~~SECURITIES~~UNITED ~~AND~~STATES ~~EXCHANGE COMMISSION WASHINGTON, D.C. 20549~~

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 29, 2002
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)

x ~~COMMISSION~~QUARTERLY ~~FILE~~REPORT ~~NUMBER~~PURSUANT ~~333-89061~~ TO SECTION 13 OR 15(d) OF THE

~~HOLLEY~~SECURITIES ~~PERFORMANCE~~EXCHANGE ~~PRODUCTS INC. (EXACT~~ACT ~~NAME~~ OF ~~REGISTRANT AS SPECIFIED IN ITS CHARTER)~~ 1934

DELAWARE (State of incorporation)		61-1291482 (IRS Employer Identification No.)
1801 RUSSELLVILLE ROAD, POST OFFICE BOX 10360, BOWLING GREEN, KY (Address of principal executive offices)		42102-7360 (zip code)
270-782-2900 (Registrant's telephone number, including area code)

For the quarterly period ended March 30, 2003

~~SECURITIES~~OR ~~REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE~~

~~Indicate by~~¨ ~~check~~TRANSITION ~~mark~~REPORT ~~whether~~PURSUANT ~~the~~TO ~~Registrant~~SECTION ~~(1) has filed all reports required to be filed by Section~~ 13 orOR 15(d) ofOF the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o THE

~~There were~~SECURITIES ~~1,000~~EXCHANGE ~~shares~~ACT ofOF ~~Common Stock outstanding as of September 29, 2002.~~ 1934

~~HOLLEY PERFORMANCE PRODUCTS INC. Quarterly Report on Form 10-Q~~ For the ~~Nine~~transition ~~Months~~period ~~Ended September 29, 2002~~ to

Commission File ~~TABLE~~Number: OF333-89061 ~~CONTENTS~~

		Page No
PART I
Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	25
Item 3.	Quantitative and Qualitative Disclosure About Market Risk.	31
Item 4.	Controls and Procedures	32
PART II
Item 1.	Legal Proceedings.	32
Item 6.	Exhibits and Reports on Form 8-K	33
SIGNATURES		34
	CEO Certification	35
	CFO Certification	36

Holley Performance Products Inc.

(Exact name of Registrant as specified in its charter)

Delaware

61-1291482

(State of incorporation)

(I.R.S. Employer

Identification No.)

1801 Russellville Road, Post Office Box 10360

Bowling Green, Kentucky 42101-7360

(Address of principal executive offices)

270-782-2900

Registrant’s telephone number, including area code:

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 reports), and (2) has been subject to such filing requirements for the past 90 days: Yes x No ¨

There were 1,000 shares of Common Stock outstanding as of March 30, 2003.

Index

PART I Financial Information		1

ITEM 1. Financial Statements		1

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		15

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk		19

ITEM 4. Controls and Procedures		19

PART II Other Information		20

ITEM 6. Exhibits and Reports on Form 8-K		20

PART I

ITEM 1.

Financial Statements

HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

	December 31, 2002*			March 30, 2003
	December 31, 2002*			March 30, 2003
ASSETS
Cash and cash equivalents	$	602		$	286
Accounts receivable, less allowance for doubtful accounts of $1,089 and $1,118, respectively		16,915			20,808
Inventories		22,843			20,445
Deferred income taxes		3,249			3,250
Income taxes receivable		3,714			670
Other current assets		1,233			942

Total current assets		48,556			46,401
Property, plant and equipment, net		18,143			16,658
Intangible assets, net		61,008			60,231

Total assets	$	127,707		$	123,290

LIABILITIES AND STOCKHOLDER’S DEFICIT
Current portion of long-term debt	$	28,724		$	30,859
Accounts payable		8,525			10,240
Accrued liabilities		12,729			13,163
Accrued interest		5,738			1,336

Total current liabilities		55,716			55,598
Long-term debt, net of current portion		155,568			155,315
Deferred income taxes		15,841			15,841

Total liabilities		227,125			226,754

Commitments and contingencies
Stockholder’s deficit:
Preferred stock, $1.00 par value, 150,000 shares authorized, 75,000 issued and outstanding		75			75
Common stock, $1.00 par value, 1,000 shares authorized, issued and outstanding		1			1
Paid-in capital		59,924			59,924
Accumulated deficit		(159,418	)		(163,464	)

Stockholder’s deficit		(99,418	)		(103,464	)

Total liabilities and stockholder’s deficit	$	127,707		$	123,290

*This

condensed consolidated balance sheet has been derived from the audited consolidated balance sheet as of December 31, 2002

See notes to condensed consolidated financial statements

HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

(unaudited)

	3 Months Ended March 31, 2002			3 Months Ended March 30, 2003
	3 Months Ended March 31, 2002			3 Months Ended March 30, 2003
Net sales	$	37,621		$	32,837
Cost of goods sold		27,014			23,767

Gross profit		10,607			9,070

Selling, general and administrative costs		6,803			6,222
Management fees		212			213
Amortization expense		472			472
Other expense		83			200

Total operating expenses		7,570			7,107

Operating income		3,037			1,963
Interest expense		5,422			5,978

Loss before income taxes		(2,385	)		(4,015	)
Income tax expense (benefit)		(600	)		31

Net loss attributable to common stockholders	$	(1,785	)	$	(4,046	)

See notes to condensed consolidated financial statements

HOLLEY PERFORMANCE ~~PART~~PRODUCTS ~~I—FINANCIAL~~INC. ~~INFORMATION~~ AND SUBSIDIARIES

CONDENSED ~~ITEM~~CONSOLIDATED ~~1—FINANCIAL~~ STATEMENTS OF CASH FLOWS

~~HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2001 AND SEPTEMBER 29, 2002~~ (~~Dollars~~ in ~~Thousands~~thousands) ~~(Unaudited)~~

			December 31, 2001			September 29, 2002
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	234		$	1,190
	Accounts receivable, net of allowance for doubtful accounts of $866 and $1,167 at December 31, 2001 and September 29, 2002, respectively			19,999			17,380
	Inventories			34,607			26,162
	Deferred income taxes			5,773			6,255
	Income taxes receivable			308			305
	Other current assets			1,497			1,080
		Total current assets		62,418			52,372
PROPERTY, PLANT AND EQUIPMENT, NET				26,068			22,097
INTANGIBLE ASSETS
	Goodwill			111,658			111,791
	Trade names			42,900			39,494
	Other			15,030			16,073
				169,588			167,358
	Less accumulated amortization			(19,502	)		(21,330	)
		Total intangible assets, net		150,086			146,028
		Total assets	$	238,572		$	220,497
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
CURRENT LIABILITIES:
	Current portion of long-term debt		$	31,158		$	32,984
		Accounts payable		14,060			14,391
		Accrued liabilities		15,548			21,239
		Total current liabilities		60,766			68,614
LONG-TERM DEBT, NET OF CURRENT PORTION				147,663			149,812
DEFERRED INCOME TAXES				21,936			19,197
OTHER NONCURRENT LIABILITIES				438			375
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock, $1.00 par value; 1,000 shares authorized, issued and outstanding				1			1
	Paid-in capital			52,499			52,499
	Accumulated deficit			(44,731	)		(70,001	)
		Total stockholder's equity (deficit)		7,769			(17,501	)
		Total liabilities and stockholder's equity (deficit)	$	238,572		$	220,497

(unaudited)

See accompanying notes.

	3 Months Ended March 31, 2002			3 Months Ended March 30, 2003
	3 Months Ended March 31, 2002			3 Months Ended March 30, 2003
OPERATING ACTIVITIES
Net loss	$	(1,785	)	$	(4,046	)
Adjustments to reconcile net loss to net cash from operating activities:
Depreciation		1,682			1,346
Amortization of intangibles		472			472
Amortization of deferred financing costs included in interest expense		249			306
Amortization of debt discount		172			171
Loss on disposal of business		—			225
Gain on disposal of fixed assets		—			(25	)
Deferred income taxes		(600	)		—
Change in operating assets and liabilities:
Accounts receivable		672			(4,366	)
Inventories		(455	)		1,624
Other assets		576			3,329
Accounts payable		(245	)		1,900
Accrued liabilities		(5,025	)		(4,764	)
Other liabilities		(116	)		152

Net cash from operating activities		(4,403	)		(3,676	)

INVESTING ACTIVITIES
Capital expenditures		(350	)		(261	)
Proceeds from the disposal of business		—			1,185
Proceeds from the disposal of fixed assets		—			160

Net cash from investing activities		(350	)		1,084

FINANCING ACTIVITIES
Net proceeds from revolving credit line		4,481			2,789
Financing costs		(12	)		—
Principal payments on long-term debt		(87	)		(513	)

Net cash from financing activities		4,742			2,276

Net change in cash and cash equivalents		(11	)		(316	)
Cash and cash equivalents:
Beginning of period		234			602

End of period	$	223		$	286

Supplemental disclosures of cash flow information:
Cash paid for interest	$	9,627		$	9,903

Cash received for income taxes	$	103		$	3,051

See notes to condensed consolidated financial statements

HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES ~~CONSOLIDATED~~ ~~STATEMENTS OF OPERATIONS (Dollars in Thousands) (Unaudited)~~

		THREE MONTHS ENDED						NINE MONTHS ENDED
		Sept. 30, 2001 (Restated)			Sept. 29, 2002			Sept. 30, 2001 (Restated)			Sept. 29, 2002
NET SALES		$	38,846		$	33,476		$	116,317		$	110,611
COST OF SALES			27,973			30,712			81,867			93,679
	Gross profit		10,873			2,764			34,450			16,932
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			7,511			7,177			21,999			22,919
AMORTIZATION EXPENSE			1,482			472			4,342			1,417
TOTAL OPERATING EXPENSES			8,993			7,649			26,341			24,336
	Operating income (loss)		1,880			(4,885	)		8,109			(7,404	)
INTEREST EXPENSE			5,604			5,663			17,036			16,551
OTHER EXPENSE			327			696			435			1,067
LOSS BEFORE INCOME TAXES, MINORITY INTEREST, AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE			(4,051	)		(11,244	)		(9,362	)		(25,022	)
INCOME TAX BENEFIT			(1,382	)		(622	)		(3,196	)		(1,866	)
LOSS BEFORE MINORITY INTEREST AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE			(2,669	)		(10,622	)		(6,166	)		(23,156	)
MINORITY INTEREST, NET OF TAXES			(100	)		—			(237	)		—
NET LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE			(2,769	)		(10,622	)		(6,403	)		(23,156	)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR INTANGIBLE ASSET IMPAIRMENT, NET OF TAXES OF $1,292			—			—			—			(2,114	)
NET LOSS		$	(2,769	)	$	(10,622	)	$	(6,403	)	$	(25,270	)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~See accompanying~~(in ~~notes.~~thousands, except as otherwise noted)

(unaudited)

1. Significant Accounting Policies

Basis of Presentation

Holley Performance Products Inc. (the “Company” or “Holley”), a Delaware corporation based in Bowling Green, Kentucky, is a leading manufacturer of a diversified line of performance automotive products, including carburetors, fuel pumps, fuel injection systems, ignition systems, remanufactured carburetors, camshafts, crankshafts, pistons, superchargers, exhaust headers, mufflers, engine plumbing products, and nitrous oxide systems. The products are designed to enhance street, off-road, recreational and competitive vehicle performance through increased horsepower, torque and driveability. In addition to its automotive performance line, Holley manufactures performance products for the powersport, marine and motorcycle markets.

The Company is highly leveraged. As of March 30, 2003, indebtedness was $186.2 million and stockholder’s deficit was $103.5 million. Further, the Company has experienced recurring net losses. Management is implementing actions designed to reduce working capital and improve operating results. If the improvements associated with these actions do not materialize in a timely manner, the Company may be required to take additional measures to ensure the availability of sufficient cash to sustain operations. Such measures may include, among other things, reducing or delaying capital expenditures, selling assets, restructuring or refinancing indebtedness, or seeking additional equity capital. There is no assurance that any of these measures can be effected on satisfactory terms, if at all.

The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all material reclassifications and adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of the results of operations, financial position and cash flows for each period shown have been included. Operating results for interim periods are not necessarily indicative of the results for the full year. The unaudited condensed consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in the Company’s annual consolidated financial statements and notes. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

Accounting Period

The Company’s first three quarters of the year are based on two four week months and one five week month Each of these quarters end on the Sunday of the fifth week in the third month. The fourth quarter and the fiscal year always end on December 31.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143

establishes accounting standards for recognition and measurement of an asset retirement obligation and an associated asset retirement cost. This statement applies to all entities that have legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the assets and is effective ~~HOLLEY~~for ~~PERFORMANCE~~fiscal ~~PRODUCTS INC~~years beginning after June 15, 2002. ~~AND~~The ~~SUBSIDIARIES CONSOLIDATED~~adoption ~~STATEMENTS~~of OFSFAS ~~STOCKHOLDER'S~~No. ~~EQUITY~~143 ~~(DEFICIT) (Dollars~~did innot ~~Thousands) (Unaudited)~~ have a material impact on the consolidated financial position, results of operations or cash flows of the Company.

		COMMON STOCK		PAID-IN CAPITAL		ACCUMULATED DEFICIT			TOTAL
BALANCE, DECEMBER 31, 2001		$	1	$	52,499	$	(44,731	)	$	7,769
	Net loss		—		—		(25,270	)		(25,270	)
BALANCE, SEPTEMBER 29, 2002		$	1	$	52,499	$	(70,001	)	$	(17,501	)

In July 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. It nullifies EITF Issue No. 94-3. “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit on Activity (including Certain Costs Incurred in a Restructuring).” The principal difference between SFAS No. 146 and Issue 94-3 relates to the recognition of a liability for a cost associated with an exit or disposal activity. SFAS No. 146 requires that a liability be recognized for those costs only when the liability is incurred, that is, when it meets the definition of a liability in the FASB’s conceptual framework. In contrast, under Issue 94-3, a company recognized a liability for an exit cost when it committed to an exit plan. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 did not have any impact on the consolidated financial position, results of operations or cash flows of the Company.

~~See~~In December 2002, the FASB issued SFAS No. 148 Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment of FASB Statement No. 123. ~~accompanying~~This ~~notes~~Statement amends FASB Statement No. 123 Accounting for Stock-Based Compensation, to provide alternative methods of transition of voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement No. 123 to require prominent disclosures in both annual and interim financials statements about the method of accounting for stock-based employee compensation and the effect of the method on reported results. The adoption of the disclosure provisions of SFAS No. 148 did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows of the Company.

In November 2002, the FASB issued Interpretation (FIN) No. 45 Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of others, which provides guidance on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year end. The adoption of FIN No. 45 did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows of the Company.

In January 2003, the FASB issued Interpretation No. 46 Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. The application of this Interpretation did not have any impact on the Company’s consolidated financial position, results of operations or cash flows of the Company.

Reclassifications

Certain 2002 amounts have been reclassified to conform with their 2003 presentation.

~~HOLLEY PERFORMANCE PRODUCTS INC~~2. ~~AND~~Inventories ~~SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)~~

			January 1 2001 to Sept. 30, 2001 (Restated)			January 1, 2002 to Sept. 29, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss			$	(6,403	)	$	(25,270	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization				11,121			7,162
Amortization of debt discount				514			514
Deferred income taxes before cumulative effect of accounting change				(3,238	)		(1,929	)
Cumulative effect of accounting change net of taxes				—			2,114
Write-off of financing costs				—			775
Loss on sale of fixed assets				449			—
Changes in assets and liabilities:
	Accounts receivable			1,042			2,619
	Inventories			(841	)		8,445
	Other current assets and income taxes receivable			84			420
	Accounts payable			4,226			331
	Accrued liabilities			(8,250	)		5,628
		Net cash provided by (used in) operating activities		(1,296	)		809
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures				(786	)		(1,302	)
Proceeds on disposal of fixed assets				50			46
	Net cash used in investing activities			(736	)		(1,256	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on long-term obligations				(3,676	)		1,461
Proceeds from issuance of promissory note				—			2,000
Financing costs				—			(2,058	)
	Net cash provided by (used in) financing activities			(3,676	)		1,403
NET CHANGE IN CASH AND CASH EQUIVALENTS				(5,708	)		956
BALANCE AT BEGINNING OF PERIOD				6,967			234
BALANCE AT END OF PERIOD			$	1,259		$	1,190
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest			$	20,200		$	10,695

Inventories are comprised of the following:

See accompanying notes.

	December 31, 2002		March 30, 2003
Raw materials	$	11,224	$	7,962
Work-in-process		3,979		3,853
Finished goods		7,640		8,630

	$	22,843	$	20,445

3. Segment Information

The Company’s reportable segments are High Performance Parts and Remanufactured Parts. The Company manufactures high performance aftermarket automotive parts through its High Performance Parts segment. Under its Remanufactured Parts segment, the Company refurbishes used automotive part cores and then resells the parts as remanufactured products. Both segments sell primarily to automotive parts distributors throughout the United States.

Summarized financial information concerning the Company’s operating measures for the reportable segments are shown in the following table:

	Three Months Ended March 31, 2002		Three Months Ended March 30, 2003
Performance Parts:
Net sales	$	32,681	$	29,082
Gross profits		9,127		8,584
Remanufactured Parts:
Net sales	$	4,940	$	3,755
Gross profits		1,480		486
Total:
Net sales	$	37,621	$	32,837
Gross profits		10,607		9,070

Summary balance sheet data for inventories and property, plant and equipment, net for each of the Company’s reportable segments as of December 31, 2002 and March 30, 2003 are shown in the following table:

	December 31, 2002		March 30, 2003
Performance Parts:
Inventories	$	19,875	$	17,619
Property, plant and equipment		16,782		15,415
Remanufactured Parts:
Inventories	$	2,968	$	2,826
Property, plant and equipment		1,361		1,243
Total:
Inventories	$	22,843	$	20,445
Property, plant and equipment		18,143		16,658

~~HOLLEY PERFORMANCE PRODUCTS INC~~4. ~~AND~~Intangible ~~SUBSIDIARIES NOTES~~Assets ~~TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands, except per share amounts) (Unaudited)~~

1Financing costs are amortized over the term of the related outstanding debt using the effective interest method. ~~ORGANIZATION~~In ~~AND~~connection ~~BASIS~~with OFacquisitions, ~~PRESENTATION~~ the Company has entered into various covenants not to compete with certain individuals. The estimated values allocated to such agreements are amortized on a straight-line basis over the terms of the respective agreements. A summary of these results is as follows:

Holley Performance Products Inc. (the "Company" or "Holley"), a Delaware corporation based in Bowling Green, Kentucky, is a leading manufacturer of a diversified line of performance automotive products, including carburetors, fuel pumps, fuel injection systems, ignition systems, remanufactured carburetors, camshafts, crankshafts, pistons, superchargers, exhaust headers, mufflers, engine plumbing products, and nitrous oxide systems. The products are designed to enhance street, off-road, recreational and competitive vehicle performance through increased horsepower, torque and driveability. In addition to its automotive performance line, Holley manufactures performance products for the powersport, marine and motorcycle markets.

	December 31, 2002							March 30, 2003
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Value		Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Amortized intangible Assets:
Deferred financing costs	$	7,443	$	(2,163	)	$	5,280	$	7,443	$	(2,469	)	$	4,974
Non-compete covenants		8,164		(5,810	)		2,354		8,164		(6,281	)		1,883

	$	15,607	$	(7,973	)	$	7,634	$	15,607	$	(8,750	)	$	6,857

~~The consolidated~~Amortization ~~balance sheets~~ of ~~the~~deferred ~~Company~~financing costs asand ofnon-compete ~~December 31,~~agreements ~~2001~~totaled ~~and~~$209 ~~September 29, 2002,~~ and ~~the~~$471 ~~consolidated statements of operations~~ for the three- ~~and nine-month~~months ~~periods~~ ended ~~September 30,~~March ~~2001 and September 29~~31, 2002, and ~~the~~$306 ~~consolidated~~and ~~statements~~$471 ~~of cash flows~~ for the ~~nine~~three ~~month~~months ~~periods~~ ended ~~September~~ March 30, ~~2001 and September 29~~2003, ~~2002~~respectively. ~~are~~Amortization ~~unaudited,~~of ~~except~~these ~~for~~costs ~~the~~over ~~condensed consolidated balance sheet dated December 31, 2001, which is derived from audited financial statements, and have been prepared by~~ the ~~Company~~next infive ~~accordance~~years ~~with~~are ~~accounting~~estimated ~~principles generally accepted in the United States for interim financial information and with the instructions~~ to ~~Form 10-Q and~~be: ~~Article 10~~2003, of$2,780; ~~Regulation S-X.~~2004, ~~Accordingly~~$1,851; ~~they~~2005, do$1,139; ~~not~~2006, ~~include~~$1,139; ~~all information~~ and ~~footnotes~~2007, ~~required by accounting principles generally accepted in the United States for complete financial statements~~$725.

In ~~the opinion of management~~addition, ~~all~~included ~~adjustments~~in ~~(which~~the ~~include~~line ~~only~~item ~~normal~~intangible ~~recurring~~assets, ~~adjustments)~~net ~~necessary~~were tointangible ~~present~~assets ~~fairly~~not ~~the~~subject ~~financial~~to ~~position,~~amortization. ~~results~~Goodwill ofand ~~operations~~tradenames ~~and~~had ~~changes~~net ~~in cash~~carrying ~~flows~~values atof ~~September 30~~$16,110 ~~2001~~ and ~~September 29~~$37,264, ~~2002~~respectively ~~and~~as ~~for all periods presented have been made. The results~~ of ~~operations~~December ~~for the periods ended September 29~~31, 2002 and ~~September~~ March 30, ~~2001 are not necessarily indicative of the operating results to be expected for the full year~~2003.

~~The Company incurred net losses in 1999, 2000, 2001 and the first three quarters of 2002~~5. ~~Management~~Related isParty ~~presently~~Transactions evaluating the performance of the Company's business both in the aggregate and at the separate division levels. To date in 2002, management has implemented actions designed to reduce working capital and improve operating results, and plans further actions during the remainder of 2002. There is no assurance that management's actions will be successful. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

2Pursuant to a management agreement, Kohlberg and Company, LLC (“Kohlberg”) provides the Company with general corporate administrative services. ~~RESTATEMENT~~Kohlberg OFreceives ~~FINANCIAL~~a ~~STATEMENTS~~ management fee to recover its operating expenses based upon an allocation of time devoted to the Company. Management fee expense was approximately $213 for the three months ended March 31, 2002 and the three months ended March 30, 2003.

As6. ~~disclosed~~Financial inInformation ~~further~~for ~~detail~~Guarantors inof the Company'’s ~~Form 10-K~~Debt for the year ended December 31, 2001, the Company has restated its unaudited financial information for 2001 that had previously been released by the Company. As a result, the comparative information contained in this quarterly report

The Senior Notes are guaranteed by substantially all existing and future directly or indirectly wholly owned domestic restricted subsidiaries of the Company (“the Guarantors”). The Guarantors irrevocably and unconditionally, fully, jointly and severally guarantee the performance and payment, when due, of all obligations under the Senior Notes.

The information that follows presents condensed consolidating financial information as of March 30, 2003 and for the year ended December 31, 2002 for: a) Holley Performance Products Inc. (as the Issuer), b) the Guarantors, c) elimination entries and d) the Company on a consolidated basis.

The condensed consolidating financial information includes certain allocations of revenues and expenses based on management’s best estimates which is not necessarily indicative of the financial position, results of operations and cash flows that these entities would have achieved on a stand-alone basis and should be read in connection with the condensed consolidated financial statements of the Company.

on Form 10-Q with respect to the three- and nine-month periods ended September 30, 2001 has been restated. Amounts as previously reported and as restated are as set forth below:

	Condensed Consolidating Balance Sheet December 31, 2002
	Holley Performance Products Inc. (Parent Company Only)			Subsidiary Guarantors			Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	421		$	181		$	—		$	602
Accounts receivable, net		15,837			1,078			—			16,915
Inventories		11,813			11,030			—			22,843
Income taxes receivable		3,677			37			—			3,714
Deferred income taxes		1,835			1,414						3,249
Intercompany receivable		12,936			—			(12,936	)		—
Other current assets		705			528			—			1,233

Total current assets		47,224			14,268			(12,936	)		48,556
Property, plant and equipment, net		13,673			4,470			—			18,143
Investment in subsidiaries		19,450			—			(19,450	)		—
Intangible assets, net		36,999			24,009			—			61,008

Total assets	$	117,346		$	42,747		$	(32,386	)	$	127,707

LIABILITIES AND STOCKHOLDER’S DEFICIT
Current portion of long-term debt	$	28,679		$	45		$	—		$	28,724
Accounts payable		7,997			528			—			8,525
Accrued liabilities		10,840			1,889			—			12,729
Accrued interest		5,738			—						5,738
Intercompany payable		—			12,936			(12,936	)		—

Total current liabilities		53,254			15,398			(12,936	)		55,716
Long-term debt, net of current portion		155,450			118			—			155,568
Deferred income taxes		8,060			7,781			—			15,841
Total liabilities		216,764			23,297			(12,936	)		225,032
Commitments and contingencies
Stockholder’s deficit:
Preferred stock, $1.00 par value, 150,000 shares authorized, 75,000 issued and outstanding		75			—			—			75
Common stock, $1.00 par value, 1,000 shares authorized, issued and outstanding		1			88,074			(88,074	)		1
Paid-in capital		59,924			—						59,924
Accumulated deficit		(159,418	)		(68,624	)		68,624			(159,418	)

Stockholder’s deficit		(99,418	)		19,450			(19,450	)		(99,418	)

Total liabilities and stockholder’s deficit	$	117,346		$	42,747		$	(32,386	)	$	127,707

	THREE MONTHS ENDED September 30, 2001						NINE MONTHS ENDED September 30, 2001
	As Previously Reported			As Restated			As Previously Reported			As Restated
Net Sales	$	38,869		$	38,846		$	116,342		$	116,317
Gross Profit		13,147			10,873			38,048			34,450
Net Loss		(2,344	)		(2,769	)		(5,716	)		(6,403	)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company has significant intangible assets related to goodwill and other acquired intangible assets. The determination of related estimated useful lives and whether or not these assets are impaired involves significant judgments. Changes in strategy and/or market conditions could significantly impact these judgments and require adjustments to recorded asset balances.

The Company continually evaluates whether events and circumstances have occurred that indicate the remaining useful lives of the intangible assets may warrant revision or that the remaining balance of such assets may not be recoverable. When factors indicate that such assets should be evaluated for possible impairment, the Company uses an estimate of the related operation's undiscounted cash flows over the remaining lives of the assets in measuring whether the asset is recoverable. If this review indicates that the intangible asset will not be recoverable based on undiscounted cash flows of the related assets, the Company writes down the intangible asset to estimated fair value.

As of January 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", which addresses the financial accounting and reporting standards for the acquisition of intangible assets outside of a business combination and for goodwill and other intangible assets subsequent to their acquisition. This accounting standard requires that goodwill be separately disclosed from other intangible assets in the balance sheet, and no longer be amortized but tested for impairment on a periodic basis.

In accordance with the transition provisions of SFAS No. 142, the Company has completed the first step of the transitional goodwill impairment test for all the reporting units of the Company. The results of that first step have indicated that goodwill of Holley Performance, Lunati, Hooker, Earl's, and So-Cal, which are included in the reportable segment entitled "Performance Parts", may be impaired and an impairment loss may have to be recognized. The amount of that loss has not been estimated, and the measurement of that loss is expected to be completed prior to the end of the fourth quarter of 2002. Any resulting impairment loss will be recognized as a cumulative effect of a change in accounting principle and reflected in the first quarter of 2002.

In addition, the Company has reviewed its trade names for impairment in accordance with the transition provisions of SFAS No. 142 using fair value measurement techniques and has recorded a noncash pretax impairment charge of $3,400 related to the "Lunati" and "Holley" trade names. The impairment charge is non-operational in nature and has been reflected as a cumulative effect of an accounting change in the first quarter of 2002.

In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill and indefinite lived intangible assets effective January 1, 2002. A reconciliation of previously reported net

loss to the pro forma amounts adjusted for the exclusion of amortization on goodwill and indefinite lived intangibles assets, net of the related income tax effect, follows:

	Condensed Consolidating Balance Sheet March 30, 2003
	Holley Performance Products Inc. (Parent Company Only)			Subsidiary Guarantors			Eliminations			Consolidated
ASSETS
Cash and cash equivalents	$	177		$	109		$	—		$	286
Accounts receivable, net		20,280			528			—			20,808
Inventories		10,543			9,902			—			20,445
Deferred income taxes		3,250			—						3,250
Income taxes receivable		603			67			—			670
Intercompany receivable		11,018			—			(11,018	)		—
Other current assets		845			97			—			942

Total current assets		46,716			10,703			(11,018	)		46,401
Property, plant and equipment, net		12,665			3,993			—			16,658
Investment in subsidiaries		19,198			—			(19,198	)		—
Intangible assets, net		37,629			22,602			—			60,231

Total assets	$	116,208		$	37,298		$	(30,216	)	$	123,290

LIABILITIES AND STOCKHOLDER’S DEFICIT
Current portion of long-term debt	$	30,859		$	—		$	—		$	30,859
Accounts payable		9,978			262			—			10,240
Accrued liabilities		11,967			1,196			—			13,163
Accrued interest		1,336			—			—			1,336
Intercompany payable		—			11,018			(11,018	)		—

Total current liabilities		54,321			12,476			(11,018	)		55,598
Long-term debt, net of current portion		155,112			203			—			155,315
Deferred income taxes		10,420			5,421			—			15,841
Total liabilities		219,672			18,100			(11,018	)		226,754
Commitments and contingencies
Stockholder’s deficit:
Preferred stock, $1.00 par value, 150,000 shares authorized, 75,000 issued and outstanding		75			—			—			75
Common stock, $1.00 par value, 1,000 shares authorized, issued and outstanding		1			88,074			(88,074	)		1
Paid-in capital		59,924			—			—			59,924
Accumulated deficit		(163,464	)		(68,876	)		68,876			(163,464	)

Stockholder’s deficit		(103,464	)		19,198			(19,198	)		(103,464	)

Total liabilities and stockholder’s deficit	$	116,208		$	37,298		$	(30,216	)	$	123,290

	THREE MONTHS ENDED						NINE MONTHS ENDED
	September 30, 2001 (Restated)			September 29, 2002			September 30, 2001 (Restated)			September 29, 2002
Reported net loss	$	(2,769	)	$	(10,622	)	$	(6,403	)	$	(25,270	)
Add: Goodwill and indefinite lived assets amortization, net of tax		942			—			2,826			—
Pro forma net loss	$	(1,827	)	$	(10,622	)	$	(3,577	)	$	(25,270	)

COMPREHENSIVE INCOME

SFAS No. 130, "Reporting Comprehensive Income", sets forth standards for reporting and displaying components of comprehensive income (loss) in a full set of general purpose financial statements. Comprehensive income (loss) encompasses all changes in stockholder's equity (except those arising from transactions with owners) and includes net income or loss, net unrealized capital gains or losses on available for sale securities and foreign currency translation adjustments. Comprehensive loss for the periods ended September 30, 2001 and September 29, 2002 was the same as net loss for the Company.

RECENT ACCOUNTING PRONOUNCEMENTS

In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the accounting and reporting provisions of APB Opinion 30, "Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". SFAS No. 144 removes goodwill from its scope and clarifies other implementation issues related to SFAS No. 121. SFAS No. 144 also provides a single framework for evaluating long-lived assets to be disposed of by sale. The provisions of this Statement were adopted effective January 1, 2002, and had no material effect on the Company's results of operations or financial position.

SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections," issued in April 2002, among other things, rescinds SFAS No. 4 which required material gains and losses from extinguishment of debt to be classified as an extraordinary item, net of related income tax effect. SFAS No. 145, which applies to all entities, is effective for fiscal years beginning after May 15, 2002, with early adoption encouraged. The Company early adopted the Statement effective January 1, 2002. Accordingly, the $775 loss from debt extinguishment discussed in Note 7 is included as an ordinary loss in the consolidated statement of operations for the three months and nine months ended September 29, 2002.

4. INVENTORIES

	Condensed Consolidating Statement of Operations Three Months Ended March 31, 2002
	Holley Performance Products Inc. (Parent Company Only)			Subsidiary Guarantors			Eliminations			Consolidated
Net sales	$	21,487		$	52,627		$	(36,493	)	$	37,621
Cost of goods sold		14,851			48,656			(36,493	)		27,014

Gross profit		6,636			3,971			—			10,607
Selling, general and administrative costs		1,182			5,621			—			6,803
Management fees		212			—			—			212
Amortization of intangibles		—			472			—			472
Other expense		58			25			—			83
Equity in loss of subsidiaries		1,623			—			(1,623	)		—

Total operating expenses		3,075			6,118			(1,623	)		7,570

Operating income (loss)		3,561			(2,147	)		1,623			3,037
Interest expense		5,401			21			—			5,422

Loss before income taxes		(1,840	)		(2,168	)		1,623			(2,385	)
Income tax benefit		(55	)		(545	)		—			(600	)

Net loss	$	(1,785	)	$	(1,623	)	$	1,623		$	(1,785	)

Inventories of the Company consist of the following:

	December 31, 2001		September 29, 2002
Raw materials	$	12,529	$	11,651
Work-in-progress		5,938		4,285
Finished Goods		16,140		10,226
	$	34,607	$	26,162

5. PROPERTY, PLANT AND EQUIPMENT

	Condensed Consolidating Statement of Operations Three Months Ended March 30, 2003
	Holley Performance Products Inc. (Parent Company Only)			Subsidiary Guarantors			Eliminations			Consolidated
Net sales	$	15,699		$	17,138		$	—		$	32,837
Cost of goods sold		10,988			12,779			—			23,767

Gross profit		4,711			4,359			—			9,070
Selling, general and administrative costs		1,799			4,423			—			6,222
Management fees		213			—			—			213
Amortization of intangibles		285			187			—			472
Other expense		200			—			—			200
Loss in equity of subsidiaries		252			—			(252	)		—

Total operating expenses		2,749			4,610			(252	)		7,107

Operating income (loss)		1,962			(251	)		252			1,963
Interest expense		5,978			—			—			5,978

Loss before income taxes		(4,016	)		(251	)		252			(4,015	)
Income tax expense		30			1			—			31

Net loss	$	(4,046	)	$	(252	)	$	252		$	(4,046	)

Property, plant and equipment of the Company consist of the following:

	December 31, 2001			September 29, 2002
Land	$	360		$	360
Buildings and improvements		11,884			11,916
Machinery and equipment		28,192			28,999
Computer equipment		3,852			3,929
Furniture and fixtures		2,079			2,367
Construction in process		1,798			1,675
		48,165			49,246
Less: accumulated depreciation		(22,097	)		(27,149	)
	$	26,068		$	22,097

Depreciation expense was $5,973 and $5,124 for the nine months and $1,966 and $1,567 for the three months ended September 30, 2001 and September 29, 2002, respectively.

6. ACCRUED LIABILITIES

Accrued liabilities of the Company consist of the following:

	December 31, 2001		September 29, 2002
Wages and benefits	$	3,679	$	4,049
Reserve for product returns		2,981		4,930
Interest		5,492		10,174
Other		3,396		2,086
	$	15,548	$	21,239

7. LONG-TERM DEBT

	Consolidating Statement of Cash Flows Three Months Ended March 31, 2002
	Holley Performance Products Inc. (Parent Company Only)			Subsidiary Guarantors			Eliminations		Consolidated
OPERATING ACTIVITIES:
Net cash from operating activities	$	(4,642	)	$	239		$	—	$	(4,403	)
INVESTING ACTIVITIES:
Capital expenditures		(91	)		(259	)		—		(350	)

Net cash from investing activities		(91	)		(259	)		—		(350	)

FINANCING ACTIVITIES
Proceeds from long-term borrowings		4,481			—			—		4,481
Principal payments on long-term debt		(75	)		(12	)		—		(87	)
Financing costs		(12	)		—			—		(12	)

Net cash from financing activities		4,754			(12	)		—		4,742

Net changes in cash and cash equivalents		21			(32	)		—		(11	)
Cash and cash equivalents:
Beginning of period		72			162			—		234

End of period	$	93		$	130		$	—	$	223

Long-term debt of the Company consists of the following:.

	December 31, 2001			September 29, 2002
Secured revolving line of credit facility due to a bank; Interest due quarterly at a variable rate based on LIBOR or prime at the Company's option, plus the applicable margin rate (8.11% at September 29, 2002); maturing December 28, 2007	$	28,814		$	30,694
Senior notes, interest payable semi-annually in March and September at 12.25%; maturing September 15, 2007; net of debt discount of $3,939 and $3,425, respectively		146,061			146,575
Convertible promissory note with KHPP Holdings, Inc. ("Parent")		—			2,000
Other long-term obligations		3,946			3,527
		178,821			182,796
Less: current portion		(31,158	)		(32,984	)
	$	147,663		$	149,812

In December 2000, the Company entered into a credit agreement with Fleet Capital Corporation (the "Fleet Credit Arrangement") which included both a revolving credit facility and a term loan to be utilized for capital expenditures. The Fleet Credit Arrangement required that the Company meet certain interest coverage ratios each quarter. The Company was not in compliance with the interest coverage ratio covenant for the quarters ended March 31, 2002 and June 30, 2002. The Company received a waiver of the interest coverage ratio covenant from Fleet for the quarters ended March 31, 2002 and June 30, 2002. On July 30, 2002, prior to the expiration of the forbearance agreement, the Company replaced the Fleet Credit Arrangement with a $50 million facility provided by Foothill Capital Corporation (the "Credit Agreement").

The five-year Credit Agreement is comprised of four parts: 1.) a revolving component, with borrowings limited to 85% of eligible trade accounts receivable and the lesser of $16 million or 68% of eligible finished goods inventory plus 17% of eligible work-in-process inventory plus 31% of eligible raw materials inventory; 2.) Subline A with available advances totaling a maximum of $10 million secured by the Company's equipment, real property and trade names; 3.) Subline B of $10 million and 4.) Subline C with available advances totaling $5 million for the purchase of new capital equipment. Maximum borrowings under the Credit Agreement are limited under the terms of the Company's Senior Notes Indenture to $45 million (as amended, See Note 11). The Credit Agreement, as amended, requires that the Company maintain certain fixed charge coverage ratios beginning the twelve months ending June 30, 2003. In connection with the Credit Agreement, the Company wrote-off $775 of deferred financing costs associated with the Fleet Credit Arrangement. Such amount is included in other expense in the accompanying consolidated statements of operations.

At October 25, 2002, the Company had $8.3 million of unused credit availability under the Credit Agreement.

On September 20, 1999, the Company issued $150.0 million of 121/4% senior notes due 2007 at a discount of 3.7% (the "Senior Notes"). The debt discount is amortized as a non-cash charge to interest expense using the effective interest method over the term of the debt. The Senior Notes are unsecured

and are subordinate to the Company's other indebtedness. The proceeds from the Senior Notes were used to repay existing indebtedness and to fund the acquisitions of FlowTech, NOS and Earl's in October 1999.

	Consolidating Statement of Cash Flows Three Months Ended March 30, 2003
	Holley Performance Products Inc. (Parent Company Only)			Subsidiary Guarantors			Eliminations		Consolidated
OPERATING ACTIVITIES:
Net cash from operating activities	$	(3,604	)	$	(72	)	$	—	$	(3,676	)
INVESTING ACTIVITIES:
Capital expenditures		(261	)		—			—		(261	)
Proceeds from the disposal of business		1,185			—			—		1,185
Proceeds from the disposal of fixed assets		160			—			—		160

Net cash from investing activities		1,084			—			—		1,084

FINANCING ACTIVITIES
Net proceeds from revolving credit line		2,789			—			—		2,789
Principal payments on long-term debt		(513	)		—			—		(513	)

Net cash from financing activities		2,276			—			—		2,276

Net change in cash and cash equivalents		(244	)		(72	)		—		(316	)
Cash and cash equivalents:
Beginning of period		421			181			—		602

End of period	$	177		$	109		$	—	$	286

~~The Senior Notes Indenture requires the Company to make semi-annual interest payments in March and September at 121/4%~~7. OnContingent ~~September 15, 2002, the Company delayed~~Liabilities making its semi-annual interest payment on the Senior Notes. In September 2002, the Company initially received a $2 million cash infusion from its parent company in the form of a short-term note to meet operating requirements. The Company subsequently received an additional $13 million cash infusion for a total investment of $15 million and the Company made the interest payment on October 15, 2002, before the grace period specified in the Senior Notes Indenture expired (See Note 11). Accordingly, amounts payable under the Senior Notes Indenture are classified as long-term in the accompanying consolidated balance sheet at September 29, 2002.

~~The~~In May 1999, Union Pacific Railroad Company filed an action against ~~Credit~~Weiand ~~Agreement~~Automotive and others in the ~~Senior~~United ~~Notes~~States ~~were~~District ~~amended~~Court for the Central District of California, alleging that certain soil and groundwater contamination discovered on ~~October 10~~Union Pacific property in Los Angeles had migrated from an adjacent Weiand Automotive facility. Holley subsequently became a defendant, ~~2002~~as did the owner of the property on which the Weiand Automotive business had been operated. ~~See~~In ~~Note 11~~December 2000, a global settlement of claims was reached with Weiand’s insurers paying the bulk of the settlement and Holley and Weiand Automotive’s attorneys fees. In addition, $550 was put into a Site Source Control Account to cover costs incurred by Holley and Weiand Automotive and the property owner to investigate and remediate any contamination of the Weiand property which may be required by the State of California. In July 2001, Weiand Automotive entered into a Voluntary Cleanup Agreement with the State of California Environmental Protection Agency Department of Toxic Substances Control (DTSC) to investigate and, if necessary, remediate the contamination on the Weiand property. Consultants for Holley and Weiand Automotive have submitted a workplan to DTSC, which is pending approval. Although Holley estimates that the Site Source Control Account will be sufficient to cover Holley’s costs for investigation and remediation of the site, there can be no assurances that the final costs will not exceed such amount. Holley and Weiand Automotive are working vigorously to address regulatory issues arising from the discovered contamination.

In connection with the revolving credit facility, the Credit Agreement requires lock-box agreements which provide for all receipts to be swept daily to reduce borrowings outstanding. These agreements, combined with the existence of a Material Adverse Effect (MAE) clause in the Credit Agreement, cause the revolving credit facility to be classified as a current liability, per guidance in the FASB's Emerging Issues Task Force 95-22, "Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that Include Both a Subjective Acceleration Clause and a Lock-Box Arrangement." The MAE clause, which is a typical requirement in commercial credit agreements, allows the lender to require the loan to become due if it determines there has been a material adverse effect on the operations, business, properties, assets, liabilities, condition or prospects. The classification of the revolving credit facility as a current liability at September 29, 2002, is a result of the combination of the two aforementioned factors: the lock-box agreements and the MAE clause. However, the revolving credit facility does not expire or have a maturity date within one year, but rather has final expiration date of July 30, 2007.

8. COMMITMENTS AND CONTINGENCIES

The Company is a party to various lawsuits and claims in the normal course of business. While the lawsuits and claims against the Company cannot be predicted with certainty, management believes that the ultimate resolution of the matters will not have a material effect on the financial position or results of operations of the Company.

~~In May 1999,~~The ~~Union Pacific Railroad~~ Company ~~filed~~generally anwarrants ~~action~~its products against ~~Weiand Automotive Industries, Inc., a subsidiary of Holley ("Weiand"), and others in the U.S. District Court for the Central District of California, alleging that~~ certain ~~soil~~manufacturing and ~~groundwater~~other ~~contamination discovered on Union Pacific property in Los Angeles had migrated from an adjacent Weiand facility~~defects. InThese ~~December 2000,~~product ~~Union~~warranties ~~Pacific,~~are ~~Holley,~~provided ~~Weiand~~for ~~and~~specific ~~Joan~~periods ~~Weiand, the owner~~ of ~~the~~time ~~Weiand property, reached a comprehensive settlement in exchange for a cash payment significantly less~~depending ~~than~~on the ~~sought~~nature ~~amount, resulting in a full dismissal~~ of the ~~lawsuit~~product. AThe ~~substantial~~accrued majority of the settlement payment was paid by Weiand's insurers. In connection with the settlement, an additional $550 paid by the settling insurers has been put into a Site Source Control Account to fund investigation and any required remediation of the Weiand property, as may be required by the State of California.

In 2000, Weiand discovered possibly significant soil contamination on the Weiand property, which has not been fully analyzed by Weiand's environmental consultants. In July 2001, Holley (through Weiand) entered into a Voluntary Cleanup Agreement with the California Department of Toxic Substances Control, pursuant to which Holley is working with the property owner, Joan Weiand, to investigate and, if necessary, remediate the contamination. Holley cannot estimate the potential liability arising from that contamination, if any, or the possible outcome of any state environmental regulatory

~~requirements.~~product ~~Holley~~warranty ~~and~~costs ~~Weiand~~ are ~~working~~based ~~vigorously~~primarily toon ~~address~~historical ~~regulatory~~experience ~~issues~~of ~~arising~~actual ~~from~~warranty claims. The following table provides the ~~discovered~~changes ~~contamination.~~in the Company’s product warranties:

The Company, like others in similar businesses, is subject to extensive federal, state and local environmental laws and regulations. Although Company environmental policies and practices are designed to ensure compliance with these laws and regulations, future developments and increasingly stringent regulation could require the Company to make unforeseen environmental expenditures.

	Three Months Ended
	March 31, 2002			March 30, 2003
Beginning Balance	$	5,356		$	4,335
Accrued for current year claims		309			1,526
Settlement of warranty claims		(265	)		(1,517	)

Ending Balance	$	5,400		$	4,344

The Company has established a severance plan for certain members of management. Under the terms of the severance plan, the participants are entitled to certain severance benefits, which include salary continuation, in the event the participant is terminated by the Company without cause.

During 2002, legislation was passed which allows companies to carry back net operating losses incurred in 2001 and 2002 for up to five years. In years prior to 2001 and years beyond 2002 the period for loss carry back is two years. The Company intends to submit a claim through a tax sharing arrangement with the prior owner to carry back a portion of its 2001 net operating losses and receive a refund for taxes previously paid. As the Company has a full valuation allowance against its net operating losses, any refunds received will result in income tax benefit. As of the date of this report, no claims have been submitted nor have any refunds been received.

9. SEGMENT DATA

The Company's reportable segments have a common management team and infrastructure, however, due to the different nature of the products sold by each segment, the Company monitors each segment's revenues and gross margin on a standalone basis when making strategic decisions regarding the allocation of Company resources.

The Company has two reportable segments: Performance Parts and Remanufactured Parts. The Company manufactures high performance aftermarket automotive parts through its Performance Parts segment. Under its Remanufactured Parts segment, the Company refurbishes used automotive part cores and then resells the parts as remanufactured products. Both segments sell primarily to automotive parts distributors throughout the United States.

The accounting polices of the reportable segments are the same as those described in the Company's annual financial statements and should be read in conjunction with the notes thereto. The Company evaluates the performance of its reportable segments based on gross margin. Intersegment sales and transfers are not significant.

Summarized financial information concerning the Company's operating measures for the reportable segments are shown in the following table:

		PERFORMANCE PARTS		REMANUFACTURED PARTS			TOTAL
JULY 2, 2001 TO SEPTEMBER 30, 2001 (Restated)
	Net sales	$	34,628	$	4,218		$	38,846
	Gross profit		10,143		730			10,873
JULY 1, 2002 TO SEPTEMBER 29, 2002
	Net sales	$	29,875	$	3,601		$	33,476
	Gross profit		2,939		(175	)		2,764

		PERFORMANCE PARTS		REMANUFACTURED PARTS		TOTAL
JANUARY 1, 2001 TO SEPTEMBER 30, 2001 (Restated)
	Net sales	$	102,103	$	14,214	$	116,317
	Gross profit		31,989		2,461		34,450
JANUARY 1, 2002 TO SEPTEMBER 29, 2002
	Net sales	$	98,891	$	11,720	$	110,611
	Gross profit		16,358		574		16,932

ITEM 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Summary balance~~The ~~sheet~~following ~~data~~discussion ~~for~~should ~~inventories~~be ~~and~~read ~~property,~~in ~~plant,~~conjunction with the accompanying unaudited condensed consolidated financial statements and ~~equipment,~~notes ~~net~~included ~~for~~in ~~each~~this ofreport as well as the ~~Company's~~financial ~~reportable~~statements ~~segments~~and asnotes offor the year ended December 31, ~~2001~~2002 included in our Form 10-K. This discussion and ~~September 29, 2002~~other ~~are~~portions ~~shown~~of inthis ~~the~~report ~~following~~may ~~table:~~contain forward-looking statements.

		PERFORMANCE PARTS		REMANUFACTURED PARTS		TOTAL
AS OF DECEMBER 31, 2001
	Inventories	$	31,259	$	3,348	$	34,607
	Property, plant, and equipment, net		24,235		1,833		26,068
AS OF SEPTEMBER 29, 2002
	Inventories	$	22,898	$	3,264	$	26,162
	Property, plant, and equipment, net		20,517		1,580		22,097

10. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT

The Senior Notes are guaranteed by substantially all existing and future directly or indirectly wholly-owned domestic restricted subsidiaries of the Company ("the Guarantors"). The Guarantors irrevocably and unconditionally, fully, jointly and severally guarantee the performance and payment, when due, of all obligations under the Senior Notes.

The condensed consolidating financial information includes certain allocations of revenues and expenses based on management's best estimates which is not necessarily indicative of financial position, results of operations and cash flows that these entities would have achieved on a stand-alone basis and should be read in connection with the consolidated financial statements of the Company. Condensed consolidating financial information for the issuer (Holley Performance Products, Inc.) and the subsidiary Guarantors is set forth below.

Consolidating Balance Sheet September 29, 2002

		Holley Performance Products Inc. (Parent Company Only)			Subsidiary Guarantors			Eliminations			Consolidated
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents		$	590		$	600		$	—		$	1,190
Accounts receivable, net			16,788			592			—			17,380
Inventories			13,982			12,180			—			26,162
Deferred income taxes			4,335			1,920			—			6,255
Income taxes receivable			168			137			—			305
Intercompany receivable			6,877			—			(6,877	)		—
Other current assets			919			161			—			1,080
	Total current assets		43,659			15,590			(6,877	)		52,372
PROPERTY, PLANT AND EQUIPMENT, NET			14,787			7,310			—			22,097
INVESTMENT IN SUBSIDIARIES			53,538			—			(53,538	)		—
INTANGIBLE ASSETS
Goodwill			69,482			42,309			—			111,791
Trade names			36,791			2,703			—			39,494
Other			6,908			9,165			—			16,073
			113,181			54,177			—			167,358
Less accumulated amortization			(13,768	)		(7,562	)		—			(21,330	)
	Total intangible assets, net		99,413			46,615			—			146,028
	Total assets	$	211,397		$	69,515		$	(60,415	)	$	220,497
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT):
CURRENT LIABILITIES:
Current portion of long-term debt		$	32,834		$	150		$	—		$	32,984
Accounts payable			13,528			863			—			14,391
Intercompany payables			—			6,877			(6,877	)		—
Accrued liabilities			19,916			1,323			—			21,239
	Total current liabilities		66,278			9,213			(6,877	)		68,614
LONG-TERM DEBT, NET OF CURRENT PORTION			149,812			—			—			149,812
DEFERRED INCOME TAXES			12,433			6,764			—			19,197
OTHER NONCURRENT LIABILITIES			375			—			—			375
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock, $1.00 par value			1			88,074			(88,074	)		1
Paid-in capital			52,499			—			—			52,499
Accumulated deficit			(70,001	)		(34,536	)		34,536			(70,001	)
	Total stockholder's equity (deficit)		(17,501	)		53,538			(53,538	)		(17,501	)
	Total liabilities and stockholder's equity (deficit)	$	211,397		$	69,515		$	(60,415	)	$	220,497

Consolidating Balance Sheet December 31, 2001

		Holley Performance Products Inc. (Parent Company Only)			Subsidiary Guarantors			Eliminations			Consolidated
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents		$	72		$	162		$	—		$	234
Accounts receivable, net			19,543			456			—			19,999
Inventories			19,385			15,222			—			34,607
Deferred income taxes			3,641			2,132			—			5,773
Income taxes receivable			152			156			—			308
Other current assets			1,370			127			—			1,497
	Total current assets		44,163			18,255			—			62,418
PROPERTY, PLANT AND EQUIPMENT, NET			19,706			6,362			—			26,068
INVESTMENT IN SUBSIDIARIES			65,235			—			(65,235	)		—
INTANGIBLE ASSETS
Goodwill			69,482			42,176			—			111,658
Trade names			37,610			5,290			—			42,900
Other			5,865			9,165			—			15,030
			112,957			56,631			—			169,588
Less accumulated amortization			(13,356	)		(6,146	)		—			(19,502	)
Total intangible assets, net			99,601			50,485			—			150,086
Total assets		$	228,705		$	75,102		$	(65,235	)	$	238,572
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT):
CURRENT LIABILITIES:
Current portion of long-term debt		$	31,050		$	108		$	—		$	31,158
Accounts payable			13,577			483			—			14,060
Accrued liabilities			14,317			1,231			—			15,548
	Total current liabilities		58,944			1,822			—			60,766
LONG-TERM DEBT, NET OF CURRENT PORTION			147,401			262			—			147,663
DEFERRED INCOME TAXES			14,153			7,783			—			21,936
OTHER NONCURRENT LIABILITIES			438			—			—			438
STOCKHOLDER'S EQUITY (DEFICIT):
Common stock			1			88,074			(88,074	)		1
Paid-in capital			52,499			—			—			52,499
Accumulated deficit			(44,731	)		(22,839	)		22,839			(44,731	)
	Total stockholder's equity (deficit)		7,769			65,235			(65,235	)		7,769
	Total liabilities and stockholder's equity (deficit)	$	228,705		$	75,102		$	(65,235	)	$	238,572

Consolidating Statement of Operations Three Months Ended September 29, 2002

		Holley Performance Products Inc. (Parent Company Only)			Subsidiary Guarantors			Eliminations			Consolidated
NET SALES		$	16,102		$	33,476		$	(16,102	)	$	33,476
COST OF SALES			14,973			31,841			(16,102	)		30,712
GROSS PROFIT			1,129			1,635			—			2,764
SELLING, GENERAL AND ADMINISTRATIVE			1,004			6,173			—			7,177
AMORTIZATION EXPENSE			283			189			—			472
OPERATING LOSS			(158	)		(4,727	)		—			(4,885	)
INTEREST EXPENSE			5,663			—			—			5,663
OTHER EXPENSE			696			—			—			696
LOSS BEFORE TAXES AND EQUITY IN LOSS OF SUBSIDIARIES			(6,517	)		(4,727	)		—			(11,244	)
INCOME TAX BENEFIT			(622	)		—			—			(622	)
			(5,895	)		(4,727	)		—			(10,622	)
EQUITY IN LOSS OF SUBSIDIARIES			(4,727	)		—			4,727			—
	NET LOSS	$	(10,622	)	$	(4,727	)	$	4,727		$	(10,622	)

Consolidating Statement of Operations Nine Months Ended September 29, 2002

	Holley Performance Products Inc. (Parent Company Only)			Subsidiary Guarantors			Eliminations			Consolidated
NET SALES	$	51,171		$	110,611		$	(51,171	)	$	110,611
COST OF SALES		41,154			103,696			(51,171	)		93,679
GROSS PROFIT		10,017			6,915			—			16,932
SELLING, GENERAL AND ADMINISTRATIVE		6,604			16,315			—			22,919
AMORTIZATION EXPENSE		284			1,133			—			1,417
OPERATING INCOME (LOSS)		3,129			(10,533	)		—			(7,404	)
INTEREST EXPENSE		16,509			42			—			16,551
OTHER EXPENSE		1,042			25			—			1,067
LOSS BEFORE TAXES AND EQUITY IN LOSS OF SUBSIDIARIES		(14,422	)		(10,600	)		—			(25,022	)
INCOME TAX BENEFIT		(1,357	)		(509	)		—			(1,866	)
		(13,065	)		(10,091	)					(23,156	)
EQUITY IN LOSS OF SUBSIDIARIES		(11,697	)		—			11,697			—
NET LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE		(24,762	)		(10,091	)		11,697			(23,156	)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE		(508	)		(1,606	)		—			(2,114	)
NET LOSS	$	(25,270	)	$	(11,697	)	$	11,697		$	(25,270	)

Consolidating Statement of Cash Flows Nine Months Ended September 29, 2002

			Holley Performance Products Inc. (Parent Company Only)			Subsidiary Guarantors			Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES			$	(295	)	$	1,104		$		$	809
CASH FLOWS FROM INVESTING ACTIVITIES
	Capital expenditures			(856	)		(446	)		—		(1,302	)
	Proceeds on disposal of fixed assets			46			—			—		46
		Net cash used in investing activities		(810	)		(446	)		—		(1,256	)
CASH FLOWS FROM FINANCING ACTIVITIES
	Proceeds (payments)on long-term obligations			1,681			(220	)		—		1,461
	Proceeds from issuance of promissory note			2,000			—			—		2,000
	Financing costs			(2,058	)		—			—		(2,058	)
		Net cash provided by financing activities		1,623			(220	)		—		1,403
NET CHANGE IN CASH AND CASH EQUIVALENTS				518			438			—		956
BALANCE AT BEGINNING OF PERIOD				72			162			—		234
BALANCE AT END OF PERIOD			$	590		$	600		$	—	$	1,190

Consolidating Statement of Operations Three Months Ended September 30, 2001 (Restated)

		Holley Performance Products Inc. (Parent Company Only)			Subsidiary Guarantors			Eliminations			Consolidated
NET SALES		$	22,434		$	38,846		$	(22,434	)	$	38,846
COST OF SALES			15,802			34,605			(22,434	)		27,973
GROSS PROFIT			6,632			4,241			—			10,873
SELLING, GENERAL AND ADMINISTRATIVE			1,099			6,412			—			7,511
AMORTIZATION EXPENSE			889			593			—			1,482
OPERATING INCOME (LOSS)			4,644			(2,764	)		—			1,880
INTEREST EXPENSE			5,604			—			—			5,604
OTHER EXPENSE			327			—			—			327
LOSS BEFORE TAXES AND EQUITY IN LOSS OF SUBSIDIARIES			(1,287	)		(2,764	)		—			(4,051	)
INCOME TAX BENEFIT			(480	)		(902	)		—			(1,382	)
			(807	)		(1,862	)		—			(2,669	)
EQUITY IN LOSS OF SUBSIDIARIES			(1,962	)		—			1,862			(100	)
	NET LOSS	$	(2,769	)	$	(1,862	)	$	1,862		$	(2,769	)

Consolidating Statement of Operations Nine Months Ended September 30, 2001 (Restated)

		Holley Performance Products Inc. (Parent Company Only)			Subsidiary Guarantors			Eliminations			Consolidated
NET SALES		$	65,112		$	116,317		$	(65,112	)	$	116,317
COST OF SALES			51,329			95,650			(65,112	)		81,867
GROSS PROFIT			13,783			20,667			—			34,450
SELLING, GENERAL AND ADMINISTRATIVE			3,586			18,413			—			21,999
AMORTIZATION EXPENSE			2,670			1,672			—			4,342
OPERATING INCOME			7,527			582			—			8,109
INTEREST EXPENSE			17,015			21			—			17,036
OTHER EXPENSE			410			25			—			435
INCOME (LOSS) BEFORE TAXES AND EQUITY IN LOSS OF SUBSIDIARIES			(9,898	)		536			—			(9,362	)
	INCOME TAX BENEFIT		(2,294	)		(902	)		—			(3,196	)
			(7,604	)		1,438			—			(6,166	)
EQUITY IN LOSS OF SUBSIDIARIES			1,201			—			(1,438	)		(237	)
	NET INCOME (LOSS)	$	(6,403	)	$	1,438		$	(1,438	)	$	(6,403	)

Consolidating Statement of Cash Flows Nine Months Ended September 30, 2001 (Restated)

			Holley Performance Products Inc. (Parent Company Only)			Subsidiary Guarantors			Eliminations		Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES			$	(1,413	)	$	117		$	—	$	(1,296	)
CASH FLOWS FROM INVESTING ACTIVITIES
	Capital Expenditures			(786	)		—			—		(786	)
	Proceeds on disposal of fixed assets			50			—			—		50
		Net cash used in investing activities		(736	)		—			—		(736	)
CASH FLOWS FROM FINANCING ACTIVITIES
	Principal payments on long-term obligations			(3,158	)		(518	)		—		(3,676	)
	Net cash used in financing activities			(3,158	)		(518	)		—		(3,676	)
NET CHANGE IN CASH AND CASH EQUIVALENTS				(5,307	)		(401	)		—		(5,708	)
BALANCE AT BEGINNING OF PERIOD				6,487			480			—		6,967
BALANCE AT END OF PERIOD			$	1,180		$	79		$	—	$	1,259

11. SUBSEQUENT EVENTS

On September 15, 2002, the Company delayed making its semi-annual interest payment on the Senior Notes. The Company entered into negotiations with its parent company with respect to a capital infusion and with the holders of the Senior Notes with respect to certain changes to the Indenture.

On October 10, 2002, after receiving consent of the requisite majority of noteholders under the Indenture governing the Senior Notes, the Company amended the Indenture to permit a $45 million limit on indebtedness rather than the previous limit of 85% of the net book value of trade receivables and 55% of the net book value of inventory, which allows the Company greater availability under its Credit Agreement with Foothill Capital. Subsequently, on October 11, 2002, the Company amended the Credit Agreement to permit the Company to receive a cash infusion of $13 million from its corporate parent (in addition to $2 million received in late September) (See Note 7) and amend certain financial covenants.

On October 11, 2002, the Parent provided an additional $13 million cash infusion and converted the Company's $2 million short-term note to the Parent into long-term capital. The total investment of $15 million, $7.5 million in the form of a senior unsecured convertible promissory note and $7.5 million as convertible preferred stock, was used to pay the interest payment of approximately $9.2 million on the Senior Notes due September 15, 2002, and provide additional liquidity to continue operational restructuring.

On October 11, 2002, the Company formally issued a $7.5 million convertible promissory note (the "Promissory Note") to its parent company, of which $2.0 million of the proceeds had been received by

September 29, 2002. The Promissory Note bears interest at a rate of 10% per annum, payable in kind, and ranks pari passu with the Senior Notes. Commencing January 1, 2004, if the Company has met performance targets based on EBITDA and credit availability, as defined in the note agreement, the Company shall pay principal and interest in quarterly installments of $2.5 million until the unpaid principal amount and all accrued interest are paid in full. The Promissory Note is convertible at the option of the holder into either preferred stock or common stock. The Promissory Note is subject to mandatory conversion into preferred stock upon the occurrence of insolvency proceedings.

The convertible preferred stock, having a par value per share equal to $1.00, is convertible at the option of the holder into common stock at the conversion price in effect at the time of the conversion. The conversion price is initially equal to $7,499 per share of common stock. The preferred stock is automatically converted into common stock upon the consent of two thirds of the holders or upon an initial public offering of common stock. The holders of preferred stock, with respect to rights upon a liquidation event, rank prior to the common stock.

The Company intends to amend its defined benefit pension plan, as of January 1, 2003, to freeze benefit accruals and to freeze the entry of new participants. Because the future service of participants under the pension plan will be eliminated, this constitutes a curtailment under the provisions of SFAS No. 88 "Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." As of December 31, 2001, the fair value of plan assets was $3,664 and the benefit obligation, determined using the projected unit credit actuarial cost method, was $4,910.

Effective October 1, 2002, the Company amended its defined contribution benefit plan to convert the Company's contributions from a percentage of employee contributions to a profit sharing contribution. As a result, there have been no Company contributions to the plan since that date. Terms of the plan have not been formulated by the Company and no assurance can be made regarding future contributions.

ITEM 2—MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes thereto. This discussion contains certain forward-looking statements with respect to the Company's operations, industry, financial condition and liquidity that involve risks and uncertainties. These statements, which are typically introduced by phrases such as "the Company believes", "anticipates", "estimates" or "expects" certain conditions to exist, reflect management's best current assessment of a number of risks and uncertainties. The Company's actual results could differ materially from the results anticipated in these forward-looking statements as a result of certain risk factors described in this report, including those set forth in the Form 10-K for the year ended December 31, 2001.

The Management's Discussion and Analysis and other portions of this report include "forward looking" statements within the meaning of the federal securities laws that are subject to future events, risks and uncertainties that could cause actual results to differ materially from those expressed or implied herein. Important factors that either individually or in the aggregate could cause actual results to differ materially from those expressed include, without limitation, (1) that we will not grow our sales revenue or profit, (2) that we will fail to be competitive with existing and new competitors, (3) that we will not be able to sustain our current growth, (4) that needed financing will not be available to us if and as needed, (5) that a significant change in the growth rate of the overall U.S. economy will occur, such that spending on performance automotive products will be materially impacted, (6) that a drastic negative change in market conditions may occur and (7) that emissions and other environmental regulations affecting us will increase thereby limiting our ability to sell our automotive products and grow our business or may increase our costs. This list is intended to identify only certain of the principal factors that could cause actual results to differ materially from those described in the forward-looking statements included herein. We are not obligated to update or revise any forward-looking statements or to advise of any changes in the assumptions on which they are based, whether as a result of new information, future events or otherwise.

OVERVIEW

Founded in 1903, Holley is a leading manufacturer and marketer of specialty products for the performance automotive, marine and ~~powersports (~~motorcycle, ~~jet-ski, snowmobile and go-cart)~~ aftermarkets. Holley designs, manufactures and markets a diversified line of automotive performance and racing products that ~~include~~are ~~fuel,~~designed ~~air, spark (also known as ignition) and internal engine management systems. The Company designs products~~ to enhance vehicle performance through generating increased horsepower, ~~torque~~ and ~~acceleration~~torque. ~~Our products~~Products include ~~both~~but ~~throttle~~are not ~~body~~limited ~~and~~to ~~multi-port fuel injection systems,~~ performance and remanufactured carburetors, ~~digital~~nitrous ~~ignition~~oxide systems, ~~distributors,~~ fuel ~~pumps~~injection systems, ~~camshafts~~super chargers, ~~crankshafts,~~ intake manifolds, ~~pistons~~cylinder heads, ~~super~~camshafts, ~~chargers~~pistons, ~~exhaust~~connecting ~~systems~~rods, ~~headers~~crankshafts, ~~mufflers~~headers and ~~motorcycle~~other exhaust ~~pipes~~system components, ~~cylinder~~fuel ~~heads~~pumps, water pumps ~~and throttle bodies. With the October 1999 acquisitions of FlowTech~~, ~~NOS~~ and ~~Earl's, product offerings also include nitrous oxide injection systems and~~ performance automotive plumbing products. In the performance automotive aftermarket, we have the most widely recognized brand name and a broad distribution network, which includes specialized retailers, performance wholesale distributors, mail order retailers and original equipment manufacturers ("OEM's"). Holley has developed strong relationships with customers in each distribution channel, including leading companies such as Advance Auto Parts, AutoZone, CSK Auto, Keystone, O'Reilly, Summit Racing, Jeg's mail order, GM Service Parts, Volvo-Penta and Mercury Marine.

SEASONALITY

Operations experience slight seasonal trends, which generally affect the overall automotive aftermarket industry. Historically, revenues are highest in the spring, during our second fiscal quarter, which marks the beginning of the racing season and when the weather is better suited for outdoor automotive repair activity. ~~Seasonality has a more prevalent effect on the remanufacturing facility in Springfield, TN, and accordingly, the Company occasionally hires temporary employees to respond to peak demand.~~

COMPARISON OF THE THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 2930, 2003 ~~2002~~ AND ~~SEPTEMBER~~MARCH 3031, ~~2001~~ 2002

The following table sets forth for the periods shown, net sales, gross profit, selling, general and administrative costs (“SG&A”), operating income, and net loss in millions of dollars and as a percentage of sales.

	Three Months Ended
	March 31, 2002					March 30, 2003

Net sales	$	37.6		100.0	%	$	32.8		100.0	%
Gross profit		10.6		28.2			9.1		27.7
SG&A		6.8		18.1			6.2		18.9
Operating income		3.0		8.0			2.0		6.1
Net loss		(1.8	)	(4.8	)		(4.0	)	(12.2	)

Net Sales

Net sales ~~equals~~equal gross revenues less provisions for volume rebates, credits, product returns, co-op advertising, and other sales allowances. Net sales for the quarter ended ~~September 29~~ March 30, ~~2002~~2003 totaled $3332.5 8 million compared to $3837.8 6 million for the same period in ~~2001~~2002, a decrease of $5.4 ~~million or 13~~.8%. ~~Net sales in the performance segment for the third quarter of 2002 were $29.9~~ million ~~compared to $34.6 million in the third quarter of 2001, a decrease of $4.8 million~~ or 1312.78% ~~from the third quarter of 2001~~. Net sales in the remanufacturing segment were $3.6 million in the third quarter of 2002 compared to $4.2 million in the third quarter of 2001, a decrease of $0.6 million. Management attributes the soft third quarter demand to the continued customer inventory reduction programs in response to the general economic slow down. The decreased sales in the remanufacturing segment are the result of weak demand in the repair market and the fact that new cars have not been produced with carburetors since approximately 1992, which has led to a continuing decline in the demand for remanufactured carburetors.

26Net sales in the performance segment for the first quarter of 2003 were $29.1 million compared to $32.7 million in the first quarter of 2002, a decrease of $3.6 million or 11.0%. The decline in net sales is generally attributable to unfavorable weather conditions, uncertainty over the war in Iraq, prevailing economic conditions and a change in the Company’s sales strategy to focus more closely on end-user demand.

~~Gross~~Net ~~Profits~~sales in the remanufacturing segment were $3.7 million in the first quarter of 2003 compared to $4.9 million in the first quarter of 2002, a decrease of $1.2 million or 24.5%. The decreased sales in the remanufacturing segment are the result of weak demand in the repair market and the fact that new cars have not been produced with carburetors since approximately 1992, which has led to a continuing decline in the demand for remanufactured carburetors.

~~Gross profits~~15 for the third quarter of 2002 totaled $2.8 million or 8.3% of net sales compared to gross profits of $10.9 million or 28.0% of net sales for the same quarter in 2001. This represents a decrease of $8.1 million, or 74.6%. In the performance segment, gross profits were $2.9 million or 9.8% of net sales compared to $10.1 million or 29.3% of net sales for the third quarter of 2001. This is a decrease of $7.2 million or 71.0% and is the result of declining sales, increased sales incentives, increased warranty costs and mid-year book-to-physical inventory adjustments. During the third quarter of 2002, management continued to reduce the product offering for slow selling models in relation to soft customer demand and the general economic slow down, and reviewed the applicable inventory levels. Management also reviewed the increased level of warranty returns. These reviews led to a requirement for an additional $4.0 million in reserves for these items. The Company has taken steps to reduce variable costs, including a reduction in direct labor and related costs by $0.5 million in the third quarter of 2002 compared to the same period in 2001. In the remanufacturing segment, gross profits were $(0.2) million or (4.9)% of net sales in the third quarter of 2002 compared to $0.7 million or 17.3% of net sales for the same period in 2001. This is a decrease of $0.9 million. The decrease in the remanufacturing segment is due to the continued decline in demand for special order repair products in the third quarter of 2002 and increased warranty and repair expenses.

~~Selling,~~Gross ~~General~~Profit ~~and Administrative Expenses~~

~~Selling, general~~Gross ~~and~~profit ~~administrative expenses~~ for the ~~three~~first ~~months~~quarter ~~ended~~of ~~September 29,~~2003 ~~2002~~ totaled $79.2 1 million or 2127.47% of net sales compared to gross profits of $710.5 6 million or 19 28.32% of net sales infor the same quarter ~~period~~ in ~~2001,~~2002. This represents a decrease of $01.3 5 million or 414.52%., ~~The~~which ~~decrease~~resulted isprimarily ~~attributable~~from ~~to a reduction in administrative compensation in~~ the ~~third~~decrease ~~quarter of 2002 and reversal of incentive compensation accruals established during the first half of 2002, partially offset by an increase~~ in ~~purchased services~~sales.

~~Amortization~~In ~~Expense~~the performance segment, gross profit was $8.6 million for the first quarter of 2003 compared to $9.1 million for the first quarter of 2002, a decrease of $0.5 million or 5.5%. Although the gross profit dollars decreased due to lower sales, gross profit as a percentage of net sales improved from 28.2% in the first quarter of 2002 to 29.6% in the first quarter of 2003 from implementation of strategies to improve manufacturing performance and control costs.

~~As of~~In ~~January 1,~~the ~~2002~~remanufacturing segment, gross weprofit ~~adopted~~was ~~SFAS No~~$0. ~~142.~~5 Inmillion ~~accordance~~in ~~with~~the ~~SFAS~~first ~~No. 142,~~quarter weof ~~discontinued~~2003 ~~the~~compared ~~amortization~~to of$1.5 ~~goodwill~~million ~~and~~for ~~indefinite~~the ~~lived~~same ~~intangible~~period ~~assets effective~~in ~~January 1~~2002, ~~2002.~~a ~~Amortization~~decrease ~~expense~~of ~~totaled~~ $01.5 0 million or 166.47%. ofThe ~~net~~decrease ~~sales~~in ~~for~~ the ~~three~~remanufacturing ~~months~~segment ~~ended~~is ~~September 29,~~due ~~2002 compared~~ to ~~$1.5 million~~the oraforementioned ~~3.8%~~decline ~~of net~~in ~~sales~~demand for remanufactured ~~the same period in 2001~~products.

~~Operating~~Selling, ~~Income~~General ~~(Loss)~~and Administrative Costs

~~Operating income~~Selling, ~~(loss)~~general and administrative costs for the three months ended March ~~September 29~~30, ~~2002~~2003 totaled $(46.9)2 million or ~~(14~~18.6)9% of net sales compared to $16.9 8 million or 418.81% of net sales in the same period in ~~2001~~2002, a decrease of $60.8 6 million or ~~360~~8.8%. The ~~decrease~~Company ~~primarily~~has focused its spending strategy on receiving maximum value for each dollar spent, which resulted ~~from~~in ~~decreased~~lower ~~sales~~spending for promotions, advertising and ~~gross~~commissions ~~profits,~~during asthe ~~discussed~~first ~~above~~quarter of 2003.

Interest Expense

Interest expense was $5.7 million or 16.9% of net sales for the three months ended September 29, 2002 compared to $5.6 million or 14.4% of net sales in the same period in 2001. The expense resulted from interest on our revolving credit facility, and the accrual of interest associated with the Senior Notes. The Credit Agreement is used to finance general business and working capital needs.

Other Expense

Other expense was $0.7 2 million for the three months ended ~~September 29~~March 30, ~~2002~~2003 compared to $0.3 1 million in the same period in ~~2001~~2002. The ~~2002~~2003 amount includes $0.7 2 million related to a loss on the ~~write-off~~sale of ~~deferred~~So-Cal ~~financing~~Speed ~~costs~~Shops, Inc. in(“So-Cal”) ~~connection~~effective ~~with~~February ~~the~~24, ~~debt~~2003. ~~refinancing~~Cash proceeds of $1.2 million were received in ~~July 2002~~connection with this sale.

27Operating Income

~~Benefit~~Operating income for ~~Income~~the ~~Taxes~~three months ended March 30, 2003 was $2.0 million or 6.1% of net sales compared to $3.0 million or 8.0% of net sales for the same period in 2002, a decrease of $1.0 million or 33.3%. The decrease resulted from the aforementioned decrease in net sales offset by cost cutting in the first quarter of 2003.

Benefit for income taxes for the three months ended September 29, 2002 was $(0.6) million or (1.9)% of net sales compared to $(1.4) million or (3.6)% of net sales in the same period in 2001.

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 29, 2002 AND SEPTEMBER 30, 2001

Net Sales

Net sales for the nine months ended September 29, 2002 totaled $110.6 million compared to $116.3 million for the same period in 2001, a decrease of $5.7 million or 4.9%. For the nine-month period ended September 29, 2002, net sales in the performance segment were $98.9 million compared to $102.1 million in the same period in 2001, a decrease of $3.2 million or 3.2%. Net sales in the remanufacturing segment were $11.7 million compared to $14.2 million in the same period in 2001, a decrease of $2.5 million or 17.6%. Management attributes the soft demand, which has persisted in the current period, to customer inventory reduction programs in response to the general economic slow down. The decreased sales in the remanufacturing segment continued as the result of weak demand in the repair market.

Gross Profits

Gross profits for the nine months ended September 29, 2002 totaled $16.9 million or 15.3% of net sales compared to $34.5 million or 29.6% of net sales for the same period in 2001. This is a difference of $17.5 million or 50.9%. In the performance segment, gross profits were $16.4 million or 16.5% of net sales compared to $32.0 million or 31.3% of net sales in the same period in 2001. This is a decrease of $15.6 million or 48.9% and is the result of reduced sales, increased sales incentives, and increases in inventory and warranty reserves. During 2002, management recorded $6.2 million in inventory adjustments due to mid-year book-to-physical inventory adjustments and increased reserves for potential excess and obsolete items and $1.8 million in added warranty reserves. The Company has taken steps to reduce variable costs, including a reduction in direct labor and related costs by $1.1 million. In the remanufacturing segment, gross profits were $0.6 million or 4.9% of net sales compared to $2.5 million or 17.3% of net sales in the same period in 2001. This is a decrease of $1.9 million or 76.7% reflecting the decline in demand for special order repair products as compared to the first nine months of 2001.

Selling, General and Administrative Expenses

Selling, general, and administrative expenses for the nine months ended September 29, 2002 totaled $22.9 million or 20.7% of net sales compared to $22.0 million or 18.9% of net sales in the same period in 2001, an increase of $0.9 million or 4.2%. The increase is mostly related to an increase in administrative compensation during the first half of 2002 and purchased services, such as audit, legal and consulting services.

Amortization Expense

As of January 1, 2002, the Company adopted SFAS No. 142. In accordance with SFAS No. 142, the Company discontinued the amortization of goodwill and indefinite lived intangible assets effective January 1, 2002. Amortization expense for the nine months ended September 29, 2002 totaled $1.4 million or 1.3% of net sales compared to $4.3 million or 3.7% of net sales for the same period in 2001.

Operating Income (Loss)

Operating income (loss) for the nine months ended September 29, 2002 totaled $(7.4) million or (6.7)% of net sales compared to $8.1 million or 7.0% of net sales in the same period in 2001, a decrease of $15.5 million or 191%.

Interest Expense

Interest expense was $~~16.~~6 ~~million or 15~~.0% ofmillion ~~net sales~~ for the ~~nine~~three months ended ~~September 29~~March 30, ~~2002~~2003 compared to $175.4 million for the same period in 2002, an increase of $0 .6 million or 1411.71%. ofThis ~~net~~increase ~~sales~~was ina ~~the~~result ~~same period~~of inhigher ~~2001.~~overall borrowings ~~The~~and ~~expense~~higher ~~resulted from~~ interest onrates under the revolving credit agreement, ~~and~~as ~~the~~well ~~accrual~~as of interest associated with the ~~Senior~~promissory ~~Notes.~~notes ~~The~~issued ~~Credit~~in ~~Agreement~~the isthird ~~used~~quarter toof ~~finance general business and working capital needs~~2002.

~~Other~~Tax Expense

~~Other expense~~The ~~was~~income ~~$1.1 million~~tax expense for the ~~nine~~three months ended ~~September 29~~March 30, ~~2002~~2003 was $0.03 million compared towith a benefit of $0.4 6 million infor the ~~same~~three ~~period~~months inended ~~2001~~March 31, 2002. The tax benefit for 2002 ~~amount~~resulted ~~includes $0.7 million~~from ~~related~~a totax ~~the~~sharing ~~write-off~~agreement ofthat ~~deferred~~the ~~financing~~Company ~~costs~~entered into in ~~connection~~2002 with ~~the~~its ~~refinancing~~prior ofowner, ~~the~~Coltec ~~credit~~Industries, Inc. (“Coltec”). Pursuant to this agreement, inthe ~~July 2002~~Company was able to carry back net operating losses to years it was a member of Coltec’s consolidated tax group.

Benefit for Income Taxes

Benefit for income taxes for the nine months ended September 29, 2002 was $(1.9) million or (1.7)% of net sales compared to $(3.2) million or (2.8)% of net sales in the same period in 2001.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s primary sources of liquidity are cash flows from operations and borrowings under the revolving credit facility. As part of its operating strategy, the Company maintains minimal cash balances and is substantially dependent upon the availability of adequate working capital financing to support accounts receivable and inventories.

The credit agreement provides for a total credit limit of $45 million, which includes a $25.0 million revolving credit facility, subject to a borrowing base formula, of which $1.0 million is reserved for irrevocable standby letters of credit. As of March 30, 2003, borrowings under the credit agreement were $30.8 million and unused borrowing capacity under the revolving credit facility was $4.0 million.

The credit agreement contains financial covenants which require the maintenance of certain fixed charge coverage ratios beginning with the twelve-month period ended June 30, 2003. The Company’s ability to operate within these financial covenants is dependent on its ability to improve earnings. The Company was in compliance with the terms of our indebtedness as of March 30, 2003.

The Company is highly leveraged. As of March 30, 2003, our indebtedness was $186.2 million and our stockholder’s deficit was $103.5 million. Further, the Company has incurred recurring net losses. Management is implementing actions designed to reduce working capital and improve operating results. If the improvements associated with these actions do not materialize in a timely manner, the Company may be required to take additional measures to ensure the availability of sufficient cash to sustain operations. Such measures may include, among other things, reducing or delaying capital expenditures, selling assets, restructuring or refinancing indebtedness, or seeking additional equity capital. There is no assurance that any of these measures can be affected on satisfactory terms, if at all.

Operating Activities

Net cash ~~provided~~used by in operating activities decreased to $3.7 million for the ~~nine~~three months ended ~~September 29~~March 30, ~~2002~~2003 ~~was~~from $04.8 4 million. ~~Decreased~~for ~~working~~the ~~capital~~three ~~requirements~~months ~~contributed~~ended ~~primarily~~March to31, ~~the increase~~2002. inThis ~~net~~decrease in cash ~~provided~~used byis ~~operating~~attributable ~~activities~~to inreduced ~~the~~cash ~~period.~~requirements ~~The~~for ~~change in~~ working capital partially ~~was~~offset ~~primarily~~by ~~attributable~~the toincreased ~~decreased~~net ~~accounts~~loss ~~receivable~~for ofthe ~~$2.6 million,~~first ~~decreased inventories~~quarter of ~~$8.4 million,~~2003 ~~increased~~relative ~~accounts~~to ~~payable~~the offirst ~~$0.3 million~~quarter ~~and increased accrued liabilities~~ of $52002.~~6 million.~~

Investing Activities

Net cash provided by investing activities was $1.1 million for the three months ended March 30, 2003 compared to net cash used in investing activities of $0.4 million for the ~~nine~~three months ended ~~September 29~~March 31, 2002. ~~was~~In the first quarter of 2003, proceeds from the sale of So-Cal of $1.3 2 million, ~~resulting~~and proceeds from the disposal of fixed assets of $0.2 million were partially offset by capital ~~additions~~expenditures of $0.3 million. For the three months ended March 31, 2002, capital expenditures were $0.4 million.

Financing Activities

Net cash provided by financing activities for the ~~nine~~first ~~months~~quarter ~~ended~~of ~~September 29,~~2003 and 2002 ~~was~~were $12.4 3 million, ~~comprised~~and ~~of proceeds of~~ $14.5 7 million, onrespectively. ~~long-term obligations~~This ~~and~~cash ~~proceeds~~provided ofwas ~~$2.0 million~~principally ~~from~~a ~~the~~result ~~issuance~~ of ~~a promissory note,~~ net ofborrowings ~~financing~~under ~~costs~~our ofrevolving ~~$2.1 million~~credit ~~associated~~facility ~~with~~partially ~~the~~offset ~~Foothill~~by ~~Capital~~principal ~~Corporation~~payments ~~credit agreement entered into~~ on ~~July 30,~~long-term ~~2002 as described below~~debt.

Our primary sources of liquidity are funds generated by operations and borrowings under our credit agreement with Foothill Capital Corporation and the Promissory Note.

coverage ratio covenant from Fleet for the quarters ended March 31, 2002 and June 30, 2002. On July 30, 2002, prior to the expiration of the forbearance agreement, the Company replaced the Fleet Credit Arrangement with a $50 million facility provided by Foothill Capital Corporation (the "Credit Agreement").

The five year Credit Agreement is comprised of four parts: 1.) a revolving component, with borrowings limited to 85% of eligible trade accounts receivable and the lesser of $16 million or 68% of eligible finished goods inventory plus 17% of eligible work-in-process inventory plus 31% of eligible raw materials inventory; 2.) Subline A with available advances totaling a maximum of $10 million secured by the Company's equipment, real property and trade names; 3.) Subline B of $10 million and 4.) Subline C with available advances totaling $5 million for the purchase of new capital equipment. Maximum borrowings under the Credit Agreement, as amended, are limited under the terms of the Company's Senior Note Indenture to $45 million. The Credit Agreement, as amended, requires that the Company maintain certain fixed charge coverage ratios beginning the twelve months ending June 30, 2003. In connection with the Credit Agreement, we wrote-off $775,000 of deferred financing costs associated with the Fleet Credit Agreement. Such amount is included in other expense in the accompanying consolidated statements of operations.

At October 25, 2002, we had $8.3 million of unused credit availability under the Credit Agreement.

On September 20, 1999, Holley issued $150.0 million of 121/4% senior notes due 2007 at a discount of 3.7% (the "Senior Notes"). The debt discount is amortized as a non-cash charge to interest expense using the effective interest method over the term of the debt. The Senior Notes are unsecured and are subordinate to our other indebtedness. The proceeds from the Senior Notes were used to repay existing indebtedness and to fund the acquisitions of FlowTech, NOS and Earl's in October 1999.

The Senior Notes Indenture requires us to make semi-annual interest payments in March and September at 121/4%. On September 15, 2002, the Company delayed making its interest payment on the Senior Notes. In September 2002, the Company initially received a $2 million cash infusion from our parent company in the form of a short-term note to meet operating requirements. The Company subsequently received an additional $13 million cash infusion for a total investment of $15 million and we made the interest payment on October 15, 2002, before the grace period specified in the Senior Notes Indenture expired. Accordingly, amounts payable under the Senior Notes Indenture are classified as long-term in the accompanying consolidated balance sheet at September 29, 2002.

With regard to the $15 million investment described above, $7.5 million was in the form of a senior unsecured convertible promissory note and $7.5 million was in the form of convertible preferred stock The investment was used to pay the interest payment on the Senior Notes due September 15, 2002 of approximately $9.2 million and provide additional liquidity to continued operational restructuring.

On October 11, 2002, Holley formally issued a $7.5 million convertible promissory note (the "Promissory Note") to our parent company, of which $2.0 million of the proceeds had been received by September 29, 2002. The Promissory Note bears interest at a rate of 10% per annum, payable in kind, and ranks pari passu with the Senior Notes. Commencing January 1, 2004, if we have met certain performance targets based on EBITDA and credit availability we will pay principal and interest in quarterly installments of $2.5 million until the unpaid principal amount and all accrued interest are paid in full. The Promissory Note is convertible at the option of the holder into either preferred stock or common stock. The Promissory Note is subject to mandatory conversion into preferred stock upon the occurrence of insolvency proceedings.

Contemporaneously with delaying its semi-annual interest payment, the Company entered into negotiations with its parent company with respect to a capital infusion and with the holders of the Senior Notes with respect to certain changes to the Indenture. On October 10, 2002, after receiving

consent of the requisite majority of noteholders under the Indenture governing the Senior Notes, Holley amended the Indenture to permit a $45 million limit on indebtedness instead of the previous formulaic limit. Subsequently, on October 11, 2002, we amended the Credit Agreement to permit the Company to receive a cash infusion of $13 million from its Corporate parent (in addition to $2 million received in late September) and amend certain financial covenants.

At October 25, 2002, we had borrowings of $28.8 million outstanding under the Credit Agreement and $8.3 million of unused credit availability. We are dependent on the Credit Agreement to fund our working capital needs. Our ability to operate within the financial covenants required under that facility are dependent on our ability to attain profitable operations and improve earnings. Should we not be able to operate within the borrowing limits and restrictive covenants of the Credit Agreement, we may be forced to seek additional sources of financing in order to fund our working capital needs. In such an event, we cannot be certain that we would be able to obtain necessary financing on acceptable terms.

Holley incurred net losses in 1999, 2000, 2001 and the first three quarters of 2002. Management is presently evaluating the performance of the Company's business both in the aggregate and at the separate division levels. To date in 2002, management has implemented actions designed to reduce working capital and improve operating results, and plans further actions during the remainder of 2002. There is no assurance that management's actions will be successful. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

EBITDA

EBITDA is ~~presented~~was ~~and discussed because management believes that some investors regard EBITDA as a key measure of a leveraged company's performance and ability to meet its future debt service requirements~~$4.0 ~~EBITDA~~million isfor ~~defined~~the asthree ~~net~~months ~~income~~ended orMarch ~~loss (excluding extraordinary gain or losses~~30, ~~gains~~2003 orcompared losses from asset dispositions and minority interest) before interest, income taxes, depreciation and amortization. EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States, and should not be considered an alternative to net income (or any other measure of performance under accounting principles generally accepted in the United States) as a measure of performance or to cash flows from operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity$5.3 ~~Certain~~million ~~covenants~~for in the ~~Credit~~three ~~Agreement~~months ~~are~~ended ~~based~~March ~~on EBITDA as defined in that agreement. In the period ended September 29~~31, 2002, ~~EBITDA~~a decrease ~~generated~~of ~~from operations was~~ $(1.2)3 million or (124.1)5%. ofThis ~~net sales, a~~ decrease ofin ~~$19.8 million~~EBITDA ~~compared~~is toprimarily the ~~same~~result ~~period~~of inthe ~~2001.~~aforementioned ~~This~~reduction ~~decrease~~ in ~~funds is due to reduced gross profits~~sales.

ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

	Three Months Ended
	March 31, 2002		March 30, 2003
Operating income	$	3,037	$	1,963
Other expense		83		200
Amortization of intangibles		472		472
Depreciation		1,682		1,346

EBITDA	$	5,274	$	3,981

~~Holley's~~17 exposure to interest rate changes is primarily related to our variable rate debt which may be outstanding from time to time under our Credit Agreement. The borrowings under the Credit Agreement carry interest rates which are based on the London Interbank Offered Rate or base rate. Because the interest rate on the credit agreement is variable, our cash flow may be affected by increases in the LIBOR rate. As of September 29, 2002, Our outstanding balance on our Credit Agreement was $30.7 million.

~~Sensitivity~~EBITDA is presented and discussed because the Company believes that investors regard EBITDA as a key measure of a ~~Analysis~~leveraged company’s performance. ToEBITDA ~~assess~~is ~~exposure~~defined toas net income or loss (excluding extraordinary gains or losses, gains or losses from asset dispositions and minority interest) ~~rate~~before ~~changes~~interest, ~~Holley~~income ~~has~~taxes, ~~performed~~depreciation and amortization. However, EBITDA is not a ~~sensitivity~~measure ~~analysis~~of ~~assuming~~financial ~~that~~performance weunder ~~had~~accounting ~~drawn~~principles generally accepted in the ~~full~~United ~~balance~~States of America. EBITDA does not represent cash available ~~under~~to ~~the~~service ~~credit~~debt and should not be considered in isolation or as a ~~agreement.~~substitute Iffor ~~the~~net ~~prime~~income ~~rate~~or ~~rose~~cash ~~100~~flows ~~basis~~from ~~points,~~operating ~~the~~activities ~~increase~~(or inany ~~the~~other ~~monthly~~measure ~~interest~~of ~~payment~~performance ~~would~~determined ~~equal~~in ~~$30,000~~accordance with generally accepted accounting principles).

31Contractual Obligations and Commitments

~~ITEM~~The ~~4—CONTROLS~~table ~~AND~~below ~~PROCEDURES~~ sets forth a summary of our contractual obligations and commitments as of March 30, 2003 that will have an impact on our future liquidity:

Within the 90 days prior to the filing date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and interim Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Chief Executive Officer and interim Chief Financial Officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to Holley (including its consolidated subsidiaries) required to be included in our periodic SEC filings.

	Years Ending December 31,
Contractual Obligations	2003		2004		2005		2006		2007		Thereafter		Total
Loan and security agreement	$	1,503	$	2,000	$	2,000	$	2,000	$	23,310	$	—	$	30,813
Senior notes		—		—		—		—		146,917		—		146,917
Convertible promissory note		—		7,500		—		—		—		—		7,500
Other long term debt		35		49		52		55		58		695		944
Operating leases		632		600		89		46		10		135		1,512

Total contractual obligations	$	2,170	$	10,149	$	2,141	$	2,101	$	170,295	$	830	$	187,686

~~The Company~~Impact continues to evaluate its internal controls and procedures and implement additional procedures. These additional internal controls along with the disclosure controls and procedures are designed to ensure that information required to be disclosed in our SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC's rules, and that such information is accumulated and communicated to the management, including the Chief Executive Officer and interim Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We implemented a plan to strengthen our internal controls during 2002, including certain corrective actions pursuant to an ongoing plan to correct weaknesses in the internal controls that were noted in management's evaluation of ~~the~~Inflation controls during the first and second quarters of 2002 and that were noted by our independent auditors as part of their audit of our December 31, 2001 financial statements. The plan has been an ongoing project throughout 2002 and includes additional controls implemented by the interim Chief Financial Officer who was appointed on September 25, 2002.

~~PART~~Management ~~II—OTHER~~does ~~INFORMATION~~ not believe that inflation has had a significant affect on the results of operations over the periods presented.

~~ITEM~~Recent ~~1—LEGAL~~Accounting ~~PROCEEDINGS.~~ Pronouncements

~~The~~In ~~Company~~June is2001, athe ~~party~~Financial toAccounting ~~various~~Standards ~~lawsuits~~Board, ~~and~~or ~~claims~~FASB, inissued Statement ~~the~~of ~~normal~~Financial ~~course~~Accounting ofStandards, ~~business~~or SFAS, No. ~~While~~143, ~~the~~“Accounting ~~lawsuits~~for Asset Retirement Obligations.” SFAS No. 143 establishes accounting standards for recognition and ~~claims~~measurement ~~against~~of ~~Holley~~an ~~cannot~~asset beretirement ~~predicted~~obligation ~~with~~and an associated ~~certainty,~~asset ~~management~~retirement ~~believes~~cost. This statement applies to all entities that have legal obligations associated with the ~~ultimate~~retirement ~~resolution~~of long-lived assets that result from the acquisition, construction, development or normal use of the ~~matters~~assets ~~will~~and is effective for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 did not have a material ~~effect~~impact on the consolidated financial position, or results of operations or cash flows of the Company.

In ~~May 1999~~ July 2002, ~~Union~~the ~~Pacific~~Financial ~~Railroad~~Accounting ~~Company~~Standards ~~filed~~Board anissued ~~action~~Statement ~~against~~of ~~Weiand~~Financial Accounting ~~Automotive~~Standards ~~Industries, Inc~~No. 146, aAccounting ~~subsidiary~~for ofCosts ~~Holley~~Associated ~~("Weiand"),~~with ~~and~~Exit ~~others~~or inDisposal ~~the~~Activities. USFAS No.S. ~~District Court~~146 addresses financial accounting and reporting for ~~the~~costs ~~Central~~associated ~~District~~with ofexit ~~California,~~or ~~alleging~~disposal ~~that~~activities. ~~certain~~It ~~soil~~nullifies ~~and~~EITF ~~groundwater~~Issue ~~contamination~~No. ~~discovered~~94-3. “Liability onRecognition ~~Union~~for ~~Pacific~~Certain ~~property~~Employee inTermination ~~Los~~Benefits ~~Angeles~~and ~~had~~Other ~~migrated~~Costs ~~from~~to anExit ~~adjacent~~on ~~Weiand facility.~~Activity In(including ~~December 2000,~~Certain ~~Union~~Costs ~~Pacific,~~Incurred ~~Holley,~~in ~~Weiand~~a ~~and~~Restructuring).” ~~Joan~~The ~~Weiand,~~principal ~~the~~difference ~~owner~~between ofSFAS ~~the~~No. ~~Weiand~~146 ~~property,~~and ~~reached~~Issue a94-3 ~~comprehensive~~relates ~~settlement~~to inthe recognition ~~exchange~~of a liability for a ~~cash~~cost ~~payment~~associated ~~significantly~~with ~~less than~~an ~~the~~exit ~~sought~~or ~~amount,~~disposal ~~resulting~~activity. inSFAS No. 146 requires that a ~~full~~liability ~~dismissal~~be ofrecognized for those costs only when the ~~lawsuit.~~liability Ais ~~substantial~~incurred, ~~majority~~that ofis, when it meets the ~~settlement~~definition ~~payment~~of ~~was~~a ~~paid~~liability byin ~~Weiand'~~the FASB’s ~~insurers~~conceptual framework. In ~~connection~~contrast, ~~with~~under ~~the~~Issue ~~settlement~~94-3, a company recognized a liability for an ~~additional $550,000~~exit ~~paid~~cost bywhen ~~the~~it ~~settling~~committed ~~insurers~~to ~~has~~an ~~been~~exit ~~put~~plan. ~~into~~SFAS aNo. ~~Site~~146 ~~Source~~is ~~Control~~effective ~~Account~~for toexit ~~fund~~or ~~investigation~~disposal ~~and~~activities ~~any~~that ~~required~~are ~~remediation~~initiated after December 31, 2002. The adoption of ~~the~~SFAS ~~Weiand~~No. ~~property,~~146 asdid ~~may~~not behave ~~required~~any byimpact on the ~~State~~consolidated financial position, results of ~~California~~ operations or cash flows of the Company.

In ~~2000,~~ ~~Weiand~~December ~~discovered~~2002, ~~possibly~~the ~~significant~~FASB ~~soil~~issued ~~contamination~~SFAS onNo. ~~the~~148 ~~Weiand~~Accounting ~~property,~~for ~~which~~Stock-Based ~~has~~Compensation—Transition ~~not~~and ~~been~~Disclosure, ~~fully~~an ~~analyzed~~amendment byof ~~Weiand's~~FASB ~~environmental~~Statement ~~consultants~~No. In123. ~~July 2001,~~This ~~Holley~~Statement ~~(through~~amends ~~Weiand)~~FASB ~~entered~~Statement ~~into~~No. a123 ~~Voluntary~~Accounting ~~Cleanup~~for ~~Agreement~~Stock-Based ~~with the California Department of Toxic Substances Control~~Compensation, ~~pursuant~~ to ~~which~~provide ~~Holley~~alternative ismethods ~~working~~of ~~with~~transition ~~the~~of ~~property~~voluntary ~~owner,~~change ~~Joan Weiand,~~ to ~~investigate and, if necessary, remediate~~ the ~~contamination.~~fair Wevalue ~~cannot~~method ~~estimate the potential liability arising from that contamination, if any, or the possible outcome~~ of ~~any~~accounting ~~state~~for ~~environmental regulatory~~stock-based ~~requirements.~~employee ~~Holley and Weiand are working vigorously to address regulatory issues arising from the discovered contamination~~compensation. In

3218

~~ITEM~~addition, ~~6—EXHIBITS~~this ~~AND~~Statement ~~REPORTS~~amends ONthe ~~FORM~~disclosure 8requirements of Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-Kbased employee compensation and the effect of the method on reported results. The adoption of the disclosure provisions of SFAS No. 148 did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows of the Company.

In November 2002, the FASB issued Interpretation (AFIN) No. 45 Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of others, which provides ~~Exhibits—None~~guidance on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of ~~(B)~~a ~~Reports~~guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of FIN No. 45 are applicable on ~~Form 8-K~~a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year end. The adoption of FIN No. 45 did not have a material effect on the Company’s consolidated financial position, results of operations or cash flows of the Company.

33In January 2003, the FASB issued Interpretation No. 46 Consolidation of Variable Interest Entities, an interpretation of ARB No. 51. This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation applies immediately to variable interest entities created after January 31, 2003, and to variable interests in variable interest entities obtained after January 31, 2003. The application of this Interpretation did not have any impact on the Company’s consolidated financial position, results of operations or cash flows of the Company.

Forward-Looking Statements

This report may contain 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. The Company intends that the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 apply to any forward-looking statements. Forward-looking statements are not statements of historical fact but rather reflect the Company’s current expectations, estimates and predictions about future results and events. These statements may use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “predict,” “project” and similar expressions as they relate to the Company or the Company’s management. When the Company makes forward-looking statements, it is basing them on management’s beliefs and assumptions, using information currently available to it. These forward-looking statements are subject to risks, uncertainties and assumptions. Information on significant risks, uncertainties and assumptions not discussed herein may be found in the Company’s filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. If one or more risks or uncertainties materialize, or if the Company’s underlying assumptions prove to be incorrect, actual results may vary materially from what the Company projected. Any forward-looking statements in this report reflect the Company’s current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the Company’s operations, results of operations and liquidity. All subsequent written and oral forward-looking statements attributable to the Company or individuals acting on the Company’s behalf are expressly qualified in their entirety by this paragraph.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Certain borrowings under the revolving credit facility bear interest at fluctuating market rates. An analysis of the impact of an increase or decrease in the interest rate of 100 basis points on the Company’s interest-rate-sensitive financial instruments shows an impact on expected annual interest expense of approximately $200,000.

Item 4.

Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), within the 90 days prior to the filing date of this report, the Company carried out an evaluation of the

effectiveness of the design and operation of the Company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer. Based upon that evaluation, the Company’s Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

In connection with our evaluation of internal controls, we noted that certain internal control matters existed that required corrective actions. These internal control matters related to deficiencies in staffing, systems, and processes. The Company began implementation of a plan to strengthen internal controls during 2002. The plan, which has been designed to address the identified internal control matters, was an on-going project throughout 2002 and continues into 2003.

PART II

ITEM 6.

Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit No.		Item

99.1		Certification of Chief Executive Officer

99.2		Certification of Chief Financial Officer

(b) Reports on Form 8-K

None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the ~~Registrant~~registrant has duly caused this report to be signed on its behalf by the undersigned ~~thereunto~~ thereunto duly authorized.

HOLLEY PERFORMANCE PRODUCTS INC.
Date: November 13, 2002	By:	/s/ James D. Wiggins James D. Wiggins President and Chief Executive Officer
Date: November 13, 2002	By:	/s/ Gary Cademartori Gary Cademartori Vice President, Chief Financial Officer & Secretary

Holley Performance Products Inc.

34(Registrant)

CERTIFICATION PURSUANT TO RULE 13A-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

Signature	Title	Date

/s/ JAMES D. WIGGINS James D. Wiggins	President and Chief Executive Officer	July 2, 2003

/s/ THOMAS W. TOMLINSON Thomas W. Tomlinson	Chief Financial Officer	July 2, 2003

I,21 ~~James D. Wiggins, Chief Executive Officer of the company, certify that:~~

~~I have~~CERTIFICATIONS ~~reviewed this quarterly report on Form 10-Q of Holley Performance Products Inc. (the "registrant");~~

~~Based on my knowledge~~I, ~~this~~James ~~quarterly~~D. ~~report~~Wiggins, ~~does~~President ~~not~~and ~~contain~~Chief ~~any~~Executive ~~untrue~~Officer ~~statement~~ of aHolley ~~material~~Performance ~~fact~~Products ~~or omit to state a material fact necessary to make the statements made~~Inc., incertify ~~light~~that: ~~of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;~~

~~Based on~~1. myI ~~knowledge,~~have ~~the~~reviewed ~~financial statements, and other financial information included in~~ this quarterly report, ~~fairly~~on ~~present~~Form in10-Q ~~all material respects the financial condition, results~~ of ~~operations~~Holley ~~and~~Performance ~~cash~~Products ~~flows of the registrant as of, and for, the periods presented in this quarterly report~~Inc.;

~~The registrant's~~2. ~~other~~Based ~~certifying~~on ~~officers~~my ~~and~~knowledge, Ithis ~~are~~quarterly ~~responsible~~report ~~for~~does ~~establishing~~not ~~and~~contain ~~maintaining~~any ~~disclosure~~untrue ~~controls~~statement ~~and~~of ~~procedures~~a ~~(as~~material ~~defined~~fact or omit to state a material fact necessary to make the statements made, in ~~Exchange~~light ~~Act Rules 13a-14~~of ~~and~~the ~~15d-14)~~circumstances ~~for~~under which such statements were made, not misleading with respect to the ~~registrant~~period ~~and~~covered weby ~~have:~~this quarterly report;

~~The registrant's~~3. ~~other~~Based ~~certifying~~on ~~officers~~my ~~and~~knowledge, Ithe ~~have~~financial ~~disclosed~~statements, ~~based~~and onother ~~our~~financial ~~most~~information ~~recent~~included ~~evaluation~~in this quarterly report, tofairly ~~the~~present ~~registrant's~~in ~~auditors~~all ~~and~~material respects the ~~audit~~financial ~~committee~~condition, results of ~~registrant's~~operations ~~board~~and cash flows of ~~directors~~ ~~(or~~the ~~persons~~registrant ~~performing~~as of, and for, the ~~equivalent~~periods ~~function):~~presented in this quarterly report;

4. The registrant'’s other certifying ~~officers~~officer and I ~~have~~are ~~indicated~~responsible infor ~~the~~establishing ~~quarterly~~and ~~report~~maintaining ~~whether~~disclosure orcontrols ~~not~~and ~~there~~procedures ~~were~~(as ~~significant~~defined ~~changes~~ in ~~internal~~Exchange ~~controls~~Act orRules in13a-14 ~~other~~and ~~factors~~15d-14) ~~that~~for ~~could significantly affect internal controls subsequent to~~ the ~~date~~registrant ~~of our most recent evaluation, including any corrective actions with regard to significant deficiencies~~ and ~~material~~we ~~weaknesses.~~ have:

~~Date:~~a) ~~November~~designed 13such disclosure controls and procedures to ensure that material information relating to the registrant, ~~2002~~including ~~By:~~its ~~/s/~~consolidated ~~JAMES~~subsidiary, D.is ~~WIGGINS~~made ~~James~~known D.to ~~Wiggins~~us ~~Chief~~by ~~Executive~~others ~~Officer~~within those entities, particularly during the period in which this quarterly report is being prepared;

35b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

c) presented ~~CERTIFICATION~~in ~~PURSUANT~~this ~~TO RULE~~quarterly ~~13A-14~~report OFour ~~THE~~conclusions ~~SECURITIES~~about ~~EXCHANGE~~the ~~ACT~~effectiveness OFof ~~1934, AS~~the ~~ADOPTED~~disclosure ~~PURSUANT~~controls ~~TO SECTION~~and ~~302~~procedures OFbased ~~THE~~on ~~SARBANES-OXLEY~~our ~~ACT~~evaluation OFas ~~2002~~ of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, ~~Gary~~ ~~Cademartori~~based on our most recent evaluation, ~~Chief~~to ~~Financial~~the ~~Officer~~registrant’s auditors and the audit committee of the ~~company,~~registrant’s ~~certify~~board ~~that:~~of directors (or persons performing the equivalent function):

~~Date:~~a) ~~November~~all 13significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, ~~2002~~process, ~~By:~~summarize /and report financial data and have identified for the registrant’s/ ~~GARY~~auditors ~~CADEMARTORI~~any ~~Gary~~material ~~Cademartori~~weaknesses ~~Chief~~in ~~Financial~~internal ~~Officer~~controls; and

36b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

~~QuickLinks~~6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: July 2, 2003

/s/ JAMES D. WIGGINS

James D. Wiggins,

President and Chief Executive Officer

I, Thomas W. Tomlinson, Chief Financial Officer of Holley Performance Products Inc., certify that:

I have reviewed this quarterly report on Form 10-Q of Holley Performance Products Inc.;

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

The registrant’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: July 2, 2003

/s/ THOMAS W. TOMLINSON

Thomas W. Tomlinson,

Chief Financial Officer

Filing Compare · HOLLEY PERFORMANCE PRODUCTS INC