---

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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

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

COMMISSION FILE NUMBER 333-89061

HOLLEY PERFORMANCE PRODUCTS INC.(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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

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 ý    No o

There
were 1,000 shares of Common Stock outstanding as of September 29, 2002.

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

TABLE OF CONTENTS

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

2

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PART IFINANCIAL INFORMATION

ITEM 1FINANCIAL STATEMENTS

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

|                                                                               |                                                                                                                                          | December 31,
2001                                    |         | September 29,
2002 |        
|------------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ------- | ------------------ | -------
|ASSETS                                                                         |                                                                                                                                          |                                                      |         |                    |        
|CURRENT ASSETS:                                                                |                                                                                                                                          |                                                      |         |                    |        
|                                                                               | Cash and cash equivalents                                                                                                                |                                                      | $       | 234                |        
|                                                                               | Accounts receivable, net of allowance for doubtful accounts of $866 and $1,167 at December 31, 2001 and September 29, 2002, respectively |                                                      |         | 19,999             |        
|                                                                               | Inventories                                                                                                                              |                                                      |         | 34,607             |        
|                                                                               | Deferred income taxes                                                                                                                    |                                                      |         | 5,773              |        
|                                                                               | Income taxes receivable                                                                                                                  |                                                      |         | 308                |        
|                                                                               | Other current assets                                                                                                                     |                                                      |         | 1,497              |        
|                                                                               |                                                                                                                                          |                                                      |         |                    |        
|                                                                               |                                                                                                                                          | Total current assets                                 |         |                    | 62,418 
|PROPERTY, PLANT AND EQUIPMENT, NET                                             |                                                                                                                                          |                                                      | 26,068  |                    |        
|INTANGIBLE ASSETS                                                              |                                                                                                                                          |                                                      |         |                    |        
|                                                                               | Goodwill                                                                                                                                 |                                                      |         | 111,658            |        
|                                                                               | Trade names                                                                                                                              |                                                      |         | 42,900             |        
|                                                                               | Other                                                                                                                                    |                                                      |         | 15,030             |        
|                                                                               |                                                                                                                                          |                                                      |         |                    |        
|                                                                               |                                                                                                                                          |                                                      | 169,588 |                    |        
|                                                                               | Less accumulated amortization                                                                                                            |                                                      |         | (19,502            | )      
|                                                                               |                                                                                                                                          |                                                      |         |                    |        
|                                                                               |                                                                                                                                          | Total intangible assets, net                         |         |                    | 150,086
|                                                                               |                                                                                                                                          |                                                      |         |                    |        
|                                                                               |                                                                                                                                          | Total assets                                         |         | $                  | 238,572
|                                                                               |                                                                                                                                          |                                                      |         |                    |        
|LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)                                 |                                                                                                                                          |                                                      |         |                    |        
|CURRENT LIABILITIES:                                                           |                                                                                                                                          |                                                      |         |                    |        
|                                                                               | Current portion of long-term debt                                                                                                        |                                                      | $       | 31,158             |        
|                                                                               |                                                                                                                                          | Accounts payable                                     |         |                    | 14,060 
|                                                                               |                                                                                                                                          | Accrued liabilities                                  |         |                    | 15,548 
|                                                                               |                                                                                                                                          |                                                      |         |                    |        
|                                                                               |                                                                                                                                          | Total current liabilities                            |         |                    | 60,766 
|LONG-TERM DEBT, NET OF CURRENT PORTION                                         |                                                                                                                                          |                                                      | 147,663 |                    |        
|DEFERRED INCOME TAXES                                                          |                                                                                                                                          |                                                      | 21,936  |                    |        
|OTHER NONCURRENT LIABILITIES                                                   |                                                                                                                                          |                                                      | 438     |                    |        
|STOCKHOLDER'S EQUITY (DEFICIT):                                                |                                                                                                                                          |                                                      |         |                    |        
|Common stock, $1.00 par value; 1,000 shares authorized, issued and outstanding |                                                                                                                                          |                                                      | 1       |                    |        
|                                                                               | Paid-in capital                                                                                                                          |                                                      |         | 52,499             |        
|                                                                               | Accumulated deficit                                                                                                                      |                                                      |         | (44,731            | )      
|                                                                               |                                                                                                                                          |                                                      |         |                    |        
|                                                                               |                                                                                                                                          | Total stockholder's equity (deficit)                 |         |                    | 7,769  
|                                                                               |                                                                                                                                          |                                                      |         |                    |        
|                                                                               |                                                                                                                                          | Total liabilities and stockholder's equity (deficit) |         | $                  | 238,572
|                                                                               |                                                                                                                                          |                                                      |         |                    |        

See accompanying notes.

3

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

|                                                                                               |                         | THREE MONTHS ENDED |        | NINE MONTHS ENDED |  
|---------------------------------------------------------------------------------------------- | ----------------------- | ------------------ | ------ | ----------------- | -
|
|NET SALES                                                                                      |                         | $                  | 38,846 |                   | $
|COST OF SALES                                                                                  |                         |                    | 27,973 |                   |  
|                                                                                               |                         |                    |        |                   |  
|                                                                                               | Gross profit            |                    |        | 10,873            |  
|                                                                                               |                         |                    |        |                   |  
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                                   |                         |                    | 7,511  |                   |  
|AMORTIZATION EXPENSE                                                                           |                         |                    | 1,482  |                   |  
|                                                                                               |                         |                    |        |                   |  
|TOTAL OPERATING EXPENSES                                                                       |                         |                    | 8,993  |                   |  
|                                                                                               |                         |                    |        |                   |  
|                                                                                               | Operating income (loss) |                    |        | 1,880             |  
|                                                                                               |                         |                    |        |                   |  
|INTEREST EXPENSE                                                                               |                         |                    | 5,604  |                   |  
|OTHER EXPENSE                                                                                  |                         |                    | 327    |                   |  
|                                                                                               |                         |                    |        |                   |  
|LOSS BEFORE INCOME TAXES, MINORITY INTEREST, AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE        |                         |                    | (4,051 | )                 |  
|INCOME TAX BENEFIT                                                                             |                         |                    | (1,382 | )                 |  
|                                                                                               |                         |                    |        |                   |  
|LOSS BEFORE MINORITY INTEREST AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE                       |                         |                    | (2,669 | )                 |  
|MINORITY INTEREST, NET OF TAXES                                                                |                         |                    | (100   | )                 |  
|                                                                                               |                         |                    |        |                   |  
|NET LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE                                         |                         |                    | (2,769 | )                 |  
|CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR INTANGIBLE ASSET IMPAIRMENT, NET OF TAXES OF $1,292 |                         |                    |       |                   |  
|                                                                                               |                         |                    |        |                   |  
|NET LOSS                                                                                       |                         | $                  | (2,769 | )                 | $
|                                                                                               |                         |                    |        |                   |  

See
accompanying notes.

4

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

|                            |          | COMMON
STOCK |   | PAID-IN
CAPITAL |   | ACCUMULATED
DEFICIT |   | TOTAL |        
|--------------------------- | -------- | ------------ | - | --------------- | - | ------------------- | - | ----- | -------
|BALANCE, DECEMBER 31, 2001  |          | $            | 1 |                 | $ | 52,499              |   | $     | (44,731
|                            | Net loss |              |   |                |   |                     |  |       |        
|                            |          |              |   |                 |   |                     |   |       |        
|BALANCE, SEPTEMBER 29, 2002 |          | $            | 1 |                 | $ | 52,499              |   | $     | (70,001
|                            |          |              |   |                 |   |                     |   |       |        

See
accompanying notes.

5

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

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

See
accompanying notes.

6

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

1. ORGANIZATION AND BASIS OF PRESENTATION

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

The
consolidated balance sheets of the Company as of December 31, 2001 and September 29, 2002, and the consolidated statements of operations for the three- and
nine-month periods ended September 30, 2001 and September 29, 2002, and the consolidated statements of cash flows for the nine month periods ended September 30, 2001
and September 29, 2002 are unaudited, except for the condensed consolidated balance sheet dated December 31, 2001, which is derived from audited financial statements, and 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 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 September 30, 2001 and September 29, 2002 and for all periods presented have been made. The results of operations for the periods ended September 29, 2002 and
September 30, 2001 are not necessarily indicative of the operating results to be expected for the full year.

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

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

7

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

THREE MONTHS ENDED
September 30, 2001

NINE MONTHS ENDED
September 30, 2001As Previously
Reported

As Restated

As Previously
Reported

As RestatedNet Sales

$
38,869

$
38,846

$
116,342

$
116,317Gross Profit


13,147


10,873


38,048


34,450Net Loss


(2,344
)

(2,769
)

(5,716
)

(6,403
)


3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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

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

8

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

THREE MONTHS ENDED

NINE MONTHS ENDEDSeptember 30,
2001 (Restated)

September 29,
2002

September 30,
2001 (Restated)

September 29,
2002Reported net loss

$
(2,769
)
$
(10,622
)
$
(6,403
)
$
(25,270
)Add: Goodwill and indefinite lived assets amortization, net of tax


942





2,826


Pro forma net loss

$
(1,827
)
$
(10,622
)
$
(3,577
)
$
(25,270
)


COMPREHENSIVE INCOME

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

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

9

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4. INVENTORIES

Inventories of the Company consist of the following:

December 31, 2001

September 29, 2002Raw materials

$
12,529

$
11,651Work-in-progress


5,938


4,285Finished Goods


16,140


10,226$
34,607

$
26,162


10

---

5. PROPERTY, PLANT AND EQUIPMENT

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

December 31, 2001

September 29, 2002Land

$
360

$
360Buildings and improvements


11,884


11,916Machinery and equipment


28,192


28,999Computer equipment


3,852


3,929Furniture and fixtures


2,079


2,367Construction in process


1,798


1,67548,165


49,246Less: accumulated depreciation


(22,097
)

(27,149
)$
26,068

$
22,097


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

6. ACCRUED LIABILITIES

Accrued liabilities of the Company consist of the following:

December 31, 2001

September 29, 2002Wages and benefits

$
3,679

$
4,049Reserve for product returns


2,981


4,930Interest


5,492


10,174Other


3,396


2,086$
15,548

$
21,239


11

---

7. LONG-TERM DEBT

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

December 31, 2001

September 29, 2002Secured revolving line of credit facility due to a bank; Interest due quarterly at a variable rate based on LIBOR or prime at the Company's option, plus the applicable margin rate (8.11% at September 29, 2002); maturing
December 28, 2007

$
28,814

$
30,694Senior notes, interest payable semi-annually in March and September at 12.25%; maturing September 15, 2007; net of debt discount of $3,939 and $3,425, respectively


146,061


146,575Convertible promissory note with KHPP Holdings, Inc. ("Parent")





2,000Other long-term obligations


3,946


3,527178,821


182,796Less: current portion


(31,158
)

(32,984
)$
147,663

$
149,812


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

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

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

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

12

---

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

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

The
Credit Agreement and the Senior Notes were amended on October 10, 2002. See Note 11.

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

8. COMMITMENTS AND CONTINGENCIES

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

In
May 1999, Union Pacific Railroad Company filed an action against Weiand Automotive Industries, Inc., a subsidiary of Holley ("Weiand"), and others in the U.S. District
Court for the Central District of California, alleging that certain soil and groundwater contamination discovered on Union Pacific property in Los Angeles had migrated from an adjacent Weiand
facility. 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
California.

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

13

---

requirements. Holley and Weiand are working vigorously to address regulatory issues arising from the discovered contamination.

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.

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

9. SEGMENT DATA

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

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

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

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

|                                              |              | PERFORMANCE
PARTS |   | REMANUFACTURED
PARTS |  | TOTAL
|--------------------------------------------- | ------------ | ----------------- | - | -------------------- |  | -----
|JULY 2, 2001 TO SEPTEMBER 30, 2001 (Restated) |              |                   |   |                      |  |      
|                                              | Net sales    |                   | $ | 34,628               |  | $    
|                                              | Gross profit |                   |   | 10,143               |  |      
|JULY 1, 2002 TO SEPTEMBER 29, 2002            |              |                   |   |                      |  |      
|                                              | Net sales    |                   | $ | 29,875               |  | $    
|                                              | Gross profit |                   |   | 2,939                |  |      

14

---



|                                                 |              | PERFORMANCE
PARTS |   | REMANUFACTURED
PARTS |  | TOTAL
|------------------------------------------------ | ------------ | ----------------- | - | -------------------- |  | -----
|JANUARY 1, 2001 TO SEPTEMBER 30, 2001 (Restated) |              |                   |   |                      |  |      
|                                                 | Net sales    |                   | $ | 102,103              |  | $    
|                                                 | Gross profit |                   |   | 31,989               |  |      
|JANUARY 1, 2002 TO SEPTEMBER 29, 2002            |              |                   |   |                      |  |      
|                                                 | Net sales    |                   | $ | 98,891               |  | $    
|                                                 | Gross profit |                   |   | 16,358               |  |      

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 September 29,
2002 are shown in the following table:

|                         |                                     | PERFORMANCE
PARTS |   | REMANUFACTURED
PARTS |  | TOTAL
|------------------------ | ----------------------------------- | ----------------- | - | -------------------- |  | -----
|AS OF DECEMBER 31, 2001  |                                     |                   |   |                      |  |      
|                         | Inventories                         |                   | $ | 31,259               |  | $    
|                         | Property, plant, and equipment, net |                   |   | 24,235               |  |      
|AS OF SEPTEMBER 29, 2002 |                                     |                   |   |                      |  |      
|                         | Inventories                         |                   | $ | 22,898               |  | $    
|                         | Property, plant, and equipment, net |                   |   | 20,517               |  |      

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

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

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

15

---

Consolidating Balance Sheet
September 29, 2002

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

16

---

Consolidating Balance Sheet
December 31, 2001

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

17

---

Consolidating Statement of Operations
Three Months Ended September 29, 2002

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

18

---

Consolidating Statement of Operations
Nine Months Ended September 29, 2002

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

19

---

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

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

20

---

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

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

21

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

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

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

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

11. SUBSEQUENT EVENTS

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

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

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

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

23

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

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

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

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

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

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

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

OVERVIEW

Founded in 1903, Holley is a leading manufacturer and marketer of specialty products for the performance automotive, marine and powersports (motorcycle,
jet-ski, snowmobile and go-cart) aftermarkets. Holley designs, manufactures and markets a diversified line of automotive performance racing products that include fuel, air,
spark (also known as ignition) and internal engine management systems. The Company designs products to enhance vehicle performance through generating increased horsepower, torque and acceleration. 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, product offerings also include nitrous oxide injection systems and performance automotive plumbing products. In the performance automotive aftermarket, we
have the most widely recognized brand name and a broad distribution network, which includes specialized retailers, performance wholesale distributors, mail order retailers and original equipment
manufacturers ("OEM's"). Holley has developed strong relationships with customers in each distribution channel, including leading companies such as Advance Auto Parts, AutoZone, CSK Auto, Keystone,
O'Reilly, Summit Racing, Jeg's mail order, GM Service Parts, Volvo-Penta and Mercury Marine.

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SEASONALITY

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

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

Net Sales

Net
sales equals gross revenues less provisions for volume rebates, product returns, co-op advertising, and other sales allowances. Net sales for the quarter ended
September 29, 2002 totaled $33.5 million compared to $38.8 million for the same period in 2001, a decrease of $5.4 million or 13.8%. Net sales in the performance segment
for the third quarter of 2002 were $29.9 million compared to $34.6 million in the third quarter of 2001, a decrease of $4.8 million or 13.7% from the third quarter of 2001. Net
sales in the remanufacturing segment were $3.6 million in the third quarter of 2002 compared to $4.2 million in the third quarter of 2001, a decrease of $0.6 million. Management
attributes the soft third quarter demand to the continued customer inventory reduction programs in response to the general economic slow down. The decreased sales in the remanufacturing segment are
the result of weak demand in the repair market and the fact that new cars have not been produced with carburetors since approximately 1992, which has led to a continuing decline in the demand for
remanufactured carburetors.

26

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Gross Profits

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

Selling, General and Administrative Expenses

Selling,
general and administrative expenses for the three months ended September 29, 2002 totaled $7.2 million or 21.4% of net sales compared to $7.5 million or
19.3% of net sales in the same period in 2001, a decrease of $0.3 million or 4.5%. The decrease is attributable to a reduction in administrative compensation in the third quarter of 2002 and
reversal of incentive compensation accruals established during the first half of 2002, partially offset by an increase in purchased services.

Amortization Expense

As
of January 1, 2002, we adopted SFAS No. 142. In accordance with SFAS No. 142, we discontinued the amortization of goodwill and indefinite lived intangible assets
effective January 1, 2002. Amortization expense totaled $0.5 million or 1.4% of net sales for the three months ended September 29, 2002 compared to $1.5 million or 3.8% of
net sales for the same period in 2001.

Operating Income (Loss)

Operating
income (loss) for the three months ended September 29, 2002 totaled $(4.9) million or (14.6)% of net sales compared to $1.9 million or 4.8% of net sales in the
same period in 2001, a decrease of $6.8 million or 360%. The decrease primarily resulted from decreased sales and gross profits, as discussed above.

Interest Expense

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

Other Expense

Other
expense was $0.7 million for the three months ended September 29, 2002 compared to $0.3 million in the same period in 2001. The 2002 amount includes
$0.7 million related to the write-off of deferred financing costs in connection with the debt refinancing in July 2002.

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Benefit for Income Taxes

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

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

Net Sales

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

Gross Profits

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

Selling, General and Administrative Expenses

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

Amortization Expense

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

28

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Operating Income (Loss)

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

Interest Expense

Interest
expense was $16.6 million or 15.0% of net sales for the nine months ended September 29, 2002 compared to $17.0 million or 14.7% of net sales in the same
period in 2001. The expense resulted from interest on the credit agreement, and the accrual of interest associated with the Senior Notes. The Credit Agreement is used to finance general business and
working capital needs.

Other Expense

Other
expense was $1.1 million for the nine months ended September 29, 2002 compared to $0.4 million in the same period in 2001. The 2002 amount includes
$0.7 million related to the write-off of deferred financing costs in connection with the refinancing of the credit agreement in July 2002.

Benefit for Income Taxes

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

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Net
cash provided by operating activities for the nine months ended September 29, 2002 was $0.8 million. Decreased working capital requirements contributed primarily to the
increase in net cash provided by operating activities in the period. The change in working capital was primarily attributable to decreased accounts receivable of $2.6 million, decreased
inventories of $8.4 million, increased accounts payable of $0.3 million and increased accrued liabilities of $5.6 million.

Investing Activities

Net
cash used in investing activities for the nine months ended September 29, 2002 was $1.3 million, resulting from capital additions.

Financing Activities

Net
cash provided by financing activities for the nine months ended September 29, 2002 was $1.4 million, comprised of proceeds of $1.5 million on long-term
obligations and proceeds of $2.0 million from the issuance of a promissory note, net of financing costs of $2.1 million associated with the Foothill Capital Corporation credit agreement
entered into on July 30, 2002 as described below.

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

In
December 2000, the Company entered into a credit agreement with Fleet Capital Corporation (the "Fleet Credit Arrangement") which included both a revolving credit facility and a
term loan to be utilized for capital expenditures. The Fleet Credit Arrangement required that we meet certain interest coverage ratios each quarter. We were not in compliance with the interest
coverage ratio covenant for the quarters ended March 31, 2002 and June 30, 2002. The Company received a waiver of the interest

29

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

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

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

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

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

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

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

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

30

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

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

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

EBITDA

EBITDA
is presented 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 the Credit Agreement are based on EBITDA as defined in that agreement. In the period ended
September 29, 2002, EBITDA generated from operations was $(1.2) million or (1.1)% of net sales, a decrease of $19.8 million compared to the same period in 2001. This decrease in funds is
due to reduced gross profits.

ITEM 3QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

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

Sensitivity
Analysis. To assess exposure to interest rate changes, Holley has performed a sensitivity analysis assuming that we had drawn the full balance available under the credit
agreement. If the prime rate rose 100 basis points, the increase in the monthly interest payment would equal $30,000.

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ITEM 4CONTROLS AND PROCEDURES

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

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

PART IIOTHER INFORMATION

ITEM 1LEGAL PROCEEDINGS.

The Company is a party to various lawsuits and claims in the normal course of business. While the lawsuits and claims against Holley 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 Automotive Industries, Inc., a subsidiary of Holley ("Weiand"), and others in the U.S. District
Court for the Central District of California, alleging that certain soil and groundwater contamination discovered on Union Pacific property in Los Angeles had migrated from an adjacent Weiand
facility. 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.

In
2000, Weiand discovered possibly significant soil contamination on the Weiand property, which has not been fully analyzed by Weiand's environmental consultants. In July 2001,
Holley (through Weiand) entered into a Voluntary Cleanup Agreement with the California Department of Toxic Substances Control, pursuant to which Holley is working with the property owner, Joan Weiand,
to investigate and, if necessary, remediate the contamination. We 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.

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ITEM 6EXHIBITS AND REPORTS ON FORM 8-K.

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



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SIGNATURES

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

HOLLEY PERFORMANCE PRODUCTS INC.Date: November 13, 2002

By:

/s/ James D. WigginsJames D. Wiggins
President and Chief Executive OfficerDate: November 13, 2002

By:

/s/ Gary CademartoriGary Cademartori
Vice President, Chief Financial Officer & Secretary


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

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

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

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

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

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



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



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

|Date: November 13, 2002 |  | By: |  | /s/JAMES D. WIGGINSJames D. Wiggins
Chief Executive Officer
|----------------------- |  | --- |  | -----------------------------------------------------------

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

I,
Gary Cademartori, Chief Financial Officer of the company, certify that:





|Date: November 13, 2002 |  | By: |  | /s/GARY CADEMARTORIGary Cademartori
Chief Financial Officer
|----------------------- |  | --- |  | -----------------------------------------------------------

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