2002. EBITDA is a non-GAAP financial measure that the Company
believes is relevant to potential readers of our financial statements as it is
the primary measure of performance and compliance with financial covenants
utilized by our lenders. A reconciliation of net income to EBITDA is as follows:

<TABLE>
<CAPTION>
                                                       FOR THE YEAR ENDED
                                                       ------------------
                                                   DECEMBER 31,      DECEMBER 31,
             (DOLLARS IN MILLIONS)                    2003              2002
             ---------------------                 -----------       -----------
<S>                                                <C>               <C>
Net loss                                            $  (3.7)         $ (12.6)
Cash interest expense                                  16.7             18.1
Bond discount amortization                              0.7              0.6
Deferred financing fee amortization                     1.0              1.8
Provision for income taxes                              1.6              1.1
Depreciation                                            8.0              9.1
Intangible asset amortization                           3.5              3.8
Deferred revenue change during period (1)               7.8              5.8
Loss on disposal of fixed assets                        0.2              0.5
Restructuring charges(credits)                         (0.1)             0.9
Gain on sale of discontinued operation                   --             (7.1)
                                                    -------          -------
EBITDA                                              $  35.7          $  22.0
                                                    =======          =======
</TABLE>

(1)      Change in deferred revenue as defined in the Loan and Security
         Agreement represents the net change in deferred revenue found on the
         Company's balance sheet from the beginning of the applicable reporting
         period to the end of the applicable reporting period. An increase in
         deferred revenue during the period will create an addition to EBITDA. A
         decrease in deferred revenue during the period creates a subtraction
         from EBITDA, as defined.

2002 COMPARED WITH 2001

<TABLE>
<CAPTION>
                                                                  YEAR ENDED
                                                                 DECEMBER 31,
                                                                 ------------
        NET SALES (DOLLARS IN MILLIONS)                         2001       2002     CHANGE
        -------------------------------                         ----       ----     ------
<S>                                                          <C>        <C>        <C>
Computer, Networking and Industrial Electronics.....         $  118.3   $   88.3   (25.4)%
Consulting and Design (Applied).....................              1.8        1.3   (27.8)%
                                                             --------   --------   -----

  Total Aavid Thermalloy............................            120.1       89.6   (25.4)%
  Total Fluent......................................             50.8       72.2    42.1%
  Total Enductive Solutions.........................               --        0.1     N/A
                                                             --------   --------   -----
  Total Aavid Thermal Technologies..................         $  170.9   $  161.9    (5.3)%
                                                             ========   ========   =====
</TABLE>

         Net sales for 2002 were $161.9 million, a decrease of 5.3% compared
with $170.9 million for 2001. The overall decrease in sales stems from Aavid
Thermalloy and is primarily the result of the continued decline experienced by
the semiconductor and electronics industries during 2002. Fluent's sales
increased $21.4 million and consulting and design services decreased $0.5
million.

                                       29
<PAGE>

         Aavid Thermalloy's net sales were $89.6 million for 2002, a decrease of
$30.5 million, or 25.4%, compared with $120.1 million for 2001. This decrease,
as discussed above, was primarily the result of the significant decline
experienced by the semiconductor and electronics industries in 2002.

         Fluent's net sales were $72.2 million for 2002, an increase of $21.4
million, or 42.1%, over 2001 sales of $50.8 million. The majority of the
increase was due to the change in the way Fluent recognizes revenue, which
occurred in the first quarter of 2001 when it changed to a ratable recognition
methodology for software license revenue. Beginning in 2001, following the
guidance in AICPA Technical Practice Aid ("TPA") 5100.68, issued on December 29,
2000, all revenue related to an annual software contract is deferred and
recognized ratably over 12 months. Prior to 2001, Fluent had only deferred that
portion of the contract that the Company had determined related to post-contract
support (approximately 36%) and recognized the remaining 64% immediately upon
delivery of the software. This change caused a significant drop in revenue
during 2001 due to an increase in the amount of revenue deferred upon signing
and delivery of a software contract. Fluent's revenue in 2001 was significantly
less than what can be expected in future years due to the fact that, at January
1, 2001, there was not a significant "backlog" of deferred revenue already in
place to generate revenues in 2001 from contract signings that occurred in 2000.
In 2000, 64% of the contract was immediately recognized upon contract signing
and delivery and so was not available for recognition in 2001. Fluent's contract
bookings increased 14% in 2002 compared with 2001. The increase in bookings was
spread among all product offerings and was 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)
decreased to 50.3% of net sales for the year ended December 31, 2002 as compared
with 53.5% for the year ended December 31, 2001.

         Our gross profit in 2002 was $73.4 million, an increase of $26.5
million, or 56.6% higher than 2001 gross profit of $46.9 million. Our gross
margin in 2002 was 45.3%, which compares with 27.4% in 2001. Aavid Thermalloy
saw a significant improvement in gross profit and gross margin in 2002 primarily
due to the restructuring activities that occurred over the prior two years.
Additionally, Fluent's revenue and gross profit continued to become a larger
percentage of the overall Company's revenue and gross profit in 2002. As
Fluent's gross margin tends to be much greater than the gross margin of Aavid
Thermalloy, the increase of Fluent as a percentage of overall Company revenues
also serves to increase the overall gross margin of the Company.

         Our selling, general and administrative expenses, excluding
amortization of intangibles, were $55.4 million, or 34.2% of sales for 2002, as
compared with $58.5 million, or 34.2% of net sales, for 2001. The net decrease
in selling, general and administrative expenses in dollars resulted primarily
from S,G&A expense reductions at Aavid Thermalloy. Aavid Thermalloy's 2002 S,G&A
expenses were down $6.9 million from 2001 levels. Fluent's 2002 S,G&A increased
$3.1 million from 2001 levels as Fluent continued to enhance its sales and
support infrastructure to support its revenue growth. Lastly, the Company's
corporate offices also experienced a $0.6 million increase primarily related to
increased legal and accounting costs associated with a re-audit of fiscal 2001
financial statements, debt refinancings (indirectly) and foreign corporate
reorganizations. On a percentage of net sales basis, S,G&A in 2002 was flat at
34.2%.

         During the fourth quarter of 2002 the Company ceased manufacturing
operations in Malaysia and Singapore. In connection with these actions, the
Company recorded a restructuring charge within the statement of operations
during 2002. This restructuring charge totaled $0.9 million and included amounts
related to employee severance, facility costs/lease terminations and write-off
of fixed assets. Approximately 57 individuals were terminated under the
restructuring plan.

         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 524. In connection
with these actions, we recorded restructuring charges totaling $16.9 million
over the course of 2001. These restructuring charges consisted of the following
components: (1) severance of $5.6 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 $0.4 million.

         Intangible asset amortization of $3.4 million was recorded in 2002
compared with $34.2 million recorded in 2001, primarily related to intangible
assets established as part of the acquisition of Aavid by Heat Holdings Corp.
The decrease in 2002 is a result of the cessation of goodwill amortization
beginning in the first quarter of 2002 due to the adoption of SFAS 142.

                                       30
<PAGE>

         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
$12.5 million, or 7.7% of net sales, which compares with $10.8 million, or 6.3%
of net sales, in 2001. The increase in research and development expenses was
primarily due to increased expenditures at Fluent in connection with the
development of next generation software.

         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 expected 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.

                                       31
<PAGE>

         As of December 31, 2002 the majority of these projects had been
successfully completed.

         Our income from continuing operations in 2002 was $1.2 million, an
increase of $194.3 million from the operating loss in 2001 of $193.0 million.
The operating loss in 2001 includes an impairment write-off of intangible assets
of $115.2 million, restructuring charges of $16.9 million and loss on disposal
of a division (further discussed below) of $4.3 million. Aavid Thermalloy,
excluding intangible write-offs, loss on sale of division, amortization and
restructuring charges, had an operating loss of $6.2 million in 2002 compared
with an operating loss of $19.6 million in 2001. Fluent's operating income,
excluding intangible write-offs and amortization, increased to $14.1 million
compared with an operating loss of $1.2 million in 2001. Fluent's operating
margins increased primarily due to the significant increase in revenue as
discussed above that resulted from the change in revenue recognition methodology
that occurred in 2001.

         In the fourth quarter of 2001, the Company recognized a loss on
disposal of a division of $4.3 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 bore interest at 8%.
The note was fully repaid in January, 2003. The $2.5 million in cash proceeds
was remitted to our senior lending group as required by the amended and restated
credit agreement that was in effect at the time.

         Our net interest charges were $20.1 million in 2002 compared with $22.2
million in 2001. This decrease in interest expense was a combination of lower
interest rates in 2002, a full year's benefit from a reduction in the face
amount of our Senior Subordinated Notes that occurred in May, 2001 as well as a
reduction in outstanding balances of senior debt in 2002 compared with 2001.

         The Company recorded a tax provision of $0.8 million in 2002 compared
to a tax benefit of $11.0 million in 2001. The Company incurred a tax provision
in 2002 despite having significant operating losses because of state tax
provisions on applicable state components of U.S. income and foreign tax
provisions 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.

NEW ACCOUNTING PRONOUNCEMENTS

         In July 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities". The Statement requires companies to recognize costs associated with
exit or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Costs covered by the standard include
lease termination costs and certain employee severance costs that are associated
with a restructuring, branch closing, or other exit disposal activity. This
Statement is effective for exit or disposal activities initiated after December
31, 2002. SFAS No. 146 may affect the timing of the Company's recognition of
future exit or disposal costs, if any.

         In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others" ("FIN 45"). FIN 45 elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of the interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002 and the disclosure
requirements in this interpretation are effective for financial statements of
interim or annual periods ending after December 15, 2002. The adoption of FIN 45
is not expected to have a material impact on the Company's financial position or
results of operations.

         In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46") to clarify the conditions under which
assets, liabilities and activities of another entity should be consolidated into
the financial statements of a company. FIN 46 requires the consolidation of a
variable interest entity by a company that bears the majority of the risk of
loss from the variable interest entity's activities, is entitled to receive a
majority of the variable interest entity's residual returns, or both. The
provisions of FIN 46, required to be adopted in fiscal 2005, are not expected to
have a material impact on the Company's financial position or results of
operations.

                                       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

The Company recognizes revenue on its software license and maintenance
arrangements in accordance with Statement of Position ("SOP") 97-2, "Software
Revenue Recognition", and related pronouncements. The pronouncements provide
specific industry guidance and stipulate that revenue recognized from software
arrangements is to be allocated to each element of the arrangement based on
relative fair values of the elements, such as software products, upgrades,
enhancements, post-contract customer support ("PCS"), installation and training.

The Company licenses its software products under both perpetual and annual
license arrangements.

For perpetual license arrangements, software license revenue is recognized upon
the execution of the license arrangement 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. The Company
recognizes revenue from post-contract support, which consists of telephone
support and the right to software upgrades, ratably over the period of the PCS
arrangement.

For annual license arrangements, with unbundled PCS, since vendor specific
objective evidence ("VSOE") of value for the PCS does not exist, the Company
recognizes revenue for both the software license and the PCS ratably over the
12-month term of the license.

Training and consulting revenues are recognized upon completion of services or,
in certain instances, on the percentage-of-completion method. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined.

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

                                       33
<PAGE>

         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 2003 and
2002, 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 GOODWILL AND OTHER INTANGIBLE ASSETS

         We review goodwill and other intangible assets for impairment annually
and whenever events or changes in circumstances indicate the carrying value of
an asset may not be recoverable in accordance with the Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets."
The provisions of SFAS No. 142 require that a two-step impairment test be
performed on goodwill. In the first step, we compare the fair value of each
reporting unit to its carrying value. Our reporting units are consistent with
the reportable segments identified in Note M of the Consolidated Financial
Statements. We determine the fair value of our reporting units using a
combination of the income approach and the market approach. Under the income
approach, we calculate the fair value of a reporting unit based on the present
value of estimated future cash flows. Under the market approach, we estimate the
fair value based on market multiples of revenues or earnings for comparable
companies. If the fair value of the reporting unit exceeds the carrying value of
the net assets assigned to that unit, goodwill is not impaired and we are not
required to perform further testing. If the carrying value of the net assets
assigned to the reporting unit exceeds the fair value of the reporting unit,
then we must perform the second step in order to determine the implied fair
value of the reporting unit's goodwill and compare it to the carrying value of
the reporting unit's goodwill. If the carrying value of a reporting unit's
goodwill exceeds its implied fair value, then we must record an impairment loss
equal to the difference. SFAS No. 142 also requires that the fair value of the
purchased intangible assets with indefinite lives be estimated and compared to
the carrying value. We estimate the fair value of these intangible assets using
the income approach. We recognize an impairment loss when the estimated fair
value of the intangible asset is less than the carrying value.

         The income approach, which we use to estimate the fair value of our
reporting units and purchased intangible assets, is dependent on a number of
factors including estimates of future market growth and trends, forecasted
revenue and costs, expected periods the assets will be utilized, appropriate
discount rates and other variables. We base our fair value estimates on
assumptions we believe to be reasonable, but which are unpredictable and
inherently uncertain. Actual future results may differ from those estimates. In
addition, we make certain judgments about the selection of comparable companies
used in the market approach in valuing our reporting units, as well as certain
assumptions to allocate shared assets and liabilities to calculate the carrying
values for each of our reporting units.

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 senior credit facility. We intend to use amounts available under
our senior credit facility, future debt and equity financings and internally
generated funds to finance our working capital requirements, capital
expenditures and potential acquisitions.

         Net cash provided by operating activities for the year ended December
31, 2003 was $11.0 million compared to $3.5 million used in operating activities
for the year ended December 31, 2002. We had $18.3 million in negative working
capital as of December 31, 2003 compared with $19.4 million in negative working
capital at December 31, 2002. At December 31, 2003,

                                       34
<PAGE>

accounts receivable days sales outstanding ("DSO") were 64.4 days, compared with
66.3 days at December 31, 2002. During the fourth quarter of 2003, inventory
turns were 9.7, which is consistent with turns during the fourth quarter of
2002.

         During the year ended December 31, 2003, we made capital expenditures
of $4.0 million compared with $4.7 million in 2002. In addition, $0.6 million
and $0.4 million of assets were acquired under capital leases in 2003 and 2002,
respectively.

         On January 29, 2002, the Company's owners contributed $12.0 million of
additional equity as part of a forbearance agreement entered into with its
lenders at the time. The forbearance agreement allowed the Company to pay its
semi-annual interest payment that was 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 million on the term loan that was
originally due on March 31, 2002. This payment of $1.985 million was made at the
time of the signing of the forbearance agreement.

         On August 1, 2002, the Company refinanced its Amended and Restated
Credit Facility with two of the four banks that were party to the Amended and
Restated Credit Facility. The new credit facility (the "Loan and Security
Agreement") is a $27.5 million asset based facility. The facility consists of a
term loan component secured by certain United States real estate and machinery
and equipment, and requires quarterly principal payments of $0.4 million
commencing November 1, 2002. The Loan and Security Agreement also consists of a
revolving line of credit component secured by inventory in the United States and
accounts receivable in the United States and the United Kingdom. Availability
under the line of credit component is determined by a borrowing base of 85% of
eligible accounts receivable and 50% of eligible inventory, as defined in the
Loan and Security Agreement. Debt outstanding under the Loan and Security
Agreement bears interest at a rate equal to, at the Company's option, either (1)
in the case of LIBOR rate loans, the sum of the offered rate for deposits in
United States dollars for a period equal to such interest period as it appears
on Telerate page 3750 as of 11:00am London time and a margin of between 2.5% and
2.85%, or (2) the sum of LaSalle Business Credit's prime rate plus a margin of
between .25% and .50%. At December 31, 2003, the interest rates on the Loan and
Security Agreement ranged from 3.6% to 4.5%. Total availability under the line
of credit at December 31, 2003 was $16.5 million, of which $7.0 million was
outstanding.

         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 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 our senior credit
facility and certain other permitted indebtedness.

         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 $0.9 million at December 31, 2003; 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:


                                       35
<PAGE>

<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....................    $ 138,810     $  9,043    $  8,630   $ 121,044   $    93
Operating leases.....................................       21,615        4,983       6,981       5,081     4,570
                                                         ---------     --------    --------   ---------   -------
   Total contractual obligations.....................      160,425       14,026      15,611     126,125     4,663
                                                         =========     ========    ========   =========   =======
</TABLE>


         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 2003 effective
interest rates would have an approximate $0.1 million impact on our earnings for
2004, based on debt composition and rates in effect at December 31, 2003.

         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.

                                       36
<PAGE>

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

         Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

         (1)      Evaluation of disclosure controls and procedures. Based on
                  their evaluation of our disclosure controls and procedures (as
                  defined in Rules 13a-14( c) and 15d-14( c) under the
                  Securities Exchange Act of 1934) as of December 31, 2003, our
                  chief executive officer and chief financial officer have
                  concluded that our disclosure controls and procedures were
                  effective in ensuring that information required to be
                  disclosed by us in this report is made known to the chief
                  executive officer and chief financial officer by others within
                  Aavid during the period in which the report was being
                  prepared.

         (2)      Changes in internal controls. There were no significant
                  changes in our internal controls or in other factors that
                  could significantly affect these controls subsequent to the
                  date of their most recent evaluation.

                                    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, 2004, 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      55     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   40     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. From 1988 to 1993 he was a
                                      corporate tax attorney with Latham &
                                      Watkins, a national law firm. Mr.
                                      Blumenthal currently serves as a director
                                      of several companies, including Ziff Davis
                                      Holdings, Inc. and other Willis Stein
                                      portfolio companies.

John  R. Willis        54     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
                                      director of CIVC, a private equity
                                      investment firm from 1989 to 1994. In
                                      1988, he founded Continental Mezzanine
                                      Investment Group, and was its Manager
                                      through 1990. From 1974 until 1988, Mr.
                                      Willis held various management positions
                                      at Continental Bank. He currently serves
                                      as a director of several companies,
                                      including Roundy's Inc., Ziff Davis
                                      Holdings, Inc. and other Willis Stein
                                      portfolio companies.

</TABLE>

                                       37
<PAGE>

<TABLE>
<S>                    <C>  <C>       <C>
Christopher G. Boehm   31     2003    Mr. Boehm became a director in October,
                                      2003. Prior to joining Willis Stein in
                                      1996, Mr. Boehm was in the investment
                                      banking division at Salomon Brothers Inc,
                                      where he was involved with a variety of
                                      mergers and acquisitions and corporate
                                      finance transactions. Mr. Boehm received
                                      an M.B.A. from Harvard University's
                                      Graduate School of Business Administration
                                      in June 2000 and holds a B.S. in Finance
                                      and Accountancy from Miami University.

Charles A. Dickinson   80     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   65     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.

         During the fiscal year ended December 31, 2003, our Board of Directors
held 5 formal meetings. Each director attended at least 75% of the meetings of
the Board of Directors held during 2003.

BOARD COMMITTEES

         Our Board of Directors formed an audit committee in 2002 comprised of
Daniel Blumenthal and David Steadman. No member of the Company's audit
committee is a financial expert as such term is defined by the Securities and
Exchange Commission. The Company does not consider it necessary to have an
audit committee financial expert at this time because a sufficient number of
the members of its Board have backgrounds and experience in sophisticated
financial and accounting matters.

EXECUTIVE OFFICERS

         Our executive officers are as follows:

<TABLE>
<CAPTION>
         NAME               AGE                                 POSITION
         ----               ---                                 --------
<S>                         <C>  <C>
Bharatan R. Patel.........  55   Chairman of the Board,  President and Chief Executive Officer, Aavid Thermal
                                 Technologies, Inc. and Aavid Thermalloy; Chief Executive Officer, Fluent;
                                 Director
Bryan A. Byrne............  56   Vice President and Chief Financial Officer
John W. Mitchell..........  55   Vice President and General Counsel, Aavid
H. Ferit Boysan...........  56   President and Chief Operating Officer, Fluent
Peter L. Christie.........  58   Vice President and Chief Financial Officer of Fluent
</TABLE>

                                       38
<PAGE>

         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 A. 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 L. 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.

CODE OF ETHICS

         The Company is in the process of adopting a Code of Ethics that applies
to all of its directors, officers (including its chief executive officer and
chief financial officer) and employees. The Company will file a copy of this
Code of Ethics with the Securities and Exchange Commission and will make the
Code of Ethics available on its website at http://www.aavid.com upon its
completion.

                                       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>
                                                                     COMPENSATION
                                                        --------------------------------------
                                                                        ANNUAL
               NAME AND PRINCIPAL POSITION              FISCAL YEAR     SALARY          BONUS
------------------------------------------------------  -----------  ------------     --------
<S>                                                     <C>          <C>              <C>
Bharatan R. Patel.....................................      2003     $   425,000      $212,500
Chief Executive Officer                                     2002     $   391,827      $256,781
                                                            2001     $   352,431      $      -

Brian A. Byrne........................................      2003     $   250,000      $ 75,000
Vice President and Chief Financial Officer                  2002     $   232,308      $112,725
                                                            2001     $   209,679      $      -

H. Ferit Boysan.......................................      2003     $   216,428      $158,309
President and Chief Operating Officer of Fluent             2002     $   201,280      $171,085
                                                            2001     $   200,414      $141,222

John W. Mitchell......................................      2003     $   250,000      $ 82,500
Vice President, General Counsel and Secretary               2002     $   232,308      $116,833
                                                            2001     $   217,747      $      -

Peter L. Christie.....................................      2003     $   153,434      $117,781
Chief Financial Officer of Fluent                           2002     $   146,546      $127,780
                                                            2001     $   142,115      $104,927
</TABLE>

EMPLOYMENT AGREEMENTS

         Aavid has entered into an employment agreements with Messrs. Patel,
Byrne and Mitchell, which currently expire on July 1, 2007 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. The board of directors did increase
base compensation of Messrs. Patel, Mitchell and Byrne as set forth in the
Summary Compensation Table above. 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.

         Each of Messrs. Byrne, Mitchell, and Patel is entitled to an annual
bonus of 30%, 33.33% and 50% of base salary, 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.

                                       40
<PAGE>

COMPENSATION OF DIRECTORS

         Each of Messrs. Steadman and Dickinson receives an annual fee of
$15,000 and an additional $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 stock of Holdings as of March
1, 2004.

                             BENEFICIAL OWNERSHIP(1)

<TABLE>
<CAPTION>
                                                                             SERIES A
                                                       CLASS A               PREFERRED
                                                     COMMON AND                 AND
                                                       CLASS B               SERIES B
                 NAME OF SECURITY HOLDER            COMMON STOCK  PERCENT    PREFERRED   PERCENT
--------------------------------------------------  ------------  -------  ------------  -------
<S>                                                 <C>           <C>      <C>           <C>
Willis Stein & Partners Management II, L.L.C.(3)    4,358,846.57   66.73%          0.00    0.00%

Willis Stein & Partners Management III, L.L.C. (4)          0.00    0.00%  1,039,748.31   73.01%

The Chase Manhattan Bank, as                        1,068,344.75   16.35%    232,909.15   16.35%

Trustee For First Plaza Group Trust (5)

Abbott Capital (6)                                    427,337.90    6.54%     93,163.66    6.54%

Nassau Capital (7)                                    427,337.90    6.54%     50,266.51    3.53%

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

Bharatan R. Patel                                      21,366.89    0.33%      4,658.18    0.33%

H. Ferit Boysan                                         6,410.07    0.10%      1,397.45    0.10%

John W. Mitchell                                        6,410.07    0.10%      1,397.45    0.10%

Michael Engelman                                        1,282.01    0.02%        279.49    0.02%

Peter L. Christie                                       1,068.34    0.02%        232.91    0.02%

Swaminathan Subbiah                                       427.34    0.01%         93.16    0.01%
                                                    ------------  ------   ------------  ------
Total                                               6,532,500.79  100.00%  1,424,146.27  100.00%
                                                    ------------  ------   ------------  ------

<CAPTION>
                                                     SERIES C               FULLY
                                                     PREFERRED            DILUTED, AS
                                                        AND                CONVERTED
                                                     SERIES D            (EACH COMMON
                 NAME OF SECURITY HOLDER             PREFERRED  PERCENT   CLASS)(2)     PERCENT
--------------------------------------------------  ----------  -------  -------------  -------
<S>                                                 <C>         <C>      <C>            <C>
Willis Stein & Partners Management II, L.L.C.(3)          0.00    0.00%  4,358,846.57    46.83%

Willis Stein & Partners Management III, L.L.C. (4)  476,357.44   92.89%  2,313,579.30    24.86%

The Chase Manhattan Bank, as                              0.00    0.00%  1,286,016.85    13.82%

Trustee For First Plaza Group Trust (5)

Abbott Capital (6)                                   33,546.29    6.54%    608,903.35     6.54%

Nassau Capital (7)                                        0.00    0.00%    474,315.95     5.10%

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

Bharatan R. Patel                                     1,677.31    0.33%     30,445.17     0.33%

H. Ferit Boysan                                         503.19    0.10%      9,133.55     0.10%

John W. Mitchell                                        503.19    0.10%      9,133.55     0.10%

Michael Engelman                                        100.64    0.02%      1,826.71     0.02%

Peter L. Christie                                        83.87    0.02%      1,522.26     0.02%

Swaminathan Subbiah                                      33.55    0.01%        608.90     0.01%
                                                    ----------  ------   ------------   ------
Total                                               512,805.48  100.00%  9,308,001.11   100.00%
                                                    ----------  ------   ------------   ------
</TABLE>

(1)      "Beneficial ownership" 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.

                                       41
<PAGE>

(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 of both partnerships and may
         be deemed to beneficially own such shares. John R. Willis and Daniel H.
         Blumenthal are managing directors and Christopher G. Boehm is a
         principal of Willis Stein & Partners Management II, L.L.C. As a result
         of such relationships, Messrs. Willis, Blumenthal and Boehm may be
         deemed to beneficially own the shares of stock beneficially owned by
         the partnerships and their general partners, but each of Messrs.
         Willis, Blumenthal and Boehm 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 445,655.86 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 13,418.52
         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 13,418.52 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
         3,864.54 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 are managing directors and Christopher G. Boehm is a
         principal of Willis Stein & Partners Management III, L.L.C. As a result
         of such relationships, Messrs. Willis, Blumenthal and Boehm may be
         deemed to beneficially own the shares of stock beneficially owned by
         the partnerships and their general partners, but each of Messrs.
         Willis, Blumenthal and Boehm 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, 93,163.66 shares of each of Series A
         preferred stock and Series B preferred stock, and 31,804.53 shares of
         each of Series C preferred stock and Series D 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 and 1,741.76 shares of each of Series C preferred stock and
         Series D preferred stock directly beneficially held by BNY Partners
         Fund, L.L.C. The address of such funds is c/o Abbott Capital
         Management, LLC, 1211 Avenue of the Americas, Suite 4300, New York, New
         York 10036.

(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.

                                       42
<PAGE>

(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

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

INDEPENDENT AUDITOR FEE INFORMATION

                  Fees for professional services provided by our independent
auditors in each of the last two fiscal years, in each of the following
categories (in millions) are:

<TABLE>
<CAPTION>
                            2002          2003
<S>                         <C>           <C>
Audit fees                  $ 1.3         $ 0.5
Tax fees                      0.2           0.5
                            -----         -----
Total fees                  $ 1.5         $ 1.0
                            =====         =====
</TABLE>

                  Fees for audit services include fees associated with the
annual audit, the reviews of the Company's quarterly reports on Form 10-Q, and
statutory audits required internationally. Tax fees included tax compliance, tax
advice, and tax planning including expatriate tax services. Audit fees for 2002
also include re-audit fees incurred by the Company in association with the
change in auditors from Arthur Andersen LLP to Ernst & Young LLP. Due to the
change in auditors and the dissolution of Arthur Andersen LLP, the years 2001
and 2000 were required to be re-audited. Our independent auditor did not perform
any audit-related services or other services for us in 2002 or 2003.

                  The Company's audit committee does not currently have a
pre-approval policy with respect to principal accountant fees and services. None
of the fees paid in 2002 or 2003 to the Company's principal accountants were
pre-approved by the audit committee.

                                     PART IV

ITEM 15. 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 46. 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. Exhibits
                     pertaining to management contracts, compensatory plans or
                     arrangements are as follows: Exhibits 5.1, 5.2, 5.3, 5.4
                     and 5.5.

                  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)

                                       43
<PAGE>

                  NO.      DESCRIPTION
                  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)

                  5.1      Employment Agreement, dated July 1, 2000, between the
                           Company and Bharatan R. Patel.

                  5.2      Employment Agreement, dated July 1, 2000, between the
                           Company and John W. Mitchell.

                  5.3      Employment Agreement, dated July 1, 2000, between the
                           Company and Brian A. Byrne.

                  5.4      Employment Agreement, dated July 1, 2000, between the
                           Company and H. Ferit Boysan.

                  5.5      Employment Agreement, dated July 13, 1998, between
                           Fluent, Inc. and Peter L. Christie.

                  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.(7)

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

                  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)

                  10.27    Loan and Security Agreement dated as of July 31,
                           2002(8)

                  21.0     Subsidiaries of Registrant(2)

                  31.1     CEO Certification pursuant to Section 302 of the
                           Sarbanes-Oxley Act of 2002

                  31.2     CFO Certification pursuant to Section 302 of the
                           Sarbanes-Oxley Act of 2002

                  32.1     CEO Certification pursuant to Section 906 of the
                           Sarbanes-Oxley Act of 2002

                  32.2     CFO Certification pursuant to Section 906 of the
                           Sarbanes-Oxley Act of 2002

                                       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, 2001.

(6)      Incorporated by reference to Exhibits to the Company's Current Report
         on Form 8-K dated October 21, 1999.

(7)      Incorporated by reference to Exhibits to the Company's Annual Report
         on Form 10-K for the year ended December 31, 2001.

(8)      Incorporated by reference to Exhibits to the Company's Quarterly Report
         on Form 10-Q for the Quarter ended June 29, 2002.

                                   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
                                         March 29, 2004

         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                     March 29, 2004
----------------------------------------    (Principal Executive Officer)
Bharatan R. Patel

/s/ Brian A. Byrne                          Chief Financial Officer                         March 29, 2004
----------------------------------------    (Principal Financial and Accounting Officer)
Brian A. Byrne

/s/ John R. Willis                          Director                                        March 29, 2004
----------------------------------------
John R. Willis

/s/ Daniel H. Blumenthal                    Director                                        March 29, 2004
----------------------------------------
Daniel H. Blumenthal

/s/ Christopher G. Boehm                    Director                                        March 29, 2004
----------------------------------------
Christopher G. Boehm

</TABLE>

                                       45
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AAVID THERMAL TECHNOLOGIES, INC.

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

Consolidated Balance Sheets as of December 31, 2003 and 2002............................................   48

Consolidated Statements of Operations for the years ended December 31, 2003, 2002 and 2001..............   49

Consolidated Statements of Changes in Stockholders' Deficit for the years ended December 31,
2003, 2002 and 2001.....................................................................................   50

Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001..............   53

Notes to Consolidated Financial Statements..............................................................   54

Schedule II - Valuation and Qualifying Accounts.........................................................   77
</TABLE>

                                       46
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

Stockholders and Board of Directors
Aavid Thermal Technologies, Inc.

We have audited the accompanying consolidated balance sheets of Aavid Thermal
Technologies, Inc. and subsidiaries as of December 31, 2003 and 2002, and the
related consolidated statements of operations, changes in stockholders' deficit,
and cash flows for each of the three years in the period ended December 31,
2003. 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, through July 16, 2002, was an 89.4%-owned subsidiary) for
the year ended December 31, 2001, which statements reflect total revenues of
11.5% of the related consolidated totals. Those 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 financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits, 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 consolidated financial position of Aavid Thermal Technologies, Inc. and
subsidiaries at December 31, 2003 and 2002, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States.

As discussed in Note B to the consolidated financial statements, in 2002 the
Company adopted the provisions of Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets".

Our audits were conducted for the purpose of forming an opinion of the basic
financial statements taken as a whole. The schedule listed in the Index To
Consolidated Financial Statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, based on our audits and the report of other auditors, 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/ Ernst & Young LLP


MANCHESTER, NEW HAMPSHIRE
February 20, 2004

                                       47
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                         DECEMBER 31,   DECEMBER 31,
                                                                                             2003           2002
                                                                                         ------------   ------------
<S>                                                                                      <C>            <C>
ASSETS
Cash and cash equivalents.............................................................   $     15,231   $    12,297
Accounts receivable-trade, less allowance for doubtful accounts.......................         40,008        33,114
Notes receivable......................................................................              -            82
Inventories...........................................................................          9,583         6,854
Refundable taxes......................................................................            160           193
Deferred income taxes.................................................................          1,172         1,139
Prepaid and other current assets......................................................          6,033         5,077
                                                                                         ------------   -----------
   Total current assets...............................................................         72,187        58,756
Property, plant and equipment, net....................................................         27,102        29,618
Goodwill..............................................................................         39,433        39,433
Developed technology..................................................................          1,518         4,786
Deferred financing fees...............................................................          3,480         4,410
Deferred income taxes.................................................................            404           364
Other assets, net.....................................................................          1,569         1,685
                                                                                         ------------   -----------
   Total assets.......................................................................   $    145,693   $   139,052
                                                                                         ============   ===========
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' DEFICIT
Accounts payable-trade................................................................   $     12,943   $    11,409
Current portion of long term debt obligations.........................................          9,043         8,934
Income taxes payable..................................................................          3,789         3,935
Restructuring charges.................................................................            215         1,006
Deferred revenue......................................................................         37,657        29,860
Accrued expenses and other current liabilities........................................         26,816        22,971
                                                                                         ------------   -----------
   Total current liabilities..........................................................         90,463        78,115
Long-term debt obligations, net of current portion....................................        129,767       130,516
Deferred income taxes.................................................................            209           250
                                                                                         ------------   -----------
   Total liabilities..................................................................        220,439       208,881
Commitments and contingencies (Note K)
Minority interest in consolidated subsidiaries........................................            585           587
Stockholders' deficit
Series A Preferred Stock, $.0001 par value; authorized 100 shares; 67.71 shares
   issued and outstanding (Liquidation value of $6,375 at December 31, 2003)..........              -             -
Series B Preferred Stock, $.0001 par value; authorized 100 shares; 67.71 shares
   issued and outstanding (Liquidation value of $6,375 at December 31, 2003)..........              -             -
Class A Common Stock, $.0001 par value; authorized 1,400 shares; 1,018.87 shares
   issued and outstanding.............................................................              -             -
Class B Common Stock, $.0001 par value; authorized 1,400 shares; 1,078.87 shares
   issued and outstanding...................... ......................................              -             -
Class H Common Stock, $.0001 par value; authorized 200 shares; 40 shares issued
   and outstanding.............................. .....................................              -             -
Warrants to purchase 49.52 shares of Class A common stock and 49.52 shares of
   Class H common stock........................... ...................................          3,764         3,764
Additional paid-in capital............................................................        188,007       188,007
Cumulative translation adjustment.....................................................         (1,105)          156
Accumulated deficit...................................................................       (265,997)     (262,343)
                                                                                         ------------   -----------
   Total stockholders' deficit........................................................        (75,331)      (70,416)
                                                                                         ------------   -----------
   Total liabilities, minority interest and stockholders' deficit.....................   $    145,693   $   139,052
                                                                                         ============   ===========
</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>
                                                                     YEAR ENDED            YEAR ENDED          YEAR ENDED
                                                                  DECEMBER 31, 2003     DECEMBER 31, 2002   DECEMBER 31, 2001
                                                                  -----------------------------------------------------------
<S>                                                               <C>                   <C>                 <C>
Net sales......................................................    $       188,167       $       161,942    $        170,892
Cost of goods sold.............................................             97,061                88,532             124,000
                                                                   ---------------       ---------------    ----------------
Gross profit...................................................             91,106                73,410              46,892
Selling, general and administrative expenses...................             59,096                55,427              58,515
Amortization of intangible assets..............................              3,469                 3,408              34,227
Research and development.......................................             15,004                12,492              10,775
Intangible asset impairment charge.............................                 --                    --             115,210
Restructuring charges(credits).................................                (90)                  858              16,885
Loss on sale of division.......................................                 --                    --               4,322
                                                                   ---------------       ---------------    ----------------
Income (loss) from continuing operations.......................             13,627                 1,225            (193,042)
Interest expense, net..........................................            (18,137)              (20,141)            (22,217)
Foreign currency exchange gain (loss), net.....................              2,460                   465                (933)
Gain on extinguishment of debt.................................                 --                    --               1,905
Other income (expense), net....................................                 23                   (12)                126
                                                                   ---------------       ----------------   ----------------
Loss from continuing operations
     before income taxes and minority interest.................             (2,027)              (18,463)           (214,161)
Benefit (provision) for income taxes...........................             (1,627)                 (817)             10,959
                                                                   ---------------       ---------------    ----------------
Loss from continuing operations
      before minority interest.................................             (3,654)              (19,280)           (203,202)
Minority interest in loss of consolidated
     subsidiaries..............................................                 --                    --               3,294
                                                                   ---------------       ---------------    ----------------
Loss from continuing operations................................             (3,654)              (19,280)           (199,908)
Income from discontinued operations
     (including gain on disposal of $7,082 in 2002)............                 --                 6,725               1,445
                                                                   ---------------       ---------------    ----------------
Net loss.......................................................    $        (3,654)      $       (12,555)   $       (198,463)
                                                                   ===============       ===============    ================
</TABLE>

   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
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                               SERIES A           SERIES B            CLASS A
                                           PREFERRED STOCK    PREFERRED STOCK      COMMON STOCK
                                           ----------------   ----------------    ---------------
                                           SHARES    AMOUNT   SHARES    AMOUNT    SHARES   AMOUNT
                                           ------    ------   ------    ------    ------   ------
<S>                                        <C>       <C>      <C>       <C>       <C>      <C>
Balance, January 1, 2001 ...............                                             940   $    -
Capital contribution and bond  retirement                                             79        -
Comprehensive loss:
  Net loss..............................                                               -        -
  Cumulative translation  adjustment....                                               -        -
Comprehensive loss......................                                               -        -
                                                                                  ------   ------
Balance, December 31, 2001 .............                                           1,019   $    -
                                                                                  ======   ======
Capital contribution....................       68    $    -       68    $    -         -   $    -
Comprehensive loss:
  Net loss..............................        -         -        -         -         -        -
  Cumulative translation adjustment.....        -         -        -         -         -        -
Comprehensive loss......................        -         -        -         -         -        -
                                           ------    ------   ------    ------    ------   ------
Balance, December 31, 2002..............       68    $    -       68    $    -     1,019   $    -
                                           ======    ======   ======    ======    ======   ======
Comprehensive loss:
  Net loss..............................        -    $    -        -    $    -         -   $    -
  Cumulative translation adjustment.....        -         -        -         -         -        -
Comprehensive loss......................        -         -        -         -         -        -
                                           ------    ------   ------    ------    ------   ------
Balance, December 31, 2003 .............       68    $    -       68    $    -     1,019   $    -
                                           ======    ======   ======    ======    ======   ======
</TABLE>

   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
                                   (CONTINUED)
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                   CLASS B            CLASS H
                                                 COMMON STOCK      COMMON STOCK              ADDITIONAL
                                               ---------------   ---------------              PAID-IN
                                               SHARES   AMOUNT   SHARES   AMOUNT   WARRANTS   CAPITAL
                                               ------   ------   ------   ------   --------   --------
<S>                                            <C>      <C>      <C>      <C>      <C>       <C>
Balance, January 1, 2001....................    1,000   $    -       40   $    -   $  4,560   $147,187
                                               ======   ======   ======   ======   ========   ========
 Capital contribution and bond retirement...       79        -        -        -       (796)    28,820
Comprehensive loss:
  Net loss..................................        -        -        -        -          -          -
  Cumulative translation adjustment.........        -        -        -        -          -          -
Comprehensive loss..........................        -        -        -        -          -          -
                                               ------   ------   ------   ------   --------   --------
Balance, December 31, 2001 .................    1,079   $    -       40   $    -   $  3,764   $176,007
                                               ======   ======   ======   ======   ========   ========
Capital contribution........................        -   $    -        -    $   -   $      -   $ 12,000
Comprehensive loss:
  Net loss..................................        -        -        -        -          -          -
  Cumulative translation adjustment.........        -        -        -        -          -          -
Comprehensive loss..........................        -        -        -        -          -          -
                                               ------   ------   ------   ------   --------   --------
Balance, December 31, 2002..................    1,079   $    -       40   $    -   $  3,764   $188,007
                                               ======   ======   ======   ======   ========   ========
Comprehensive loss:

  Net loss..................................        -   $    -        -   $    -   $      -   $      -
  Cumulative translation adjustment.........        -        -        -        -          -          -
Comprehensive loss..........................        -        -        -        -          -          -
                                               ------   ------   ------   ------   --------   --------
Balance, December 31, 2003..................    1,079   $    -       40   $    -   $  3,764   $188,007
                                               ======   ======   ======   ======   ========   ========
</TABLE>

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

                                       51
<PAGE>

                        AAVID THERMAL TECHNOLOGIES, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                                   (CONTINUED)
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                        CUMULATIVE
                                                       COMPREHENSIVE    TRANSLATION   ACCUMULATED
                                                       INCOME (LOSS)    ADJUSTMENT      DEFICIT        TOTAL
                                                       -------------    -----------   -----------    ----------
<S>                                                    <C>              <C>           <C>            <C>
Balance, January 1, 2001...........................                     $     (262)   $  (51,325)    $ 100,160
                                                                        ==========    ==========     =========
 Capital contribution and bond retirement..........                              -             -        28,024
Comprehensive loss:
  Net loss.........................................    $    (198,463)            -      (198,463)     (198,463)
  Cumulative translation adjustment................             (609)         (609)            -          (609)
                                                       -------------
Comprehensive loss.................................    $    (199,072)            -             -             -
                                                       =============    ----------    ----------     ---------
Balance, December 31, 2001.........................                     $     (871)   $ (249,788)    $ (70,888)
                                                                        ==========    ==========     =========
Capital contribution...............................                     $        -    $        -     $  12,000
Comprehensive loss:
  Net loss.........................................    $     (12,555)            -       (12,555)      (12,555)
  Cumulative translation adjustment................            1,027         1,027             -         1,027
                                                       -------------
Comprehensive loss.................................    $     (11,528)            -             -             -
                                                       =============    ----------    ----------     ---------
Balance, December 31, 2002.........................                     $      156    $ (262,343)    $ (70,416)
                                                                        ==========    ==========     =========
Comprehensive loss:
  Net loss.........................................    $      (3,654)   $        -    $   (3,654)    $  (3,654)
  Cumulative translation adjustment................           (1,261)       (1,261)            -        (1,261)
                                                       -------------
Comprehensive loss.................................    $      (4,915)            -             -             -
                                                       =============    ----------    ----------     ---------
Balance, December 31, 2003.........................                     $   (1,105)   $ (265,997)    $ (75,331)
                                                                        ==========    ==========     =========
</TABLE>

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

                                       52
<PAGE>

                        AAVID THERMAL TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                         YEAR ENDED   YEAR ENDED     YEAR ENDED
                                                                          DECEMBER     DECEMBER       DECEMBER
                                                                          31, 2003     31, 2002       31, 2001
                                                                          --------     --------       --------
<S>                                                                      <C>          <C>            <C>
Cash flows provided by (used in) operating activities:
   Loss from continuing operations                                       $  (3,654)   $  (19,280)    $ (199,908)
   Income  from discontinued operations                                          -         6,725          1,445
                                                                         ---------    ----------     ----------
          Net loss                                                          (3,654)      (12,555)      (198,463)

Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
      Depreciation                                                           7,996         8,513         10,368
      Amortization and accretion                                             5,103         5,809         36,254
      Loss on sale of property, plant and equipment                            225           478            277
      Deferred income tax benefit                                             (114)       (1,253)       (13,390)
      Minority interests in loss of consolidated subsidiaries                    -             -         (3,294)
      Restructuring charges (credits)                                          (90)          858         16,885
      Gain on debt extinguishment                                                -             -         (1,905)
      (Gain) loss on sale of division/subsidiary                                 -        (7,082)         4,322
      Intangible asset impairment charge                                         -             -        115,210
Changes in assets and liabilities:
      Accounts receivable-trade                                             (4,412)         (735)        14,982
      Inventories                                                           (2,283)        4,026         11,617
      Refundable taxes                                                          33           (75)          (118)
      Prepaid and other current assets                                        (491)       (1,144)             3
      Notes receivable                                                          82           398           (480)
      Net assets of discontinued operations                                      -           592         (1,924)
      Other long - term assets                                                  16        (1,035)           182
      Accounts payable-trade                                                 1,002        (2,924)        (3,455)
      Income taxes payable                                                     (99)          162         (1,333)
      Deferred revenue                                                       5,327         3,937         15,134
      Accrued expenses and other current liabilities                         2,406        (1,485)       (10,532)
                                                                         ---------    ----------     ----------
         Total adjustments                                                  14,701         9,040        188,803
                                                                         ---------    ----------     ----------
         Net cash provided by (used in) operating activities                11,047        (3,515)        (9,660)

Cash flows (used in) provided by investing activities:
      Proceeds from sale of property, plant and equipment                      188         1,764            709
      Purchases of property, plant and equipment                            (4,009)       (4,721)        (5,717)
      Purchase of minority interest in Curamik                                   -             -           (882)
      Proceeds from sale of division/subsidiary                                  -        31,524          2,500
                                                                         ---------    ----------     ----------
         Net cash (used in)  provided by investing activities               (3,821)       28,567         (3,390)

Cash flows (used in) provided by financing activities:
      Issuance of preferred stock and warrant                                    -        12,000              -
      (Repayments of) advances on line of credit, net                         (157)      (10,078)         8,904
      Advances under debt obligations                                          178        11,727            252
      Principal payments under debt obligations                             (2,141)      (39,191)       (13,395)
      Equity contribution                                                        -             -         34,028
      Retirement of 12 3/4% senior subordinated notes and warrants               -             -        (26,028)
                                                                         ---------    ----------     -----------
         Net cash  (used in)  provided by financing activities              (2,120)      (25,542)         3,761

Foreign exchange effect on cash and cash equivalents                        (2,172)       (1,751)           976
                                                                         ---------    ----------     ----------
Net increase (decrease) in cash and cash equivalents                         2,934        (2,241)        (8,313)

Cash and cash equivalents, beginning of year                                12,297        14,538         22,851
                                                                         ---------    ----------     ----------
Cash and cash equivalents, end of year                                   $  15,231    $   12,297     $   14,538
                                                                         =========    ==========     ==========

Supplemental disclosure of cash flow information:
    Interest paid                                                        $  16,656    $   17,834     $   22,455
                                                                         =========    ==========     ==========
    Income taxes paid                                                    $   1,850    $    2,456     $    4,791
                                                                         =========    ==========     ==========
Supplemental disclosure of non-cash investing activities:
    Capital lease obligations incurred for purchases of new equipment    $     558    $      376     $      710
</TABLE>

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

                                       53
<PAGE>

                        AAVID THERMAL TECHNOLOGIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

A.       BACKGROUND

         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 dynamics ("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 been privately held since February 2, 2000, when it was
acquired by Heat Holdings Corp., a corporation formed by Willis Stein & Partners
II, L.P and other investors. Heat Holdings II Corp., an affiliate of Heat
Holdings, owns 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 Amended and
Restated Limited Liability Company Agreement, $3,294 of the losses at Aavid
Thermalloy LLC were allocated to the minority interest held by Heat Holdings II
Corp. for the year ended December 31, 2001. There were no losses allocated in
2003 or 2002.

B.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

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

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, considering historical losses, existing economic conditions
and individual customers' credit worthiness. The Company's write-offs of
accounts receivable have not been significant during the periods presented. At
December 31, 2003 and 2002, there were no individual customer accounts
receivable balances greater than 10% of total accounts receivable.

                                       54
<PAGE>

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.

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
approximates carrying value. The fair value of the Company's long-term debt
instruments under the Company's senior credit facilities also approximates
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 $123,809 at December 31, 2003 and $92,238 at December 31, 2002.

INVENTORIES

         Inventories are valued at the lower of the actual cost to purchase
and/or manufacture the inventory or the current estimated market value of the
inventory, using the first-in, first-out (FIFO) method of accounting, 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 2003 and 2002,
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;
computer equipment - 3 to 5 years; furniture and fixtures - 5 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.

                                       55
<PAGE>

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 and developed technology.

         Effective January 1, 2002, the Company adopted the provisions of SFAS
No. 142 "Goodwill and Other Intangible Assets". SFAS No. 142 prohibits the
amortization of goodwill and intangible assets with indefinite useful lives.
SFAS No. 142 also requires the identification of reporting units, which the
Company deemed to be the operating segments described in Note M. Goodwill is
allocated to the reporting units for the purposes of goodwill impairment
testing, which is performed at least annually. The impairment test is also
performed if an event occurs or when circumstances change between annual tests
that would more likely than not reduce the fair value of a reporting unit below
its carrying value. Intangible assets with finite lives will continue to be
amortized over their estimated useful lives as follows:

<TABLE>
<CAPTION>
INTANGIBLE ASSETS                                                   YEARS
-----------------                                                   -----
<S>                                                                 <C>
Developed Technology                                                4 to 7
Deferred Financing Fees                                             4 to 7
</TABLE>

Information regarding intangible assets at December 31 follows:

<TABLE>
<CAPTION>
                                                   2003                          2002
                                       ---------------------------    ---------------------------
                                          GROSS                         GROSS
                                        CARRYING       ACCUMULATED     CARRYING       ACCUMULATED
                                         AMOUNT       AMORTIZATION      AMOUNT       AMORTIZATION
                                       ----------     ------------    ----------     ------------
<S>                                    <C>            <C>             <C>            <C>
Amortized intangible assets:
   Developed technology                $   41,800     $    (40,282)   $   41,800     $    (37,014)
   Deferred financing fees                  7,463           (3,983)        7,463           (3,053)
                                       ----------     ------------    ----------     ------------
Total amortized intangible assets      $   49,263     $    (44,265)   $   49,263     $    (40,067)
                                       ==========     ============    ==========     ============

Unamortized intangible assets:
   Goodwill                            $   39,433                     $   39,433
                                       ==========                     ==========
</TABLE>

         Aggregate amortization expense for the year ended December 31, 2003,
2002 and 2001, excluding the impairment charge of $115,210 taken in 2001, was
$4,399, $5,189 and $35,660, respectively. Estimated amortization expense for the
next five years is estimated to be $1,794 in 2004 and approximately $1,445 per
year thereafter.

A reconciliation of reported net income to adjusted net income for each year
follows:

<TABLE>
<CAPTION>
                                                   2003          2002          2001
                                                ----------    ----------    ----------
<S>                                             <C>           <C>           <C>
Reported net income                             $   (3,654)   $  (12,555)   $ (198,463)
Add back: Goodwill amortization                          -             -        25,695
                                                ----------    ----------    ----------
Adjusted net income                             $   (3,654)   $  (12,555)   $ (172,768)
                                                ==========    ==========    ==========
</TABLE>

         Effective January 1, 2002, the Company also adopted the provisions of
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets".
This Statement superceded SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 144
retains the fundamental provisions of SFAS No. 121 related to the recognition
and measurement of the impairment of long-lived assets to be "held and used".
Valuation of long-lived assets, such as property, plant and equipment, is
reviewed for impairment when events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable. An impairment loss
would be recognized when the estimated future undiscounted cash flows expected
to result from the use of the asset and its eventual disposition are less than
the carrying amount.

         During 2001, the Company assessed the impairment of identifiable
intangibles, long-lived assets and related goodwill in accordance with the
requirements of SFAS No. 121 and found that global macroeconomic conditions had
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 No. 121, had occurred
related to the intangible assets initially acquired in connection with the
acquisition of the Company by Heat Holdings. Based on cash flow projections
related to the acquired assets, the Company concluded that all of the acquired
intangible

                                       56
<PAGE>

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 impairment charge
recorded in 2001 totaled $115,210 and is recorded in the accompanying
consolidated 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                        $    95,651        $     -        $    95,651
   Developed technology                 18,756            803             19,559
                                   -----------        -------        -----------
          Total                    $   114,407        $   803        $   115,210
                                   ===========        =======        ===========
</TABLE>

         During 2002 and 2003, the Company assessed the impairment of
indentifiable intangibles and long-lived assets in accordance with the
requirements of SFAS No. 144, and for goodwill in accordance with the
requirements of SFAS No. 142, and determined that no additional impairment had
occurred.

REVENUE RECOGNITION

THERMAL PRODUCTS

         Revenue is recognized when products are shipped. The Company offers
certain distributors limited rights of return and stock rotation rights. Due to
these return rights, the Company continuously monitors and tracks product
returns and records a provision for the estimated future amount of such future
returns, based on historical experience and any notification received of pending
returns. While such returns have historically been within the Company's
expectations and provisions established, there can be no guarantee that the
Company will continue to experience the same return rates that it has in the
past. Any significant decrease in product demand experienced by distributor
customers and the resulting credit returns could have a material adverse impact
on the Company's operating results for the period or periods in which such
returns materialize.

SOFTWARE

The Company recognizes revenue on its software license and maintenance
arrangements in accordance with Statement of Position ("SOP") 97-2, "Software
Revenue Recognition", and related pronouncements. The pronouncements provide
specific industry guidance and stipulate that revenue recognized from software
arrangements is to be allocated to each element of the arrangement based on
relative fair values of the elements, such as software products, upgrades,
enhancements, post-contract customer support ("PCS"), and training. In
accordance with SOP 97-2, the Company recognizes revenue from software licenses
and related ancillary products when:

         -        Persuasive evidence of an arrangement exists, which is
                  typically when a non-cancelable sales and software license
                  agreement has been signed;

         -        Delivery, which is typically FOB shipping point, is complete
                  for the software (either physically or electronically) and
                  related ancillary products;

         -        The customer's fee is deemed to be fixed or determinable and
                  free of contingencies or significant uncertainties;

         -        Collectibility is probable, and;

         -        Vendor-specific objective evidence ("VSOE") of fair value
                  exists for all undelivered elements, typically PCS and
                  professional services.

The Company licenses its software products under both perpetual and annual
license arrangements.

For perpetual license arrangements, the Company uses the residual method to
recognize revenue. Under the residual method, the fair value (VSOE) of the
undelivered elements (typically PCS) is deferred and the remaining portion of
the arrangement fee is allocated to the delivered elements (software) and is
recognized as revenue, assuming all other conditions for revenue recognition
have been satisfied. The Company recognizes revenue from the undelivered PCS
element ratably over the period of the PCS arrangement.

                                       57
<PAGE>

For annual license arrangements, with unbundled PCS, since VSOE of value for the
PCS does not exist, the Company recognizes revenue for both the software license
and the PCS ratably over the 12-month term of the license.

Training and consulting revenues are recognized upon completion of services or,
in certain instances, on the percentage-of-completion method. Provisions for
estimated losses on uncompleted contracts are made in the period in which such
losses are determined.

COMPREHENSIVE INCOME

         SFAS No. 130, "Reporting Comprehensive Income", requires reporting and
display of comprehensive income and its components. SFAS No. 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 (loss) in the period in which they are recognized.
Accordingly, the foreign currency translation adjustments are included in other
comprehensive income (loss).

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.

TRANSLATION OF FOREIGN CURRENCY

         The financial statements of the Company's foreign subsidiaries are
translated in accordance with SFAS No. 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 rates during the year. All cumulative translation
gains and losses from the translation into U.S. dollars are included as a
separate component of stockholders' equity in the consolidated balance sheets.
Transaction gains and losses are included in the consolidated statements of
operations. Foreign currency gains (losses) included in the consolidated
statement of operations were $2,460, $465 and ($933) for the years ended
December 31, 2003, 2002 and 2001, respectively.

NEW ACCOUNTING PRONOUNCEMENTS

         In April 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections". Among other things, SFAS No.
145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of
Debt", which required all gains and losses from extinguishment of debt to be
aggregated and, if material, classified as an extraordinary item. The provisions
of SFAS No. 145 are effective for financial statements issued for fiscal years
beginning after May 15, 2002, and any gain or loss on extinguishment of debt
that was classified as an extraordinary item in prior periods presented must be
reclassified. The Company adopted the provisions of SFAS No. 145 effective
January 1, 2003, and reclassified the gain on extinguishment of debt, which had
been previously reflected as an extraordinary item for the year ended December
31, 2001.

         In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". The Statement requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Costs covered by the standard include lease termination costs and certain
employee severance costs that are associated with a restructuring, branch
closing, or other exit disposal activity. This Statement is effective for exit
or disposal activities initiated after December 31, 2002. SFAS No. 146 may
affect the timing of the Company's recognition of future exit or disposal costs,
if any.

         In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others" ("FIN 45"). FIN 45 elaborates on the
disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair

                                       58
<PAGE>

value of the obligation undertaken in issuing the guarantee. The initial
recognition and initial measurement provisions of the interpretation are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002 and the disclosure requirements in this interpretation are
effective for financial statements of interim or annual periods ending after
December 15, 2002. The adoption of FIN 45 is not expected to have a material
impact on the Company's financial position or results of operations.

         In January 2003, the FASB issued Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46") to clarify the conditions under which
assets, liabilities and activities of another entity should be consolidated into
the financial statements of a company. FIN 46 requires the consolidation of a
variable interest entity by a company that bears the majority of the risk of
loss from the variable interest entity's activities, is entitled to receive a
majority of the variable interest entity's residual returns, or both. The
provisions of FIN 46, required to be adopted in fiscal 2005, are not expected to
have a material impact on the Company's financial position or results of
operations.

C. SALE OF BUSINESSES AND DISCONTINUED OPERATION

         In the fourth quarter of 2001, the Company recognized a loss on
disposal of a division of $4,322. 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
bore interest at 8.0%. The note was fully repaid in March, 2003. The $2,500 in
cash proceeds were remitted to our Senior Lending group as required by the
Amended and Restated Credit Agreement that was in effect at the time.

         On July 17, 2002, the Company sold all of the outstanding shares of
Aavid Thermalloy Holdings, GmbH, which in turn owned approximately 89.4% of the
outstanding shares of curamik electronics GmbH, pursuant to a Share Sale and
Purchase Agreement between the Company and Electrovac Fabrikation
Electrotechnischer Spezialartikel GesmbH dated July 10, 2002 (the "Sale
Agreement"). Under the Sale Agreement, the Company received consideration of
$31,524, subject to possible adjustment based upon the level of consolidated net
assets of Curamik and certain indemnification obligations of the Company. The
Company recorded a pre-tax gain on the sale of $7,082 in the accompanying
statements of operations for the year ended December 31, 2002. $27,683 of the
sale proceeds was used to pay down senior debt. The sale of curamik and its
related operating results have been excluded from the results from continuing
operations and is classified as a discontinued operation in 2002 and 2001, in
accordance with the requirements of SFAS No. 144 "Accounting for Impairment or
Disposal of Long-Lived Assets".

         The following is a summary of the results of discontinued operations
for the years ended December 31, 2002 and 2001:

<TABLE>
<CAPTION>
                                                         YEAR ENDED      YEAR ENDED
                                                        DECEMBER 31,    DECEMBER 31,
                                                            2002            2001
                                                        ------------    ------------
<S>                                                     <C>             <C>
Net sales                                               $      9,314    $     22,141
                                                        ------------    ------------
Income (loss) before income taxes and minority
  interest                                                       (64)          3,057
Income tax expense                                              (320)         (1,406)
                                                        ------------    ------------
Income (loss) before minority interest                          (384)          1,651
Minority interest in (income) loss of
  consolidated subsidiaries                                       27            (206)
                                                        ------------    ------------
Income (loss) from discontinued operations                      (357)          1,445
Gain on sale of discontinued operations                        7,082               -
                                                        ------------    ------------
Income from discontinued operations                     $      6,725    $      1,445
                                                        ============    ============
</TABLE>

D. ACCOUNTS RECEIVABLE

         The components of accounts receivable at December 31, 2003 and 2002 are
as follows:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                        ----------------------------
                                                            2003            2002
                                                        ------------    ------------
<S>                                                     <C>             <C>
Accounts receivable                                     $     42,209    $     36,308
Allowance for doubtful accounts                               (2,201)         (3,194)
                                                        ------------    ------------
                                                        $     40,008    $     33,114
                                                        ============    ============
</TABLE>

                                       59
<PAGE>

E. INVENTORIES

         The components of inventories at December 31, 2003 and 2002 are as
follows:

<TABLE>
<CAPTION>
                                               DECEMBER 31,
                                       ----------------------------
                                           2003            2002
                                       ------------    ------------
<S>                                    <C>             <C>
Raw materials                          $      2,065    $      2,443
Work-in-process                               4,123           2,355
Finished goods                                3,395           2,056
                                       ------------    ------------
                                       $      9,583    $      6,854
                                       ============    ============
</TABLE>

F. PROPERTY, PLANT, AND EQUIPMENT

         Property, plant, and equipment, recorded at cost, by major
classification at December 31, 2003 and 2002 consist of the following:

<TABLE>
<CAPTION>
                                               DECEMBER 31,
                                       ----------------------------
                                           2003            2002
                                       ------------    ------------
<S>                                    <C>             <C>
Land                                   $      1,547    $      1,531
Building and improvements                    14,447          15,815
Machinery and equipment                      23,951          22,550
Computer equipment                           17,035          14,762
Furniture and fixtures                        3,833           3,479
Vehicles                                        225             303
Machinery-in-progress                           140             292
                                       ------------    ------------
                                             61,178          58,732
Less accumulated depreciation               (34,076)        (29,114)
                                       ------------    ------------
                                       $     27,102    $     29,618
                                       ============    ============
</TABLE>

         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, 2003 and 2002 are the following:

<TABLE>
<CAPTION>
                                               DECEMBER 31,
                                       ----------------------------
                                           2003            2002
                                       ------------    ------------
<S>                                    <C>             <C>
Employee related                       $     13,368    $     10,681
Accrued interest                              6,610           6,614
Accrued sales and property taxes                820           1,005
Other accrued expenses                        6,018           4,671
                                       ------------    ------------
                                       $     26,816    $     22,971
                                       ============    ============
</TABLE>

                                       60
<PAGE>

H. DEBT OBLIGATIONS

         Debt obligations at December 31, 2003 and 2002 consist of the
following:

<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31,
                                                                                           -----------------------
                                                                                              2003         2002
                                                                                           ----------   ----------
<S>                                                                                        <C>          <C>
Term Loans under a Loan and Security Agreement payable in 40 consecutive
quarterly installments ranging from $215 to $359 commencing November 1,
2002. At December 31, 2003 the interest rates on the Term Loans ranged from
3.99% to 4.50%..........................................................................   $    9,685   $   11,121

Revolving Loans under a Loan and Security Agreement which matures on July
31, 2006. At December 31, 2003 the interest rate on the Revolving Loans
ranged from 3.64 to 4.50%...............................................................        6,976        6,992

12 3/4% Senior Subordinated Notes due February 1, 2007..................................      120,977      120,273

Term loans payable through 2013 with quarterly payments of approximately
$54. At December 31, 2003 the interest rates on the term loans ranged from
1.01% to 3.46%..........................................................................          564          489

Capitalized lease obligations...........................................................          608          575
                                                                                           ----------   ----------
                                                                                              138,810      139,450

Less current portion....................................................................        9,043        8,934
                                                                                           ----------   ----------

Debt Obligations, net of current portion................................................   $  129,767   $  130,516
                                                                                           ==========   ==========
</TABLE>

         On February 2, 2000, as part of the transactions relating to the
acquisition of the Company by Heat Holdings, 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 (P) 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 statements of operations for the years ended
December 31, 2003, 2002 and 2001. In May 2001, certain of the Company's
stockholders purchased $26,191 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 at December 31, 2000.

         On August 1, 2002, the Company entered into a new credit facility (the
"Loan and Security Agreement") consisting of a $27,500 asset based facility. The
facility consists of a term loan component which requires quarterly principal
payments of between $215 and $359 which commenced November 1, 2002. The Loan and
Security Agreement also consists of a revolving line of credit component. All
borrowings under the credit facility are secured by substantially all assets of
the Company. Availability under the line of credit component is determined by a
borrowing base of 85% of eligible accounts receivable and 50% of eligible
inventory, as defined in the Loan and Security Agreement. At August 1, 2002, the
available borrowing base was $23,880, of which $22,620 was drawn at closing.
Debt outstanding under the Loan and Security Agreement bears interest at a rate
equal to, at the Company's option, either (1) in the case of LIBOR rate loans,
the sum of the offered rate for deposits in United States dollars for a period
equal to such interest period as it appears on Telerate page 3750 as of 11:00am
London time and a margin of between 2.5% and 2.85%, or (2) the sum of LaSalle
Business Credit's prime rate plus a margin of between .25% and .50%. At December
31, 2003, the interest rates on the Loan and Security Agreement ranged from
3.64% to 4.50%. Availability under the revolving line of credit was $16,529 at
December 31, 2003, of which $6,976 had been drawn.

                                       61
<PAGE>

         The Company incurred costs for underwriting, legal and other
professional fees in connection with the issuance of the Notes and the
establishment of other credit facilities. 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 statements of operations for the years ended December 31, 2003,
2002, and 2001.

         The Company had no letters of credit outstanding at December 31, 2003
or 2002.

         Debt maturities payable for the five years subsequent to December 31,
2003 and thereafter are as follows:

<TABLE>
<S>                      <C>
2004                     $     9,043
2005                           1,698
2006                           6,932
2007                         121,026
2008                              18
Thereafter                        93
                         -----------
Total                    $   138,810
                         ===========
</TABLE>

I. EQUITY

COMMON AND PREFERRED STOCK

         The Company's amended and restated certificate of incorporation
authorizes the Company to issue 1,400 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,
2003, the Company had issued and outstanding 1,019 shares of Class A Common
Stock, 1,079 shares of Class B Common Stock, 40 shares of Class H Common Stock,
68 shares of Series A Preferred Stock and 68 shares of Series B Preferred Stock.

                                       62
<PAGE>

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 the 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 the 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 A and B Common
Stock out of funds legally available and 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 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.

         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; or (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.

                                       63
<PAGE>

Preferred Stock

         Dividends on the Company's Series A and Series B Preferred Stock
("Preferred Stock") shall be paid at the rate of 12% per annum, compounded
annually, of the liquidation value of such shares (plus any accrued and unpaid
dividends as of the end of the previous anniversary of the date of issuance of
such shares) from and including the date of issuance of such shares of Preferred
Stock to and including the first to occur of: (i) the date on which the
liquidation value (plus all accrued and unpaid dividends thereon) of such shares
of Preferred Stock is paid to the holder thereof in connection with the
liquidation of the Corporation or the redemption of such shares of Preferred
Stock by the Company or; (ii) the date on which such shares are otherwise
acquired by the Company. Such dividends shall accrue whether or not they have
been declared and whether or not there are profits, surplus or other funds of
the Company legally available for the payment of dividends, and such dividends
shall be cumulative such that all accrued and unpaid dividends shall be fully
paid or declared with funds irrevocably set apart for payment thereof and shall
be paid before any dividends, distributions, redemptions or other payments may
be made with respect to any Junior Securities, other than Participating
Dividends.

         If any dividend or other distribution in cash or other property is paid
with respect to the Common Stock, a dividend or other distribution in cash or
other property shall also be paid with respect to shares of Preferred Stock, in
an amount equal to the amount a holder of a share of Preferred Stock would have
received had such holder converted such holder's Preferred Stock into Common
Stock immediately prior to the record date (or if no record date is declared,
the payment date) for the dividend.

         On all matters submitted to a vote of the stockholders, each holder of
outstanding shares of Preferred Stock shall have the number of votes such holder
would have had if such holder had converted such holder's Preferred Stock into
Common Stock on the record date of such vote (or, if no record date is
established, immediately prior to such vote).

         Upon any liquidation, dissolution or winding up of the Company, each
holder of Preferred Stock shall be entitled to be paid, before any distribution
or payment is made upon any Junior Securities, an amount in cash equal to the
greater of (i) the aggregate liquidation value of all Shares of Preferred Stock
held by such holder (plus any accrued and unpaid dividends) or (ii) the amount
such holder of Preferred Stock would receive if the holder converted all of such
holder's shares of Preferred Stock into shares of Common Stock immediately prior
to such liquidation, dissolution or winding up of the Company.

         At any time after April 13, 2022, the Company may redeem the Preferred
Stock by delivering a written notice of such redemption at least thirty days
prior to the redemption date. For each share of Preferred Stock which is to be
redeemed, the Company shall be obligated on the redemption date to pay the
holder of such share an amount equal to the liquidation value of such share
(plus any accrued and unpaid dividends).

         At any time and from time to time, any holder of Preferred Stock may
convert all or any portion of the Preferred Stock (including a fraction of a
share) held by such holder into a number of shares of Common Stock computed by
multiplying the number of shares to be converted by $10.00 and dividing the
result by the applicable conversion price then in effect ($3.55 is the initial
conversion price). The initial conversion price may be adjusted from time to
time for certain dilutive events.

         The Preferred Stock also contains automatic conversion features whereby
upon the closure of a qualifying public offering or upon the vote of a majority
of Preferred Stockholders each share of Preferred Stock is converted to Common
Stock as described above.

         The liquidation value of any share of Preferred Stock as of any
particular date shall be $75,738.83 per share, as such amount is adjusted for
stock splits, stock dividends and similar transactions. The total liquidation
value of the Preferred Stock is $12,750 at December 31, 2003. Total cumulative
unpaid dividends at December 31, 2003 were $2,494.

WARRANTS AND ADDITIONAL EQUITY CONTRIBUTIONS

         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.

                                       64
<PAGE>

         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. The Company recognized a gain,
prior to the allocation of the write-off of unamortized deferred financing fees
of $1,381, on the retirement of senior subordinated notes of $3,286, which is
recorded as a gain on extinguishment of debt, net of the related tax effect, in
the accompanying statement of operations for the year ended December 31, 2001.

         On January 30, 2002, Heat Holdings contributed to Aavid Thermal
Technologies, Inc. an aggregate of $12.0 million in cash in exchange for: (a) a
warrant to purchase 174,389 Series B Preferred Units of Aavid Thermalloy, LLC
held beneficially and of record by Aavid Thermal Technologies, Inc., and (b)
67.71 shares of Aavid Thermal Technologies, Inc. Series A Preferred Stock, par
value $.0001 per share, and 67.71 shares of Aavid Thermal Technologies, Inc.
Series B Preferred Stock, par value $.0001 per share. The portion of the equity
contribution related to the warrant has been recorded in additional paid-in
capital.

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>
Balance at December 31, 2001       30,681         $ 10.00        26,684          $ 10.00          500          $ 10.00
                                   ======         =======        ======          =======          ===          =======
Issued during 2002                  2,815         $ 10.00            --               --           --               --
Canceled during 2002               (1,407)        $ 10.00          (337)         $ 10.00           --               --
                                   ------         -------        ------          -------          ---          -------
Balance at December 31, 2002       32,089         $ 10.00        26,347          $ 10.00          500          $ 10.00
                                   ======         =======        ======          =======          ===          =======
Issued during 2003                     --             --             --              --            --               --
Canceled during 2003                   --             --             --              --          (250)           10.00
                                   ------         ------         ------          ------          ====          =======
Balance at December 31, 2003       32,089         $ 10.00        26,347          $ 10.00          250          $ 10.00
                                   ======         =======        ======          =======          ===          =======
Vested at December 31, 2003        18,690         $ 10.00        15,808          $ 10.00          100          $ 10.00
                                   ======         =======        ======          =======          ===          =======
</TABLE>

         As of December 31, 2003, the Company held notes receivable for stock in
the amount of $587 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 consolidated balance sheets.

                                       65
<PAGE>

J. INCOME TAXES

         Income (loss) from continuing operations, before income taxes, minority
interest and extraordinary item for domestic and foreign operations are as
follows:

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                --------------------------------------
                                                   2003          2002          2001
                                                ----------    ----------    ----------
<S>                                             <C>           <C>           <C>
Domestic                                        $   (6,885)   $  (14,560)   $ (205,649)
Foreign                                              4,858        (3,903)       (8,512)
                                                ----------    ----------    ----------
                                                $   (2,027)   $  (18,463)   $ (214,161)
                                                ==========    ==========    ==========
</TABLE>

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

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                --------------------------------------
                                                   2003          2002          2001
                                                ----------    ----------    ----------
<S>                                             <C>           <C>           <C>
Federal provision (benefit):
   Current                                      $        -    $        -   $         -
   Deferred                                              -             -       (11,306)
                                                ----------    ----------    ----------
                                                         -             -       (11,306)
State provision (benefit):
   Current                                             504           500           515
   Deferred                                              -             -        (2,084)
                                                ----------    ----------    ----------
                                                       504           500        (1,569)
Foreign provision (benefit):
   Current                                           1,237         1,570         1,916
   Deferred                                           (114)       (1,253)            -
                                                ----------    ----------    ----------
                                                     1,123           317         1,916
                                                ----------    ----------    ----------
Total provision (benefit)                       $    1,627    $      817    $  (10,959)
                                                ==========    ==========    ==========
</TABLE>

         The Company has approximately $26,456 of U.S. federal net operating
loss carryforwards available to reduce future taxable income, if any. These net
operating loss carryforwards expire through 2022, 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 provision (benefit) at
the statutory federal income tax rate to the Company's actual income tax
provision (benefit) is as follows:

<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                                                --------------------------------------
                                                   2003          2002          2001
                                                ----------    ----------    ----------
<S>                                             <C>           <C>           <C>
Expected federal tax                            $     (689)   $   (6,277)   $  (73,462)
State income taxes, net of federal benefit             333           330        (1,036)
Non-deductible goodwill                                  -             -        44,629
Foreign related                                      1,275         1,644         4,810
Provision on unremitted foreign earnings               (95)        1,630         1,144
Increase in valuation allowance                        743         3,264         9,099
Other                                                   60           226         3,857
                                                ----------    ----------    ----------
    Total income tax (benefit) expense          $    1,627    $      817    $  (10,959)
                                                ==========    ==========    ==========
</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 2003, 2002 and 2001, the Company provided
for U.S. income taxes on undistributed earnings from its foreign subsidiaries as
it is the Company's intention to repatriate those earnings from its foreign
operations in future years.

                                       66
<PAGE>

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

<TABLE>
<CAPTION>
                                                    DECEMBER 31,
                                            ----------------------------
                                                2003            2002
                                            ------------    ------------
<S>                                         <C>             <C>
Tax credits                                 $      1,373    $      1,373
Inventory reserves and capitalization              1,071             908
Accounts receivable reserves                         595           1,021
Vacation and benefit reserves                        621             553
Unremitted foreign earnings                       (7,171)         (7,267)
Restructuring reserves                               269           1,909
Other liabilities and reserves                     5,961           5,543
Depreciation                                      (1,214)         (1,906)
Net operating loss carryforwards                  26,455          26,500
Acquired intangibles                              (9,765)        (11,296)
Valuation allowance                              (16,828)        (16,085)
                                            ------------    ------------
Net deferred tax assets (liabilities)       $      1,367    $      1,253
                                            ============    ============
</TABLE>

         SFAS No. 109 "Accounting for Income Taxes", requires a valuation
allowance against deferred tax assets if it is more likely than not that some or
all of the deferred tax assets will not be realized. Due to the uncertainty
surrounding the Company's ability to realize the full benefit of the deferred
tax assets, a valuation allowance in the amount of $16,828 and $16,085 has been
established at December 31, 2003 and 2002, respectively.

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:

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S>                                           <C>
           2004                               $    4,983
           2005                                    3,817
           2006                                    3,164
           2007                                    2,700
           2008                                    2,381
     Thereafter                                    4,570
                                              ----------
                                              $   21,615
                                              ==========
</TABLE>

         Lease expense was approximately $6,723, $6,978 and $7,328 for the years
ended December 31, 2003, 2002 and 2001, respectively.

LITIGATION

         The Company is involved in various 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 $936 at December 31, 2003.

MEXICO LABOR AGREEMENT

         The Company is currently operating its Monterrey, Mexico facility under
an annual collective bargaining agreement with its manufacturing employees. The
contract covered 77 employees on December 31, 2003 and expires in March, 2004.

                                       67
<PAGE>

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 $646, $555 and $692 for
the years ended December 31, 2003, 2002 and 2001, respectively.

M. SEGMENT REPORTING

         Aavid provides thermal management solutions for microprocessors and
integrated circuits ("ICs") for digital and power applications. In February
2002, the business was consolidated 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.

         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 continuing operations of each reportable
segment for the years ended December 31, 2003, 2002 and 2001:

<TABLE>
<CAPTION>
                                           REVENUES FROM                       DEPRECIATION        RESTRUCTURING
                                             EXTERNAL          INTEREST            AND                CHARGES
                                             CUSTOMERS       EXPENSE, NET    AMORTIZATION (1)        (CREDITS)
                                           -------------     ------------    ----------------      -------------
<S>                                        <C>               <C>             <C>                   <C>
2003
  Thermal Products                         $     101,583     $     13,274    $          6,252      $         (90)
  CFD Software                                    86,584            5,824               5,204                  -
  Corporate Office                                     -             (961)                 10                  -
                                           -------------     ------------    ----------------      -------------
  Total.............................       $     188,167     $     18,137    $         11,466      $         (90)
2002
  Thermal Products                         $      89,577     $     13,977    $          6,950      $         858
  CFD Software                                    72,365            4,700               4,949                  -
  Corporate Office                                     -            1,464                  23                  -
                                           -------------     ------------    ----------------      -------------
  Total.............................       $     161,942     $     20,141    $         11,922      $         858
2001
  Thermal Products                         $     120,106     $     18,140    $         21,440      $      16,885
  CFD Software                                    50,786            5,642              23,075                  -
  Corporate Office                                     -           (1,565)                519                  -
                                           -------------     ------------    ----------------      -------------
  Total.............................       $     170,892     $     22,217    $         45,034      $      16,885
</TABLE>

         (1) Does not include amortization associated with deferred financing
fees and accretion of bond discount as these amounts are included in "Interest
Expense, net".

                                       68
<PAGE>

<TABLE>
<CAPTION>
                                                               SEGMENT
                                                             INCOME FROM
                                                             CONTINUING
                                         INCOME TAX       OPERATIONS BEFORE      ASSETS (NET OF
                                          PROVISION      TAXES AND MINORITY       INTERCOMPANY         CAPITAL
                                          (BENEFIT)           INTEREST              BALANCES)       EXPENDITURES
                                         -----------     ------------------      --------------     ------------
<S>                                      <C>             <C>                     <C>                <C>
2003
   Thermal Products                      $       861         $   (12,253)          $   54,374        $     929
   CFD Software                                2,886               9,181              103,271            3,078
   Corporate Office                           (2,120)              1,045              (11,952)               2
                                         -----------         -----------           -----------       ---------
   Total...........................      $     1,627         $    (2,027)          $  145,693        $   4,009
2002
   Thermal Products                      $       289         $   (20,689)          $   26,175        $   2,026
   CFD Software                                1,952               5,473               91,895            2,695
   Corporate Office                           (1,424)             (3,247)              20,982                -
                                         -----------         -----------           ----------        ---------
   Total...........................      $       817         $   (18,463)          $  139,052        $   4,721
2001
   Thermal Products                      $    (1,239)        $  (187,625)          $   66,533        $   4,141
   CFD Software                                4,557             (30,242)              86,203            1,576
   Corporate Office                          (14,277)              3,706               22,558                -
                                         -----------         -----------           ----------        ---------
   Total...........................      $   (10,959)        $  (214,161)          $  175,294        $   5,717
</TABLE>

         The following table provides geographic information about the Company's
continuing 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 ENDED DECEMBER 31,
                                ------------------------------------------------------------------------------
                                           2003                       2002                       2001
                                -----------------------     ------------------------   -----------------------
                                LONG-LIVED                  LONG-LIVED                 LONG-LIVED
                                  ASSETS      NET SALES       ASSETS      NET SALES      ASSETS      NET SALES
                                ----------    ---------     ----------    ---------    ----------    ---------
<S>                             <C>           <C>           <C>           <C>          <C>           <C>
United States                   $  61,815      $104,735     $  68,712     $  90,382    $  71,436     $ 110,783
Taiwan                                618        12,428           621         9,261        1,882         9,334
China                                 848        25,750         1,232        14,791        1,886        13,064
United Kingdom                      2,434        22,153         2,304        18,868        1,812        20,164
Italy                               2,609        15,428         2,786        10,768        2,126        11,789
Mexico                                548         8,772           851        11,198        1,141        11,855
Other International                 4,992        55,996         4,148        45,261        4,040        39,341
Intercompany eliminations            (358)      (57,095)         (358)      (38,587)        (348)      (45,438)
                                ---------      --------     ---------     ---------    ---------     ---------
Consolidated                    $  73,506      $188,167     $  80,296     $ 161,942    $  83,975     $ 170,892
                                =========      ========     =========     =========    =========     =========
</TABLE>

         There were no individual customers who made up more than 10% of
consolidated revenues for the years ended December 31, 2003, 2002 or 2001.

N. RESTRUCTURING CHARGES AND RESERVES

         Approximately $2,130 of restructuring charges were 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, 2003 and 2002:

<TABLE>
<CAPTION>
                                                                                            TRANSFERS FROM
                                                                                                 OTHER
                                                                                             RESTRUCTURING
                                                                      CHARGES AGAINST          RESERVES
                                                                     RESERVES FOR THE           FOR THE            RESTRUCTURING
                                                RESTRUCTURING           YEAR ENDED             YEAR ENDED         RESERVES BALANCE
                                             RESERVES BALANCE AT       DECEMBER 31,           DECEMBER 31,         AT DECEMBER 31,
                                               JANUARY 1, 2003             2003                   2003                  2003
                                             -------------------     -----------------      --------------        ----------------
<S>                                          <C>                     <C>                    <C>                   <C>
Lease terminations and leasehold
  improvements reserve                             $  461                  $ (358)               $ (101)               $    2
Employee separation                                   139                     (40)                  101                   200
                                                   ------                  ------                ------                ------
Total                                              $  600                  $ (398)               $   --                $  202
                                                   ======                  ======                ======                ======
</TABLE>

                                       69

<PAGE>

<TABLE>
<CAPTION>
                                                                                            TRANSFERS FROM
                                                                                                 OTHER
                                                                                             RESTRUCTURING
                                                                       CHARGES AGAINST         RESERVES
                                                                      RESERVES FOR THE          FOR THE            RESTRUCTURING
                                                RESTRUCTURING            YEAR ENDED           YEAR ENDED         RESERVES BALANCE
                                             RESERVES BALANCE AT        DECEMBER 31,         DECEMBER 31,         AT DECEMBER 31,
                                               JANUARY 1, 2002              2002                 2002                  2002
                                             -------------------     -----------------      --------------       -----------------
<S>                                          <C>                     <C>                    <C>                  <C>
Lease terminations and leasehold
  improvements reserve                             $  301                   $ --                $  160                $  461
Employee separation                                   139                     --                    --                   139
                                                   ------                   ----                ------                ------
Total                                              $  440                   $ --                $  160                $  600
                                                   ======                   ====                ======                ======
</TABLE>

During 2001, the Company ceased manufacturing operations in Dallas and Terrell,
Texas, Loudwater, United Kingdom and its fan factory in China. Additionally, the
Company reduced its workforce in New Hampshire, Europe and Asia, including both
selling general and administrative and manufacturing personnel. In connection
with these actions, the Company recorded a restructuring charge within the
statement of operations during 2001. This restructuring charge totaled $16,885
and included amounts related to employee severance, lease terminations,
write-off of fixed assets and write-off of a prepaid lease intangible asset that
was originally recorded as part of the Thermalloy acquisition. Approximately 524
individuals were terminated under the restructuring plan. The following amounts
have been charged against these reserves during the years ended December 31,
2003 and 2002:

<TABLE>
<CAPTION>
                                                                      RESTRUCTURING        CHARGES AGAINST
                                                                   PROVISIONS FOR THE      RESERVES FOR THE         RESTRUCTURING
                                             RESTRUCTURING             YEAR ENDED             YEAR ENDED          RESERVES BALANCE
                                          RESERVES BALANCE AT         DECEMBER 31,           DECEMBER 31,          AT DECEMBER 31,
                                            JANUARY 1, 2003               2003                   2003                    2003
                                          -------------------      ------------------      ----------------       ----------------
<S>                                       <C>                      <C>                     <C>                    <C>
Employee separation                            $     44                   $ --                $     (40)              $      4
Fixed asset reserves                              1,247                     --                     (314)                   933
Lease terminations and leasehold
  improvements reserve                              159                     --                     (159)                    --
                                               --------                   ----                ---------               --------
Total                                          $  1,450                   $ --                $    (513)              $    937
                                               ========                   ====                =========               ========
</TABLE>

<TABLE>
<CAPTION>
                                                                       RESTRUCTURING        CHARGES AGAINST
                                                                    PROVISIONS FOR THE      RESERVES FOR THE        RESTRUCTURING
                                              RESTRUCTURING             YEAR ENDED             YEAR ENDED         RESERVES BALANCE
                                           RESERVES BALANCE AT         DECEMBER 31,           DECEMBER 31,         AT DECEMBER 31,
                                             JANUARY 1, 2002               2002                   2002                  2002
                                           -------------------      ------------------      ----------------      ----------------
<S>                                        <C>                      <C>                     <C>                   <C>
Employee separation                             $  1,603                   $ --                $  (1,559)             $     44
Fixed asset reserves                               1,394                     --                     (147)                1,247
Lease terminations and leasehold
  improvements reserve                               212                     --                      (53)                  159
                                                --------                   ----                ---------              --------
Total                                           $  3,209                   $ --                $  (1,759)             $  1,450
                                                ========                   ====                =========              ========
</TABLE>

                                       70

<PAGE>

During 2002, the Company ceased manufacturing operations in Malaysia and reduced
its workforce in Singapore. In connection with these actions, the Company
recorded a restructuring charge within the statement of operations during 2002.
This restructuring charge totaled $858 and included amounts related to employee
severance, facility costs/lease terminations and write-off of fixed assets.
Approximately 57 individuals were terminated under the restructuring plan. The
following amounts have been charged against these reserves during the years
ended December 31, 2003 and 2002:

<TABLE>
<CAPTION>
                                                                       RESTRUCTURING         CHARGES AGAINST
                                                                      CREDITS FOR THE       RESERVES FOR THE        RESTRUCTURING
                                              RESTRUCTURING             YEAR ENDED             YEAR ENDED         RESERVES BALANCE
                                           RESERVES BALANCE AT         DECEMBER 31,           DECEMBER 31,         AT DECEMBER 31,
                                             JANUARY 1, 2003               2003                   2003                  2003
                                           -------------------        ---------------       ----------------      ----------------
<S>                                        <C>                        <C>                   <C>                   <C>
Employee separation                              $   23                   $  (8)                $    (15)              $   --
Fixed asset reserves                                 15                      --                       (9)                   6
Facility costs and lease terminations               165                     (82)                     (80)                   3
                                                 ------                   -----                 --------               ------
Total                                            $  203                   $ (90)                $   (104)              $    9
                                                 ======                   =====                 ========               ======
</TABLE>

<TABLE>
<CAPTION>
                                                                       RESTRUCTURING         CHARGES AGAINST
                                                                    PROVISIONS FOR THE      RESERVES FOR THE        RESTRUCTURING
                                              RESTRUCTURING             YEAR ENDED             YEAR ENDED         RESERVES BALANCE
                                           RESERVES BALANCE AT         DECEMBER 31,           DECEMBER 31,         AT DECEMBER 31,
                                             JANUARY 1, 2002               2002                   2002                  2002
                                           -------------------      ------------------      ----------------      ----------------
<S>                                        <C>                      <C>                     <C>                   <C>
Employee separation                               $ --                    $  253                $   (230)              $   23
Fixed asset reserves                                --                       429                    (414)                  15
Facility costs and lease terminations               --                       176                     (11)                 165
                                                  ----                    ------                --------               ------
Total                                             $ --                    $  858                $   (655)              $  203
                                                  ====                    ======                ========               ======
</TABLE>

O. QUARTERLY DATA (UNAUDITED)

         Following is a summary of the quarterly results of continuing
operations for the years ended December 31, 2003, and 2002:

<TABLE>
<CAPTION>
                                               FISCAL QUARTER
                   ---------------------------------------------------------------------
                     FIRST         SECOND         THIRD          FOURTH          TOTAL
                   ---------     ---------      ---------      ----------     ----------
<S>                <C>           <C>            <C>            <C>            <C>
2003
Net sales          $  43,831     $  47,590      $  44,164      $   52,582     $  188,167
Gross profit          21,378        22,129         21,838          25,761         91,106
Net income(loss)      (3,442)       (1,496)        (1,580)          2,864         (3,654)
2002
Net sales          $  38,432     $  40,423      $  39,090      $   43,997     $  161,942
Gross profit          15,898        18,286         18,072          21,154         73,410
Net income(loss)      (7,957)       (6,355)         1,929(1)         (172)       (12,555)
</TABLE>

(1) During the third quarter of 2002, the Company recorded a gain on the sale of
Curamik of approximately $7,100.

                                       71

<PAGE>

P. 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, 2003
                                              ------------------------------------------------------------------------------------
                                                             U.S. GUARANTOR       NON-GUARANTOR
                                                PARENT        SUBSIDIARIES        SUBSIDIARIES      ELIMINATIONS      CONSOLIDATED
                                              ----------     --------------       -------------     ------------      ------------
<S>                                           <C>            <C>                  <C>               <C>               <C>
ASSETS
Cash and cash equivalents..................   $       97       $    5,081           $ 10,053         $       --        $   15,231
Accounts receivable-trade, net.............           --           15,800             24,199                  9            40,008
Inventories................................           --            5,098              4,548                (63)            9,583
Due (to) from affiliate, net...............       64,552          (63,135)            19,074            (20,491)               --
Refundable taxes...........................         (239)             228                 (9)               180               160
Deferred income taxes......................         (263)           9,218              1,172             (8,955)            1,172
Prepaid and other current assets...........           96            1,390              4,547                 --             6,033
                                              ----------       ----------           --------         ----------        ----------
Total current assets.......................       64,243          (26,320)            63,584            (29,320)           72,187
Property, plant and equipment, net.........            5           16,286             10,707                104            27,102
Investment in subsidiaries.................      (30,402)              --                 --             30,402                --
Deferred taxes.............................        1,384               --                404             (1,384)              404
Other assets, net..........................          586           44,459                939                 16            46,000
                                              ----------       ----------           --------         ----------        ----------
Total assets...............................   $   35,816       $   34,425           $ 75,634         $     (182)       $  145,693
                                              ==========       ==========           ========         ==========        ==========

LIABILITIES, MINORITY INTERESTS AND
STOCKHOLDERS' DEFICIT
Current portion of debt obligations........   $       --       $    6,993           $  2,050         $       --        $    9,043
Accounts payable-trade.....................           88            1,833             11,022                 --            12,943
Income taxes payable.......................         (534)           3,790              1,651             (1,118)            3,789
Deferred revenue...........................           --           19,313             18,344                 --            37,657
Accrued expenses and other current
 liabilities                                       7,450            9,437             10,114                 30            27,031
                                              ----------       ----------           --------         ----------        ----------
Total current liabilities..................        7,004           41,366             43,181             (1,088)           90,463
                                              ----------       ----------           --------         ----------        ----------
Debt obligations, net of current portion...      120,977            8,443                347                 --           129,767
Deferred income taxes......................      (17,422)          22,057                210             (4,636)              209
                                              ----------       ----------           --------         ----------        ----------
Total liabilities..........................      110,559           71,866             43,738             (5,724)          220,439
                                              ----------       ----------           --------         ----------        ----------
Commitments and contingencies
Minority interests.........................          588               --                 --                 (3)              585
Stockholders' deficit
Common stock...............................           --               --              4,506             (4,506)               --
Preferred stock............................           --           67,703              5,000            (72,703)               --
Warrants...................................        3,764              --                  --                 --             3,764
Additional paid-in capital.................      188,007          126,191              7,311           (133,502)          188,007
Cumulative translation adjustment..........       (1,105)             333              5,547             (5,880)           (1,105)
Accumulated deficit........................     (265,997)        (231,668)             9,532            222,136          (265,997)
                                              ----------       ----------           --------         ----------        ----------
Total stockholders' equity (deficit).......      (75,331)         (37,441)            31,896              5,545           (75,331)
                                              ----------       ----------           --------         ----------        ----------
Total liabilities, minority interests and
 stockholders' (deficit) equity............   $   35,816       $   34,425           $ 75,634         $     (182)       $  145,693
                                              ==========       ==========           ========         ==========        ==========
</TABLE>

                                       72

<PAGE>

<TABLE>
<CAPTION>
                                                          CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2002
                                              ------------------------------------------------------------------------------------
                                                             U.S. GUARANTOR       NON-GUARANTOR
                                                PARENT        SUBSIDIARIES        SUBSIDIARIES      ELIMINATIONS      CONSOLIDATED
                                              ----------     --------------       -------------     ------------      ------------
<S>                                           <C>            <C>                  <C>               <C>               <C>
ASSETS
Cash and cash equivalents.................    $    1,422       $    2,440           $  8,435         $       --        $   12,297
Accounts receivable-trade, net............            --           13,314             19,791                  9            33,114
Notes receivable..........................            --               82                 --                 --                82
Inventories...............................            --            2,757              4,121                (24)            6,854
Due (to) from affiliate, net..............        55,813          (37,450)            14,309            (32,672)               --
Refundable taxes..........................          (239)              91                161                180               193
Deferred income taxes.....................         8,073              882              1,139             (8,955)            1,139
Prepaid and other current assets..........           103            1,434              3,540                 --             5,077
                                              ----------       ----------           --------         ----------        ----------
Total current assets......................        65,172          (16,450)            51,496            (41,462)           58,756
Property, plant and equipment, net........            12           19,324             10,358                (76)           29,618
Investment in subsidiaries................       (49,125)              --                 --              49,125               --
Deferred taxes............................         1,384               --                364             (1,384)              364
Other assets, net.........................        23,811           48,685              1,220            (23,402)           50,314
                                              ----------       ----------           --------         ----------        ----------
Total assets..............................    $   41,254       $   51,559           $ 63,438         $  (17,199)       $  139,052
                                              ==========       ==========           ========         ==========        ==========

LIABILITIES, MINORITY INTERESTS AND
STOCKHOLDERS' DEFICIT
Current portion of debt obligations.......    $       --       $    7,397           $  1,537         $       --        $    8,934
Accounts payable-trade....................           406            2,505              8,498                 --            11,409
Income taxes payable......................           396            4,050                606             (1,117)            3,935
Deferred revenue..........................            --           16,402             13,458                 --            29,860
Accrued expenses and other current
liabilities...............................         7,890            8,731              7,326                 30            23,977
                                              ----------       ----------           --------         ----------        ----------
Total current liabilities.................         8,692           39,085             31,425             (1,087)           78,115
                                              ----------       ----------           --------         ----------        ----------
Debt obligations, net of current portion..       120,273            9,865                378                 --           130,516
Deferred income taxes.....................       (17,884)          22,520                250             (4,636)              250
                                              ----------       ----------           --------         ----------        ----------
Total liabilities.........................       111,081           71,470             32,053             (5,723)          208,881
                                              ----------       ----------           --------         ----------        ----------
Commitments and contingencies
Minority interests........................           589               --                 --                 (2)              587
Stockholders' deficit
Common stock..............................            --               --              4,507             (4,507)               --
Preferred stock...........................            --               --              5,000             (5,000)               --
Warrants..................................         3,764               --                 --                 --             3,764
Additional paid-in capital................       188,007          207,606              6,343           (213,949)          188,007
Cumulative translation adjustment.........           156            1,874                959             (2,833)              156
Accumulated deficit.......................      (262,343)        (229,391)            14,576            214,815          (262,343)
                                              ----------       ----------           --------         ----------        ----------
Total stockholders' equity (deficit)......       (70,416)         (19,911)            31,385            (11,474)          (70,416)
                                              ----------       ----------           --------         ----------        ----------
Total liabilities, minority interests and
 stockholders' (deficit) equity...........    $   41,254       $   51,559           $ 63,438         $  (17,199)       $  139,052
                                              ==========       ==========           ========         ==========        ==========
</TABLE>

                                       73

<PAGE>

<TABLE>
<CAPTION>
                                                                   CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                                                                        FOR THE YEAR ENDED DECEMBER 31, 2003
                                                ---------------------------------------------------------------------------------
                                                            U.S. GUARANTOR       NON-GUARANTOR
                                                  PARENT     SUBSIDIARIES        SUBSIDIARIES      ELIMINATIONS      CONSOLIDATED
                                                ---------   --------------       -------------     ------------      ------------
<S>                                             <C>         <C>                  <C>               <C>               <C>
Net sales....................................   $      --      $ 106,207          $ 140,528          $ (58,568)       $ 188,167
Cost of goods sold...........................          --         47,036             82,197            (32,172)          97,061
                                                ---------      ---------          ---------          ---------        ---------
Gross profit.................................          --         59,171             58,331            (26,396)          91,106
Selling, general and administrative expenses.         (42)        37,988             33,724             (9,105)          62,565
Restructuring charges........................          --           (375)               285                 --              (90)
Intangible asset impairment charge...........          --           (854)               854                 --               --
Research and development.....................          --         15,182             17,314            (17,492)          15,004
                                                ---------      ---------          ---------          ---------        ---------
Income from operations.......................          42          7,230              6,154                201           13,627
Interest income (expense) net................         961        (18,744)              (336)               (18)         (18,137)
Other income (expense), net..................          41          2,202              1,565             (1,325)           2,483
Equity in income of subsidiaries.............      (6,819)            --                 --              6,819               --
                                                ---------      ---------          ---------          ---------        ---------
Income (loss) from continuing operations
  before income taxes........................      (5,775)        (9,312)             7,383              5,677           (2,027)
Income tax benefit (expense).................       2,121         (2,115)            (1,633)                --           (1,627)
                                                ---------      ---------          ---------          ---------        ---------
Net income (loss)............................   $  (3,654)     $ (11,427)         $   5,750          $   5,677        $  (3,654)
                                                =========      =========          =========          =========        =========
</TABLE>

<TABLE>
<CAPTION>
                                                                   CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                                                                        FOR THE YEAR ENDED DECEMBER 31, 2002
                                                ---------------------------------------------------------------------------------
                                                            U.S. GUARANTOR       NON-GUARANTOR
                                                  PARENT     SUBSIDIARIES        SUBSIDIARIES      ELIMINATIONS      CONSOLIDATED
                                                ---------   --------------       -------------     ------------      ------------
<S>                                             <C>         <C>                  <C>               <C>               <C>
Net sales....................................   $      --      $  91,971          $ 110,147          $ (40,176)       $ 161,942
Cost of goods sold...........................          --         39,944             67,894            (19,306)          88,532
                                                ---------      ---------          ---------          ---------        ---------
Gross profit.................................          --         52,027             42,253            (20,870)          73,410
Selling, general and administrative expenses.       1,787         35,013             28,767             (6,732)          58,835
Restructuring charges........................          --             --                858                 --              858
Research and development.....................          --         13,316             13,243            (14,067)          12,492
                                                ---------      ---------          ---------          ---------        ---------
Income (loss) from continuing operations.....      (1,787)         3,698               (615)               (71)           1,225
Interest income (expense) net................      (1,437)       (17,571)            (1,181)                48          (20,141)
Other income (expense), net..................           4           (263)            (2,880)             3,592              453
Equity in income of subsidiaries.............     (24,081)            --                 --             24,081               --
                                                ---------      ---------          ---------          ---------        ---------
Income (loss) from continuing operations
  before income taxes........................     (27,301)       (14,136)            (4,676)            27,650          (18,463)
Income tax benefit (expense).................       1,424         (1,829)              (412)                --             (817)
                                                ---------      ---------          ---------          ---------        ---------
Income (loss)from continuing operations......     (25,877)       (15,965)            (5,088)            27,650          (19,280)
Income (loss)from discontinued operations....      13,322         (6,304)              (293)                --            6,725
                                                ---------      ---------          ---------          ---------        ---------
Net income (loss)............................   $ (12,555)     $ (22,269)         $  (5,381)         $  27,650        $ (12,555)
                                                =========      =========          =========          =========        =========
</TABLE>

                                       74

<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...................................    $       --       $  111,661          $ 105,547         $ (46,316)     $  170,892
Cost of goods sold..........................            --           80,090             73,030           (29,120)        124,000
                                                ----------       ----------          ---------         ---------      ----------
Gross profit................................            --           31,571             32,517           (17,196)         46,892
Selling, general and administrative
  expenses..................................         1,154           71,840             25,526            (5,778)         92,742
Restructuring charges.......................            --           15,078              1,807                --          16,885
Loss on sale of division....................            --            4,322                 --                --           4,322
Intangible asset impairment charge..........            --           82,548                 --            32,662         115,210
Research and development....................            --           10,576             11,816           (11,617)         10,775
                                                ----------       ----------          ---------         ---------      ----------
Loss from continuing operations.............        (1,154)        (152,793)            (6,632)          (32,463)       (193,042)
Interest income (expense) net...............         1,655          (22,787)            (1,087)                2         (22,217)
Gain on extinguishment of debt, net of tax..         3,286           (1,381)                --                --           1,905
Other income (expense), net.................             9              (24)              (332)             (460)           (807)
Equity in income of subsidiaries............      (216,536)              --                 --           216,536              --
                                                ----------       ----------          ---------         ---------      ----------
Income (loss) from continuing operations
  before income taxes and minority
  interest..................................      (212,740)        (176,985)            (8,051)          183,615        (214,161)
Income tax benefit (expense)................        14,277           (3,151)              (167)               --          10,959
                                                ----------       ----------          ---------         ---------      ----------
Income (loss) from continuing operations
   before minority interest.................      (198,463)        (180,136)            (8,218)          183,615        (203,202)
Minority interest in (income) loss of
  subsidiaries consolidated subsidiaries....            --            3,294                 --                --           3,294
                                                ----------       ----------          ---------         ---------      ----------
Income (loss)from continuing operations.....      (198,463)        (176,842)            (8,218)          183,615        (199,908)
Income (loss)from discontinued operations...            --               77              1,369                (1)          1,445
                                                ----------       ----------          ---------         ---------      ----------
Net income (loss)...........................    $ (198,463)      $ (176,765)         $  (6,849)        $ 183,614      $ (198,463)
                                                ==========       ==========          =========         =========      ==========
</TABLE>

<TABLE>
<CAPTION>
                                                               CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                                                                     FOR THE YEAR ENDED DECEMBER 31, 2003
                                               ----------------------------------------------------------------------------
                                                            U.S. GUARANTOR     NON-GUARANTOR
                                                 PARENT      SUBSIDIARIES      SUBSIDIARIES     ELIMINATIONS   CONSOLIDATED
                                               ---------    --------------     -------------    ------------   ------------
<S>                                            <C>          <C>                <C>              <C>            <C>
Net cash provided by (used in) operating
 activities ..............................     $    (61)       $  7,394           $    667        $  3,047        $ 11,047
Cash flows used in investing activities:
Proceeds from sale of fixed assets .......           --              --                188              --             188
Purchases of property, plant and
 equipment ...............................           (2)           (828)            (3,179)             --          (4,009)
                                               --------        --------           --------        --------        --------
Net cash used in investing activities ....          (2)           (828)            (2,991)             --          (3,821)
Cash flows provided by (used in)
 financing activities:
Advances under other debt obligations ....           --              --                178              --             178
Principal payments on other debt
 obligations .............................           --          (1,900)              (241)             --          (2,141)
(Repayments of) advances on line of
 credit, net .............................           --            (484)               327              --            (157)
                                               --------        --------           --------        --------        --------
Net cash provided by (used in) financing
 activities ..............................           --          (2,384)               264              --          (2,120)
Foreign exchange effect on cash and cash
 equivalents .............................       (1,262)         (1,541)             3,678          (3,047)         (2,172)
                                               --------        --------           --------        --------        --------
Net increase (decrease) in cash and cash
equivalents ..............................       (1,325)          2,641              1,618              --           2,934
Cash and cash equivalents, beginning of
 year ....................................        1,422           2,440              8,435              --          12,297
                                               --------        --------           --------        --------        --------
Cash and cash equivalents, end of year ...     $     97        $  5,081           $ 10,053         $    --        $ 15,231
                                               ========        ========           ========        --------        ========
</TABLE>

                                       75

<PAGE>

<TABLE>
<CAPTION>
                                                                  CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                                                                         FOR THE YEAR ENDED DECEMBER 31, 2002
                                                     --------------------------------------------------------------------------
                                                                U.S. GUARANTOR   NON-GUARANTOR
                                                      PARENT     SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                     --------   --------------   -------------    ------------     ------------
<S>                                                  <C>        <C>              <C>              <C>              <C>
Net cash provided by (used in) operating
 activities ....................................     $ 11,214      $(18,737)       $  1,714          $  2,294        $ (3,515)
Cash flows used in investing activities:
Proceeds from sale of fixed assets .............           --         1,414             350                --           1,764
Proceeds from sale of division .................       31,524            --              --                --          31,524
Purchases of property, plant and
 equipment .....................................           --        (1,973)         (2,748)               --          (4,721)
                                                     --------      --------        --------          --------        --------
Net cash provided by (used in) investing
 activities ....................................       31,524          (559)         (2,398)               --          28,567
Cash flows provided by (used in)
 financing activities:
Advances under other debt obligations ..........           --        11,481             246                --          11,727
Principal payments on other debt
 obligations ...................................      (38,192)         (884)           (115)               --         (39,191)
(Repayments of) advances under line of
 credit,  net ..................................      (17,000)        5,625           1,297                --         (10,078)
Issuance of preferred stock and warrant ........       12,000            --              --                --          12,000
                                                     --------      --------        --------          --------        --------
Net cash provided by (used in) financing
 activities ....................................      (43,192)       16,222           1,428                --         (25,542)
Foreign exchange effect on cash and cash
 equivalents ...................................        1,027           (80)           (404)           (2,294)         (1,751)
                                                     --------      --------        --------          --------        --------
Net increase (decrease) in cash and cash
equivalents ....................................          573        (3,154)            340                --          (2,241)
Cash and cash equivalents, beginning of
 year ..........................................          849         5,594           8,095                --          14,538
                                                     --------      --------        --------          --------        --------
Cash and cash equivalents, end of year..........     $  1,422      $  2,440        $  8,435          $     --        $ 12,297
                                                     ========      ========        ========          ========        ========
</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 ...............................     $(12,941)       $  1,383          $    758        $  1,140        $ (9,660)
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.................................           --          (2,240)           (3,477)             --          (5,717)
                                                --------        --------          --------        --------        --------
Net cash provided by (used in) investing
 activities ...............................         (882)            726            (3,234)             --          (3,390)
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 (repayments of)
    line of credit, net ...................        9,300              --              (396)             --           8,904
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 ...........................          737              93             1,288          (1,142)            976
                                                --------        --------          --------        --------        --------
Net increase (decrease) in cash and cash
   equivalents ............................       (8,594)          1,658            (1,375)             (2)         (8,313)
Cash and cash equivalents, beginning of
   year ...................................        9,443           3,936             9,470               2          22,851
                                                --------        --------          --------        --------        --------
Cash and cash equivalents, end of year.....     $    849        $  5,594          $  8,095        $     --        $ 14,538
                                                ========        ========          ========        ========        ========
</TABLE>

                                       76

<PAGE>

                SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

ALLOWANCE FOR DOUBTFUL ACCOUNTS:

<TABLE>
<CAPTION>
                  BALANCE AT             PROVISIONS/     WRITE-OFF/         BALANCE AT
               BEGINNING OF YEAR          (CREDITS)     (RECOVERIES)        END OF YEAR
               -----------------         -----------    ------------        -----------
<S>            <C>                       <C>            <C>                 <C>
2003              $   3,194               $    289        $   1,282           $  2,201
2002              $   3,199               $   (296)       $    (291)          $  3,194
2001              $   3,062               $  1,061        $     924           $  3,199
</TABLE>

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