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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002.                      
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM JANUARY 1 TO DECEMBER 31, 2002.

COMMISSION FILE NUMBER: 333-89061

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

|DELAWARE                 |  | 61-1291482                           
|------------------------ |  | -------------------------------------
|(STATE OF INCORPORATION) |  | I.R.S. EMPLOYER
IDENTIFICATION NUMBER

1801 RUSSELLVILLE RD.
BOWLING GREEN, KENTUCKY 42101(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)

REGISTRANT'S
TELEPHONE NUMBER, INCLUDING AREA CODE:270-782-2900

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

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

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

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o

Indicate
by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2): Yes o    No ý

Aggregate
market value of voting stock held by non-affiliates of the Registrant: None. (See Part II, Item 5.) Number of shares of Common Stock outstanding as of
March 31, 2003 was 1,000.

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HOLLEY PERFORMANCE PRODUCTS INC
Annual Report on Form 10-K

December 31, 2002

TABLE OF CONTENTS

|                                                               |  |                                                                                       |  | Page No.
|-------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | --------
|PART I                                                        
|Item 1.                                                        |  | Business                                                                              |  | 3       
|Item 2.                                                        |  | Properties                                                                            |  | 7       
|Item 3.                                                        |  | Legal Proceedings                                                                     |  | 8       
|Item 4.                                                        |  | Submission of Matters to a Vote of Security-Holders                                   |  | 8       
|PART II                                                       
|Item 5.                                                        |  | Market for Registrant's Common Equity and Related Stockholder Matters                 |  | 9       
|Item 6.                                                        |  | Selected Financial Data                                                               |  | 9       
|Item 7.                                                        |  | Management's Discussion and Analysis of Financial Condition and Results of Operations |  | 9       
|Item 7A.                                                       |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 19      
|Item 8.                                                        |  | Financial Statements and Supplementary Data                                           |  | 19      
|Item 9.                                                        |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure  |  | 19      
|PART III                                                      
|Item 10.                                                       |  | Directors and Executive Officers of the Registrant                                    |  | 20      
|Item 11.                                                       |  | Executive Compensation                                                                |  | 21      
|Item 12.                                                       |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 23      
|Item 13.                                                       |  | Certain Relationships and Related Transactions                                        |  | 23      
|Item 14.                                                       |  | Controls and Procedures                                                               |  | 23      
|PART IV                                                       
|Item 15.                                                       |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 24      
|Signatures                                                     |  | 27                                                                                   
|Index to Financial Statements and Financial Statement Schedule |  | 30                                                                                   

2

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PART I        ITEM 1BUSINESS        GENERAL

Founded in 1903, Holley is a leading manufacturer and marketer of specialty products for the performance automotive, marine and powersports (motorcycle, jet-ski
and snowmobile) aftermarkets. Holley designs, manufactures and markets a diversified line of automotive performance racing products that include fuel, air, and internal engine management systems.
Holley designs products to enhance vehicle performance through generating increased horsepower and torque. The products include both throttle body and multi-port fuel injection systems, performance
and remanufactured carburetors, intake manifolds, pistons, superchargers, headers, mufflers, exhaust pipes, cylinder heads, water pumps, throttle bodies, nitrous oxide injection systems and
performance automotive plumbing products. Holley has the most widely recognized brand name and a broad distribution network in the performance automotive aftermarket. The performance automobile
aftermarket includes specialized retailers, performance wholesale distributors, mail order retailers and original equipment manufacturers ("OEM's"). Holley has developed strong relationships with its
customers in each distribution channel, including such leading companies as Advance Auto Parts, AutoZone, CSK Auto, Keystone, Balkamp/NAPA, O'Reilly, Summit Racing, Jeg's mail order, GM Service Parts,
Volvo-Penta and Mercury Marine.

Holley
is committed to providing superior products and services to its customers and believes that the comprehensive quality control and consumer support programs position Holley as the
industry leader in quality and service. All products are fully tested prior to shipment to ensure maximum reliability and "out of the box race readiness." In addition Holley has a research and
development effort ("R&D") focused on continual enhancement of our technology and new products. R&D resources include a 14,000 square foot laboratory staffed by 11 professional engineers, supported by
highly trained technicians. In 2002, Holley has introduced 85 new products to leverage the Holley brand name and capitalize on the R&D capability. Holley's commitment to quality and reputation for
superior performance is widely recognized by performance enthusiasts and racers at all levels. For example, since 1969, every race car on The National Association For Stock Car Auto Racing ("NASCAR")
circuit has been and continues to be equipped exclusively with a Holley carburetor. Another testament to the quality is the many awards that Holley has won over the years, including Car Craft All-Star
Drag Racing Team Pro Sponsor and Manufacturer of the Year, six-time International Hot Rod Association's
("IHRA") Sportsman Sponsor of the Year Award, Ford Q1 award and numerous other industry and racing association awards.

BUSINESS STRATEGY AND PRODUCTS

The primary components of our business strategy are as follows:



PERFORMANCE PRODUCTS

Holley is a leading manufacturer of a diversified line of performance automotive products that are designed to enhance street, off-road, recreational and
competitive vehicle performance through

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increased horsepower and torque. Holley holds a strong position in the performance segment due to brand loyalty among car enthusiasts and racers. The performance product line consists predominantly
of induction, exhaust and internal engine components.

REMANUFACTURED PRODUCTS

Holley manufactures and markets a line of remanufactured carburetors and fuel injection components. Remanufacturing is the process of repairing, reconditioning,
recalibrating and cleaning used products. In addition to remanufactured carburetors, Holley offers a line of remanufactured fuel injectors for the fleet truck marketplace and has recently begun
offering a line of remanufactured turbochargers and superchargers.

PERFORMANCE COMPONENT BRANDS

The Holley family of performance automotive aftermarket brands includes the following:

FLOWTECH.The FlowTech (Biggs Manufacturing, Inc."FlowTech") subsidiary is a leading manufacturer of performance
exhaust systems, headers, mufflers, and exhaust accessories. The combination of FlowTech with the Hooker exhaust systems and other air management products completes the comprehensive air intake and
exhaust management system offerings. FlowTech also offers performance mufflers in the underhood performance market and exhaust headers for the import performance market with its Airmass(tm) line of
exhaust headers. During 2000, FlowTech operations were moved from Mexico and Tempe, Arizona to a new facility in Aberdeen, Mississippi.

HOOKER HEADERS.The Hooker (Hooker Industries, Inc."Hooker") subsidiary is a leading manufacturer of performance
exhaust systems, headers, mufflers and Harley-Davidson(tm) exhaust pipes under the well-known brand "Hooker Headers." The Hooker brand is the leading brand in racing exhaust headers and is the most
widely recognized brand in street performance headers. The addition of the Hooker business to the other air management products establishes Holley as the only company to offer a comprehensive and
integrated air intake and exhaust management system to the performance market.

LUNATI.The Lunati (Lunati Cams, Inc."Lunati") subsidiary manufactures and distributes internal engine systems
and components including performance camshafts, crankshafts, pistons, rods and other automotive products to the racing market under the "Lunati" brand name. Lunati also offers products for the
performance go-cart market and the junior dragster market.

NITROUS OXIDE SYSTEMS.The NOS (Nitrous Oxide Systems, Inc."NOS") subsidiary is the leading manufacturer of
nitrous oxide injection systems to the performance aftermarket. Nitrous oxide injection systems significantly increase engine horsepower by increasing the amount of air/fuel mixture delivered to the
cylinders. NOS also has a strong position in the import performance market as well as in the drag racing market. NOS complements Holley's ability to offer a full range of underhood systems to
substantially increase horsepower and engine performance. During 2000, the Nitrous Oxide Systems,
Inc. manufacturing was transferred to the Bowling Green, Kentucky manufacturing plant and the Costa Mesa, California facility was closed.

WEIAND.The Weiand (Weiand Automotive Industries"Weiand") subsidiary is a leading manufacturer of performance
induction systems components including intake manifolds, superchargers and water pumps. Additionally, Holley has consolidated all Weiand's manufacturing operations (other than the foundry) into the
Bowling Green, Kentucky operation. The Weiand foundry was closed in July 2001. The raw material aluminum castings were outsourced under a long-term supply contract at that time.

EARL'S PERFORMANCE PRODUCTS.The Earl's Performance Products (Earl's Supply Company, Inc."Earl's") subsidiary is
a provider of underhood performance fittings, brake lines and

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hoses. The Earl's business completes the fuel management systems product offerings and expands Holley's cooling system business.

RESEARCH AND DEVELOPMENT

Holley is constantly developing new products to respond to consumer demand, to increase the performance characteristics of existing products, and to expand into
new product lines. Holley has expanded its business operations by developing and adapting product lines in response to changing engine technology, such as the performance throttle body and multi-port
fuel injection systems. In 2002, the Company focused resources on continuous improvement of core products, targeting cost reductions, process and quality improvements and application extensions of
current product lines. These enhancements were aimed at improving profitability and customer satisfaction. In 1999, Holley completed the construction and installation of a 14,000 square foot
engineering laboratory at the Bowling Green facility. Operated by 11 professional engineers who are supported by highly trained technicians, this facility has a full complement of engineering and
testing equipment, including 7 state of the art dynamometers used for full-scale engine analysis, 18 computer modeling stations and a full range of environmental testing capabilities. Holley spent
$2.3 million, $2.4 million, $2.2 million, $0.8 million, and $1.3 million from 1998 through 2002 on research and development, respectively.

DISTRIBUTION

Holley has a broad distribution network throughout the industry and sells through retail, wholesale, mail order, and original equipment manufacturer segments.
Holley's products are sold in all 50 states and Canada and to a lesser degree other export markets. The largest and fastest growing distribution channels are mail order and retail, due primarily to
Summit Racing and Jeg's. In 2002, Summit Racing, the single largest customer, accounted for approximately 14.6% of net sales, and the second largest customer, Jeg's, accounted for approximately 7.5%
of net sales. The retail channel includes mass merchandisers and auto parts retailers with the majority of retail sales through auto parts retailers,
which include Advance Auto Parts, AutoZone and CSK Auto, among others. In 2002, Holley completed a chrome parts rollout with AutoZone; added Lunati camshafts at Advance Auto Parts; and added
manifolds, air cleaners, and exhaust products to CSK Auto's product offering.

Wholesale
distribution is the industry's traditional channel and a major outlet for the performance products. Significant customers include Keystone Automotive, O'Reilly Automotive and
the 3-Star, AAM and USP buying groups. Holley manufactures performance products for, and sell directly to, original equipment manufacturers, including General Motors, Ford and Daimler Chrysler and to
manufacturers of marine applications, material handling and stationary power equipment. Approximately 2.8% of Holley's net sales in 2002 were direct performance product sales to original equipment
manufacturers.

While
not a specific distribution channel, Holley exports products to several U.S.-based suppliers that have worldwide distribution capabilities. Export products are used for
American-made automobiles throughout Europe, Australia, Asia, South America and Central America and represented approximately 2.3% of the net sales in 2002.

MARKETING

Holley's sales force consists of 6 regional sales managers, 3 internal call center salespeople and 3 manufacturer's representative firms with 32 salespersons.
Holley's sales force is responsible for sales performance, technical training, customer service and the overall growth of Holley's distribution network.

Holley's
marketing programs are focused on creating consumer demand as well as supporting the distribution network. These programs are executed over a broad range of markets including
the street/strip, sport compact, powersports, off road, drag racing, oval track racing, marine and sport truck markets. Holley promotes these consumer niche markets with an extensive print and
television ad

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campaign along with editorial coverage in the major publications. Holley's product exposure in movies and TV has increased over the past year with products being placed in movies such as "Biker
Boyz", "Torque", and "Charlie's Angel's 2", as well as significant exposure on the TV show "Fastlane".

Holley
is celebrating its 100th year anniversary with many promotions throughout the year. Holley's Century Sweepstakes was announced in January and allows customers to go
online and register for free products. Holley and other brands throughout the industry have donated $100,000 worth of product. Holley is also sponsoring the "Holley National Hot Rod Reunion" that will
be held in Bowling Green in June, 2003.

Drag
racing along with other motorsports is an important avenue for sales as well as influencing the buying patterns of the performance enthusiast. Holley is one of the largest
supporters of drag racing with major sponsorships of NHRA, IHRA, NMRA, PRO, NMCA, Fun Ford and PSCA. Holley's oval track program provides support to NASCAR, ASA, ARCA, UDTRA, NCRA, IMCA and many
others. These sponsorships are all geared toward paying the racer for winning with specified Holley products. Holley's motorsport successes are also promoted in print and TV advertisements, which help
communicate the high quality and performance of Holley products.

Holley
operates two display trailers attending around 65 events per year. These trailers display, promote and sell product at popular races, car shows and customer events throughout the
year. These display trailers carry hard product displays as well as an inventory of parts to sell and promotional literature to hand out to attendees of these popular events.

Holley's
digital strategy allows for one-on-one communication between Holley and its end-consumer. Holley's corporate website
(www.holley.com) is the industry's largest website with over 6,500 pages. This site is continuously updated and allows Holley to communicate with its
customers, end consumers and employees quickly and efficiently with very little lead-time. This site averages 15,000 unique visitors per day.

Holley
operates the industry's most effective technical service department as a service to Holley's end consumer. The technical service department answers technical issues as well as
application questions for all 7 of the Holley performance brands. This department handles approximately 200,000 phone calls and 100,000 e-mails per year.

RAW MATERIALS

Holley purchases raw materials, typically in the form of components, for its products from many different suppliers. These materials include castings and
forgings, gaskets, plastic, hose, steel and other materials to produce the products. Holley has one significant supplier of raw materials, a zinc foundry vendor that supplies zinc castings for the
performance carburetor line. The rough casting bodies are machined, customized and assembled into finished carburetors. Holley buys castings in bulk at negotiated and fixed prices for six-month
intervals. These castings accounted for approximately 8.0% of the total raw material purchases in 2002. The aluminum casting of Weiand products are outsourced due to the closure of the Weiand foundry.
All tooling is owned by Holley and is transferable to other aluminum foundries should there be a need to do so. This foundry accounted for approximately 7.0% of raw material purchases in 2002. The top
six suppliers accounted for approximately 24.0% of total raw material purchases in 2002.

No
suppliers other than the two foundries noted above accounted for more than 5.0% of the total raw material purchases in 2002. There are two or more sources of supply for all of the
significant raw materials.

TRADEMARKS AND PATENTS

Holley and its subsidiaries have registered, or are in the process of registering, approximately 146 trademarks on the names and logos of the various companies
and their products in the U.S. and other countries. Holley and its subsidiaries have 39 patents or patents pending on various products registered

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in the U.S. and other countries. None of Holley's significant patents are scheduled to expire in the near-term.

SEASONALITY

Holley experiences slight seasonal trends which are generally prevalent in the overall automotive aftermarket industry. Historically, revenues are highest in the
second fiscal quarter, marking the beginning of the racing season and weather better suited for outdoor automotive repair activity. As seasonality has a greater effect on the remanufacturing facility
in Springfield, Tennessee, temporary employees are occasionally required to respond to peak demand.

COMPETITION

There is significant competition in the performance automotive products segment. Holley competes with many other companies and individuals in the manufacture and
sale of performance automotive parts. Holley competes primarily on the basis of product performance, brand name, quality, service, and price. Within the performance products line, the primary
competitor is Edelbrock Corporation, a public company. Holley and Edelbrock are the only two companies that currently provide products for nearly all product segments of the performance market,
although there are smaller, specialized producers of performance products.

EMPLOYEES

As of December 31, 2002, Holley had 795 U.S.-based employees including fulltime, hourly and salary employees and 193 Mexico-based employees. None of the employees
are represented by labor unions. Holley provides a comprehensive benefits program to all fulltime employees. During the third and fourth fiscal quarters of 2002, Holley implemented involuntary layoffs
of 91 hourly and salary employees from the headquarters and all U. S. manufacturing plants, reducing the total employment level to 988 at December 31, 2002. The So-Cal unit, a small manufacturer of
custom automobiles, has
27 employees as of December 31, 2002. On February 24, 2003, Holley sold the net assets of So-Cal to a management group for its net asset value of approximately $1.2 million.

AVAILABLE INFORMATION

Upon request, the Company will voluntarily provide electronic or paper copies of Holley's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current
Reports on Form 8-K, and if applicable, any amendments thereto.

ITEM 2PROPERTIES

As of December 31, 2002, Holley has manufacturing facilities located in Bowling Green, Kentucky; Springfield, Tennessee; Pomona, California; Long Beach,
California; Memphis, Tennessee; Aberdeen, Mississippi and Tijuana, Mexico. Holley believes that each is well maintained and suitable for its purpose. As part of the business strategy, Holley endeavors
to manufacture all critical components and systems. However, to complete certain products, certain processes are outsourced to third parties. Holley believes that the current facilities are adequate
to meet its needs in the existing markets for the foreseeable future.

Holley's
headquarters are located in Bowling Green, Kentucky on the same 15.4 acre site as the 220,000 square foot primary manufacturing facility. At this location, Holley manufactures
and packages carburetors, intake manifolds, superchargers, rods, electric fuel pumps and fuel injection systems in several manufacturing cells. In November, 2002, Holley disposed of a 110,000 square
foot distribution facility in Bowling Green, Kentucky for approximately its book value. All distribution functions were moved from this facility back to the Bowling Green manufacturing facilities.

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The
remanufactured carburetor operation is located in Springfield, Tennessee. This approximately 95,000 square foot facility is also completely cellularized with seven manufacturing
cells that are managed by employee self-directed teams. Holley exercised a purchase option for the Springfield, Tennessee facility in January 2001, and acquired ownership of the facility from the
local industrial authority for a nominal fee.

Holley
leases Lunati's approximately 30,000 square foot manufacturing facility located in Memphis, Tennessee. Lunati manufacturers pistons, connecting rods camshafts and crankshafts at
the Memphis, Tennessee facility. During 2000, Holley leased an approximately 335,000 square foot manufacturing facility in Aberdeen, Mississippi in connection with certain relocation and employment
incentives
offered by Monroe County, Mississippi, with a related Industrial Revenue Bond. The lease term expires in May 2025 and requires an annual rent payment of $7,500. Flowtech's manufacturing facilities
were relocated to the Aberdeen facility in 2000, and Hooker's finished goods inventories were relocated to the Aberdeen facility during December 2000 and January 2001.

Holley
manufactures and distributes Earl's products in the Long Beach, California facility. The former NOS facility in Costa Mesa, California closed in the first quarter 2001 and has
been subleased. Earl's is also the 51% owner of smaller retail and distribution subsidiaries with properties leased in Indianapolis, Indiana; Towcester, Northants, United Kingdom; and Australia. A
small facility in Lawndale, California closed in February, 2003.

ITEM 3LEGAL PROCEEDINGS

In May 1999, Union Pacific Railroad Company filed an action against Weiand Automotive and others in the United States District Court for the Central District of
California, alleging that certain soil and groundwater contamination discovered on Union Pacific property in Los Angeles had migrated from an adjacent Weiand Automotive facility. Holley subsequently
became a defendant, as did the owner of the property on which the Weiand Automotive business had been operated. In December 2000, a global settlement of claims was reached with Weiand's insurers
paying the bulk of the settlement and Holley and Weiand Automotive's attorneys fees. In addition, $550,000 was put into a Site Source Control Account to cover costs incurred by Holley and Weiand
Automotive and the property owner to investigate and remediate any contamination of the Weiand property which may be required by the State of California. In July 2001, Weiand Automotive entered into a
Voluntary Cleanup Agreement with the State of California Environmental Protection Agency Department of Toxic Substances Control (DTSC) to investigate and, if necessary, remediate the contamination on
the Weiand property. Consultants for Holley and Weiand Automotive have submitted a workplan to DTSC, which is pending approval. Although Holley estimates that the Site Source Control Account will be
sufficient to cover Holley's costs for investigation and remediation of the site, there can be no assurances that the final costs will not exceed such amount. Holley and Weiand Automotive are working
vigorously to address regulatory issues arising from the discovered contamination.

Holley
has been named as defendants in a number of legal actions arising from normal business activities. Although the amount of any ultimate liability with respect to such matters
cannot be precisely determined, management does not expect any such liability to have a material adverse effect on the financial condition or results of operations of the Company.

ITEM 4SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

Not applicable.

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PART II

ITEM 5MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Holley does not have a class of capital stock registered pursuant to the Securities Exchange Act of 1934, as amended, and there is no public trading market for
its common stock. Holley is restricted from paying dividends on its common stock under its senior credit facility, and otherwise has no present intentions to declare or pay dividends.

ITEM 6SELECTED FINANCIAL DATA

The following table sets forth certain selected consolidated financial data for Holley and its subsidiaries, as of and for the periods presented. Certain
reclassifications have been made to the 1998 to 2001 data to conform with the 2002 presentation.

|                                                                      |                                                 | 1998                     |        | 1999    |        | 2000    |         | 2001   |         | 2002    |       
|--------------------------------------------------------------------- | ----------------------------------------------- | ------------------------ | ------ | ------- | ------ | ------- | ------- | ------ | ------- | ------- | ------
|
|INCOME STATEMENT DATA:                                                |                                                 |                          |        |         |        |         |         |        |         |         |       
|Net sales                                                             |                                                 | $                        | 99,576 |         | $      | 128,098 |         | $      | 159,663 |         | $     
|Cost of sales                                                         |                                                 |                          | 69,997 |         |        | 87,727  |         |        | 114,220 |         |       
|                                                                      |                                                 |                          |        |         |        |         |         |        |         |         |       
|Gross profit                                                          |                                                 |                          | 29,579 |         |        | 40,371  |         |        | 45,443  |         |       
|                                                                      |                                                 |                          |        |         |        |         |         |        |         |         |       
|Operating expenses                                                    |                                                 |                          |        |         |        |         |         |        |         |         |       
|                                                                      | Selling, general, and administrative
expenses   |                          |        | 17,624  |        |         | 26,096  |        |         | 39,972  |       
|                                                                      | Amortization of intangibles                     |                          |        | 1,671   |        |         | 4,536   |        |         | 5,542   |       
|                                                                      | Other expenses                                  |                          |        | 2,078   |        |         | 1,089   |        |         | 776     |       
|                                                                      |                                                 |                          |        |         |        |         |         |        |         |         |       
|                                                                      |                                                 | Total operating expenses |        |         | 21,373 |         |         | 31,721 |         |         | 46,290
|                                                                      |                                                 |                          |        |         |        |         |         |        |         |         |       
|Operating income (loss)                                               |                                                 |                          | 8,206  |         |        | 8,650   |         |        | (847    | )       |       
|Interest expense                                                      |                                                 |                          | 4,705  |         |        | 14,516  |         |        | 23,934  |         |       
|                                                                      |                                                 |                          |        |         |        |         |         |        |         |         |       
|Income (loss) before taxes and cumulative effect of accounting change |                                                 |                          | 3,501  |         |        | (5,866  | )       |        | (24,781 | )       |       
|Income tax (benefit) expense                                          |                                                 |                          | 1,831  |         |        | (1,185  | )       |        | (8,122  | )       |       
|                                                                      |                                                 |                          |        |         |        |         |         |        |         |         |       
|Income (loss) before cumulative effect of accounting change           |                                                 |                          | 1,670  |         |        | (4,681  | )       |        | (16,659 | )       |       
|Cumulative effect of accounting change, net                           |                                                 |                          |       |         |        |        |         |        |        |         |       
|                                                                      |                                                 |                          |        |         |        |         |         |        |         |         |       
|Net income (loss)                                                     |                                                 | $                        | 1,670  |         | $      | (4,681  | )       | $      | (16,659 | )       | $     
|                                                                      |                                                 |                          |        |         |        |         |         |        |         |         |       
|OTHER FINANCIAL DATA:                                                 |                                                 |                          |        |         |        |         |         |        |         |         |       
|                                                                      | Depreciation & amortization                     |                          | $      | 4,123   |        | $       | 10,128  |        | $       | 12,993  |       
|                                                                      | Capital expenditures                            |                          |        | 4,007   |        |         | 4,642   |        |         | 4,290   |       
|                                                                      | Total assets                                    |                          |        | 178,072 |        |         | 262,863 |        |         | 264,329 |       
|                                                                      | Total long-term debt, including current portion |                          |        | 93,088  |        |         | 164,705 |        |         | 184,382 |       

ITEM 7MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the notes thereto included elsewhere in this
report.

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OVERVIEW

KHPP Acquisition Corporation ("Acquisition") and KHPP Holdings, Inc.("Holdings"), both Delaware corporations, were formed by Kohlberg & Co.,
L.L.C.("Kohlberg") in 1998 to effect the acquisition of Holley. Acquisition purchased Holley in 1998 for approximately $100 million, and immediately thereafter merged with and into Holley. The
purchase of Holley and the merger of Acquisition into Holley are together referred to herein as the "Holley Acquisition." The Holley Acquisition was accounted for as a purchase. Accordingly, the
consolidated financial statements of Holley reflect the purchase method of accounting effective May 15, 1998.

In
connection with the October 1999 acquisitions of FlowTech, NOS and Earl's and to repay existing indebtedness under its bank credit facility, in September 1999, Holley issued
$150 million of 121/4% Senior Notes due 2007 at a discount of 3.7% (the "Senior Notes") pursuant to an Indenture (the "Indenture"). The Company completed an exchange of the
Senior Notes for identical, but publicly-tradeable notes pursuant to an exchange offer registered with the Securities and Exchange Commission ("SEC").

Holley's
results of operations for fiscal 1999 through 2002 (as defined below) have been affected by the Holley Acquisition and the subsequent acquisitions of Weiand, Lunati, Hooker,
FlowTech, NOS, and Earl's (the "Acquisitions"). Fiscal results of 1999 and subsequent years include the results of operations
from the Acquisitions subsequent to their acquisition dates. Consequently, meaningful comparisons of results between 1998 and subsequent years are difficult.

The
results of operations for the years ended December 31, 2002, 2001 and 2000 include the acquired businesses for the full twelve-month period. During 2000, the FlowTech
manufacturing operations were relocated to the Aberdeen, Mississippi exhaust manufacturing and distribution center. The relocation of the Hooker distribution center to the Aberdeen, Mississippi
exhaust facility was initiated in December 2000 and was completed in January 2001. The original FlowTech facility was subleased in 2001 and the Hooker facilities in California were partially subleased
during 2001. The Hooker manufacturing facility in Tijuana, Mexico continues as a leased facility.

RESULTS OF OPERATIONS

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001

NET SALES.Net sales equals gross sales less provisions for volume rebates, product returns and co-op advertising
allowances. In 2002, Holley changed its accounting by reclassifying cash discounts ($3.6 million and $3.4 million in 2002 and 2001, respectively) from selling expenses to a reduction in
gross sales. All prior years presented have been reclassified to conform with the 2002 presentation. Net sales for the year ended December 31, 2002 totaled $139.5 million compared to
$143.6 million for the same period in 2001, a decrease of $4.1 million or 2.9%. Net sales in the performance segment for 2002 were $124.4 million compared to $124.2 million in the
same period in 2001, an increase of $0.2 million. The lack of any significant increase in performance products is attributable to the general economic downturn and customers' reactions to the
economy by reducing their inventories accordingly. Net sales in the remanufacturing segment for 2002 were $15.2 million compared to $19.4 million in the same period in 2001, a decrease
of $4.2 million or 21.7%. The decrease in net sales in the remanufacturing segment is the direct result of weak demand in the repair market due to the continuing decline in demand for
remanufactured carburetors and lack of price increases.

GROSS PROFIT.Gross profit for the year ended December 31, 2002 totaled $19.8 million or 14.2% of net sales
compared to $33.6 million or 23.4% of net sales for the same period in 2001, a decrease of $13.8 million or 41.1%. Gross profit in the performance segment for 2002 was
$18.9 million or 15.2% of net sales, compared to $29.3 million or 23.6% of net sales for 2001, a decrease of $10.4 million or 35.5%. This decrease is the result of declining
sales, increased sales incentives, increased manufacturing costs, $6.2 million in mid-year book-to-physical write-offs and $5.1 million of increased inventory and warranty reserves.
During the last half of 2002 management significantly

10

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reduced the product offering for slow selling models in relation to soft consumer demand and the general economic slowdown, and reviewed the applicable inventory levels as well as the level of
warranty returns. These reviews led to a requirement for an additional $5.1 million in reserves for these items and the Company incurred $0.2 million to close its distribution center.
The Company has taken steps to reduce variable manufacturing costs, including significant reductions in direct and indirect labor and fringe costs and purchased services compared to the last half of
2001. In the remanufacturing segment, gross profit for the year ended December 31, 2002 was $0.9 million or 5.9% of net sales compared to $4.3 million or 22.2% of net sales for
the same period in 2001, a decrease of $3.4 million or 79.1%. The decrease in the remanufacturing segment is due to reduced sales, the continued decline in demand for special order repair
products and increased warranty and remanufacturing expenses.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE AND MANAGEMENT FEE.Selling, general and administrative expense and management
fee for the year ended December 31, 2002 totaled $27.4 million or 19.6% of net sales compared to $26.1 million or 18.2% of net sales for the same period in 2001, an increase of
$1.3 million or 5.0%. Selling expenses for 2002 were $2.1 million less than 2001. This decrease is the result of reduced catalog expenses and exhibit costs.

Research
and development expenses for 2002 were $1.3 million which was $0.5 million higher than 2001. A major portion of engineering activities in each year has been
directed at improving manufacturing processes, cost reduction projects and part substitution projects. Therefore, approximately $1.0 million and $1.2 million of engineering expense was
included in manufacturing overhead in 2002 and 2001, respectively.

AMORTIZATION EXPENSE.As of January 1, 2002, the Company adopted SFAS 142. In accordance with SFAS 142,
the Company discontinued the amortization of goodwill and indefinite lived intangible assets. Amortization expense for the year ended December 31, 2002 totaled $1.9 million compared to
$5.8 million in 2001. These expenses in 2002 reflect the amortization of only the intangibles with a defined life, whereas previous years reflect the additional amortization of goodwill and
other indefinite lived intangible assets associated with the Holley Acquisition and the subsequent acquisitions of Weiand, Lunati, Hooker, FlowTech, NOS and Earl's.

INCOME (LOSS) FROM OPERATIONS.Loss from operations for the year ended December 31, 2002 totaled
$(10.1) million compared to income of $1.3 million in 2001, a decrease of $(11.4) million.

INTEREST EXPENSE.Cash interest for the year ended December 31, 2002 was $20.6 million compared to
$20.8 million for the same period in 2001, a decrease of $0.2 million, reflecting lower interest rates in 2002 as compared to 2001.

Interest
expense for the year ended December 31, 2002 was $23.1 million, of which $2.0 million related to the Company's revolving credit facility,
$18.4 million to bond interest, $1.5 million to amortization of the senior debt discount and deferred financing costs, $0.2 million to other cash interest, $0.2 million to
the $7.5 million senior note interest and $0.8 million to the write off of unamortized deferred financing costs in connection with the replacement of the Company's credit facility in
July, 2002.

INCOME TAX (BENEFIT) EXPENSE.The income taxes benefit for the year ended December 31, 2002 was ($3.1) million
compared with a provision of $2.9 million for the year ended December 31, 2001. The tax benefit in 2002 resulted from a tax sharing agreement that the Company entered into in 2002 with
its prior owner, Coltec Industries, Inc. Pursuant to this agreement, the Company has carried back $12.4 million of net operating losses to years that it was a member of Coltec's consolidated
tax group. Per the agreement, the Company expects to receive 85% of the recovery of $3.7 million during 2003, with Coltec receiving the remaining 15%.

CUMULATIVE EFFECT OF ACCOUNTING CHANGE.The Company adopted SFAS 142 "Goodwill and Other Intangible Assets" as of
January 1, 2002, which required the Company to

11

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discontinue the amortization of its goodwill and trade names effective January 1, 2002. Additionally, the Company was required to test these assets for impairment in their value. The results
of such tests indicated an impairment occurred and the values were written down by $85.3 million net of tax benefit of $2.8 million for goodwill and $3.4 million, net of tax
benefit of $1.3 million as to trade names. These changes are accounted for as a cumulative effect of an accounting change as of January 1, 2002.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2001 AND DECEMBER 31, 2000

NET SALES.Net sales equals gross sales less provisions for volume rebates, product returns, co-op advertising
allowances, and cash discounts of $3.4 million and $3.8 million in 2001 and 2000, respectively, which have been reclassified from selling expenses to conform to the 2002 presentation.
Net sales for the year ended December 31, 2001 totaled $143.6 million compared to $159.7 million for the same period in 2000, a decrease of $16.1 million or 10.1%. Net
sales in the performance segment for 2001 were $124.2 million compared to $135.8 million the same period in 2000, a decrease of $11.6 million or 8.5%. The decrease is attributable
to the general economic downturn and customers' reactions to the economy by reducing their inventories accordingly. Net sales in the remanufacturing segment for 2001 were $19.4 million compared
to $23.8 million in the same period in 2000, a decrease of $4.4 million or 18.5%. The decrease in the net sales in the remanufacturing segment is the direct result of weak demand in the
repair market due to the continuing decline in demand for remanufactured carburetors and lack of price increases.

GROSS PROFIT.Gross profit for the year ended December 31, 2001 totaled $33.6 million or 23.4% of net sales
compared to $45.4 million or 28.4% of net sales for the same period in 2000, a decrease of $11.8 million or 26.0%. Gross profit in the performance segment for 2001 was
$29.3 million or 23.6% of net sales, compared to $39.9 million or 29.4% of net sales for 2000 a decrease of $10.6 million or 26.6%. In the remanufacturing segment, gross profits
for the year ended December 31, 2001 were $4.3 million or 22.2% of net sales compared to $5.5 million or 23.1% of net sales for the same period in 2000, a decrease of
$1.2 million or 21.8%. The decrease in the gross profit in both segments in 2001 is attributable to the economic slowdown and subsequent recession and lack of price increases, partially offset
by cost reductions.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.Selling, general and administrative expenses for the year ended
December 31, 2001 totaled $26.1 million or 18.2% of sales compared to $40.0 million or 25.1% for the same period in 2000, a decrease of $13.9 million or 34.8%. The decrease
is attributable to spending reductions in selling expenses of $4.7 million, primarily in advertising and promotional costs and in all areas of general and administrative expenses.

Research
and development expenses for 2001 were $1.4 million lower than 2000. A major portion of the engineering activities were directed at improving the manufacturing processes,
cost reduction projects and part substitution projects. Therefore, approximately $1.2 million of engineering expenses were included in manufacturing overhead in 2001.

OTHER EXPENSES.Other expenses include plant relocation costs which for the year ended December 31, 2001 totaled
$-0- million compared to $0.7 million in 2000.

AMORTIZATION EXPENSE.Amortization expense for the year ended December 31, 2001 totaled $5.8 million compared
to $5.5 million for the same period in 2000. These expenses reflect the amortization of goodwill, trade names and other intangible assets associated with the Holley Acquisition and the
subsequent acquisitions of Weiand, Lunati, Hooker, FlowTech, NOS, and Earl's.

INCOME (LOSS) FROM OPERATIONS.Income from operations for the year ended December 31, 2001 totaled $1.3 million
compared to a loss of $(0.8) million for the same period in 2000, a increase of $2.1 million.

12

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INTEREST EXPENSE.Cash interest for the year ended December 31, 2001 was $20.8 million compared to
$21.1 million for the same period in 2000, a decrease of $0.3 million or 1.4%, reflecting lower interest rates in 2001 compared to 2000.

Interest
expense for the year 2001 was $22.5 million, of which $2.2 million related to the Company's revolving credit facility, $18.4 million to bond interest,
$1.7 million to amortization of the senior debt discount and amortization of deferred financing costs, and $0.2 million to other cash interest.

INCOME TAX (BENEFIT) EXPENSE.The provision for income taxes for the year ended December 31, 2001 was
$2.9 million compared with a benefit of ($8.1) million for the year ended December 31, 2000. The tax provision in 2001 resulted from the establishment of a $9.8 million
allowance against deferred tax assets. The tax benefit in 2000 resulted from pre-tax losses adjusted for non-deductible expenses (primarily amortization of goodwill).

RECLASSIFICATION.The Company previously reported an extraordinary item in 2000 reflecting the write-off of $0.5 million (net
of tax) of unamortized financing and transaction fees associated with the Company's prior credit facility. This facility was paid off in full in December 2000. In accordance with SFAS 145, such
write-offs no longer qualify for extraordinary item treatment and the Company reclassified this item (grossed up for taxes to $0.8 million) to interest expense.

QUARTERLY RESULTS

The following tables summarize the unaudited results of operations for each of the specified quarters of fiscal years 2002 and 2001 (in thousands).

2002

|                                                   |  | Quarter Ended |        
|-------------------------------------------------- |  | ------------- | -------
|
|Net sales                                          |  | $             | 36,674 
|Gross profit                                       |  |               | 9,660  
|Loss before cumulative effect of accounting change |  |               | (1,785 
|Cumulative effect of accounting change, net of tax |  |               | (84,591
|Net loss                                           |  |               | (86,376

2001

|                                                   |  | Quarter Ended |       
|-------------------------------------------------- |  | ------------- | ------
|
|Net sales                                          |  | $             | 34,561
|Gross profit                                       |  |               | 9,820 
|Loss before cumulative effect of accounting change |  |               | (2,614
|Cumulative effect of accounting change, net of tax |  |               |      
|Net loss                                           |  |               | (2,614

LIQUIDITY AND CAPITAL RESOURCES

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

13

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service requirements. EBITDA is defined as net income or loss (excluding cumulative effects of accounting changes, gains or losses from asset dispositions and minority interest) before interest,
income taxes, depreciation and amortization.

A
reconciliation from Operating income (loss) before interest, taxes and the cumulative effect of an accounting change for 2002 and 2001 is as follows:

2001

2002Operating income (loss)

$
1,320

$
(10,076
)Loss (gain) on sale of assets


461


(206
)Impairment of fixed assets





700Depreciation


8,164


6,508Amortization


5,777


1,885EBITDA

$
15,722

$
(1,189
)


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 cash flows from operating, investing or financing activities, as an
indicator of cash flows or as a measure of liquidity. Certain covenants in Holley's new $50 million Credit Agreement with Foothill Capital Corporation are based on EBITDA as defined in the
credit facility.

EBITDA
for the year ended December 31, 2002 was $(1.2) million compared to $15.7 million in 2001. This EBITDA represented a decrease of $16.9 million from the same
period in 2001. This decrease was due primarily to reduced gross profits from operations resulting from reduced sales, $6.2 million in mid-year book-to-physical write-offs, excess manufacturing
costs relative to sales throughout the first three quarters, additions to inventory and warranty reserves of $5.1 million and reserves for the write down of excess machinery of
$0.7 million, and, to a lessor extent restructuring expenses in connection with the reduction in salary and hourly workers beginning in September, 2002 and the closing of the Bowling Green
distribution center in November 2002.

OPERATING ACTIVITIES.Net cash provided by (used in) operating activities for fiscal 2002, 2001 and 2000 was
$(9.6) million, $1.5 million and $(7.4) million, respectively. The increase in net loss was offset by decreased working capital requirements, primarily attributable to decreased
accounts receivable of $4.4 million, decreased inventories of $11.8 million, and increased accrued liabilities of $2.2 million; partially offset by an increase in other current assets of
$3.1 million, principally the income tax receivable of $3.4 million resulting from loss carry back claims filed in December, 2002 and a decrease in accounts payable of
$5.5 million.

INVESTING ACTIVITIES.Net cash used in investing activities for fiscal 2002, 2001 and 2000 was $1.2 million,
$1.9 million and $5.0 million, respectively. The primary use of cash during both fiscal 2002 and 2001 was for the purchase of capital equipment and tooling as compared to 2000 where
$4.3 million was for capital additions, maintenance and replacement items, and the purchase of the Tenneco exhaust manufacturing equipment at the Aberdeen Exhaust Products facility of
$0.7 million.

During
2000, the Company entered into a 25-year lease with the city of Aberdeen, Mississippi for the Aberdeen Exhaust Products facility. The facility is a 335,000 square foot
manufacturing facility previously utilized by Tenneco to manufacture exhaust products. The lease rate is $7,500 per year with a termination date after May 1, 2025 pursuant to the lease
agreement. Flowtech operations in Mexico and Tempe, Arizona, and the Hooker operations in Ontario, California were relocated to Aberdeen during 2000.

In
November 2002, the distribution center, which was leased under a capital lease arrangement, near Bowling Green, Kentucky in 1999, was closed and sold to the local Economic Development

14

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Authority for approximately its book value. The distribution operations were moved to the main Bowling Green facility.

FINANCING ACTIVITIES.Net cash provided by (used in) financing activities for fiscal 2002, 2001, and 2000 was
$11.1 million, $(6.4) million, and $18.0 million, respectively. Cash was provided in 2002 from the proceeds of the issuance of a $7.5 million senior unsecured promissory note and
the proceeds from the issuance of $7.5 million of convertible preferred stock. Cash used in both 2002 and 2001 was primarily due to repayments on the revolving credit agreements and other
long-term obligations of $1.0 million and $6.2 million, respectively, and in 2002, $2.9 million financing costs in connection with the new Credit Agreement with Foothill Capital
Corporation and amendments to the Senior Notes Indenture. The cash provided in 2000 resulted from the increase in the revolving credit facility of $17.8 million and $1.0 million in
long-term debt financing provided by certain agencies in Mississippi for the purchase of equipment and relocation expenses associated with the Aberdeen Exhaust Products facility, offset by financing
costs of $0.8 million.

Holley's
primary sources of liquidity to fund its working capital needs are funds generated by operations and borrowings under the Foothill Capital Corporation Credit Agreement described
below.

Holley
historically had expanded its business through the acquisition of other related and complementary businesses, and continues to seek and evaluate acquisition opportunities. The
Company anticipates that continuing the acquisition strategy will require it to incur additional indebtedness. However, the current level of profitability coupled with indenture and bank Credit
Agreement terms, as well as the current level of indebtedness, significantly limits or prevents the Company from incurring any additional substantial indebtedness.

BANK CREDIT FACILITY.In December 2000, Holley replaced its then existing senior credit facility with a $41 million
facility provided by 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 Agreement required certain interest coverage ratios each quarter. The Company was not in compliance with this covenant for the quarters ended March 31 and June 30, 2002 and received a
waiver from Fleet for each quarter. 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 material 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 were limited under the terms of the Company's Senior Notes Indenture to
$45 million (See below). 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 $779,000 of deferred financing costs associated with the Fleet Credit Arrangement. The amended Credit Agreement also prohibits Holley from
paying management fees to Kohlberg & Co. until certain financial metrics are achieved.

At
March 28, 2003, the Company had $5.2 million of unused credit availability under the Credit Agreement.

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

15

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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 missed its
interest payment on the Senior Notes. In September 2002, the Company initially received a $2 million cash infusion from its parent company to meet operating requirements. On October 15, 2002,
the parent company provided 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.

On
October 11, 2002, Holley formally issued a $7.5 million convertible promissory note (the "Promissory Note") to Holley's parent company. 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 Holley has met certain
performance targets based on EBITDA and credit availability the Company 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. After receiving consent of the requisite majority of noteholders under the Indenture governing the Senior Notes, Holley amended the
Indenture to permit a $45 million limit on indebtedness instead of the previous limit. Subsequently, the Company amended the Credit Agreement to permit the Company to receive the cash infusion
described above and amend certain financial covenants.

On
October 11, 2002, Holley issued 75,000 shares of convertible preferred stock to its parent company for total proceeds of $7,500. 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.

Holley
incurred net losses in 2002, 2001 and 2000. Holley's ability to operate within the cash available under its Credit Agreement and to comply with the financial covenants required
under that Credit Agreement are dependent on improving EBITDA and reducing the level of working capital necessary to operate the business.

Management
believes that Holley will be in compliance with the Credit Agreement's quarterly financial ratio covenant requirements which begin on June 30, 2003 and that the Credit
Agreement will be adequate to allow Holley to fund its working capital needs during 2003. However, should the Credit Agreement become unavailable, or Holley fail to meet its projected operating
results, Holley may be forced to seek additional sources of financing in order to fund its working capital needs. In such an event, Holley cannot be certain that it would be able to obtain necessary
financing on acceptable terms or at all. Additionally, Holley has certain contractual obligations which must be funded in the future. They are as follows:

2003

2004

2005

2006

2007

Thereafter($000)Credit Agreement repayment at maturity

$


$


$


$


$
28,554

$
Principal payments on long term debt


170


9,056


96


70


150,074


819Operating lease payments


948


600


89


46


10


135Total contractual cash obligations

$
1,118

$
9,656

$
185

$
116

$
178,638

$
954


16

---

In
connection with the Revolving Credit Agreement, the Credit Agreement requires lockbox agreements which provide for all receipts to be swept daily to reduce borrowings outstanding.
These agreements, combined with the existence of a Material Adverse Effect (MAE) clause in the Credit 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 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 Agreement as a current liability at December 31, 2002 is a result only of the
combination of the two afore-mentioned factors: the lockbox agreements and the MAE clause. However, the Revolving Credit Agreement does not expire or have a maturity date within one year, but rather
has a final expiration date of July 30, 2007. Accordingly, the $28,554 amount due under the Credit Agreement has been included in the above table based on its stated final maturity in July
2007.

The
amount in 2004 includes $8,968 of scheduled repayments of $2,500 per quarter beginning January 1, 2004 until paid (including payment in kind interest accretion) due on the 10%
Convertible Promissory Note to Kohlberg. Payment is contingent upon Holley meeting certain performance targets and credit availability. Should Holley fail to meet such targets, or credit availability
is restricted, repayment of both principal and interest may be delayed indefinitely.

Management
believes that all such obligations will be settled in, or prior to, the period in which such obligations are due except possibly for the large amounts which become due in
2007, which may require part or all of such amounts to be refinanced. There is no assurance that Holley will be successful in obtaining such refinancing, if necessary.

Management
is continually evaluating the performance of Holley's business both in the aggregate and at the separate divisional levels. In the fourth quarter of 2002 and in 2003,
management continues to implement actions designed to reduce working capital, maintain sales, and increase gross profit while controlling operating expenses. Although management believes such actions
have achieved results and that its actions will reduce working capital, maintain sales, and improve gross profit while controlling operating expenses, there is no assurance that it will be successful.
The consolidated financial statements do not include any adjustments to reflect the possible future effects on recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.

INFLATION

General inflation over the last three years has not had a material effect on the Company's cost of doing business and is not expected to have a material effect in
the foreseeable future.

FORWARD-LOOKING STATEMENTS

This report and the information incorporated by reference in this report contains various "forward-looking statements" that involve known and unknown risks and
uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements are typically defined by words such as "believe", "expect",
"anticipate", "estimate" and similar expressions and include (among others) statements concerning:



17

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In
light of these risks and uncertainties, there can be no assurance that the results and events contemplated by the forward-looking information in this document will in fact transpire.
Readers are cautioned not to place undue reliance on these forward-looking statements. Forward-Looking statements included herein are as of the date hereof, and Holley undertakes no obligation to
update or revise any forward-looking statements.

CRITICAL ACCOUNTING POLICIES

In December 2001, the Securities and Exchange Commission issued financial reporting release, FR-60, "Cautionary Advice Regarding Disclosure About Critical
Accounting Policies." FR-60 focuses on the need for more discussion about critical accounting policies. The preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires estimates and assumptions by management that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures. Actual results
could differ from those estimates. Critical accounting policies and significant estimates and assumptions by management are disclosed in Note 2 to the accompanying consolidated financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other
Intangible Assets". SFAS No. 141 was effective July 1, 2001 and SFAS No. 142 was effective January 1, 2002. Under the new rules in SFAS No. 142, goodwill and other
indefinite lived intangible assets from acquisitions prior to July 1, 2001, will no longer be amortized effective January 1, 2002, and will be subject to annual impairment tests. Other
intangible assets will continue to be amortized over their useful lives.

The
Company applied the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the non-amortization provisions of SFAS
No. 142 resulted in a decrease in amortization expense of approximately $5.8 million compared to 2001. During 2002, the Company performed the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002 and determined their was a diminution in value of certain of the trade names of $3.4 million and the goodwill of
$85.3 million and recorded these adjustments, net of applicable tax benefits, as of January 1, 2002 as a cumulative adjustment in a change in accounting principle in the financial
statements. In addition, impairment tests were performed at the end of 2002 resulting in no further impairment of these assets.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which supersedes SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the accounting and reporting provisions of APB Opinion 30, "Reporting the Effects of Disposal of a Segment of a
Business; and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". SFAS No. 144 removes goodwill from its scope and clarifies other implementation issues related to SFAS
No. 121. SFAS No. 144 also provides a single framework for evaluating long-lived assets to be disposed of by sale. The provisions of this statement were adopted effective
January 1, 2002. At December 31, there were certain operating assets held for sale and a reserve for $700 was charged to operating income in accordance with SFAS 144 to recognize
the impairment in the value. These assets were sold in March, 2003 for the net value.

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

18

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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 requires that extinguishment
gains or losses be classified as ordinary gains and losses in comparative financial statements. SFAS No. 145, which applies to all entities, is effective for fiscal years beginning after May
15, 2002. The Company adopted SFAS No. 145 as of January 1, 2002. Accordingly, the write off of the unamortized deferred financing costs of $779 relating to the Credit Arrangement with
Fleet Capital Corporation in July, 2002 has been included in interest expense for the year 2002.

ITEM 7AQUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Holley's exposure to interest rate changes is primarily related to its variable rate debt which may be outstanding from time to time under its
$50.0 million Credit Agreement with Foothill Capital Corporation. The borrowings under the Credit Agreement carry interest rates which are based on the London Interbank Offered Rate (LIBOR) or
base rate. Because the interest rate on the Credit Agreement is variable, the Company's cash flow may be affected by increases in either the LIBOR or prime rate. As of the end of 2002, Holley's
outstanding balance on the Credit Agreement was $28.6 million.

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

ITEM 8FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Item 15 for an index to Holley's consolidated financial statements which are included herewith.

ITEM 9CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

As previously reported by Holley in a Form 8-K/A filed August 13, 2001, Holley appointed Ernst & Young LLP as its independent auditors and dismissed
Arthur Andersen LLP. The report of Arthur Andersen LLP on the financial statements of Holley for the year ended December 31, 2000 contained no adverse opinion or disclaimer of opinion and the
report was not qualified or modified as to uncertainty, audit scope or accounting principle. During the fiscal year ended December 31, 2000, and
through August 6, 2001, there were no disagreements or reportable events. The decision to change firms was approved by the Audit Committee of Holley's Board of Directors. Additionally, during the
fiscal years ended December 31, 2001 and 2002, and through the date of this report, there were no disagreements or reportable events concerning Ernst & Young LLP.

19

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PART III

ITEM 10DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth the name, age and position of each person who is an executive officer or a member of the Board of Directors (a "Director") of
Holley as of March 28, 2003. Directors are elected for a one year term of office at the annual stockholder's meeting.

|NAME                 |  | AGE |  | POSITION                                                              
|-------------------- |  | --- |  | ----------------------------------------------------------------------
|James D. Wiggins     |  | 55  |  | Chief Executive Officer, President, Chairman of the Board and Director
|Russell W. Ford      |  | 41  |  | Vice President and Chief Operating Officer                            
|Gary M. Cademartori  |  | 61  |  | Vice President, Chief Financial Officer and Secretary                 
|John H. Nickoloff    |  | 50  |  | Vice President and General ManagerRemanufacturing Business           
|Thomas W. Tomlinson  |  | 43  |  | Vice President, Finance                                               
|Christopher Lacovara |  | 38  |  | Vice President, Treasurer, Assistant Secretary and Director           
|Evan D. Wildstein    |  | 32  |  | Vice President, Assistant Secretary and Director                      
|James A. Kohlberg    |  | 45  |  | Director                                                              
|William F. Andrews   |  | 71  |  | Director                                                              
|Samuel P. Frieder    |  | 38  |  | Director                                                              

JAMES D. WIGGINS.Chief Executive Officer, President, Chairman of the Board and Directors. Mr. Wiggins has been Chairman
since April 16, 2001 and a Director since 1998. Mr. Wiggins became President and CEO on July 20, 2002, replacing Jeffrey G. King who left the Company. Until 2002, Mr. Wiggins was President and
CEO of The Gates Group of Companies, an industrial and automotive systems manufacturer, which includes The Gates Rubber Company, Stant Manufacturing, Schrader-Bridgeport, Int'l. and Trico Products
Corporation. The Gates Group of Companies is a subsidiary of Tomkins PLC. Prior to his current appointment, Mr. Wiggins was Group President of the Stant/Schrader Group of Gates. He was President and
CEO of Schrader-Bridgeport International, Inc. from 1996 through its acquisition by Tomkins PLC in 1998, and prior to that, was President and CEO of Bridge Products Inc.

RUSSELL W. FORD.Vice President and Chief Operating Officer. Mr. Ford joined Holley in August, 2002. Previously, Mr. Ford was
Vice President Operations for Lockheed Martin Aeronautics Company from 1999-2002. Mr. Ford was Vice President and General Manager for the Industrial and Marine Engine division of Allied Signal from
1994-1999.

GARY M. CADEMARTORI.Vice President, Chief Financial Officer, and Secretary. Mr. Cademartori joined Holley in
September, 2002. He is a partner in the firm of Tatum CFO Partners, LLP, a national partnership of chief financial officers since 1999. From 1995 to 1998 he was the Vice President and CFO of Schrader
Inc. and, after the merger in 1996, Schrader-Bridgeport International, Inc.

JOHN H. NICKOLOFF.Vice President and General ManagerRemanufacturing Business. Mr. Nickoloff joined
Holley as Vice President in 1995. Prior to joining Holley, Mr. Nickoloff was with Frigidaire (AB Electrolux) from 1975 to 1995, where he served in various financial and manufacturing positions,
the most recent as Plant Manager.

20

---

THOMAS W. TOMLINSON,Vice President, Finance. Mr. Tomlinson joined Holley in March, 2003 and will become Chief Financial
Officer in April, 2003. Prior to joining Holley, Mr. Tomlinson served as Chief Financial Officer and was Vice President, Finance of RBX Corporation. From 1987 through 1997, he was with
PricewaterhouseCoopers where he served in various roles including, most recently, Senior Manager.

CHRISTOPHER LACOVARA.Vice President, Treasurer, Assistant Secretary and Director. Mr. Lacovara has been a Director
since 1998. Since 1995, he has been a Principal of Kohlberg & Company, a private equity firm. Prior to that, he was an associate at Kohlberg & Company, which he joined in 1988.
Mr. Lacovara is also a director of Katy Industries, Inc.

EVAN D. WILDSTEIN.Vice President, Assistant Secretary and Director. Mr. Wildstein has been an Assistant Secretary and
Director since 1999. Since December 1999, Mr. Wildstein has been a Principal of Kohlberg & Company, a private equity firm. Prior to that, he was an associate with Kohlberg &
Company, which he joined in 1994.

JAMES A. KOHLBERG.Director. Mr. Kohlberg has been a Director since 1998, and is the Managing Principal of
Kohlberg & Company, a private equity firm, which he co-founded in 1987. Mr. Kohlberg is also a director of Katy Industries, Inc.

WILLIAM F. ANDREWS.Director. Mr. Andrews has been a Director since 1998, and has been Chairman of Corrections
Corporation of America since 2001, Chairman of Scovill Fasteners, Inc. since 1995 and Chairman of Northwestern Steel and Wire Corporation since 1999. From 1993 to 1995, Mr. Andrews was Chairman
and Chief Executive Officer of Amdura Corporation, a manufacturer of hardware and industrial equipment. Mr. Andrews is also a director of Black Box Corporation, Johnson Controls, Inc., Katy
Industries and Trex Corporation.

SAMUEL P. FRIEDER.Director. Mr. Frieder has been a Director since 1998 and a Principal of Kohlberg & Company, a
private equity firm, since 1995. Prior to that, he was an associate at Kohlberg & Company, which he joined in 1989. Mr. Frieder is also a director of Katy Industries, Inc.

ITEM 11EXECUTIVE COMPENSATION

Compensation of Directors. Directors who are officers or employees of Holley receive no additional compensation for serving on the Board of Directors.
Non-employee members of the Board of Directors receive reimbursement for expenses incurred in attending meetings of the directors and any committees of the Board.

21

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Compensation
of Executive Officers. The following table shows, for the three most recent fiscal years, the compensation paid to or earned by the Chief Executive Officer and the three
other most highly compensated executive officers for fiscal year 2002.

SUMMARY COMPENSATION TABLE

|NAME AND
PRINCIPAL POSITION                                       |  | YEAR           |  | SALARY |                         | BONUS |                 | OTHER(5) |                | LONG TERM COMPENSATION
OPTIONS OR SAR AWARDS(6)
|----------------------------------------------------------------- |  | -------------- |  | ------ | ----------------------- | ----- | --------------- | -------- | -------------- | -----------------------------------------------
|James D. Wiggins(2)
Chief Executive Officer                       |  | 2002           |  | $      | 200,819                 |       | -0-             |          | -0-            |                                                
|Jeffrey G. King(1)(3)
Chief Executive Officer                     |  | 2002
2001
2000 |  | $      | 171,852
251,954
226,437 |       | -0-
100,000
-0- |          | 83,333
-0-
-0- |                                                
|Russell W. Ford(4)
Chief Operating Officer                        |  | 2002           |  | $      | 93,692                  |       | 85,000          |          | 168,076        |                                                
|John H. Nickoloff(1)
Vice PresidentPerformance
& Remanufacturing |  | 2002
2001
2000 |  | $      | 131,408
127,337
111,335 |       | -0-
60,000
-0-  |          | -0-
-0-
-0-    |                                                

---

OPTION GRANTS AND EXERCISES IN LAST FISCAL YEAR

There were no options granted or exercised in either 2001 or 2002.

EMPLOYEE ARRANGEMENTS

The Company has entered into employment agreements with the named executive officers, James D. Wiggins and Russell W. Ford. Each was approved by the board of
directors.

Mr.
Ford entered into an employment agreement with Holley in July 2002. Mr. Wiggins entered into his employment agreement with Holley in August 2002. In addition to base salary and
annual incentive bonuses, the executives are entitled to participate in KHPP Holding, Inc.'s, Holley's parent company, stock-based incentive compensation program.

The
agreement with Mr. Ford provides for certain benefits if we have a change in control during his employment followed by the involuntary termination of his employment. If Mr. Ford is
terminated as a result of a change of control, he will receive severance benefits, including six months' base salary

22

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and continuation of applicable employee benefits for six months. Any severance pay due to Mr. Ford will be paid in monthly installments. If Mr. Wiggins is terminated, other than for cause, Mr.
Wiggins is entitled to one year's base salary payable in bimonthly installments.

ITEM 12SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the ownership of Holley's common stock as of March 28, 2003 by the directors, executive officers, persons known by the Company to
own more than 5.0% of our voting common stock and all our directors and executive officers as a group.

Aggregate Number of Shares
Beneficially OwnedName and Address of
Beneficial OwnerNumber

PercentageKHPP Holdings, Inc.(1)

1,000

100
%Directors and executive officers as a group (9 persons)(2)






---

ITEM 13CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Pursuant to a fee arrangement, Holley pays Kohlberg & Company, L.L.C. an annual management fee plus ancillary expenses for certain management and advisory
services, which is subject to increase if Kohlberg & Company, L.L.C. invests additional capital in Holley. The management fee agreement terminates on the earlier of Kohlberg terminating the agreement
by written notice to Holley, April 1, 2009 or the end of the fiscal year in which Kohlberg beneficially owns less than 25% of Holley's outstanding common stock. In 2001, Holley paid Kohlberg an
aggregate of $0.8 million under this management fee agreement. In 2002, management fees of $0.9 million were charged to Holley and accrued, however, no payments were made due to an agreement with
Foothill Capital Corporation which requires the Company to defer payment until certain financial ratios have been met beginning in 2003. Additionally, in March, 2002 Holley paid Kohlberg $276
representing the cost of a directors and officers and employment practices policy which Kohlberg obtained on behalf of Holley.

ITEM 14CONTROLS AND PROCEDURES

Within the 90 days prior to the filing date of this report, Holley carried out an evaluation, under the supervision and with the participation of the management,
including the Chief Executive Officer and interim Chief Financial Officer, of the effectiveness of the design and operation of the disclosure controls and procedures pursuant to Rule 13a-14 under the
Securities Exchange Act of 1934, as

23

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amended. Based upon that evaluation, the Chief Executive Officer and interim Chief Financial Officer concluded that the 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 the 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. Holley implemented a plan to strengthen 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 three quarters of 2002 and that were noted by the independent auditors as part of their audit of the December 31,
2001 and 2002 financial statements. The plan has been an ongoing project throughout 2002 and continues in 2003 and includes additional controls implemented by the interim Chief Financial Officer who
was appointed on September 25, 2002.

PART IV

ITEM 15EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)  Financial
Statements And Schedules. See Index to Financial Statements and Financial Statement Schedule on page 30 hereof.

(b)  Reports
on Form 8-K. A current report on Form 8-K, dated October 15, 2002, describing the amendment to the Senior Notes Indenture and the Credit Agreement and the
investment in the form of $7.5 million senior unsecured convertible promissory note and $7.5 million in convertible preferred stock.

(c)  Exhibits.
The exhibits listed on the Exhibit Index following the signature page hereof are filed herewith in response to this Item.

(d)  Financial
Statement Schedules. See Index to Financial Statements and Financial Statements Schedule on page 30 hereof.

The
following is an index of the exhibits included in this Report or incorporated herein by reference.

|EXHIBIT
NUMBER |  | DESCRIPTION:                                                                                                                                                                                                                                                                                                                       
|-------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1a           |  | Certificate of Incorporation of Holley Performance Products Inc., as amended (filed as Exhibit 3.1a to the Registration Statement on Form S-4, Commission File No. 333-89061, and incorporated herein by
reference).                                                                                                               
|3.1b           |  | Bylaws of Holley Performance Products Inc. (filed as Exhibit 3.1b to the Registration Statement on Form S-4, Commission File No. 333-89061 and incorporated herein by reference).                                                                                                                                                  
|41             |  | Indenture for the 121/4% Senior Notes due 2007, dated as of September 20, 1999, between Holley Performance Products Inc., the Guarantors and State Street Bank and Trust Company, as Trustee (filed as Exhibit 4.1 to
the Registration Statement on Form S-4, Commission File No. 333-89061, and incorporated herein by reference).
|               |  |                                                                                                                                                                                                                                                                                                                                    

24

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|4.2   |  | Form of Global note for 121/4% Senior Note due 2007, Series B (filed as Exhibit 4.3 to the Registration Statement on S-4, Commission File No. 333-89601, and incorporated herein by reference).                                                                                                                                                                                                                                         
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.3   |  | Supplemental Indenture, dated October 10, 2002, between Holley Performance Products Inc. and State Street Bank and Trust Company. (filed as Exhibit 4.1 to Form 8-K of Holley Performance Products Inc. dated October 10, 2002 and
incorporated herein by reference).                                                                                                                                                                   
|4.4   |  | Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of Holley Performance Products Inc. (filed as Exhibit 4.2 to Form 8-K of Holley Performance Products Inc. dated October 10, 2002 and
incorporated herein by reference).                                                                                                                                                                     
|10.1  |  | Loan and Security Agreement, dated December 29, 2000 (the "Loan and Security Agreement"), by and among Holley Performance Products Inc., its subsidiaries and Fleet Capital Corporation. (filed as Exhibit 10.1 to Form 10-K of Holley
Performance Products Inc. for the year ended December 31, 2001, and incorporated herein by reference).                                                                                           
|10.2  |  | First Amendment to the Loan and Security Agreement, dated April 9, 2001, by and among Holley Performance Products Inc., its subsidiaries and Fleet Capital Corporation. (filed as Exhibit 10.2 to Form 10K of Holley Performance Products
Inc. for the year ended December 31, 2001 and incorporated herein by reference).                                                                                                              
|10.3  |  | Second Amendment to the Loan and Security Agreement, dated April 15, 2002, by and among Holley Performance Products Inc., its subsidiaries and Fleet Capital Corporation. (filed as Exhibit 10.3 to Form 10K of Holley Performance Products
Inc. for the year ended December 31, 2001 and incorporated herein by reference).                                                                                                            
|10.4  |  | Loan and Security Agreement dated as of July 30, 2002, by and among Holley Performance Products Inc., its subsidiaries, and Foothill Capital Corporation, as the arranger and administrative agent (filed as Exhibit 10.1 to the Company's
Form 8-K filed on August 9, 2002, and incorporated herein by reference).                                                                                                                     
|10.5  |  | First Amendment and Waiver to Loan and Security Agreement, dated October 11, 2002, among Holley Performance Products Inc., each of its subsidiaries signatory thereto, Foothill Capital Corporation, as the arranger and administrative agent, and
the other lenders Signatory thereto (filed as Exhibit 10.1 to Form 8-K of Holley Performance Products Inc. for the year ended October 15, 2002 and incorporated herein by reference).
|10.6  |  | Holley Performance Products Inc., 10% Pay-in-Kind Convertible Promissory Note in favor of KHPP Holdings, Inc. (filed as Exhibit 10.2 to Form 8-K of Holley Performance Products Inc. for the year ended October 15, 2002 and incorporated
herein by reference).                                                                                                                                                                         
|10.7* |  | Employment Agreement with James D. Wiggins dated August 14, 12002.                                                                                                                                                                                                                                                                                                                                                                      
|10.8* |  | Employment Agreement with Russell W. Ford, dated July 19, 2002.                                                                                                                                                                                                                                                                                                                                                                         
|21    |  | Subsidiaries of Holley Performance Products Inc. (filed as Exhibit 24 to Form 10K of Holley Performance Products Inc. for the year ended December 31, 2001 and incorporated herein by reference).                                                                                                                                                                                                                                       
|99.1* |  | Certification by James D. Wiggins, Chief Executive Officer of Holley Performance Products Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                               
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                         

25

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|99.2* |  | Certification by Gary Cademartori, Chief Financial Officer of Holley Performance Products Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

---

26

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.             
| |  | ---------------------------------------------
| |  | /s/GARY M. CADEMARTORIChief Financial Officer

Date: April 1, 2003

Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.

|SIGNATURE               |  | TITLE                                                                                                                |  | DATE         
|----------------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | -------------
|                        |  |                                                                                                                      |  |              
|/s/JAMES D. WIGGINS     |  | Chief Executive Officer, President, Chairman of the Board of Directors and Director                                  |  | April 1, 2003
|/s/GARY M. CADEMARTORI  |  | Vice President, Chief Financial Officer and Secretary (principal financial officer and principal accounting officer) |  | April 1, 2003
|/s/CHRISTOPHER LACOVARA |  | Vice President, Treasurer, Assistant Secretary and Director                                                          |  | April 1, 2003
|/s/EVAN D. WILDSTEIN    |  | Assistant Secretary and Director                                                                                     |  | April 1, 2003
|/s/JAMES A. KOHLBERG    |  | Director                                                                                                             |  | April 1, 2003
|/s/WILLIAM F. ANDREWS   |  | Director                                                                                                             |  | April 1, 2003
|/s/SAMUEL P. FRIEDER    |  | Director                                                                                                             |  | April 1, 2003

27

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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:





|Date: April 1, 2003 |  | By: |  | /s/JAMES D. WIGGINSJames D. Wiggins Chief Executive
Officer
|------------------- |  | --- |  | -----------------------------------------------------------

28

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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: April 1, 2003 |  | By: |  | /s/GARY CADEMARTORIGary Cademartori Chief Financial
Officer
|------------------- |  | --- |  | -----------------------------------------------------------

29

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INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

|FINANCIAL STATEMENTS                                                                                           |  |    
|-------------------------------------------------------------------------------------------------------------- |  | ---
|Report of Ernst & Young LLP, Independent Auditors                                                              |  | F-1
|Report of Arthur Andersen LLP, Independent Public Accountants                                                  |  | F-2
|Consolidated Balance Sheets as of December 31, 2001 and 2002                                                   |  | F-3
|Consolidated Statements of Operations for the years ended December 31, 2000, 2001 and 2002                     |  | F-4
|Consolidated Statements of Stockholder's Equity (Deficit) for the years ended December 31, 2000, 2001 and 2002 |  | F-5
|Consolidated Statements of Cash Flows for the years ended December 31, 2000, 2001 and 2002                     |  | F-6
|Notes to Consolidated Financial Statements                                                                     |  | F-7
|FINANCIAL STATEMENT SCHEDULE                                                                                   |  |    
|Report of Arthur Andersen LLP on Financial Statement Schedule                                                  |  | S-1
|Schedule IIValuation and Qualifying Accounts                                                                  |  | S-2

All
other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are
inapplicable and, therefore, have been omitted.

30

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REPORT OF INDEPENDENT AUDITORS

Board
of Directors and Stockholder
Holley Performance Products Inc.

We
have audited the accompanying consolidated balance sheets of Holley Performance Products Inc. and subsidiaries as of December 31, 2001 and 2002, and the related consolidated
statements of operations, stockholder's equity (deficit) and cash flows for the years then ended. Our audits also included the financial statement schedule listed on the Index at Item 15(a) as of
December 31, 2001 and 2002 and for the years then ended. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits. The consolidated balance sheet of Holley Performance Products Inc. as of December 31, 2000, and the related consolidated statements of
operations, stockholder's equity and cash flows for the years ended December 31, 1999 and 2000, as restated, and financial statement schedule as of and for the years ended December 31, 1999 and
2000 were audited by other auditors who have ceased operations. Those auditors a) expressed an unqualified opinion, including an explanatory paragraph that disclosed the change in accounting in 2000
for certain inventories from the last-in, first-out method to the first-in, first-out method, on those financial statements in their reports dated March 9, 2001, and b) reported on such financial
statement before the reclassification adjustments included in the accompanying consolidated statement of operations for the year ended December 31, 2000.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Holley Performance Products Inc.
and subsidiaries as of December 31, 2001 and 2002, and the results of their operations and their cash flows for the years then
ended, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein as of December 31, 2001 and 2002 and for the years then ended.

The
accompanying consolidated financial statements have been prepared assuming that Holley Performance Products Inc. will continue as a going concern. As more fully described in Note 1,
the Company has incurred recurring net losses. In addition, the Company is dependent on its Credit Agreement to fund its working capital needs, and the Credit Agreement contains certain financial
covenants with which the Company must comply, and compliance cannot be assured. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are also described in Note 1. 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.

As
discussed in Note 2 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill and other certain intangible assets.

/s/
Ernst & Young LLP

Nashville,
Tennessee
March 13, 2003

F-1

---

The
below report is a copy of the report previously issued by Arthur Andersen LLP in conjunction with its audits of Holley Performance Products, Inc. as of December 31, 2000 and
for the years ended December 31, 1999 and 2000. A copy of this report has been provided as required by the American Institute of Certified Public Accountant's Interpretation of Statement on
Auditing Standards No. 58, "Reports on Audited Financial Statements," and guidance issued by the Securities and Exchange Commission in response to Arthur Andersen LLP ceasing operations. As
such, Arthur Andersen LLP has not reissued this report or consented to its use. Accordingly, limitations may exist on a) investor's right to sue Arthur Andersen LLP under Section 11 of
the Securities Act for false and misleading financial statements, if any, and the effect, if any, on the due diligence defense of directors and officers, and b) investor's legal rights to sue
and recover damages from Arthur Andersen LLP for material misstatements or omissions, if any, in any registration statements and related prospectuses that include or incorporate by reference,
financial statements previously audited by Arthur Andersen LLP.

Certain
financial information for the year ended December 31, 2000 was not reviewed by Arthur Andersen LLP and includes a) reclassifications to conform the Company's 2001 and 2002
financial statement presentation, and b) reclassifications to conform with new accounting pronouncements effective during 2002.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
Holley Performance Products Inc.:

We
have audited the accompanying consolidated balance sheets of HOLLEY PERFORMANCE PRODUCTS INC. (a Delaware corporation) AND SUBSIDIARIES (the "Company") as of December 31, 2000,
and the related consolidated statements of operations, stockholder's equity and cash flows for the years ended December 31, 1999 and 2000, as restated (See Note 7). These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Holley Performance Products Inc. and subsidiaries as of
December 31, 2000, and the results of their operations and their cash flows for the years ended December 31, 1999 and 2000, in conformity with accounting principles generally accepted in the United
States.

As
explained in Note 2 to the consolidated financial statements, the Company has given retroactive effect to a change in accounting for certain inventories from the last-in, first-out
method to the first-in, first-out method.

Arthur
Andersen LLP

Nashville,
Tennessee
March 9, 2001

F-2

---



HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES        CONSOLIDATED BALANCE SHEETS        DECEMBER 31, 2001 AND 2002        (Dollars in Thousands, except per share data)

|                                               |                                                                                                                                                     | December 31,
2001                                    |         | December 31,
2002 |        
|---------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ------- | ----------------- | -------
|ASSETS                                         |                                                                                                                                                    
|CURRENT ASSETS:                                |                                                                                                                                                     |                                                      |         |                   |        
|                                               | Cash                                                                                                                                                |                                                      | $       | 234               |        
|                                               | Accounts receivable, net of allowance for doubtful accounts of $866 and $792 at December 31, 2001 and 2002, respectively                            |                                                      |         | 18,397            |        
|                                               | Inventories                                                                                                                                         |                                                      |         | 34,607            |        
|                                               | Deferred income taxes                                                                                                                               |                                                      |         | 5,773             |        
|                                               | Income taxes receivable                                                                                                                             |                                                      |         | 308               |        
|                                               | Other current assets                                                                                                                                |                                                      |         | 1,497             |        
|                                               |                                                                                                                                                     |                                                      |         |                   |        
|                                               |                                                                                                                                                     | Total current assets                                 |         |                   | 60,816 
|PROPERTY, PLANT AND EQUIPMENT, NET             |                                                                                                                                                     |                                                      | 26,068  |                   |        
|INTANGIBLE ASSETS, NET:                        |                                                                                                                                                     |                                                      |         |                   |        
|                                               | Goodwill                                                                                                                                            |                                                      |         | 101,178           |        
|                                               | Trade names                                                                                                                                         |                                                      |         | 40,669            |        
|                                               | Other                                                                                                                                               |                                                      |         | 8,239             |        
|                                               |                                                                                                                                                     |                                                      |         |                   |        
|                                               |                                                                                                                                                     | Total assets                                         |         | $                 | 236,970
|                                               |                                                                                                                                                     |                                                      |         |                   |        
|LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) |                                                                                                                                                    
|CURRENT LIABILITIES:                           |                                                                                                                                                     |                                                      |         |                   |        
|                                               | Current portion of long-term debt                                                                                                                   |                                                      | $       | 31,158            |        
|                                               | Accounts payable                                                                                                                                    |                                                      |         | 14,060            |        
|                                               | Accrued liabilities                                                                                                                                 |                                                      |         | 13,946            |        
|                                               |                                                                                                                                                     |                                                      |         |                   |        
|                                               |                                                                                                                                                     | Total current liabilities                            |         |                   | 59,164 
|LONG-TERM DEBT, NET OF CURRENT PORTION         |                                                                                                                                                     |                                                      | 147,663 |                   |        
|DEFERRED INCOME TAXES                          |                                                                                                                                                     |                                                      | 21,936  |                   |        
|OTHER NONCURRENT LIABILITIES                   |                                                                                                                                                     |                                                      | 438     |                   |        
|                                               |                                                                                                                                                     |                                                      |         |                   |        
|                                               |                                                                                                                                                     | Total liabilities                                    |         |                   | 229,201
|STOCKHOLDER'S EQUITY (DEFICIT):                |                                                                                                                                                     |                                                      |         |                   |        
|                                               | Preferred stock, $1.00 par value, 150,000 shares authorized; 0 and 75,000 shares issued and outstanding at December 31, 2001 and 2002, respectively |                                                      |         |                  |        
|                                               | 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) |         | $                 | 236,970
|                                               |                                                                                                                                                     |                                                      |         |                   |        

See
accompanying notes.

F-3

---

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

|                                                                                               |                          | Year Ended December 31, |        
|---------------------------------------------------------------------------------------------- | ------------------------ | ----------------------- | -------
|
|NET SALES                                                                                      |                          | $                       | 159,663
|COST OF SALES                                                                                  |                          |                         | 114,220
|                                                                                               |                          |                         |        
|                                                                                               |                          | Gross profit            |        
|                                                                                               |                          |                         |        
|SELLING EXPENSES                                                                               |                          |                         | 20,791 
|GENERAL AND ADMINISTRATIVE EXPENSES                                                            |                          |                         | 18,239 
|MANAGEMENT FEES TO RELATED PARTY                                                               |                          |                         | 942    
|AMORTIZATION OF INTANGIBLES                                                                    |                          |                         | 5,542  
|OTHER EXPENSES                                                                                 |                          |                         | 776    
|                                                                                               |                          |                         |        
|                                                                                               | TOTAL OPERATING EXPENSES |                         |        
|                                                                                               |                          |                         |        
|                                                                                               |                          | Operating income (loss) |        
|INTEREST EXPENSE                                                                               |                          |                         | 23,934 
|                                                                                               |                          |                         |        
|LOSS BEFORE INCOME TAX (BENEFIT) EXPENSE AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE            |                          |                         | (24,781
|INCOME TAX (BENEFIT) EXPENSE                                                                   |                          |                         | (8,122 
|                                                                                               |                          |                         |        
|LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE                                             |                          |                         | (16,659
|CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR INTANGIBLE ASSET IMPAIRMENT, NET OF TAXES OF $4,082 |                          |                         |       
|                                                                                               |                          |                         |        
|NET LOSS                                                                                       |                          | $                       | (16,659
|                                                                                               |                          |                         |        

See
accompanying notes.

F-4

---



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

|                           |                             | STOCKHOLDER'S EQUITY (DEFICIT) |   
|-------------------------- | --------------------------- | ------------------------------ | --
|
|BALANCE, DECEMBER 31, 1999 |                             | $                              |  
|                           | Net loss                    |                                |   
|                           |                             |                                |   
|BALANCE, DECEMBER 31, 2000 |                             |                                |  
|                           | Net loss                    |                                |   
|                           |                             |                                |   
|BALANCE, DECEMBER 31, 2001 |                             |                                |  
|                           | Issuance of preferred stock |                                |   
|                           | Net loss                    |                                |   
|                           |                             |                                |   
|BALANCE, DECEMBER 31, 2002 |                             | $                              | 75
|                           |                             |                                |   

See
accompanying notes.

F-5

---

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

|                                      |                                                                                                                                       | Year Ended December 31,                              |                                               
|------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ----------------------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES: |                                                                                                                                       |                                                      |                                               
|                                      | Net loss                                                                                                                              |                                                      | $                                             
|                                      | Adjustments to reconcile net loss to net cash (used in) provided by operating activities:                                             |                                                      |                                               
|                                      |                                                                                                                                       | Depreciation and amortization                        |                                               
|                                      |                                                                                                                                       | Amortization of debt discount                        |                                               
|                                      |                                                                                                                                       | Accretion of interest on promissory note             |                                               
|                                      |                                                                                                                                       | Deferred income taxes                                |                                               
|                                      |                                                                                                                                       | Cumulative effect of accounting change, net of taxes |                                               
|                                      |                                                                                                                                       | Pension plan curtailment                             |                                               
|                                      |                                                                                                                                       | Write-off of deferred financing costs                |                                               
|                                      |                                                                                                                                       | (Gain) loss on sale of fixed assets                  |                                               
|                                      |                                                                                                                                       | Impairment of fixed assets                           |                                               
|                                      |                                                                                                                                       | Changes in assets and liabilities:                   |                                               
|                                      |                                                                                                                                       |                                                      | Accounts receivable                           
|                                      |                                                                                                                                       |                                                      | Inventories                                   
|                                      |                                                                                                                                       |                                                      | Other current assets & income taxes receivable
|                                      |                                                                                                                                       |                                                      | Accounts payable                              
|                                      |                                                                                                                                       |                                                      | Accrued liabilities                           
|                                      |                                                                                                                                       |                                                      |                                               
|                                      |                                                                                                                                       |                                                      |                                               
|                                      |                                                                                                                                       |                                                      |                                               
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                                                                                                       |                                                      |                                               
|                                      | Capital expenditures                                                                                                                  |                                                      |                                               
|                                      | Proceeds on disposal of fixed assets                                                                                                  |                                                      |                                               
|                                      | Other                                                                                                                                 |                                                      |                                               
|                                      |                                                                                                                                       |                                                      |                                               
|                                      |                                                                                                                                       |                                                      |                                               
|                                      |                                                                                                                                       |                                                      |                                               
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                                                                                                       |                                                      |                                               
|                                      | Proceeds from issuance of long-term obligations                                                                                       |                                                      |                                               
|                                      | Principal payments on long-term obligations                                                                                           |                                                      |                                               
|                                      | Net repayments under revolving credit arrangement                                                                                     |                                                      |                                               
|                                      | Net borrowings under revolving credit agreement                                                                                       |                                                      |                                               
|                                      | Proceeds from issuance of promissory note                                                                                             |                                                      |                                               
|                                      | Proceeds from issuance of preferred stock                                                                                             |                                                      |                                               
|                                      | Financing costs                                                                                                                       |                                                      |                                               
|                                      |                                                                                                                                       |                                                      |                                               
|                                      |                                                                                                                                       |                                                      |                                               
|                                      |                                                                                                                                       |                                                      |                                               
|NET CHANGE IN CASH                    |                                                                                                                                       |                                                      | 5,608                                         
|BALANCE AT BEGINNING OF PERIOD        |                                                                                                                                       |                                                      | 1,359                                         
|                                      |                                                                                                                                       |                                                      |                                               
|BALANCE AT END OF PERIOD              |                                                                                                                                       | $                                                    | 6,967                                         
|                                      |                                                                                                                                       |                                                      |                                               
|SUPPLEMENTAL CASH FLOW INFORMATION:   |                                                                                                                                       |                                                      |                                               
|                                      | Cash paid for interest                                                                                                                |                                                      | $                                             
|                                      |                                                                                                                                       |                                                      |                                               
|                                      | Cash received for income taxes                                                                                                        |                                                      | $                                             
|                                      |                                                                                                                                       |                                                      |                                               
|NON-CASH TRANSACTIONS:                |                                                                                                                                       |                                                      |                                               
|                                      | Issuance of debt for distribution facility under capital lease                                                                        |                                                      | $                                             
|                                      |                                                                                                                                       |                                                      |                                               
|                                      | Exchange of distribution facility and related fixed assets for forgiveness of note payable and termination of capital lease agreement |                                                      | $                                             
|                                      |                                                                                                                                       |                                                      |                                               

See accompanying notes.

F-6

---



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

1. ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION

Holley Performance Products Inc. ("Holley") is incorporated under the laws of Delaware and headquartered in Bowling Green, Kentucky. Holley and its wholly-owned
subsidiaries (referred to collectively as the "Company") is a leading manufacturer of a diversified line of performance automotive products, including carburetors, fuel pumps, fuel injection systems,
ignition systems and remanufactured carburetors. The products are designed to enhance street, off-road, recreational and competitive vehicle performance through increased horsepower, torque and
driveability. In addition to its automotive performance line, the Company manufactures performance marine, mobile and stationary industrial engine components and markets a line of performance in-tank
fuel pumps as well as a specialty chemical line.

Effective
May 15, 1998, all outstanding shares of Holley common stock were purchased by KHPP Acquisition Corporation ("KHPP"), a wholly-owned subsidiary of KHPP Holdings Corporation
("Holdings"), for $100,000 (the "Acquisition"). At the time of the Acquisition, KHPP was merged into Holley. The consolidated balance sheets as of December 31, 2001 and 2002, and the consolidated
statements of operations, stockholder's equity (deficit) and cash flows for the years ended December
31, 2000, 2001 and 2002 reflect the accounts of Holley subsequent to the change in ownership that resulted from the Acquisition. The Acquisition was accounted for using the purchase method of
accounting.

Prior
to January 1, 1996, Holley was a division of Coltec Industries, Inc. ("Coltec"). Effective January 1, 1996, Holley was incorporated and, from January 1, 1996 to May 15, 1998, was a
wholly-owned subsidiary of Coltec.

In
August of 1998, Holley purchased the outstanding common stock of Weiand Automotive Industries, Inc. ("Weiand") and, in October of 1998, Holley purchased a group of companies under
common ownership: Lunati Cams, Inc., Lunati & Taylor Pistons, Inc., and LMT Motor Sports Corporation (referred to collectively as "Lunati"). Weiand is a manufacturer and distributor of inductions
systems, and Lunati is a manufacturer of camshafts, crankshafts, pistons and automotive specialty parts. Both Weiand and Lunati sell their products to automotive parts retailers throughout the United
States.

In
July of 1999, Holley purchased the outstanding common stock of Hooker Industries, Inc. ("Hooker"), a manufacturer of performance exhaust systems, headers, mufflers and Harley-Davidson
exhaust pipes. In October of 1999, Holley purchased the outstanding common stock of Biggs Manufacturing, Inc. (also known as "FlowTech"), Nitrous Oxide Systems, Inc. ("NOS"), and Earl's Supply
Company, Inc. (also known as Earl's Performance Products, "Earl's"). FlowTech is a manufacturer of performance exhaust systems, headers, mufflers and exhaust accessories. NOS is a manufacturer of
nitrous oxide injection systems for the performance aftermarket. Earl's is a provider of underhood performance fittings, brake lines and hoses.

BASIS OF PRESENTATION

The Company incurred net losses in 2000, 2001 and 2002. Also, as described in Note 6 the Company did not comply with the interest coverage covenant on its
previous revolving credit facility. However, the Company received a waiver of the non-compliance of the covenant from the previous

F-7

---

bank. On July 30, 2002, the Company completed a refinancing of the previous credit agreement with a new credit agreement with Foothill Capital Corporation which was amended in October, 2002. The
Company is dependent on this revolving Credit Agreement to fund its working capital needs. The Company's ability to operate within the cash available under its revolving Credit Agreement, as amended,
and to comply with the financial covenants required under that facility are dependent on improving earnings and reducing the level of working capital necessary to operate the business.

Management
believes that the Company will be in compliance with the revolving Credit Agreement's quarterly financial ratio covenants which begin June 30, 2003, and that the revolving
Credit Agreement will be adequate to allow the Company to fund its working capital needs during 2003. However, should
the revolving credit facility become unavailable, or the Company fail to meet its projected operating results, the Company may be forced to seek additional sources of financing in order to fund its
working capital needs. In such an event, the Company can not be certain that it would be able to obtain necessary financing on acceptable terms or at all.

Management
is continually evaluating the performance of the Company's business both in the aggregate and at the separate divisional levels. In the fourth quarter of 2002 and in 2003,
management continues to implement actions designed to reduce working capital, maintain sales, and increase gross profit while controlling operating expenses. Although management believes such actions
have achieved results and that its actions will reduce working capital, maintain sales, and improve gross profit while controlling operating expenses, there is no assurance that it will be successful.
The consolidated financial statements do not include any adjustments to reflect the possible future effects on recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of this uncertainty.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of Holley and its wholly-owned subsidiaries. All significant intercompany transactions and
accounts have been eliminated in consolidation.

RECLASSIFICATIONS

Certain reclassifications have been made to the prior year financial statements to conform to the 2002 presentation. They include, among others, the
reclassification of cash discounts from selling expenses to a deduction from gross sales to arrive at reported net sales and the reclassification to write-off unamortized deferred financing costs in
2000 as an extraordinary item, to interest expense in accordance with Statement of Financial Accounting Standards (SFAS) No. 145, "Recision of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13, and Technical Corrections." These reclassifications had an immaterial effect on operating income and no effect on net income as previously reported.

MANAGEMENT ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosures. Actual results could differ from those estimates. Significant estimates and assumptions of management primarily
impact the following key financial areas:

F-8

---



F-9

---



REVENUE RECOGNITION

The Company's customers are located throughout the United States and operate primarily in the automotive parts and specialty automotive equipment parts
industries. The Company generally grants credit to customers on an unsecured basis. Revenues from sales are recognized at the time products are shipped to the customer.

INVENTORIES

During the fourth quarter of 2000, the Company changed its method of determining the cost of inventories for two of its facilities from the last-in, first-out
("LIFO") method to the first-in, first-out ("FIFO") method. This change was made to arrive at a consistent costing methodology throughout all of the Company's facilities. Additionally, management
believes the conversion will be useful to financial statement users because the FIFO method is used by substantially all of the Company's competitors. The effect of the change in accounting principle
was to reduce the net loss reported for 2000 by $372.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment purchased in the Acquisition, as well as the acquisitions of the Company's subsidiaries, are stated at estimated fair market value
as prescribed by the purchase method of accounting. Subsequent purchases of property, plant and equipment are stated at cost. Depreciation

F-10

---

is computed using the straight-line method over the estimated useful lives of the assets, which are as follows (in years):

Building and improvements

10-25Machinery and equipment

3-5Computer equipment

3-5Furniture and fixtures

3-10


Expenditures
for maintenance and repairs are generally charged to expense as incurred, whereas expenditures for improvements and replacements are capitalized.

The
cost and accumulated depreciation of assets sold or otherwise disposed of are removed from the accounts and the resulting gain or loss is reflected in the consolidated statements of
operations.

INTANGIBLE ASSETS OTHER THAN GOODWILL AND TRADE NAMES

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

|                             |                          | December 31, 2001 |        | December 31, 2002
|---------------------------- | ------------------------ | ----------------- | ------ | -----------------
|
|Amortized intangible assets: |                          |                   |        |                  
|                             | Deferred financing costs |                   | $      | 5,555            
|                             | Non-compete covenants    |                   |        | 8,164            
|                             |                          |                   |        |                  
|                             |                          | $                 | 13,719 |                  
|                             |                          |                   |        |                  

Amortization of deferred financing costs and non-compete agreements totaled $769 and $1,885 in 2001 and $842 and $1,885 in 2002, respectively. In
2002, the Company wrote off deferred financing costs of $779 as discussed in Note 6.

Amortization
of these costs over the next five years are estimated to be: 2003, $2,780; 2004, $1,851; 2005, $1,139; 2006, $1,139; and 2007, $725.

STOCK-BASED COMPENSATION

SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account for employee stock-based compensation using the intrinsic value method as prescribed in Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. As of December 31, 2002, no options to purchase common stock of the Company have been granted.

ACCRUED CLAIMS

The Company is partially self-insured for claims arising from employee health benefits and, prior to May 16, 1998, was partially self-insured for claims arising
from workers' compensation. Excess insurance coverage is maintained for per-incident and cumulative liability losses for these risks in amounts management considers adequate. Amounts are currently
accrued for the estimated cost of claims incurred, including related expenses. Management considers the accrued liabilities for unsettled claims to be adequate; however, there is no assurance that the
amounts accrued will not vary from the

F-11

---

ultimate amounts incurred upon final disposition of all outstanding claims. As a result, periodic adjustments to the reserves will be made as events occur which indicate that changes are necessary.

ADVERTISING

Advertising production costs are expensed the first time the advertising takes place. Total advertising expenses were $3,103, $1,719, and $1,897 for the years
ended December 31, 2000, 2001 and 2002, respectively, and are classified as a component of selling expenses in the accompanying consolidated statements of operations.

SHIPPING AND HANDLING COSTS

Amounts billed to customers for shipping and handling costs are classified as a component of net sales whereas amounts incurred by the Company for shipping and
handling costs are classified as a component of cost of sales in the accompanying consolidated statements of operations.

RESEARCH AND DEVELOPMENT COSTS

Research, development, pre-production and start-up costs related to both present and future products are expensed as incurred. Such costs amount to $2,170, $809,
and $1,259 for the years ended December 31, 2000, 2001 and 2002 respectively, and are classified as a component of general and administrative expenses in the accompanying consolidated statements of
operations.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company estimates the fair value of financial instruments using quoted or estimated market prices based upon the current interest rate environment and the
remaining term to maturity. At December 31, 2001, there were no material differences between the book values of the Company's financial instruments and their related fair values except that the fair
value of the Company's Senior notes, which had a carrying value of $146,061, was approximately $72,000. At December 31, 2002, there were no material differences between the book values of the
Company's financial instruments and their related fair values except that the fair value of the Company's Senior notes, which have a carrying value of $146,746, was approximately $60,000.

COMPREHENSIVE INCOME

SFAS No. 130, "Reporting Comprehensive Income," sets forth standards for reporting and displaying components in a full set of general purpose financial
statements. Comprehensive income (loss) encompasses all changes in stockholder's equity (except those arising from transactions with owners) and includes net income or loss, net unrealized capital
gains or losses on available for sale securities and foreign currency translation adjustments. Comprehensive loss for the years ended December 31, 2000, 2001, and 2002 was the same as net loss for the
Company.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 141 was effective July 1, 2001 and SFAS No. 142 was effective January 1, 2002. Under the new rules in SFAS No. 142, goodwill and other indefinite lived intangible assets from
acquisitions prior to July 1, 2001, will no longer be amortized effective January 1, 2002, but will be subject to annual impairment tests. Other intangible assets will continue to be amortized over
their useful lives.

The
Company applied the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. A reconciliation of previously reported net loss to the
pro forma

F-12

---

amounts adjusted for the exclusion of amortization on goodwill and indefinite lived intangible assets, net of the related income tax effect follows:

Years Ended December 31,2000

2001

2002Reported net loss

$
(16,659
)
$
(24,010
)
$
(114,687
)Add: Goodwill and trade names amortization, net of tax


2,267


2,432


Pro forma net loss

$
(14,392
)
$
(21,578
)
$
(114,687
)


The
Company performed the required impairment tests of goodwill and indefinite lived intangible assets (trade names) as of January 1, 2002 which resulted in the write-off of $85.3
million in goodwill and $3.4 million in trade names which was recorded effective January 1, 2002 as a cumulative effect of a change in accounting principle, net of a tax benefit of $4.1 million in
accordance with SFAS 142. A similar test was performed at December 31, 2002 and no further adjustment to these assets was required.

In
August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", and the accounting and reporting provisions of APB Opinion 30, "Reporting the Effects of Disposal of a Segment of a Business; and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions". SFAS No. 144 removes goodwill from its scope and clarifies other implementation issues related to SFAS No. 121. SFAS No. 144
also provides a single framework for evaluating long-lived assets to be disposed of by sale. The provisions of this statement were adopted effective January 1, 2002. At December 31, 2002, there were
certain assets held for sale and a reserve for $700 was charged to operating income in accordance with SFAS No. 144 to recognize the impairment value. The assets were disposed of in March 2003
for the written down value.

SFAS
No. 145, "Recision 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 requires that
extinguishment gains or losses be classified as ordinary gains and losses in comparative financial statements. SFAS No. 145, which applies to all entities, is effective for fiscal years
beginning after May 15, 2002. The Company adopted SFAS No. 145 as of January 1, 2002. Accordingly, the write off of the unamortized deferred financing costs of $779 relating to
the Credit Arrangement with Fleet Capital Corporation in July 2002 has been included in interest expense for the year 2002.

3. INVENTORIES

Inventories of the Company net of excess and obsolete reserves consist of the following:

December 31, 2001

December 31, 2002Raw materials

$
12,529

$
11,224Work-in-progress


5,938


3,979Finished goods


16,140


7,640$
34,607

$
22,843


F-13

---

4. PROPERTY, PLANT AND EQUIPMENT

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

December 31, 2001

December 31, 2002Land

$
360

$
360Buildings and improvements


11,884


9,924Machinery and equipment


28,192


28,224Computer equipment


3,852


3,981Furniture and fixtures


2,079


2,380Construction in process


1,798


28948,165

$
45,158Less: accumulated depreciation


(22,097
)

(27,015
)$
26,068

$
18,143


Depreciation
expense was $6,566, $8,164 and $6,508 for the years ended December 31, 2000, 2001 and 2002, respectively.

5. ACCRUED LIABILITIES

Accrued liabilities of the Company consist of the following:

December 31, 2001

December 31, 2002Wages and benefits

$
3,679

$
2,580Reserve for product returns


2,981


4,335Interest


5,492


5,563Other


1,794


2,681$
13,946

$
15,159


F-14

---

6. LONG-TERM DEBT AND PREFERRED STOCK

Long-term debt as of December 31, 2001 and 2002 consisted of the following:

|                                                                                                                                                                                                                                                                          |  | December 31, 2001 |         | December 31, 2002 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ------- | ----------------- | -
|Secured revolving line of credit facility due to a bank, interest due monthly at a variable rate based on LIBOR or prime at the Company's option, plus the applicable margin rate (8.25% at December 31, 2002) maturing July
30, 2007                                     |  | $                 |        |                   | $
|Secured revolving line of credit facility due to a bank; interest due quarterly at a variable rate based on LIBOR or prime at the Company's option, plus the applicable margin rate (4.44% at December 31, 2001) maturing December 28, 2005 (Refinanced on
July 30, 2002) |  |                   | 28,814  |                   |  
|Senior notes, interest payable semi-annually in March and September at 12.25%; maturing September 15, 2007; net of debt discount of $3,939 and $3,254, respectively                                                                                                       |  |                   | 146,061 |                   |  
|Convertible promissory note due to an affiliate of the parent, interest at 10%, payable in kind, payable in four quarterly installments beginning January 1, 2004 under certain conditions                                                                                |  |                   |        |                   |  
|Other long-term obligations                                                                                                                                                                                                                                               |  |                   | 3,946   |                   |  
|                                                                                                                                                                                                                                                                          |  |                   |         |                   |  
|                                                                                                                                                                                                                                                                          |  |                   | 178,821 |                   |  
|Less current portion                                                                                                                                                                                                                                                      |  |                   | (31,158 | )                 |  
|                                                                                                                                                                                                                                                                          |  |                   |         |                   |  
|                                                                                                                                                                                                                                                                          |  | $                 | 147,663 |                   | $
|                                                                                                                                                                                                                                                                          |  |                   |         |                   |  

F-15

---

In December 2000, Holley replaced the existing senior credit facility with a $41 million facility provided by 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 Agreement required certain interest coverage ratios each quarter. The Company was not in
compliance with this covenant for the quarters ended March 31 and June 30, 2002 and received a waiver from Fleet for each quarter. 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 material 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. The Credit Agreement is secured by the assets of the Company. Maximum borrowings under the Credit Agreement are limited under the terms of the Company's Senior Notes Indenture
to $45 million (See below). 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 $779 of deferred financing costs associated with the Fleet Credit Arrangement. Such amount is included in interest expense in the
accompanying consolidated statements of operations.

At
March 10, 2003, the Company had $12.1 million of unused credit availability under the Credit Agreement.

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

The
Senior Notes require the Company to make semi annual interest payments in March and September at 121/4%. On September 15, 2002, the Company missed its interest payment
on the Senior Notes. In September 2002, the Company initially received a $2 million cash infusion from its parent
company to meet operating requirements. On October 11, 2002, the parent company provided 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.

On
October 11, 2002, Holley formally issued a $7.5 million convertible promissory note (the "Promissory Note") to Holley's parent company. 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 Holley has met certain performance targets
based on EBITDA and credit availability the Company 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. After receiving consent of the requisite majority of noteholders under the Indenture governing the Senior Notes, Holley amended the Indenture to permit a $45
million limit on indebtedness instead of the previous limit. Subsequently, the Company amended the Credit Agreement to permit the Company to receive the cash infusion described above and amend certain
financial covenants. The amended Credit Agreement also

F-16

---

prohibits Holley from paying management fees to an affiliate of the parent until certain financial metrics are achieved.

On
October 11, 2002, Holley issued 75,000 shares of convertible preferred stock to its parent company for total proceeds of $7,500. 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.

Future
maturities of long-term debt for the years following December 31, 2002 are as follows:

2003

$
28,7242004


7,7632005


962006


702007


150,074Thereafter


819Total maturities


187,546Less debt discount


3,254$
184,292


In
connection with the Revolving Credit Agreement, the Credit Agreement requires lockbox agreements which provide for all receipts to be swept daily to reduce borrowings outstanding.
These agreements, combined with the existence of a Material Adverse Effect (MAE) clause in the Credit 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 Agreement as a current liability at December
31, 2002 and 2001 is a result only of the combination of the two afore-mentioned factors: the lockbox agreements and the MAE clause. However, the Revolving Credit Agreement does not expire or have a
maturity date within one year, but rather has a final expiration date of July 30, 2007.

F-17

---

7. INCOME TAXES

The provision (benefit) for income taxes before the cumulative effect of an accounting change consisted of the following:

Year Ended December 31,2000

2001

2002Current tax provision (benefit)Federal

$
(1,169
)
$


$
(3,690
)State


(124
)

44


Foreign








111(1,293
)

44


(3,579
)Deferred tax provision (benefit)Federal


(6,143
)

2,537


457State


(686
)

299


54(6,829
)

2,836


511Total provision (benefit)

$
(8,122
)
$
2,880

$
(3,068
)


A
reconciliation of the U.S. federal statutory tax rate to the effective tax rate is as follows:

Year Ended December 31,2000

2001

2002U.S. federal statutory rate

(34.0
)%
(34.0
)%
(34.0
)%State taxes on income, net of federal benefit

(4.0
)
(3.5
)
(4.0
)%Non-deductible amortization

3.7

4.1

Valuation allowance



46.9

21.0
%Other

1.5

0.1

5.0
%Tax Sharing arrangement





3.0
%Income tax provision (benefit)

(32.8
)%
13.6
%
(9.0
)%


F-18

---

Significant
components of deferred tax assets and liabilities are as follows:

December 31,2001

2002Deferred tax assetscurrent:Reserves on assets

$
4,077

$
2,123Liabilities not yet deductible


3,289


1,837Deferred tax assetscurrent


7,366


3,960Deferred tax liabilitiescurrent:LIFO reserve


(1,593
)

(711
)Deferred tax liabilitiescurrent


(1,593
)

(711
)Net deferred tax assetscurrent

$
5,773

$
3,249Deferred tax assetsnoncurrent:Net operating loss carryforwards

$
9,798

$
16,842Other


175


422Amortization





1,8829,973


19,146Valuation allowance


(9,798
)

(16,842
)Deferred tax assetsnoncurrent


175


2,304Deferred tax liabilitiesnoncurrent:Trade name


(15,043
)

(13,748
)Covenants not to compete


(1,202
)

(485
)Amortization


(650
)

Property, plant and equipment


(5,216
)

(3,912
)Deferred tax liabilitiesnoncurrent


(22,111
)

(18,145
)Net deferred tax liabilitiesnoncurrent

$
(21,936
)
$
(15,841
)Total deferred tax assets

$
17,339

$
23,106Total deferred tax liabilities

$
(23,704
)
$
(18,856
)Total valuation allowance

$
(9,798
)
$
(16,842
)


The
Company has federal and state net operating loss carryforwards of approximately $44,000 as of December 31, 2002 that will expire from 2019 through 2022. During 2001, the Company
established a valuation allowance of $9,798 due to the uncertainty of the ultimate realization of net operating loss carryforwards. The valuation allowance increased by $7,044 during 2002.

During
2002, the Company entered into a tax sharing agreement with its prior owner, Coltec Industries, Inc. Pursuant to this agreement, the Company has carried back $12,400 of net
operating losses to years that it was a member of Coltec's consolidated tax group. Per the agreement, the Company expects to receive 85% of the recovery of $3,690 during 2003, with Coltec receiving
the remaining 15%. The difference related to the amount paid to Coltec is reflected in the federal statutory rate reconciliation.

F-19

---

8. BENEFIT PLANS

HOLLEY 401(K) PLAN

Effective May 16, 1998, Holley established 401(k) savings plans for salaried and non-salaried employees. Participation in the plans is optional. Employer
contributions to the plans are discretionary. During the years ended December 31, 2000, 2001 and 2002, the Company's contribution expense
related to these plans totaled $956, $945 and $848, respectively. Effective October 1, 2002, the Company amended the 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.

LUNATI 401(K) PLAN

Lunati maintains a profit sharing and a 401(k) savings plan for its employees. Employer contributions to the plan are discretionary. For the years ended December
31, 2000, 2001 and 2002, the Company made no contributions to this plan.

DEFINED BENEFIT PENSION PLAN

Effective May 16, 1998, the Company established a defined benefit pension plan for its employees. The Projected Unit Credit Actuarial Cost Method is used to
determine the normal cost of the pension plan and estimate pension benefit obligations.

During
2002, the Company recognized a gain of $1,116 on the curtailment of its pension plan. The plan was amended to curtail accrual of future benefits under the plan.

2001

2002CHANGE IN BENEFIT OBLIGATIONBenefit obligation, beginning of year

$
4,290

$
4,910Service cost


981


952Interest cost


268


331Benefit payments


(89
)

(120
)Actuarial gain


(540
)

(261
)Curtailment gain





(1,116
)Benefit obligation, end of year

$
4,910

$
4,696FAIR VALUE OF PLAN ASSETSFair value of plan assets, beginning of year

$
1,738

$
3,664Employer contributions


1,949


1,176Return on assets


66


(473
)Benefit payments


(89
)

(120
)Fair value of plan assets, end of year

$
3,664

$
4,247


2001

2002FUNDED STATUSBenefit obligation

$
(4,910
)
$
(4,696
)Plan assets


3,664


4,247Unrecognized prior service costs


158


Unrecognized actuarial gain


(731
)

Net accrued benefit liability recognized

$
(1,819
)
$
(449
)


F-20

---

Year Ended December 31,2000

2001

2002COMPONENTS OF NET PERIODIC BENEFIT COSTService cost

$
1,126

$
981

$
952Interest cost


249


268


331Expected return on plan assets


(99
)

(188
)

(334
)Amortization of prior service cost


15


15


15Gain





(36
)

(42
)Net periodic benefit cost

$
1,291

$
1,040

$
922


Assumptions
used in the accounting:

2001

2002Discount rate

7.25
%
6.75
%Rates of increase in compensation levels

4.00

4.00Expected long-term weighted average rate of return on assets

8.00

8.00


9. LEASE COMMITMENTS

The aggregate future minimum fixed lease obligations under operating leases for the Company as of December 31, 2002, are as follows:

Operating
Leases2003

$
9482004


6002005


892006


462007


10Thereafter


135Total minimum lease payments

$
1,828


Total
rent expense for the Company's operating leases was approximately $2,374, $1,982 and $1,735 for the years ended December 31, 2000, 2001 and 2002, respectively.

10. MAJOR CUSTOMERS

The Company's customers include many large and well-known automotive parts retailers and distributors. One customer, Auto Sales, Inc. (d/b/a Summit Racing),
represented 13.4%, 11.6% and 14.6% of total net sales for the years ended December 31, 2000, 2001 and 2002, respectively. Approximately 1.4% and 5.4% of the Company's accounts receivable at December
31, 2001 and 2002, respectively, were from this customer. Management believes the credit risk associated with this customer is low.

11. CONTINGENCIES

In
May 1999, Union Pacific Railroad Company filed an action against Weiand Automotive and others in the United States District Court for the Central District of California, alleging that
certain soil and groundwater contamination discovered on Union Pacific property in Los Angeles had migrated from an adjacent Weiand Automotive facility. Holley subsequently became a defendant, as did
the owner of the property on which the Weiand Automotive business had been operated. In December

F-21

---

2000, a global settlement of claims was reached with Weiand's insurers paying the bulk of the settlement and Holley and Weiand Automotive's attorneys fees. In addition, $550 was put into a Site
Source Control Account to cover costs incurred by Holley and Weiand Automotive and the property owner to investigate and remediate any contamination of the Weiand property which may be required by the
State of California. In July 2001, Weiand Automotive entered into a Voluntary Cleanup Agreement with the State of California Environmental Protection Agency Department of Toxic Substances Control
(DTSC) to investigate and, if necessary, remediate the contamination on the Weiand property. Consultants for Holley and Weiand Automotive have submitted a workplan to DTSC, which is pending approval.
Although Holley estimates that the Site Source Control Account will be sufficient to cover Holley's costs for investigation and remediation of the site, there can be no assurances that the final costs
will not exceed such amount. Holley and Weiand Automotive are working vigorously to address regulatory issues arising from the discovered contamination.

Holley
has been named as defendants in a number of legal actions arising from normal business activities. Although the amount of any ultimate liability with respect to such matters
cannot be precisely determined, management does not expect any such liability to have a material adverse effect on the financial condition or results of operations of the Company.

12. RELATED-PARTY TRANSACTIONS

Pursuant to a management agreement, Kohlberg and Company, LLC ("Kohlberg") provides the Company with general corporate administrative services. Kohlberg receives
a management fee to recover its operating expenses based upon an allocation of time devoted to the Company. Management fee expense was approximately $942, $779 and $899 for the years ended December
31, 2000, 2001 and 2002, respectively. The Company was precluded from paying the fees in 2002 due to an agreement under the October 22, 2002 amendment of the Credit Agreement until certain financial
covenants are attained, beginning June 30, 2003. Additionally, Kohlberg required an insurance policy for directors and officers and employment practices liabilities on behalf of the Company. The
Company was billed and paid Kohlberg $276, the cost of the one year policy.

Subsequent
to the Acquisition, Holdings issued 3,668,480 stock options to buy common stock of Holdings to certain members of management of the Company. During 1999 and 2000, Holdings
issued additional options to members of management totaling 150,000 and 575,000, respectively. The options are exercisable at prices ranging from $1.50 to $2.25 per share, which represents estimated
fair value at the date of grant, and vest at the end of nine years or at an accelerated rate if certain performance measurements are met. During 2000 and in January 2001, 513,608 and 888,235 options,
respectively, were forfeited prior to vesting. As of December 31, 2002, 2,991,637 options remain outstanding.

13. SEGMENT DATA

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

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

F-22

---

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

|                             |              | High
Performance
Parts |   | Remanufactured
Parts |  | Total
|---------------------------- | ------------ | ---------------------- | - | -------------------- |  | -----
|YEAR ENDED DECEMBER 31, 2000 |              |                        |   |                      |  |      
|                             | Net sales    |                        | $ | 135,829              |  | $    
|                             | Gross profit |                        |   | 39,949               |  |      
|YEAR ENDED DECEMBER 31, 2001 |              |                        |   |                      |  |      
|                             | Net sales    |                        | $ | 124,165              |  | $    
|                             | Gross profit |                        |   | 29,314               |  |      
|YEAR ENDED DECEMBER 31, 2002 |              |                        |   |                      |  |      
|                             | Net sales    |                        | $ | 124,358              |  | $    
|                             | Gross profit |                        |   | 18,884               |  |      

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

|                        |                               | High
Performance
Parts |   | Remanufactured
Parts |  | Total
|----------------------- | ----------------------------- | ---------------------- | - | -------------------- |  | -----
|AS OF DECEMBER 31, 2001 |                               |                        |   |                      |  |      
|                        | Inventories                   |                        | $ | 31,259               |  | $    
|                        | Property, plant and equipment |                        |   | 24,235               |  |      
|AS OF DECEMBER 31, 2002 |                               |                        |   |                      |  |      
|                        | Inventories                   |                        | $ | 19,875               |  | $    
|                        | Property, plant and equipment |                        |   | 16,782               |  |      

14. KEY SUPPLIERS

The Company is dependent on one supplier for zinc castings and one supplier for aluminum manifold castings used in its production process. Purchases from these
suppliers account for approximately 9%, 12% and 15% of annual raw material purchases for the years ended December 31, 2000, 2001 and 2002, respectively.

15. SUBSEQUENT EVENT

On February 24, 2003, Holley sold its interest in So-Cal Speed Shops, Inc. to a So-Cal management group for $1.2 million in cash, the approximate book value of
the company at December 31, 2002. In 2002, So-Cal contributed $3.7 million in net sales and operated at an immaterial loss during the period.

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

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

The
information that follows presents condensed consolidating financial information as of and for the years ended December 31, 2000, 2001 and 2002 for: a) Holley Performance Products
Inc. (as the Issuer), b) the Guarantors, c) elimination entries and d) the Company on a consolidated basis.

The
condensed consolidating financial information includes certain allocations of revenues and expenses based on management's best estimates which is not necessarily indicative of
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.

F-23

---



Consolidating Balance Sheet        December 31, 2001

|                                       |                                   | Holley
Performance
Products Inc.
(Parent Company
Only) |         | Subsidiary
Guarantors |         | Eliminations |         | Consolidated |        
|-------------------------------------- | --------------------------------- | ------------------------------------------------------ | ------- | --------------------- | ------- | ------------ | ------- | ------------ | -------
|ASSETS:                                |                                   |                                                        |         |                       |         |              |         |              |        
|CURRENT ASSETS:                        |                                   |                                                        |         |                       |         |              |         |              |        
|                                       | Cash                              |                                                        | $       | 72                    |         | $            | 162     |              | $      
|                                       | Accounts receivable, net          |                                                        |         | 17,941                |         |              | 456     |              |        
|                                       | Inventories                       |                                                        |         | 19,385                |         |              | 15,222  |              |        
|                                       | Deferred income taxes             |                                                        |         | 3,641                 |         |              | 2,132   |              |        
|                                       | Income taxes receivable           |                                                        |         | 152                   |         |              | 156     |              |        
|                                       | Intercompany receivable           |                                                        |         | 4,250                 |         |              |        |              |        
|                                       | Other current assets              |                                                        |         | 1,370                 |         |              | 127     |              |        
|                                       |                                   |                                                        |         |                       |         |              |         |              |        
|                                       |                                   | Total current assets                                   |         |                       | 46,811  |              |         | 18,255       |        
|PROPERTY, PLANT AND EQUIPMENT, NET     |                                   |                                                        | 19,706  |                       |         | 6,362        |         |              |       
|INVESTMENT IN SUBSIDIARIES             |                                   |                                                        | 65,235  |                       |         |             |         |              | (65,235
|INTANGIBLE ASSETS                      |                                   |                                                        |         |                       |         |              |         |              |        
|                                       | Goodwill                          |                                                        |         | 70,115                |         |              | 31,063  |              |        
|                                       | Trade names                       |                                                        |         | 21,221                |         |              | 19,448  |              |        
|                                       | Other                             |                                                        |         | 4,015                 |         |              | 4,224   |              |        
|                                       |                                   |                                                        |         |                       |         |              |         |              |        
|                                       |                                   | Total assets                                           |         | $                     | 227,103 |              | $       | 79,352       |        
|                                       |                                   |                                                        |         |                       |         |              |         |              |        
|LIABILITIES AND STOCKHOLDER'S EQUITY:  |                                   |                                                        |         |                       |         |              |         |              |        
|CURRENT LIABILITIES:                   |                                   |                                                        |         |                       |         |              |         |              |        
|                                       | Current portion of long-term debt |                                                        | $       | 31,050                |         | $            | 108     |              | $      
|                                       | Accounts payable                  |                                                        |         | 13,577                |         |              | 483     |              |        
|                                       | Intercompany payable              |                                                        |         |                      |         |              | 4,250   |              |        
|                                       | Accrued liabilities               |                                                        |         | 12,715                |         |              | 1,231   |              |        
|                                       |                                   |                                                        |         |                       |         |              |         |              |        
|                                       |                                   | Total current liabilities                              |         |                       | 57,342  |              |         | 6,072        |        
|LONG-TERM DEBT, NET OF CURRENT PORTION |                                   |                                                        | 147,401 |                       |         | 262          |         |              |       
|DEFERRED INCOME TAXES                  |                                   |                                                        | 14,153  |                       |         | 7,783        |         |              |       
|OTHER NONCURRENT LIABILITIES           |                                   |                                                        | 438     |                       |         |             |         |              |       
|STOCKHOLDER'S EQUITY:                  |                                   |                                                        |         |                       |         |              |         |              |        
|                                       | Common stock                      |                                                        |         | 1                     |         |              | 88,074  |              |        
|                                       | Paid-in capital                   |                                                        |         | 52,499                |         |              |        |              |        
|                                       | Accumulated deficit               |                                                        |         | (44,731               | )       |              | (22,839 | )            |        
|                                       |                                   |                                                        |         |                       |         |              |         |              |        
|                                       |                                   | Total stockholder's equity                             |         |                       | 7,769   |              |         | 65,235       |        
|                                       |                                   |                                                        |         |                       |         |              |         |              |        
|                                       |                                   | Total liabilities and stockholder's equity             |         | $                     | 227,103 |              | $       | 79,352       |        
|                                       |                                   |                                                        |         |                       |         |              |         |              |        

F-24

---

Consolidating Balance Sheet        December 31, 2002

|                                                |                                   | Holley
Performance
Products Inc.
(Parent Company
Only) |         | Subsidiary
Guarantors |         | Eliminations |         | Consolidated |        
|----------------------------------------------- | --------------------------------- | ------------------------------------------------------ | ------- | --------------------- | ------- | ------------ | ------- | ------------ | -------
|ASSETS:                                         |                                   |                                                        |         |                       |         |              |         |              |        
|CURRENT ASSETS:                                 |                                   |                                                        |         |                       |         |              |         |              |        
|                                                | Cash                              |                                                        | $       | 421                   |         | $            | 181     |              | $      
|                                                | Accounts receivable, net          |                                                        |         | 12,876                |         |              | 1,078   |              |        
|                                                | Inventories                       |                                                        |         | 11,813                |         |              | 11,030  |              |        
|                                                | Deferred income taxes             |                                                        |         | 1,835                 |         |              | 1,414   |              |        
|                                                | Income taxes receivable           |                                                        |         | 3,677                 |         |              | 37      |              |        
|                                                | Intercompany receivable           |                                                        |         | 12,936                |         |              |        |              |        
|                                                | Other current assets              |                                                        |         | 705                   |         |              | 528     |              |        
|                                                |                                   |                                                        |         |                       |         |              |         |              |        
|                                                |                                   | Total current assets                                   |         |                       | 44,263  |              |         | 14,268       |        
|PROPERTY, PLANT AND EQUIPMENT, NET              |                                   |                                                        | 13,673  |                       |         | 4,470        |         |              |        
|INVESTMENT IN SUBSIDIARIES                      |                                   |                                                        | 19,450  |                       |         |             |         |              | (19,450
|INTANGIBLE ASSETS                               |                                   |                                                        |         |                       |         |              |         |              |        
|                                                | Goodwill                          |                                                        |         | 11,316                |         |              | 4,794   |              |        
|                                                | Trade names                       |                                                        |         | 20,402                |         |              | 16,862  |              |        
|                                                | Other                             |                                                        |         | 5,281                 |         |              | 2,353   |              |        
|                                                |                                   |                                                        |         |                       |         |              |         |              |        
|                                                |                                   | Total assets                                           |         | $                     | 114,385 |              | $       | 42,747       |        
|                                                |                                   |                                                        |         |                       |         |              |         |              |        
|LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT): |                                   |                                                        |         |                       |         |              |         |              |        
|CURRENT LIABILITIES:                            |                                   |                                                        |         |                       |         |              |         |              |        
|                                                | Current portion of long-term debt |                                                        | $       | 28,679                |         | $            | 45      |              | $      
|                                                | Accounts payable                  |                                                        |         | 7,997                 |         |              | 528     |              |        
|                                                | Intercompany payable              |                                                        |         |                      |         |              | 12,936  |              |        
|                                                | Accrued liabilities               |                                                        |         | 13,270                |         |              | 1,889   |              |        
|                                                |                                   |                                                        |         |                       |         |              |         |              |        
|                                                |                                   | Total current liabilities                              |         |                       | 49,946  |              |         | 15,398       |        
|LONG-TERM DEBT, NET OF CURRENT PORTION          |                                   |                                                        | 155,450 |                       |         | 118          |         |              |       
|DEFERRED INCOME TAXES                           |                                   |                                                        | 8,060   |                       |         | 7,781        |         |              |       
|OTHER NONCURRENT LIABILITIES                    |                                   |                                                        | 347     |                       |         |             |         |              |       
|STOCKHOLDER'S EQUITY (DEFICIT):                 |                                   |                                                        |         |                       |         |              |         |              |        
|                                                | Preferred stock                   |                                                        |         | 75                    |         |              |        |              |        
|                                                | Common stock                      |                                                        |         | 1                     |         |              | 88,074  |              |        
|                                                | Paid-in capital                   |                                                        |         | 59,924                |         |              |        |              |        
|                                                | Accumulated deficit               |                                                        |         | (159,418              | )       |              | (68,624 | )            |        
|                                                |                                   |                                                        |         |                       |         |              |         |              |        
|                                                |                                   | Total stockholder's equity (deficit)                   |         |                       | (99,418 | )            |         | 19,450       |        
|                                                |                                   |                                                        |         |                       |         |              |         |              |        
|                                                |                                   | Total liabilities and stockholder's equity (deficit)   |         | $                     | 114,385 |              | $       | 42,747       |        
|                                                |                                   |                                                        |         |                       |         |              |         |              |        

F-25

---

Consolidating Statement of Operations        Year ended December 31, 2000

|                                                                                     |                         | Holley
Performance
Products Inc.
(Parent Company
Only) |         | Subsidiary
Guarantors |        | Eliminations |        | Consolidated |        
|------------------------------------------------------------------------------------ | ----------------------- | ------------------------------------------------------ | ------- | --------------------- | ------ | ------------ | ------ | ------------ | -------
|NET SALES                                                                            |                         | $                                                      | 91,481  |                       | $      | 159,663      |        | $            | (91,481
|COST OF SALES                                                                        |                         |                                                        | 69,037  |                       |        | 136,664      |        |              | (91,481
|                                                                                     |                         |                                                        |         |                       |        |              |        |              |        
|                                                                                     | Gross profit            |                                                        |         | 22,444                |        |              | 22,999 |              |        
|                                                                                     |                         |                                                        |         |                       |        |              |        |              |        
|SELLING EXPENSES                                                                     |                         |                                                        | 5,585   |                       |        | 15,206       |        |              |       
|GENERAL AND ADMINISTRATIVE EXPENSES                                                  |                         |                                                        | 1,189   |                       |        | 17,050       |        |              |       
|MANAGEMENT FEES TO RELATED PARTY                                                     |                         |                                                        | 942     |                       |        |             |        |              |       
|AMORTIZATION OF INTANGIBLES                                                          |                         |                                                        | 3,304   |                       |        | 2,238        |        |              |       
|OTHER EXPENSES                                                                       |                         |                                                        | 122     |                       |        | 654          |        |              |       
|                                                                                     |                         |                                                        |         |                       |        |              |        |              |        
|TOTAL OPERATING EXPENSES                                                             |                         |                                                        | 11,142  |                       |        | 35,148       |        |              |       
|                                                                                     |                         |                                                        |         |                       |        |              |        |              |        
|                                                                                     |                         | Operating income (loss)                                |         |                       | 11,302 |              |        | (12,149      | )      
|INTEREST EXPENSE                                                                     |                         |                                                        | 23,853  |                       |        | 81           |        |              |       
|                                                                                     |                         |                                                        |         |                       |        |              |        |              |        
|LOSS BEFORE INCOME TAXES AND CUMULATIVE                                              |                         |                                                        |         |                       |        |              |        |              |        
|EFFECT OF ACCOUNTING CHANGE                                                          |                         |                                                        | (12,551 | )                     |        | (12,230      | )      |              |       
|                                                                                     | TAXES (BENEFIT) EXPENSE |                                                        |         | (4,136                | )      |              | (3,986 | )            |        
|                                                                                     |                         |                                                        |         |                       |        |              |        |              |        
|LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE                                   |                         |                                                        | (8,415  | )                     |        | (8,244       | )      |              |       
|EQUITY IN LOSS OF SUBSIDIARIES                                                       |                         |                                                        | (8,244  | )                     |        |             |        |              | 8,244  
|CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR INTANGIBLE ASSET IMPAIRMENT, NET OF TAXES |                         |                                                        |        |                       |        |             |        |              |       
|                                                                                     |                         |                                                        |         |                       |        |              |        |              |        
|NET LOSS                                                                             |                         | $                                                      | (16,659 | )                     | $      | (8,244       | )      | $            | 8,244  
|                                                                                     |                         |                                                        |         |                       |        |              |        |              |        

F-26

---

Consolidating Statement of Cash Flows        Year ended December 31, 2000

|                                      |                                                 | Holley
Performance
Products Inc.
(Parent Company
Only) |        | Subsidiary
Guarantors |        | Eliminations |      | Consolidated |  
|------------------------------------- | ----------------------------------------------- | ------------------------------------------------------ | ------ | --------------------- | ------ | ------------ | ---- | ------------ | -
|CASH FLOWS FROM OPERATING ACTIVITIES  |                                                 | $                                                      | (7,635 | )                     | $      | 198          |      | $            | 
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                 |                                                        |        |                       |        |              |      |              |  
|                                      | Capital expenditures                            |                                                        |        | (4,290                | )      |              |     |              |  
|                                      | Other                                           |                                                        |        | (670                  | )      |              |     |              |  
|                                      |                                                 |                                                        |        |                       |        |              |      |              |  
|                                      |                                                 | Net cash used in investing activities                  |        |                       | (4,960 | )            |      |             |  
|                                      |                                                 |                                                        |        |                       |        |              |      |              |  
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                 |                                                        |        |                       |        |              |      |              |  
|                                      | Principal payments on long-term obligations     |                                                        |        | (36,865               | )      |              | (367 | )            |  
|                                      | Proceeds from issuance of long-term obligations |                                                        |        | 55,469                |        |              | 518  |              |  
|                                      | Financing costs                                 |                                                        |        | (750                  | )      |              |     |              |  
|                                      |                                                 |                                                        |        |                       |        |              |      |              |  
|                                      |                                                 | Net cash provided by financing activities              |        |                       | 17,854 |              |      | 151          |  
|                                      |                                                 |                                                        |        |                       |        |              |      |              |  
|NET CHANGE IN CASH                    |                                                 |                                                        | 5,259  |                       |        | 349          |      |              | 
|CASH AT BEGINNING OF YEAR             |                                                 |                                                        | 1,228  |                       |        | 131          |      |              | 
|                                      |                                                 |                                                        |        |                       |        |              |      |              |  
|CASH AT END OF YEAR                   |                                                 | $                                                      | 6,487  |                       | $      | 480          |      | $            | 
|                                      |                                                 |                                                        |        |                       |        |              |      |              |  

F-27

---

Consolidating Statement of Operations        Year ended December 31, 2001

|                                                                                     |                         | Holley
Performance
Products Inc.
(Parent Company
Only) |         | Subsidiary
Guarantors |       | Eliminations |        | Consolidated |        
|------------------------------------------------------------------------------------ | ----------------------- | ------------------------------------------------------ | ------- | --------------------- | ----- | ------------ | ------ | ------------ | -------
|NET SALES                                                                            |                         | $                                                      | 78,629  |                       | $     | 143,587      |        | $            | (78,629
|COST OF SALES                                                                        |                         |                                                        | 60,199  |                       |       | 128,447      |        |              | (78,629
|                                                                                     |                         |                                                        |         |                       |       |              |        |              |        
|                                                                                     | Gross profit            |                                                        |         | 18,430                |       |              | 15,140 |              |        
|                                                                                     |                         |                                                        |         |                       |       |              |        |              |        
|SELLING EXPENSES                                                                     |                         |                                                        | 4,417   |                       |       | 11,643       |        |              |       
|GENERAL AND ADMINISTRATIVE EXPENSES                                                  |                         |                                                        | 574     |                       |       | 8,673        |        |              |       
|MANAGEMENT FEES TO RELATED PARTY                                                     |                         |                                                        | 779     |                       |       |             |        |              |       
|AMORTIZATION OF INTANGIBLES                                                          |                         |                                                        | 3,525   |                       |       | 2,252        |        |              |       
|OTHER EXPENSES                                                                       |                         |                                                        | 380     |                       |       | 7            |        |              |       
|                                                                                     |                         |                                                        |         |                       |       |              |        |              |        
|TOTAL OPERATING EXPENSES                                                             |                         |                                                        | 9,675   |                       |       | 22,575       |        |              |       
|                                                                                     |                         |                                                        |         |                       |       |              |        |              |        
|                                                                                     |                         | Operating income (loss)                                |         |                       | 8,755 |              |        | (7,435       | )      
|INTEREST EXPENSE                                                                     |                         |                                                        | 22,421  |                       |       | 29           |        |              |       
|                                                                                     |                         |                                                        |         |                       |       |              |        |              |        
|LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE                  |                         |                                                        | (13,666 | )                     |       | (7,464       | )      |              |       
|                                                                                     | TAXES (BENEFIT) EXPENSE |                                                        |         | 380                   |       |              | 2,500  |              |        
|                                                                                     |                         |                                                        |         |                       |       |              |        |              |        
|LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE                                   |                         |                                                        | (14,046 | )                     |       | (9,964       | )      |              |       
|EQUITY IN LOSS OF SUBSIDIARIES                                                       |                         |                                                        | (9,964  | )                     |       |             |        |              | 9,964  
|CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR INTANGIBLE ASSET IMPAIRMENT, NET OF TAXES |                         |                                                        |        |                       |       |             |        |              |       
|                                                                                     |                         |                                                        |         |                       |       |              |        |              |        
|NET LOSS                                                                             |                         | $                                                      | (24,010 | )                     | $     | (9,964       | )      | $            | 9,964  
|                                                                                     |                         |                                                        |         |                       |       |              |        |              |        

F-28

---

Consolidating Statement of Cash Flows        Year ended December 31, 2001

|                                      |                                                     | Holley
Performance
Products Inc.
(Parent Company
Only) |        | Subsidiary
Guarantors |        | Eliminations |      | Consolidated |  
|------------------------------------- | --------------------------------------------------- | ------------------------------------------------------ | ------ | --------------------- | ------ | ------------ | ---- | ------------ | -
|CASH FLOWS FROM OPERATING ACTIVITIES  |                                                     | $                                                      | 1,786  |                       | $      | (245         | )    | $            | 
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                     |                                                        |        |                       |        |              |      |              |  
|                                      | Capital expenditures                                |                                                        |        | (1,977                | )      |              |     |              |  
|                                      | Proceeds on disposal of fixed assets                |                                                        |        |                      |        |              | 75   |              |  
|                                      |                                                     |                                                        |        |                       |        |              |      |              |  
|                                      |                                                     | Net cash used in investing activities                  |        |                       | (1,977 | )            |      | 75           |  
|                                      |                                                     |                                                        |        |                       |        |              |      |              |  
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                     |                                                        |        |                       |        |              |      |              |  
|                                      | Proceeds from issuance of long-term obligation      |                                                        |        | 128                   |        |              |     |              |  
|                                      | Principal payments on long-term obligations         |                                                        |        | (390                  | )      |              | (148 | )            |  
|                                      | Net payments under revolving credit arrangement     |                                                        |        | (5,836                | )      |              |     |              |  
|                                      | Financing costs                                     |                                                        |        | (126                  | )      |              |     |              |  
|                                      |                                                     |                                                        |        |                       |        |              |      |              |  
|                                      | Net cash provided by (used in) financing activities |                                                        |        | (6,224                | )      |              | (148 | )            |  
|                                      |                                                     |                                                        |        |                       |        |              |      |              |  
|NET CHANGE IN CASH                    |                                                     |                                                        | (6,415 | )                     |        | (318         | )    |              | 
|CASH AT BEGINNING OF YEAR             |                                                     |                                                        | 6,487  |                       |        | 480          |      |              | 
|                                      |                                                     |                                                        |        |                       |        |              |      |              |  
|CASH AT END OF YEAR                   |                                                     | $                                                      | 72     |                       | $      | 162          |      | $            | 
|                                      |                                                     |                                                        |        |                       |        |              |      |              |  

F-29

---

Consolidating Statement of Operations        Year ended December 31, 2002

|                                                                                     |                         | Holley
Performance
Products Inc.
(Parent Company
Only) |          | Subsidiary
Guarantors |       | Eliminations |       | Consolidated |        
|------------------------------------------------------------------------------------ | ----------------------- | ------------------------------------------------------ | -------- | --------------------- | ----- | ------------ | ----- | ------------ | -------
|NET SALES                                                                            |                         | $                                                      | 68,742   |                       | $     | 139,539      |       | $            | (68,742
|COST OF SALES                                                                        |                         |                                                        | 54,685   |                       |       | 133,806      |       |              | (68,742
|                                                                                     |                         |                                                        |          |                       |       |              |       |              |        
|                                                                                     | Gross profit            |                                                        |          | 14,057                |       |              | 5,733 |              |        
|                                                                                     |                         |                                                        |          |                       |       |              |       |              |        
|SELLING EXPENSES                                                                     |                         |                                                        | 418      |                       |       | 13,502       |       |              |       
|GENERAL AND ADMINISTRATIVE EXPENSES                                                  |                         |                                                        | 2,521    |                       |       | 10,086       |       |              |       
|MANAGEMENT FEES TO RELATED PARTY                                                     |                         |                                                        | 899      |                       |       |             |       |              |       
|AMORTIZATION OF INTANGIBLES                                                          |                         |                                                        | 1,130    |                       |       | 755          |       |              |       
|OTHER EXPENSES                                                                       |                         |                                                        | 555      |                       |       |             |       |              |       
|                                                                                     |                         |                                                        |          |                       |       |              |       |              |        
|TOTAL OPERATING EXPENSES                                                             |                         |                                                        | 5,523    |                       |       | 24,343       |       |              |       
|                                                                                     |                         |                                                        |          |                       |       |              |       |              |        
|                                                                                     |                         | Operating income (loss)                                |          |                       | 8,534 |              |       | (18,610      | )      
|INTEREST EXPENSE                                                                     |                         |                                                        | 23,088   |                       |       |             |       |              |       
|                                                                                     |                         |                                                        |          |                       |       |              |       |              |        
|LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE                  |                         |                                                        | (14,554  | )                     |       | (18,610      | )     |              |       
|                                                                                     | TAXES (BENEFIT) EXPENSE |                                                        |          | (3,068                | )     |              |      |              |        
|                                                                                     |                         |                                                        |          |                       |       |              |       |              |        
|LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE                                   |                         |                                                        | (11,486  | )                     |       | (18,610      | )     |              |       
|EQUITY IN LOSS OF SUBSIDIARIES                                                       |                         |                                                        | (45,785  | )                     |       |             |       |              | 45,785 
|CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR INTANGIBLE ASSET IMPAIRMENT, NET OF TAXES |                         |                                                        | (57,416  | )                     |       | (27,175      | )     |              |       
|                                                                                     |                         |                                                        |          |                       |       |              |       |              |        
|NET LOSS                                                                             |                         | $                                                      | (114,687 | )                     | $     | (45,785      | )     | $            | 45,785 
|                                                                                     |                         |                                                        |          |                       |       |              |       |              |        

F-30

---

Consolidating Statement of Cash Flows        Year ended December 31, 2002

|                                      |                                                   | Holley
Performance
Products Inc.
(Parent Company
Only) |         | Subsidiary
Guarantors |        | Eliminations |      | Consolidated |  
|------------------------------------- | ------------------------------------------------- | ------------------------------------------------------ | ------- | --------------------- | ------ | ------------ | ---- | ------------ | -
|CASH FLOWS FROM OPERATING ACTIVITIES  |                                                   | $                                                      | (10,300 | )                     | $      | 735          |      | $            | 
|CASH FLOWS FROM INVESTING ACTIVITIES: |                                                   |                                                        |         |                       |        |              |      |              |  
|                                      | Capital expenditures                              |                                                        |         | (1,264                | )      |              | (446 | )            |  
|                                      | Proceeds on disposal of fixed assets              |                                                        |         | 494                   |        |              |     |              |  
|                                      |                                                   |                                                        |         |                       |        |              |      |              |  
|                                      |                                                   | Net cash used in investing activities                  |         |                       | (770   | )            |      | (446         | )
|                                      |                                                   |                                                        |         |                       |        |              |      |              |  
|CASH FLOWS FROM FINANCING ACTIVITIES: |                                                   |                                                        |         |                       |        |              |      |              |  
|                                      | Principal payments on long-term obligations       |                                                        |         | (420                  | )      |              | (270 | )            |  
|                                      | Net repayments under revolving credit arrangement |                                                        |         | (28,814               | )      |              |     |              |  
|                                      | Net borrowings under revolving credit agreement   |                                                        |         | 28,554                |        |              |     |              |  
|                                      | Proceeds from issuance of promissory note         |                                                        |         | 7,500                 |        |              |     |              |  
|                                      | Proceeds from issuance of preferred stock         |                                                        |         | 7,500                 |        |              |     |              |  
|                                      | Financing costs                                   |                                                        |         | (2,901                | )      |              |     |              |  
|                                      |                                                   |                                                        |         |                       |        |              |      |              |  
|                                      |                                                   | Net cash provided by (used in) financing activities    |         |                       | 11,419 |              |      | (270         | )
|                                      |                                                   |                                                        |         |                       |        |              |      |              |  
|NET CHANGE IN CASH                    |                                                   |                                                        | 349     |                       |        | 19           |      |              | 
|CASH AT BEGINNING OF YEAR             |                                                   |                                                        | 72      |                       |        | 162          |      |              | 
|                                      |                                                   |                                                        |         |                       |        |              |      |              |  
|CASH AT END OF YEAR                   |                                                   | $                                                      | 421     |                       | $      | 181          |      | $            | 
|                                      |                                                   |                                                        |         |                       |        |              |      |              |  

F-31

---

The below report is a copy of the report previously issued by Arthur Andersen LLP in conjunction with its audits of the schedule of valuation and qualifying accounts as of and for the
years ended December 31, 1999 and 2000. A copy of this report has been provided as required by the American Institute of Certified Public Accountant's Interpretation of Statement on Auditing Standards
No. 58, "Reports on Audited Financial Statements," and guidance issued by the Securities and Exchange Commission in response to Arthur Andersen LLP ceasing operations. As such, Arthur Anderson LLP has
not reissued this report or consented its use. Accordingly, limitations may exist on a) investor's rights to sue Arthur Andersen LLP under Section 11 of the Securities Act for false and misleading
financial statements, if any, and the effect, if any, on the due diligence defense of directors and officers, and b) investor's legal rights to sue and recover damages from Arthur Andersen LLP
for material misstatements or omissions, if any, in any registration statements and related prospectuses that include or incorporate by reference, financial statements previously audited by Arthur
Andersen LLP.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
Holley Performance Products Inc.:

We
have audited, in accordance with auditing standards generally accepted in the United States, the accompanying consolidated balance sheet of Holley Performance Products Inc. (a
Delaware corporation) and subsidiaries as of December 31, 2000 and the related consolidated statements of operations, stockholder's equity and cash flows for the years ended December 31, 1999 and
2000, as restated (See Note 7) included in this Form 10-K and have issued our report thereon dated March 9, 2001.

Our
audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying schedule of valuation and qualifying accounts is presented
for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. The information presented in this schedule as of and for the years
ended December 31, 1999 and December 31, 2000 has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material
respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.



Nashville,
Tennessee
March 9, 2001

S-1

---



FINANCIAL STATEMENT SCHEDULE  SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS

|COLUMN A                                  |  | COLUMN B |       | COLUMN C |   | COLUMN D |   | COLUMN E
|----------------------------------------- |  | -------- | ----- | -------- | - | -------- | - | --------
|
|
|Allowance for doubtful accounts           |  |          |       |          |   |          |   |         
|For the year ended December 31, 2002      |  | $        | 866   |          | $ | (180     | ) |         
|For the year ended December 31, 2001      |  |          | 964   |          |   | 424      |   |         
|For the year ended December 31, 2000      |  |          | 1,293 |          |   | 322      |   |         
|Allowance for outstanding rebate programs |  |          |       |          |   |          |   |         
|For the year ended December 31, 2002      |  | $        | 1,404 |          | $ | 5,486    |   | $       
|For the year ended December 31, 2001      |  |          | 1,856 |          |   | 5,990    |   |         
|For the year ended December 31, 2000      |  |          | 1,504 |          |   | 5,273    |   |         
|Reserve for product returns(2)            |  |          |       |          |   |          |   |         
|For the year ended December 31, 2002      |  | $        | 2,981 |          | $ | 8,492    |   | $       
|For the year ended December 31, 2001      |  |          | 3,423 |          |   | 5,572    |   |         
|For the year ended December 31, 2000      |  |          | 4,294 |          |   |         |   |         

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S-2

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|EXHIBIT
NUMBER |  | DESCRIPTION:                                                                                                                                                                                                                                                                                                                                                                                                                            
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1a           |  | Certificate of Incorporation of Holley Performance Products Inc., as amended (filed as Exhibit 3.1a to the Registration Statement on Form S-4, Commission File No. 333-89061, and incorporated herein by reference).                                                                                                                                                                                                                    
|3.1b           |  | Bylaws of Holley Performance Products Inc. (filed as Exhibit 3.1b to the Registration Statement on Form S-4, Commission File No. 333-89061 and incorporated herein by reference).                                                                                                                                                                                                                                                       
|41             |  | Indenture for the 121/4% Senior Notes due 2007, dated as of September 20, 1999, between Holley Performance Products Inc., the Guarantors and State Street Bank and Trust Company, as Trustee (filed as Exhibit 4.1 to
the Registration Statement on Form S-4, Commission File No. 333-89061, and incorporated herein by reference).                                                                                                     
|4.2            |  | Form of Global note for 121/4% Senior Note due 2007, Series B (filed as Exhibit 4.3 to the Registration Statement on S-4, Commission File No. 333-89601, and incorporated herein by reference).                                                                                                                                                                                                                                         
|4.5            |  | Supplemental Indenture, dated October 10, 2002, between Holley Performance Products Inc. and State Street Bank and Trust Company. (filed as Exhibit 4.1 to Form 8-K of Holley Performance Products Inc. dated October 10, 2002 and
incorporated herein by reference).                                                                                                                                                                   
|4.6            |  | Certificate of Designations, Preferences and Rights of Series A Convertible Preferred Stock of Holley Performance Products Inc. (filed as Exhibit 4.2 to Form 8-K of Holley Performance Products Inc. dated October 10, 2002 and
incorporated herein by reference).                                                                                                                                                                     
|10.1           |  | Loan and Security Agreement, dated December 29, 2000 (the "Loan and Security Agreement"), by and among Holley Performance Products Inc., its subsidiaries and Fleet Capital Corporation. (filed as Exhibit 10.1 to Form 10-K of Holley
Performance Products Inc. for the year ended December 31, 2001, and incorporated herein by reference).                                                                                           
|10.2           |  | First Amendment to the Loan and Security Agreement, dated April 9, 2001, by and among Holley Performance Products Inc., its subsidiaries and Fleet Capital Corporation. (filed as Exhibit 10.2 to Form 10K of Holley Performance Products Inc. for
the year ended December 31, 2001 and incorporated herein by reference).                                                                                                              
|10.3           |  | Second Amendment to the Loan and Security Agreement, dated April 15, 2002, by and among Holley Performance Products Inc., its subsidiaries and Fleet Capital Corporation. (filed as Exhibit 10.3 to Form 10K of Holley Performance Products Inc. for the
year ended December 31, 2001 and incorporated herein by reference).                                                                                                            
|10.5           |  | Loan and Security Agreement dated as of July 30, 2002, by and among Holley Performance Products Inc., its subsidiaries, and Foothill Capital Corporation, as the arranger and administrative agent (filed as Exhibit 10.1 to the Company's Form 8-K filed
on August 9, 2002, and incorporated herein by reference).                                                                                                                     
|10.7           |  | First Amendment and Waiver to Loan and Security Agreement, dated October 11, 2002, among Holley Performance Products Inc., each of its subsidiaries signatory thereto, Foothill Capital Corporation, as the arranger and administrative agent, and the
other lenders Signatory thereto (filed as Exhibit 10.1 to Form 8-K of Holley Performance Products Inc. for the year ended October 15, 2002 and incorporated herein by reference).
|10.8           |  | Holley Performance Products Inc., 10% Pay-in-Kind Convertible Promissory Note in favor of KHPP Holdings, Inc. (filed as Exhibit 10.2 to Form 8-K of Holley Performance Products Inc. for the year ended October 15, 2002 and incorporated herein by
reference).                                                                                                                                                                         
|10.7*          |  | Employment Agreement with James D. Wiggins dated August 14, 12002.                                                                                                                                                                                                                                                                                                                                                                      
|10.8*          |  | Employment Agreement with Russell W. Ford, dated July 19, 2002.                                                                                                                                                                                                                                                                                                                                                                         

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|21    |  | Subsidiaries of Holley Performance Products Inc. (filed as Exhibit 24 to Form 10K of Holley Performance Products Inc. for the year ended December 31, 2001 and incorporated herein by reference).
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|99.1* |  | Certification by James D. Wiggins, Chief Executive Officer of Holley Performance Products Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                        
|99.2* |  | Certification by Gary Cademartori, Chief Financial Officer of Holley Performance Products Inc. pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                        

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