##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

|                                                  |  |                                                                                         
|------------------------------------------------- |  | ----------------------------------------------------------------------------------------
|(Box with an X)                                   |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|                                                 
|                                                 
|                                                 
|                                                 
|For The Quarterly Period Ended September 30, 2001
|                                                 
|                                                 
|                                                 
|                                                 
|OR                                               
|                                                 
|                                                 
|                                                 
|                                                 
|(Empty Ballot Box)                                |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 333-89061

HOLLEY PERFORMANCE PRODUCTS INC.




(Exact Name of Registrant as Specified in Its Charter)


|                         |  |                                        
|------------------------ |  | ---------------------------------------
|Delaware                 |  | 61-1291482                             
|                         |  |                                        
|                        
|                        
|                        
|                        
|(State of Incorporation) |  | (I.R.S. Employer Identification Number)

1801 Russellville Road, Post Office Box 10360, Bowling Green, KY 42102-7360




(Address Of Principal Executive Offices, Including Zip Code)


270-782-2900




(Registrants Telephone, 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  (Box with an X)     No  (Empty Ballot Box)

There were 1,000 shares of Common Stock outstanding as of September 30,
2001.





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TABLE OF CONTENTS



|                              |                                                                    |  |  |  |  |  |  | 
|----------------------------- | ------------------------------------------------------------------ |  |  |  |  |  |  | 
|PART I- FINANCIAL INFORMATION
|                              | Item 1- Financial Statements                                      
|                              | Item 3- Qualitative and Quantitative Disclosures About Market Risk
|PART II- OTHER INFORMATION   
|                              | ITEM 1- LEGAL PROCEEDINGS                                         
|                              | ITEM 6- EXHIBITS AND REPORTS ON FORM 8-K                          
|SIGNATURES                   



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##### Table of Contents



HOLLEY PERFORMANCE PRODUCTS INC.

Quarterly Report on Form 10-Q
For the Three Months Ended September 30, 2001

TABLE OF CONTENTS

|           |  |                                                                                       |  |  |    |         |    | 
|---------- |  | ------------------------------------------------------------------------------------- |  |  | -- | ------- | -- | 
|           |  |                                                                                       |  |  |    | Page No
|           |  |                                                                                       |  |  |    |        
|           |  | PART I                                                                                |  |  |    |        
|          
|          
|          
|          
|Item 1     |  | Financial Statements                                                                  |  |  | 3  |        
|          
|          
|          
|          
|Item 2     |  | Management's Discussion and Analysis of Financial Condition
and Results of Operations |  |  | 13 |        
|          
|          
|          
|          
|Item 3     |  | Qualitative and
Quantitative Disclosures about Market Risk                            |  |  | 18 |        
|          
|          
|          
|          
|           |  | PART II                                                                               |  |  |    |        
|          
|          
|          
|          
|Item 1     |  | Legal Proceedings                                                                     |  |  | 19 |        
|          
|          
|          
|          
|Item 6     |  | Exhibits and Reports on Form 8-K                                                      |  |  | 19 |        
|          
|          
|          
|          
|SIGNATURES |  |                                                                                       |  |  |    |         | 20 | 

2



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##### Table of Contents



PART I- FINANCIAL INFORMATION




Item 1- Financial Statements




HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)

|                                       |                                                                                            |                                            |         |         |         |              |         |               |         |  |             | 
|-------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------ | ------- | ------- | ------- | ------------ | ------- | ------------- | ------- |  | ----------- | 
|                                       |                                                                                            |                                            |         |         |         | December 31, |         | September 30,
|                                       |                                                                                            |                                            |         |         |         | 2000         |         | 2001         
|                                       |                                                                                            |                                            |         |         |         |              |         |               |         |  | (Unaudited)
|                                       |                                                                                            |                                            |         |         |         |              |         |              
|ASSETS                                 |                                                                                            |                                            |         |         |         |              |         |              
|                                      
|                                      
|                                      
|                                      
|CURRENT ASSETS:                        |                                                                                            |                                            |         |         |         |              |         |              
|                                      
|                                      
|                                      
|                                      
|                                       | Cash                                                                                       |                                            | $       | 6,967   |         |              | $       | 1,259         |        
|                                      
|                                      
|                                      
|                                      
|                                       | Accounts
receivable, net of allowance for doubtful
accounts of $964 and $856, respectively |                                            |         | 27,573  |         |              |         | 26,531        |        
|                                      
|                                      
|                                      
|                                      
|                                       | Inventories                                                                                |                                            |         | 34,759  |         |              |         | 36,427        |        
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred income taxes                                                                      |                                            |         | 3,514   |         |              |         | 3,068         |        
|                                      
|                                      
|                                      
|                                      
|                                       | Income taxes receivable                                                                    |                                            |         | 1,305   |         |              |         |              |        
|                                      
|                                      
|                                      
|                                      
|                                       | Other current assets                                                                       |                                            |         | 1,020   |         |              |         | 1,932         |        
|                                       |                                                                                            |                                            |         |         |         |              |         |               |        
|                                       |                                                                                            | Total current assets                       |         |         | 75,138  |              |         |               | 69,217  | 
|                                      
|                                      
|                                      
|                                      
|PROPERTY, PLANT AND EQUIPMENT, net     |                                                                                            |                                            | 32,791  |         |         |              | 27,261  |              
|                                      
|                                      
|                                      
|                                      
|INTANGIBLE ASSETS, net                 |                                                                                            |                                            | 156,700 |         |         |              | 151,922 |              
|                                       |                                                                                            |                                            |         |         |         |              |         |               |        
|                                       |                                                                                            | Total assets                               |         | $       | 264,629 |              |         | $             | 248,400 | 
|                                       |                                                                                            |                                            |         |         |         |              |         |               |        
|LIABILITIES AND STOCKHOLDERS EQUITY   |                                                                                            |                                            |         |         |         |              |         |              
|                                      
|                                      
|                                      
|                                      
|CURRENT LIABILITIES:                   |                                                                                            |                                            |         |         |         |              |         |              
|                                      
|                                      
|                                      
|                                      
|                                       | Current portion of long-term debt                                                          |                                            | $       | 3,714   |         |              | $       | 3,727         |        
|                                      
|                                      
|                                      
|                                      
|                                       | Accounts payable                                                                           |                                            |         | 11,833  |         |              |         | 13,996        |        
|                                      
|                                      
|                                      
|                                      
|                                       | Accrued liabilities                                                                        |                                            |         | 19,257  |         |              |         | 11,056        |        
|                                       |                                                                                            |                                            |         |         |         |              |         |               |        
|                                      
|                                      
|                                      
|                                      
|                                       |                                                                                            | Total current liabilities                  |         |         | 34,804  |              |         |               | 28,779  | 
|                                      
|LONG-TERM DEBT, net of current portion |                                                                                            |                                            | 180,668 |         |         |              | 177,493 |              
|                                      
|                                      
|                                      
|                                      
|DEFERRED INCOME TAXES                  |                                                                                            |                                            | 16,841  |         |         |              | 15,602  |              
|                                      
|                                      
|                                      
|                                      
|OTHER                                  |                                                                                            |                                            | 537     |         |         |              | 463     |              
|                                      
|                                      
|                                      
|                                      
|COMMITMENTS AND CONTINGENCIES          |                                                                                            |                                            |        |         |         |              |        |              
|                                       |                                                                                            |                                            |         |         |         |              |         |               |        
|                                      
|                                      
|                                      
|                                      
|                                       |                                                                                            | Total liabilities                          |         |         | 232,850 |              |         |               | 222,337 | 
|                                       |                                                                                            |                                            |         |         |         |              |         |               |        
|                                      
|                                      
|                                      
|                                      
|STOCKHOLDERS EQUITY:                  |                                                                                            |                                            |         |         |         |              |         |              
|                                      
|                                      
|                                      
|                                      
|                                       | Common stock, $1.00 par value; 1,000 shares authorized,
issued and outstanding             |                                            |         | 1       |         |              |         | 1             |        
|                                      
|                                      
|                                      
|                                      
|                                       | Paid-in capital                                                                            |                                            |         | 52,499  |         |              |         | 52,499        |        
|                                      
|                                      
|                                      
|                                      
|                                       | Accumulated deficit                                                                        |                                            |         | (20,721 | )       |              |         | (26,437       | )      
|                                       |                                                                                            |                                            |         |         |         |              |         |               |        
|                                       |                                                                                            | Total stockholders equity                 |         |         | 31,779  |              |         |               | 26,063  | 
|                                       |                                                                                            |                                            |         |         |         |              |         |               |        
|                                       |                                                                                            | Total liabilities and stockholders equity |         | $       | 264,629 |              |         | $             | 248,400 | 
|                                       |                                                                                            |                                            |         |         |         |              |         |               |        

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

3



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##### Table of Contents



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

|                                             |                  |   |                    |        |                    |   |                 |        |                    |   |         |        |  |   |         |        | 
|-------------------------------------------- | ---------------- | - | ------------------ | ------ | ------------------ | - | --------------- | ------ | ------------------ | - | ------- | ------ |  | - | ------- | ------ | 
|                                             |                  |   | Three months ended |        | Nine months ended 
|                                             |                  |   |                    |        |                   
|                                             |                  |   | October 1, 2000    |        | September 30, 2001 |   | October 1, 2000 |        | September 30, 2001
|                                             |                  |   |                    |        |                    |   |                 |        |                   
|NET SALES                                    |                  | $ | 42,949             |        |                    | $ | 38,869          |        |                    | $ | 127,697 |        |  | $ | 116,342 |       
|                                            
|                                            
|                                            
|                                            
|COST OF SALES                                |                  |   | 27,725             |        |                    |   | 25,722          |        |                    |   | 84,508  |        |  |   | 78,294  |       
|                                             |                  |   |                    |        |                    |   |                 |        |                    |   |         |        |  |   |         |       
|                                             | Gross profit     |   |                    | 15,224 |                    |   |                 | 13,147 |                    |   |         | 43,189 |  |   |         | 38,048 | 
|                                             |                  |   |                    |        |                    |   |                 |        |                    |   |         |        |  |   |         |       
|SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES |                  |   | 9,136              |        |                    |   | 7,605           |        |                    |   | 28,979  |        |  |   | 22,509  |       
|                                            
|                                            
|                                            
|                                            
|PLANT RELOCATION COSTS                       |                  |   | 259                |        |                    |   |                |        |                    |   | 459     |        |  |   |        |       
|                                            
|                                            
|                                            
|                                            
|AMORTIZATION EXPENSE                         |                  |   | 1,400              |        |                    |   | 1,482           |        |                    |   | 4,138   |        |  |   | 4,344   |       
|                                             |                  |   |                    |        |                    |   |                 |        |                    |   |         |        |  |   |         |       
|TOTAL OPERATING EXPENSES                     |                  |   | 10,795             |        |                    |   | 9,087           |        |                    |   | 33,576  |        |  |   | 26,853  |       
|                                             |                  |   |                    |        |                    |   |                 |        |                    |   |         |        |  |   |         |       
|                                             | Operating income |   |                    | 4,429  |                    |   |                 | 4,060  |                    |   |         | 9,613  |  |   |         | 11,195 | 
|                                             |                  |   |                    |        |                    |   |                 |        |                    |   |         |        |  |   |         |       
|INTEREST EXPENSE                             |                  |   | 5,853              |        |                    |   | 5,557           |        |                    |   | 17,854  |        |  |   | 16,989  |       
|                                            
|                                            
|                                            
|                                            
|LOSS ON SALE OF FIXED ASSETS                 |                  |   |                   |        |                    |   | (409            | )      |                    |   |        |        |  |   | (409    | )     
|                                            
|                                            
|                                            
|                                            
|OTHER INCOME (EXPENSE)                       |                  |   |                   |        |                    |   | 82              |        |                    |   |        |        |  |   | (26     | )     
|                                             |                  |   |                    |        |                    |   |                 |        |                    |   |         |        |  |   |         |       
|                                            
|                                            
|                                            
|                                            
|LOSS BEFORE TAXES AND MINORITY INTEREST      |                  |   | (1,424             | )      |                    |   | (1,824          | )      |                    |   | (8,241  | )      |  |   | (6,229  | )     
|                                            
|                                            
|                                            
|                                            
|INCOME TAX PROVISION (BENEFIT)               |                  |   | (288               | )      |                    |   | 420             |        |                    |   | (2,515  | )      |  |   | (750    | )     
|                                             |                  |   |                    |        |                    |   |                 |        |                    |   |         |        |  |   |         |       
|LOSS BEFORE MINORITY INTEREST                |                  |   | (1,136             | )      |                    |   | (2,244          | )      |                    |   | (5,726  | )      |  |   | (5,479  | )     
|                                            
|                                            
|                                            
|                                            
|MINORITY INTEREST, NET OF
TAXES              |                  |   |                   |        |                    |   | (100            | )      |                    |   | (133    | )      |  |   | (237    | )     
|                                             |                  |   |                    |        |                    |   |                 |        |                    |   |         |        |  |   |         |       
|NET LOSS                                     |                  | $ | (1,136             | )      |                    | $ | (2,344          | )      |                    | $ | (5,859  | )      |  | $ | (5,716  | )     
|                                             |                  |   |                    |        |                    |   |                 |        |                    |   |         |        |  |   |         |       

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

4



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##### Table of Contents



HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(Dollars in Thousands)
(Unaudited)

|                            |          |   |              |   |                 |   |                     |   |       |   |         |        |   |   |        |        |  
|--------------------------- | -------- | - | ------------ | - | --------------- | - | ------------------- | - | ----- | - | ------- | ------ | - | - | ------ | ------ | -
|                            |          |   | Common Stock |   | Paid-in Capital |   | Accumulated Deficit |   | Total
|                            |          |   |              |   |                 |   |                     |   |      
|BALANCE, December 31, 2000  |          | $ | 1            |   |                 | $ | 52,499              |   |       | $ | (20,721 | )      |   | $ | 31,779 |       
|                           
|                           
|                           
|                           
|                            | Net loss |   |              |  |                 |   |                     |  |       |   |         | (5,716 | ) |   |        | (5,716 | )
|                            |          |   |              |   |                 |   |                     |   |       |   |         |        |   |   |        |       
|BALANCE, September 30, 2001 |          | $ | 1            |   |                 | $ | 52,499              |   |       | $ | (26,437 | )      |   | $ | 26,063 |       
|                            |          |   |              |   |                 |   |                     |   |       |   |         |        |   |   |        |       

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

5



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##### Table of Contents



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

|                                      |                                                                             |                                                             |                     |                                                     |        |                 |        |                    |        |        |        |  
|------------------------------------- | --------------------------------------------------------------------------- | ----------------------------------------------------------- | ------------------- | --------------------------------------------------- | ------ | --------------- | ------ | ------------------ | ------ | ------ | ------ | -
|                                      |                                                                             |                                                             |                     |                                                     |        | January 1, 2000 |        | January 1, 2001   
|                                      |                                                                             |                                                             |                     |                                                     |        | to              |        | to                
|                                      |                                                                             |                                                             |                     |                                                     |        | October 1, 2000 |        | September 30, 2001
|                                      |                                                                             |                                                             |                     |                                                     |        |                 |        |                   
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                             |                                                             |                     |                                                     |        |                 |        |                   
|                                     
|                                     
|                                     
|                                     
|                                      | Net loss                                                                    |                                                             | $                   | (5,859                                              | )      |                 | $      | (5,716             | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Adjustments to reconcile net loss to net cash used in operating activities: |                                                             |                     |                                                     |        |                 |        |                    |       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Depreciation and amortization                               |                     |                                                     | 9,414  |                 |        |                    | 10,904 |       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Amortization of debt discount                               |                     |                                                     | 642    |                 |        |                    | 514    |       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Deferred income taxes                                       |                     |                                                     | (2,295 | )               |        |                    | (793   | )     
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Loss
on sale and disposal of fixed assets                   |                     |                                                     |       |                 |        |                    | 449    |       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             | Changes in assets and liabilities, net of assets purchased: |                     |                                                     |        |                 |        |                    |        |       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             |                                                             | Accounts receivable |                                                     |        | (900            | )      |                    |        | 1,042  |       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             |                                                             | Inventories         |                                                     |        | (6,034          | )      |                    |        | (1,668 | )     
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             |                                                             | Other assets        |                                                     |        | 3,222           |        |                    |        | 84     |       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             |                                                             | Accounts payable    |                                                     |        | 3,738           |        |                    |        | 2,163  |       
|                                     
|                                     
|                                     
|                                     
|                                      |                                                                             |                                                             | Accrued liabilities |                                                     |        | (5,595          | )      |                    |        | (8,275 | )     
|                                      |                                                                             |                                                             |                     |                                                     |        |                 |        |                    |       
|                                      |                                                                             |                                                             |                     | Net cash used in operating activities               |        |                 | (3,667 | )                  |        |        | (1,296 | )
|                                      |                                                                             |                                                             |                     |                                                     |        |                 |        |                    |       
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                             |                                                             |                     |                                                     |        |                 |        |                   
|                                     
|                                     
|                                     
|                                     
|                                      | Capital expenditures                                                        |                                                             |                     | (4,081                                              | )      |                 |        | (786               | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Proceeds
from sale of equipment                                             |                                                             |                     |                                                    |        |                 |        | 50                 |       
|                                     
|                                     
|                                     
|                                     
|                                      | Other noncurrent assets                                                     |                                                             |                     | 390                                                 |        |                 |        |                   |       
|                                     
|                                     
|                                     
|                                     
|                                      | Cash paid for acquisitions                                                  |                                                             |                     | (679                                                | )      |                 |        |                   |       
|                                      |                                                                             |                                                             |                     |                                                     |        |                 |        |                    |       
|                                      |                                                                             |                                                             |                     | Net cash used in investing activities               |        |                 | (4,370 | )                  |        |        | (736   | )
|                                      |                                                                             |                                                             |                     |                                                     |        |                 |        |                    |       
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                             |                                                             |                     |                                                     |        |                 |        |                   
|                                     
|                                     
|                                     
|                                     
|                                      | Net proceeds (payments) on long-term obligations                            |                                                             |                     | 7,261                                               |        |                 |        | (3,676             | )     
|                                     
|                                     
|                                     
|                                     
|                                      | Financing costs                                                             |                                                             |                     | (534                                                | )      |                 |        |                   |       
|                                      |                                                                             |                                                             |                     |                                                     |        |                 |        |                    |       
|                                      |                                                                             |                                                             |                     | Net cash provided by (used in) financing activities |        |                 | 6,727  |                    |        |        | (3,676 | )
|                                      |                                                                             |                                                             |                     |                                                     |        |                 |        |                    |       
|NET CHANGE IN CASH                    |                                                                             | $                                                           | (1,310              | )                                                   |        | $               | (5,708 | )                 
|                                     
|                                     
|                                     
|                                     
|BALANCE AT BEGINNING OF PERIOD        |                                                                             |                                                             | 1,359               |                                                     |        |                 | 6,967  |                   
|                                      |                                                                             |                                                             |                     |                                                     |        |                 |        |                    |       
|BALANCE AT END OF PERIOD              |                                                                             | $                                                           | 49                  |                                                     |        | $               | 1,259  |                   
|                                      |                                                                             |                                                             |                     |                                                     |        |                 |        |                    |       
|SUPPLEMENTAL CASH FLOW INFORMATION:   |                                                                             |                                                             |                     |                                                     |        |                 |        |                   
|                                     
|                                     
|                                     
|                                     
|                                      | Cash paid for interest                                                      |                                                             | $                   | 20,259                                              |        |                 | $      | 20,200             |       
|                                      |                                                                             |                                                             |                     |                                                     |        |                 |        |                    |       
|                                      | Cash paid for income taxes                                                  |                                                             | $                   | 4                                                   |        |                 | $      |                   |       
|                                      |                                                                             |                                                             |                     |                                                     |        |                 |        |                    |       

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

6



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##### Table of Contents



HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
(Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

The consolidated balance sheets of Holley Performance Products, Inc. (the
Company or Holley) as of December 31, 2000 and September 30, 2001, and the
consolidated statements of operations for the three and nine month periods
ended October 1, 2000 and September 30, 2001, and the consolidated statements
of cash flows for the nine month periods ended October 1, 2000 and September
30, 2001 have been prepared by the Company in accordance with accounting
principles generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been made. Operating results for the three- and nine-month
periods ended September 30, 2001 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2001.

The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the
United States for complete financial statements.

Certain
reclassifications have been made to the prior year financial
information to conform to the 2001 presentation. These reclassifications
had no effect on net income.

For further information, refer to the consolidated financial statements and
footnotes thereto included in the Companys annual
report on Form 10-K for the year ended December 31, 2000.

In 2001, management has implemented actions designed to mitigate reductions in
sales volume and gross profit due to general economic decline while controlling
operating expenses. The Company is dependent on its revolving credit facility
to fund its working capital needs. The Companys ability to operate within the
cash available under its revolving credit facility and to comply with the
restrictive financial covenants required under that facility are dependent on
improved net income and reductions in the level of working capital necessary to
operate the business.

The Company is in compliance with the revolving credit facilitys quarterly
financial ratio covenant for the period ended September 30, 2001. Management
believes that the Company will be in compliance with the revolving credit
facilitys quarterly financial ratio covenant in subsequent
quarters, and
that the revolving credit facility will be adequate to allow the Company to
fund its working capital needs during 2001. However, should the revolving
credit facility become unavailable or the Company fail to meet its projected
results, the Company may be forced to seek additional sources of financing in
order to fund its working capital needs. There can be no assurance
that the Company can obtain such additional financing on satisfactory
terms.

The Company, 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,
camshafts, crankshafts, pistons, superchargers, exhaust headers, mufflers,
engine plumbing products, nitrous oxide systems, and remanufactured
carburetors. 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 marine, and performance products for the powersport
and motorcycle markets.

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2. INVENTORIES

Inventories of the Company consist of the following:

|                 |  |              |        |               |  |   |        | 
|---------------- |  | ------------ | ------ | ------------- |  | - | ------ | 
|                 |  | December 31, |        | September 30,
|                 |  | 2000         |        | 2001         
|                 |  |              |        |              
|Raw materials    |  | $            | 10,697 |               |  | $ | 14,791 | 
|                
|                
|                
|                
|Work-in-progress |  |              | 7,689  |               |  |   | 4,094  | 
|                
|                
|                
|                
|Finished goods   |  |              | 16,373 |               |  |   | 17,542 | 
|                 |  |              |        |               |  |   |        | 
|                 |  | $            | 34,759 |               |  | $ | 36,427 | 
|                 |  |              |        |               |  |   |        | 

3. PROPERTY, PLANT AND EQUIPMENT

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

|                           |                                |   |              |         |               |   |        |         |  
|-------------------------- | ------------------------------ | - | ------------ | ------- | ------------- | - | ------ | ------- | -
|                           |                                |   | December 31, |         | September 30,
|                           |                                |   | 2000         |         | 2001         
|                           |                                |   |              |         |              
|Land                       |                                | $ | 360          |         |               | $ | 360    |        
|                          
|                          
|                          
|                          
|Buildings and improvements |                                |   | 11,537       |         |               |   | 11,644 |        
|                          
|                          
|                          
|                          
|Machinery and equipment    |                                |   | 28,928       |         |               |   | 28,154 |        
|                          
|                          
|                          
|                          
|Computer equipment         |                                |   | 3,849        |         |               |   | 3,745  |        
|                          
|                          
|                          
|                          
|Furniture and fixtures     |                                |   | 1,835        |         |               |   | 1,815  |        
|                          
|                          
|                          
|                          
|Construction in process    |                                |   | 800          |         |               |   | 1,255  |        
|                           |                                |   |              |         |               |   |        |        
|                           |                                |   | 47,309       |         |               |   | 46,973 |        
|                          
|                          
|                          
|                          
|                           | Less: accumulated depreciation |   |              | (14,518 | )             |   |        | (19,712 | )
|                           |                                |   |              |         |               |   |        |        
|                           |                                | $ | 32,791       |         |               | $ | 27,261 |        
|                           |                                |   |              |         |               |   |        |        

Depreciation expense was $5,276 and $5,817 for the nine months ended and $1,779
and $1,914 for the three months ended October 1, 2000 and September 30, 2001,
respectively.

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4. ACCRUED LIABILITIES

Accrued liabilities of the Company consist of the following:

|                            |  |              |        |               |  |   |        | 
|--------------------------- |  | ------------ | ------ | ------------- |  | - | ------ | 
|                            |  | December 31, |        | September 30,
|                            |  | 2000         |        | 2001         
|                            |  |              |        |              
|Wages and benefits          |  | $            | 4,719  |               |  | $ | 5,123  | 
|                           
|                           
|                           
|                           
|Reserve for product returns |  |              | 3,423  |               |  |   | 2,467  | 
|                           
|                           
|                           
|                           
|Interest                    |  |              | 5,391  |               |  |   | 923    | 
|                           
|                           
|                           
|                           
|Other                       |  |              | 5,724  |               |  |   | 2,543  | 
|                            |  |              |        |               |  |   |        | 
|                            |  | $            | 19,257 |               |  | $ | 11,056 | 
|                            |  |              |        |               |  |   |        | 

5. LONG-TERM DEBT

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

|                                                                                                                                                                                                                                              |  |              |         |               |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | ------------- |  | - | ------- | -
|                                                                                                                                                                                                                                              |  | December 31, |         | September 30,
|                                                                                                                                                                                                                                              |  | 2000         |         | 2001         
|                                                                                                                                                                                                                                              |  |              |         |              
|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 (5.12% at September 30, 2001);
maturing December 28, 2005 |  | $            | 34,650  |               |  | $ | 31,238  |  
|                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                             
|Senior notes, interest payable semi-annually in March
and September at 12.25%; maturing September 15,
2007; net of debt discount of $4,624 and $4,110,
respectively                                                                           |  |              | 145,376 |               |  |   | 145,890 |  
|                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                             
|Other long-term obligations                                                                                                                                                                                                                   |  |              | 4,356   |               |  |   | 4,092   |  
|                                                                                                                                                                                                                                              |  |              |         |               |  |   |         |  
|                                                                                                                                                                                                                                              |  |              | 184,382 |               |  |   | 181,220 |  
|                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                             
|                                                                                                                                                                                                                                             
|Less: current portion                                                                                                                                                                                                                         |  |              | (3,714  | )             |  |   | (3,727  | )
|                                                                                                                                                                                                                                              |  |              |         |               |  |   |         |  
|                                                                                                                                                                                                                                              |  | $            | 180,668 |               |  | $ | 177,493 |  
|                                                                                                                                                                                                                                              |  |              |         |               |  |   |         |  

In December 2000, we
replaced our existing senior credit facility with Credit Agricole
IndoSuez, (consisting of a $35.0 million revolving credit facility)
with a 5 year, $41.0 million facility provided by Fleet Capital
Corporation that matures in December 2005. This facility is comprised
of two parts: a $36.0 million revolving credit portion and a $5.0
million term facility to be used for fixed asset purchases as
required. The revolving credit facility has an interest coverage
covenant only. During the term of the revolving credit facility,
Holley is required to have an interest coverage ratio of 1.0:1.0 from
the closing date to March 31, 2001. 1.10:1.0 from the closing date to
June 30, 2001. 1.10:1.0 from the closing date to September 30, 2001,
and 1.15:1.0 from the closing date to December 31, 2001. The interest
coverage ratios for the remaining term of the loan are 1.20:1.0 for
the four quarters each ending on March 31, June 30, September 30, and
December 31, 2002; 1.25:1.0 for the four quarters each ending on
March 31, June 30, September 30, and December 31, 2003, 2004 and
2005. Borrowings under the facility are limited to 75% of eligible
receivables and 55% of eligible inventories. Under the credit
agreement, Holley must have availability of $2.0 million if EBITDA on
a trailing twelve month basis is equal to or less than $28.0 million,
$1.0 million if EBITDA is less than or equal to $32.0 million but
greater than $28.0 million, and $0 if greater than $32.0 million. The
initial $2.0 million availability requirement became effective during
April, 2001. Fleet Capital has a perfected security interest in all
the assets of Holley. Our liquidity as of September 30, 2001 consists
of $1.3 million in cash and $0.9 million of revolving credit facility
availability. The term facility can be accessed when Holley has
achieved a Fixed Charge Coverage Ratio of 1.0x on a trailing twelve
month basis. (Fixed Charge Coverage is defined as EBITDA less
non-financial fixed asset expenditures and cash taxes divided by cash
interest plus scheduled principal payments.) As
of September 30, 2001, all amounts outstanding under the Revolving Credit
Facility that are in excess of managements projected minimum
borrowings for 2001, have been classified as current in the accompanying consolidated
balance sheets. The Credit Arrangement also requires mandatory
principal prepayments from any proceeds from the sale of the
Companys assets or common stock.

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Under the terms of the Credit Arrangement upon achieving a minimum ratio of
earnings before interest, taxes, depreciation and amortization to fixed charges
(as defined in the Credit Arrangement), the Company will become eligible to
borrow up to $5.0 million under the Term Loan to be used to fund capital
expenditures. Borrowings under the Term Loan will mature in 2005. As of
September 30, 2001, no amounts were outstanding or available under the Term
Loan as the Company had not met the required conditions to implement
the Term Loan.

At September 30, 2001, the Company had borrowings of $31.2 million outstanding
under the Revolving Credit Facility and $0.9 million of unused credit
availability and $1.3 million in cash.

On September 20,
1999, the Company issued $150.0 million of 12 1/4% 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 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.

6. INCOME TAXES

The Companys
income tax provision for the three months ended September 30, 2001
differs from the expected benefit using the federal statutory rate of 34% primarily due to the
non-deductible goodwill amortization. The Companys income tax benefit for the nine months ended
September 30, 2001 differs from the federal statutory rate of 34%
primarily due to non-deductible goodwill amortization.

7. 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 stand-alone 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 profit. Intersegment sales and
transfers are not significant.

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

|                                      |              |  |             |         |                |  |       |        |  |  |   |         | 
|------------------------------------- | ------------ |  | ----------- | ------- | -------------- |  | ----- | ------ |  |  | - | ------- | 
|                                      |              |  | Performance |         | Remanufactured |  |       |        | 
|                                      |              |  | Parts       |         | Parts          |  | Total
|                                      |              |  |             |         |                |  |      
|July 3, 2000 to October 1, 2000       |              |  |             |         |                |  |       |        |  |  |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Revenues     |  | $           | 36,994  |                |  | $     | 5,955  |  |  | $ | 42,949  | 
|                                     
|                                     
|                                     
|                                     
|                                      | Gross
profit |  |             | 13,758  |                |  |       | 1,466  |  |  |   | 15,224  | 
|                                     
|                                     
|                                     
|                                     
|July 2, 2001 to September 30, 2001    |              |  |             |         |                |  |       |        |  |  |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Revenues     |  | $           | 34,651  |                |  | $     | 4,218  |  |  | $ | 38,869  | 
|                                     
|                                     
|                                     
|                                     
|                                      | Gross
profit |  |             | 12,417  |                |  |       | 730    |  |  |   | 13,147  | 
|                                     
|                                     
|                                     
|                                     
|January 1, 2000 to October 1, 2000    |              |  |             |         |                |  |       |        |  |  |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Revenues     |  | $           | 109,021 |                |  | $     | 18,676 |  |  | $ | 127,697 | 
|                                     
|                                     
|                                     
|                                     
|                                      | Gross
profit |  |             | 38,886  |                |  |       | 4,303  |  |  |   | 43,189  | 
|                                     
|                                     
|                                     
|                                     
|January 1, 2001 to September 30, 2001 |              |  |             |         |                |  |       |        |  |  |   |        
|                                     
|                                     
|                                     
|                                     
|                                      | Revenues     |  | $           | 102,128 |                |  | $     | 14,214 |  |  | $ | 116,342 | 
|                                     
|                                     
|                                     
|                                     
|                                      | Gross
profit |  |             | 35,587  |                |  |       | 2,461  |  |  |   | 38,048  | 

Summary balance sheet data for inventory and fixed assets for each of the
Companys reportable segments as of December 31, 2000 and September 30, 2001
are shown in the following table:

|                         |              |  |             |        |                |  |       |       |  |  |   |        | 
|------------------------ | ------------ |  | ----------- | ------ | -------------- |  | ----- | ----- |  |  | - | ------ | 
|                         |              |  | Performance |        | Remanufactured |  |       |       | 
|                         |              |  | Parts       |        | Parts          |  | Total
|                         |              |  |             |        |                |  |      
|As of December 31, 2000  |              |  |             |        |                |  |       |       |  |  |   |       
|                        
|                        
|                        
|                        
|                         | Inventory    |  | $           | 31,108 |                |  | $     | 3,651 |  |  | $ | 34,759 | 
|                        
|                        
|                        
|                        
|                         | Fixed assets |  |             | 30,467 |                |  |       | 2,324 |  |  |   | 32,791 | 
|                        
|                        
|                        
|                        
|As of September 30, 2001 |              |  |             |        |                |  |       |       |  |  |   |       
|                        
|                        
|                        
|                        
|                         | Inventory    |  | $           | 33,088 |                |  | $     | 3,339 |  |  | $ | 36,427 | 
|                        
|                        
|                        
|                        
|                         | Fixed assets |  |             | 25,308 |                |  |       | 1,953 |  |  |   | 27,261 | 

8. COMMITMENTS AND CONTINGENCIES

The Company is a party to various lawsuits and claims in the normal course of
business. While the outcome of 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, Union
Pacific Railroad Company filed an action against Weiand and others in
the U. S. District Court for the Central District of California,
alleging that certain soil and groundwater contamination discovered
on Union Pacific property in Los Angeles had migrated from an adjacent
Weiand facility. Union Pacific claimed that Weiand is liable to Union
Pacific for certain investigation and remediation costs, as well as
for other damages under state law. Union Pacific sought damages in
the amount of approximately $2.965 million from all defendants.

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In December 2000,
Union Pacific, Holley, Weiand and Joan Weiand, the owner of the
Weiand property, reached a comprehensive settlement in exchange for a
cash payment significantly less than the sought amount, resulting in
a full dismissal of the lawsuit. A substantial majority of the
settlement payment was paid by Weiand's insurers. In connection with
the settlement, an additional $550,000 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. Part of the attorney fees and
litigation expenses of the parties were also reimbursed by the
settling insurers.

In 2000, Weiand
discovered possibly significant soil contamination on the Weiand
property, which has not yet been fully analyzed by Weiand's
environmental consultants. Holley is working with the property owner,
under the supervision of the California Department of Toxic
Substances Control, 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. Holley and Weiand are working
vigorously to address regulatory issues arising from the discovered
contamination. The $550,000 received from Holley's insurers has been
placed in 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.

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.

9. COMPREHENSIVE INCOME

Statement of Financial Accounting Standards (SFAS) No. 130, Reporting
Comprehensive Income, established standards for reporting and displaying
comprehensive income and its components 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, net unrealized capital gains or losses on available for
sale securities and foreign currency translation adjustments. Comprehensive
loss for the periods ending October 1, 2000 and September 30, 2001 was the same
as net loss for the Company.

10. NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, effective, as
amended, for fiscal years beginning after June 15, 2000. SFAS No. 133 requires
that all derivative financial instruments, such as interest rate swap
agreements, be recognized in the consolidated financial statements and measured
at fair value regardless of their intended use. Changes in the fair value of
the derivative financial instruments would then be recognized periodically in
operations or stockholders equity (as a component of other comprehensive
income) depending on whether the derivative is being used to hedge changes in
fair value or cash flows. The Company adopted the provisions of SFAS No. 133
effective January 1, 2001. Such adoption did not have a material effect on the
Companys results of operations or financial position.

In June 2001, the
Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations" and
SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 141 was effective July 1, 2001 and SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. SFAS No. 141 requires that the purchase method
of accounting be used for all business combinations initiated after June 30,
2001 and prohibits the use of the pooling-of-interests method. SFAS
No. 142
changes the accounting for goodwill from an amortization method to an annual
impairment test in accordance with the Statement. Other intangible assets
will continue to be amortized over their useful lives. The amortization of
goodwill from past business combinations will cease upon adoption of this
Statement on January 1, 2002. Goodwill and other intangible amortization for
the nine months ended

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September 30, 2001 was approximately $4.3 million.

The Company will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. During 2002, the
Company will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002 and has not yet
determined what the effect of these tests will be on the earnings and financial
position of the Company.

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
INCLUDED HEREIN, AND THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO
CONTAINED IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
2000.

SAFE HARBOR STATEMENT

This Report contains certain forward-looking statements with respect to the
Companys operations, industry, financial condition and liquidity. 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 financial statements as a result
of certain factors described in this report.

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. Important factors that ether individually or in the aggregate could
cause actual results to differ materially from those expressed include, without
limitation, (1) that the Company will not grow its sales revenue or profit, (2)
that the Company will fail to be competitive with existing and new competitors,
(3) that the Company will not be able to sustain its current growth, (4) that
needed financing will not be available to the Company 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 the market conditions may
occur, (7) that emissions and other environmental regulations affecting the
Company will increase thereby limiting our ability to sell our automotive
products and grow our business, and (8) that some other unforeseen difficulties
may occur. This list is intended to identify only certain of the principal
factors that could cause actual results to differ materially from those
describe in the forward-looking statements included herein.

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 racing products that
include fuel, air, spark (also known as ignition) and internal engine
management systems. We design our products to enhance vehicle performance
through generating increased horsepower, torque and acceleration. Our products

13



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include both throttle body and multi-port fuel injection systems, performance
and remanufactured carburetors, digital ignition systems, distributors, fuel
pumps, camshafts, crankshafts, intake manifolds, pistons, super chargers,
exhaust systems, headers, mufflers and motorcycle exhaust pipes, cylinder
heads, water pumps and throttle bodies. With the October 1999 acquisitions of
FlowTech, NOS and Earls, our 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). We have developed strong relationships with our
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

Our operations experience slight seasonal trends, which generally affect the
overall automotive aftermarket industry. Historically, our 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
our remanufacturing facility in Springfield, Tennessee, and accordingly, we occasionally
hire temporary employees to respond to peak demand.

COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND OCTOBER 1, 2000

Net Sales. Net sales equals gross revenues less provisions for volume
rebates, co-op advertising, and other sales allowances. Net sales for the
quarter ended September 30, 2001 totaled $38.9 million compared to $42.9
million for the same period in 2000, a decrease of $4.0 million or 9.3%. Net
sales in the performance segment for the third quarter of 2001 were
$34.7
million compared to $37.0 million in the third quarter of 2000, a decrease of
$2.3 million or 6.2% over the third quarter of 2000. Net sales in the
remanufacturing segment were $4.2 million in the third quarter of 2001 compared
to $6.0 million in the third quarter of 2000, a decrease of $1.8 million, or
30.0%. Management attributes the soft third quarter demand to customer
continued inventory reduction programs in response to the general economic slow
down. The decreased sales in the remanufacturing segment is the direct result
of weak demand of the repair market due to the general economic slowdown.

Gross Profit. Gross
profit for the third quarter of 2001 totaled $13.1
million or 33.7% of net sales compared to gross profit of $15.2 million or
35.4% of net sales for the same quarter in 2000. This represents a decrease of
$2.1 million. In the performance segment, gross
profit was $12.4
million or 35.7% of net sales compared to $13.8 million or 37.2% of net sales
for the third quarter of 2000. This is a decrease of
$1.4 million and
is the direct result of the impact of a $2.3 million reduction
in net sales and product mix changes.
In the remanufacturing segment, gross profit was $0.7 million or
16.7% of
sales in the third quarter of 2001 compared to $1.5 million or 25.0% of net
sales for the same period in 2000. This is a decrease of $0.8 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
2001 and increased absorption of fixed costs.

Selling, General and
Administrative Expenses. Selling, general and
administrative (S,G&A) expenses for the three months ended September 30, 2001 totaled
$7.6 million compared to $9.1 million in the same period in 2000, a decrease of
$1.5 million or 16.5%. The decrease is mostly attributable to a $0.6 million
reduction in

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marketing and advertising expense and $0.9 million in administration costs
reflecting reductions in personnel and purchased services.

Amortization Expense.
Amortization expense totaled $1.5 million for the three months ended September 30, 2001 compared to $1.4
million for the same period in 2000. These expenses reflect
the amortization of goodwill values, transaction fees, and other
intangible asset values
associated with the purchase of Holley by KHPP Holdings, and the subsequent
acquisitions of Weiand, Lunati, Hooker, FlowTech, NOS and Earls.

Operating Income. Operating income for the three months ended September
30, 2001 totaled $4.1 million or 10.5% of net sales compared to $4.4 million or
10.3% of net sales in the same period in 2000, a decrease of $0.3 million. The decrease primarily resulted from decreased sales and gross profit
partially offset by decreased Selling, General and Administrative expenses and
Plant Relocation Costs.

Interest Expense. Interest expense was $5.6 million for the three months ended September 30, 2001 compared to $5.9 million in the same period in 2000. The expense resulted from interest on our
Companys revolving credit facility, and the accrual of interest associated
with our 12 1/4% Senior Notes due 2007 issued in September 1999. The
revolving facility is used to finance general business and working capital
needs.

Provision (benefit) for Income Taxes. Provision for income taxes for the
three months ended September 30, 2001 was $0.4 million compared to a $(0.3) million benefit in the same period in
2000. The quarterly provision for income taxes results primarily from
non-deductible goodwill amortization.

Net Loss. Net loss for the three months ended September 30, 2001 was
$(2.3) million or 5.9% of net sales compared with net loss of $(1.1) million or
2.6% of net sales for the same period in 2000. The increased net loss is
attributable primarily to the reasons discussed above, and the disposal of
fixed assets for a loss of $(0.4) million at the Weiand foundry which was
closed in July 2001. The parts provided by the Weiand facility have been
outsourced to other vendors. This quarterly net loss represents an increase
of $1.2 million from the loss of the prior period. The increase in
the loss reflects decreased operating income of $0.3 million,
the $(0.4) million
loss on sale of fixed assets, and the increased provisions for income taxes of
$0.7 million and minority interest of $0.1 million, offset by decreased
interest expense of $0.3 million.

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND OCTOBER 1, 2000

Net Sales. Net sales for the nine months ended September 30, 2001 totaled
$116.3 million compared to $127.7 million for the same period in 2000, a
decrease of $11.4 million or 8.9%. For the nine month period ended September
30, 2001, sales in the performance segment were $102.1 million compared to
$109.0 million in the same period in 2000, a decrease of $6.9 million or 6.3%.
Sales in the remanufacturing segment were $14.2 million compared to $18.7
million in the same period in 2000, a decrease of $4.5 million or 24.1%.
Management attributes the soft demand for performance products in the first
nine months to inventory reduction programs at most of our larger customers in
response to the general economic slowdown. The decreased sales in the
remanufacturing segment continued as the result of weak demand experienced in
the repair market.

Gross Profit. Gross profit for the nine months ended September 30, 2001
totaled $38.0 million or 32.7% of net sales compared to $43.2 million or 33.8%
of net sales for the same period in 2000. This is a difference of
$5.2 million. In the performance segment, gross profit was
$35.6 million or 34.9%
of net sales compared to $38.9 million or 35.7% of net sales in the same period
in 2000. This is a decrease of $3.3 million and is the result of the
$6.9 million of sales volume decrease compared to the first nine months of
2000 and product mix changes. In the remanufacturing segment, gross
profit was $2.5 million or 17.6%
of sales compared to $4.3 million or 23.0% of net sales in the same period in 2000. This is a
decrease of $1.8 million reflecting the decline in demand for special
order repair products as compared to the first nine months of 2000
and increased absorption of fixed costs.

Selling, General and Administrative Expenses. Selling, general, and
administrative expenses for the nine months ended September 30, 2001 totaled
$22.5 million compared to $29.0 million in the same period in 2000, a decrease
of $6.5 million or 22.4%. The decrease is mostly attributable to a $3.1 million
reduction in marketing and advertising expense, a $0.1 million reduction in
research and development, and a $3.3 million reduction in administrative costs reflecting reduction
in personnel and purchased services.

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Amortization Expense. Amortization expense for the nine months ended
September 30, 2001 totaled $4.3 million or compared to $4.1
million for the same period in 2000. These expenses
reflect the amortization of goodwill ($2.0 million), non-compete agreements
($1.4 million), and other intangible assets ($0.9 million) associated with the
purchase of Holley by KHPP Holdings, and the subsequent acquisitions of Weiand,
Lunati, Hooker, FlowTech, NOS and Earls.

Operating Income. Operating income for the nine months ended September
30, 2001 totaled $11.2 million or 9.6% of sales compared to $9.6 million or
7.5% of net sales in the same period in 2000, an increase of $1.6 million or
16.7%. The increase primarily resulted from decreased selling, general and
administrative expenses partially offset by decreased sales and gross profit.

Interest Expense. Interest expense was $17.0 million for the nine months ended September 30, 2001 compared to $17.9 million in the same period in 2000, a decrease of $(0.9) million. This
reduction in interest expense resulted primarily from lower interest rates in
2001 vs. 2000. The expense resulted from interest on our Companys revolving
credit facility, and the accrual of interest associated with our
Senior Notes. The revolving credit facility
is used to finance general business and working capital needs.

Provision (benefit) for Income Taxes. Benefit for income taxes for the
nine months ended September 30, 2001 was $(0.8) million compared to a $(2.5) million benefit in the same period in
2000. The benefit in 2001 results from an adjustment of income taxes to
reflect the loss for the year offset by the non-deductible amortization.

Net Loss. Net loss for the nine months ended September 30, 2001 was
$(5.7) million compared with a net loss of $(5.9) million for the same period
in 2000. This is a 3.4% decrease in the net loss.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities.
Net cash used by operating activities
for the nine months ended September 30, 2001 was $1.3 million.
The net loss and changes in working capital contributed primarily
to the net cash used by operating activities in the period. Non cash
charges
from depreciation and amortization of $11.4 million and the loss on sale of
fixed assets of $0.4 million were offset by outflows due to
changes in
working capital of $6.3 million, deferred income taxes of $0.8 million and a net loss
of $5.7 million. The change in working capital was primarily attributable to
reductions of accrued liabilities of $8.3 million, reflecting the
semi annual Senior Note interest payment, partially offset by
increased accounts payable of $2.2 million; and decreased accounts receivable
of $1.0 million.

Investing Activities. Net cash used in investing activities for the nine
months ended September 30, 2001 was $0.7 million for capital additions.

Financing Activities. Net cash payments to reduce long term debt for the
nine months ended September 30, 2001 was $3.7 million.

Our primary sources of liquidity are funds generated by operations and
borrowings under our bank credit facility.

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EBITDA is presented
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.
EBITDA is
defined as earnings before net interest expense, income tax expense,
depreciation, amortization, and other income or expense. 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. Certain covenants in the Companys Credit
Arrangement are based on EBITDA as defined in the Credit Arrangement.

EBITDA for the three months ended September 30, 2001 was
$7.5 million or 19.3%
of net sales compared to $7.6 million or 17.7% of net sales for the same period
in 2000, a decrease of $0.1 million or 1.3% over the same period in 2000. This
decrease is due to a $2.1 million reduction in gross profit offset by a
$1.8 million reduction in S, G&A expenses
and Plant Relocation Costs, and a $0.2 million increase in depreciation and
amortization expenses.

EBITDA for the nine
month period ended September 30, 2001 was $21.4
million or 18.4% of net sales compared to $19.0 million or 14.9% of net sales
for the same period in 2000, an increase of $2.4 million or 12.6% over the same
period in 2000. This increase is due mainly to a $6.9 million
reduction in S,G&A expense and Plant Relocation Costs, and a $0.7 million
increase in depreciation and amortization expense, partially offset by a
reduction in gross profit of $5.2 million due to an $11.4 million decrease in
sales from 2000 levels.

Holley is dependent on the revolving line of credit facility to fund its
working capital needs. Based on our projections, we believe that we will
continue to be in compliance with the quarterly financial ratio covenants
in subsequent quarters and that the revolving line of credit facility will be adequate to
fund our working capital needs during 2001. However, should the revolving line
of credit become unavailable or should we fail to meet our projected results,
we may be forced to seek additional sources of financing in order to fund our
working capital needs. There can be no assurance that we can obtain such
additional financing on satisfactory terms.

We historically have expanded our business through the acquisition of
other related and complementary businesses, and we continue to seek and
evaluate acquisition opportunities. The Companys ability to
operate within the cash available under its revolving credit facility
and to comply with the restrictive financial covenants required under
that facility are dependent on improved net income and reductions in
the level of working capital necessary to operate the business. Our current
indenture and bank credit facility terms, as well as our current level of
indebtedness, would significantly limit or prevent incurrence of any
substantial indebtedness.

In December 2000, we replaced our existing senior credit facility with Credit
Agricole IndoSuez, (consisting of a $35.0 million revolving credit facility)
with a 5 year, $41.0 million facility provided by Fleet Capital Corporation
that matures in December 2005. This facility is comprised of two parts: a $36.0
million revolving credit portion and a $5.0 million term facility to be used
for fixed asset purchases as required. The revolving credit facility has an
interest coverage covenant only. During the term of the revolving credit
facility, Holley is required to have an interest coverage ratio of 1.0:1.0 from
the closing date to March 31, 2001, 1.10:1.0 from the closing date to June 30,
2001, 1.10:1.0 from the closing date to September 30, 2001, and 1.15:1.0 from
the closing date to December 31, 2001. The interest coverage ratios for the
remaining term of the loan are 1.20:1.0 for the four quarters each ending on
March 31, June 30, September 30, and December 31, 2002; 1.25:1.0 for the four
quarters each ending on March 31, June 30, September 30, and December 31, 2003,
2004 and 2005. Borrowings under the facility are limited to 75% of eligible
receivables and 55% of eligible inventories. Under the credit agreement,
Holley must have availability of $2.0 million if EBITDA on a trailing twelve
month basis is equal to or less than $28.0 million, $1.0 million if EBITDA is
less than or equal to $32.0 million but greater than $28.0 million, and $0 if
greater than $32.0 million. The initial $2.0 million availability requirement
became effective during April, 2001. Fleet Capital has a perfected security
interest in all the assets of Holley. Our liquidity as of September 30, 2001
consists of $1.3 million in cash and $0.9 million of revolving credit facility
availability. The term facility can be accessed when Holley has achieved a
Fixed Charge Coverage Ratio of 1.0x on a trailing twelve month basis. (Fixed
Charge Coverage is defined as EBITDA less non-financial fixed asset
expenditures and cash taxes divided by cash interest plus scheduled
principal
payments.) Under the agreement we may borrow either at LIBOR or Base interest
rates as shown in the table below.

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|                        |       |                  |     |              |  |  |      |      |  | 
|----------------------- | ----- | ---------------- | --- | ------------ |  |  | ---- | ---- |  | 
|INTEREST
COVERAGE RATIO |       | BASE RATE MARGIN |     | LIBOR MARGIN
|                        |       |                  |     |             
|                        | >1.25 |                  |     | .75          |  |  |      | 2.75 | 
|                       
|                       
|                       
|                       
|1.26 - 1.50             |       |                  | .50 |              |  |  | 2.50 |     
|                       
|                       
|                       
|                       
|1.51 - 1.75             |       |                  | .25 |              |  |  | 2.25 |     
|                       
|                       
|                       
|                       
|                        | >1.75 |                  |     | .00          |  |  |      | 2.00 | 

From the first nine months following the Closing Date, the outstanding
principal balance under the facilities will have interest at LIBOR plus 2.50%
or Base Rate plus 0.5%. The bank credit facility contains various covenants prohibiting or limiting our ability to:



| |  |  | incur additional debt;                                                                                 
| | - |  | -------------------------------------------------------------------------------------------------------
|
| |  |  | grant liens; or                                                                                        
|
| |  |  | sell our assets, together with financial covenants and information reporting requirements we must meet.




Item 3- Qualitative and
Quantitative Disclosures About Market Risk

Holleys exposure to interest rate changes is primarily related to its
variable rate debt which may be outstanding from time to time under its $41.0
million credit facility with Fleet Capital. Both the revolving portion of the
$36.0 million credit facility and the $5.0 million term facility carry interest
rates which are based on the London Interbank Offered Rate or base rate.
Because the interest rate on the credit facility is variable, the Companys
cash flow may be affected by increases in either the LIBOR or prime rate.
Management does
not, however, believe that any risk inherent in the variable-rate nature of the
loan is likely to have a material effect on Holley. As of September 30, 2001,
Holleys outstanding balance on the revolving credit facility was $31.2
million.

Sensitivity Analysis. To assess exposure to interest rate changes, Holley
has performed a sensitivity analysis assuming that it had drawn the full $36.0
million balance available under the revolving line of credit. If the prime rate
rose 100 basis points, the increase in the monthly interest payment would equal
$0.03 million. Holley does not believe the risk resulting from such fluctuations is
material nor that the payment required would have material effect on cash flow.

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PART II- OTHER INFORMATION




ITEM 1- Legal Proceedings




In May 1999, Union
Pacific Railroad Company filed an action against Weiand and others in
the U. S. District Court for the Central District of California,
alleging that certain soil and groundwater contamination discovered
on Union Pacific property in Los Angeles had migrated from an adjacent
Weiand facility. Union Pacific claimed that Weiand is liable to Union
Pacific for certain investigation and remediation costs, as well as
for other damages under state law. Union Pacific sought damages in
the amount of approximately $2.965 million from all defendants.

In December 2000,
Union Pacific, Holley, Weiand and Joan Weiand, the owner of the
Weiand property, reached a comprehensive settlement in exchange for a
cash payment significantly less than the sought amount, resulting in
a full dismissal of the lawsuit. A substantial majority of the
settlement payment was paid by Weiands insurers. In connection with
the settlement, an additional $550,000 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. Part of the attorney fees and
litigation expenses of the parties were also reimbursed by the
settling insurers.

In 2000, Weiand
discovered possibly significant soil contamination on the Weiand
property, which has not yet been fully analyzed by Weiands
environmental consultants. Holley is working with the property owner,
under the supervision of the California Department of Toxic
Substances Control, 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. Holley and Weiand are working
vigorously to address regulatory issues arising from the discovered
contamination. The $550,000 received from Holley's insurers has been
placed in 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.

The Company is a
party to various lawsuits and claims in the normal course of
business. While the outcome of 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.

ITEM 6- Exhibits and Reports on Form 8-K




(a)  Exhibits
 None.

(b)  Reports on Form 8-K.

During the quarter, the Company filed one report on Form 8-K, dated August 6,
2001, reporting that the Company has dismissed Arthur Andersen LLP as its
independent auditors and that the Company engaged Ernst & Young LLP as its new
independent auditors.

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SIGNATURES

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

|      |  |                   |  |                                                                         
|----- |  | ----------------- |  | ------------------------------------------------------------------------
|      |  |                   |  | Holley Performance Products Inc.                                        
|     
|Date: |  | November 13, 2001 |  | /s/ JEFFREY G. KING                                                     
|      |  |                   |  |                                                                         
|     
|      |  |                   |  | Jeffrey G. King, President and Chief
Executive Officer                  
|     
|Date: |  | November 13, 2001 |  | /s/ A. BRUCE REYNOLDS                                                   
|      |  |                   |  |                                                                         
|     
|      |  |                   |  | A. Bruce Reynolds, Chief Financial Officer
(principal financial officer)

20