##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THESECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2002

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THESECURITIES
EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER 333-89061

HOLLEY PERFORMANCE PRODUCTS INC.




(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


DELAWARE                61-1291482




(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)


1801 RUSSELLVILLE ROAD, POST OFFICE BOX 10360, BOWLING GREEN, KY 42102-7360




(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)


270-782-2900




(REGISTRANTS TELEPHONE, INCLUDING AREA CODE)


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

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

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS

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

There were 1,000 shares of Common Stock outstanding as of March 31, 2002.





---

TABLE OF CONTENTS



|                              |                                                                    |  |  |  |  |  |  | 
|----------------------------- | ------------------------------------------------------------------ |  |  |  |  |  |  | 
|PART I- FINANCIAL INFORMATION
|                              | ITEM 1- FINANCIAL STATEMENTS                                      
|                              | ITEM 3- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|PART II- OTHER INFORMATION   
|                              | ITEM 1- LEGAL PROCEEDINGS                                         
|                              | ITEM 6- EXHIBITS AND REPORTS ON FORM 8-K                          
|SIGNATURES                   



---



##### Table of Contents



HOLLEY PERFORMANCE PRODUCTS INC.

Quarterly Report on Form 10-Q
For the Three Months Ended March 31, 2002TABLE OF CONTENTS

Page No

|           |  |                                                                                      
|---------- |  | -------------------------------------------------------------------------------------
|           |  | PART I                                                                               
|           | 
|Item 1.    |  | Financial Statements                                                                 
|           | 
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations
|           | 
|Item 3.    |  | Qualitative and Quantitative Disclosures About Market Risk                           
|           | 
|           |  | PART II                                                                              
|           | 
|Item 1.    |  | Legal Proceedings                                                                    
|           | 
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                     
|           | 
|SIGNATURES |  |                                                                                      

2



---



##### Table of Contents






PART I- FINANCIAL INFORMATION




ITEM 1- FINANCIAL STATEMENTS

HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)
(Unaudited)

|                                       |                                                                                                                                    |                                            |                                      |         |         |              |         |           |         |  |  | 
|-------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------------------------------------ | ------- | ------- | ------------ | ------- | --------- | ------- |  |  | 
|                                       |                                                                                                                                    |                                            |                                      |         |         | December 31, |         | March 31,
|                                       |                                                                                                                                    |                                            |                                      |         |         | 2001         |         | 2002     
|                                       |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|                                       |                                                                                                                                    |                                            |                                      | ASSETS  |         |              |         |           |         |  |  | 
|                                       |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|CURRENT ASSETS:                        |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|                                       | Cash and cash equivalents                                                                                                          |                                            | $                                    | 234     |         |              | $       | 223       |        
|                                       | Accounts receivable, net of allowance for doubtful accounts of
$964 and $892 at December 31, 2001
and March 31, 2002, respectively |                                            |                                      | 19,999  |         |              |         | 19,327    |        
|                                       | Inventories                                                                                                                        |                                            |                                      | 34,607  |         |              |         | 35,062    |        
|                                       | Deferred income taxes                                                                                                              |                                            |                                      | 5,773   |         |              |         | 5,923     |        
|                                       | Income taxes receivable                                                                                                            |                                            |                                      | 308     |         |              |         | 308       |        
|                                       | Other current assets                                                                                                               |                                            |                                      | 1,497   |         |              |         | 921       |        
|                                       |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|                                       |                                                                                                                                    | Total current assets                       |                                      |         | 62,418  |              |         |           | 61,764  | 
|                                       |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|PROPERTY, PLANT AND EQUIPMENT, NET     |                                                                                                                                    |                                            | 26,068                               |         |         |              | 24,707  |          
|INTANGIBLE ASSETS                      |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|                                       | Goodwill                                                                                                                           |                                            |                                      | 111,658 |         |              |         | 111,658   |        
|                                       | Trade names                                                                                                                        |                                            |                                      | 42,900  |         |              |         | 42,900    |        
|                                       | Other                                                                                                                              |                                            |                                      | 15,030  |         |              |         | 15,042    |        
|                                       |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|                                       |                                                                                                                                    |                                            | 169,588                              |         |         |              | 169,600 |          
|                                       | Less accumulated amortization                                                                                                      |                                            |                                      | (19,502 | )       |              |         | (20,194   | )      
|                                       |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|                                       |                                                                                                                                    | Total intangible assets, net               |                                      |         | 150,086 |              |         |           | 149,406 | 
|                                       |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|                                       |                                                                                                                                    | Total assets                               |                                      | $       | 238,572 |              |         | $         | 235,877 | 
|                                       |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|                                       |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|                                       |                                                                                                                                    |                                            | LIABILITIES AND STOCKHOLDERS EQUITY |         |         |              |         |           |         |  | 
|                                       |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|CURRENT LIABILITIES:                   |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|                                       | Current
portion of long-term debt, including $35,754 of debt
in default at March 31, 2002                                          |                                            | $                                    | 31,158  |         |              | $       | 35,947    |        
|                                       | Accounts payable                                                                                                                   |                                            |                                      | 14,060  |         |              |         | 13,815    |        
|                                       | Accrued liabilities                                                                                                                |                                            |                                      | 15,548  |         |              |         | 10,424    |        
|                                       |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|                                       |                                                                                                                                    | Total current liabilities                  |                                      |         | 60,766  |              |         |           | 60,186  | 
|                                       |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|LONG-TERM DEBT, NET OF CURRENT PORTION |                                                                                                                                    |                                            | 147,663                              |         |         |              | 147,800 |          
|DEFERRED INCOME TAXES                  |                                                                                                                                    |                                            | 21,936                               |         |         |              | 21,486  |          
|OTHER NONCURRENT LIABILITIES           |                                                                                                                                    |                                            | 438                                  |         |         |              | 421     |          
|                                       |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|STOCKHOLDERS EQUITY:                  |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|                                       | Common stock, $1.00 par value; 1,000 shares authorized, issued
and outstanding                                                     |                                            |                                      | 1       |         |              |         | 1         |        
|                                       | Paid-in capital                                                                                                                    |                                            |                                      | 52,499  |         |              |         | 52,499    |        
|                                       | Accumulated deficit                                                                                                                |                                            |                                      | (44,731 | )       |              |         | (46,516   | )      
|                                       |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|                                       |                                                                                                                                    | Total stockholders equity                 |                                      |         | 7,769   |              |         |           | 5,984   | 
|                                       |                                                                                                                                    |                                            |                                      |         |         |              |         |          
|                                       |                                                                                                                                    | Total liabilities and stockholders equity |                                      | $       | 238,572 |              |         | $         | 235,877 | 
|                                       |                                                                                                                                    |                                            |                                      |         |         |              |         |          

See accompanying notes.

3



---



##### Table of Contents



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

|                                             |                  |   |                    |        |                |   |        |        | 
|-------------------------------------------- | ---------------- | - | ------------------ | ------ | -------------- | - | ------ | ------ | 
|                                             |                  |   | THREE MONTHS ENDED
|                                             |                  |   | APRIL 1, 2001      |        | MARCH 31, 2002
|                                             |                  |   | (RESTATED)         |        |               
|                                             |                  |   |                    |        |               
|NET SALES                                    |                  | $ | 35,419             |        |                | $ | 37,621 |       
|                                             |                  |   |                    |        |                |   |        |       
|COST OF SALES                                |                  |   | 24,741             |        |                |   | 27,014 |       
|                                             |                  |   |                    |        |                |   |        |       
|                                             | Gross profit     |   |                    | 10,678 |                |   |        | 10,607 | 
|                                             |                  |   |                    |        |                |   |        |       
|                                             |                  |   |                    |        |                |   |        |       
|SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES |                  |   | 7,329              |        |                |   | 7,015  |       
|                                             |                  |   |                    |        |                |   |        |       
|AMORTIZATION EXPENSE                         |                  |   | 1,413              |        |                |   | 472    |       
|                                             |                  |   |                    |        |                |   |        |       
|TOTAL OPERATING EXPENSES                     |                  |   | 8,742              |        |                |   | 7,487  |       
|                                             |                  |   |                    |        |                |   |        |       
|                                             | Operating income |   |                    | 1,936  |                |   |        | 3,120  | 
|                                             |                  |   |                    |        |                |   |        |       
|                                             |                  |   |                    |        |                |   |        |       
|INTEREST EXPENSE                             |                  |   | 5,827              |        |                |   | 5,422  |       
|OTHER EXPENSE                                |                  |   | 28                 |        |                |   | 83     |       
|                                             |                  |   |                    |        |                |   |        |       
|                                             |                  |   |                    |        |                |   |        |       
|LOSS BEFORE TAXES                            |                  |   | (3,919             | )      |                |   | (2,385 | )     
|                                             |                  |   |                    |        |                |   |        |       
|INCOME TAX BENEFIT                           |                  |   | (1,305             | )      |                |   | (600   | )     
|                                             |                  |   |                    |        |                |   |        |       
|                                             |                  |   |                    |        |                |   |        |       
|NET LOSS                                     |                  | $ | (2,614             | )      |                | $ | (1,785 | )     
|                                             |                  |   |                    |        |                |   |        |       

See accompanying notes.

4



---



##### Table of Contents



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

|                           |          |   |        |   |         |   |          |   |       |   |         |        |   |   |       |        |  
|-------------------------- | -------- | - | ------ | - | ------- | - | -------- | - | ----- | - | ------- | ------ | - | - | ----- | ------ | -
|                           |          |   | COMMON |   | PAID-IN |   | RETAINED |   |       |   |        
|                           |          |   | STOCK  |   | CAPITAL |   | DEFICIT  |   | TOTAL
|                           |          |   |        |   |         |   |          |   |      
|BALANCE, DECEMBER 31, 2001 |          | $ | 1      |   |         | $ | 52,499   |   |       | $ | (44,731 | )      |   | $ | 7,769 |       
|                           |          |   |        |   |         |   |          |   |       |   |         |        |   |   |       |       
|                           | Net loss |   |        |  |         |   |          |  |       |   |         | (1,785 | ) |   |       | (1,785 | )
|                           |          |   |        |   |         |   |          |   |       |   |         |        |   |   |       |       
|BALANCE, MARCH 31, 2002    |          | $ | 1      |   |         | $ | 52,499   |   |       | $ | (46,516 | )      |   | $ | 5,984 |       
|                           |          |   |        |   |         |   |          |   |       |   |         |        |   |   |       |       

See accompanying notes.

5



---



##### Table of Contents



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

|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                 |       |       |        |  
|------------------------------------- | --------------------------------------------------------------------------- | ------------------------------ | ----------------------------------------------------------- | --------------------------------------------------- | ----- | --------------- | ------ | --------------- | ----- | ----- | ------ | -
|                                      |                                                                             |                                |                                                             |                                                     |       | JANUARY 1, 2001 |        | JANUARY 1, 2002
|                                      |                                                                             |                                |                                                             |                                                     |       | TO              |        | TO             
|                                      |                                                                             |                                |                                                             |                                                     |       | APRIL 1, 2001   |        | MARCH 31, 2002 
|                                      |                                                                             |                                |                                                             |                                                     |       | (RESTATED)      |        |                
|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|                                      | Net loss                                                                    |                                | $                                                           | (2,614                                              | )     |                 | $      | (1,785          | )    
|                                      | Adjustments to reconcile net loss to net cash used in operating activities: |                                |                                                             |                                                     |       |                 |        |                 |      
|                                      |                                                                             |                                | Depreciation and amortization                               |                                                     |       | 3,979           |        |                 |       | 2,403 |       
|                                      |                                                                             |                                | Amortization of debt discount                               |                                                     |       | 171             |        |                 |       | 172   |       
|                                      |                                                                             |                                | Deferred income taxes                                       |                                                     |       | (1,315          | )      |                 |       | (600  | )     
|                                      |                                                                             |                                | Changes in assets and liabilities, net of assets purchased: |                                                     |       |                 |        |                 |       |       |       
|                                      |                                                                             |                                |                                                             | Accounts receivable                                 |       |                 | 488    |                 |       |       | 672    |  
|                                      |                                                                             |                                |                                                             | Inventories                                         |       |                 | (4,410 | )               |       |       | (455   | )
|                                      |                                                                             |                                |                                                             | Other assets                                        |       |                 | 484    |                 |       |       | 576    |  
|                                      |                                                                             |                                |                                                             | Accounts payable                                    |       |                 | 1,996  |                 |       |       | (245   | )
|                                      |                                                                             |                                |                                                             | Accrued liabilities                                 |       |                 | (4,689 | )               |       |       | (5,141 | )
|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|                                      |                                                                             |                                |                                                             | Net cash used in operating activities               |       |                 | (5,910 | )               |       |       | (4,403 | )
|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|                                      | Capital expenditures                                                        |                                |                                                             | (275                                                | )     |                 |        | (350            | )    
|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|                                      |                                                                             |                                |                                                             | Net cash used in investing activities               |       |                 | (275   | )               |       |       | (350   | )
|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|                                      | Net proceeds on long-term obligations                                       |                                |                                                             |                                                    |       |                 |        | 4,841           |      
|                                      | Financing costs                                                             |                                |                                                             |                                                    |       |                 |        | (12             | )    
|                                      | Principal payments on long-term obligations                                 |                                |                                                             | (782                                                | )     |                 |        | (87             | )    
|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|                                      |                                                                             |                                |                                                             | Net cash provided by (used in) financing activities |       |                 | (782   | )               |       |       | 4,742  |  
|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|NET CHANGE IN CASH                    |                                                                             |                                | (6,967                                                      | )                                                   |       |                 | (11    | )              
|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|BALANCE AT BEGINNING OF PERIOD        |                                                                             |                                | 6,967                                                       |                                                     |       |                 | 234    |                
|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|BALANCE AT END OF PERIOD              |                                                                             | $                              |                                                            |                                                     |       | $               | 223    |                
|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|SUPPLEMENTAL CASH FLOW INFORMATION:   |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|                                      |                                                                             | Cash paid for interest         |                                                             | $                                                   | 9,689 |                 |        | $               | 9,627 |      
|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                
|                                      |                                                                             | Cash received for income taxes |                                                             | $                                                   | 1,257 |                 |        | $               | 103   |       |       
|                                      |                                                                             |                                |                                                             |                                                     |       |                 |        |                

See accompanying notes.

6



---



##### Table of Contents



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

1. ORGANIZATION AND BASIS OF PRESENTATION

The consolidated balance sheets of Holley
Performance Products, Inc. (the Company or
Holley) as of December 31, 2001 and March 31, 2002 and
the consolidated statements of operations for the three month periods ended
April 1, 2001 and March 31, 2002, and the consolidated statements of cash flows
for the three month periods ended April 1, 2001 and March 31, 2002 have been
prepared by the Company in accordance with accounting principles
generally accepted in the United States for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and changes in cash flows at April 1, 2001 and March 31,
2002 and for all periods presented have been made. The results of operations
for
the periods ended March 31, 2002 are not necessarily indicative of the
operating
results to be expected for the full year.

The balance sheet at December 31, 2001 has been
derived from the audited financial statements at that date but does
not include all of the information and footnotes required by
accounting principles generally accepted in the United States. For
further information, refer to the consolidated financial statements
and footnotes thereto included in the Companys annual report on
Form 10-K for the year ended December 31, 2001.

The Company incurred net losses in 1999, 2000, 2001
and the first quarter of 2001 and 2002. Also, as described in Note 7, the
Company has not complied with the interest coverage covenant on its
revolving credit facility. The Company was required to have an
interest coverage ratio of 1.20:1.00 for the three month period ended
March 31, 2002. We are in discussions with Fleet Capital for a waiver
of the March 31, 2002 interest coverage ratio and a
restructuring of the complete agreement and expect a
successful conclusion to these discussions. The Company is dependent on its revolving credit
facility to fund its working capital needs. The Companys ability
to operate within the cash available under its revolving credit
facility, as amended, and to comply with the financial covenants
required under that facility are dependent on improving earnings
before interest, taxes, depreciation and amortization (EBITDA) and
reducing the level of working capital necessary to operate the
business.

Management believes that the Company will be in compliance with the
revolving credit facilitys quarterly financial ratio covenants
during the remaining quarters in 2002, and that the revolving credit facility
will be adequate to allow the Company to fund its working capital
needs during 2002. However, should a satisfactory waiver of the debt
covenant violation not be obtained or should the revolving credit facility
become otherwise unavailable, or the Company fail to meet its projected
operating results, the Company may be forced to seek additional
sources of financing in order to fund its working capital needs. In
such an event, the Company cannot be certain that it would be able
to obtain necessary financing on acceptable terms or at all.

Management is continually evaluating the
performance of the Companys business both in the aggregate and
at the separate divisional levels. In 2002, management has implemented
actions designed to reduce working capital, maintain sales, and
increase gross profit while controlling operating expenses.
Although management believes that its actions will reduce
working capital, maintain sales, and improve gross profit while
controlling operating expenses, there is no assurance that it will be
successful. The consolidated financial statements do not include any
adjustments to reflect the possible future effects on recoverability
and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.

The Company, a Delaware corporation based in Bowling Green, Kentucky, is a leading manufacturer of a
diversified line of performance automotive products, including carburetors,
fuel
pumps, fuel injection systems, ignition systems, 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 marine, and
performance products for the powersport and motorcycle markets.

2. RESTATEMENT OF FINANCIAL STATEMENTS

As disclosed in further detail in the Company's
Form 10-K for the year ended December 31, 2001, the Company has restated its
unaudited financial information for 2001 that had
previously been released by the Company. As a result, the comparative
information contained in this quarterly report on Form 10-Q with
respect to the quarter ended April 1, 2001 has been restated.
Restated net sales, gross profit and net loss for the quarter ended
April 1, 2001 are $35.4 million, $10.7 million and
$2.6 million, respectively, as compared to $35.4 million,
$10.9 million and $2.9 million, as previously reported.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

7



---



##### Table of Contents





|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|On June 29, 2001, the Financial
Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No.
141, Business Combinations, which eliminates the pooling of interests
method of accounting for all business combinations initiated after
June 30, 2001 and addresses the initial recognition and measurement of
goodwill and other intangible assets acquired in a business combination.
The Company has adopted this accounting standard for business combinations
initiated after June 30, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|As of January 1, 2002, the Company
adopted SFAS No. 142, Goodwill and Other
Intangible Assets, which addresses the financial accounting and reporting
standards for the acquisition of intangible assets outside of a business
combination and for goodwill and other intangible assets subsequent to
their
acquisition. This accounting standard requires that goodwill be separately
disclosed from other intangible assets in the balance sheet, and no longer
be amortized but tested for impairment on a periodic basis. The provisions
of this accounting standard also require the completion of a transitional
impairment test within six months of adoption, with any impairments
identified treated as the cumulative effect of a change in accounting
principle. During
2002, the Company will complete the first of the required impairment tests of
goodwill and indefinite lived intangible assets as of January 1, 2002 and has
not yet determined what the effect of these tests will be on the earnings and
financial position of the Company.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|In accordance with SFAS No. 142, the Company discontinued the amortization
of goodwill and indefinite lived intangible assets effective January 1, 2002. A reconciliation of previously
reported net income to the pro forma amounts
adjusted for the exclusion of goodwill and indefinite lived
intangible assets amortization, net of the related
income tax effect, follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

|                                                                              |  |                    |        |               |  |   |        |  
|----------------------------------------------------------------------------- |  | ------------------ | ------ | ------------- |  | - | ------ | -
|                                                                              |  | Three Months Ended
|                                                                              |  |                   
|                                                                              |  | April
1,2001       |        | March
31,2002
|                                                                              |  |                    |        |              
|Reported
net loss                                                             |  | $                  | (2,614 | )             |  | $ | (1,785 | )
|Add:
Goodwill and indefinite lived intangible assets amortization, net of tax |  |                    | 942    |               |  |   |       |  
|                                                                              |  |                    |        |               |  |   |        |  
|Pro
forma adjusted net loss                                                   |  | $                  | (1,672 | )             |  | $ | (1,785 | )
|                                                                              |  |                    |        |               |  |   |        |  

COMPREHENSIVE INCOME

SFAS No. 130, Reporting Comprehensive Income, sets forth standards for
reporting and displaying components of comprehensive income (loss) in a full set of general purpose financial
statements. Comprehensive income (loss) encompasses all changes in
stockholders equity (except those arising from transactions with owners) and
includes net income or loss, net unrealized capital gains or losses on
available for sale securities and foreign currency translation adjustments.
Comprehensive loss for the periods ended April 1, 2001 and March 31, 2002 was
the same as net loss for the Company.

RECENT ACCOUNTING PRONOUNCEMENTS

In August 2001, the FASB issued SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, which supersedes SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of, and the accounting and reporting provisions of APB Opinion 30, Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions. SFAS No. 144 removes
goodwill from its scope and clarifies other implementation issues related to
SFAS No. 121. SFAS No. 144 also provides a single framework for evaluating
long-lived assets to be disposed of by

8



---



##### Table of Contents



sale. The provisions of this statement were adopted effective January 1, 2002,
and had no material effect on the Companys results of operations or financial
position.

4.     INVENTORIES

Inventories of the Company consist of the following:

|                 |  |                   |        |                |  |   |        | 
|---------------- |  | ----------------- | ------ | -------------- |  | - | ------ | 
|                 |  | December 31, 2001 |        | March 31, 2002
|                 |  |                   |        |               
|Raw materials    |  | $                 | 12,529 |                |  | $ | 12,590 | 
|Work-in-progress |  |                   | 5,938  |                |  |   | 5,824  | 
|Finished goods   |  |                   | 16,140 |                |  |   | 16,648 | 
|                 |  |                   |        |                |  |   |        | 
|                 |  | $                 | 34,607 |                |  | $ | 35,062 | 
|                 |  |                   |        |                |  |   |        | 

5.     PROPERTY, PLANT AND EQUIPMENT

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

|                           |                                |   |                   |         |                |   |        |         |  
|-------------------------- | ------------------------------ | - | ----------------- | ------- | -------------- | - | ------ | ------- | -
|                           |                                |   | December 31, 2001 |         | March 31, 2002
|                           |                                |   |                   |         |               
|Land                       |                                | $ | 360               |         |                | $ | 360    |         |  
|Buildings and improvements |                                |   | 11,884            |         |                |   | 11,898 |         |  
|Machinery and equipment    |                                |   | 28,192            |         |                |   | 28,441 |         |  
|Computer equipment         |                                |   | 3,852             |         |                |   | 3,844  |         |  
|Furniture and fixtures     |                                |   | 2,079             |         |                |   | 2,092  |         |  
|Construction in process    |                                |   | 1,798             |         |                |   | 1,880  |         |  
|                           |                                |   |                   |         |                |   |        |         |  
|                           |                                |   | 48,165            |         |                |   | 48,515 |         |  
|                           | Less: accumulated
depreciation |   |                   | (22,097 | )              |   |        | (23,808 | )
|                           |                                |   |                   |         |                |   |        |        
|                           |                                | $ | 26,068            |         |                | $ | 24,707 |         |  
|                           |                                |   |                   |         |                |   |        |        

Depreciation expense was $2,381 and $1,711 for the three months ended April 1,
2001 and March 31, 2002, respectively.

6.     ACCRUED LIABILITIES

Accrued liabilities of the Company consist of the following:

|                            |  |                   |        |                |  |   |        | 
|--------------------------- |  | ----------------- | ------ | -------------- |  | - | ------ | 
|                            |  | December 31, 2001 |        | March 31, 2002
|                            |  |                   |        |               
|Wages and benefits          |  | $                 | 3,679  |                |  | $ | 4,379  | 
|Reserve for product returns |  |                   | 2,981  |                |  |   | 2,981  | 
|Interest                    |  |                   | 5,492  |                |  |   | 894    | 
|Other                       |  |                   | 3,396  |                |  |   | 2,170  | 
|                            |  |                   |        |                |  |   |        | 
|                            |  | $                 | 15,548 |                |  | $ | 10,424 | 
|                            |  |                   |        |                |  |   |        | 

7. LONG-TERM DEBT

Long-term debt consists of the following:

|                                                                                                                                                                                                                                                                                                |  |   |                   |   |                |   |         |   | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ----------------- | - | -------------- | - | ------- | - | 
|                                                                                                                                                                                                                                                                                                |  |   | DECEMBER 31, 2001 |   | MARCH 31, 2002
|                                                                                                                                                                                                                                                                                                |  |   |                   |   |               
|Secured
revolving line of credit facility due to a bank, including $33,655 of
debt in default at March 31, 2002;
interest due quarterly at a variable rate based on LIBOR
or prime at the Companys option, plus the applicable
margin rate (4.5% at March 31, 2002) maturing December 28, 2005 |  | $ | 28,814            |   |                | $ | 33,655  |   | 
|Senior notes, interest payable semi-annually in March and
September at 12.25%; maturing September 15, 2007; net of
debt discount of $3,939 and $3,767, respectively                                                                                                                             |  |   | 146,061           |   |                |   | 146,233 |   | 
|Other
long-term obligations, including $2,099 of debt in
default at March 31, 2002                                                                                                                                                                                                              |  |   | 3,946             |   |                |   | 3,859   |   | 
|                                                                                                                                                                                                                                                                                                |  |   |                   |   |                |   |         |  
|                                                                                                                                                                                                                                                                                                |  |   | 178,821           |   |                |   | 183,747 |   | 
|Less current portion                                                                                                                                                                                                                                                                            |  |   | (31,158           | ) |                |   | (35,947 | ) | 
|                                                                                                                                                                                                                                                                                                |  |   |                   |   |                |   |         |  
|                                                                                                                                                                                                                                                                                                |  | $ | 147,663           |   |                | $ | 147,800 |   | 
|                                                                                                                                                                                                                                                                                                |  |   |                   |   |                |   |         |  

In December 2000, the Company replaced its existing senior credit facility with
Credit Agricole IndoSuez, (consisting of a $35.0 million revolving credit
facility) with a $41.0 million facility (the Credit Arrangement) provided by
Fleet Capital Corporation that matures in December 2005. This Credit Arrangement
is comprised of two parts: a $36.0 million revolving credit facility (the
Revolving Credit Facility) and a $5.0 million term facility to be used for
fixed asset purchases, as

9



---



##### Table of Contents



required. The Revolving Credit Facility was amended on April 15, 2002. The
amended Revolving Credit Facility reduces the maximum borrowings to $34.6
million at April 4, 2002 and, with incremental reductions, to a maximum of $31.0
million at June 15, 2002. The Revolving Credit Facility has an interest coverage
covenant only. The interest coverage ratios for the term of the amended
Revolving Credit Facility are 1.20:1.0 for the year-to-date periods each ending
on March 31, June 30, September 30, and December 31, 2002; 1.25:1.0 for the
trailing four quarters each ending on March 31, June 30, September 30, and
December 31, 2003, 2004 and 2005. Borrowings under the facility are limited to
75% of eligible receivables and the lesser of $25 million (amended to $15.5
million at May 11, 2002 and thereafter) or 55% of eligible
inventories. As discussed in Note 1, the Company was not in
compliance with the interest coverage ratio on March 31, 2002.
However, we are in discussions with Fleet Capital for a waiver of the
March 31, 2002 interest coverage ratio and expect a successful
conclusion to these discussions. Beginning April 2001, Holley must have borrowing availability of $2.0 million if
EBITDA on a trailing twelve month basis is equal to or less than $28.0 million,
$1.0 million if EBITDA is less than or equal to $32.0 million but greater than
$28.0 million, or $0 if greater than $32.0 million. Fleet Capital has a
perfected security interest in all the assets of Holley. The Credit Arrangement
also requires mandatory principal prepayments from any proceeds from the sale of
the Companys assets or common stock.

Under the terms of the Credit Arrangement, upon achieving a minimum ratio of
earnings before interest, taxes, depreciation and amortization to fixed charges
(as defined in the Credit Arrangement), the Company will become eligible to
borrow up to $5.0 million under the term facility to be used to fund capital
expenditures. Borrowings under the term facility will mature in 2005. As of
December 31, 2001 and March 31, 2002, no amounts were outstanding or available under the term
facility as the Company had not met the required conditions to implement the
term facility.

At March 31, 2002, the Company had borrowings
of $33.7 million outstanding under
the Revolving Credit Facility and $0.2 million in cash. The Company had no
unused credit availability at December 31, 2001 and
March 31, 2002 due to the event of default.

In connection with the Revolving Credit Facility, the Credit Arrangement
requires lockbox agreements which provide for all receipts to be swept daily to
reduce borrowings outstanding. These agreements, combined with the existence of
a Material Adverse Effect (MAE) clause in the Credit Arrangement, cause the
Revolving Credit Facility to be classified as a current liability, per guidance
in the FASBs Emerging Issues Task Force 95-22, Balance Sheet Classification of
Borrowings Outstanding under Revolving Credit Agreements that Include Both a
Subjective Acceleration Clause and a Lock-Box Arrangement. The MAE clause,
which is a typical requirement in commercial credit agreements, allows the
lender to require the loan to become due if it determines there has been a
material adverse effect on the operations, business, properties, assets,
liabilities, condition or prospects. The
combination of the two afore-mentioned factors: the lockbox agreements and the
MAE clause results in the classification of the Revolving Credit
Facility as a current liability (as does the violation of the debt
covenant).

8. COMMITMENTS AND CONTINGENCIES

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

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

In December 2000, Union Pacific, Holley, Weiand and Joan Weiand, the owner of
the Weiand property, reached a comprehensive settlement in exchange for a cash
payment significantly less than the sought amount, resulting in a full dismissal
of the lawsuit. A substantial majority of the settlement payment was paid by
Weiands insurers. In connection with the settlement, an additional $550 paid by
the settling insurers has been put into a Site Source Control Account to fund
investigation and any required remediation of the Weiand property, as may be
required by the State of



10



---



##### Table of Contents



California. Part of the attorney fees and litigation expenses of the parties
were also reimbursed by the settling insurers.

In 2000, Weiand discovered possibly significant soil contamination on the Weiand
property, which has not yet been fully analyzed by Weiands environmental
consultants. Holley is working with the property owner, under the supervision of
the California Department of Toxic Substances Control, to investigate and, if
necessary, remediate the contamination. Holley cannot estimate the potential
liability arising from that contamination, if any, or the possible outcome of
any state environmental regulatory requirements. Holley and Weiand are working
vigorously to address regulatory issues arising from the discovered
contamination. The $550 received from Holleys insurers, which was placed in a
Site Source Control Account discussed above, is available to fund investigation
and any required remediation of the Weiand property, as may be required by the
State of California.

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

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

9. SEGMENT DATA

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

The Company evaluates the performance of its reportable segments based on gross
margin. Intersegment sales and transfers are not significant.

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

|                                  |               |  |             |        |                |  |       |       |  |  |   |        | 
|--------------------------------- | ------------- |  | ----------- | ------ | -------------- |  | ----- | ----- |  |  | - | ------ | 
|                                  |               |  | PERFORMANCE |        | REMANUFACTURED |  |       |       | 
|                                  |               |  | PARTS       |        | PARTS          |  | TOTAL
|                                  |               |  |             |        |                |  |      
|JANUARY
1, 2001 TO APRIL 1, 2001  |               |  |             |        |                |  |       |       |  |  |   |       
|                                  | Net
sales     |  | $           | 30,091 |                |  | $     | 5,328 |  |  | $ | 35,419 | 
|                                  | Gross
profits |  |             | 9,657  |                |  |       | 1,021 |  |  |   | 10,678 | 
|                                  |               |  |             |        |                |  |       |       |  |  |   |       
|JANUARY 1, 2002 TO MARCH 31, 2002 |               |  |             |        |                |  |       |       |  |  |   |       
|                                  | Net
sales     |  | $           | 32,681 |                |  | $     | 4,940 |  |  | $ | 37,621 | 
|                                  | Gross
profits |  |             | 9,127  |                |  |       | 1,480 |  |  |   | 10,607 | 

Summary balance sheet data for inventories and
property, plant and equipment, net for each of the
Companys reportable segments as of December 31, 2001 and March 31, 2002 are
shown in the following table:

|                        |                                    |  |             |        |                |  |       |       |  |  |   |        |  |  |  |  | 
|----------------------- | ---------------------------------- |  | ----------- | ------ | -------------- |  | ----- | ----- |  |  | - | ------ |  |  |  |  | 
|                        |                                    |  | PERFORMANCE |        | REMANUFACTURED |  |       |       |  |  |   |        | 
|                        |                                    |  | PARTS       |        | PARTS          |  | TOTAL |       |  |  |  
|                        |                                    |  |             |        |                |  |       |       |  |  |  
|AS
OF DECEMBER 31, 2001 |                                    |  |             |        |                |  |       |       |  |  |   |       
|                        | Inventories                        |  | $           | 31,259 |                |  | $     | 3,348 |  |  | $ | 34,607 | 
|                        | Property,
plant and equipment, net |  |             | 24,235 |                |  |       | 1,833 |  |  |   | 26,068 | 
|                        |                                    |  |             |        |                |  |       |       |  |  |   |       
|AS
OF MARCH 31, 2002    |                                    |  |             |        |                |  |       |       |  |  |   |       
|                        | Inventories                        |  | $           | 31,853 |                |  | $     | 3,209 |  |  | $ | 35,062 | 
|                        | Property,
plant and equipment, net |  |             | 23,002 |                |  |       | 1,705 |  |  |   | 24,707 | 

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

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

11



---



##### Table of Contents



The information that follows presents condensed consolidating financial
information as of March 31, 2002 and for the year ended December 31, 2001 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 financial position, results of operations and cash
flows that these entities would have achieved on a stand-alone basis and should
be read in connection with the consolidated financial statements of the Company.



12



---



##### Table of Contents



|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |         |         |  | 
|-------------------------------------- | -------------------------------------- | ------------------------------------------ | ------- | ------- | --------------- |  | --------------------------- | ------- | ------------ |  | ------------ | ------- | ------- | - | ------- | ------- | ------- |  | 
|                                       |                                        |                                            |         |         |                 |  | Consolidating Balance Sheet |         |              |  |             
|                                       |                                        |                                            |         |         |                 |  | March 31, 2002              |         |              |  |             
|                                       |                                        |                                            |         |         |                 |  |                             |         |             
|                                       |                                        |                                            |         |         | Holley          |  |                             |         |              |  |              |         |         |   |         |         |        
|                                       |                                        |                                            |         |         | Performance     |  |                             |         |              |  |              |         |         |   |         |         |        
|                                       |                                        |                                            |         |         | Products Inc.   |  |                             |         |              |  |              |         |         |   |         |         |        
|                                       |                                        |                                            |         |         | (Parent Company |  | Subsidiary                  |         |              |  |              |         |         |   |        
|                                       |                                        |                                            |         |         | Only)           |  | Guarantors                  |         | Eliminations |  | Consolidated
|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |             
|ASSETS:                                |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|CURRENT ASSETS:                        |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|                                       | Cash and cash equivalents              |                                            | $       | 93      |                 |  | $                           | 130     |              |  | $            |        |         |   | $       | 223     |        
|                                       | Accounts receivable, net               |                                            |         | 19,205  |                 |  |                             | 122     |              |  |              |        |         |   |         | 19,327  |        
|                                       | Inventories                            |                                            |         | 20,394  |                 |  |                             | 14,668  |              |  |              |        |         |   |         | 35,062  |        
|                                       | Deferred income taxes                  |                                            |         | 3,655   |                 |  |                             | 2,268   |              |  |              |        |         |   |         | 5,923   |        
|                                       | Income taxes receivable                |                                            |         | 152     |                 |  |                             | 156     |              |  |              |        |         |   |         | 308     |        
|                                       | Intercompany receivable                |                                            |         |        |                 |  |                             |        |              |  |              |        |         |   |         |        |        
|                                       | Other current assets                   |                                            |         | 1,039   |                 |  |                             | (118    | )            |  |              |        |         |   |         | 921     |        
|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|                                       |                                        | Total current assets                       |         |         | 44,538          |  |                             |         | 17,226       |  |              |         |        |   |         |         | 61,764  | 
|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|
|PROPERTY, PLANT AND EQUIPMENT, NET     |                                        |                                            | 18,777  |         |                 |  | 5,930                       |         |              |  |             |         |         |   | 24,707  |        
|INTANGIBLE ASSETS                      |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|                                       | Costs in excess of net assets acquired |                                            |         | 69,482  |                 |  |                             | 42,176  |              |  |              |        |         |   |         | 111,658 |        
|                                       | Trade names                            |                                            |         | 37,610  |                 |  |                             | 5,290   |              |  |              |        |         |   |         | 42,900  |        
|                                       | Other                                  |                                            |         | 5,877   |                 |  |                             | 9,165   |              |  |              |        |         |   |         | 15,042  |        
|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|                                       |                                        |                                            | 112,969 |         |                 |  | 56,631                      |         |              |  |             |         |         |   | 169,600 |        
|                                       | Less accumulated amortization          |                                            |         | (13,576 | )               |  |                             | (6,618  | )            |  |              |        |         |   |         | (20,194 | )      
|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|                                       |                                        | Total intangible assets, net               |         |         | 99,393          |  |                             |         | 50,013       |  |              |         |        |   |         |         | 149,406 | 
|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|                                       |                                        | Total assets                               |         | $       | 226,320         |  |                             | $       | 73,169       |  |              | $       | (63,612 | ) |         | $       | 235,877 | 
|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY:  |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|CURRENT LIABILITIES:                   |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|                                       | Current portion of long-term debt      |                                            | $       | 35,839  |                 |  | $                           | 108     |              |  | $            |        |         |   | $       | 35,947  |        
|                                       | Accounts payable                       |                                            |         | 13,195  |                 |  |                             | 620     |              |  |              |        |         |   |         | 13,815  |        
|                                       | Intercompany payable                   |                                            |         |        |                 |  |                             |        |              |  |              |        |         |   |         |        |        
|                                       | Accrued liabilities                    |                                            |         | 9,219   |                 |  |                             | 1,205   |              |  |              |        |         |   |         | 10,424  |        
|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|                                       |                                        | Total current liabilities                  |         |         | 58,253          |  |                             |         | 1,933        |  |              |         |        |   |         |         | 60,186  | 
|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|LONG-TERM DEBT, NET OF CURRENT PORTION |                                        |                                            | 147,550 |         |                 |  | 250                         |         |              |  |             |         |         |   | 147,800 |        
|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|DEFERRED INCOME TAXES                  |                                        |                                            | 14,112  |         |                 |  | 7,374                       |         |              |  |             |         |         |   | 21,486  |        
|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|OTHER NONCURRENT LIABILITIES           |                                        |                                            | 421     |         |                 |  |                            |         |              |  |             |         |         |   | 421     |        
|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|STOCKHOLDERS EQUITY:                  |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|                                       | Common stock                           |                                            |         | 1       |                 |  |                             | 88,074  |              |  |              | (88,074 | )       |   |         | 1       |        
|                                       | Paid-in capital                        |                                            |         | 52,499  |                 |  |                             |        |              |  |              |         |         |   |         | 52,499  |        
|                                       | Accumulated deficit                    |                                            |         | (46,516 | )               |  |                             | (24,462 | )            |  |              | 24,462  |         |   |         | (46,516 | )      
|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|                                       |                                        | Total stockholders equity                 |         |         | 5,984           |  |                             |         | 63,612       |  |              |         | (63,612 | ) |         |         | 5,984   | 
|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |        
|                                       |                                        | Total liabilities and stockholders equity |         | $       | 226,320         |  |                             | $       | 73,169       |  |              | $       | (63,612 | ) |         | $       | 235,877 | 
|                                       |                                        |                                            |         |         |                 |  |                             |         |              |  |              |         |         |   |         |         |         |  | 



13



---



##### Table of Contents



|                                       |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |         |         |   | 
|-------------------------------------- | -------------------------------------- | ------------------------------------------ | ------- | ------- | --------------------------- | - | ---------- | ------- | ------------ | - | ------------ | ------- | ------- | - | ------- | ------- | ------- | - | 
|                                       |                                        |                                            |         |         | Consolidating Balance Sheet
|                                       |                                        |                                            |         |         | December 31, 2001          
|                                       |                                        |                                            |         |         |                            
|                                       |                                        |                                            |         |         | Holley                      |   |            |         |              |   |              |         |         |   |         |         |        
|                                       |                                        |                                            |         |         | Performance                 |   |            |         |              |   |              |         |         |   |         |         |        
|                                       |                                        |                                            |         |         | Products Inc.               |   |            |         |              |   |              |         |         |   |         |         |        
|                                       |                                        |                                            |         |         | (Parent Company             |   | Subsidiary |         |              |   |              |         |         |   |        
|                                       |                                        |                                            |         |         | Only)                       |   | Guarantors |         | Eliminations |   | Consolidated
|                                       |                                        |                                            |         |         |                             |   |            |         |              |   |             
|ASSETS:                                |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|                                       |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|CURRENT ASSETS:                        |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|                                       | Cash and cash equivalents              |                                            | $       | 72      |                             |   | $          | 162     |              |   | $            |        |         |   | $       | 234     |        
|                                       | Accounts receivable, net               |                                            |         | 19,543  |                             |   |            | 456     |              |   |              |        |         |   |         | 19,999  |        
|                                       | Inventories                            |                                            |         | 19,385  |                             |   |            | 15,222  |              |   |              |        |         |   |         | 34,607  |        
|                                       | Deferred income taxes                  |                                            |         | 3,641   |                             |   |            | 2,132   |              |   |              |        |         |   |         | 5,773   |        
|                                       | Income taxes receivable                |                                            |         | 152     |                             |   |            | 156     |              |   |              |        |         |   |         | 308     |        
|                                       | Intercompany receivable                |                                            |         |        |                             |   |            |        |              |   |              |        |         |   |         |        |        
|                                       | Other current assets                   |                                            |         | 1,370   |                             |   |            | 127     |              |   |              |        |         |   |         | 1,497   |        
|                                       |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|                                       |                                        | Total current assets                       |         |         | 44,163                      |   |            |         | 18,255       |   |              |         |        |   |         |         | 62,418  |  
|                                       |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|PROPERTY, PLANT AND EQUIPMENT, NET     |                                        |                                            | 19,706  |         |                             |   | 6,362      |         |              |   |              |         |         |   | 26,068  |        
|INVESTMENT IN SUBSIDIARIES             |                                        |                                            | 65,235  |         |                             |   |           |         |              |   | (65,235      | )       |         |   |        |        
|INTANGIBLE ASSETS                      |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|                                       | Costs in excess of net assets acquired |                                            |         | 69,482  |                             |   |            | 42,176  |              |   |              |        |         |   |         | 111,658 |        
|                                       | Trade names                            |                                            |         | 37,610  |                             |   |            | 5,290   |              |   |              |        |         |   |         | 42,900  |        
|                                       | Other                                  |                                            |         | 5,865   |                             |   |            | 9,165   |              |   |              |        |         |   |         | 15,030  |        
|                                       |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|                                       |                                        |                                            | 112,957 |         |                             |   | 56,631     |         |              |   |             |         |         |   | 169,588 |        
|                                       |                                        | Less accumulated amortization              |         |         | (13,356                     | ) |            |         | (6,146       | ) |              |         |        |   |         |         | (19,502 | )
|                                       |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|                                       |                                        | Total intangible assets, net               |         |         | 99,601                      |   |            |         | 50,485       |   |              |         |        |   |         |         | 150,086 |  
|                                       |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|                                       |                                        | Total assets                               |         | $       | 228,705                     |   |            | $       | 75,102       |   |              | $       | (65,235 | ) |         | $       | 238,572 |  
|                                       |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|LIABILITIES AND STOCKHOLDERS EQUITY:  |                                        |                                            |         |         |                             |   |            |         |              |   |              |        
|                                       |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|CURRENT LIABILITIES:                   |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|                                       | Current portion of long-term debt      |                                            | $       | 31,050  |                             |   | $          | 108     |              |   | $            |        |         |   | $       | 31,158  |        
|                                       | Accounts payable                       |                                            |         | 13,577  |                             |   |            | 483     |              |   |              |        |         |   |         | 14,060  |        
|                                       | Intercompany payable                   |                                            |         |        |                             |   |            |        |              |   |              |        |         |   |         |        |        
|                                       | Accrued liabilities                    |                                            |         | 14,317  |                             |   |            | 1,231   |              |   |              |        |         |   |         | 15,548  |        
|                                       |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|                                       |                                        | Total current liabilities                  |         |         | 58,944                      |   |            |         | 1,822        |   |              |         |        |   |         |         | 60,766  |  
|LONG-TERM DEBT, NET OF CURRENT PORTION |                                        |                                            | 147,401 |         |                             |   | 262        |         |              |   |             |         |         |   | 147,663 |        
|                                       |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|DEFERRED INCOME TAXES                  |                                        |                                            | 14,153  |         |                             |   | 7,783      |         |              |   |             |         |         |   | 21,936  |        
|                                       |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|OTHER NONCURRENT LIABILITIES           |                                        |                                            | 438     |         |                             |   |           |         |              |   |             |         |         |   | 438     |        
|                                       |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|STOCKHOLDERS EQUITY:                  |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|                                       | Common stock                           |                                            |         | 1       |                             |   |            | 88,074  |              |   |              | (88,074 | )       |   |         | 1       |        
|                                       | Paid-in capital                        |                                            |         | 52,499  |                             |   |            |        |              |   |              |        |         |   |         | 52,499  |        
|                                       | Accumulated deficit                    |                                            |         | (44,731 | )                           |   |            | (22,839 | )            |   |              | 22,839  |         |   |         | (44,731 | )      
|                                       |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|                                       |                                        | Total stockholders equity                 |         |         | 7,769                       |   |            |         | 65,235       |   |              |         | (65,235 | ) |         |         | 7,769   |  
|                                       |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        
|                                       |                                        | Total
liabilities and stockholders equity |         | $       | 228,705                     |   |            | $       | 75,102       |   |              | $       | (65,235 | ) |         | $       | 238,572 |  
|                                       |                                        |                                            |         |         |                             |   |            |         |              |   |              |         |         |   |         |        



14



---



##### Table of Contents



|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |        |       | 
|---------------------------------------- | ------------ | ----------------------- | ------ | ------------------------------------- | ----- | ---------- | ------ | ------------ | ------ | ------------ | ------- | - | - | - | ------ | ------ | ----- | 
|                                         |              |                         |        | Consolidating Statement of Operations
|                                         |              |                         |        |                                      
|                                         |              |                         |        | Three months ended March 31, 2002    
|                                         |              |                         |        |                                      
|                                         |              |                         |        | Holley                                |       |            |        |              |        |              |         |   |   |   |        |       
|                                         |              |                         |        | Performance                           |       |            |        |              |        |              |         |   |   |   |        |       
|                                         |              |                         |        | Products Inc.                         |       |            |        |              |        |              |         |   |   |   |        |       
|                                         |              |                         |        | (Parent Company                       |       | Subsidiary |        |              |        |              |         |   |   |  
|                                         |              |                         |        | Only)                                 |       | Guarantors |        | Eliminations |        | Consolidated
|                                         |              |                         |        |                                       |       |            |        |              |        |             
|NET SALES                                |              | $                       | 21,487 |                                       |       | $          | 52,627 |              |        | $            | (36,493 | ) |   | $ | 37,621 |       
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|COST OF SALES                            |              |                         | 14,851 |                                       |       |            | 48,656 |              |        |              | (36,493 | ) |   |   | 27,014 |       
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|                                         | Gross profit |                         |        | 6,636                                 |       |            |        | 3,971        |        |              |         |  |   |   |        | 10,607 |      
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|SELLING, GENERAL AND ADMINISTRATIVE      |              |                         | 1,394  |                                       |       |            | 5,621  |              |        |              |        |   |   |   | 7,015  |       
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|AMORTIZATION EXPENSE                     |              |                         |       |                                       |       |            | 472    |              |        |              |        |   |   |   | 472    |       
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|                                         |              | Operating income (loss) |        |                                       | 5,242 |            |        |              | (2,122 | )            |         |   |  |   |        |        | 3,120 | 
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|INTEREST EXPENSE                         |              |                         | 5,401  |                                       |       |            | 21     |              |        |              |        |   |   |   | 5,422  |       
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|OTHER EXPENSE                            |              |                         | 58     |                                       |       |            | 25     |              |        |              |        |   |   |   | 83     |       
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|LOSS BEFORE TAXES AND EXTRAORDINARY
ITEM |              |                         | (217   | )                                     |       |            | (2,168 | )            |        |              |        |   |   |   | (2,385 | )     
|INCOME TAX BENEFIT                       |              |                         | (55    | )                                     |       |            | (545   | )            |        |              |        |   |   |   | (600   | )     
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|                                         |              |                         | (162   | )                                     |       |            | (1,623 | )            |        |              |        |   |   |   | (1,785 | )     
|
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|EQUITY IN LOSS OF SUBSIDIARIES           |              |                         | 1,623  |                                       |       |            |       |              |        |              | (1,623  | ) |   |   |       |       
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|NET LOSS                                 |              | $                       | (1,785 | )                                     |       | $          | (1,623 | )            |        | $            | 1,623   |   |   | $ | (1,785 | )     
|                                         |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       

|                                      |                                                 |                                           |                                       |       |                                       |     |            |      |              |      |              |   |   |   |        |       |       |      |  
|------------------------------------- | ----------------------------------------------- | ----------------------------------------- | ------------------------------------- | ----- | ------------------------------------- | --- | ---------- | ---- | ------------ | ---- | ------------ | - | - | - | ------ | ----- | ----- | ---- | -
|                                      |                                                 |                                           |                                       |       | Consolidating Statement of Cash Flows
|                                      |                                                 |                                           |                                       |       | Three months ended March 31, 2002    
|                                      |                                                 |                                           |                                       |       |                                      
|                                      |                                                 |                                           |                                       |       | Holley                                |     |            |      |              |      |              |   |   |   |        |       |      
|                                      |                                                 |                                           |                                       |       | Performance                           |     |            |      |              |      |              |   |   |   |        |       |      
|                                      |                                                 |                                           |                                       |       | Products Inc.                         |     |            |      |              |      |              |   |   |   |        |       |      
|                                      |                                                 |                                           |                                       |       | (Parent Company                       |     | Subsidiary |      |              |      |              |   |   |   |       
|                                      |                                                 |                                           |                                       |       | Only)                                 |     | Guarantors |      | Eliminations |      | Consolidated
|                                      |                                                 |                                           |                                       |       |                                       |     |            |      |              |      |             
|CASH FLOWS FROM OPERATING ACTIVITIES  |                                                 | $                                         | (4,642                                | )     |                                       | $   | 239        |      |              | $    |             |   |   | $ | (4,403 | )    
|                                      |                                                 |                                           |                                       |       |                                       |     |            |      |              |      |              |   |   |   |        |      
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                 |                                           |                                       |       |                                       |     |            |      |              |      |              |   |   |   |        |      
|                                      | Capital expenditures                            |                                           |                                       | (91   | )                                     |     |            | (259 | )            |      |              |  |   |   |        | (350  | )    
|                                      |                                                 |                                           |                                       |       |                                       |     |            |      |              |      |              |   |   |   |        |      
|                                      |                                                 |                                           | Net cash used in investing activities |       |                                       | (91 | )          |      |              | (259 | )            |   |   |  |        |       |       | (350 | )
|                                      |                                                 |                                           |                                       |       |                                       |     |            |      |              |      |              |   |   |   |        |      
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                 |                                           |                                       |       |                                       |     |            |      |              |      |              |   |   |   |        |      
|                                      | Proceeds from issuance of long-term obligations |                                           |                                       | 4,841 |                                       |     |            |     |              |      |              |  |   |   |        | 4,841 |      
|                                      | Principal payments on long-term obligations     |                                           |                                       | (75   | )                                     |     |            | (12  | )            |      |              |  |   |   |        | (87   | )    
|                                      | Financing
Costs                                 |                                           |                                       | (12   | )                                     |     |            |     |              |      |              |  |   |   |        | (12   | )    
|                                      |                                                 |                                           |                                       |       |                                       |     |            |      |              |      |              |   |   |   |        |      
|                                      |                                                 | Net cash provided by financing activities |                                       |       | 4,754                                 |     |            |      | (12          | )    |              |   |  |   |        |       | 4,742 |     
|                                      |                                                 |                                           |                                       |       |                                       |     |            |      |              |      |              |   |   |   |        |      
|                                      |                                                 |                                           |                                       |       |                                       |     |            |      |              |      |              |   |   |   |        |      
|NET CHANGE IN CASH                    |                                                 |                                           | 21                                    |       |                                       |     | (32        | )    |              |      |             |   |   |   | (11    | )    
|                                      |                                                 |                                           |                                       |       |                                       |     |            |      |              |      |              |   |   |   |        |      
|CASH
AT BEGINNING OF PERIOD           |                                                 |                                           | 72                                    |       |                                       |     | 162        |      |              |      |             |   |   |   | 234    |      
|                                      |                                                 |                                           |                                       |       |                                       |     |            |      |              |      |              |   |   |   |        |      
|                                      |                                                 |                                           |                                       |       |                                       |     |            |      |              |      |              |   |   |   |        |      
|CASH
AT END OF PERIOD                 |                                                 | $                                         | 93                                    |       |                                       | $   | 130        |      |              | $    |              |   |   | $ | 223    |      
|                                      |                                                 |                                           |                                       |       |                                       |     |            |      |              |      |              |   |   |   |        |      



15



---



##### Table of Contents



|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |        |       | 
|------------------------------------------- | ------------ | ----------------------- | ------ | ------------------------------------- | ----- | ---------- | ------ | ------------ | ------ | ------------ | ------- | - | - | - | ------ | ------ | ----- | 
|                                            |              |                         |        | Consolidating Statement of Operations
|                                            |              |                         |        |                                      
|                                            |              |                         |        | Three
months ended April 1, 2001      |       |            |        |             
|                                            |              |                         |        |                                       |       |            |        |             
|                                            |              |                         |        | Holley                                |       |            |        |              |        |              |         |   |   |   |        |       
|                                            |              |                         |        | Performance                           |       |            |        |              |        |              |         |   |   |   |        |       
|                                            |              |                         |        | Products Inc.                         |       |            |        |              |        |              |         |   |   |   |        |       
|                                            |              |                         |        | (Parent Company                       |       | Subsidiary |        |              |        |              |         |   |   |  
|                                            |              |                         |        | Only)                                 |       | Guarantors |        | Eliminations |        | Consolidated
|                                            |              |                         |        |                                       |       |            |        |              |        |             
|NET SALES                                   |              | $                       | 18,627 |                                       |       | $          | 50,284 |              |        | $            | (33,492 | ) |   | $ | 35,419 |       
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|COST OF SALES                               |              |                         | 12,895 |                                       |       |            | 45,338 |              |        |              | (33,492 | ) |   |   | 24,741 |       
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|                                            | Gross profit |                         |        | 5,732                                 |       |            |        | 4,946        |        |              |         |  |   |   |        | 10,678 |      
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|SELLING
GENERAL AND ADMINISTRATIVE EXPENSES |              |                         | 1,609  |                                       |       |            | 5,720  |              |        |              |        |   |   |   | 7,329  |       
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|PLANT RELOCATION COSTS                      |              |                         |       |                                       |       |            |       |              |        |              |        |   |   |   |       |       
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|AMORTIZATION EXPENSE                        |              |                         | 850    |                                       |       |            | 563    |              |        |              |        |   |   |   | 1,413  |       
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|                                            |              | Operating income (loss) |        |                                       | 3,273 |            |        |              | (1,337 | )            |         |   |  |   |        |        | 1,936 | 
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|INTEREST EXPENSE                            |              |                         | 5,820  |                                       |       |            | 7      |              |        |              |        |   |   |   | 5,827  |       
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|OTHER EXPENSE                               |              |                         | 28     |                                       |       |            |       |              |        |              |        |   |   |   | 28     |       
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|LOSS BEFORE TAXES AND EXTRAORDINARY
ITEM    |              |                         | (2,575 | )                                     |       |            | (1,344 | )            |        |              |        |   |   |   | (3,919 | )     
|INCOME TAX BENEFIT                          |              |                         | (984   | )                                     |       |            | (321   | )            |        |              |        |   |   |   | (1,305 | )      |      
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|LOSS BEFORE EXTRAORDINARY ITEM              |              |                         | (1,591 | )                                     |       |            | (1,023 | )            |        |              |         |  |   |   | (2,614 | )     
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|EQUITY IN LOSS OF SUBSIDIARIES              |              |                         | 1,023  |                                       |       |            |       |              |        |              | (1,023  | ) |   |   |       |       
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       
|NET LOSS                                    |              | $                       | (2,614 | )                                     |       | $          | (1,023 | )            |        | $            | 1,023   |   |   | $ | (2,614 | )     
|                                            |              |                         |        |                                       |       |            |        |              |        |              |         |   |   |   |        |       

|                                      |                                                 |                                           |                                       |      |                                       |      |            |    |              |   |              |   |   |   |        |      |      |      |  
|------------------------------------- | ----------------------------------------------- | ----------------------------------------- | ------------------------------------- | ---- | ------------------------------------- | ---- | ---------- | -- | ------------ | - | ------------ | - | - | - | ------ | ---- | ---- | ---- | -
|                                      |                                                 |                                           |                                       |      | Consolidating
Statement of Cash Flows
|                                      |                                                 |                                           |                                       |      | Three
months ended April 1, 2001     
|                                      |                                                 |                                           |                                       |      |                                      
|                                      |                                                 |                                           |                                       |      | Holley                                |      |            |    |              |   |              |   |   |   |        |      |     
|                                      |                                                 |                                           |                                       |      | Performance                           |      |            |    |              |   |              |   |   |   |        |      |     
|                                      |                                                 |                                           |                                       |      | Products Inc.                         |      |            |    |              |   |              |   |   |   |        |      |     
|                                      |                                                 |                                           |                                       |      | (Parent Company                       |      | Subsidiary |    |              |   |              |   |   |   |       
|                                      |                                                 |                                           |                                       |      | Only)                                 |      | Guarantors |    | Eliminations |   | Consolidated
|                                      |                                                 |                                           |                                       |      |                                       |      |            |    |              |   |             
|CASH FLOWS FROM OPERATING ACTIVITIES  |                                                 | $                                         | (5,437                                | )    |                                       | $    | (473       | )  |              | $ |             |   |   | $ | (5,910 | )   
|                                      |                                                 |                                           |                                       |      |                                       |      |            |    |              |   |              |   |   |   |        |     
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                 |                                           | (275                                  | )    |                                       |      |           |    |              |   |             |   |   |   | (275   | )   
|                                      | Capital expenditures                            |                                           |                                       |      |                                       |      |            |    |              |   |              |   |   |   |        |      |     
|                                      | Cash paid for acquisitions                      |                                           |                                       |     |                                       |      |            |   |              |   |              |  |   |   |        |     |     
|                                      |                                                 |                                           |                                       |      |                                       |      |            |    |              |   |              |   |   |   |        |     
|                                      |                                                 |                                           | Net cash used in investing activities |      |                                       | (275 | )          |    |              |  |              |   |   |   |        |      |      | (275 | )
|                                      |                                                 |                                           |                                       |      |                                       |      |            |    |              |   |              |   |   |   |        |     
|                                      |                                                 |                                           |                                       |      |                                       |      |            |    |              |   |              |   |   |   |        |     
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                 |                                           |                                       |      |                                       |      |            |    |              |   |              |   |   |   |        |     
|                                      | Proceeds from issuance of long-term obligations |                                           |                                       |     |                                       |      |            |   |              |   |              |  |   |   |        |     |     
|                                      | Principal payments on long-term obligations     |                                           |                                       | (775 | )                                     |      |            | (7 | )            |   |              |  |   |   |        | (782 | )   
|                                      | Financing costs                                 |                                           |                                       |     |                                       |      |            |   |              |   |              |  |   |   |        |     |     
|                                      |                                                 |                                           |                                       |      |                                       |      |            |    |              |   |              |   |   |   |        |     
|                                      |                                                 | Net cash provided by financing activities |                                       |      | (775                                  | )    |            |    | (7           | ) |              |   |  |   |        |      | (782 | )   
|                                      |                                                 |                                           |                                       |      |                                       |      |            |    |              |   |              |   |   |   |        |     
|                                      |                                                 |                                           |                                       |      |                                       |      |            |    |              |   |              |   |   |   |        |     
|NET CHANGE IN CASH                    |                                                 |                                           | (6,487                                | )    |                                       |      | (480       | )  |              |   |             |   |   |   | (6,967 | )   
|                                      |                                                 |                                           |                                       |      |                                       |      |            |    |              |   |              |   |   |   |        |     
|CASH
AT BEGINNING OF PERIOD           |                                                 |                                           | 6,487                                 |      |                                       |      | 480        |    |              |   |             |   |   |   | 6,967  |     
|                                      |                                                 |                                           |                                       |      |                                       |      |            |    |              |   |              |   |   |   |        |     
|CASH
AT END OF PERIOD                 |                                                 | $                                         |                                      |      |                                       | $    |           |    |              | $ |             |   |   | $ |       |     
|                                      |                                                 |                                           |                                       |      |                                       |      |            |    |              |   |              |   |   |   |        |     



16



---



##### Table of Contents



Item 2- MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE ACCOMPANYING
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO
INCLUDED HEREIN, AND THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO
CONTAINED IN OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
2001.

SAFE HARBOR STATEMENT

This Report contains certain forward-looking statements with respect to the
Companys operations, industry, financial condition and liquidity. These
statements, which are typically introduced by phrases such as the Company
believes, anticipates, estimates or expects certain conditions to exist,
reflect managements best current assessment of a number of risks and
uncertainties. The Companys actual results could differ materially from the
results anticipated in these forward-looking financial statements as a result
of certain factors described in this report.

The Managements Discussion and Analysis and other portions of this Report
include forward looking statements within the meaning of the federal
securities laws that are subject to future events, risks and uncertainties that
could cause actual results to differ materially from those expressed or
implied. Important factors that ether individually or in the aggregate could
cause actual results to differ materially from those expressed include, without
limitation, (1) that the Company will not grow its sales revenue or profit, (2)
that the Company will fail to be competitive with existing and new competitors,
(3) that the Company will not be able to sustain its current growth, (4) that
needed financing will not be available to the Company if and as needed, (5)
that a significant change in the growth rate of the overall U.S. economy will
occur, such that spending on performance automotive products will be materially
impacted, (6) that a drastic negative change in the market conditions may
occur, (7) that emissions and other environmental regulations affecting the
Company will increase thereby limiting our ability to sell our automotive
products and grow our business, and (8) that some other unforeseen difficulties
may occur. This list is intended to identify only certain of the principal
factors that could cause actual results to differ materially from those
describe in the forward-looking statements included herein.

OVERVIEW

Founded in 1903, Holley is a leading manufacturer and marketer of specialty
products for the performance automotive, marine and powersports (motorcycle,
jet-ski, snowmobile and go-cart) aftermarkets. Holley designs, manufactures
and markets a diversified line of automotive performance racing products that
include fuel, air, spark (also known as ignition) and internal engine
management systems. We design our products to enhance vehicle performance
through generating increased horsepower, torque and acceleration. Our
products include both throttle body and multi-port fuel injection systems, performance
and remanufactured carburetors, digital ignition systems, distributors, fuel
pumps, camshafts, crankshafts, intake manifolds, pistons, super chargers,
exhaust systems, headers, mufflers and motorcycle exhaust pipes, cylinder
heads, water pumps and throttle bodies. With the October 1999 acquisitions of
FlowTech, NOS and Earls, our product offerings also include nitrous oxide
injection systems and performance automotive plumbing products. In the
performance automotive aftermarket, we have the most widely recognized brand
name and a broad distribution network, which includes specialized retailers,
performance wholesale distributors, mail order retailers and original equipment
manufacturers (OEMs). We have developed strong relationships with our
customers in each distribution channel, including leading companies such as
Advance Auto Parts, AutoZone, CSK Auto, Keystone, OReilly, Summit Racing,
Jegs mail order, GM Service Parts, Volvo-Penta and Mercury Marine.

SEASONALITY

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

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2002 AND APRIL 1, 2001

Net Sales. Net sales
equals gross sales less provisions for volume
rebates, product returns, co-op advertising and other sales allowances. Net sales for the
quarter ended March 31, 2002 totaled $37.6 million compared to $35.4 million for the
same period in 2001, an increase of $2.2 million or 6.2%. Net
sales in the performance
segment for the first quarter of 2002 were $32.7 million compared to $30.1 million
in the first quarter of 2001, an increase of $2.6 million or 8.6% over the first quarter
of 2001. Net sales in the remanufacturing segment were $4.9 million in the first
quarter of 2002 compared to $5.3 million in the first quarter of
2001 a decrease of $0.4 million, or 7.5%. The increase in the performance market is
largely attributable to the recovering economy while the decrease in the
remanufacturing market is attributable to the declining demand for
remanufacturing products.

Gross Profits. Gross
profits for the first quarter of 2002 totaled $10.6 million or
28.2% of net sales compared to gross profits of $10.7 million or
30.2% of
net sales for the same quarter in 2001 and 25.2% for the full year
2001. This represents a decrease of
$0.1 million,
or 0.9% versus the same period last year with a 3.0% increase in gross
profit percentage over total year 2001 levels. In the performance segment, gross profits were
$9.1 million or 27.8% of net sales
compared to $9.7 million or 32.2% of net sales for the first
quarter of 2001 and 25.6% for the full year 2001.
This is a decrease of $0.6 million or 6.2% versus the same
period last year, and a 2.2% increase in gross profit percentage over
the full year 2001. The decrease in the performance segment is
attributable to the impact of a $0.4 million increase in sales
rebates and recognition of inventory shrink of $0.2 million. In the
remanufacturing segment, gross profits were
$1.5 million or
30.6% of net sales in the first quarter of 2002 compared to
$1.0 million or 18.9% of sales for
the same period in 2001 and 21.9% for the full year 2001. This represents an increase of
$0.5 million or 50.0% versus the same period last year. The increase
in the remanufacturing segment is due to increased manufacturing
efficiencies and greater favorable material variance realization
during first quarter of 2002.

Selling, General and Administrative Expenses. Selling,
general, and administrative (S, G & A) expenses for the three months ended
March 31, 2002 totaled $7.0 million or 18.6% of net sales
compared to $7.3 million or
20.6% of net sales for the same period in 2001, a decrease of $0.3 million or
4.1%. The decrease is attributable primarily to the implementation of
cost saving programs.

Amortization Expense. Amortization
expense for the three months ended
March 31, 2002 totaled $0.5 million or 1.3% of net sales compared to
$1.4 million or 4.0%
of net sales for the same period in 2001. As of January 1, 2002, the
company adopted SFAS No. 142, Goodwill and Other Intangible
Assets. In accordance with SFAS No. 142, the Company discontinued the
amortization of goodwill and indefinite lived intangibles effective January 1, 2002.

Operating Income.
Operating income for the three months ended March 31,
2002 totaled $3.1 million or 8.2% of net sales compared to
$1.9 million or 5.4% of net sales
in the same period in 2001, an increase of $1.2 million or 63.2%.
The increase primarily
resulted from the discontinuance of amortization of goodwill and
indefinite lived intangibles, increased sales of performance products, decreases
in other manufacturing costs, and reduced S, G & A expenses.

Interest Expense. Interest expense,
including the amortization of the
bond discount was $5.4 million or 14.4% of net sales, for the three months ended March
31, 2002 compared to $5.8 million or 16.4% of net sales for the
same period in 2001.
The expense resulted from interest on our Companys revolving credit facility
and the accrual of interest associated with our 12.25% senior notes. The
revolving credit facility is used to finance
general business and working capital needs.

Benefit for Income Taxes.
Benefit for income taxes for the three months
ended March 31, 2002 was $(0.6) million or 1.6% of net sales
compared to $(1.3) million or 3.7% of net sales in the same period in 2001.

Net Loss. Net loss
for the three months ended March 31, 2002 was
$(1.8) million or 4.8% of net sales, compared to a net loss of
$(2.6) million or 7.3% of net
sales for the same period in 2001, attributable primarily to the reasons
discussed above.



17



---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES

Operating Activities. Net cash used in operating activities for the
three months ended March 31, 2002 was $4.4 million. The
decrease in net loss
and increased working capital requirements contributed primarily to the increase
in net cash used by operating activities in the period. Inflows from
depreciation and amortization of $2.6 million were offset by outflows due to
increased working capital of
$4.6 million,
and a net loss of
$(1.8) million. The increase in working capital
was primarily attributable to increased inventories of
$0.5 million and
decreased accrued liabilities of $5.1 million, decreased
accounts payable of $0.2 
million partially offset by decreased other current assets of
$0.6 million and decreased accounts receivable of $0.7 million.

Investing Activities. Net cash used in investing activities for the
three months ended March 31, 2002 was $0.4 million resulting from capital
additions.

Financing Activities.
Net cash provided by financing activities for the
three months ended March 31, 2002 was $4.7 million primarily due to the
$9.2 million subordinated debt interest payment on
March 15, 2002.

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

EBITDA is presented
and discussed because management believes that some investors regard
EBITDA as a key measure of a leveraged company's performance and
ability to meet its future debt service requirements. EBITDA is
defined as net income or loss (excluding extraordinary gain or
losses, gains or losses from asset dispositions and minority
interest) before interest, income taxes, depreciation and
amortization. EBITDA is not a measure of financial performance under
accounting principles generally accepted in the United States, and
should not be considered an alternative to net income (or any other
measure of performance under accounting principles generally accepted
in the United States) as a measure of performance or to cash flows
from operating, investing or financing activities as an indicator of
cash flows or as a measure of liquidity. Certain covenants in
Holley's $41 million Credit Facility with Fleet Capital Corporation
are based on EBITDA as defined in the Credit Facility. In the period ended March 31, 2002, EBITDA
generated from operations was $5.2 million or 13.8% of net
sales, a decrease of
$0.5 million or 8.8% compared to the same period in 2001. This
decrease in funds is due to reduced gross profits.

In December 2000, the Company replaced its existing senior credit facility with
Credit Agricole IndoSuez, (consisting of a $35.0 million revolving credit
facility) with a $41.0 million facility (the Credit Arrangement) provided by
Fleet Capital Corporation that matures in December 2005. This Credit Arrangement
is comprised of two parts: a $36.0 million revolving credit facility (the
Revolving Credit Facility) and a $5.0 million term facility to be used for
fixed asset purchases, as required. The Revolving Credit Facility was amended on
April 15, 2002. The amended Revolving Credit Facility reduces the maximum
borrowings to $34.6 million at April 4, 2002 and, with incremental reductions,
to a maximum of $31.0 million at June 15, 2002. The Revolving Credit Facility
has an interest coverage covenant only. The interest coverage ratios for the
term of the amended Revolving Credit Facility are 1.20:1.0 for the year-to-date
periods each ending on March 31, June 30, September 30, and December 31, 2002;
1.25:1.0 for the trailing four quarters each ending on March 31, June 30,
September 30, and December 31, 2003, 2004 and 2005. As
discussed in Note 1 and 7, we were not in compliance with
the interest coverage ratio on March 31, 2002. Currently we are in
discussions with Fleet Capital for a Waiver of the March 31,
2002 interest coverage ratio. Borrowings under the
facility are limited to 75% of eligible receivables and the lesser of $25
million (amended to $15.5 million at May 11, 2002 and thereafter) or 55% of
eligible inventories. Beginning April 2001, Holley must have borrowing
availability of $2.0



18



---



##### Table of Contents



million if EBITDA on a trailing twelve month basis is equal to or less than
$28.0 million, $1.0 million if EBITDA is less than or equal to $32.0 million but
greater than $28.0 million, or $0 if greater than $32.0 million. Fleet Capital
has a perfected security interest in all the assets of Holley. The Credit
Arrangement also requires mandatory principal prepayments from any proceeds from
the sale of the Companys assets or common stock.

Under the terms of the Credit Arrangement, upon achieving a minimum ratio of
earnings before interest, taxes, depreciation and amortization to fixed charges
(as defined in the Credit Arrangement), the Company will become eligible to
borrow up to $5.0 million under the term facility to be used to fund capital
expenditures. Borrowings under the term facility will mature in 2005. As
March 31, 2002, no amounts were outstanding or available under the term
facility as the Company had not met the required conditions to implement the
term facility.

At March 31, 2002, the Company had borrowings
of $33.7 million outstanding under
the Revolving Credit Facility and $0.3 million in cash. The Company had no
unused credit availability at December 31, 2001 due to the event of default.

Applicable Margin

|                                                |  |                |      |             |  |                |      |             |  |        |     |   |  |  |     |   |  |  |       |  
|----------------------------------------------- |  | -------------- | ---- | ----------- |  | -------------- | ---- | ----------- |  | ------ | --- | - |  |  | --- | - |  |  | ----- | -
|Interest                                        |  | LIBOR          |      | LIBOR       |  | Base Rate      |      | Base Rate   |  | Unused
|Coverage                                        |  | Revolving      |      | Fixed Asset |  | Revolving      |      | Fixed Asset |  | Line  
|Ratio                                           |  | Credit Portion |      | Portion     |  | Credit Portion |      | Portion     |  | Fee   
|                                                |  |                |      |             |  |                |      |             |  |       
|less than or equal to 1.25 to 1                 |  |                | 2.75 | %           |  |                | 2.75 | %           |  |        | .75 | % |  |  | .75 | % |  |  | .375  | %
|>1.25 to 1, but less than or equal to 1.50 to 1 |  |                | 2.50 | %           |  |                | 2.50 | %           |  |        | .50 | % |  |  | .50 | % |  |  | .375  | %
|>1.50 to 1, but less than or equal to 1.75 to 1 |  |                | 2.25 | %           |  |                | 2.25 | %           |  |        | .25 | % |  |  | .25 | % |  |  | .3125 | %
|>1.75 to 1                                      |  |                | 2.00 | %           |  |                | 2.00 | %           |  |        | 0   | % |  |  | 0   | % |  |  | .250  | %

Each change in Applicable Margin shall be effective
prospectively as of the first day of the fiscal month of Holley next
following the fiscal month during which the applicable quarterly
Consolidated financial statements of Holley are delivered to Agent
pursuant to Section 7.1.3(ii).

From the Closing Date until April 1, 2002, the Applicable
Margin shall be 2.50% (LIBOR Revolving Credit Portion), 2.50% (LIBOR
Fixed Asset Portion), .50% (Base Rate Revolving Credit Portion), .50%
(Base Rate Fixed Asset Portion) and .375% (unused line fee). From April
1, 2002 until the first Adjustment date as provided above, the
Applicable Margin shall be 3.00% (LIBOR Revolving Credit Portion),
3.00% (LIBOR Fixed Asset Portion), 1.0% (Base Rate Revolving Credit
Portion), 1.0% (Base Rate Fixed Asset Portion) and .375% (unused line
fee). At any time when Holley has failed to deliver to Agent Holleys
quarterly Consolidated financial statements in compliance with Section
7.1.3(ii) or Section 7.1.3(i) and such failure has not been cured to
Agents reasonable satisfaction, the Applicable Margin shall be the
highest percentages set forth in the above schedule.

The bank credit facility contains various covenants made by Holley, including
covenants prohibiting or limiting our ability to:



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

The Company incurred net losses in 1999, 2000, 2001
and the first quarter of 2001 and 2002. Also, as described in Note 7, the
Company has not complied with the interest coverage covenant on its
revolving credit facility. The Company was required to have an
interest coverage ratio of 1.20:1.00 for the three month period ended
March 31, 2002. We are in discussions with Fleet Capital for a waiver
of the March 31, 2002 interest coverage ratio and a
restructuring of the complete agreement and expect a
successful conclusion to these discussions. The Company is dependent on its revolving credit
facility to fund its working capital needs. The Companys ability
to operate within the cash available under its revolving credit
facility, as amended, and to comply with the financial covenants
required under that facility are dependent on improving earnings
before interest, taxes, depreciation and amortization (EBITDA) and
reducing the level of working capital necessary to operate the
business.

Management believes that the Company will be in compliance with the
revolving credit facilitys quarterly financial ratio covenants
during the remaining quarters in 2002, and that the revolving credit facility
will be adequate to allow the Company to fund its working capital
needs during 2002. However, should a satisfactory waiver of the debt
covenant violation not be obtained or should the revolving credit facility
become otherwise unavailable, or the Company fail to meet its projected
operating results, the Company may be forced to seek additional
sources of financing in order to fund its working capital needs. In
such an event, the Company cannot be certain that it would be able
to obtain necessary financing on acceptable terms or at all.

Management is continually evaluating the
performance of the Companys business both in the aggregate and
at the separate divisional levels. In 2002, management has implemented
actions designed to reduce working capital, maintain sales, and
increase gross profit while controlling operating expenses.
Although management believes that its actions will reduce
working capital, maintain sales, and improve gross profit while
controlling operating expenses, there is no assurance that it will be
successful. The consolidated financial statements do not include any
adjustments to reflect the possible future effects on recoverability
and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.




ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Holleys exposure to interest rate changes is primarily related to its
variable rate debt which may be outstanding from time to time under its $41.0
million credit facility with Fleet Capital. Both the revolving portion of the
$36.0 million credit facility and the $5.0 million term facility carry interest
rates which are based on the London Interbank Offered Rate or base rate. Because
the interest rate on the credit facility is variable, the Companys cash flow
may be affected by increases in either the LIBOR or prime rate. Management does
not, however, believe that any risk inherent in the variable-rate nature of the
loan is likely to have a material effect on Holley. As of March 31, 2002,
Holleys outstanding balance on the revolving credit facility was $33.7 million.

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



19



---



##### Table of Contents






PART II- OTHER INFORMATION




ITEM 1- LEGAL PROCEEDINGS



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In May 1999, Union Pacific Railroad Company filed an action against Weiand and
others in the U.S. District Court for the Central District of California,
alleging that certain soil and groundwater contamination discovered on Union
Pacific property in Los Angeles had migrated from an adjacent Weiand facility.
Union Pacific claimed that Weiand is liable to Union Pacific for certain
investigation and remediation costs, as well as for other damages under state
law. Union Pacific sought damages in the amount of approximately $2.965 million
from all defendants.
In December 2000, Union Pacific, Holley, Weiand and Joan Weiand, the owner of
the Weiand property, reached a comprehensive settlement in exchange for a cash
payment significantly less than the sought amount, resulting in a full dismissal
of the lawsuit. A substantial majority of the settlement payment was paid by
Weiands insurers. In connection with the settlement, an
additional $550,000 paid by
the settling insurers has been put into a Site Source Control Account to fund
investigation and any required remediation of the Weiand property, as may be
required by the State of
California. Part of the attorney fees and litigation expenses of the parties
were also reimbursed by the settling insurers.In 2000, Weiand discovered possibly significant soil contamination on the Weiand
property, which has not yet been fully analyzed by Weiands environmental
consultants. Holley is working with the property owner, under the supervision of
the California Department of Toxic Substances Control, to investigate and, if
necessary, remediate the contamination. Holley cannot estimate the potential
liability arising from that contamination, if any, or the possible outcome of
any state environmental regulatory requirements. Holley and Weiand are working
vigorously to address regulatory issues arising from the discovered
contamination. The $550,000 received from Holleys insurers, which was placed in a
Site Source Control Account discussed above, is available to fund investigation
and any required remediation of the Weiand property, as may be required by the
State of California.
|
| | Holley has been named as defendants in a number of legal
actions arising from normal business activities. Although the amount of
any ultimate liability with respect to such matters cannot be precisely
determined, management does not expect any such liability to have a material
adverse effect on the financial condition or results of operations of
the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      




ITEM 6- EXHIBITS AND REPORTS ON FORM 8-K



| |                                
| | -------------------------------
| | (A) Exhibits  NONE.           
|
| | (B) Reports
on Form 8-K  NONE.

20



---



##### Table of Contents






SIGNATURES

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

|                   |  |                                                                         
|------------------ |  | ------------------------------------------------------------------------
|                   |  | Holley Performance Products Inc.                                        
|                   |  |                                                                         
|                   |  |                                                                         
|Date: May 15, 2002 |  | /s/ JEFFREY G. KING                                                     
|                   |  |                                                                         
|                   |  | Jeffrey G. King, President and Chief Executive Officer                  
|                   |  |                                                                         
|                   |  |                                                                         
|Date: May 15, 2002 |  | /s/ A. BRUCE REYNOLDS                                                   
|                   |  |                                                                         
|                   |  | A. Bruce Reynolds, Chief Financial Officer
(principal financial officer)



21