<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, 2002

                                       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|

      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, 2003 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 (the
"Purchaser"). Pursuant to the Merger, Aavid stockholders received $25.50 in cash
for each outstanding share of common stock. In addition, all outstanding stock
options and warrants were cashed out. The Merger was accounted for using the
purchase method. In connection with the Merger, we consolidated our business
into two operating segments: Aavid Thermalloy LLC, which designs, manufacturers
and distributes thermal management products that dissipate unwanted heat from
microprocessors and industrial electronics products, and includes Applied
Thermal Technologies, Inc.'s thermal design, validation and consulting services;
and Fluent, which develops and markets CFD software.

INDUSTRY OVERVIEW

      THERMAL MANAGEMENT

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

      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.


                                       2
<PAGE>

      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 2002, although at a reduced rate. We believe that,
through Fluent, we have approximately 35% 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.


                                       4
<PAGE>
      EXPERIENCED MANAGEMENT TEAM

      Our senior management team has extensive operating and marketing
experience in the thermal management and CFD software markets. This management
team has grown our business, both organically and through strategic
acquisitions, and has been responsible for improving operating efficiencies.
Bharatan R. Patel, our chief executive officer who founded our CFD software
business, has 29 years of experience in the area of fluid flows and thermal
management and H. Ferit Boysan, president of our CFD software business, has 22
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 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.


                                       5
<PAGE>
      LEVERAGE OUR TECHNOLOGICAL LEADERSHIP

      Our approximately 175 Ph.D.s and 270 engineers focus on new technology
initiatives as well as developing new and enhancing existing products, processes
and materials to address the evolving needs of our customers. We seek to enhance
our internal research and development activities through collaborations with our
customers and third parties in order to gain access to, or to pursue the
development of, new technologies for thermal management applications and CFD
software.

MARKETS AND CUSTOMERS

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

<TABLE>
<CAPTION>
                             MARKET                                            CUSTOMERS
                             ------                                            ---------
<S>                                                            <C>                          <C>
   COMPUTERS AND NETWORKING:
     Computers..........................................       Intel                        Apple Computer, Inc.
                                                               Dell                         Hewlett-Packard/ Compaq
                                                               EMC                          IBM

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

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

   INDUSTRIAL ELECTRONICS:
     Communications.....................................       Ciena                        Hughes Network

                                                               Lucent                       Motorola
                                                                Technologies

                                                               Nortel                       Nokia

                                                               Ericsson                     Marconi

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

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

      No customer represented more than 10% of our thermal management net sales
during 2002, 2001 or 2000.


                                       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
                                                               British Aerospace            NASA
                                                               Komatsu

   Automotive.........................................         Cummins Engine               Mitsubishi Motor
                                                               Ford                         Corporation
                                                               General Motors               Renault


   Chemical Process...................................         Bayer                        3M
                                                               Dow Chemical                  Shell KSLA
                                                               DuPont

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

   HVAC Appliance.....................................         Carrier                      Osram/Sylvania
                                                               Hoover                       Whirlpool

   Power Generation...................................         Asea Brown Boveri            Mitsubishi Heavy
                                                                                            Industries
                                                               General Electric             Rolls Royce
                                                               Power Systems                Westinghouse
</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 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,                    heat from microprocessors
                                           stampings, castings or                        and integrated circuits in
                                           multi-technology assemblies.                  electronics applications
                                           These products have high
                                           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
Accessories                                clips,  tapes, adhesives, tabs and            of heat sinks
                                           similar devices which are used to
                                           attach the heat sink to the             -     Promotes a highly efficient
                                           semiconductor or integrated circuit           thermal transfer between the
                                           device and/or to the customer's               microprocessor or integrated
                                           printed circuit board or system               circuit and heat sink
                                           chassis. Interface materials include
                                           greases, silicon pads and other         -     Reduces the cost of the
                                           materials which have desirable                customer's installation and
                                           thermal and electrical properties.            repair
                                           We purchase most of these materials
                                           on a private label basis from a         -     Transfers heat from the
                                           number of suppliers.                          component being cooled to
                                                                                         the heat sink

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

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

COMPUTATIONAL FLUID DYNAMICS SOFTWARE PRODUCTS

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

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

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

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


                                       8
<PAGE>
      We provide a complete suite of CFD software products, with each product
designed for a specific task or for optimal performance on a specific class of
problems. The following is a brief description of our CFD software products:

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

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

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

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

                                                                                   -     Improves the energy
                                                                                         performance of heating and
                                                                                         cooling designs.

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

TECHNOLOGY

      We believe that technology leadership is essential to our growth strategy
and have focused our approximately 175 Ph.D.s and 270 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.


                                       9
<PAGE>
      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 highly thermally conductive adhesive and interface
systems.

      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.


                                       10
<PAGE>
      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 privately held companies,
primarily on the basis of product performance. To the extent that Fluent expands
into additional application and industry-specific markets, it will encounter
additional competition from software companies already serving such specific
markets. In addition, certain CFD software is available in the public domain.

BACKLOG AND LICENSE RENEWAL

      Our hardware products typically are produced and shipped within 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, approximately 80% of our
annual software license revenue was renewed in the following year.

EMPLOYEES

      As of December 31, 2002, we had a total of 1,834 employees including
approximately 400 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.

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.


                                       11
<PAGE>
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.

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


                                       12
<PAGE>
      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,
semiconductor manufacturers and their customers, in developing and designing new
products, typically seek to eliminate or minimize thermal problems, and such
efforts could have the effect of reducing or eliminating demand for certain of
our products. Additionally, we believe that many of our OEM customers compete in
intensely competitive markets characterized by declining prices and low margins.
These OEMs apply continued pricing pressure on their component suppliers,
including us. We cannot provide assurance that we will not be adversely affected
by cyclical conditions in the semiconductor and electronics industries.

      The semiconductor industry continues to be in an economic slump and demand
for industrial and consumer electronics contracted significantly during 2001 and
2002. This situation adversely affected our results of operation for 2001 and
2002, and will likely adversely affect our results of operation into at least
the second half of 2003.

      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, 2002, 2001 and 2000, we
purchased a significant portion of our aluminum coil stock from a single
supplier. We believe that purchasing aluminum extrusion and coil stock from a
limited number of suppliers is necessary in order to obtain lower prices and to
achieve, consistently, the tolerances and design and delivery flexibility that
we require. If the available supply of aluminum declines, or if one or more of
our current suppliers is unable for any reason to meet our requirements, is
acquired by a competitor or determines to compete with us, we could experience
cost increases, a deterioration of service from our suppliers, or interruptions,
delays or a reduction in raw material supply that may cause us to fail to meet
delivery schedules to customers. Although we believe that viable alternate
suppliers exist for the aluminum coil stock and components, any unanticipated
interruption of supply would have a short-term material adverse effect on us.

      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."


                                       13
<PAGE>
      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.

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

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


                                       14
<PAGE>
      OUR INTERNATIONAL OPERATIONS EXPOSE US TO ADDITIONAL RISKS.

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

      -     greater difficulties in controlling and administering business;

      -     less familiarity with business customs and practices;

      -     increased reliance on key local personnel;

      -     the imposition of tariffs and import and export controls;

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

      -     difficulties caused by language barriers;

      -     increased difficulty in collecting receivables;

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

      -     political instability;

      -     foreign currency fluctuations; and

      -     expropriation and nationalization.

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

      A part of our net sales is currently derived from products manufactured at
our manufacturing facility in Guang Dong Province in The People's Republic of
China. We commenced manufacturing at this facility in early 1998 and currently
maintain 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>
      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,
                                                                                         2002
                                                                                 ----------------------
                                                                                 (DOLLARS IN THOUSANDS)
<S>                                                                              <C>
         Total debt (including current portion) .......................                $ 139,450
         Stockholders' deficit.........................................                 (70,416)
         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 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's 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.


                                       18
<PAGE>
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.

      As of December 31, 2002, we had $19.2 million of senior debt outstanding,
all of which was secured debt. The indenture limits, and in some (but not all)
instances prohibits, the incurrence of additional debt.

      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 510,000 square feet of
manufacturing space with locations in Laconia, New Hampshire; Monterrey, Mexico;
the United Kingdom; Italy; Singapore; Taiwan; 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 185,000 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............................       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
      Tokyo, Japan...............................       Fluent-Software Development, Sales and Marketing
</TABLE>


                                       21
<PAGE>
ITEM 3. LEGAL PROCEEDINGS

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

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

None

                                     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 of the Company and the Predecessor
included elsewhere herein.

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

      Certain items have been reclassified to reflect the exclusion of curamik
electronics GmbH from our results from continuing operations as a result of the
sale of Curamik in July, 2002. See Note 8 below and Note D of Notes to our
Consolidated Financial Statements.


                                       22
<PAGE>
<TABLE>
<CAPTION>
                                                                                THE PERIOD
                                                                                 JANUARY 1,       THE PERIOD
                                                                                    2000          FEBRUARY 2,
                                                  YEARS ENDED DECEMBER 31,        THROUGH          THROUGH
                                                                                  FEBRUARY         DECEMBER
                                                1998(1)         1999(1)(2)       1, 2000(1)       31, 2000(1)
                                             -------------    -------------     -------------    -------------
                                             (PREDECESSOR)    (PREDECESSOR)     (PREDECESSOR)    (THE COMPANY)
                                                                                RESTATED (10)     RESTATED (10)
STATEMENT OF OPERATIONS DATA:                                                    UNAUDITED        UNAUDITED
(AMOUNTS IN THOUSANDS)
<S>                                          <C>              <C>               <C>               <C>
Net sales                                       $ 209,078      $ 214,243           $22,437            $253,414
Cost of goods sold                                138,431        138,558            14,879             166,801
                                                ---------      ---------           -------            --------

   Gross profit                                    70,647         75,685             7,558              86,613
Selling, general and administrative
   expenses                                        43,783         51,970             4,952              92,849
Research and development                            6,756          7,528               631               8,495
Intangible asset impairment charge(3)                  --             --                --                  --
Restructuring and buyout of
   compensation arrangements (credit)(4)            5,740           (630)               --                  --
Loss on sale of division(5)                            --             --                --                  --
Acquired in-process research and
  development(6)                                       --             --                --              15,000
                                                ---------      ---------           -------            --------
   Income (loss) from continuing
   operations                                      14,368         16,817             1,975             (29,731)
Interest expense, net                              (1,342)        (1,629)             (816)            (23,136)
Other income (expense), net                          (520)           218                68              (1,012)
                                                ---------      ---------           -------            ---------
   Income (loss) from continuing
    operations before income taxes,
    minority interest, and extraordinary
    item                                           12,506         15,406             1,227             (53,879)
Benefit (provision) for income taxes               (4,385)        (8,852)             (533)                 (5)
                                                ---------      ---------           -------            --------

   Income (loss) from continuing
    operations before minority interest
   and extraordinary item                           8,121          6,554               694             (53,884)
Minority interest                                      --            132                 -               1,519
                                                ---------      ---------           -------            --------

   Income (loss) from continuing
   operations before extraordinary item             8,121          6,686               694             (52,365)
Gain on extinguishment of debt, net of
 tax (7)                                               --             --                --                  --
                                                ---------      ---------           -------            --------
   Income (loss) from continuing
    operations                                      8,121          6,686               694             (52,365)
Income (loss) from discontinued
    operations, net (including gain on
   disposal of $7,082 in 2002)(8)                      --             --               (69)              1,040
                                                ---------      ---------           --------           --------

Net income (loss)(9)                            $   8,121      $   6,686           $   625            $(51,325)
                                                =========      =========           =======            ========

OTHER FINANCIAL DATA:
Adjusted EBITDA(11)                             $  23,728      $  27,239           $ 3,706            $ 35,535
Adjusted EBITDA margin(12)                           11.3%          12.7%             16.5%               14.0%
Depreciation and amortization included
     in continuing operations                   $   9,880      $  10,072           $ 1,063            $ 43,632
Curamik depreciation and amortization
     included as a component of
     discontinued operations                    $      --      $      --           $    92            $    905
Capital expenditures                               10,407         12,364               301               9,452
Charge related to the write-up of
  inventory to fair value                              --          2,857               569               3,963
Minority interest(13)                                  --           (132)               (6)             (1,361)
Write-off of acquired in-process research
  and development                                      --             --                --              15,000
Other one-time accruals                                --             --                --                 999

BALANCE SHEET DATA AT YEAR END:
Working capital                                 $  30,635      $  47,050                              $ 37,359
Total assets                                      126,866        228,952                               386,288
Total long term debt, including current
  portion                                          14,650         88,945                               204,002
Stockholders' (deficit) equity                     71,351         79,568                               100,160
</TABLE>

<TABLE>
<CAPTION>
                                                 YEAR ENDED           YEAR ENDED
                                                  DECEMBER 31,        DECEMBER 31,
                                                   2001(1)             2002(1)
                                                -------------       -------------
                                                (THE COMPANY)       (THE COMPANY)
                                                 RESTATED(10)
STATEMENT OF OPERATIONS DATA:
(AMOUNTS IN THOUSANDS)
<S>                                             <C>                 <C>
Net sales                                          $170,892            $161,942
Cost of goods sold                                  124,000              88,532
                                                   --------            --------

   Gross profit                                      46,892              73,410
Selling, general and administrative
   expenses                                          92,742              58,835
Research and development                             10,775              12,492
Intangible asset impairment charge(3)               115,210                  --
Restructuring and buyout of
   compensation arrangements (credit)(4)             16,885                 858
Loss on sale of division(5)                           4,322                  --
Acquired in-process research and
  development(6)                                         --                  --
                                                   --------            --------
   Income (loss) from continuing
   operations                                      (193,042)              1,225
Interest expense, net                               (22,217)            (20,141)
Other income (expense), net                            (807)                453
                                                   --------            --------
   Income (loss) from continuing
    operations before income taxes,
    minority interest, and extraordinary
    item                                           (216,066)            (18,463)
Benefit (provision) for income taxes                 10,959                (817)
                                                   --------            ---------

   Income (loss) from continuing
    operations before minority interest
   and extraordinary item                          (205,107)            (19,280)
Minority interest                                     3,294                  --
                                                   --------            --------

   Income (loss) from continuing
   operations before extraordinary item            (201,813)            (19,280)
Gain on extinguishment of debt, net of
 tax (7)                                              1,905                  --
                                                   --------            --------
   Income (loss) from continuing
    operations                                     (199,908)            (19,280)
Income (loss) from discontinued
    operations, net (including gain on
   disposal of $7,082 in 2002)(8)                     1,445               6,725
                                                   --------            --------

Net income (loss)(9)                               $(198,463)          $(12,555)
                                                   =========           ========

OTHER FINANCIAL DATA:
Adjusted EBITDA(11)                                $  7,154            $ 22,013
Adjusted EBITDA margin(12)                             4.2%               13.6%
Depreciation and amortization included
     in continuing operations                      $ 46,622            $ 14,322
Curamik depreciation and amortization
     included as a component of
     discontinued operations                       $  1,119            $  1,047
Capital expenditures                                  5,717               4,721
Charge related to the write-up of
  inventory to fair value                                --                  --
Minority interest(13)                                (3,089)                (27)
Write-off of acquired in-process research
  and development                                        --                  --
Other one-time accruals                                  --                  --

BALANCE SHEET DATA AT YEAR END:
Working capital                                    $(152,980)          $(19,359)
Total assets                                        175,294             139,052
Total long term debt, including current
  portion                                           175,832             139,450
Stockholders' (deficit) equity                      (70,888)            (70,416)
</TABLE>


                                       23
<PAGE>
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA (AMOUNTS IN THOUSANDS)

(1)   This financial data reflects the consolidated financial position of the
      Company as of December 31, 2002, 2001 and 2000, and of the Predecessor as
      of December 31, 1999 and 1998, and the consolidated results of operations
      of the Company for the years ended December 31, 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 years
      ended December 31, 1999 and 1998. 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, 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 charges in 1998 related to (i) the estimated restructuring
      costs incurred with our closure of our Manchester, New Hampshire facility,
      (ii) the termination of the management agreement with Sterling Ventures
      Limited and (iii) a bonus due a former President and Chief Executive
      Officer, based on profits in excess of certain thresholds. The 1999 credit
      of $630 relates to the reversal of excess restructuring reserves which
      were no longer required upon the completion of the Manchester
      restructuring in the fourth quarter of 1999. Restructuring charges of
      $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.

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

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

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

(8)   On 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".

(9)   On December 31, 2000, 2001 and 2002, the Company's common stock was not
      publicly traded; therefore, earnings per share information is not
      presented.

(10)  See Notes C and D to the consolidated financial statements for a
      discussion of restatements to the Company's financial results.


                                       24
<PAGE>
(11)  Represents net income before interest, income taxes, depreciation and
      amortization and extraordinary items. Adjusted EBITDA for 2000 also
      includes the following add-backs, as defined by our senior credit
      facility, to net income: non-cash charge to cost of sales related to the
      write-up of inventory to fair value associated with purchase accounting,
      minority interest, non-cash write-off of in-process technology, one-time
      accruals related to increases in inventory and receivables reserves
      related to the Thermalloy acquisition and severance associated with a
      senior executive. Adjusted EBITDA in 2001 and 2002 also includes add-backs
      for restructuring charges, change in deferred revenue from the beginning
      of the year to the end of the year, minority interest, intangible asset
      impairment charge and loss on sale of division, and excludes both the gain
      on extinguishments of debt and the gain on sale of discontinued
      operations. Each of these components of Adjusted EBITDA can significantly
      affect our results of operations and liquidity and should be considered in
      evaluating our financial performance. Adjusted EBITDA is included because
      we understand that such information is considered to be an additional
      basis on which to evaluate our ability to pay interest, repay debt and
      make capital expenditures. Adjusted EBITDA is not intended to represent
      and should not be considered more meaningful than, or as an alternative
      to, measures of performance, profitability or liquidity determined in
      accordance with generally accepted accounting principles.

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

(13)  Minority interest included in "Other Financial Data" differs from minority
      interest recorded within the statements of operations due to the fact that
      within the statement of operations, minority interest associated with
      Curamik has been reclassified to income(loss) from discontinued
      operations. Within "Other Financial Data" minority interest has been
      presented on a gross basis, including the component related to Curamik.


                                       25
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

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

OVERVIEW

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

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

      On October 21, 1999, the Company purchased all of the stock of the
Thermalloy Division of Bowthorpe plc ("Thermalloy") and 85.4% of the stock of
curamik electronics Gmbh ("Curamik") (the "Thermalloy acquisition") for a cash
purchase price of $84.6 million, including transaction costs of $2.8 million.
Thermalloy designs, manufactures and sells a wide variety of standard and
proprietary heat sinks and associated products, similar to those produced by
Aavid Thermal Products, our thermal management business, within the computer and
networking and industrial electronics (including telecommunications) industries.
Curamik is a German corporation that manufactures direct bonded copper ceramic
substrates that are used in the power semiconductor and other industrial
electronics industries. As further discussed below, Curamik was sold on July 17,
2002. Aavid used $12.6 million of its cash on hand and $84.6 million of
borrowings under its new credit facility to complete the Thermalloy acquisition,
repay $12.6 million of outstanding debt, and pay transaction costs. The
acquisition of Thermalloy created significant opportunities to realize cost
savings through certain plant closings, the elimination of duplicative selling,
general and administrative functions and the reduction of unnecessary corporate
expenses. The increased goodwill amortization and other purchase accounting
adjustments resulting from our acquisition of Thermalloy decreased our net
income in the fourth quarter of 1999 and in 2000 as compared to the respective
prior year periods. Following the acquisition of Thermalloy, we changed the name
of Aavid Thermal Products to Aavid Thermalloy.

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


                                       26
<PAGE>
RESTATEMENT OF FINANCIAL RESULTS

See Notes C and D to the consolidated financial statements for a discussion of
restatements to the Company's financial results. The most significant
restatements, software revenue recognition and discontinued operations, are
discussed below.

Restatement of Software Revenue

      The Company's software subsidiary, Fluent, has historically recognized
software revenue in accordance with Statement of Position (SOP) 97-2, "Software
Revenue Recognition" and SOP 98-9, "Modification of SOP 97-2 Software Revenue
Recognition, With Respect to Certain Transactions." These statements provide
specific industry guidance and stipulate that revenue recognized from software
arrangements is to be allocated to each element of the arrangement based on the
relative fair values of the elements, such as software products, upgrades,
enhancements, post-contract customer support ("PCS"), installation or training.
Under the terms of Fluent's arrangements, the software is delivered upon signing
and the bundled PCS is available to the customer over the term of the contract.
SOP 97-2 requires a seller of software with bundled PCS to establish vendor
specific objective evidence ("VSOE") of the value of the undelivered element of
the contract (in Fluent's case the PCS) in order to account separately for the
PCS revenue.

      In order to establish VSOE, there needs to be specific instances in which
a customer purchases the PCS separately from the software such that a true
market value can be determined. Prior to 2001, Fluent's product offerings
consisted of both perpetual licenses and annual licenses that included bundled
PCS. Purchasers of perpetual licenses would renew their PCS each year for a
specific price, thereby establishing VSOE for the PCS. Fluent used this VSOE of
the value of PCS for both perpetual and annual licenses.

      SOP 98-9 modified SOP 97-2 to require the use of the "residual method" in
situations where VSOE of value exists for all undelivered elements, but does not
exist for one or more of the delivered elements. Under the residual method, the
undiscounted VSOE of fair value of the undelivered elements (PCS) is deferred
and the difference (residual) between the total fee and the amount deferred for
the undelivered elements is recognized immediately as revenue. In sum, revenue
related to the software element is recognized upon signing of the contract and
delivery of the product. Revenue related to PCS is recognized ratably over the
life of the contract. Using the residual method methodology, Fluent, with the
concurrence of Arthur Andersen LLP, its auditors at the time, determined that
36% of the annual license fee was attributable to PCS, using the price charged
for PCS on a perpetual license as VSOE of value of PCS for an annual license.
Therefore, upon delivery of software under an annual software license, 64% of
the license fee was recognized immediately and the remaining 36% was deferred
and amortized to revenue over the 12 month life of the license.

      On December 29, 2000, the American Institute of Certified Public
Accountants (AICPA) issued Technical Practice Aid (TPA) 5100.68. TPA 5100.68
dealt with the issue of whether a perpetual license with separately priced PCS
established VSOE of value for shorter term software licenses with bundled PCS.
The AICPA specifically stated in TPA 5100.68 that PCS services for a perpetual
license and PCS services for a shorter term license are two different elements.
Therefore, the renewal rate charged for PCS on a perpetual license does not
provide VSOE of value for PCS on the shorter term license. Due to the issuance
of this TPA, the Company and its auditors at the time, Arthur Andersen LLP,
concluded that under Fluent's bundled contract business practice the Company
could no longer establish VSOE of the value of PCS related to its annual
licenses based on the PCS used for perpetual licenses.

      In order to maintain a consistent revenue recognition methodology and to
more definitely confirm VSOE of value on the individual elements of the
contract, the Company elected to change its annual license agreements and
proposals in 2001 to offer PCS as a separately priced item from the software
(the "unbundled method"), that could be purchased at the customer's election. In
other words, customers could license Fluent's software, which no longer included
PCS, and either separately contract for PCS or elect not to take PCS. The
Company, along with Arthur Andersen LLP, believed at that time that the
unbundled method would establish VSOE of value on the PCS such that the Company
could continue to recognize the software revenue upon contract signing and
shipment of the software, and defer only the PCS portion of the revenue ratably
over the term of the contract. This change had minimal impact on revenue
recognition when compared to prior periods, but did clearly identify separate
prices for the software and service elements of the contract.

      On July 10, 2002, the Company announced it had changed auditors from
Arthur Andersen LLP to Ernst & Young LLP. Arthur Andersen LLP's fate has been
widely publicized and the firm is no longer available to the Company. Based on
discussions with Ernst & Young LLP and the guidance in TPA 5100.68, issued
December 29, 2000, the Company determined that the VSOE of value that it was
relying upon to support the portion of the license fee attributed to the PCS
during 2001, even in the unbundled state, may not have been sufficient to
support such treatment. As a result, the Company


                                       27
<PAGE>
concluded that it should recognize revenue for the entire software license, and
not just the PCS portion of the agreement, ratably over the 12 month term of the
license.

      Accordingly, the Company has restated its financial statements as of
December 31, 2001, and for the year then ended, to reflect this change in
revenue recognition. The Company also restated its financial statements for the
first quarter of 2002 and conformed the financial statements for the remainder
of 2002 to this revenue recognition methodology. While this change has a
significant impact on recorded revenues within the statements of operations, and
consequently on net loss and EBITDA, this change does not affect the Company's
statements of cash flows for the year ended December 31, 2001, and the three
month period ended March 30, 2002, other than re-allocating certain changes in
balance sheet accounts within the cash flow from operations section of the
statement. For the year ended December 31, 2001, the amount of revenue
originally recognized but now deferred is $15.8 million. However, Fluent
continues to be paid by its customers upon commencement of the execution of the
non-cancelable license agreement.

      Restatement from Discontinued Operations

      As discussed under "Discontinued Operations" below, the Company sold its
German subsidiary, Aavid Thermalloy Holdings, GmbH ("Curamik") on July 17, 2002.
Due to the sale, the Company must treat Curamik as a discontinued operation,
which requires all prior periods presented to be restated to remove the results
of Curamik's operations from "continuing" operations and, instead, reflect
Curamik's results of operations as "discontinued" operations.

      All affected amounts in this Form 10-K have been restated to reflect the
change in software revenue recognition and discontinued operations as discussed
above. Arthur Andersen LLP was not available to reissue their report on the
restated fiscal year 2001 and 2000 results. Therefore, the Company's financial
statements for fiscal year 2001 have been reaudited by Ernst & Young, LLP. The
Company's financial statements for fiscal year 2000 were not reaudited. As such,
the fiscal year 2000 financial statements have been labeled as "unaudited"
throughout these financial statements.

DISCONTINUED OPERATIONS

      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"). Under the Sale Agreement, the Company received consideration of
$31.5 million, 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 gain on the sale of $7.1 million in the
accompanying statements of operations for the third quarter of 2002. $27.7
million 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 are 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".

RESULTS OF OPERATIONS

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


                                       28
<PAGE>
<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                                      -------------------------------
                                                                       2000        2001        2002
                                                                      -------     -------     -------
<S>                                                                   <C>         <C>         <C>
Net sales .........................................................     100.0%      100.0%      100.0%
Cost of goods sold ................................................      65.9        72.6        54.7
                                                                      -------     -------     -------

  Gross profit ....................................................      34.1        27.4        45.3
Selling, general and administrative expenses ......................      35.5        54.3        36.3
Research and development ..........................................       3.3         6.3         7.7
Intangible asset impairment charge ................................        --        67.4          --
Restructuring and buyout of compensation arrangements .............        --         9.9         0.5
Loss on sale of division ..........................................        --         2.5          --
Acquired in-process research and development charge ...............       5.4          --          --
                                                                      -------     -------     -------

  Income (loss) from continuing operations ........................     (10.1)     (113.0)        0.8
Interest expense, net .............................................      (8.7)      (13.0)      (12.4)
Other income (expense), net .......................................      (0.3)       (0.4)        0.2
                                                                      -------     -------     -------
  Income (loss) from continuing operations before income taxes,
        minority interest and extraordinary item ..................     (19.1)     (126.4)      (11.4)
Benefit (provision) for income taxes ..............................      (0.2)        6.4        (0.5)
                                                                      -------     -------     -------
  Income (loss) from continuing operations before minority interest
        and extraordinary item ....................................     (19.3)     (120.0)      (11.9)
Minority interest in loss of consolidated subsidiaries ............       0.6         1.9          --
Gain on extinguishment of debt ....................................        --         1.2          --
                                                                      -------     -------     -------
  Income (loss) from continuing operations ........................     (18.7)     (116.9)      (11.9)
Income (loss) from discontinued operations, net ...................       0.3         0.8         4.1
                                                                      -------     -------     -------
   Net income (loss) ..............................................     (18.4)%    (116.1)%      (7.8)%
                                                                      =======     =======     =======
</TABLE>

2002 COMPARED WITH 2001

<TABLE>
<CAPTION>
                                                                         YEAR ENDED
             NET SALES (DOLLARS IN MILLIONS)                             DECEMBER 31,
                                                                      -------------------
                                                                        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.

      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. Fluent changed to a ratable recognition
methodology for software license revenue, as discussed above in the section
titled "Restatement of Financial Results". Beginning in 2001, following the
guidance in TPA 5100.68, issued on December 29, 2000, all revenue related to a
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 due
primarily to increased sales to new customers for computational fluid dynamics
software, as well as the success of application-specific products.

      International net sales (which include North American exports) increased
to 57.5% of net sales for the year ended December 31, 2002 as compared with
53.5% for the year ended December 31, 2001.


                                       29
<PAGE>
      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.

      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


                                       30
<PAGE>
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.

      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 a write-off of intangible assets of $115.2
million discussed below, 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 bears interest at 8%.
The $2.5 million in cash proceeds was remitted to our senior lending group as
required by the amended and restated credit agreement 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.


                                       31
<PAGE>
      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.

2001 COMPARED WITH 2000

<TABLE>
<CAPTION>
                                                                       YEAR ENDED
                         NET SALES (DOLLARS IN MILLIONS)              DECEMBER 31,
                                                              ---------------------------
                                                                2000      2001    CHANGE
                                                              -------   -------   -------
<S>                                                           <C>       <C>         <C>
            Computer, Networking and Industrial Electronics   $ 216.0   $ 118.3     (45.2)%
            Consulting and Design (Applied) ...............       2.2       1.8     (18.2)%
                                                              -------   -------   -------

              Total Aavid Thermalloy ......................     218.2     120.1     (45.0)%
              Total Fluent ................................      57.7      50.8     (12.0)%
                                                              -------   -------   -------
              Total Aavid Thermal Technologies ............   $ 275.9   $ 170.9     (38.0)%
                                                              =======   =======   =======
</TABLE>

      Net sales for 2001 were $170.9 million, a decrease of 38.0% compared with
$275.9 million for 2000. The overall decrease in sales stems primarily from
Aavid Thermalloy whose revenues decreased as a result of the significant decline
experienced by the semi-conductor and electronics industries during 2001.
Fluent's sales decreased $6.9 million while consulting and design services were
down $0.4 million. Fluent experienced a decline in revenues solely due to the
change in revenue recognition methodology in 2001 to a ratable methodology as
discussed above. Prior to 2001, Fluent's methodology was to recognize a
significant portion of a signed license agreement immediately upon delivery of
the software and only defer that revenue which was deemed attributable to the
post contract support portion of the contract. Beginning in 2001, following the
guidance in TPA 5100.68, issued on December 29, 2000, Fluent changed to a
ratable method whereby revenue from the entire software license is deferred and
recognized ratably over the term of the license. Foreign exchange rates in 2001
also had a negative impact on revenues. Had foreign exchange rates over the
course of 2001 remained consistent with the exchange rates at the end of 2000,
the Company's revenues would have been approximately $4.2 million higher than
reported.

      Aavid Thermalloy's net sales were $120.1 million for 2001, a decrease of
$98.1 million, or 45.0%, compared with $218.2 million for 2000. This decrease,
as discussed above, was primarily the result of the significant decline
experienced by the semi-conductor and electronics industries in 2001.

      Fluent's net sales were $50.8 million for 2001, a decrease of $6.9
million, or 12.0%, from 2000 sales of $57.7 million. As discussed above, this
decrease was solely the result of a change in revenue recognition methodology.
Actual billings in 2001 increased approximately 15% over 2000 billings.

      International net sales (which include North American exports) increased
to 53.5% of net sales for the year ended December 31, 2001 as compared with
39.4% for the year ended December 31, 2000.

      Our gross profit in 2001 was $46.9 million, a decrease of $47.3 million,
or 50.2% lower than 2000 gross profit of $94.2 million. Our gross margin in 2001
was 27.4%, which compares with 34.1% in 2000. Aavid Thermalloy saw a significant
decrease in gross profit in 2001 which was caused primarily by excess factory
capacity in the U.S. and abroad due to the significant slowdown in the
semi-conductor and electronic industries. This underutilization has been
addressed through the shut-down in 2001 of the Loudwater, U.K. facility and the
Dallas and Terrell, Texas facilities. Fluent also saw a decrease in gross margin
due to the change in revenue recognition methodology as discussed above. Lastly,
our gross margin in the first quarter of 2000 was negatively impacted by certain
purchase accounting and acquisition related adjustments which decreased gross
profit by $4.5 million in acquisition related charges. Our gross margin in 2000
would have been 35.8% without these charges.

      Our selling, general and administrative expenses, excluding amortization
of intangibles, were $58.5 million, or 34.2% of sales for 2001, as compared with
$66.3 million, or 24.0% of net sales, for 2000. The net decrease in selling,
general and administrative expenses in dollars resulted primarily from S,G&A
expense reductions at Aavid Thermalloy, including personnel reductions in the
Concord, New Hampshire headquarters as well as personnel reductions associated
with the closure of the Dallas, Texas facility which was completed during the
second quarter of 2001. Aavid Thermalloy's S,G&A expenses were down $11.2
million from 2000 levels. Fluent's 2001 S,G&A increased $2.6 million from 2000
levels as Fluent


                                       32
<PAGE>
continued to enhance its sales and support infrastructure to support its growth.
Lastly, the Company's corporate offices also experienced an $0.6 million
increase primarily related to increased legal costs associated with debt
refinancings and foreign corporate reorganizations. On a percentage of net sales
basis, S,G&A in 2001 was 10.2% higher than in 2000. Much of this increase
relates to Aavid Thermalloy as their overall S,G&A rate as a percentage of sales
increased in 2001 due to the significant reduction in revenues from the previous
year. The remaining increase in percentage is primarily the result of Fluent
becoming a much larger component of the consolidated results of the Company.
Fluent in general has a higher S,G&A rate than Aavid Thermalloy.

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

      Our research and development expenses consist primarily of funding for
internal product development activities as well as product development
activities conducted by third parties on our behalf. Research and development
expenses also include the costs of obtaining patents on the technology developed
in research and development activities. Research and development expenses were
$10.8 million, or 6.3% of net sales, which compares with $9.1 million, or 3.3%
of net sales in 2000. The increase in research and development expenses was
primarily due to increased expenditures at Fluent.

      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. 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


                                       33
<PAGE>
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.

      During 2001, global macroeconomic conditions weakened and the demand for
industrial and consumer electronics contracted significantly. Coupled with the
closing of three manufacturing facilities in the U.S. and abroad as discussed
below, we determined that our ability to achieve our original long term
financial forecast had been negatively impacted. We determined that a triggering
event, as defined by SFAS 121, had occurred related to the intangible assets
initially acquired in connection with the Merger. Based on cash flow projections
related to the acquired assets, we concluded that all of the acquired intangible
assets related to Aavid Thermalloy and certain intangible assets related to
Fluent had been impaired. During the fourth quarter of 2001, upon completion of
our analysis of the impairment, we wrote down the assets, along with any
allocated goodwill, to fair value based on the related discounted cash flow. In
order to measure the impairment loss related to goodwill, the difference between
the carrying value and the fair value of goodwill was calculated using a
business enterprise methodology. This method of goodwill measurement entails
calculating the total enterprise value of each of Aavid's business units.
Goodwill and intangible assets were then estimated by subtracting the allocated
tangible assets (normal levels of working capital and fixed assets) from the
total enterprise value. The total impairment charge recorded in 2001 totaled
$115.2 million and is recorded in the accompanying statement of operations as a
component of loss from operations.

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

<TABLE>
<CAPTION>
                                                                                                         TOTAL IMPAIRMENT
      INTANGIBLE ASSET CATEGORY                 AAVID THERMALLOY                   FLUENT                    CHARGE
      -------------------------                 ----------------                   ------                ----------------
      ($ MILLIONS)
<S>                                             <C>                                <C>                   <C>
      Goodwill                                      $    94.1                       $  --                    $  94.1
      Assembled workforce                                 1.5                          --                        1.5
      Developed technology                               18.8                         0.8                       19.6
                                                    ---------                       -----                    -------

             Total                                  $   114.4                       $ 0.8                    $ 115.2
                                                    =========                       =====                    =======
</TABLE>

      During 2001, in response to the global slowdown in the semi-conductor and
electronics industries, we took significant steps to reduce our cost structure
and appropriately size our business to match current revenue levels. These cost
reduction activities included the cessation of manufacturing activities at the
Dallas, Texas, Terrell, Texas and Loudwater, United Kingdom facilities and the
reduction of our New Hampshire workforce, which included a reduction of both
direct labor and S,G&A personnel. The total number of personnel reduced due to
2001 restructuring activities was 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.

      Our loss from continuing operations in 2001 was $193.0 million, an
increase of $165.2 million from the operating loss in 2000 of $27.8 million. The
operating loss in 2001 includes a write-off of intangible assets of $115.2
million as discussed above, restructuring charges of $16.9 million, loss on
disposal of a division (further discussed below) of $4.3 million and increased
intangible amortization of $2.7 million related to having a full twelve months
of amortization in 2001 results, compared with 11 months of amortization in
2000. In 2000, as mentioned above, the Company wrote-off $15.0 million of
in-process technology related to Fluent acquired in the Merger. Aavid Thermalloy
(exclusive of Curamik), excluding intangible write-offs, loss on sale of
division, amortization and restructuring charges, had an operating loss of $19.6
million in 2001 compared with operating income of $11.5 million in 2000. This
decline is related to the significant reduction in revenues that occurred during
2001 associated with the global semiconductor and electronics industry slow
down. Fluent's operating loss, excluding intangible write-offs and amortization
decreased $2.1 million in 2001 compared with 2000.

      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


                                       34
<PAGE>
installments of principal and interest beginning March 1, 2002. The note bears
interest at 8%. The $2.5 million in cash proceeds was remitted to our senior
lending group as required by the amended and restated credit agreement that was
in effect at the time.

      Our net interest charges were $22.2 million in 2001 compared with $24.0
million in 2000. This decrease in interest expense resulted primarily from lower
interest rates in 2001, as well as a reduction in the face amount of our Senior
Subordinated Notes. The savings from lower interest rates and lower debt
balances was partially offset by the fact, that in 2001, we recorded a full
twelve months of interest expense related to the 12 3/4% senior subordinated
notes. In 2000, the notes initially were offered on February 2, 2000 and,
therefore, only eleven months of interest expense related to the Notes was
included in 2000 net interest expense.

      The Company recorded a tax benefit of $11.0 million in 2001 compared to a
tax provision of $0.5 million in 2000. The net tax benefit recorded in 2001 is a
result of an increased tax benefit from domestic federal net operating loss
carryforwards, partially offset by an increase in the valuation allowance on net
deferred tax assets, combined with a reduced tax provision on lower foreign
earnings in 2001 compared to 2000. The Company incurred a tax provision in 2000
despite having significant operating losses because of significant
non-deductible goodwill amortization and in-process R&D charges and a foreign
tax provision of $3.9 million on foreign earnings. We had to record a tax
provision on foreign earnings which are expected to be repatriated into the U.S.
to service debt. Because the Company is in a net operating loss carryforward
position for U.S. tax purposes, the Company will not receive any tax benefit
from foreign tax credits. These repatriated earnings will therefore incur both
foreign income taxes and U.S. income taxes, effectively doubling up the tax rate
on the foreign earnings. The significant net operating loss carryforwards in the
U.S. will help offset the actual cash paid for taxes in the U.S. when the
foreign earnings are repatriated.

CRITICAL ACCOUNTING POLICIES

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

REVENUE RECOGNITION AND SALES RETURNS AND ALLOWANCES

Thermal Products

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

Software

      Our software subsidiary, Fluent, has historically recognized software
revenue in accordance with Statement of Position (SOP) 97-2, "Software Revenue
Recognition" and SOP 98-9, "Modification of SOP 97-2 Software Revenue
Recognition, With Respect to Certain Transactions." These statements provide
specific industry guidance and stipulate that revenue recognized from software
arrangements is to be allocated to each element of the arrangement based on the
relative fair values of the elements, such as software products, upgrades,
enhancements, post-contract customer support ("PCS"), installation or training.
Under the terms of Fluent's arrangements, the software is delivered upon signing
and the bundled PCS is available to the customer over the term of the contract.
SOP 97-2 requires a seller of software with bundled PCS to establish vendor
specific objective evidence ("VSOE") of the value of the undelivered element of
the contract (in Fluent's case the PCS) in order to account separately for the
PCS revenue.

      In order to establish VSOE, there needs to be specific instances in which
a customer purchases the PCS separately from the software such that a true
market value can be determined. Prior to 2001, Fluent's product offerings
consisted of both perpetual licenses and annual licenses that included bundled
PCS. Purchasers of perpetual licenses would renew their PCS


                                       35
<PAGE>
each year for a specific price thereby establishing VSOE for the PCS. Fluent
used this VSOE of the value of PCS for both perpetual and annual licenses.

      SOP 98-9 modified SOP 97-2 to require the use of the "residual method" in
situations where VSOE of value exists for all undelivered elements, but does not
exist for one or more of the delivered elements. Under the residual method, the
undiscounted VSOE of fair value of the undelivered elements (PCS) is deferred
and the difference (residual) between the total fee and the amount deferred for
the undelivered elements is recognized immediately as revenue. In sum, revenue
related to the software element is recognized upon signing of the contract and
delivery of the product. Revenue related to PCS is recognized ratably over the
life of the contract. Using the residual method methodology, Fluent, with the
concurrence of Arthur Andersen LLP, its auditors at the time, determined that
36% of the annual license fee was attributable to PCS, using the price charged
for PCS on a perpetual license as VSOE of value of PCS for an annual license.
Therefore, upon delivery of software under an annual software license, 64% of
the license fee was recognized immediately and the remaining 36% was deferred
and amortized to revenue over the 12 month life of the license.

      On December 29, 2000, the American Institute of Certified Public
Accountants (AICPA) issued Technical Practice Aid (TPA) 5100.68. TPA 5100.68
dealt with the issue of whether a perpetual license with separately priced PCS
established VSOE of value for shorter term software licenses with bundled PCS.
The AICPA specifically stated in TPA 5100.68 that PCS services for a perpetual
license and PCS services for a shorter term license are two different elements.
Therefore, the renewal rate charged for PCS on a perpetual license does not
provide VSOE of value for PCS on the shorter term license. Due to the issuance
of this TPA, we concluded, along with our auditors at the time, Arthur Andersen
LLP, that under Fluent's bundled contract business practice the Company could no
longer establish VSOE of the value of PCS related to its annual licenses based
on the PCS used for perpetual licenses.

      In order to maintain a consistent revenue recognition methodology and to
more definitely confirm VSOE of value on the individual elements of the
contract, we elected to change our annual license agreements and proposals in
2001 to offer PCS as a separately priced item from the software (the "unbundled
method"), that could be purchased at the customer's election. In other words,
customers could license Fluent's software, which no longer included PCS, and
either separately contract for PCS or elect not to take PCS. We believed, along
with Arthur Andersen LLP, at that time that the unbundled method would establish
VSOE of value on the PCS such that the Company could continue to recognize the
software revenue upon contract signing and shipment of the software, and defer
only the PCS portion of the revenue ratably over the term of the contract. This
change had minimal impact on revenue recognition when compared to prior periods,
but did clearly identify separate prices for the software and service elements
of the contract.

      On July 10, 2002, we announced that we had changed auditors from Arthur
Andersen LLP to Ernst & Young LLP. Arthur Andersen LLP's fate has been widely
publicized and the firm is no longer available to us. Based on discussions with
Ernst & Young LLP and the guidance in TPA 5100.68, issued December 29, 2000, we
determined that the VSOE of value that we were relying upon to support the
portion of the license fee attributed to the PCS during 2001, even in the
unbundled state, may not have been sufficient to support such treatment. As a
result, we concluded that we should recognize revenue for the entire software
license, and not just the PCS portion of the agreement, ratably over the 12
month term of the license.

      Accordingly, we have restated our financial statements as of December 31,
2001,and for the year then ended, to reflect this change in revenue recognition.
We have also restated our financial statements for the first quarter of 2002 and
conformed the financial statements for the remainder of 2002 to this revenue
recognition methodology. While this change has a significant impact on recorded
revenues within the statements of operations, and consequently on net loss and
EBITDA, this change does not affect our statements of cash flows for the year
ended December 31, 2001, and the three month period ended March 30, 2002, other
than re-allocating certain changes in balance sheet accounts within the cash
flow from operations section of the statement. For the year ended December 31,
2001, the amount of revenue originally recognized but now deferred is $15.8
million. However, Fluent continues to be paid by its customers upon commencement
of the execution of the non-cancellable license agreement.


                                       36
<PAGE>
ACCOUNTS RECEIVABLE

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

INVENTORIES

      We value our inventory, which consists of materials, labor and overhead,
at the lower of the actual cost to purchase and/or manufacture the inventory or
the current estimated market value of the inventory. We regularly review
inventory quantities on hand and record a provision for excess and obsolete
inventory based primarily on our estimated forecast of product demand and
production demand for the next twelve months. As demonstrated in 2002 and 2001,
demand for our products can fluctuate significantly. A significant increase in
demand for our products could result in a short-term increase in the cost of
inventory purchases and production costs while a significant decrease in demand
could result in an increase in the amount of excess inventory quantities on
hand. In addition, our industry is characterized by rapid technological change,
frequent new product development and rapid product obsolescence that could
result in an increase in the amount of obsolete inventory quantities on hand.
Additionally, our estimates of future product demand may prove to be inaccurate,
in which case we may have understated or overstated the provision required for
excess or obsolete inventory. In the future, if our inventory is determined to
be overvalued, we would be required to recognize such costs in our cost of goods
sold at the time of determination. Likewise, if our inventory is determined to
be undervalued, we may have over-reported our cost of sales in previous periods
and would be required to recognize such additional operating income at the time
of sale. Therefore, although we make every effort to ensure the accuracy of our
forecasts of future product demand, any significant unanticipated changes in
demand or technological developments could have a significant impact on the
value of our inventory and reported operating results.

VALUATION OF LONG-LIVED ASSETS AND INTANGIBLE ASSETS AND GOODWILL

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

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

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

      -     significant negative industry or economic trends.

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


                                       37
<PAGE>
      The total impairment charge recorded in 2001 totaled $115.2 million and is
recorded in the accompanying statement of operations as a component of loss from
operations.

      Effective January 1, 2002, SFAS 142, "Goodwill and Other Intangible
Assets" became effective and, as a result, we ceased amortizing approximately
$45.1 million of goodwill (the amount remaining after the impairment charge
discussed above). Under SFAS 142, goodwill and indefinite-lived assets are no
longer amortized but are reviewed annually, or more frequently if impairment
indications arise, for impairment. Intangible assets with finite lives continue
to be amortized over their estimated useful lives. We have performed the initial
and annual impairment tests required by SFAS 142 and have concluded that no
further impairment exists as of January 1, 2002 and December 31, 2002. We
computed fair value of our operating units based on a discounted cash flow model
and compared the results to the book value of each unit. The fair value exceeded
book value for each operating unit as of our valuation dates of January 1, 2002
and December 31, 2002. Significant estimates included in our valuation included
future business results and the discount rate. Material changes in our estimated
future operating results or discount rate could significantly impact our
carrying value of goodwill and other intangible assets.

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 used in operating activities for the year ended December 31, 2002
was $3.5 million compared to $9.7 million used in operating activities for the
year ended December 31, 2001. We had $19.4 million in negative working capital
as of December 31, 2002 compared with $153.0 million in negative working capital
at December 31, 2001. The Company's working capital at December 31, 2001 was
adversely affected due to the Company classifying all debt related to its senior
credit facility and 12 3/4% bond Indenture as current within the December 31,
2001 balance sheet. This classification was due to an event of non-compliance
with a financial ratio covenant found within the senior credit facility
agreement. As further discussed below, the credit facility was subsequently
refinanced and the appropriate classification of debt into short-term and long-
term portions occurred at December 31, 2002. At December 31, 2002, accounts
receivable days sales outstanding ("DSO") were 66.3 days, compared with 64.5
days at December 31, 2001. At December 31, 2002, inventory turns were 9.7, which
compares with 7.4 times at December 31, 2001.

      During the year ended December 31, 2002, we made capital expenditures of
$4.7 million compared with $5.7 million in 2001. In addition, $0.4 million and
$0.7 million of assets were acquired under capital leases in 2002 and 2001,
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 on the term loan that was originally
due on March 31, 2002. This payment of $1,985 was made at the time of the
signing of the forbearance agreement.

      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, 2002, the interest rates on the Loan and Security
Agreement ranged from 3.92% to 4.75%. Total availability under the line of
credit at December 31, 2002 was $15.2 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


                                       38
<PAGE>
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 $1.8 million at December 31, 2002; however, there are no
required dates within which these quantities may be purchased, as such, this
purchase commitment is not included in the table below. Additionally, the
Company has entered into various long-term debt, capital lease and operating
lease arrangements. The future payments required by these arrangements are as
follows:

<TABLE>
<CAPTION>
       CONTRACTUAL OBLIGATIONS                             PAYMENTS DUE BY PERIOD ($ IN THOUSANDS)
                                                  --------------------------------------------------------
                                                                1 YR
                                                    TOTAL      OR LESS(1)  1-3 YRS      4-5 YRS     5+ YRS
                                                  --------     -------     -------     --------     ------
<S>                                               <C>          <C>         <C>         <C>          <C>
            Long-term debt and capital leases     $139,450     $ 8,934     $ 3,318     $127,198     $   --
            Operating leases                        22,298       6,581       7,719        4,407      3,591
                                                  --------     -------     -------     --------     ------
               Total contractual obligations       161,748      15,515      11,037      131,605      3,591
                                                  ========     =======     =======     ========     ======
</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 2002 effective
interest rates would have an approximate $0.08 million impact on our earnings
for 2003, based on debt composition and rates in effect at December 31, 2002.

      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 48 of this Report.

      This Report contains unaudited consolidated financial statements for 2000.
The consolidated financial statements for 2000 were originally audited by Arthur
Andersen LLP, but have been modified in this Report by the Company to reflect
the treatment of curamik electronics GmbH as a discontinued operation (due to
its sale in July, 2002) and to make an adjustment to the Company's cumulative
translation adjustment. These restatements are further discussed in Notes C and
D to the consolidated financial statements. The 2000 financial statements of
curamik electronics GmbH which formed the basis for the discontinued operations
computations had been audited by an independent German accounting firm. The
Company concluded that a re-audit by Ernst & Young of the 2000 consolidated
financial statements, which encompassed many extraordinary events, including the
Company's acquisition by Willis Stein & Partners in February 2000 and
significant worldwide workforce and facility reductions by Aavid Thermalloy,
would place a significant administrative and financial burden on the Company
while adding minimal benefit. Accordingly, the Company did not consider the
assumption of this burden to be in the best interests of the Company or its debt
holders, and did not conduct the re-audit of 2000.

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

      Not applicable.


                                       39
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

      The following table sets forth the names of each of the our directors as
of March 15, 2003, 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          54      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       39      2000      Mr. Blumenthal became a director upon
                                                    consummation of the Merger on February 2, 2000.
                                                    Mr. Blumenthal has been a managing director of
                                                    Willis Stein & Partners since its inception in
                                                    1994. Prior to that time, he served as vice
                                                    president of Continental Illinois Venture
                                                    Corporation, or CIVC, a private equity
                                                    investment firm, from 1993 to 1994, and as a
                                                    corporate tax attorney with Latham & Watkins, a
                                                    national law firm, from 1988 to 1993.

       John  R. Willis            53      2001      Mr. Willis became a director in October, 2001.
                                                    Mr. Willis has been a managing director of
                                                    Willis Stein & Partners since its inception in
                                                    1994. Prior to that time, he served as the
                                                    president and a managing director of CIVC, a
                                                    private investment firm from 1989 to 1994. Prior
                                                    to his tenure at CIVC, he founded Continental
                                                    Mezzanine Investment Group in 1988, and was its
                                                    manager through 1990.

       Charles A. Dickinson       79      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       64      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>


                                                 40
<PAGE>
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, 2002, our Board of Directors
held 5 formal meetings. Each director attended at least 75% of the meetings of
the Board of Directors held during 2002.

BOARD COMMITTEES

      Our Board of Directors formed an audit committee in 2002 comprised of
Daniel Blumenthal and David Steadman.

EXECUTIVE OFFICERS

      Our executive officers are as follows:

<TABLE>
<CAPTION>
          NAME                         AGE                                POSITION
          ----                         ---                                --------
<S>                                    <C>   <C>
    Bharatan R. Patel.............     54    Chairman of the Board,  President and Chief Executive Officer,
                                             Aavid Thermal Technologies, Inc. and Aavid Thermalloy; Chief Executive Officer,
                                             Fluent; Director
    Bryan A. Byrne................     55    Vice President and Chief Financial Officer
    John W. Mitchell..............     54    Vice President and General Counsel, Aavid
    H. Ferit Boysan...............     55    President and Chief Operating Officer, Fluent
    Peter L. Christie.............     57    Vice President and Chief Financial Officer of Fluent
</TABLE>

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

      BRIAN 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.


                                                 41
<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.

<TABLE>
<CAPTION>
                                                     SUMMARY COMPENSATION TABLE
                                                                                                          LONG-TERM
                                                                                                         COMPENSATION
                                                                       COMPENSATION                         AWARDS
                                                                       ------------                  ---------------------
                                                                          ANNUAL                     SECURITIES UNDERLYING
              NAME AND PRINCIPAL POSITION             FISCAL YEAR         SALARY        BONUS               OPTIONS
              ---------------------------             -----------      ------------    --------      ---------------------
<S>                                                   <C>              <C>             <C>           <C>
      Bharatan R. Patel(1)......................         2002            $394,106      $256,781                 --
      Chief Executive Officer                            2001            $352,431      $     --                 --
                                                         2000            $346,858      $     --                 --

      Brian A. Byrne (2)........................         2002            $232,406      $112,725                 --
      Vice President and Chief Financial Officer         2001            $209,679      $     --                 --
                                                         2000            $120,577      $     --                 --

      H. Ferit Boysan(3)........................         2002            $201,280      $171,085                 --
      President and Chief Operating Officer of           2001            $200,414      $141,222                 --
      Fluent                                             2000            $171,875      $149,213                 --

      John W. Mitchell..........................         2002            $234,928      $116,833                 --
      Vice President, General Counsel and                2001            $217,747      $     --                 --
      Secretary                                          2000            $210,422      $     --                 --

      Peter L. Christie.........................         2002            $146,546      $127,780                 --
      Chief Financial Officer of Fluent                  2001            $142,115      $104,927                 --
                                                         2000            $137,914      $100,427                 --
</TABLE>

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

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

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

EMPLOYMENT AGREEMENTS

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

      The employment agreements require each employee to devote his full
business time and best efforts, business judgment, skill and knowledge
exclusively to the advancement of the business and interests of Aavid. The
employment agreements currently provide for the payment of a base salary to
Messrs. Patel, Boysan, Mitchell and Byrne equal to $350,000, $200,000, $210,000,
and $210,000, respectively, subject to increase at the discretion of the board
of directors of their respective employers. 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.


                                       42
<PAGE>
COMPENSATION OF DIRECTORS

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

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

                      BENEFICIAL OWNERSHIP OF COMMON STOCK

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

      The following table sets forth certain information regarding the
beneficial ownership of the issued and outstanding common stock of Holdings as
of March 1, 2003.

<TABLE>
<CAPTION>
                                                                     BENEFICIAL OWNERSHIP(1)

                                                               Series A                Series C                  Fully
                                        Class A                Preferred               Preferred              Diluted, as
                                      Common and                  and                     and                  converted
                                        Class B                Series B                Series D              (each common
       Name of Security Holder       Common Stock   Percent    Preferred      Percent  Preferred   Percent     class)(2)     Percent
----------------------------------   ------------   -------    ---------      -------  ---------   -------   -----------     -------
<S>                                  <C>            <C>       <C>            <C>       <C>         <C>       <C>            <C>
Willis Stein & Partners Management   4,358,846.57    66.73%           0.00     0.00%         0.00     0.00%   4,358,846.57    46.83%
II, L.L.C.(3)

Willis Stein & Partners Management           0.00     0.00%   1,039,748.31    73.01%   476,357.43    92.89%   2,313,579.30    24.86%
III, L.L.C. (4)

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

Abbott Capital (6)                     427,337.90     6.54%      93,163.66     6.54%    33,546.30     6.54%     608,903.35     6.54%

Nassau Capital (7)                     427,337.90     6.54%      50,266.51     3.53%         0.00     0.00%     474,315.95     5.10%

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

Bharatan R. Patel                       21,366.89     0.33%       4,658.18     0.33%     1,677.31     0.33%      30,445.17     0.33%

H. Ferit Boysan                          6,410.07     0.10%       1,397.45     0.10%       503.19     0.10%       9,133.55     0.10%

John W. Mitchell                         6,410.07     0.10%       1,397.45     0.10%       503.19     0.10%       9,133.55     0.10%

Michael Engelman                         1,282.01     0.02%         279.49     0.02%       100.64     0.02%       1,826.71     0.02%

Peter L. Christie                        1,068.34     0.02%         232.91     0.02%        83.87     0.02%       1,522.26     0.02%

Swaminathan Subbiah                        427.34     0.01%          93.16     0.01%        33.55     0.01%         608.90     0.01%
                                     ------------   ------    ------------   ------    ----------   ------    ------------   ------
Total                                6,532,500.80   100.00%   1,424,146.28   100.00%   512,805.48   100.00%   9,308,001.11   100.00%
                                     ------------   ------    ------------   ------    ----------   ------    ------------   ------
</TABLE>

(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.


                                       43
<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, as
      managing directors of Willis Stein & Partners Management II, L.L.C., may
      be deemed to beneficially own the shares of common stock beneficially
      owned by the partnerships and their general partner. Messrs. Willis and
      Blumenthal disclaim beneficial ownership of any of such shares. The
      address of Willis Stein & Partners Management II, L.L.C. and each
      partnership is One North Wacker Drive, Suite 4800, Chicago, IL 60606.

(4)   Consists of (a) 972,735.80 shares of each of Series A preferred stock and
      Series B preferred stock and 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, as managing directors of
      Willis Stein & Partners Management III, L.L.C., may be deemed to
      beneficially own the shares of common stock beneficially owned by the
      partnerships and their general partner. Messrs. Willis and Blumenthal
      disclaim beneficial ownership of any of such shares. The address of Willis
      Stein & Partners Management III, L.L.C. and each partnership is One North
      Wacker Drive, Suite 4800, Chicago, IL 60606.

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

(6)   Consists of (a) 333,857.73 shares of each of Class A common stock and
      Class B common stock directly beneficially held by Abbott Capital 1330
      Investors II, L.P., (b) 66,771.55 shares of each of Class A common stock
      and Class B common stock, 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.

(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.


                                       44
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

NONE

                                     PART IV

ITEM 14. 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 a date within 90 days of the filing of this Annual
            Report on Form 10-K, our chief executive officer and chief financial
            officer have concluded that our disclosure controls and procedures
            are designed to ensure that information required to be disclosed by
            us in the reports that we file or submit under the Exchange Act is
            recorded, processed, summarized and reported within time periods
            specified in the SEC's rules and forms and are operating in an
            effective manner.

      (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.

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 48. Schedule II - Valuation and Qualifying Accounts and the
            Financial Data Schedule are filed herewith. All other schedules for
            which provision is made in the applicable accounting regulations of
            the Securities and Exchange Commission are not required under the
            related instructions or are inapplicable and, therefore, have been
            omitted.

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

<TABLE>
<CAPTION>
            NO.          DESCRIPTION
            ---          -----------
<S>                     <C>
            2.1         Stock Purchase Agreement by and among Bowthorpe plc,
                        Bowthorpe B.V., Bowthorpe International Inc., Bowthorpe
                        GmbH (collectively, "Bowthorpe") and Aavid Thermal
                        Technologies, Inc., dated as of August 23, 1999(1)

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

            3.1         Certificate of Incorporation (2)

            3.2         By-laws(2)

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

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


                                       45
<PAGE>
<TABLE>
<CAPTION>
            NO.          DESCRIPTION
            ---          -----------
<S>                     <C>
            10.1        Amendment No. 1 and Consent to Amended and Restated
                        Credit Agreement dated April 30, 2001 among Aavid
                        Thermal Technologies, Inc., Heat Holdings Corp., Heat
                        Holdings II Corp., the several lenders from time to time
                        parties hereto, CIBC World Markets Corp., as lead
                        arranger and bookrunner, Fleet National Bank, as
                        documentation agent, and Canadian Imperial Bank of
                        Commerce, as issuer of certain letters of credit, and as
                        issuer and administrative agent. (5)

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

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

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

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

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

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

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

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

            21.0        Subsidiaries of Registrant(2)

            99.1        CEO Certification

            99.2        CFO Certification
</TABLE>

(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).


                                       46
<PAGE>
(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.

                                   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 28, 2003

      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 28, 2003
      ---------------------------      (Principal Executive Officer)
      Bharatan R. Patel


      /s/ Brian A. Byrne               Chief Financial Officer                          March 28, 2003
      ---------------------------      (Principal Financial and Accounting Officer)
      Brian A. Byrne


      /s/ John R. Willis               Director                                         March 28, 2003
      ---------------------------
      John R. Willis


      /s/ Daniel H. Blumenthal         Director                                         March 28, 2003
      ---------------------------
      Daniel H. Blumenthal
</TABLE>


                                       47
<PAGE>
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

AAVID THERMAL TECHNOLOGIES, INC.

<TABLE>
<CAPTION>
                                                                                                                  PAGE
                                                                                                                  ----
<S>                                                                                                               <C>
Report of Independent Auditors .............................................................................       49

Consolidated Balance Sheets as of December 31, 2002 and 2001 ...............................................       50

Consolidated Statements of Operations for the years ended December 31, 2002 and 2001, the Period from
February 2, 2000 Through December 31, 2000 (unaudited) and the Period from January 1, 2000 Through
February 1, 2000 (unaudited) ...............................................................................       51

Consolidated Statements of Changes in Stockholders' (Deficit) Equity for the  years ended December 31,
2002 and 2001,  the Period from February 2, 2000 Through December 31, 2000 (unaudited) and the Period
from January 1, 2000 Through February 1, 2000 (unaudited) ..................................................       52

Consolidated Statements of Cash Flows for the years ended December 31, 2002 and 2001,  the Period from
February 2, 2000 Through December 31, 2000 (unaudited) and the Period from January 1, 2000 Through
February 1, 2000 (unaudited) ...............................................................................       55

Notes to Consolidated Financial Statements .................................................................       56

Schedule II -- Valuation and Qualifying Accounts ...........................................................       85
</TABLE>


                                       48
<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, 2002 and 2001, and the
related consolidated statements of operations, changes in stockholders'
(deficit) equity, and cash flows for the years then ended. 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) as of December 31, 2001
and for the year then ended, which statements reflect total assets and total
revenues of 15.0% and 11.5%, respectively, 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, 2002 and 2001, and the consolidated results of
their operations and their cash flows for the years then ended 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 subject to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.


                                                           /s/ ERNST & YOUNG LLP

MANCHESTER, NEW HAMPSHIRE
February 21, 2003


                                       49
<PAGE>
                        AAVID THERMAL TECHNOLOGIES, INC.
                           CONSOLIDATED BALANCE SHEETS
                 (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                                               DECEMBER 31, 2002   DECEMBER 31, 2001
                                                                                               -----------------   -----------------
                                                                                                                      (RESTATED -
                                                                                                                      NOTES C & D)
<S>                                                                                            <C>                 <C>
ASSETS
Cash and cash equivalents ................................................................          $  12,297         $  14,538
Accounts receivable-trade, less allowance for doubtful accounts ..........................             33,114            30,460
Notes receivable .........................................................................                 82               480
Inventories ..............................................................................              6,854            10,530
Refundable taxes .........................................................................                193               118
Deferred financing fees ..................................................................                 --             5,385
Deferred income taxes ....................................................................              1,139                --
Prepaid and other current assets .........................................................              5,077             3,567
Assets of discontinued operation .........................................................                 --            26,241
                                                                                                    ---------         ---------
Total current assets .....................................................................             58,756            91,319
Property, plant and equipment, net .......................................................             29,618            34,904
Goodwill .................................................................................             39,433            39,433
Developed technology .....................................................................              4,786             8,054
Deferred financing fees ..................................................................              4,410                --
Deferred income taxes ....................................................................                364                --
Other assets, net ........................................................................              1,685             1,584
                                                                                                    ---------         ---------

Total assets .............................................................................          $ 139,052         $ 175,294
                                                                                                    =========         =========

LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS' DEFICIT
Accounts payable-trade ...................................................................          $  11,409         $  13,851
Current portion of long term debt obligations ............................................              8,934           175,382
Income taxes payable .....................................................................              3,935             3,710
Restructuring charges ....................................................................              1,006             2,255
Deferred revenue .........................................................................             29,860            24,080
Accrued expenses and other current liabilities ...........................................             22,971            22,126
Liabilities of discontinued operation ....................................................                 --             2,895
                                                                                                    ---------         ---------
Total current liabilities ................................................................             78,115           244,299
Long term debt obligations, net of current portion .......................................            130,516               450
Deferred income taxes ....................................................................                250                --
                                                                                                    ---------         ---------
Total liabilities ........................................................................            208,881           244,749

Commitments and contingencies (Note L)

Minority interest in consolidated subsidiaries ...........................................                587             1,433

Stockholders' deficit
Series A Preferred Stock, $.0001 par value; authorized 100 shares; 67.71 shares issued and
     outstanding at December 31, 2002 (Liquidation value of $5,692 at December 31, 2002) .                 --                --
Series B Preferred Stock, $.0001 par value; authorized 100 shares; 67.71 shares issued and
     outstanding at December 31, 2002 (Liquidation value of $5,692 at December 31, 2002) .                 --                --
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           176,007
Cumulative translation adjustment ........................................................                156              (871)
Accumulated deficit ......................................................................           (262,343)         (249,788)
                                                                                                    ---------         ---------
Total stockholders' deficit ..............................................................            (70,416)          (70,888)
                                                                                                    ---------         ---------

Total liabilities, minority interest and stockholders' deficit ...........................          $ 139,052         $ 175,294
                                                                                                    =========         =========
</TABLE>

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


                                       50
<PAGE>
                        AAVID THERMAL TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                 THE PERIOD         THE PERIOD
                                                                                                 FEBRUARY 2,      JANUARY 1, 2000
                                                        YEAR ENDED           YEAR ENDED         2000 THROUGH          THROUGH
                                                     DECEMBER 31, 2002   DECEMBER 31, 2001    DECEMBER 31, 2000   FEBRUARY 1, 2000
                                                     -----------------   -----------------    -----------------   ----------------
                                                         (COMPANY)           (COMPANY)            (COMPANY)        (PREDECESSOR)
                                                                           (RESTATED -          (RESTATED -
                                                                           NOTES C & D)          NOTES C & D)    (RESTATED - NOTE D)
                                                                                                 (UNAUDITED)        (UNAUDITED)
<S>                                                  <C>                 <C>                  <C>                <C>
Net sales ...................................           $ 161,942            $ 170,892            $ 253,414           $ 22,437
Cost of goods sold ..........................              88,532              124,000              166,801             14,879
                                                        ---------            ---------            ---------           --------
Gross profit ................................              73,410               46,892               86,613              7,558
Selling, general and administrative
expenses ....................................              55,427               58,515               61,565              4,711
Amortization of intangible assets ...........               3,408               34,227               31,284                241
Research and development ....................              12,492               10,775                8,495                631
Intangible asset impairment charge ..........                  --              115,210                   --                 --
Restructuring charges .......................                 858               16,885                   --                 --
Loss on sale of division ....................                  --                4,322                   --                 --
Acquired in-process research and
development .................................                  --                   --               15,000                 --
                                                        ---------            ---------            ---------           --------

(Loss) income from continuing operations ....               1,225             (193,042)             (29,731)             1,975
Interest expense, net .......................             (20,141)             (22,217)             (23,136)              (816)
Other income (expense), net .................                 453                 (807)              (1,012)                68
                                                        ---------            ---------            ---------           --------
(Loss) income from continuing operations
     before income taxes, minority interest
     and extraordinary item .................             (18,463)            (216,066)             (53,879)             1,227
Benefit (provision) for income taxes ........                (817)              10,959                   (5)              (533)
                                                        ---------            ---------            ---------           --------
(Loss) income from continuing operations
      before minority interest and
      extraordinary item ....................             (19,280)            (205,107)             (53,884)               694
Minority interest in loss of consolidated
     subsidiaries ...........................                  --                3,294                1,519                 --
                                                        ---------            ---------            ---------           --------
(Loss) income from continuing operations
     before extraordinary item ..............             (19,280)            (201,813)             (52,365)               694
Extraordinary item:
     Gain on extinguishment of debt .........                  --                1,905                   --                 --
                                                        ---------            ---------            ---------           --------
Income (loss) from continuing operations ....             (19,280)            (199,908)             (52,365)               694
Income (loss) from discontinued operations
     (including gain on disposal of $7,082
     in 2002) ...............................               6,725                1,445                1,040                (69)
                                                        ---------            ---------            ---------           --------

Net (loss) income ...........................           $ (12,555)           $(198,463)           $ (51,325)          $    625
                                                        =========            =========            =========           ========
</TABLE>

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

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


                                       51
<PAGE>
                        AAVID THERMAL TECHNOLOGIES, INC.
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                    SERIES A                    SERIES B
                                                PREFERRED STOCK              PREFERRED STOCK              COMMON STOCK
                                              SHARES        AMOUNT        SHARES        AMOUNT        SHARES        AMOUNT
                                            -----------   -----------   -----------   -----------   -----------   -----------
<S>                                         <C>           <C>           <C>           <C>           <C>           <C>
Balance, January 1, 2000
     (Predecessor)(Unaudited) ...........                                                             9,608,868   $        96
                                                                                                    ===========   ===========
Comprehensive income:
   Net income(Unaudited) ................                                                                    --   $        --
   Cumulative translation ...............
      adjustment(Unaudited) .............                                                                    --            --
Comprehensive income(Unaudited) .........                                                                    --            --
Proceeds from exercise of ...............
     options(Unaudited) .................                                                             1,391,254            14
Proceeds from the issuance of ...........
     common stock(Unaudited) ............                                                                17,164            --
Income tax benefit from stock ...........
     options(Unaudited) .................                                                                    --            --
                                                                                                    -----------   -----------
Balance, February 1, 2000 ...............
     (Predecessor) (Unaudited) ..........                                                            11,017,286   $       110
                                                                                                    ===========   ===========

Willis Stein merger re-
     capitalization (Company) (Unaudited)
Issuance of warrants in association with
     12.75% subordinated notes(Unaudited)
Comprehensive loss:
  Net loss(Unaudited) ...................
  Cumulative translation ................
     adjustment(Unaudited) ..............

Comprehensive loss (Unaudited) ..........
 Balance, December  31, 2000
     (Company) (Restated) ...............

Capital contribution and bond retirement
Comprehensive loss:
  Net loss (Restated) ...................
  Cumulative translation ................
     adjustment(Restated)
Comprehensive loss(Restated) ............

Balance, December 31, 2001 (Company) ....
     (Restated) .........................

Capital contribution ....................            68   $        --            68   $        --
Comprehensive loss:
  Net loss ..............................            --            --            --            --
  Cumulative translation adjustment .....            --            --            --            --
Comprehensive loss ......................            --            --            --            --
                                            -----------   -----------   -----------   -----------
Balance, December 31, 2002(Company) .....            68   $        --            68   $        --
                                            ===========   ===========   ===========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                                    CLASS A
                                                 COMMON STOCK
                                             SHARES        AMOUNT
                                           -----------   -----------
<S>                                        <C>           <C>
Balance, January 1, 2000
     (Predecessor)(Unaudited) ...........

Comprehensive income:
   Net income(Unaudited) ................
   Cumulative translation ...............
      adjustment(Unaudited) .............
Comprehensive income(Unaudited) .........
Proceeds from exercise of ...............
     options(Unaudited) .................
Proceeds from the issuance of ...........
     common stock(Unaudited) ............
Income tax benefit from stock ...........
     options(Unaudited) .................

Balance, February 1, 2000 ...............
     (Predecessor) (Unaudited) ..........

Willis Stein merger re-
     capitalization (Company) (Unaudited)          940   $        --
Issuance of warrants in association with
     12.75% subordinated notes(Unaudited)           --            --
Comprehensive loss:
  Net loss(Unaudited) ...................           --            --
  Cumulative translation ................
     adjustment(Unaudited) ..............           --            --
                                           -----------   -----------
Comprehensive loss (Unaudited) ..........
 Balance, December  31, 2000
     (Company) (Restated) ...............          940   $        --
                                           ===========   ===========
Capital contribution and bond retirement            79   $        --
Comprehensive loss:
  Net loss (Restated) ...................           --            --
  Cumulative translation ................           --            --
     adjustment(Restated)
Comprehensive loss(Restated) ............           --            --
                                           -----------   -----------
Balance, December 31, 2001 (Company) ....
     (Restated) .........................        1,019   $        --
                                           ===========   ===========
Capital contribution ....................           --   $        --
Comprehensive loss:
  Net loss ..............................           --            --
  Cumulative translation adjustment .....           --            --
Comprehensive loss ......................           --            --
                                           -----------   -----------
Balance, December 31, 2002(Company) .....        1,019   $        --
                                           ===========   ===========
</TABLE>

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

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


                                       52
<PAGE>
                        AAVID THERMAL TECHNOLOGIES, INC.
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
                                   (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, 2000  (Predecessor)(Unaudited) .                                                                  $   58,660
                                                                                                                      ==========
Comprehensive income: ..............................
  Net income(Unaudited) ............................                                                                  $       --
  Cumulative translation adjustment(Unaudited) .....                                                                          --
Comprehensive income(Unaudited) ....................
Proceeds from exercise of options(Unaudited) .......                                                                      20,243
Proceeds from the issuance of common ...............
     stock(Unaudited) ..............................                                                                         330
Income tax benefit from stock ......................
     options(Unaudited) ............................                                                                       6,213
                                                                                                                      ----------
Balance, February 1, 2000 (Predecessor) ............
     (Unaudited) ...................................                                                                  $   85,446
                                                                                                                      ==========

Willis Stein merger re-capitalization
     (Company) (Unaudited) .........................         1,000   $       --         40   $      --   $       --   $  147,187
Issuance of warrants in association with
   12.75% subordinated notes(Unaudited) ............            --           --         --          --        4,560           --
Comprehensive loss:
  Net loss  (Unaudited) ............................            --           --         --          --           --           --
  Cumulative translation adjustment
     (Unaudited) ...................................            --           --         --          --           --           --
Comprehensive loss(Unaudited) ......................            --           --         --          --           --           --
                                                          --------   ----------   --------   ---------   ----------   ----------
Balance, December 31, 2000
     (Company) (Restated) ..........................         1,000   $       --         40   $      --   $    4,560   $  147,187
                                                          ========   ==========   ========   =========   ==========   ==========
  Capital contribution and bond retirement .........            79   $       --         --   $      --   $     (796)  $   28,820
Comprehensive loss:
  Net loss (Restated) ..............................            --           --         --          --           --           --
  Cumulative translation adjustment (Restated) .....            --           --         --          --           --           --
Comprehensive loss(Restated) .......................            --           --         --          --           --           --
                                                          --------   ----------   --------   ---------   ----------   ----------
Balance, December 31, 2001 (Company)
     (Restated) ....................................         1,079   $       --         40   $      --   $    3,764   $  176,007
                                                          ========   ==========   ========   =========   ==========   ==========
Capital contribution ...............................            --   $       --         --   $      --   $       --   $   12,000
Comprehensive loss:
  Net loss .........................................            --           --         --          --           --           --
  Cumulative translation adjustment ................            --           --         --          --           --           --
Comprehensive loss .................................            --           --         --          --           --           --
                                                          --------   ----------   --------   ---------   ----------   ----------
Balance, December 31, 2002 (Company) ...............         1,079   $       --         40   $      --   $    3,764   $  188,007
                                                          ========   ==========   ========   =========   ==========   ==========
</TABLE>

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

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


                                       53
<PAGE>
                        AAVID THERMAL TECHNOLOGIES, INC.
      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) EQUITY
                                   (CONTINUED)
                        (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                         CUMULATIVE           RETAINED
                                                    COMPREHENSIVE       TRANSLATION            EARNINGS
                                                    INCOME (LOSS)        ADJUSTMENT           (DEFICIT)               TOTAL
                                                    -------------        ----------           ---------               -----
<S>                                                 <C>                 <C>                   <C>                    <C>
Balance, January 1, 2000 (Predecessor)(Unaudited)                        $  (1,294)            $  22,106             $  79,568
                                                                         =========             =========             =========
Comprehensive income:
  Net income(Unaudited) .........................   $     625            $      --             $     625             $     625
  Cumulative translation adjustment(Unaudited) ..         (89)                 (89)                   --                   (89)
                                                    ---------
Comprehensive income(Unaudited) .................   $     536                   --                    --                    --
                                                    =========
Proceeds from exercise of options(Unaudited) ....                               --                    --                20,257
Proceeds from the issuance of common
     stock(Unaudited) ...........................                               --                    --                   330
Income tax benefit from stock
     options(Unaudited) .........................                               --                    --                 6,213
                                                                         ---------             ---------             ---------
Balance, February 1, 2000 (Predecessor)
     (Unaudited) ................................                        $  (1,383)            $  22,731             $ 106,904
                                                                         =========             =========             =========

  Willis Stein merger re-capitalization .........
        (Company) (Unaudited) ...................                        $      --             $      --             $ 147,187
  Issuance of warrants in association with
        12.75% subordinated notes(Unaudited) ....          --                   --                    --                 4,560
Comprehensive loss:
  Net loss  (Unaudited) .........................   $ (51,325)                  --               (51,325)              (51,325)
  Cumulative translation adjustment
     (Unaudited) ................................        (262)                (262)                   --                  (262)
                                                    ---------
Comprehensive loss(Unaudited) ...................   $ (51,587)                  --                    --                    --
                                                    =========            ---------             ---------             ---------
Balance, December 31, 2000
     Company) (Restated) ........................                        $    (262)            $ (51,325)            $ 100,160
                                                                         =========             =========             =========
  Capital contribution and bond retirement ......                        $      --             $      --             $  28,024
Comprehensive loss:
  Net loss (Restated) ...........................   $(198,463)                  --              (198,463)             (198,463)
  Cumulative translation adjustment (Restated) ..        (609)                (609)                   --                  (609)
                                                    ---------
Comprehensive loss(Restated) ....................   $(199,072)                  --                    --                    --
                                                    =========            ---------             ---------             ---------
Balance, December 31, 2001 (Company)
     (Restated) .................................                        $    (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 (Company) ............                        $     156             $(262,343)            $ (70,416)
                                                                         =========             =========             =========
</TABLE>

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

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


                                       54
<PAGE>
                        AAVID THERMAL TECHNOLOGIES, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                                                         THE PERIOD
                                                                                                          THE PERIOD     JANUARY 1,
                                                                                                          FEBRUARY 2,   2000 THROUGH
                                                                                                         2000 THROUGH     FEBRUARY
                                                                                          YEAR ENDED       DECEMBER       1, 2000
                                                                                           DECEMBER        31, 2000        (THE
                                                                         YEAR ENDED        31, 2001     (THE COMPANY)   PREDECESSOR)
                                                                          DECEMBER      (THE COMPANY)     (RESTATED -   (RESTATED -
                                                                          31, 2002       (RESTATED -     NOTES C & D)     NOTE D)
                                                                        (THE COMPANY)    NOTES C & D)     (UNAUDITED)   (UNAUDITED)
<S>                                                                     <C>             <C>              <C>            <C>
Cash flows (used in)  provided by operating  activities:
Income (loss) from continuing operations                                   $(19,280)      $(201,813)      $ (52,365)      $    694
Income (loss) from discontinued operations                                    6,725           1,445           1,040            (69)
Extraordinary gains                                                              --           1,905              --             --
                                                                           --------       ---------       ---------       --------
Net (loss) income                                                           (12,555)       (198,463)        (51,325)           625
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
   Depreciation                                                               8,513          10,368          10,174            918
   Amortization and accretion                                                 5,809          36,254          33,458            145
   Acquired in-process research and development                                  --              --          15,000             --
   Charge from inventory write-up to fair value                                  --              --           3,963            569
   Loss (gain) on sale of property, plant and equipment                         478             277            (135)            --
   Deferred income taxes                                                     (1,253)        (13,390)          3,845            (28)
   Minority interests in loss of consolidated subsidiaries                       --          (3,294)         (1,519)            --
   Restructuring charges                                                        858          16,885              --             --
   Gain on extinguishment of debt                                                --          (1,905)             --             --
   Loss (gain) on sale of division/subsidiary                                (7,082)          4,322              --             --
   Intangible asset impairment charge                                            --         115,210              --             --
Changes in assets and liabilities, net of effects from acquisitions:
   Accounts receivable-trade                                                   (735)         14,982           5,861           (761)
   Inventories                                                                4,026          11,617           6,735           (870)
   Refundable taxes                                                             (75)           (118)             --             --
   Prepaid and other current assets                                          (1,144)              3            (819)            82
   Notes receivable                                                             398            (480)             --             --
   Net assets of discontinued operations                                        592          (1,924)           (970)           125
   Other long term assets                                                    (1,035)            182         (10,971)           137
   Accounts payable-trade                                                    (2,924)         (3,455)         (6,051)         2,543
   Income taxes payable                                                         162          (1,333)           (662)           337
   Deferred revenue                                                           3,937          15,134           1,516            109
   Accrued expenses and other current liabilities                            (1,485)        (10,532)          9,055           (613)
                                                                           --------       ---------       ---------       --------
         Total adjustments                                                    9,040         188,803          68,480          2,693
                                                                           --------       ---------       ---------       --------
         Net cash (used in) provided by operating activities                 (3,515)         (9,660)         17,155          3,318
Cash flows provided by (used in) investing activities:
   Proceeds from sale of property, plant and equipment                        1,764             709           1,119             --
   Purchases of property, plant and equipment                                (4,721)         (5,717)         (9,452)          (301)
   Purchase of minority interest in Curamik                                      --            (882)             --             --
   Proceeds from sale of division/subsidiary                                 31,524           2,500              --             --
                                                                           --------       ---------       ---------       --------
         Net cash provided by (used in) investing activities                 28,567          (3,390)         (8,333)          (301)

Cash flows provided by (used in) financing activities:
   Issuance of common stock, net of expenses                                     --              --              --            349
   Issuance of preferred stock and warrant                                   12,000              --              --             --
   Advances on (Repayments of) line of credit, net                          (10,078)          8,904            (482)            --
   Advances under debt obligations                                           11,727             252          53,176             --
   Principal payments under debt obligations                                (39,191)        (13,395)        (82,000)           (25)
   Payment of merger and financing expenses                                      --              --         (17,192)            --
   Repurchase of common stock, options and warrants                              --              --        (261,267)            --
   Equity contribution                                                           --          34,028              --             --
   Retirement of 12 3/4% senior subordinated notes and warrants                  --         (26,028)             --             --
   Net proceeds from 12 3/4% senior subordinated notes and warrants              --              --         148,312             --
   Proceeds from investors                                                       --              --         152,000             --
                                                                           --------       ---------       ---------       --------
         Net cash provided by (used in) financing activities                (25,542)          3,761          (7,453)           324

Foreign exchange effect on cash and cash equivalents                         (1,751)            976             330            (89)
                                                                           --------       ---------       ---------       --------
Net (decrease) increase in cash and cash equivalents                         (2,241)         (8,313)          1,699          3,252
Cash and cash equivalents, beginning of period                               14,538          22,851          21,152         17,900
                                                                           --------       ---------       ---------       --------
Cash and cash equivalents, end of period                                   $ 12,297       $  14,538       $  22,851       $ 21,152
                                                                           ========       =========       =========       ========
Supplemental disclosure of cash flow information:
    Interest paid                                                          $ 17,834       $  22,455       $  17,595       $    834
                                                                           ========       =========       =========       ========
    Income taxes paid                                                      $  2,456       $   4,791       $   3,895       $    117
                                                                           ========       =========       =========       ========
Supplemental disclosure of non-cash investing activities:
    Notes receivable for stock issued                                      $     --       $      --       $     664       $     --
    Capital lease obligations incurred for purchases of new equipment      $    376       $     710       $     156       $     --
</TABLE>

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

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


                                       55
<PAGE>
                        AAVID THERMAL TECHNOLOGIES, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
          (ALL AMOUNTS PRESENTED FOR THE PERIOD JANUARY 1, 2000 THROUGH
          FEBRUARY 1, 2000 AND FOR THE PERIOD FEBRUARY 2, 2000 THROUGH
                       DECEMBER 31, 2000 ARE "UNAUDITED")

A. OPERATIONS AND MERGER

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

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

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

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


                                       56
<PAGE>
The fair value of assets acquired and liabilities assumed at February 2, 2000
(unaudited) was as follows:

<TABLE>
<S>                                                                             <C>
                 Cash                                                           $   11,619
                 Inventory                                                          33,799
                 Accounts receivable                                                54,161
                 Other current assets                                                4,618
                 Fixed assets                                                       57,743
                 Goodwill                                                          193,676
                 In-process research and development                                15,000
                 Developed technology                                               49,000
                 Deferred financing fees                                             8,707
                 Other non-current assets                                            6,363
                 Trade payables                                                    (24,152)
                 Accrued expenses and taxes payable                                (28,964)
                 Deferred tax liabilities                                          (17,144)
                 Deferred revenue                                                   (7,874)
                 Long term debt, including current portion                        (199,190)
                 Minority Interest                                                    (802)
                                                                                ----------
                   Fair market value of net assets acquired                     $  156,560
                                                                                ==========
</TABLE>

      Of the $152,000 cash contribution, $4,811 was invested by Heat Holdings II
Corp., an affiliate of Heat Holdings, to acquire 95% of the common equity of
Aavid Thermalloy, LLC, the thermal management hardware business. The Company
controls Aavid Thermalloy, LLC through a preferred equity interest, and holds a
5% common equity interest and thus consolidates Aavid Thermalloy LLC in its
results within the accompanying financial statements. The investment by Heat
Holdings II Corp. has been recorded as minority interest within the accompanying
financial statements. Based on the allocation methodology as defined within the
Aavid Thermalloy LLC Agreement, $3,294 and $1,519 of the losses at Aavid
Thermalloy, LLC were allocated to the minority interest held by Heat Holdings II
Corp. for the year ended December 31, 2001 and 2000, respectively. There were no
losses allocated in 2002.

B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

These financial statements reflect the consolidated results of operations and
cash flows of the Company for the period from January 1, 2000 to February 1,
2000 ("Predecessor financial statements"). The Predecessor financial statements
have been prepared using the historical cost of the Company's assets and have
not been adjusted to reflect the merger with Heat Holdings Corp. The
accompanying financial statements as of December 31, 2002 and 2001 and for the
periods subsequent to February 1, 2000 reflect the consolidated financial
position, results of operations, and cash flows of the Company subsequent to the
date of the merger and include adjustments required under the purchase method of
accounting. The purchase method of accounting was used to record assets acquired
and liabilities assumed by the Company. Such accounting generally results in
increased amortization and depreciation reported in future periods. Accordingly,
the accompanying financial statements of the Predecessor and the Company are not
comparable in all material respects since those financial statements report
financial position, results of operations, and cash flows for these two separate
entities. The 2000 amounts (unaudited) included in the following notes include
the combined results of the Predecessor for the period from January 1, 2000
through February 1, 2000 and the Company from February 2, 2000 through December
31, 2000.

PRINCIPLES OF CONSOLIDATION

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


                                       57
<PAGE>
CONCENTRATION OF CREDIT RISK

      Financial instruments that potentially subject the Company to significant
concentration of credit risk consist principally of trade accounts receivable.
The risk is limited due to the relatively large number of customers comprising
the Company's customer base and their dispersion across many industries within
the United States, Europe, and Asia. The Company performs ongoing credit
evaluations of its customers' financial condition and generally requires no
collateral from its customers. The Company maintains an allowance for
uncollectible accounts receivable based upon expected collectibility of all
accounts receivable, 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, 2002 and 2001, there were no individual customer accounts
receivable balances greater than 10% of total accounts receivable. The Company's
sales have been primarily denominated in U.S. dollars, and the effects of
foreign exchange fluctuations are not considered to be material.

INCOME TAXES

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

RESEARCH AND DEVELOPMENT

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

IN-PROCESS RESEARCH AND DEVELOPMENT

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

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

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

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


                                       58
<PAGE>
      Fluent's primary in-process R&D projects involved developing: (i) Fluent
version 6.0; (ii) Gambit version 2.0; (iii) materials processing functionality;
and, (iv) advanced infrastructure technology. Fluent 6.0 represents the
Company's latest computational fluid dynamics (CFD) software engine. Gambit 2.0
includes new pre-processor CFD technologies. The development of materials
processing technologies is designed to address CFD needs in new markets. The
advanced infrastructure technology establishes a new platform upon which future
products will be more efficiently and rapidly developed.

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

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

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

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

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 $92,238 at December 31, 2002 and
$74,285 at December 31, 2001.


                                       59
<PAGE>
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 2002 and 2001,
demand for the Company's products can fluctuate significantly. A significant
increase in demand for the Company's products could result in a short-term
increase in the cost of inventory purchases and production costs while a
significant decrease in demand could result in an increase in the amount of
excess inventory quantities on hand. In addition, the Company's industry is
characterized by rapid technological change, frequent new product development
and rapid product obsolescence that could result in an increase in the amount of
obsolete inventory quantities on hand. Additionally, the Company's estimates of
future product demand may prove to be inaccurate, in which case the Company may
have understated or overstated the provision required for excess or obsolete
inventory. In the future, if the Company's inventory is determined to be
overvalued, the Company would be required to recognize such costs in our cost of
goods sold at the time of determination. Likewise, if the Company's inventory is
determined to be undervalued, the Company may have over-reported our cost of
sales in previous periods and would be required to recognize such additional
operating income at the time of sale. Therefore, although the Company makes
every effort to ensure the accuracy of its forecasts of future product demand,
any significant unanticipated changes in demand or technological developments
could have a significant impact on the value of the Company's inventory and
reported operating results.

PROPERTY, PLANT AND EQUIPMENT

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

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

INTANGIBLE ASSETS

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

<TABLE>
<CAPTION>
INTANGIBLE ASSETS                                              YEARS
-----------------                                              -----

<S>                                                          <C>
Goodwill                                                     4 to 20
Developed Technology                                          4 to 7
Deferred Financing Fees                                      4 to 10
</TABLE>

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

      During 2001 and prior periods, we assessed the impairment of identifiable
intangibles, long-lived assets and related goodwill whenever events or changes
in circumstances indicated that the carrying value may not be recoverable as
required under SFAS No. 121. Factors we considered important which could trigger
an impairment review included the following:

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

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


                                       60
<PAGE>
-     significant negative industry or economic trends.

      Under SFAS No. 121, when we determined that the carrying value of
intangibles, long-lived assets and related goodwill may not be recoverable based
on the existence of one or more of the above indicators of impairment, we
measured any impairment based on a projected discounted cashflow method using a
discount rate determined by our management to be commensurate with the risk
inherent in our business model. During 2001, global macroeconomic conditions
weakened and the demand for industrial and consumer electronics contracted
significantly. Coupled with the closing of three manufacturing facilities in the
U.S. and abroad, the Company determined that its ability to achieve its original
long-term financial forecast had been negatively impacted. The Company
determined that a triggering event, as defined by SFAS No. 121, had occurred
related to the intangible assets initially acquired in connection with the
Merger. Based on cash flow projections related to the acquired assets, the
Company concluded that all of the acquired intangible assets related to Aavid
Thermalloy and certain intangible assets related to Fluent had been impaired.
During the fourth quarter of 2001, the Company wrote down the assets, along with
any allocated goodwill, to fair value based on the related discounted cash flow.
In order to measure the impairment loss related to goodwill, the difference
between the Company's carrying value and the fair value of goodwill was
calculated using a business enterprise methodology. This method of goodwill
measurement entails calculating the total enterprise value of each of the
Company's business units. Goodwill and intangible assets were then estimated by
subtracting the allocated tangible assets (normal levels of working capital and
fixed assets) from the total enterprise value. The impairment charge recorded in
2001 totaled $115,210 (restated - Note C) 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>

      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. The
Statement requires that these assets be reviewed for impairment at least
annually. Intangible assets with finite lives will continue to be amortized over
their estimated useful lives.

Information regarding intangible assets at December 31 follows:

<TABLE>
<CAPTION>
                                                      2002                               2001
                                            GROSS                              GROSS
                                           CARRYING       ACCUMULATED         CARRYING        ACCUMULATED
                                            AMOUNT        AMORTIZATION         AMOUNT         AMORTIZATION
                                           --------       ------------        --------        ------------
<S>                                        <C>            <C>                 <C>             <C>
Amortized intangible assets:
   Developed technology                    $41,800          $(37,014)          $41,800          $(33,746)
   Deferred financing fees                   7,463            (3,053)            8,804            (3,419)
                                           -------          --------           -------          --------
Total amortized intangible assets          $49,263          $(40,067)          $50,604          $(37,165)
                                           =======          ========           =======          ========

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

Aggregate amortization expense for the year ended December 31, 2002, 2001 and
2000, excluding the impairment charge of $115,210 taken in 2001, was $5,189,
$35,660 and $33,162 (unaudited), respectively. Estimated amortization expense
for the next five years is estimated to be $4,299 annually.


                                       61
<PAGE>
A reconciliation of reported net income to adjusted net income for each year
follows:

<TABLE>
<CAPTION>
                                           2002                2001               2000
                                           ----                ----               ----
<S>                                      <C>                <C>                 <C>
Reported net income                      $(12,555)          $(198,463)          $(50,700)
                                         --------           ---------           --------
Add back: Goodwill amortization                --              25,695             23,906
Adjusted net income                      $(12,555)          $(172,768)          $(26,794)
                                         ========           =========           ========
</TABLE>

REVENUE RECOGNITION

THERMAL PRODUCTS

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

SOFTWARE

      The Company's software subsidiary, Fluent, has historically recognized
software revenue in accordance with Statement of Position (SOP) 97-2, "Software
Revenue Recognition" and SOP 98-9, "Modification of SOP 97-2 Software Revenue
Recognition, With Respect to Certain Transactions." These statements provide
specific industry guidance and stipulate that revenue recognized from software
arrangements is to be allocated to each element of the arrangement based on the
relative fair values of the elements, such as software products, upgrades,
enhancements, post-contract customer support ("PCS"), installation or training.
Under the terms of Fluent's arrangements, the software is delivered upon signing
and the bundled PCS is available to the customer over the term of the contract.
SOP 97-2 requires a seller of software with bundled PCS to establish vendor
specific objective evidence ("VSOE") of the value of the undelivered element of
the contract (in Fluent's case the PCS) in order to account separately for the
PCS revenue.

      In order to establish VSOE, there needs to be specific instances in which
a customer purchases the PCS separately from the software such that a true
market value can be determined. Prior to 2001, Fluent's product offerings
consisted of both perpetual licenses and annual licenses that included bundled
PCS. Purchasers of perpetual licenses would renew their PCS each year for a
specific price, thereby establishing VSOE for the PCS. Fluent used this VSOE of
the value of PCS for both perpetual and annual licenses.

      SOP 98-9 modified SOP 97-2 to require the use of the "residual method" in
situations where VSOE of value exists for all undelivered elements, but does not
exist for one or more of the delivered elements. Under the residual method, the
undiscounted VSOE of fair value of the undelivered elements (PCS) is deferred
and the difference (residual) between the total fee and the amount deferred for
the undelivered elements is recognized immediately as revenue. In sum, revenue
related to the software element is recognized upon signing of the contract and
delivery of the product. Revenue related to PCS is recognized ratably over the
life of the contract. Using the residual method methodology, Fluent determined
that 36% of the annual license fee was attributable to PCS, using the price
charged for PCS on a perpetual license as VSOE of value of PCS for an annual
license. Therefore, upon delivery of software under an annual software license,
64% of the license fee was recognized immediately and the remaining 36% was
deferred and amortized to revenue over the 12 month life of the license.

      On December 29, 2000, the American Institute of Certified Public
Accountants (AICPA) issued Technical Practice Aid (TPA) 5100.68. TPA 5100.68
dealt with the issue of whether a perpetual license with separately priced PCS
established VSOE of value for shorter term software licenses with bundled PCS.
The AICPA specifically stated in TPA 5100.68 that PCS services for a perpetual
license and PCS services for a shorter term license are two different elements.
Therefore, the renewal rate charged for PCS on a perpetual license does not
provide VSOE of value for PCS on the shorter term license. Due to the issuance
of this TPA, the Company concluded that under Fluent's bundled contract business
practice the Company could no longer establish VSOE of the value of PCS related
to its annual licenses based on the PCS used for perpetual licenses.

      In order to maintain a consistent revenue recognition methodology and to
more definitely confirm VSOE of value on the individual elements of the
contract, the Company elected to change its annual license agreements and
proposals in 2001 to offer PCS as a separately priced item from the software
(the "unbundled method"), that could be purchased at the customer's


                                       62
<PAGE>
election. In other words, customers could license Fluent's software, which no
longer included PCS, and either separately contract for PCS or elect not to take
PCS. The Company believed at that time that the unbundled method would establish
VSOE of value on the PCS such that the Company could continue to recognize the
software revenue upon contract signing and shipment of the software, and defer
only the PCS portion of the revenue ratably over the term of the contract. This
change had minimal impact on revenue recognition when compared to prior periods,
but did clearly identify separate prices for the software and service elements
of the contract.

      During 2002, based upon further consideration of the guidance in TPA
5100.68, issued on December 29, 2000, the Company determined that the VSOE of
value that it was relying upon to support the portion of the license fee
attributed to the PCS during 2001, even in the unbundled state, was not
sufficient to support such treatment. As a result, the Company concluded that it
should recognize revenue for the entire software license, and not just the PCS
portion of the agreement, ratably over the 12 month term of the license.

      Accordingly, the Company has restated its financial statements as of
December 31, 2001, and for the year then ended, to reflect this change in
revenue recognition. While this change has a significant impact on recorded
revenues within the statements of operations, and consequently on net loss, this
change does not affect the Company's statements of cash flows other than
re-allocating certain changes in balance sheet accounts within the cash flow
from operations section of the statement. For the year ended December 31, 2001,
the amount of revenue originally recognized but now deferred is $15,806 (Note
C). However, Fluent continues to be paid by its customers upon commencement of
the execution of the non-cancellable license agreement.

COMPREHENSIVE INCOME

      Statement of Financial Accounting Standards 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 rate 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 $465, ($933) and ($954) (unaudited) for the years
ended December 31, 2002, 2001 and 2000, respectively.


                                       63
<PAGE>
C. RESTATEMENTS

      Retained earnings (deficit) at December 31, 2000 (unaudited) and December
31, 2001 have been restated in connection with changes made to the consolidated
statements of operations for the period February 2, 2000 through December 31,
2000 (unaudited) and the year ended December 31, 2001 as follows:

<TABLE>
<CAPTION>
   PERIOD FEBRUARY 2, 2000 THROUGH DECEMBER 31, 2000 (UNAUDITED):
<S>                                                                           <C>
           Net loss, as originally reported                                   $ (49,980)
           Correction of cumulative translation adjustment reflected in
                comprehensive loss                                               (1,345)
                                                                              ----------
                     Net loss, as restated                                    $ (51,325)
                                                                              ==========

   YEAR ENDED DECEMBER 31, 2001:
           Net loss, as originally reported                                  $ (184,069)
           Correction of cumulative translation adjustment
                reflected in comprehensive loss                                    (461)
           Correction of deferred revenue on software (Note B)                  (15,806)
           Correction of intangible asset impairment charge (Note B)               1,406
           Correction of loss on sale of division (Note D)                           609

           Other corrections, net                                                  (142)
                                                                              ----------
                     Net loss, as restated                                   $ (198,463)
                                                                             ===========
</TABLE>

The above-noted changes relating to the cumulative translation adjustment
reflected in comprehensive loss for the period February 2, 2000 through December
31, 2000 (unaudited) and the year ended December 31, 2001 resulted in a
corresponding correction to the cumulative translation adjustment reflected in
the consolidated statements of changes in stockholders' equity (deficit) for the
respective periods.

D. 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 (restated - Note C). This loss was related to the sale
of the Company's aluminum extrusion facility located in Franklin, NH. The
facility was sold for $2,980. Of this amount, $2,500 was paid in cash and the
remainder was taken as a note due the Company and payable in 12 equal
installments of principal and interest in the amount of $42 beginning March 1,
2002. The note bears interest at 8.0%. The $2,500 in cash proceeds were remitted
to our Senior Lending group as required by the Amended and Restated Credit
Agreement 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 classifed 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".


                                       64
<PAGE>
      The following is a summary of the results of discontinued operations for
the period January 1, 2000 through February 1, 2000 (unaudited), the period
February 2, 2000 through December 31, 2000 (unaudited) and the years ended
December 31, 2001 and 2002:

<TABLE>
<CAPTION>
                                                                                                  THE PERIOD           THE PERIOD
                                                                                               FEBRUARY 2, 2000     JANUARY 1, 2000
                                                      YEAR ENDED           YEAR ENDED              THROUGH             THROUGH
                                                     DECEMBER 31,          DECEMBER 31,          DECEMBER 31,         FEBRUARY 1,
                                                         2002                 2001                  2000                 2000
                                                     ------------          ------------       ----------------     ---------------
<S>                                                  <C>                   <C>                <C>                  <C>
Net sales                                               $ 9,314              $ 22,141              $ 16,772              $ 1,004
                                                        -------              --------              --------              -------
Income (loss) before income taxes, minority
  interest and extraordinary item                           (64)                3,057                 2,319                  (61)
Income tax expense                                         (320)               (1,406)               (1,121)                 (14)
                                                        -------              --------              --------              -------
Income (loss) before minority interest and
   extraordinary item                                      (384)                1,651                 1,198                  (75)
Minority interest in (income) loss of
  consolidated subsidiaries                                  27                  (206)                 (158)                   6
                                                        -------              --------              --------              -------
Income (loss) from discontinued operations                 (357)                1,445                 1,040                  (69)
Gain on sale of discontinued operations                   7,082                    --                    --                   --
                                                        -------              --------              --------              -------
Income (loss) from discontinued operations              $ 6,725              $  1,445              $  1,040              $   (69)
                                                        =======              ========              ========              =======
</TABLE>

      The table that follows presents a breakdown of the major components of
assets and liabilities of discontinued operations at December 31, 2001:

<TABLE>
<S>                                                                     <C>
            ASSETS
            Cash                                                        $ 1,521
            Accounts receivable -- trade, net                             2,469
            Inventories                                                   2,030
            Prepaid and other current assets                                534
            Property, plant and equipment, net                            5,122
            Goodwill                                                      8,610
            Developed technology, net                                     5,955
                                                                        -------
               Total assets of discontinued operations                  $26,241
                                                                        =======
            LIABILITIES
            Accounts payable -- trade                                   $   654
            Accrued expenses and other current liabilities                1,271
            Income taxes payable                                            970
                                                                        -------
               Total liabilities of discontinued operations             $ 2,895
                                                                        =======
</TABLE>

E. ACCOUNTS RECEIVABLE

      The components of accounts receivable at December 31, 2002 and 2001 are as
follows:

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                                 -----------------------
                                                                   2002           2001
                                                                 --------       --------
<S>                                                              <C>            <C>
Accounts receivable                                              $ 36,308       $ 33,659
Allowance for doubtful accounts                                    (3,194)        (3,199)
                                                                 --------       --------
                                                                 $ 33,114       $ 30,460
                                                                 ========       ========
</TABLE>

F. INVENTORIES

      The components of inventories at December 31, 2002 and 2001 are as
follows:

<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,
                                                                                      -----------------------
                                                                                        2002           2001
                                                                                      --------       --------
<S>                                                                                   <C>            <C>
                     Raw materials                                                    $  2,443       $  4,277
                     Work-in-process                                                     2,355          1,899
                     Finished goods                                                      2,056          4,354
                                                                                      --------       --------
                                                                                      $  6,854       $ 10,530
                                                                                      ========       ========
</TABLE>


                                       65
<PAGE>
G. PROPERTY, PLANT, AND EQUIPMENT

      Property, plant, and equipment, recorded at cost, by major classification
as of December 31, 2002 and 2001 consist of the following:

<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                 -------------------------
                                                   2002             2001
                                                 --------         --------
<S>                                              <C>              <C>
            Land                                 $  1,531         $  1,262
            Building and improvements              15,815           15,945
            Machinery and equipment                22,550           21,173
            Furniture and fixtures                 18,241           14,625
            Vehicles                                  303              445
            Machinery-in-progress                     292              874
                                                 --------         --------
                                                   58,732           54,324
            Less accumulated depreciation         (29,114)         (19,420)
                                                 --------         --------
                                                 $ 29,618         $ 34,904
                                                 ========         ========
</TABLE>

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

H. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

      Included in accrued expenses and other current liabilities at December 31,
2002 and 2001 are the following:

<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                    ----------------------
                                                     2002           2001
                                                    -------        -------
<S>                                                 <C>            <C>
            Employee related                        $10,681        $ 8,988
            Accrued interest                          6,614          6,687
            Accrued sales and property taxes          1,005          1,123
            Other accrued expenses                    4,671          5,328
                                                    -------        -------
                                                    $22,971        $22,126
                                                    =======        =======
</TABLE>

I. DEBT OBLIGATIONS

      Debt obligations as of December 31, 2002 and 2001 consist of the
following:

<TABLE>
<CAPTION>
                                                                                            DECEMBER 31,
                                                                                        --------------------
                                                                                         2002        2001
                                                                                        --------    --------
<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, 2002 the interest rates on the Term Loans ranged from 4.27% to
      4.75% ........................................................................    $ 11,121    $     --

      Revolving Loans under a Loan and Security Agreement which matures on July 31,
      2006.  At December 31, 2002 the interest rate on the Revolving Loans ranged
      from 3.92% to 4.5% ...........................................................       6,992          --

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

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

      12 3/4% Senior Subordinated Notes due February 1, 2007 .......................     120,273     119,653

      Term loans payable through 2007 with monthly payments of approximately $15 per
      month.  At December 31, 2002 the interest rates on the term loans ranged from
      4.02% to 9.63% ...............................................................         489         252

      Capitalized lease obligations ................................................         575         735
                                                                                        --------    --------
                                                                                         139,450     175,832

      Less current portion .........................................................       8,934     175,382
                                                                                        --------    --------

      Debt Obligations, net of current portion .....................................    $130,516    $    450
                                                                                        ========    ========
</TABLE>


                                       66
<PAGE>
      On February 2, 2000, as part of the transactions relating to the Merger,
the Company issued 150,000 units (the "Units"), consisting of $150,000 aggregate
principal amount of its 12 3/4% Senior Subordinated Notes due 2007 (the "Notes")
and warrants (the "Warrants") to purchase an aggregate of 60 shares of the
Company's Class A Common Stock, par value $0.0001 per share, and 60 shares of
the Company's Class H Common Stock, par value $0.0001 per share. The Notes are
fully and unconditionally guaranteed on a joint and several basis by each of the
Company's domestic subsidiaries (the "Subsidiary Guarantors") (see note (Q) for
selected consolidating financial statements of parent, guarantors and
non-guarantors). The Notes were issued pursuant to an Indenture (the
"Indenture") among the Company, the Subsidiary Guarantors and Bankers Trust
Company, as trustee. $4,560 of the proceeds from the sale of the Units was
allocated to the fair value of the Warrants and $143,752 was allocated to the
Notes, net of original issue discount of $1,688. The total discount of $6,248 is
being accreted over the term of the notes, using the effective interest rate
method. This accretion is recorded as interest expense within the accompanying
statements of operations for the years ended December 31, 2002 and 2001 and the
period February 2, 2000 to December 31, 2000 (unaudited). 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 as of December 31, 2000.

      In connection with the Merger, the Company entered into an amended and
restated credit facility (the "Amended and Restated Credit Facility"). The
Amended and Restated Credit Facility provided for a $22,000 revolving credit
facility (the "Revolving Facility") and a $53,000 term loan facility (the "Term
Facility"). On May 4, 2001, in response to the Company not being in compliance
with a leverage ratio covenant at December 31, 2000, certain of the Company's
stockholders and their affiliates made an equity contribution of $8,000 in cash
which was used to reduce outstanding borrowings under the credit facility. At
December 31, 2001, the interest rates on the Term Facility and the Revolving
Facility were 6.5%.

      As of December 31, 2001 and continuing through June 29, 2002, the Company
was not in compliance with certain financial covenants under the Amended and
Restated Credit Facility. The Company notified its lenders concerning the
noncompliance. The resulting event of default was not waived by the Company's
lenders at December 31, 2001; accordingly, the lenders could have demanded full
payment of all amounts outstanding under the Amended and Restated Credit
Facility. On January 29, 2002, the Company and its Senior lenders entered into a
forbearance agreement with an expiration date of May 31, 2002. The forbearance
agreement, among other things, required the Company's owners to contribute $12.0
million of additional equity and allowed the Company to pay its semi-annual
interest payment due February 1, 2002 on its 12-3/4% Senior Subordinated Notes.
The forbearance agreement also required the Company to accelerate a principal
payment of $1,985 on the term loan that was originally due on March 31, 2002.
This payment of $1,985 was made at the time of the signing of the forbearance
agreement. As a result of the event of default, the Company classified $17,000
outstanding under the revolving credit facility, $38,192 outstanding under the
term facility and $119,653 of 12 3/4% Senior Subordinated notes as current
within the consolidated balance sheet at December 31, 2001.

      On January 30, 2002, as part of the equity contribution required under the
forbearance agreement discussed above, Heat Holdings Corp. contributed to Aavid
Thermal Technologies, Inc. an aggregate of $12,000 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.

      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 $27,500 asset based facility. The facility consists of a term loan component
which requires quarterly principal payments of $359 commencing November 1, 2002.
The Loan and Security Agreement also consists of a revolving line of credit
component. All borrowings under the new 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, 2002, the interest rates on the Loan and
Security Agreement ranged from 3.92% to 4.75%. Availability under the revolving
line of credit was $15,216 at December 31, 2002, of which $6,992 had been drawn.

      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


                                       67
<PAGE>
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, 2002 and 2001 and the period February 2, 2000
through December 31, 2000 (unaudited).

      The Company had no letters of credit outstanding at December 31, 2002 or
2001.

      Debt maturities payable for the five years subsequent to December 31, 2002
are as follows:

<TABLE>
<S>                                                         <C>
        2003                                                $  8,934
        2004                                                   1,790
        2005                                                   1,528
        2006                                                   6,886
        2007                                                 120,312
                                                            --------
       Total                                                $139,450
                                                            ========
</TABLE>

J. EQUITY

COMMON AND PREFERRED STOCK

      The Company's amended and restated certificate of incorporation authorizes
the Company to issue 1400 shares of Class A Common Stock, par value $0.0001 per
share; 1,400 shares of Class B Common Stock, par value $0.0001 per share; 200
shares of Class H Common Stock, par value $0.0001 per share; 100 shares of
Series A Preferred Stock, par value $0.0001 per share; and 100 shares of Series
B Preferred Stock, par value $0.0001 per share. As of December 31, 2002, 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.

Common Stock

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

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

      The Company is permitted to pay dividends on the Class A and B Common
Stock out of our 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 our
capital stock may be paid only in the same class or series.

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

      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.


                                       68
<PAGE>
      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.

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 $11,384 at December 31, 2002. Total cumulative unpaid
dividends at December 31, 2002 were $1,128.

WARRANTS AND ADDITIONAL EQUITY CONTRIBUTIONS


                                       69
<PAGE>
      In connection with the issuance of the 12 3/4% Senior Subordinated Notes,
the Company issued warrants to purchase 60 shares of Class A common stock and 60
shares of Class H common stock. The warrants are exercisable on or after an
exercise event, as defined, and will expire on February 1, 2007. Each warrant
entitles its holder to purchase 0.0004 shares of Class A common stock and 0.0004
shares of Class H common stock, subject to adjustment, as defined, at an
exercise price of $0.01 per share.

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

      On January 30, 2002, as part of the equity contribution required under the
forbearance agreement discussed in Note I above, 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.


                                       70
<PAGE>
      The vesting is generally five years. The Board of Directors set aside
approximately 10% of the common equity ownership in Aavid Thermalloy, Fluent and
Enductive Solutions for the Program. The 10% of common equity in each company is
equal to approximately 56,296 shares in Aavid Thermalloy, LLC, 28,149 shares in
Fluent, Inc. and 500 shares in Enductive Solutions, Inc.

<TABLE>
<CAPTION>
                                     AAVID THERMALLOY SHARES                 FLUENT SHARES           ENDUCTIVE SOLUTIONS SHARES
                                     -----------------------                 -------------           --------------------------
                                                    WEIGHTED                          WEIGHTED                        WEIGHTED
                                   NUMBER OF        AVERAGE            NUMBER OF       AVERAGE        NUMBER OF        AVERAGE
RESTRICTED STOCK AWARDS             SHARES       EXERCISE PRICE         SHARES      EXERCISE PRICE      SHARES     EXERCISE PRICE
-----------------------            ---------     --------------        ---------    --------------    ---------    --------------
<S>                                <C>           <C>                   <C>          <C>               <C>          <C>
Issued during 2000 (unaudited)       31,807           $ 10.00           26,684           $ 10.00           --               --
                                    -------           -------          -------           -------          ---          -------
Balance at December 31, 2000
     (unaudited)                     31,807           $ 10.00           26,684           $ 10.00           --               --

Issued during 2001                       --                --               --                --          500          $ 10.00
Canceled during 2001                 (1,126)          $ 10.00               --                --           --               --
                                    -------           -------          -------           -------          ---          -------
 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
                                    =======           =======          =======           =======          ===          =======

Vested at December 31, 2002          11,710           $ 10.00           10,539           $ 10.00          100          $ 10.00
                                    =======           =======          =======           =======          ===          =======
</TABLE>

      As of December 31, 2002, the Company held notes receivable for stock in
the amount of $589 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.

K. 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,
                              ------------------------------------------------
                                 2002                2001               2000
                              ---------           ---------           --------
                                                                     (UNAUDITED)
<S>                           <C>                 <C>                <C>
            Domestic          $ (14,560)          $(207,554)          $(56,260)
            Foreign              (3,903)             (8,512)             3,608
                              ---------           ---------           --------
                              $ (18,463)          $(216,066)          $(52,652)
                              =========           =========           ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                ---------------------------------------------
                                                  2002               2001              2000
                                                --------           --------           -------
                                                                                    (UNAUDITED)
<S>                                             <C>                <C>              <C>
            Federal provision
            (benefit):
               Current                          $     --           $     --           $    --
               Deferred                               --            (11,306)           (3,736)
                                                --------           --------           -------
                                                      --            (11,306)           (3,736)
            State provision (benefit):
               Current                               500                515               422
               Deferred                               --             (2,084)              (98)
                                                --------           --------           -------
                                                     500             (1,569)              324
            Foreign provision
            (benefit):
               Current                             1,570              1,916             3,950
               Deferred                           (1,253)                --                --
                                                --------           --------           -------
                                                     317              1,916             3,950
                                                --------           --------           -------
            Total provision (benefit)           $    817           $(10,959)          $   538
                                                ========           ========           =======
</TABLE>


                                       71
<PAGE>
      The Company has approximately $78,000 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,
                                                                 ---------------------------------------------
                                                                  2002               2001               2000
                                                                 -------           --------           --------
                                                                                                    (UNAUDITED)
<S>                                                              <C>               <C>              <C>
            Expected federal tax                                 $(6,277)          $(73,462)          $(17,901)
            State income taxes, net                                  500                515                214
            Non-deductible goodwill                                   --             44,629              7,197
            Non-deductible write-off of in-process
             research and development                                 --                 --              5,250
            Foreign related                                        1,644              4,810              1,119
            Provision on unremitted foreign
            earnings                                               1,630              1,144              4,550
            Increase in valuation allowance                        3,264              9,099                 --
            Other                                                     56              2,306                109
                                                                 -------           --------           --------
                     Total income tax (benefit) expense          $   817           $(10,959)          $    538
                                                                 =======           ========           ========
</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 2002, 2001 and 2000, 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.

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

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                           ---------------------------
                                                             2002               2001
                                                           --------           --------
<S>                                                        <C>                <C>
            Tax credits                                    $  1,375           $  1,373
            Inventory reserves and capitalization               905              1,152
            Accounts receivable reserves                      2,274              1,812
            Vacation and benefit reserves                       553                394
            Unremitted foreign earnings                      (7,993)            (6,363)
            Restructuring reserves                            2,634              2,325
            Other liabilities and reserves                    4,438              4,213
            Depreciation                                     (4,852)            (2,232)
            Net operating loss carryforwards                 26,500             19,764
            Acquired intangibles                            (11,296)           (12,416)
            Valuation allowance                             (13,286)           (10,022)
                                                           --------           --------
            Net deferred tax assets (liabilities)          $  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 $13,286 and $10,022 has been established at
December 31, 2002 and 2001, respectively.


                                       72
<PAGE>
L. 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>
                 2003                                                       $ 6,581
                 2004                                                         4,882
                 2005                                                         2,837
                 2006                                                         2,322
                 2007                                                         2,085
           Thereafter                                                         3,591
                                                                            -------
                                                                            $22,298
                                                                            =======
</TABLE>

      Lease expense was approximately $6,978, $7,328 and $6,625 (unaudited) for
the years ended December 31, 2002, 2001 and 2000, respectively.

      In 2001, the Company entered into a sub-lease agreement for its vacated
Corby, U.K. facility. The initial term of the lease was from May, 2001 to May,
2004 with an annual rent of approximately $185,000. The lease allowed the tenant
to cancel the lease upon three months' notice. The tenant has notified the
Company that it will be vacating the property effective June, 2003.

LITIGATION

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

PURCHASE COMMITMENT

      The Company has an obligation to purchase from one of its key suppliers a
minimum quantity of aluminum coil stock. The Company believes that purchasing
aluminum coil stock from this supplier is necessary to achieve consistently low
tolerances, design, delivery flexibility, and price stability. Under the terms
of this agreement the Company has agreed to purchase certain minimum quantities
which approximates $1,832 at December 31, 2002.

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 67 employees on December 31, 2002 and expires in March, 2003.

M. 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 $555, $692 and $823
(unaudited) for the years ended December 31, 2002, 2001 and 2000, respectively.

N. SEGMENT REPORTING

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

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


                                       73
<PAGE>
      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 ending December 31, 2002, 2001 and 2000. Results for 2000,
which are unaudited, include the combined operations of the Company (February 2,
2000 through December 31, 2000) and the Predecessor (January 1, 2000 through
February 1, 2000):

<TABLE>
<CAPTION>
                              REVENUES FROM                    DEPRECIATION
                                EXTERNAL       INTEREST            AND            RESTRUCTURING
                                CUSTOMERS     EXPENSE, NET     AMORTIZATION (1)      CHARGES
                              -------------   ------------     ----------------   -------------
<S>                           <C>             <C>              <C>                <C>
      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

      2000 (Unaudited)
        Thermal Products        $218,169        $ 15,712         $22,060
        CFD Software              57,682           6,461          20,896
        Corporate Office              --           1,779             320
                                --------        --------         -------
        Total ..............    $275,851        $ 23,952         $43,276
</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".

<TABLE>
<CAPTION>
                                                           SEGMENT
                                                         INCOME FROM
                                                         CONTINUING
                                                      OPERATIONS BEFORE
                                                       TAXES, MINORITY
                                    INCOME TAX            INTEREST           ASSETS (NET OF
                                     PROVISION       AND EXTRAORDINARY        INTERCOMPANY          CAPITAL
                                     (BENEFIT)              ITEM               BALANCES)          EXPENDITURES
                                    ----------       ------------------      ---------------      ------------
<S>                                 <C>              <C>                     <C>                  <C>
      2002
         Thermal Products            $    289             $ (20,869)            $ 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)            $(186,244)            $ 66,533              $4,141
         CFD Software                   4,557               (30,242)              86,203               1,576
         Corporate Office             (14,277)                  420               22,558                  --
                                     --------             ---------             --------              ------
         Total                       $(10,959)            $(216,066)            $175,294              $5,717

      2000 (Unaudited)
         Thermal Products            $  2,295             $ (21,294)                  --              $6,298
         CFD Software                   4,957               (29,075)                  --               3,455
         Corporate Office              (6,714)               (2,283)                  --                  --
                                     --------             ---------             --------              ------
         Total                       $    538             $ (52,652)                  --              $9,753
</TABLE>


                                       74
<PAGE>
      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 ENDING DECEMBER 31,
                                -------------------------------------------------------------------------------------------
                                          2002                             2001                             2000
                                ------------------------         ------------------------         -------------------------
                                                                                                        (UNAUDITED)
                               LONG-LIVED                       LONG-LIVED                       LONG-LIVED
                                 ASSETS         NET SALES         ASSETS         NET SALES         ASSETS         NET SALES
                                --------        --------         --------        --------         --------        ---------
<S>                            <C>             <C>              <C>             <C>              <C>             <C>
  United States                 $ 68,712        $ 90,382         $ 71,436        $110,783         $257,649        $194,354
  Taiwan                             621           9,261            1,882           9,334            1,567          13,486
  China                            1,232          14,791            1,886          13,064            3,547          24,378
  United Kingdom                   2,304          18,868            1,812          20,164            1,573          34,181
  Italy                            2,786          10,768            2,126          11,789            1,922          12,338
  Mexico                             851          11,198            1,141          11,855               --             938
  Other International              4,148          45,261            4,040          39,341            5,027          44,778
  Intercompany eliminations         (358)        (38,587)            (347)        (45,438)             (65)        (48,602)
                                --------        --------         --------        --------         --------        ---------
  Consolidated                  $ 80,296        $161,942         $ 83,975        $170,892         $271,220        $275,851
                                ========        ========         ========        ========         ========        ========
</TABLE>

      There were no individual customers who made up more than 10% of
consolidated revenues for the years ended December 31, 2002, 2001 or 2000
(unaudited).

O. 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, 2002 and 2001:

<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>

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


                                       75
<PAGE>
      Approximately $716 of restructuring charges were recorded in connection
with the Merger. The restructuring plans included initiatives to integrate the
operations of the Company and reduce overhead. The primary components of these
plans related to (a) the closure of operations in California and the United
Kingdom and (b) the termination of certain contractual obligations. During the
year ended December 31, 2000, 89 individuals were terminated under the
restructuring plan. The following amounts have been charged against the merger
restructuring reserves during the year ended December 31, 2001:

<TABLE>
<CAPTION>
                                                             INCREASES TO
                                                               RESERVES
                                                              CHARGED TO
                                                             GOODWILL FOR      CHARGES AGAINST
                                                                  THE          RESERVES FOR THE     RESTRUCTURING
                                       RESTRUCTURING          YEAR ENDED          YEAR ENDED      RESERVES BALANCE
                                     RESERVES BALANCE AT     DECEMBER 31,        DECEMBER 31,      AT DECEMBER 31,
                                      JANUARY 1, 2001            2001                2001              31, 2001
                                      ---------------        ------------      ----------------   ---------------
<S>                                   <C>                    <C>               <C>                <C>
Lease terminations and leasehold
  improvements reserve                     $  12                 $ --              $ (12)               $ --
Employee separation                           34                   --                (34)                 --
                                           -----                 ----              -----                ----
Total                                      $  46                 $ --              $ (46)               $ --
                                           =====                 ====              =====                ====
</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,
2002 and 2001:

<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
Prepaid rent write-off                       --                      --                 --                   --
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>

<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, 2001          2001                2001                  2001
                               -------------------  ------------------   -----------------     ---------------
<S>                            <C>                  <C>                  <C>                   <C>
Employee separation                $       --            $ 5,648             $ (4,045)              $1,603
Prepaid rent write-off                     --              3,818               (3,818)                  --
Fixed asset reserves                       --              7,127               (5,733)               1,394
Lease terminations and
leasehold
  improvements reserve                     --                292                  (80)                 212
                                   ----------            -------             --------               ------
Total                              $       --            $16,885             $(13,676)              $3,209
                                   ==========            =======             ========               ======
</TABLE>

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, 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, 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>


                                       76
<PAGE>
P. QUARTERLY DATA (UNAUDITED)

      Following is a summary of the quarterly results of continuing operations
for the years ended December 31, 2002, and 2001:

<TABLE>
<CAPTION>
                                                                FISCAL QUARTER (1)
                                         ----------------------------------------------------------------
                                         FIRST       SECOND          THIRD         FOURTH           TOTAL
                                         -----       ------          -----         ------           -----
                       2002
<S>                                   <C>           <C>            <C>           <C>             <C>
                       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 loss          (7,957)      (6,355)         1,929 (2)        (172)        (12,555)

                       2001
                       Net sales      $  47,618     $ 43,154       $ 40,296      $   39,824      $  170,892
                       Gross profit      12,417       11,500         11,313          11,662          46,892
                       Net loss         (30,532)     (16,186)       (21,370)       (130,375)       (198,463)
</TABLE>

      (1)   Amounts may differ from amounts previously reported in Form 10-Q due
            to the quarterly impact of restatements discussed in Note C.

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

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

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


                                       77
<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 ...................................              --            2,756            4,121              (24)           6,854
Due (to) from affiliate, net ..................          55,813          (37,450)          14,309          (32,672)              --
Refundable taxes ..............................            (239)              91              162              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 ..........................          65,173          (16,451)          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 ..................................       $  41,256        $  55,557        $  63,438        $ (17,200)       $ 139,052
                                                      =========        =========        =========        =========        =========

LIABILITIES, MINORITY INTERESTS AND
STOCKHOLDERS' DEFICIT
Current portion of debt obligations ...........       $      --        $   7,397        $   1,537        $      --        $   8,934
Accounts payable-trade ........................             407            2,505            8,498               --           11,409
Income taxes payable ..........................             397            4,050              606           (1,117)           3,935
Deferred revenue ..............................              --           16,402           13,458               --           29,860
Accrued expenses and other current liabilities            7,891            8,729            7,326               30           23,977
                                                      ---------        ---------        ---------        ---------        ---------
Total current liabilities .....................           8,694           39,084           31,424           (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 .............................         111,083           71,470           32,052           (5,724)         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          207,605            6,344         (213,948)         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)         (19,912)          31,386          (11,474)         (70,416)
                                                      ---------        ---------        ---------        ---------        ---------
Total liabilities, minority interests and
 stockholders' (deficit) equity ...............       $  41,256        $  51,557        $  63,438        $ (17,200)       $ 139,052
                                                      =========        =========        =========        =========        =========
</TABLE>


                                       78
<PAGE>
<TABLE>
<CAPTION>
                                                              CONDENSED CONSOLIDATING BALANCE SHEET AS OF DECEMBER 31, 2001
                                                      -----------------------------------------------------------------------------
                                                                    U.S. GUARANTOR   NON-GUARANTOR
                                                        PARENT        SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                      ---------     --------------   -------------     ------------     -----------
<S>                                                   <C>           <C>              <C>               <C>              <C>
ASSETS
Cash and cash equivalents .....................       $     849        $   5,594        $   8,095        $      --        $  14,538
Accounts receivable-trade, net ................              --           13,038           17,054              368           30,460
Notes receivable ..............................              --              480               --               --              480
Inventories ...................................              --            4,015            6,473               42           10,530
Due (to) from affiliate, net ..................          96,192          (47,634)         (13,091)         (35,467)              --
Refundable taxes ..............................            (180)              --              118              180              118
Deferred income taxes .........................          10,542           (3,065)           1,478           (8,955)              --
Prepaid and other current assets ..............             151            7,318           27,735              (11)          35,193
                                                      ---------        ---------        ---------        ---------        ---------
Total current assets ..........................         107,554          (20,254)          47,862          (43,843)          91,319
Property, plant and equipment, net ............              33           23,595           11,292              (16)          34,904
Investment in subsidiaries ....................         (40,619)              --               --           40,619               --
Deferred taxes ................................             974               --              410           (1,384)              --
Other assets, net .............................          23,801           47,635              627          (22,992)          49,071
                                                      ---------        ---------        ---------        ---------        ---------
Total assets ..................................       $  91,743        $  50,976        $  60,191        $ (27,617)       $ 175,294
                                                      =========        =========        =========        =========        =========

LIABILITIES, MINORITY INTERESTS AND
STOCKHOLDERS' (DEFICIT) EQUITY
Current portion of debt obligations ...........       $ 174,845        $     444        $      94        $      --        $ 175,382
Accounts payable-trade ........................             834            5,388            7,629               --           13,851
Income taxes payable ..........................         (10,222)          13,122            1,514             (703)           3,710
Deferred revenue ..............................              --           14,010           10,069               --           24,080
Accrued expenses and other current liabilities            7,668           10,157            9,420               32           27,276
                                                      ---------        ---------        ---------        ---------        ---------
Total current liabilities .....................         173,124           43,121           28,726             (671)         244,299
                                                      ---------        ---------        ---------        ---------        ---------
Debt obligations, net of current portion ......              --              221              229               --              450
Deferred income taxes .........................         (11,071)          15,463              244           (4,636)              --
                                                      ---------        ---------        ---------        ---------        ---------
Total liabilities .............................         162,052           58,805           29,199           (5,307)         244,749
                                                      ---------        ---------        ---------        ---------        ---------
Commitments and contingencies
Minority interests ............................             578               85            1,470             (701)           1,433
Stockholders' equity:
Common Stock ..................................              --               --               --               --               --
Warrants ......................................           3,764               --               --               --            3,764
Additional paid-in capital ....................         176,007          207,604            4,021         (211,625)         176,007
Cumulative translation adjustment .............            (871)           1,954           (1,414)            (540)            (871)
Retained earnings (deficit) ...................        (249,788)        (217,472)          26,915          190,557         (249,788)
                                                      ---------        ---------        ---------        ---------        ---------
Total stockholders' equity (deficit) ..........         (70,888)          (7,914)          29,522          (21,608)         (70,888)
                                                      ---------        ---------        ---------        ---------        ---------
Total liabilities, minority interests and
 stockholders' (deficit) equity ...............       $  91,743        $  50,976        $  60,191        $ (27,617)       $ 175,294
                                                      =========        =========        =========        =========        =========
</TABLE>

                                       79
<PAGE>
<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 .....................................       $      --        $  91,970        $ 110,147        $ (40,176)       $ 161,942
Cost of goods sold ............................              --           39,944           67,894          (19,306)          88,532
                                                      ---------        ---------        ---------        ---------        ---------
Gross profit ..................................              --           52,027           42,253          (20,871)          73,410
Selling, general and administrative expenses ..           1,787           35,013           28,767           (6,732)          58,835
Restructuring charges .........................              --               --              858               --              858
Loss on sale of division ......................              --               --               --               --               --
Intangible asset impairment charge ............              --               --               --               --               --
Research and development ......................              --           13,316           13,243          (14,068)          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)              49          (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, minority
  interest and extraordinary item .............         (27,301)         (14,137)          (4,676)          27,650          (18,463)
Income tax benefit (expense) ..................           1,424           (1,829)            (412)              --             (817)
                                                      ---------        ---------        ---------        ---------        ---------
Income (loss) from continuing operations
   before minority interest and
   extraordinary item .........................         (25,877)         (15,966)          (5,087)          27,650          (19,280)
Minority interest in (income) loss of
   consolidated subsidiaries ..................              --               --               --               --               --
                                                      ---------        ---------        ---------        ---------        ---------
Income (loss) from continuing operations
   before extraordinary item ..................         (25,877)         (15,966)          (5,087)          27,650          (19,280)
Extraordinary item:
Gain on extinguishment of debt, net of
 tax ..........................................              --               --               --               --               --
                                                      ---------        ---------        ---------        ---------        ---------
Income (loss)from continuing operations .......         (25,877)         (15,966)          (5,087)          27,650          (19,280)
Income (loss)from discontinued operations .....          13,322           (6,304)            (293)              --            6,725
                                                      ---------        ---------        ---------        ---------        ---------
Net income (loss) .............................       $ (12,555)       $ (22,270)       $  (5,380)       $  27,650        $ (12,555)
                                                      =========        =========        =========        =========        =========
</TABLE>


                                       80
<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          (11,618)          10,775
                                                      ---------        ---------        ---------        ---------        ---------
Income (loss) from continuing operations ......          (1,154)        (152,793)          (6,632)         (32,462)        (193,042)
Interest income (expense) net .................           1,655          (22,787)          (1,087)               1          (22,217)
Other income (expense), net ...................               9              (24)            (332)            (461)            (807)
Equity in income of subsidiaries ..............        (216,536)              --               --          216,536               --
                                                      ---------        ---------        ---------        ---------        ---------
Income (loss) from continuing operations
  before income taxes, minority
  interest and extraordinary item .............        (216,026)        (175,606)          (8,050)         183,614         (216,066)
Income tax benefit (expense) ..................          14,277           (3,151)            (167)              --           10,959
                                                      ---------        ---------        ---------        ---------        ---------
Income (loss) from continuing operations
   before minority interest and
   extraordinary item .........................        (201,749)        (178,754)          (8,218)         183,614         (205,107)
Minority interest in (income) loss of
  subsidiaries consolidated subsidiaries ......              --            3,294               --               --            3,294
                                                      ---------        ---------        ---------        ---------        ---------
Income (loss) from continuing operations
   before extraordinary item ..................        (201,749)        (175,460)          (8,218)         183,614         (201,813)
Extraordinary item:
Gain on extinguishment of debt, net of
 tax ..........................................           3,287           (1,381)              --               --            1,905
                                                      ---------        ---------        ---------        ---------        ---------
Income (loss)from continuing operations .......        (198,462)        (176,841)          (8,218)         183,614         (199,908)
Income (loss)from discontinued operations .....              --               77            1,369               --            1,445
                                                      ---------        ---------        ---------        ---------        ---------
Net income (loss) .............................       $(198,463)       $(170,764)       $  (6,849)       $ 183,614        $(198,463)
                                                      =========        =========        =========        =========        =========
</TABLE>

<TABLE>
<CAPTION>
                                                                      CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                                                            FOR THE PERIOD FROM FEBRUARY 2, TO DECEMBER 31, 2000 (UNAUDITED)
                                                      -----------------------------------------------------------------------------
                                                                    U.S. GUARANTOR   NON-GUARANTOR
                                                        PARENT        SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                      ---------     --------------   -------------     ------------     -----------
<S>                                                   <C>           <C>              <C>               <C>              <C>
Net sales .....................................       $      --        $ 179,548        $ 119,334        $ (45,468)       $ 253,414
Cost of goods sold ............................              --          124,679           76,999          (34,877)         166,801
                                                      ---------        ---------        ---------        ---------        ---------
Gross profit ..................................              --           54,869           42,335          (10,591)          86,613
Selling, general and administrative
 expenses .....................................             691           67,600           29,152           (4,594)          92,849
Acquired research and development .............              --           15,000               --               --           15,000
Research and development ......................              --            7,534            7,160           (6,198)           8,495
                                                      ---------        ---------        ---------        ---------        ---------
Income (loss) from continuing operations ......            (691)         (35,265)           6,024              201          (29,731)
Interest income (expense) net .................            (872)         (21,597)            (700)              33          (23,136)
Other income (expense), net ...................               2              125           (1,158)              19           (1,012)
Equity in income of subsidiaries ..............         (59,411)              --               --           59,411               --
                                                      ---------        ---------        ---------        ---------        ---------
Income (loss) from continuing operations
  before income taxes and minority interests ..         (60,973)         (56,737)           4,166           59,664          (53,879)
Income tax benefit (expense) ..................           9,648           (3,469)          (2,860)          (3,324)              (5)
                                                      ---------        ---------        ---------        ---------        ---------
Income (loss) from continuing operations
  before minority interests ...................         (51,325)         (60,206)           1,306           56,340          (53,884)
Minority interests in income of consolidated
  subsidiaries ................................              --            1,519               --               --            1,519
                                                      ---------        ---------        ---------        ---------        ---------
Income (loss)from continuing operations .......         (51,325)         (58,687)           1,306           56,340          (52,365)
Income (loss)from discontinued operations .....              --               58              982               --            1,040
                                                      ---------        ---------        ---------        ---------        ---------
Net income (loss) .............................       $ (51,325)       $ (58,629)       $   2,289        $  56,340        $ (51,325)
                                                      =========        =========        =========        =========        =========
</TABLE>

                                       81
<PAGE>
<TABLE>
<CAPTION>
                                                                      CONDENSED CONSOLIDATING STATEMENT OF INCOME FOR
                                                         THE PERIOD FROM JANUARY 1, TO FEBRUARY 1, 2000 (PREDECESSOR) (UNAUDITED)
                                                      -----------------------------------------------------------------------------
                                                                    U.S. GUARANTOR   NON-GUARANTOR
                                                        PARENT        SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                      ---------     --------------   -------------     ------------     -----------
<S>                                                   <C>           <C>              <C>               <C>              <C>
Net sales .....................................       $      --        $  14,810        $  10,765        $  (3,138)       $  22,437
Cost of goods sold ............................              --            9,873            7,273           (2,267)          14,879
                                                      ---------        ---------        ---------        ---------        ---------
Gross profit ..................................              --            4,937            3,491             (871)           7,558
Selling, general and administrative expenses ..            (186)           3,311            1,877              (51)           4,952
Research and development ......................              --              581              711             (661)             631
                                                      ---------        ---------        ---------        ---------        ---------
Income (loss) from continuing operations ......             186            1,045              904             (159)           1,975
Interest (expense), net .......................            (818)              (8)               1               11             (816)
Other income (expense), net ...................              --               12               25               29               68
Equity in income of subsidiaries ..............           1,257               --               --           (1,257)              --
                                                      ---------        ---------        ---------        ---------        ---------
Income (loss) from continuing operations
   before income taxes and  minority
   interests ..................................             625            1,048              930           (1,376)           1,227
Income tax benefit (expense) ..................              --             (543)            (399)             409             (533)
                                                      ---------        ---------        ---------        ---------        ---------
Income (loss) from continuing operations
   before minority interests ..................             625              505              531             (967)             694
Minority interests in loss of consolidated
  subsidiaries ................................              --               --               --               --               --
                                                      ---------        ---------        ---------        ---------        ---------
Income (loss)from continuing operations .......             625              505              531             (967)             694
Income (loss)from discontinued operations .....              --              (17)             (52)              --              (69)
                                                      ---------        ---------        ---------        ---------        ---------
Net income (loss) .............................       $     625        $     488        $     479        $    (967)       $     625
                                                      =========        =========        =========        =========        =========
</TABLE>

<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
Purchase of minority interest in Curamik ......              --               --               --               --               --
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 .........              --           11,480              246               --           11,727
Principal payments on other debt obligations ..         (38,192)            (884)            (115)              --          (39,191)
Advances under line of credit .................              --           25,065            2,651               --           27,716
Repayments of line of credit ..................         (17,000)         (19,440)          (1,354)              --          (37,794)
Issuance of preferred stock and warrant .......          12,000               --               --               --           12,000
                                                      ---------        ---------        ---------        ---------        ---------
Net cash provided by (used in) financing
 activities ...................................         (43,192)          16,221            1,429               --          (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
 period .......................................             849            5,594            8,095               --           14,538
                                                      ---------        ---------        ---------        ---------        ---------
Cash and cash equivalents, end of period ......       $   1,422        $   2,440        $   8,435        $      --        $  12,297
                                                      =========        =========        =========        =========        =========
</TABLE>


                                       82
<PAGE>
<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 ....              --           (2,239)          (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 line of credit .................           9,300               --               34               --            9,334
Repayments of line of credit ..................              --               --             (430)              --             (430)
Make-well contribution ........................          34,028               --               --               --           34,028
Retirement of 12 3/4% senior subordinated
 notes and warrants ...........................         (26,028)              --               --               --          (26,028)
                                                      ---------        ---------        ---------        ---------        ---------
Net cash provided by (used in) financing
 activities ...................................           4,492             (544)            (187)              --            3,761
Foreign exchange effect on cash and cash
 equivalents ..................................             736               93            1,288           (1,141)             976
                                                      ---------        ---------        ---------        ---------        ---------
Net increase (decrease) in cash and cash
equivalents ...................................          (8,594)           1,658           (1,375)              (1)          (8,313)
Cash and cash equivalents, beginning of
 period .......................................           9,443            3,936            9,470                1           22,851
                                                      ---------        ---------        ---------        ---------        ---------
Cash and cash equivalents, end of period ......       $     849        $   5,594        $   8,095        $      --        $  14,538
                                                      =========        =========        =========        =========        =========
</TABLE>

<TABLE>
<CAPTION>
                                                                       CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                                                            FOR THE PERIOD FROM FEBRUARY 2, 2000 TO DECEMBER 31, 2000 (UNAUDITED)
                                                      -----------------------------------------------------------------------------
                                                                    U.S. GUARANTOR   NON-GUARANTOR
                                                        PARENT        SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                      ---------     --------------   -------------     ------------     -----------
<S>                                                   <C>           <C>              <C>               <C>              <C>
Net cash provided by (used in) operating
 activities ...................................       $  18,619        $  (5,348)       $   3,829        $      54        $  17,155
Cash flows used in investing activities:
Proceeds from sale of fixed assets ............              --               --            1,119               --            1,119
Purchases of property, plant and equipment ....              --           (6,730)          (2,704)             (18)          (9,452)
                                                      ---------        ---------        ---------        ---------        ---------
Net cash provided by (used in) investing
 activities ...................................              --           (6,730)          (1,585)             (18)          (8,333)
Cash flows provided by (used in) financing
 activities:
Advances under other debt obligations .........          52,927             (179)             428               --           53,176
Principal payments on other debt obligations ..         (82,000)              --               --               --          (82,000)
Advances under line of credit .................           7,700               --               --               --            7,700
Repayments of line of credit ..................          (8,182)              --               --               --           (8,182)
Payment of merger and financing expense .......         (17,192)              --               --               --          (17,192)
Repurchase of common stock, options and
 warrants .....................................        (261,267)              --               --               --         (261,267)
Net proceeds from 12 3/4% senior
 subordinated notes ...........................         148,312               --               --               --          148,312
Proceeds from investors .......................         152,000               --               --               --          152,000
                                                      ---------        ---------        ---------        ---------        ---------
Net cash provided by (used in) financing
 activities ...................................          (7,702)            (179)             428               --           (7,453)
Foreign exchange effect on cash and cash
 equivalents ..................................          (1,608)           1,713              240              (17)             330
                                                      ---------        ---------        ---------        ---------        ---------
Net increase (decrease) in cash and cash
 equivalents ..................................           9,309          (10,544)           2,912               19            1,699
Cash and cash equivalents, beginning of
 period .......................................             134           14,480            6,557              (18)          21,152
                                                      ---------        ---------        ---------        ---------        ---------
Cash and cash equivalents, end of period ......       $   9,443        $   3,936        $   9,470        $       1        $  22,851
                                                      =========        =========        =========        =========        =========
</TABLE>


                                       83
<PAGE>
<TABLE>
<CAPTION>
                                                                     CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR
                                                          THE PERIOD FROM JANUARY 1, TO FEBRUARY 1, 2000 (PREDECESSOR) (UNAUDITED)
                                                      -----------------------------------------------------------------------------
                                                                    U.S. GUARANTOR   NON-GUARANTOR
                                                        PARENT        SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS     CONSOLIDATED
                                                      ---------     --------------   -------------     ------------     -----------
<S>                                                   <C>           <C>              <C>               <C>              <C>
Net cash provided by (used in) operating
 activities ...................................       $    (363)       $   9,658        $  (4,945)       $  (1,032)       $   3,318
Cash flows used in investing activities:
Purchases of property, plant and equipment ....              --             (288)             (31)              18             (301)
                                                      ---------        ---------        ---------        ---------        ---------
Net cash used in investing activities .........              --             (288)             (31)              18             (301)
Cash flows provided by (used in) financing
 activities:
Issuance of common stock, net of expenses .....             349               --               --               --              349
Principal payments on debt obligations ........              --              (25)              --               --              (25)
                                                      ---------        ---------        ---------        ---------        ---------
Net cash provided by (used in) financing
 activities ...................................             349              (25)              --               --              324
Foreign exchange effect on cash and cash
 equivalents ..................................              --               --           (1,133)           1,044              (89)
                                                      ---------        ---------        ---------        ---------        ---------
Net increase (decrease) in cash and cash
 equivalents ..................................             (14)           9,345           (6,110)              30            3,252
Cash and cash equivalents, beginning of
 period .......................................             148            5,134           12,667              (49)          17,900
                                                      ---------        ---------        ---------        ---------        ---------
Cash and cash equivalents, end of period ......       $     134        $  14,480        $   6,557        $     (19)       $  21,152
                                                      =========        =========        =========        =========        =========
</TABLE>


                                       84
<PAGE>
                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

ALLOWANCE FOR DOUBTFUL ACCOUNTS:

<TABLE>
<CAPTION>
                                             BALANCE AT                                        BALANCE AT
                                          BEGINNING OF YEAR     PROVISIONS     WRITE-OFFS      END OF YEAR
                                          -----------------     ----------     ----------      -----------
<S>                                       <C>                   <C>            <C>             <C>
 2002                                         $ 3,199             $  295        $   (291)       $ 3,194
 2001                                         $ 3,062             $1,061        $   (924)       $ 3,199
 2000                                         $ 2,182             $2,082        $ (1,202)       $ 3,062
</TABLE>

THERMALLOY RESTRUCTURING RESERVES:

<TABLE>
<CAPTION>
                                  RESERVE BALANCE,      CHARGES AGAINST      TRANSFERS FROM OTHER       RESERVE BALANCE,
        DESCRIPTION               JANUARY 1, 2002        THE RESERVES       RESTRUCTURING RESERVES      DECEMBER 31, 2002
        -----------               ---------------       ---------------     ----------------------      -----------------
<S>                               <C>                   <C>                 <C>                         <C>
Employee separation                   $  139                $   --                  $   --                   $  139

Lease terminations                       301                    --                     160                      461
                                      ------                ------                  ------                   ------

Total                                 $  440                $   --                  $  160                   $  600
                                      ======                ======                  ======                   ======
</TABLE>

<TABLE>
<CAPTION>
                              RESERVE BALANCE,       REDUCTIONS OF                  PAYMENTS OF           RESERVE BALANCE,
      DESCRIPTION             JANUARY 1, 2001          GOODWILL                 RESTRUCTURING COSTS       DECEMBER 31, 2001
      -----------             ---------------        -------------              -------------------       -----------------
<S>                           <C>                     <C>                       <C>                       <C>
Employee separation               $  493                $   --                        $ (354)                  $  139

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

Total                             $1,228                $ (284)                       $ (504)                  $  440
                                  ======                ======                        ======                   ======
</TABLE>


                                       85
<PAGE>
WILLIS STEIN RESTRUCTURING RESERVES:

<TABLE>
<CAPTION>
                              RESERVE BALANCE,                                       PAYMENTS OF           RESERVE BALANCE,
      DESCRIPTION             JANUARY 1, 2001         CHARGES TO GOODWILL       RESTRUCTURING COSTS       DECEMBER 31, 2001
      -----------             ---------------         -------------------       -------------------       -----------------
<S>                           <C>                     <C>                       <C>                       <C>
Employee separation                $ 34                      $--                       $ (34)                   $ --

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

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

2002 RESTRUCTURING RESERVES

<TABLE>
<CAPTION>
                             RESERVE BALANCE,                                       PAYMENTS OF           RESERVE BALANCE,
      DESCRIPTION             JANUARY 1, 2002      RESTRUCTURING PROVISIONS     RESTRUCTURING COSTS       DECEMBER 31, 2002
      -----------             ---------------      ------------------------     -------------------       -----------------
<S>                           <C>                  <C>                          <C>                       <C>
Employee separation               $ --                       $253                       $(230)                   $ 23

Fixed asset reserves                --                        429                        (414)                     15

Facility costs and
   leasehold
improvements                        --                        176                         (11)                    165
                                  ----                       ----                       -----                    ----
Total                             $ --                       $858                        (655)                   $203
                                  ====                       ====                       =====                    ====
</TABLE>

2001 RESTRUCTURING RESERVES

<TABLE>
<CAPTION>
                              RESERVE BALANCE,                                       PAYMENTS OF           RESERVE BALANCE,
      DESCRIPTION             JANUARY 1, 2002      RESTRUCTURING PROVISIONS     RESTRUCTURING COSTS       DECEMBER 31, 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
improvement
   reserves                             212                       --                       (53)                  159
                               ------------             ------------                   -------                ------

Total                          $      3,209             $         --                   $(1,759)               $1,450
                               ============             ============                   =======                ======
</TABLE>

<TABLE>
<CAPTION>
                             RESERVE BALANCE,                                       PAYMENTS OF           RESERVE BALANCE,
      DESCRIPTION             JANUARY 1, 2001      RESTRUCTURING PROVISIONS     RESTRUCTURING COSTS       DECEMBER 31, 2001
      -----------             ---------------      ------------------------     -------------------       -----------------
<S>                           <C>                  <C>                          <C>                       <C>
Employee separation               $    --                 $ 5,648                    $ (4,045)                 $1,603

Prepaid rent write-off                 --                   3,818                      (3,818)                     --

Fixed asset reserves                   --                   7,127                      (5,733)                 $1,394

Lease terminations and
   leasehold improvement
   reserves                            --                     292                         (80)                    212
                                  -------                 -------                    --------                  ------
Total                             $    --                 $16,885                    $(13,676)                 $3,209
                                  =======                 =======                    ========                  ======
</TABLE>


                                       86