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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 28, 2003



OR



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



For the transition period
 to



Commission File Number: 333-89061



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Holley Performance Products Inc.

(Exact name of Registrant as specified in its charter)



|Delaware                 |  | 61-1291482                          
|------------------------ |  | ------------------------------------
|(State of incorporation) |  | (I.R.S. Employer Identification No.)



1801 Russellville
Road, Post Office Box 10360

Bowling Green, Kentucky 42101-7360

(Address of principal executive offices)



Registrants telephone number, including area code: 270-782-2900



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SECURITIES REGISTERED PURSUANT TO SECTION 12(B)
OF THE ACT:



NONE



SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:



NONE



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:    Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes ̈No  x



There were 1,000 shares of Common Stock outstanding as of September 28, 2003.



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Index



|PART I    
Financial Information |  | 1                                                                                    
|-------------------------------- |  | -------------------------------------------------------------------------------------
|ITEM 1.                          |  | Financial Statements                                                                 
|ITEM 2.                          |  | Managements Discussion and Analysis of Financial Condition and Results of Operations
|ITEM 3.                          |  | Quantitative and Qualitative Disclosures about Market Risk                           
|ITEM 4.                          |  | Controls and Procedures                                                              
|PART II    
Other Information    |  | 22                                                                                   
|ITEM 6.                          |  | Exhibits and Reports on Form 8-K                                                     



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PART I



ITEM 1. Financial Statements



HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)



|                                                                                             |  | December 31, 2002* |          |   | September 28, 2003 |  
|-------------------------------------------------------------------------------------------- |  | ------------------ | -------- | - | ------------------ | -
|ASSETS                                                                                       |  |                    |          |   |                    |  
|Cash and cash equivalents                                                                    |  | $                  | 602      |   |                    | $
|Accounts receivable, less allowance for doubtful accounts of $1,089 and $1,054, respectively |  |                    | 16,915   |   |                    |  
|Inventories                                                                                  |  |                    | 22,843   |   |                    |  
|Deferred income taxes                                                                        |  |                    | 3,249    |   |                    |  
|Income taxes receivable                                                                      |  |                    | 3,714    |   |                    |  
|Other current assets                                                                         |  |                    | 1,233    |   |                    |  
|                                                                                             |  |                    |          |   |                    |  
|Total current assets                                                                         |  |                    | 48,556   |   |                    |  
|                                                                                             |  |                   
|Property, plant and equipment, net                                                           |  |                    | 18,210   |   |                    |  
|Goodwill                                                                                     |  |                    | 16,110   |   |                    |  
|Intangible assets, net                                                                       |  |                    | 44,898   |   |                    |  
|                                                                                             |  |                    |          |   |                    |  
|Total assets                                                                                 |  | $                  | 127,774  |   |                    | $
|                                                                                             |  |                    |          |   |                    |  
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                        |  |                    |          |   |                    |  
|Current portion of long-term debt                                                            |  | $                  | 28,724   |   |                    | $
|Accounts payable                                                                             |  |                    | 7,558    |   |                    |  
|Accrued liabilities                                                                          |  |                    | 13,195   |   |                    |  
|Accrued management fees                                                                      |  |                    | 850      |   |                    |  
|Accrued interest                                                                             |  |                    | 5,913    |   |                    |  
|                                                                                             |  |                    |          |   |                    |  
|Total current liabilities                                                                    |  |                    | 56,240   |   |                    |  
|                                                                                             |  |                   
|Long-term debt, net of current portion                                                       |  |                    | 155,111  |   |                    |  
|Deferred income taxes                                                                        |  |                    | 15,841   |   |                    |  
|                                                                                             |  |                    |          |   |                    |  
|Total liabilities                                                                            |  |                    | 227,192  |   |                    |  
|                                                                                             |  |                    |          |   |                    |  
|Commitments and contingencies                                                                |  |                    |          |   |                    |  
|                                                                                             |  |                   
|Stockholders deficit:                                                                       |  |                    |          |   |                    |  
|Preferred stock, $1.00 par value, 150,000 shares authorized, 75,000 issued and outstanding   |  |                    | 75       |   |                    |  
|Common stock, $1.00 par value, 1,000 shares authorized, issued and outstanding               |  |                    | 1        |   |                    |  
|Paid-in capital                                                                              |  |                    | 59,924   |   |                    |  
|Accumulated deficit                                                                          |  |                    | (159,418 | ) |                    |  
|                                                                                             |  |                    |          |   |                    |  
|Stockholders deficit                                                                        |  |                    | (99,418  | ) |                    |  
|                                                                                             |  |                    |          |   |                    |  
|Total liabilities and stockholders deficit                                                  |  | $                  | 127,774  |   |                    | $
|                                                                                             |  |                    |          |   |                    |  

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



|See | notes to condensed consolidated financial statements
|--- | ----------------------------------------------------



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HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

(unaudited)



|                                                                                               |  | Three Months Ended September 29, 2002 |         |   | Three Months Ended September 28, 2003 |   |        | Nine Months Ended September 29, 2002 |  |   | Nine Months Ended September 28, 2003 |  
|---------------------------------------------------------------------------------------------- |  | ------------------------------------- | ------- | - | ------------------------------------- | - | ------ | ------------------------------------ |  | - | ------------------------------------ | -
|Net sales                                                                                      |  | $                                     | 33,105  |   |                                       | $ | 29,316 |                                      |  | $ | 109,376                              |  
|Cost of goods sold                                                                             |  |                                       | 30,712  |   |                                       |   | 20,425 |                                      |  |   | 93,679                               |  
|                                                                                               |  |                                       |         |   |                                       |   |        |                                      |  |   |                                      |  
|Gross profit                                                                                   |  |                                       | 2,393   |   |                                       |   | 8,891  |                                      |  |   | 15,697                               |  
|                                                                                               |  |                                       |         |   |                                       |   |        |                                      |  |   |                                      |  
|Selling, general and administrative costs                                                      |  |                                       | 6,544   |   |                                       |   | 5,180  |                                      |  |   | 20,998                               |  
|Management fees                                                                                |  |                                       | 262     |   |                                       |   | 223    |                                      |  |   | 686                                  |  
|Amortization expense                                                                           |  |                                       | 472     |   |                                       |   | 840    |                                      |  |   | 1,417                                |  
|Other expense                                                                                  |  |                                       | 696     |   |                                       |   | 51     |                                      |  |   | 1,067                                |  
|                                                                                               |  |                                       |         |   |                                       |   |        |                                      |  |   |                                      |  
|Total operating expenses                                                                       |  |                                       | 7,974   |   |                                       |   | 6,294  |                                      |  |   | 24,168                               |  
|                                                                                               |  |                                       |         |   |                                       |   |        |                                      |  |   |                                      |  
|Operating income (loss)                                                                        |  |                                       | (5,581  | ) |                                       |   | 2,597  |                                      |  |   | (8,471                               | )
|                                                                                               |  |                                       |         |  
|Interest expense                                                                               |  |                                       | 5,663   |   |                                       |   | 5,318  |                                      |  |   | 16,551                               |  
|                                                                                               |  |                                       |         |   |                                       |   |        |                                      |  |   |                                      |  
|Loss before income taxes and cumulative effect of accounting change                            |  |                                       | (11,244 | ) |                                       |   | (2,721 | )                                    |  |   | (25,022                              | )
|                                                                                               |  |                                       |         |  
|Income tax expense (benefit)                                                                   |  |                                       | (622    | ) |                                       |   | 177    |                                      |  |   | (1,866                               | )
|                                                                                               |  |                                       |         |   |                                       |   |        |                                      |  |   |                                      |  
|Loss before cumulative effect of accounting change                                             |  |                                       | (10,622 | ) |                                       |   | (2,898 | )                                    |  |   | (23,156                              | )
|                                                                                               |  |                                       |         |  
|Cumulative effect of accounting change for intangible asset impairment, net of taxes of $1,292 |  |                                       |        |   |                                       |   |       |                                      |  |   | (2,114                               | )
|                                                                                               |  |                                       |         |   |                                       |   |        |                                      |  |   |                                      |  
|Net loss                                                                                       |  | $                                     | (10,622 | ) |                                       | $ | (2,898 | )                                    |  | $ | (25,270                              | )
|                                                                                               |  |                                       |         |   |                                       |   |        |                                      |  |   |                                      |  



See notes to condensed consolidated
financial statements



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HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



|                                                                         |  | Nine Months Ended September 29, 2002 |         |   | Nine Months Ended September 28, 2003 |  
|------------------------------------------------------------------------ |  | ------------------------------------ | ------- | - | ------------------------------------ | -
|OPERATING ACTIVITIES                                                     |  |                                      |         |   |                                      |  
|Net loss                                                                 |  | $                                    | (25,270 | ) |                                      | $
|Adjustments to reconcile net loss to net cash from operating activities: |  |                                      |         |   |                                      |  
|Depreciation                                                             |  |                                      | 5,091   |   |                                      |  
|Amortization of intangibles                                              |  |                                      | 1,417   |   |                                      |  
|Amortization of deferred financing costs included in interest expense    |  |                                      | 654     |   |                                      |  
|Amortization of debt discount                                            |  |                                      | 514     |   |                                      |  
|Loss on disposal of business                                             |  |                                      |        |   |                                      |  
|Gain on disposal of fixed assets                                         |  |                                      |        |   |                                      |  
|Deferred income taxes                                                    |  |                                      | (1,929  | ) |                                      |  
|Write-off of financing costs                                             |  |                                      | 775     |   |                                      |  
|Cumulative effect of accounting change                                   |  |                                      | 2,114   |   |                                      |  
|Change in operating assets and liabilities:                              |  |                                      |         |   |                                      |  
|Accounts receivable                                                      |  |                                      | 2,619   |   |                                      |  
|Inventories                                                              |  |                                      | 8,445   |   |                                      |  
|Other assets                                                             |  |                                      | 420     |   |                                      |  
|Accounts payable                                                         |  |                                      | 331     |   |                                      |  
|Accrued liabilities                                                      |  |                                      | 5,628   |   |                                      |  
|                                                                         |  |                                      |         |   |                                      |  
|Net cash from operating activities                                       |  |                                      | 809     |   |                                      |  
|                                                                         |  |                                      |         |   |                                      |  
|INVESTING ACTIVITIES                                                     |  |                                      |         |   |                                      |  
|Capital expenditures                                                     |  |                                      | (1,302  | ) |                                      |  
|Proceeds from the disposal of business                                   |  |                                      |        |   |                                      |  
|Proceeds from the disposal of fixed assets                               |  |                                      | 46      |   |                                      |  
|                                                                         |  |                                      |         |   |                                      |  
|Net cash from investing activities                                       |  |                                      | (1,256  | ) |                                      |  
|                                                                         |  |                                      |         |   |                                      |  
|FINANCING ACTIVITIES                                                     |  |                                      |         |   |                                      |  
|Net proceeds (repayments) from revolving credit line                     |  |                                      | 1,461   |   |                                      |  
|Financing costs                                                          |  |                                      | (2,058  | ) |                                      |  
|Proceeds from long-term debt                                             |  |                                      | 2,000   |   |                                      |  
|Principal payments on long-term debt                                     |  |                                      |        |   |                                      |  
|                                                                         |  |                                      |         |   |                                      |  
|Net cash from financing activities                                       |  |                                      | 1,403   |   |                                      |  
|                                                                         |  |                                      |         |   |                                      |  
|Net change in cash and cash equivalents                                  |  |                                      | 956     |   |                                      |  
|Cash and cash equivalents:                                               |  |                                      |         |   |                                      |  
|Beginning of period                                                      |  |                                      | 234     |   |                                      |  
|                                                                         |  |                                      |         |   |                                      |  
|End of period                                                            |  | $                                    | 1,190   |   |                                      | $
|                                                                         |  |                                      |         |   |                                      |  
|Supplemental disclosures of cash flow information:                       |  |                                      |         |   |                                      |  
|Cash paid for interest                                                   |  | $                                    | 10,695  |   |                                      | $
|                                                                         |  |                                      |         |   |                                      |  
|Cash received for income taxes                                           |  | $                                    |        |   |                                      | $
|                                                                         |  |                                      |         |   |                                      |  



See notes to condensed consolidated
financial statements



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HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except as otherwise noted)

(unaudited)



1. Significant Accounting Policies



Basis of Presentation



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



The Company is highly leveraged. As of September 28, 2003, indebtedness was $181.6 million and stockholders deficit was $106.7 million. Further, the Company has
experienced recurring net losses. Management is implementing actions designed to reduce working capital and improve operating results. If the improvements associated with these actions do not materialize in a timely manner, the Company may be
required to take additional measures to ensure the availability of sufficient cash to sustain operations. Such measures may include, among other things, reducing or delaying capital expenditures, selling assets, restructuring or refinancing
indebtedness, or seeking additional equity capital. There is no assurance that any of these measures can be effected on satisfactory terms, if at all.



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



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



Accounting Period



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



Recent Accounting Pronouncements



In June 2001, the Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 143, Accounting for Asset
Retirement Obligations. SFAS No. 143 establishes accounting standards for recognition and measurement of an asset retirement obligation and an associated asset retirement cost. This statement applies to all entities that have legal obligations
associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal



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use of the assets and was effective for fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 did not
have a material impact on the consolidated financial position, results of operations or cash flows of the Company.



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



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



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



In January 2003, the FASB issued Interpretation No. 46 Consolidation of Variable Interest
Entities, an interpretation of ARB No. 51.This Interpretation addresses the consolidation by business enterprises of variable interest entities as defined in the Interpretation. The Interpretation is effective for financial statements issued
for the first reporting period ending after December 15, 2003. The Company has determined that it does not have any interest in a variable interest entity that would require the variable interest entity to be consolidated or disclosed by the
Company.



In April 2003, the FASB issued SFAS No. 149, Amendments of
Statement 133 on Derivative instruments and Hedging Activities.This Statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This Statement is effective for contracts entered into or modified after September 29, 2003, except as
stated below and for hedging relationships designated after September 29, 2003. In addition, except as stated below, all provisions of this Statement should be applied prospectively. The provisions of this Statement that relate to SFAS 133
Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, paragraphs 7(a) and 23(a), which relate to forward
purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to both existing contracts and new contracts entered into after September 29, 2003. The Company does not expect the adoption of SFAS No. 149,
which will be effective for contracts entered into or modified after September 29, 2003, to have a material effect on the Companys consolidated financial position, results of operations or cash flows of the Company.



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In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both
Liabilities and Equity.This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument
that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and
otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for certain provisions that have been deferred. It is to be implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The adoption of SFAS No. 150 did not have a material impact on
the consolidated financial position, results of operations or cash flows of the Company.



Reclassifications



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



2.
Inventories



Inventories are comprised of the following:



|                |  | December 31, 2002 |        | September 28, 2003
|--------------- |  | ----------------- | ------ | ------------------
|Raw materials   |  | $                 | 11,224 |                   
|Work-in-process |  |                   | 3,979  |                   
|Finished goods  |  |                   | 7,640  |                   
|                |  |                   |        |                   
|                |  | $                 | 22,843 |                   
|                |  |                   |        |                   



3. Segment Information



The Companys reportable segments are 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.



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



|                      |  | Three Months Ended September 29,2002 |        |   | Three Months Ended September 28,2003 |   | Nine Months Ended September 29,2002 |  | Nine Months Ended September 28,2003
|--------------------- |  | ------------------------------------ | ------ | - | ------------------------------------ | - | ----------------------------------- |  | -----------------------------------
|Performance Parts:    |  |                                      |        |   |                                      |   |                                     |  |                                    
|Net sales             |  | $                                    | 29,504 |   |                                      | $ | 26,722                              |  | $                                  
|Gross profits         |  |                                      | 2,568  |   |                                      |   | 8,682                               |  |                                    
|                      |  |                                      |        |  
|Remanufactured Parts: |  |                                      |        |   |                                      |   |                                     |  |                                    
|Net sales             |  | $                                    | 3,601  |   |                                      | $ | 2,594                               |  | $                                  
|Gross profits (loss)  |  |                                      | (175   | ) |                                      |   | 209                                 |  |                                    
|                      |  |                                      |        |  
|Total:                |  |                                      |        |   |                                      |   |                                     |  |                                    
|Net sales             |  | $                                    | 33,105 |   |                                      | $ | 29,316                              |  | $                                  
|Gross profits         |  |                                      | 2,393  |   |                                      |   | 8,891                               |  |                                    



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Summary balance sheet data for inventories and property, plant and equipment, net for each of the Companys
reportable segments as of December 31, 2002 and September 28, 2003 are shown in the following table:



|                              |  | December 31, 2002 |        | September 28, 2003
|----------------------------- |  | ----------------- | ------ | ------------------
|Performance Parts:            |  |                   |        |                   
|Inventories                   |  | $                 | 19,875 |                   
|Property, plant and equipment |  |                   | 16,849 |                   
|                              |  |                  
|Remanufactured Parts:         |  |                   |        |                   
|Inventories                   |  | $                 | 2,968  |                   
|Property, plant and equipment |  |                   | 1,361  |                   
|                              |  |                  
|Total:                        |  |                   |        |                   
|Inventories                   |  | $                 | 22,843 |                   
|Property, plant and equipment |  |                   | 18,210 |                   



4. Intangible Assets



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



|                             |  | December 31, 2002     |        | September 28, 2003      
|---------------------------- |  | --------------------- | ------ | ------------------------
|                             |  | Gross Carrying Amount |        | Accumulated Amortization
|Amortized intangible assets: |  |                       |        |                         
|Deferred financing costs     |  | $                     | 7,443  |                         
|Non-compete covenants        |  |                       | 8,164  |                         
|                             |  |                       |        |                         
|Ending balance               |  | $                     | 15,607 |                         
|                             |  |                       |        |                         



Amortization of deferred financing
costs and non-compete agreements totaled $654 and $1,417 for the nine months ended September 29, 2002 and $796 and $1,784 for the nine months ended September 28, 2003, respectively. Amortization of these costs over the next five years are estimated
to be: 2003, $2,780; 2004, $1,851; 2005, $1,139; 2006, $1,139; and 2007, $725.



In addition, included in the line item intangible assets, net are intangible assets not subject to amortization. Goodwill and tradenames have a net carrying value of $16,110 and $37,264, respectively as of December 31, 2002 and September
28, 2003.



5. Related-Party Transactions



Pursuant to a management agreement, Kohlberg and Company, LLC (Kohlberg)
provides the Company with general corporate administrative services. Kohlberg receives a management fee to recover its operating expenses based upon an allocation of time devoted to the Company. Management fee expense was $262 and $686 for the three
and nine months ended September 29, 2002, respectively and $223 and $657 for the three and nine months ended September 28, 2003, respectively. Kohlberg has deferred cash payments with respect to the management fees charged the Company since January
1, 2002; however such fees are accruing in connection with the aforementioned management agreement and as of December 31, 2002 and September 28, 2003, accrued management fees were $850 and $1,496, respectively.



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6. Financial Information for Guarantors of the Companys Debt



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



The information that follows presents condensed
consolidating financial information as of September 28, 2003 and December 31, 2002 and for the three and nine month periods ending September 28, 2003 and September 29, 2002 for: a) Holley Performance Products Inc. (as the Issuer), b) the Guarantors,
c) elimination entries and d) the Company on a consolidated basis.



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



8



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|                                                                                           |  | Condensed Consolidating Balance Sheet December 31, 2002 |         
|------------------------------------------------------------------------------------------ |  | ------------------------------------------------------- | --------
|                                                                                           |  | Holley Performance Products Inc. (Parent Company Only)  |         
|ASSETS                                                                                     |  |                                                         |         
|Cash and cash equivalents                                                                  |  | $                                                       | 421     
|Accounts receivable, net                                                                   |  |                                                         | 15,837  
|Inventories                                                                                |  |                                                         | 11,813  
|Income taxes receivable                                                                    |  |                                                         | 3,677   
|Deferred income taxes                                                                      |  |                                                         | 1,835   
|Intercompany receivable                                                                    |  |                                                         | 12,936  
|Other current assets                                                                       |  |                                                         | 705     
|                                                                                           |  |                                                         |         
|Total current assets                                                                       |  |                                                         | 47,224  
|                                                                                           |  |                                                         |         
|Property, plant and equipment, net                                                         |  |                                                         | 13,673  
|Investment in subsidiaries                                                                 |  |                                                         | 19,450  
|Intangible assets, net                                                                     |  |                                                         | 36,999  
|                                                                                           |  |                                                         |         
|Total assets                                                                               |  | $                                                       | 117,346 
|                                                                                           |  |                                                         |         
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                      |  |                                                         |         
|Current portion of long-term debt                                                          |  | $                                                       | 28,679  
|Accounts payable                                                                           |  |                                                         | 6,963   
|Accrued liabilities                                                                        |  |                                                         | 11,306  
|Accrued management fees                                                                    |  |                                                         | 850     
|Accrued interest                                                                           |  |                                                         | 5,913   
|Intercompany payable                                                                       |  |                                                         |        
|                                                                                           |  |                                                         |         
|Total current liabilities                                                                  |  |                                                         | 53,711  
|                                                                                           |  |                                                         |         
|Long-term debt, net of current portion                                                     |  |                                                         | 154,993 
|Deferred income taxes                                                                      |  |                                                         | 8,060   
|                                                                                           |  |                                                         |         
|Total liabilities                                                                          |  |                                                         | 216,764 
|                                                                                           |  |                                                         |         
|Commitments and contingencies                                                              |  |                                                         |         
|                                                                                           |  |                                                         |         
|Stockholders deficit:                                                                     |  |                                                         |         
|Preferred stock, $1.00 par value, 150,000 shares authorized, 75,000 issued and outstanding |  |                                                         | 75      
|Common stock, $1.00 par value, 1,000 shares authorized, issued and outstanding             |  |                                                         | 1       
|Paid-in capital                                                                            |  |                                                         | 59,924  
|Accumulated deficit                                                                        |  |                                                         | (159,418
|                                                                                           |  |                                                         |         
|Stockholders deficit                                                                      |  |                                                         | (99,418 
|                                                                                           |  |                                                         |         
|Total liabilities and stockholders deficit                                                |  | $                                                       | 117,346 
|                                                                                           |  |                                                         |         



9



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|                                                                                           |  | Condensed Consolidating Balance Sheet September 28, 2003 |         
|------------------------------------------------------------------------------------------ |  | -------------------------------------------------------- | --------
|                                                                                           |  | Holley Performance Products Inc. (Parent Company Only)   |         
|ASSETS                                                                                     |  |                                                          |         
|Cash and cash equivalents                                                                  |  | $                                                        |        
|Accounts receivable, net                                                                   |  |                                                          | 16,408  
|Inventories                                                                                |  |                                                          | 10,079  
|Deferred income taxes                                                                      |  |                                                          | 3,073   
|Income taxes receivable                                                                    |  |                                                          | 2       
|Intercompany receivable                                                                    |  |                                                          | 4,544   
|Other current assets                                                                       |  |                                                          | 1,969   
|                                                                                           |  |                                                          |         
|Total current assets                                                                       |  |                                                          | 36,075  
|                                                                                           |  |                                                          |         
|Property, plant and equipment, net                                                         |  |                                                          | 12,195  
|Investment in subsidiaries                                                                 |  |                                                          | 23,843  
|Intangible assets, net                                                                     |  |                                                          | 36,482  
|                                                                                           |  |                                                          |         
|Total assets                                                                               |  | $                                                        | 108,595 
|                                                                                           |  |                                                          |         
|LIABILITIES AND STOCKHOLDERS DEFICIT                                                      |  |                                                          |         
|Current portion of long-term debt                                                          |  | $                                                        | 26,586  
|Accounts payable                                                                           |  |                                                          | 8,970   
|Accrued liabilities                                                                        |  |                                                          | 11,181  
|Accrued management fees                                                                    |  |                                                          | 1,496   
|Accrued interest                                                                           |  |                                                          | 1,705   
|Intercompany payable                                                                       |  |                                                          |        
|                                                                                           |  |                                                          |         
|Total current liabilities                                                                  |  |                                                          | 49,938  
|                                                                                           |  |                                                          |         
|Long-term debt, net of current portion                                                     |  |                                                          | 154,973 
|Deferred income taxes                                                                      |  |                                                          | 10,420  
|                                                                                           |  |                                                          |         
|Total liabilities                                                                          |  |                                                          | 215,331 
|                                                                                           |  |                                                          |         
|Commitments and contingencies                                                              |  |                                                          |         
|                                                                                           |  |                                                          |         
|Stockholders deficit:                                                                     |  |                                                          |         
|Preferred stock, $1.00 par value, 150,000 shares authorized, 75,000 issued and outstanding |  |                                                          | 75      
|Common stock, $1.00 par value, 1,000 shares authorized, issued and outstanding             |  |                                                          | 1       
|Paid-in capital                                                                            |  |                                                          | 59,924  
|Accumulated deficit                                                                        |  |                                                          | (166,736
|                                                                                           |  |                                                          |         
|Stockholders deficit                                                                      |  |                                                          | (106,736
|                                                                                           |  |                                                          |         
|Total liabilities and stockholders deficit                                                |  | $                                                        | 108,595 
|                                                                                           |  |                                                          |         



10



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|                                          |  | Condensed Consolidating Statement of Operations Three Months Ended September 29, 2002 |        
|----------------------------------------- |  | ------------------------------------------------------------------------------------- | -------
|                                          |  | Holley Performance Products Inc. (Parent Company Only)                                |        
|Net sales                                 |  | $                                                                                     | 16,102 
|Cost of goods sold                        |  |                                                                                       | 14,973 
|                                          |  |                                                                                       |        
|Gross profit                              |  |                                                                                       | 1,129  
|                                          |  |                                                                                       |        
|Selling, general and administrative costs |  |                                                                                       | 3,183  
|Management fees                           |  |                                                                                       | 262    
|Amortization of intangibles               |  |                                                                                       | 283    
|Other expense                             |  |                                                                                       | 696    
|Equity in loss of subsidiaries            |  |                                                                                       | 2,286  
|                                          |  |                                                                                       |        
|Total operating expenses                  |  |                                                                                       | 6,710  
|                                          |  |                                                                                       |        
|Operating loss                            |  |                                                                                       | (5,581 
|                                          |  |                                                                                       |        
|Interest expense                          |  |                                                                                       | 5,663  
|                                          |  |                                                                                       |        
|Loss before income taxes                  |  |                                                                                       | (11,244
|                                          |  |                                                                                       |        
|Income tax benefit                        |  |                                                                                       | (622   
|                                          |  |                                                                                       |        
|Net loss                                  |  | $                                                                                     | (10,622
|                                          |  |                                                                                       |        



|                                                                    |  | Condensed Consolidating Statement of Operations Nine Months Ended September 29, 2002 |        
|------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------ | -------
|                                                                    |  | Holley Performance Products Inc. (Parent Company Only)                               |        
|Net sales                                                           |  | $                                                                                    | 51,171 
|Cost of goods sold                                                  |  |                                                                                      | 41,154 
|                                                                    |  |                                                                                      |        
|Gross profit                                                        |  |                                                                                      | 10,017 
|                                                                    |  |                                                                                      |        
|Selling, general and administrative costs                           |  |                                                                                      | 9,823  
|Management fees                                                     |  |                                                                                      | 686    
|Amortization of intangibles                                         |  |                                                                                      | 284    
|Other expense                                                       |  |                                                                                      | 1,042  
|Equity in loss of subsidiaries                                      |  |                                                                                      | 7,792  
|                                                                    |  |                                                                                      |        
|Total operating expenses                                            |  |                                                                                      | 19,627 
|                                                                    |  |                                                                                      |        
|Operating loss                                                      |  |                                                                                      | (9,610 
|                                                                    |  |                                                                                      |        
|Interest expense                                                    |  |                                                                                      | 16,509 
|                                                                    |  |                                                                                      |        
|Loss before income taxes and cumulative effect of accounting change |  |                                                                                      | (26,119
|                                                                    |  |                                                                                      |        
|Income tax benefit                                                  |  |                                                                                      | (1,357 
|                                                                    |  |                                                                                      |        
|Loss before cumulative effect of accounting change                  |  |                                                                                      | (24,762
|                                                                    |  |                                                                                      |        
|Cumulative effect of accounting change                              |  |                                                                                      | (508   
|                                                                    |  |                                                                                      |        
|Net loss                                                            |  | $                                                                                    | (25,270
|                                                                    |  |                                                                                      |        



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##### Table of Contents

|                                                     |  | Consolidating Statement of Cash Flows Nine Months Ended September 29, 2002 |       
|---------------------------------------------------- |  | -------------------------------------------------------------------------- | ------
|                                                     |  | Holley Performance Products Inc. (Parent Company Only)                     |       
|OPERATING ACTIVITIES:                                |  |                                                                            |       
|Net cash from operating activities                   |  | $                                                                          | (295  
|                                                     |  |                                                                            |       
|INVESTING ACTIVITIES:                                |  |                                                                            |       
|Capital expenditures                                 |  |                                                                            | (856  
|Proceeds on disposal of fixed assets                 |  |                                                                            | 46    
|                                                     |  |                                                                            |       
|Net cash from investing activities                   |  |                                                                            | (810  
|                                                     |  |                                                                            |       
|FINANCING ACTIVITIES:                                |  |                                                                            |       
|Net proceeds (repayments) from revolving credit line |  |                                                                            | 1,681 
|Proceeds from long-term debt                         |  |                                                                            | 2,000 
|Financing costs                                      |  |                                                                            | (2,058
|                                                     |  |                                                                            |       
|Net cash from financing activities                   |  |                                                                            | 1,623 
|                                                     |  |                                                                            |       
|Net changes in cash and cash equivalents             |  |                                                                            | 518   
|Cash and cash equivalents:                           |  |                                                                            |       
|Beginning of period                                  |  |                                                                            | 72    
|                                                     |  |                                                                            |       
|End of period                                        |  | $                                                                          | 590   
|                                                     |  |                                                                            |       



|                                          |  | Condensed Consolidating Statement of Operations Three Months Ended September 28, 2003 |       
|----------------------------------------- |  | ------------------------------------------------------------------------------------- | ------
|                                          |  | Holley Performance Products Inc. (Parent Company Only)                                |       
|Net sales                                 |  | $                                                                                     | 15,459
|Cost of goods sold                        |  |                                                                                       | 10,059
|                                          |  |                                                                                       |       
|Gross profit                              |  |                                                                                       | 5,400 
|                                          |  |                                                                                       |       
|Selling, general and administrative costs |  |                                                                                       | 2,774 
|Management fees                           |  |                                                                                       | 223   
|Amortization of intangibles               |  |                                                                                       | 504   
|Other expense                             |  |                                                                                       | 51    
|Equity in income of subsidiaries          |  |                                                                                       | (749  
|                                          |  |                                                                                       |       
|Total operating expenses                  |  |                                                                                       | 2,803 
|                                          |  |                                                                                       |       
|Operating income (loss)                   |  |                                                                                       | 2,597 
|                                          |  |                                                                                       |       
|Interest expense                          |  |                                                                                       | 5,318 
|                                          |  |                                                                                       |       
|Loss before income taxes                  |  |                                                                                       | (2,721
|                                          |  |                                                                                       |       
|Income tax expense                        |  |                                                                                       | 177   
|                                          |  |                                                                                       |       
|Net loss                                  |  | $                                                                                     | (2,898
|                                          |  |                                                                                       |       



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|                                          |  | Condensed Consolidating Statement of Operations Nine Months Ended September 28, 2003 |       
|----------------------------------------- |  | ------------------------------------------------------------------------------------ | ------
|                                          |  | Holley Performance Products Inc. (Parent Company Only)                               |       
|Net sales                                 |  | $                                                                                    | 49,365
|Cost of goods sold                        |  |                                                                                      | 32,408
|                                          |  |                                                                                      |       
|Gross profit                              |  |                                                                                      | 16,957
|                                          |  |                                                                                      |       
|Selling, general and administrative costs |  |                                                                                      | 9,156 
|Management fees                           |  |                                                                                      | 657   
|Amortization of intangibles               |  |                                                                                      | 1,070 
|Other expense                             |  |                                                                                      | 249   
|Equity in income of subsidiaries          |  |                                                                                      | (4,393
|                                          |  |                                                                                      |       
|Total operating expenses                  |  |                                                                                      | 6,739 
|                                          |  |                                                                                      |       
|Operating income                          |  |                                                                                      | 10,218
|                                          |  |                                                                                      |       
|Interest expense                          |  |                                                                                      | 17,316
|                                          |  |                                                                                      |       
|Income (loss) before income taxes         |  |                                                                                      | (7,098
|                                          |  |                                                                                      |       
|Income tax expense                        |  |                                                                                      | 220   
|                                          |  |                                                                                      |       
|Net income (loss)                         |  | $                                                                                    | (7,318
|                                          |  |                                                                                      |       



|                                           |  | Consolidating Statement of Cash Flows Nine Months Ended September 28, 2003 |       
|------------------------------------------ |  | -------------------------------------------------------------------------- | ------
|                                           |  | Holley Performance Products Inc. (Parent Company Only)                     |       
|OPERATING ACTIVITIES:                      |  |                                                                            |       
|Net cash from operating activities         |  | $                                                                          | 1,624 
|                                           |  |                                                                            |       
|INVESTING ACTIVITIES:                      |  |                                                                            |       
|Capital expenditures                       |  |                                                                            | (1,322
|Proceeds from the disposal of business     |  |                                                                            | 1,135 
|Proceeds from the disposal of fixed assets |  |                                                                            | 164   
|                                           |  |                                                                            |       
|Net cash from investing activities         |  |                                                                            | (23   
|                                           |  |                                                                            |       
|FINANCING ACTIVITIES:                      |  |                                                                            |       
|Net proceeds from revolving credit line    |  |                                                                            | (484  
|Principal payments on long-term debt       |  |                                                                            | (1,538
|                                           |  |                                                                            |       
|Net cash from financing activities         |  |                                                                            | (2,022
|                                           |  |                                                                            |       
|Net change in cash and cash equivalents    |  |                                                                            | (421  
|Cash and cash equivalents:                 |  |                                                                            |       
|Beginning of period                        |  |                                                                            | 421   
|                                           |  |                                                                            |       
|End of period                              |  | $                                                                          |      
|                                           |  |                                                                            |       





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7. Contingent Liabilities



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



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



The Company
generally warrants its products against certain manufacturing and other defects. These product warranties are provided for specific periods of time depending on the nature of the product. The accrued product warranty costs are based primarily on
historical experience of actual warranty claims. The following table provides the changes in the Companys product warranties:



|                                |  | Three Months Ended September 29, 2002 |        |   | Three Months Ended September 28, 2003 |   |        | Nine Months Ended September 29, 2002 |  |   | Nine Months Ended September 28, 2003 |  
|------------------------------- |  | ------------------------------------- | ------ | - | ------------------------------------- | - | ------ | ------------------------------------ |  | - | ------------------------------------ | -
|Beginning balance               |  | $                                     | 2,191  |   |                                       | $ | 3,417  |                                      |  | $ | 3,797                                |  
|Accrued for current year claims |  |                                       | 3,303  |   |                                       |   | 1,174  |                                      |  |   | 6,831                                |  
|Settlement of warranty claims   |  |                                       | (1,352 | ) |                                       |   | (2,227 | )                                    |  |   | (6,486                               | )
|                                |  |                                       |        |   |                                       |   |        |                                      |  |   |                                      |  
|Ending balance                  |  | $                                     | 4,142  |   |                                       | $ | 2,364  |                                      |  | $ | 4,142                                |  
|                                |  |                                       |        |   |                                       |   |        |                                      |  |   |                                      |  



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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 included in this report as well as the
consolidated financial statements for the year ended December 31, 2002 included in the Companys Form 10-K. This discussion and other portions of this report may contain forward-looking statements.



OVERVIEW



Founded in 1903, Holley is a leading manufacturer and marketer of specialty products for the performance automotive, marine and motorcycle
aftermarkets. Holley designs, manufactures and markets a diversified line of automotive performance and racing products that are designed to enhance vehicle performance through generating increased horsepower, and torque. The Companys products
include but are not limited to performance and remanufactured carburetors, nitrous oxide systems, fuel injection systems, super chargers, intake manifolds, cylinder heads, camshafts, pistons, connecting rods, crankshafts, headers and other exhaust
system components, fuel pumps, water pumps, and performance automotive plumbing products.



SEASONALITY



The Companys
operations experience seasonal trends, which generally affect the overall automotive aftermarket industry. Historically, revenues are highest in the spring, during the second quarter, which marks the beginning of the racing season and when the
weather is better suited for outdoor automotive repair activity.



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



|                        |  | Three months ended |       |   | Nine months ended  |      
|----------------------- |  | ------------------ | ----- | - | ------------------ | -----
|                        |  | September 29, 2002 |       |   | September 28, 2003 |      
|Net sales               |  | $                  | 33.1  |   |                    | 100.0
|Gross profit            |  |                    | 2.4   |   |                    | 7.3  
|SG&A                    |  |                    | 6.5   |   |                    | 19.6 
|Operating income (loss) |  |                    | (5.6  | ) |                    | (16.9
|Net loss                |  |                    | (10.6 | ) |                    | (32.0



Net Sales



Net sales equal gross revenues less provisions for volume rebates, credits, product returns,
and other sales allowances. Net sales for the quarter ended September 28, 2003 totaled $29.3 million compared to $33.1 million for the same period in 2002, a decrease of $3.8 million or 11.5%. Net sales for the nine months ended September 28, 2003
were $99.9 million compared to $109.4 million for the nine months ended September 29, 2002, a decrease of $9.5 million or 8.7%.



Net sales in the performance segment for the third quarter of 2003 were $26.7 million compared to $29.5 million in the third quarter of 2002, a decrease of $2.8 million
or 9.5%. Net sales in the performance segment for the nine months ended September 28, 2003 were $90.0 million compared to $97.7 million for the nine months ended September 29, 2002, a decrease of $7.7 million or 7.9%. The decline in sales for the
quarter and nine month periods is generally attributable to weak consumer confidence resulting in soft end-user demand, unfavorable weather conditions, uncertainty over the war in Iraq and prevailing economic conditions. In addition, the Company has
employed a strategy of eliminating poorly performing product lines which, while reducing net sales, has resulted in improvement at the gross profit level.



Net sales in the remanufacturing segment were $2.6 million in the third quarter of 2003 compared to $3.6 million in the third quarter of 2002, a decrease of $1.0 million
or 27.8%. Net sales in the



15



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##### Table of Contents

remanufacturing segment for the nine months ended September 28, 2003 were $9.9 million compared to $11.7 million for the nine months ended September 29,
2002, a decrease of $1.8 million or 15.4%. The remanufacturing segment is mature and in decline because new cars have not been produced with carburetors since approximately 1992 and the Company believes that the retirement of carbureted vehicles has
been accelerated by strong sales of new cars. In addition, the Company believes that its distributors made downward adjustments to inventories to realign their stocking levels with the Companys improved shipping performance thereby
contributing to the decreased sales experienced in the remanufacturing segment.



Gross Profit



Gross profit for the third quarter of 2003
totaled $8.9 million or 30.4% of net sales compared to gross profits of $2.4 million or 7.3% of net sales for the same quarter in 2002. This represents an increase of $6.5 million or 270.8%. Gross profit for the nine months ended September 28, 2003
was $31.2 million compared to $15.7 million for the nine months ended September 29, 2002, an increase of $15.5 million or 98.7%. The Company realized improved results from the implementation of strategies to improve manufacturing performance and
control manufacturing costs. These strategies resulted in improvements in quality, material costs, and overhead spending which resulted in cost savings of $0.6 million, $4.2 million and $0.5 million, respectively for the quarter ended September 28,
2003. Additional improvements in gross profit were realized through reductions in marketing program costs of $2.1 million. The aforementioned improvements in gross profit were partially offset by a reduction in gross profit of $0.9 million as a
result of the decrease in volume. For the nine months ended September 28, 2003, the improvements in quality, material costs, and overhead spending resulted in cost savings of $3.6 million, $6.5 million and $3.9 million, respectively. The reductions
in marketing program costs for the nine month period ended September 28, 2003 resulted in $4.5 million in additional improvements in gross profit. These improvements were partially offset by a reduction in gross profit of $3.1 million as a result of
the decrease in volume.



In the performance segment, gross profit was $8.7
million for the third quarter of 2003 compared to $2.6 million for the third quarter of 2002, an increase of $6.1 million or 234.6%. Gross profit in the performance segment for the nine months ended September 28, 2003 was $30.0 million compared to
$15.1 million for the nine months ended September 29, 2002, an increase of $14.9 million or 98.7%. The improvement in gross profit for the three and nine months ended September 28, 2003 was driven primarily by the aforementioned manufacturing
improvements.



In the remanufacturing segment, gross profit was $0.2 million in
the third quarter of 2003 compared to a gross loss of $0.2 million for the same period in 2002. Gross profit in the remanufacturing segment for the nine months ended September 28, 2003 was $1.2 million compared to $0.6 million for the nine months
ended September 29, 2002, an increase of $0.6 million or 100.0%. The increase in gross profit for the quarter and nine months ended September 28, 2003 resulted primarily from a decrease in warranty costs.



Selling, General and Administrative Costs



Selling, general and administrative costs for the three months ended September 28, 2003
totaled $5.2 million or 17.7% of net sales compared to $6.5 million or 19.6% of net sales in the same period in 2002, a decrease of $1.3 million or 20.0%. Selling, general and administrative costs decreased to $18.3 million for the nine months ended
September 28, 2003 from $21.0 million for the nine months ended September 29, 2002, a decrease of $2.7 million or 12.9%. The Company has focused its spending strategy on receiving maximum value for each dollar spent, which resulted in lower spending
for promotions, advertising and commissions during the third quarter and first nine months of 2003.



16



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##### Table of Contents

Other Expense



Other expense was $0.2 million for the nine months ended September 28, 2003 compared to $1.1 million in the same period in 2002. The 2003 amount includes $0.3 million
related to a loss on the sale of So-Cal Speed Shops, Inc. (So-Cal) effective February 24, 2003. Cash proceeds of $1.1 million were received in connection with this sale.



Operating Income



Operating income for the three months ended September 28, 2003 was $2.6 million or 8.9% of net sales compared to an operating loss of $5.6 million or 16.9% of net sales
for the same period in 2002, an increase of $8.2 million or 146.4%. Operating income for the nine months ended September 28, 2003 was $10.2 million or 10.2% of net sales compared to an operating loss of $8.5 million or 7.8% of net sales for the nine
months ended September 29, 2002, an increase of $18.7 million or 220.0%. The increase in operating income for the quarter and nine months ended September 28, 2003 resulted from the aforementioned improvements in manufacturing performance and
spending.



Interest Expense



Interest expense was $5.3 million for the three months ended September 28, 2003 compared to
$5.7 million for the same period in 2002, a decrease of $0.4 million or 7.0%. Interest expense was $17.3 million for the nine months ended September 28, 2003 compared to $16.6 million for the nine months ended September 29, 2002, an increase of $0.7
million or 4.2%. The increase for the nine months ended September 28, 2003 was a result of interest associated with the promissory notes issued in the fourth quarter of 2002, as well as higher interest rates under the revolving credit agreement.



Tax Expense



The tax expense of $0.2 million for the three and nine month periods ended September 28,
2003 were related to tax expense associated with the Companys foreign subsidiary. The tax benefit of $0.6 million and $1.9 for the three and nine month periods ended September 29, 2002 resulted from a tax sharing agreement that the Company
entered into in 2002 with its prior owner, Coltec Industries, Inc. (Coltec). Pursuant to this agreement, the Company was able to carry back net operating losses to years it was a member of Coltecs consolidated tax group. No further
opportunities for carry back are available.



LIQUIDITY AND CAPITAL RESOURCES



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



The credit agreement provides for a total
credit limit of $45.0 million, which includes a $25.0 million revolving credit facility, subject to a borrowing base formula, of which $1.1 million is reserved for irrevocable standby letters of credit. As of September 28, 2003 borrowings under the
credit agreement were $26.5 million and unused borrowing capacity under the revolving credit facility was $5.7 million.



The credit agreement contains financial covenants which require the maintenance of a fixed charge coverage ratio. The Companys ability to operate within these
financial covenants is dependent on its ability to improve earnings. The Company was in compliance with the terms of its indebtedness as of September 28, 2003.



The Company is highly leveraged. As of September 28, 2003, the Companys indebtedness was $181.6 million and its stockholders deficit was $106.7 million.
Further, the Company has incurred recurring net losses. Management is implementing actions designed to reduce working capital and improve operating results. If the improvements associated with these actions do not materialize in a timely manner, the



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Company may be required to take additional measures to ensure the availability of sufficient cash to sustain operations.
Such measures may include, among other things, reducing or delaying capital expenditures, selling assets, restructuring or refinancing indebtedness, or seeking additional equity capital. There is no assurance that any of these measures can be
affected on satisfactory terms, if at all.



Operating Activities



Net cash provided by operating activities increased to $1.4 million for
the nine months ended September 28, 2003 from $0.8 million for the nine months ended September 29, 2002. Operating activities for 2003 were primarily affected by the net loss of $7.3 million and the increase in accrued liabilities of $4.9 million,
offset by depreciation and amortization of $5.9 million, a decrease in inventories of $2.6 million, the receipt of a tax refund of $3.0 million and the increase in accounts payable of $2.3 million. Operating activities for 2002 were primarily
affected by the net loss of $25.3 million, offset by depreciation and amortization of $7.7 million, the cumulative effect of accounting change of $2.1, a decrease in trade accounts receivable of $2.6 million, a decrease in inventories of $8.4
million, and an increase in accrued liabilities of $5.6 million.



Investing
Activities



Net cash used by investing activities was $23,000 for the nine
months ended September 28, 2003 compared to net cash used in investing activities of $1.3 million for the nine months ended September 29, 2002. For 2003, proceeds from the sale of So-Cal of $1.1 million and proceeds from the disposal of fixed assets
of $0.2 million were partially offset by capital expenditures of $1.3 million. For the nine months ended September 29, 2002, capital expenditures were $1.3 million.



Financing Activities



Net cash used in financing activities for the nine months ended September 28, 2003 was $2.0 million compared to net cash provided by financing activities of 2002 of $1.4
million. In 2003, cash was used to pay down the revolving credit facility and make principal payments on long-term debt. In 2002, cash provided was principally a result of net borrowings under the Companys revolving credit facility of $1.5
million, $2.0 million in proceeds from the issuance of a promissory note from Kohlberg, partially offset by financing costs of $2.1 million associated with the Foothill Capital Corporation credit agreement entered into in July 2002.



EBITDA



EBITDA was $15.7 million for the nine months ended September 28, 2003 compared to $(0.9) million for the nine months ended September 29,
2002, an increase of $16.6 million. This increase in EBITDA is the result of the increase in gross profit and reduced selling, general and administrative costs in 2003.



|                                                                       |  | Nine Months Ended  |        
|---------------------------------------------------------------------- |  | ------------------ | -------
|                                                                       |  | September 29, 2002 |        
|Net loss                                                               |  | $                  | (25,270
|Cumulative effect of accounting change for intangible asset impairment |  |                    | 2,114  
|Income tax expense (benefit)                                           |  |                    | (1,866 
|Interest expense                                                       |  |                    | 16,551 
|Other expense                                                          |  |                    | 1,067  
|Amortization of intangibles                                            |  |                    | 1,417  
|Depreciation                                                           |  |                    | 5,091  
|                                                                       |  |                    |        
|EBITDA                                                                 |  | $                  | (896   
|                                                                       |  |                    |        



EBITDA is a required component of the
financial covenant contained in the Companys credit agreement. EBITDA, as defined by the Companys credit agreement, is presented and discussed because the Company believes that investors regard EBITDA as a key measure of a leveraged
companys performance. EBITDA



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is defined as net income or loss (excluding extraordinary gains or losses, gains or losses from asset dispositions and
minority interest) before cumulative effect of accounting change, interest, income taxes, depreciation and amortization. However, EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States of
America. EBITDA does not represent cash available to service debt and should not be considered in isolation or as a substitute for net income or cash flows from operating activities (or any other measure of performance determined in accordance with
generally accepted accounting principles).



Contractual Obligations and
Commitments



The table below sets forth a summary of the Companys
contractual obligations and commitments as of September 28, 2003 that will have an impact on the Companys future liquidity:



|                              |  | Years Ending December 31, |     |     
|----------------------------- |  | ------------------------- | --- | ----
|Contractual Obligations       |  | 2003                      |     | 2004
|Loan and security agreement   |  | $                         | 501 |     
|Senior notes                  |  |                           |    |     
|Convertible promissory note   |  |                           |    |     
|Other long term debt          |  |                           | 12  |     
|Operating leases              |  |                           | 211 |     
|                              |  |                           |     |     
|Total contractual obligations |  | $                         | 724 |     
|                              |  |                           |     |     



In 2007 the Companys credit
agreement and unsecured senior notes become due. Should the Company be unable to refinance the unsecured Senior Notes upon their maturity in 2007 or obtain additional equity funding sufficient to repay such indebtedness, the Company may have to
affect a restructuring of such indebtedness. There can be no assurance that a restructuring could be affected in a timely manner and without causing substantial disruption to the Companys operations. The potential disruptions associated with
the inability to restructure such indebtedness would likely have a material adverse effect on the Companys liquidity, financial position and results of operations.



Impact of Inflation



Management does not believe that inflation has had a significant affect on the results of operations over the periods presented.



Recent Accounting Pronouncements



In June 2001, the Financial Accounting Standards Board, or FASB, issued Statement of
Financial Accounting Standards, or SFAS, No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 establishes accounting standards for recognition and measurement of an asset retirement obligation and an associated asset
retirement cost. This statement applies to all entities that have legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the assets and was effective for
fiscal years beginning after June 15, 2002. The adoption of SFAS No. 143 did not have a material impact on the consolidated financial position, results of operations or cash flows of the Company.



In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or
Disposal Activities. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities. It nullifies Emerging Issues Task Force Issue No. 94-3. Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit on Activity (including Certain Costs Incurred in a Restructuring). The principal difference between SFAS No. 146 and Issue No. 94-3 relates to the recognition of a liability for a cost associated
with an exit or disposal activity. SFAS No. 146



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requires that a liability be recognized for those costs only when the liability is incurred, that is, when it meets the definition of a liability in the
FASBs conceptual framework. In contrast, under Issue No. 94-3, a company recognized a liability for an exit cost when it committed to an exit plan. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of SFAS No. 146 did not have any impact on the consolidated financial position, results of operations or cash flows of the Company.



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



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



In January 2003, the FASB issued Interpretation No. 46 Consolidation of Variable Interest Entities, an interpretation of ARB No. 51.This Interpretation addresses the consolidation by business enterprises of
variable interest entities as defined in the Interpretation. The Interpretation is effective for financial statements issued for the first reporting period ending after December 31, 2003. The application of this Interpretation did not have any
impact on the Companys consolidated financial position, results of operations or cash flows of the Company.



In April 2003, the FASB issued SFAS No. 149, Amendments of Statement 133 on Derivative instruments and Hedging Activities.This Statement amends and clarifies
financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement is effective for contracts entered into or modified after September 29, 2003, except as stated below and for hedging relationships designated after September 29, 2003. In addition, except as
stated below, all provisions of this Statement should be applied prospectively. The provisions of this Statement that relate to SFAS 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should
continue to be applied in accordance with their respective effective dates. In addition, paragraphs 7(a) and 23(a), which relate to forward purchases or sales of when-issued securities or other securities that do not yet exist, should be applied to
both existing contracts and new contracts entered into after September 29, 2003. The Company does not expect the adoption of SFAS No. 149, which will be effective for contracts entered into or modified after September 29, 2003, to have a material
effect on the Companys consolidated financial position, results of operations or cash flows of the Company.



In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.This Statement
establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or
an asset in some circumstances). Many of those instruments were previously classified as equity. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003, except for certain provisions that have been deferred. It is to be implemented by reporting the cumulative effect of a change in an accounting



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principle for financial instruments created before the issuance date of the Statement and still existing at the beginning
of the interim period of adoption. Restatement is not permitted. The adoption of SFAS No. 150 did not have a material impact on the consolidated financial position, results of operations or cash flows of the Company.



Forward-Looking Statements



This report may contain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The Company intends that the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 apply to any forward-looking statements.
Forward-looking statements are not statements of historical fact but rather reflect the Companys current expectations, estimates and predictions about future results and events. These statements may use words such as anticipate,
believe, estimate, expect, intend, predict, project and similar expressions as they relate to the Company or the Companys management. When the Company makes
forward-looking statements, it is basing them on managements beliefs and assumptions, using information currently available to it. These forward-looking statements are subject to risks, uncertainties and assumptions. Information on significant
risks, uncertainties and assumptions not discussed herein may be found in the Companys filings with the Securities and Exchange Commission. The Company undertakes no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. If one or more risks or uncertainties materialize, or if the Companys underlying assumptions prove to be incorrect, actual results may vary materially from what the Company
projected. Any forward-looking statements in this report reflect the Companys current views with respect to future events and are subject to these and other risks, uncertainties and assumptions relating to the Companys operations,
results of operations and liquidity. All subsequent written and oral forward-looking statements attributable to the Company or individuals acting on the Companys behalf are expressly qualified in their entirety by this paragraph.



Item 3. Quantitative and Qualitative Disclosures About Market Risk



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



Item 4. Controls and Procedures



As required by
Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the Exchange Act), the Company carried out an evaluation of the effectiveness of the Companys disclosure controls and procedures (as defined under Rule 15d-15(e)
under the Exchange Act) as of the end of the period covered by this report. This evaluation was carried out under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer along
with the Companys Chief Financial Officer. Based upon that evaluation, the Companys Chief Executive Officer along with the Companys Chief Financial Officer concluded that the Companys disclosure controls and procedures are
effective in timely alerting them to material information relating to Holley (including its consolidated subsidiaries) required to be included in Holleys periodic SEC filings.



There has been no adverse change in Holleys internal control over financial reporting during the quarter ended September 28, 2003 that
has materially affected, or is reasonably likely to materially affect, Holleys internal control over financial reporting. However, in connection with the Companys ongoing evaluation of internal control over financial reporting, certain
internal control matters were noted that require corrective actions. These internal control matters relate to deficiencies in staffing, systems, and processes. The Company began implementation of a plan to strengthen internal control over financial
reporting during 2002 and has made considerable progress on improving internal controls through September 28, 2003. The Company expects its plan to address the identified internal control matters to be substantially complete by December 31, 2003.



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PART II



ITEM 6. Exhibits and Reports on Form 8-K



(a)
Exhibits



|Exhibit No. |  | Item                                                                                                                                                          
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|31(a)       |  | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|            | 
|31(b)       |  | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 15d-14, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|            | 
|32(a)       |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002             
|            | 
|32(b)       |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002             



(b) Reports on Form 8-K



None



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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.

(Registrant)



|Signature                                     |  | Title                                 |  | Date             
|--------------------------------------------- |  | ------------------------------------- |  | -----------------
|                                              |  |                                      
|/S/    JAMES D. WIGGINSJames D. Wiggins       |  | President and Chief Executive Officer |  | November 12, 2003
|                                              |  |                                      
|/S/    THOMAS W. TOMLINSONThomas W. Tomlinson |  | Chief Financial Officer               |  | November 12, 2003



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