HOLLEY PERFORMANCE PRODUCTS INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-K

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

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________
TO __________________.

---------

COMMISSION FILE NUMBER: 333-89061

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

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

1801 RUSSELLVILLE 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

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

Indicate by check mark 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. [ ]

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 April 16, 2002 was 1,000.

1

HOLLEY PERFORMANCE PRODUCTS INC
Annual Report on Form 10-K

December 31, 2001

TABLE OF CONTENTS

Page No.
--------

PART I
Item 1. Business........................................................................ 3
Item 2. Properties...................................................................... 6
Item 3. Legal Proceedings............................................................... 7
Item 4. Submission of Matters to a Vote of Security-Holders............................. 7

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters........... 8
Item 6. Selected Financial Data......................................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 8
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...................... 15
Item 8. Financial Statements and Supplementary Data..................................... 15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..................................... 15

PART III

Item 10. Directors and Executive Officers of the Registrant.............................. 16
Item 11. Executive Compensation.......................................................... 17
Item 12. Security Ownership of Certain Beneficial Owners
and Management.......................................................... 18
Item 13. Certain Relationships and Related Transactions.................................. 18

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................ 19
Signatures................................................................................ 23
Index to Financial Statements and Financial Statement Schedule............................ F-1

2

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, snowmobile and go-cart) aftermarkets. Holley designs, manufactures and
markets a diversified line of automotive performance racing products that
include fuel, air, spark (also known as ignition) and internal engine management
systems. We design our products to enhance vehicle performance through
generating increased horsepower and torque. Our products include both throttle
body and multi-port fuel injection systems, performance and remanufactured
carburetors, digital ignition systems, distributors, fuel pumps, camshafts,
crankshafts, intake manifolds, pistons, 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"). We have developed
strong relationships with our 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.

We are committed to providing superior products and services to our
customers and believe that our comprehensive quality control and consumer
support programs position Holley as the industry leader in quality and service.
We are vertically integrated and endeavor to manufacture all critical product
components and systems. All products are fully tested prior to shipment to
ensure maximum reliability and "out of the box race readiness." Each product is
100% tested and tuned for maximum performance and is ready for installation when
purchased. In addition we have a significant 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 24 professional
engineers, supported by highly trained technicians. In 2001, we have introduced
210 new products to leverage the Holley brand name and capitalize on our
superior R&D capability. Our 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 our quality is the
many awards that we have 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:

- - Leverage the Holley Brand Name Through New Product Introductions;

- - Market Our Products as Systems;

- - Continue to Diversify Product and System Offerings;

- - Improve Manufacturing Efficiency;

- - Leverage Distribution Channels; and

- - Pursue Strategic Acquisitions.

Our product line is broadly divided into two segments: (a) a full line of
performance products including induction, exhaust, internal engine components,
performance fittings, hoses, brake lines, and ignition components; and (b)
remanufactured products, each of which is described below.

PERFORMANCE PRODUCTS

We are 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 increased horsepower and torque. We
hold a strong position in the performance segment due to our brand preferences
among car enthusiasts and racers. Our performance product line consists
predominantly of induction, exhaust, internal engine and ignition components.

REMANUFACTURED PRODUCTS

We manufacture and market 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, we

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offer a line of remanufactured fuel injectors for the fleet truck marketplace
and have 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. Our FlowTech (Biggs Manufacturing, Inc. - "FlowTech")
subsidiary is a leading manufacturer of performance exhaust systems, headers,
mufflers, and exhaust accessories. The combination of FlowTech with our Hooker
exhaust systems and other air management products completes our 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. Our 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 our 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. Our 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. During 1999,
Lunati pistons and rods were transferred to the Bowling Green, Kentucky
manufacturing plant.

NITROUS OXIDE SYSTEMS. Our Nitrous Oxide Systems (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 our 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. Our Weiand (Weiand Automotive Industries - "Weiand") subsidiary
is a leading manufacturer of performance induction systems components including
intake manifolds, superchargers and water pumps. Additionally, we have
consolidated all Weiand's manufacturing operations (other than the foundry) into
our 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. Our Earl's Performance Products (Earl's
Supply Company, Inc. - "Earl's") subsidiary is a provider of underhood
performance fittings, brake lines and hoses. Our Earl's business completes our
fuel management systems product offerings and expands our cooling system
business.

RESEARCH AND DEVELOPMENT

We are constantly developing new products to respond to consumer
demand, to increase the performance characteristics of existing products, and to
expand into new product lines. Over the course of our history, we have expanded
our business operations by developing and adapting product lines in response to
changing engine technology, such as our development of the Annihilator(TM)
ignition system and our performance throttle body and multi-port fuel injection
systems. In 2001, we focused our resources on continuous improvement of our 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. We added 210 new products
including the new patented NOSzle technology by NOS which allows users to
install NOS systems on fuel injected vehicles in a plug and play fashion with no
fabrication necessary. At the 2001 SEMA show, we were awarded Runner Up in Best
New Performance Street Product for the 4.6L NOSzle nitrous system, Runner Up in
Best New Off Road and 4 Wheel Drive Product for our Truck Avenger Carburetor,
and the 2001 Popular Mechanics Magazine Editor's Choice award for our Truck
Avenger Carburetor. During 1999, we completed the construction and installation
of a 14,000 square foot engineering laboratory at our Bowling Green facility.
Operated by 24 professional engineers who are supported by highly trained
technicians, this facility has a full complement of engineering and testing
equipment, including 8 state of the art dynamometers used for full-scale engine
analysis, 18 computer modeling stations and a full range of environmental
testing capabilities. We spent $2.7 million, $2.3 million, $2.4 million,
$2.2 million and $0.8 million from 1997 through 2001 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. Our products are sold in all 50 states and Canada and to a lesser
degree other export markets. Our largest and

4

fastest growing distribution channels are mail order and retail, due primarily
to Summit Racing and Jeg's. In 2001, Summit Racing, our single largest customer,
accounted for approximately 11.6% of our net sales, and our second largest
customer, Jeg's, accounted for approximately 6.8% of net sales. The retail
channel includes mass merchandisers and auto parts retailers with the majority
of our retail sales through auto parts retailers, which include Advance Auto
Parts, AutoZone, CSK Auto and Pep Boys. In 2001, we were selected to be the
performance induction system category manager for Advance Auto Parts, we
increased sales of our performance products to CSK Auto, and we expanded product
coverage at AutoZone.

Wholesale distribution is the industry's traditional channel and a
major outlet for our performance products. Significant customers include
Keystone Automotive, O'Reilly Automotive and the 3-Star, AAM and USP buying
groups. We manufacture 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 3.0% of our net sales in 2001 were direct performance
product sales to original equipment manufacturers.

While not a specific distribution channel, we export 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
1.8% of our net sales in 2001.

MARKETING

Holley's sales force consists of five manufacturers' representative
firms with 53 salespersons selling our products. We continue to support our
sales efforts with extensive advertising and promotional programs, focusing on
NASCAR and the drag racing market (NHRA and IHRA) because of their importance to
the motorsports industry and influence on the performance aftermarket. In
addition, we sponsor many of the nation's leading racing sanctioning bodies,
including the IHRA and the NHRA, as well as key motor sports associations,
including the National Street Rod Association, the World Karting Association and
the National Muscle Car Association. We also sponsor different national events,
including the Holley Spring Nationals drag racing event, Hot Rod Magazine East,
and West Coast Power Tours. For 2001, the IHRA Sportsman drag racing series
became the Holley Sportsman Drag Racing Championship. More emphasis was put on
promotions toward the expanding street performance market than in previous
years, which represents larger sales growth potential for Holley. At the 2001
SEMA show, we were awarded Runner Up in Best New Performance Street Product for
our 4.6L NOSzle nitrous system, Runner Up in Best New Merchandising Display for
our Fast and Furious Sport Compact Nitrous display, Runner Up in Best New Off
Road and 4 Wheel Drive Product for our Truck Avenger Carburetor, and the 2001
Popular Mechanics Magazine Editor's Choice award for our Truck Avenger
Carburetor. In 2001, we were involved with the hit movie, "The Fast and the
Furious." Our NOS injection systems were featured in the movie and we further
capitalized on this success by partnering with Universal Studios to insert three
million of our NOS Mini Catalogs in each DVD that was released on January 1,
2002.

To ensure that we understand and appreciate the needs of our
customers, we operate three touring display trailers carrying our products,
catalogs and personnel. These touring trailers (a 64-foot 18-wheel trailer, a
48-foot 18-wheel trailer, and a 43-foot 5th-wheel trailer) travel annually to
approximately 100 events nationally, including automotive racing events,
specialty automotive shows, retail store openings and distributor open houses.
We also maintain a technical hotline, e-mail address, and web page
(www.holley.com) to assist consumers with installation and application
questions. A total of 21 qualified hotline technicians handle approximately
200,000 phone calls and 89,000 e-mails per year. Our web site is one of the
leading performance manufacturer's sites with over 6,000 pages of information
and over 13,000 unique visitors each day.

RAW MATERIALS

We purchase raw materials, typically in the form of components, for
our various products from many different suppliers. These materials include
castings and forgings, gaskets, plastic, hose, steel and other materials to
produce our products. Holley has one significant supplier of raw materials,
Gerity-Schultz, a zinc foundry vendor that supplies zinc castings for our
performance carburetor line. The rough casting bodies are machined, customized
and assembled into finished carburetors. We buy castings in bulk at negotiated
and fixed prices for six-month intervals regardless of changes in the price of
zinc and other base materials during that period. These castings accounted for
approximately 9% of our total raw material purchases in 2001. There are several
other zinc foundries in the country, but the Holley-owned tooling utilized by
Gerity-Schultz is specifically designed for our products and the Gerity-Schultz
equipment. Our top six suppliers, including Gerity-Schultz, accounted for
approximately 20% of our total raw material purchases in 2001. In addition to
Gerity-Schultz, we outsourced the aluminum casting of Weiand products to Buddy
Bar Castings with 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. Buddy Bar accounted for approximately 3.0% of our raw material purchases
in 2001.

No suppliers other than Gerity-Schultz and Buddy Bar accounted for
more than 2.8% of our total raw material purchases in 2001. We have two or more
sources of supply for all of our significant raw materials.

5

TRADEMARKS AND PATENTS

Holley and its subsidiaries have registered, or are in the process of
registering, approximately 152 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 50 patents or patents pending on various products registered
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, our 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 our 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. We compete primarily
on the basis of product performance, brand name, quality, service, and price.
Within our performance products line, our 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, 2001, we had 909 U.S.-based employees including
fulltime, hourly and salary employees and 240 Mexico-based employees. None of
our employees are represented by labor unions. We provide a comprehensive
benefits program to all fulltime employees. During the first fiscal quarter of
2001, we implemented an involuntary layoff of 36 hourly employees from our
Bowling Green, Kentucky manufacturing plant, reducing our hourly employment
level to 297 at December 31, 2001. Our Springfield, Tennessee operation had 181
total employees at December 31, 2001, comprised of 162 hourly employees and 19
salaried employees. These numbers reflect an involuntary layoff in the third
fiscal quarter of 17 employees. Our Lunati operations ended 2001 with 27 hourly
and 11 salaried employees. In 2001, all Exhaust Division (Hooker) consolidation
programs were completed. This effort involved consolidating manufacturing
facilities (including moves from Senota, Mexico; Tempe, Arizona; and Ontario,
California) into 2 locations. The Exhaust Division currently has 2 manufacturing
locations: one in Aberdeen, Mississippi with 111 employees at December 31, 2001;
the other in Tijuana, Mexico with 240 employees at December 31, 2001. As of
December 31, 2001, Earl's had 90 employees, including 84 hourly and 6 salaried
employees. So-Cal had 27 employees as of December 31, 2001, comprised of 16
hourly and 11 salaried employees. Our So-Cal location also houses our NOS
customer and technical service operation consisting of 7 employees: 6 salaried
and 1 hourly. Holley reduced its workforce by 234 employees during 2001 to
partially offset the reduced demand resulting from the recession.

ITEM 2 -- PROPERTIES

As of December 31, 2001, we have manufacturing facilities located in
Bowling Green, Kentucky; Springfield, Tennessee; Pomona, California; Long
Beach, California; Memphis, Tennessee; Aberdeen, Mississippi and Tijuana,
Mexico. We believe that each is well maintained and suitable for its purpose.
As part of our business strategy, we endeavor to manufacture all critical
components and systems. However, to complete certain products, we outsource
certain processes to third parties.

Holley's headquarters are located in Bowling Green, Kentucky on the
same 15.4 acre site as our 220,000 square foot primary manufacturing facility.
At this location, we manufacture and package carburetors, intake manifolds,
superchargers, pistons, connecting rods, electric fuel pumps and fuel injection
systems in several manufacturing cells. Holley owns a 110,000 square foot
distribution facility in Bowling Green, Kentucky approximately five miles from
our headquarter location. We have moved all of our performance products
distribution functions to this facility, allowing us to expand our
manufacturing operations at our current facilities.

Our 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. We exercised our 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.

In early 2001, the Weiand foundry leased facility was closed and the
aluminum castings produced at the foundry were outsourced to a modern, cost
effective aluminum foundry. The foundry was closed at the end of the lease
period. The remaining 40 employees were terminated with the closure of the
facility.

Holley leases Lunati's approximately 30,000 square foot manufacturing
facility located in Memphis, Tennessee. We manufacture Lunati pistons and
connecting rods in our Bowling Green facility and Lunati camshafts and
crankshafts at our Memphis, Tennessee facility. During 2000, we 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.

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Flowtech's manufacturing facilities were relocated to our Aberdeen
facility in 2000, and Hooker's finished goods inventories were relocated to our
Aberdeen facility during December 2000 and January 2001.

Hooker has a manufacturing facility in Tijuana, Mexico. Hooker's leased
administrative offices in Ontario, California were closed in January 2001. The
lease terminates in July 31, 2004. As of December 31, 2001, approximately 17% of
the facility has been subleased.

We manufacture and distribute Earl's products in the Long Beach,
California facility. Our NOS facility in Costa Mesa, California was closed in
the first quarter 2001 and has been subleased. We also have smaller retail and
distribution properties leased in Lawndale, California; Indianapolis, Indiana;
Towcester, Northants, United Kingdom; and Australia.

ITEM 3 -- LEGAL PROCEEDINGS

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

In December 2000, Union Pacific, Holley, Weiand and the other parties
to the litigation reached a comprehensive settlement in exchange for a cash
payment significantly less than the sought amount, resulting in a full
dismissal of the lawsuit. A substantial majority of the settlement payment was
paid by Weiand's insurers. In connection with the settlement, an additional
$550,000 paid by the settling insurers has been put into a Site Source Control
Account to fund investigation and any required remediation of the Weiand
property, as may be required by the State of California. Part of the attorney
fees and litigation expenses of the parties were also reimbursed by the
settling insurers.

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

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.

1997 1998 1999 2000 2001
-------- -------- --------- --------- ---------
(in thousands)

INCOME STATEMENT DATA:
Net sales $ 98,803 $ 101,363 $ 130,091 $ 163,503 $ 146,987
Cost of sales 69,192 69,997 87,727 114,220 110,017
-------- --------- --------- --------- ---------
Gross profit 29,611 31,366 42,364 49,283 36,970
-------- --------- --------- --------- ---------

Operating expenses
Selling, general, and administrative expenses 22,759 19,411 28,089 43,812 29,486
Plant relocation costs -- 452 1,089 654 --
Amortization expense 113 1,671 4,536 5,542 5,777
-------- -------- --------- --------- ---------
Total operating expenses 22,872 21,534 33,714 50,008 35,263
-------- -------- --------- --------- ---------

Operating income (loss) 6,739 9,832 8,650 (725) 1,707

Interest expense -- 4,705 11,848 23,109 22,450
Other income (expense) 45 (1,626) -- (122) (387)
-------- --------- --------- --------- ---------
Income (loss) before taxes and extraordinary item 6,784 3,501 (3,198) (23,956) (21,130)

Income tax (benefit) expense 2,520 1,831 (171) (7,808) 2,880
-------- --------- --------- --------- ---------

Income (loss) before extraordinary item 4,264 1,670 (3,027) (16,148) (24,010)

Extraordinary item, net -- -- 1,654 511 --
-------- --------- --------- --------- ---------
Net income (loss) $ 4,264 $ 1,670 $ (4,681) $ (16,659) $ (24,010)
======== ========= ========= ========= =========

OTHER FINANCIAL DATA:
Depreciation and amortization $ 1,063 $ 4,123 $ 10,128 $ 12,993 $ 14,904
Capital expenditures 942 4,007 4,642 4,290 1,977
Total assets 33,884 178,072 262,863 264,329 238,572
Total long-term debt, including
current portion 9,081 93,088 164,705 184,382 178,821

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 our Consolidated Financial Statements and the notes thereto included
elsewhere in this report.

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 12 1/4% 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, 2000 and 2001 (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 1999 results include the results of operations from the
Acquisitions subsequent to their acquisition dates. Consequently, meaningful
comparisons of results between years are difficult.

The results of operations for the years ended December 31, 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

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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 have been partially subleased during 2001. The Hooker manufacturing
facility in Tijuana, Mexico continues as a leased facility.

During the fourth quarter of 2000, the method of determining the cost
of inventories was changed from the last-in, first-out ("LIFO") method to the
first-in, first-out ("FIFO") method. FIFO was elected as all of the acquired
companies recorded their inventories under the FIFO method and only those
inventories of the Bowling Green and Springfield facilities were valued under
the LIFO method. In addition, Holley's competitors generally maintain their
inventories under the FIFO method. The effect of the change in accounting
principle has been retroactively applied and resulted in a reduction of the net
loss reported for 1999 and 2000 by $248,000 and $372,000, respectively.

RESULTS OF OPERATIONS

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 and co-op advertising allowances. Net sales for the
year ended December 31, 2001 totaled $147.0 million compared to $163.5 million
for the same period in 2000, a decrease of $16.5 million or 10.1%. Net sales in
the performance segment for 2001 were $127.6 million compared to $139.7 million
in the same period in 2000, a decrease of $12.1 million or 8.7%. 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
net sales in the remanufacturing segment is the direct result of weak demand in
the repair market due to the general economic slowdown.

GROSS PROFIT. Gross profit for the year ended December 31, 2001 totaled
$37.0 million or 25.2% of net sales compared to $49.3 million or 30.2% of net
sales for the same period in 2000, a decrease of $12.3 million or 24.9%. Gross
profit in the performance segment for 2001 was $32.7 million or 25.6% of net
sales, compared to $43.8 million or 31.4% of net sales for 2000, a decrease of
$11.1 million or 25.3%. In the remanufacturing segment, gross profit for the
year ended December 31, 2001 was $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 gross profit in both segments for the
year is attributable to the economic downturn and subsequent recession and were
partially offset by cost reductions.

9

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the year ended December 31, 2001 totaled $29.5
million or 20.1% of net sales compared to $43.8 million or 26.8% of net sales
for the same period in 2000, a decrease of $14.3 million or 32.6%. Selling
expenses for 2001 were $5.2 million less than 2000. This decrease is the result
of lower personnel costs of $0.7 million and reduced purchased services costs
and catalog expenses of $0.2 million and $0.5 million, respectively. In
addition, exhibit and promotional costs were reduced by $1.4 million and
advertising costs were lowered by $1.4 million as compared to 2000.

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

PLANT RELOCATION COSTS. Plant relocation costs for the year ended
December 31, 2001 totaled $-0- compared to $0.7 million for the same period in
2000.

AMORTIZATION EXPENSE. Amortization expense for the year ended December
31, 2001 totaled $5.8 million compared to $5.5 million in 2000. These expenses
reflect the amortization of goodwill 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 $1.7 million compared to a loss of $0.7 million
in 2000, an increase of $2.4 million.

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 as
compared to 2000.

Interest expense for the year ended December 31, 2001 was $22.5
million, of which $2.2 million related to the Company's revolving credit
facility, $18.4 million to bond interest and amortization of the senior debt
discount and $1.9 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 $(7.8) million for
the year ended December 31, 2000. The tax provision in 2001 resulted from the
establishment of a $9.8 million valuation allowance against deferred tax assets.
The tax benefit in 2000 resulted from pre-tax losses adjusted for non-deductible
expenses (primarily amortization of goodwill).

EXTRAORDINARY ITEM. There are no extraordinary items in 2001. The 2000
extraordinary item reflects 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 in full in December 2000.

10

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2000 AND DECEMBER 31, 1999

NET SALES. Net sales equals gross sales less provisions for volume
rebates, product returns and co-op advertising allowances. Net sales for the
year ended December 31, 2000 totaled $163.5 million compared to $130.1 million
for the same period in 1999, an increase of $33.4 million or 25.7%. Sales in the
performance segment for 2000 were $139.7 million compared to $104.6 million the
same period in 1999, an increase of $35.1 million or 33.6%. Sales in the
remanufacturing segment for 2000 were $23.8 million compared to $25.5 million in
the same period in 1999, a decrease of $1.7 million or 6.7%.

The increase in the performance segment sales for 2000 was attributable
to the integration of the acquired businesses (Weiand, Lunati, Hooker, FlowTech,
NOS, and Earl's) for the twelve months of 2000 resulting in an increase of $37.8
million. In addition, sales of performance products by the Holley core business
decreased by $2.7 million or 2.5% over 1999.

Net sales for the three months ended December 31, 2000 totaled $35.8
million compared to $35.4 million for the same period in 1999, an increase of
$0.4 million or 1.1%. Sales for the performance segment for the three months
ended December 31, 2000 were $30.4 million compared to $29.1 million in the same
period in 1999, an increase of $1.3 million or 4.5%. Sales in the
remanufacturing segment for the three months ended December 31, 2000 were $5.4
million compared to $6.3 million in the same period in 1999, a decrease of $0.9
million or 14.3%. The increase in the performance segment for the three months
ended December 31, 2000 was attributable to the integration of the acquired
companies' sales while the decrease in the remanufacturing segment was
attributable to continuing declining market conditions.

GROSS PROFITS. Gross profits for the year ended December 31, 2000
totaled $49.3 million or 30.1% of net sales compared to $42.4 million or 32.6%
of net sales for the same period in 1999, an increase of $6.9 million or 16.3%.
Gross profits in the performance segment for 2000 were $43.8 million or 31.3% of
net sales, compared to $35.4 million or 33.8% of net sales for 1999, an increase
of $8.4 million or 23.7%. In the remanufacturing segment, gross profits for the
year ended December 31, 2000 were $5.5 million or 23.1% compared to $7.0 million
or 27.5% of net sales for the same period in 1999, a decrease of $1.5 million or
21.4%. The increase in the performance segment gross profit is primarily
attributable to increased sales volume, offset by costs associated with
additional inventory provisions of $3.0 million recorded in the fourth quarter
and costs incurred in connection with the closure of manufacturing operations
acquired during 1999 and their integration into existing facilities. As part of
the Company's overall initiative to decrease working capital and operating
expense, in the fourth quarter of 2000 management revised the Company's policy
for maintaining on hand inventory quantities and provided additional reserves
for the estimated loss that will be incurred in liquidating inventory that no
longer meets the Company's on hand inventory requirements. The decrease in
remanufacturing segment gross profit is attributable to reduced sales volume
offset by cost reductions.

Gross profits for the three months ended December 31, 2000 totaled $6.1
million or 17.0% of net sales compared to $10.2 million or 28.8% of net sales in
the same period in 1999, a decrease of $4.1 million or 40.2%. Gross profits in
the performance segment for the three months ended December 31, 2000 were $4.9
million or 16.1% of net sales compared to $8.8 million or 30.2% of net sales in
the same period in 1999, a decrease of $3.9 million or 44.3%. In the
remanufacturing segment, gross profits for the three months ended December 31,
2000 were $1.2 million or 22.2% of net sales compared to $1.4 million or 22.2%
of net sales in the same period in 1999, a decrease of $0.2 million or 14.3%.
The decrease in the performance segment was primarily attributable to the
increased inventory provision discussed above.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the year ended December 31, 2000 totaled $43.8
million or 26.8% of sales compared to $28.1 million or 21.6% for the same period
in 1999, an increase of $15.7 million or 55.9%. The increase is attributable to
spending for the support of the businesses acquired in 1999 (Hooker, FlowTech,
NOS and Earl's) including increased payroll of $3.4 million, increased
advertising and selling expenses of $7.6 million, increased depreciation expense
of $1.0 million, increased insurance premiums of $1.0 million and increased
professional services of $1.1 million.

Selling, general and administrative expense for the three months ended
December 31, 2000 totaled $14.7 million or 41.1% of sales, compared to $9.2
million or 26.0% of sales for the same period in 1999, an increase of $5.5
million or 59.8%. The increase is attributable to increased advertising and
selling expenses of $2.8 million, increased payroll of $1.4 million and
increased professional services of $1.1 million.

PLANT RELOCATION COSTS. Plant relocation costs for the year ended
December 31, 2000 totaled $0.7 million compared to $1.1 million for the same
period in 1999, resulting from expenses incurred in the closure of acquired
facilities and the related movement of inventory and fixed assets to the
Company's manufacturing facilities in Bowling Green, Kentucky and Aberdeen,
Mississippi in 2000 and the partial integration of acquired companies in 1999.

AMORTIZATION EXPENSE. Amortization expense for the year ended December
31, 2000 totaled $5.5 million compared to $4.5 million for the same period in
1999. These expenses reflect the amortization of goodwill 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. Loss from operations for the year ended
December 31, 2000 totaled ($0.7) million compared to income of $8.7 million for
the same period in 1999, a decrease of $9.4 million or 108.0%. The decrease is
primarily due to the increased amortization expense, increased inventory
reserves and increased selling general and administrative expenses partially
offset by increased sales and gross margins.

The loss from operations for the three months ended December 31, 2000
totaled ($10.2) million compared to ($0.9) million in same period in 1999, a
decrease of $9.3 million. The reduced operating results reflect increased
selling, general and administrative costs and increased inventory reserves.

INTEREST EXPENSE. Interest expense for the year ended December 31, 2000
was $23.1 million compared to $11.8 million for the same period in 1999, an
increase of $11.3 million or 95.8%. The 2000 expense includes $18.4 million
resulting from the first full twelve months of interest associated with our
Senior Notes.

The 1999 interest expense of $11.8 resulted from the Company's term
loans, revolving credit facility, and the initial accrual of interest associated
with the Senior Notes. The term loans were incurred in May 1998, October 1998,
and July 1999 in connection with the Holley Acquisition and the subsequent
acquisitions of Weiand, Lunati and Hooker. The revolving credit facility is used
to finance general business and working capital needs. The proceeds from the
sale of the Senior Notes were used to pay back the existing term loans and to
finance our 1999 acquisitions.

PROVISION (BENEFIT) FOR INCOME TAXES. Benefit for income taxes for the
year ended December 31, 2000 was ($7.8) million compared with ($0.2) million for
the year ended December 31, 1999. The tax benefits in 2000 and 1999 result from
pre-tax losses adjusted for non-deductible expenses (primarily amortization of
goodwill).

EXTRAORDINARY ITEM. An extraordinary item was recorded in 2000 to
reflect the write-off of $0.5 million (net of tax) of unamortized financing and
transaction fees associated with the Company's prior credit facility provided
through a group of banks led by Credit Agricole IndoSuez. This facility was paid
off in full in December 2000.

The 1999 extraordinary item reflects the write-off of $1.7 million (net
of tax) of unamortized financing and transaction fees associated with the
previous bank term debt. This previous bank debt was paid off in full in
September 1999 with the proceeds of our senior notes offering.

NET INCOME (LOSS). Net loss for the year ended December 31, 2000 was
($16.7) compared with ($4.7) million for the same period in 1999, a decrease of
$12.0 million. The decrease in 2000 net income reflects decreased income from
operations and increased interest expense. In addition, net income was reduced
by the extraordinary item of $0.5 million reflecting the write-off of
unamortized Credit Agricole IndoSuez financing fees. These reductions were
partially offset by an increased income tax benefit of ($7.6) million.

The net loss for the three months ended December 31, 2000 totaled
($10.8) million compared to ($3.2) million for the same period in 1999, a
difference of $7.6 million. The difference is attributable to decreased
operating income of $9.3 million, and increased interest expense of $0.8 million
offset by increased income tax benefit of ($3.1) million, increased other
expense of $0.1 million and the extraordinary item of $0.5 million.

11

QUARTERLY RESULTS

The following tables summarize the unaudited results of operations for
each of the specified quarters of fiscal years 2000 and 2001 (in thousands).

The Company restated net sales, gross profit, loss before extraordinary item and
net loss in the first three quarters of 2001 for the correction of the
following: capitalization and amortization of certain debt issuance costs,
costing of inventory for outside processing, reconciling differences between the
general ledger to the inventory sub ledger and depreciation of certain fixed
assets.

During the fourth quarter, adjustments were recorded to: decrease the allowance
for obsolete inventory -- $1.4 million; decrease the incentive compensation
accrual -- $0.7 million; increase the allowance for rebates -- $1.7 million;
increase the allowance for sales returns -- $2.2 million; increase outside
processing costs -- $2.4 million; increase cost of sales for reconciling
differences between the general ledger and the inventory subledger -- $1.8
million; increase cost of sales for correction of variance capitalization --
$2.4 million; and increase the allowance for bad debts -- $0.4 million.

12

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 service requirements. EBITDA is defined as
net income or loss (excluding extraordinary gain or losses, gains or losses from
asset dispositions and minority interest) before interest, income taxes,
depreciation and amortization. EBITDA is not a measure of financial performance
under accounting principles generally accepted in the United States, and should
not be considered an alternative to net income (or any other measure of
performance under accounting principles generally accepted in the United States)
as a measure of performance or to cash flows from operating, investing or
financing activities as an indicator of cash flows or as a measure of liquidity.
Certain covenants in Holley's $41 million credit facility with Fleet Capital
Corporation are based on EBITDA as defined in the credit facility.

EBITDA for the year ended December 31, 2001 was $16.1 million or 11.0%
of net sales compared to $12.3 million or 7.5% of net sales in 2000. This EBITDA
represented an increase of $3.8 million or 30.9% over the same period in 2000.
This increase was due primarily to a $14.3 million reduction in selling, general
and administrative expenses, partially offset by a reduction in gross profit of
$12.3 million due to a $16.5 million decrease in sales from 2000.

The fourth quarter results include a number of adjustments that the
Company's independent auditors (Ernst & Young LLP) suggested. The Company's
management and Audit Committee have ultimately accepted and agree with these
adjustments. These adjustments center around five principal areas: (1)
Capitalized Variances -- $2.4 million decrease, (2) Outside Processing
Costs/Work In Process Inventory -- $2.4 million decrease, (3) Customer Sales
Allowances -- $1.7 million increase, (4) Bad Debt Reserves -- $0.4 million
increase, and (5) Physical Inventory Adjustments -- $0.9 million decrease. These
adjustments had the effect of decreasing net sales, increasing cost of sales,
and decreasing gross profit levels for the fourth quarter and the full year.

OPERATING ACTIVITIES. Net cash provided by (used in) operating
activities for fiscal 2001, 2000 and 1999 was $1.5 million, $(7.4) million and
$(7.6) million, respectively. The increase in net loss was offset by the
non-cash effect of depreciation and amortization and decreased working capital
requirements, which contributed primarily to the increase in net cash provided
by operating activities in fiscal 2001. The decrease in working capital was
primarily attributable to decreased inventories of $0.2 million; decreased
receivables of $7.3 million; increased accounts payable of $2.2 million, offset
by decreased accrued liabilities of $3.5 million.

INVESTING ACTIVITIES. Net cash used in investing activities for fiscal
2001, 2000 and 1999 was $1.9 million, $5.0 million and $65.3 million,
respectively. The primary use of cash during fiscal 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. 1999 expenditures were to fund the acquisitions of
Hooker, FlowTech, NOS, and Earl's. In addition, we spent $4.6 million on
maintenance and replacement capital additions in 1999.

During 2000, we 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.

Construction was completed on our new distribution center, which is
leased under a capital lease arrangement, near Bowling Green, Kentucky in
October 1999. The new facility was financed by the local Economic Development
Authority, allowing us to take advantage of certain state and local tax
incentives granted for generating new employment.

FINANCING ACTIVITIES. Net cash provided by (used in) financing
activities for fiscal 2001, 2000, and 1999 was ($6.4) million, $18.0 million,
and $72.3 million, respectively. Cash used in 2001 was primarily due to
repayments on the revolver and other long-term obligations of $6.4 million,
while 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.

Cash provided in 1999 was primarily due to the proceeds from
additional equity contributions of $10.1 million, additional bank debt incurred
for acquisitions and working capital needs of $37.6 million, an economic
development equipment loan related to our new distribution center of $0.6
million and the net proceeds from the Senior Notes of $144.5 million. Such
amounts were primarily used to pay for acquisitions, payback existing bank debt
and to fund working capital requirements, as discussed above. Cash outflows
included retirement of bank debt

13

equal to $113.7 million and the payment of fees associated with debt issuance,
stock issuance, and acquisitions of $6.8 million.

Our primary sources of liquidity are funds generated by operations and
borrowings under our bank credit facility. Holley is dependent on the revolving
line of credit facility to fund its working capital needs.

We historically have expanded our business through the acquisition of
other related and complementary businesses, and we continue to seek and evaluate
acquisition opportunities. We anticipate that continuing our acquisition
strategy will require us to incur additional indebtedness. However, our current
indenture and bank credit facility terms, as well as our current level of
indebtedness, would significantly limit or prevent incurrence of any substantial
indebtedness.

BANK CREDIT FACILITY. In December 2000, we replaced our existing senior
credit facility with Credit Agricole IndoSuez (consisting of a $35.0 million
revolving credit facility) with a $41.0 million facility provided by Fleet
Capital Corporation that matures in December 2005. This facility is comprised of
two parts: a $36.0 million revolving credit portion and a $5.0 million term
facility to be used for fixed asset purchases, as required. The revolving credit
facility was amended on April 15, 2002. The amended revolving credit facility
reduces the maximum borrowing to $34.6 million at April 4, 2002 and, with
incremental reductions, to a maximum of $31.0 million at June 15, 2002. The
revolving credit facility has an interest coverage covenant only. During the
term of the revolving credit facility, Holley is required to have an interest
coverage ratio of 1.0:1.0 from the closing date to March 31, 2001, 1.10:1.0 from
the closing date to June 30, 2001, 1.10:1.0 from the closing date to September
30, 2001, and 1.15:1.0 from the closing date to December 31, 2001. The interest
coverage ratios for the term of the amended revolving credit facility are
1.20:1.0 for the year-to-date periods each ending on March 31, June 30,
September 30, and December 31, 2002; 1.25:1.0 for the trailing four quarters
each ending on March 31, June 30, September 30, and December 31, 2003, 2004 and
2005. Borrowings under the facility are limited to 75% of eligible receivables
and the lesser of $25.0 million (amended to $15.5 million at May 11, 2002 and
thereafter) or 55% of eligible inventories. As further discussed below, as of
December 31, 2001, the Company was not in compliance with the interest coverage
ratio and, on April 15, 2002, received a waiver for the noncompliance. Under the
credit agreement, Holley must have availability of $2.0 million if EBITDA on a
trailing twelve-month basis is equal to or less than $28.0 million, $1.0 million
if EBITDA is less than or equal to $32.0 million but greater than $28.0 million,
and $0 if greater than $32.0 million. Fleet Capital has a perfected security
interest in all the assets of Holley. The term facility can be accessed when
Holley has achieved a fixed charge coverage ratio of 1.0x on a trailing
twelve-month basis. (Fixed charge coverage is defined as EBITDA less
non-financial fixed asset expenditures and cash taxes divided by cash interest
plus scheduled principal payments.) Under the agreement, we may borrow either at
LIBOR or base interest rates as shown in the table below.

INTEREST COVERAGE RATIO BASE RATE MARGIN LIBOR MARGIN
----------------------- ---------------- ------------

<1.25 .75% 2.75%

1.26 - 1.50 .50 2.50

1.51 - 1.75 .25 2.25

>1.75 .00 2.00

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

- incur additional debt;

- grant liens; or

- sell our assets, together with financial covenants and
information reporting requirements we must meet.

Holley incurred net losses in 1999, 2000 and 2001. Also, as described
above and in Note 7 to the consolidated financial statements, Holley has not
complied with the interest coverage covenant on its revolving credit facility.
Holley was required to have an interest coverage ratio of 1.15:1.00 until
December 31, 2001; however, Holley has received a waiver from the bank of such
non-compliance and has secured an amendment to, among other things, the
borrowing base calculation and future interest ratio covenant requirements. (See
Exhibit 10.3 to this Annual Report). Holley is dependent on its revolving credit
facility to fund its working capital needs. Holley's ability to operate within
the cash available under its amended revolving credit facility and to comply
with the financial covenants required under that facility 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
revolving credit facility's quarterly financial ratio covenants during 2002, as
amended, and that the revolving credit facility will be adequate to allow Holley
to fund its working capital needs during 2002. However, should the revolving
credit facility 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 can not be
certain that it would be able to obtain necessary financing on acceptable terms
or at all.

In response to FASB's Emerging Issues Task Force 95-22 ("EITF 95-22")
policy guidelines, the Company's outstanding indebtedness under its revolving
credit facility at December 31, 2000 has been reclassified as current debt
rather than its previous classification as long-term debt. Generally, current
debt is payable within one year and long-term debt is payable at any time after
one year. This reclassification is based on Holley's revolving credit facility
having both (i) a "lockbox" agreement which provides for all the Company's cash
receipts to be swept daily into a special account which shall be used to reduce
outstanding borrowings, and (ii) a "material adverse effect" ("MAE") clause.
Notwithstanding this reclassification, Holley does not expect to repay, or be
required to repay (within one year), the outstanding balance of the Revolving
Credit Facility classified as a current liability. The MAE clause, which is a
typical requirement in commercial credit agreements, allows the lender to
accelerate the loan if it determines that there has been a "material adverse
effect" on the borrower's operations, business, properties, assets, liabilities,
condition or prospects.

The reclassification of the revolving credit facility as a current
liability is a result only of the combination of the two aforementioned factors:
the lockbox agreement and the MAE clause. However, the Company's Revolving
Credit Facility does not expire or have a maturity date within one year, but
rather has a final expiration date of December 28, 2005. As of December 31, 2001
and as of April 15, 2002, the lender under the Revolving Credit Facility has not
notified the Company of any indication of a MAE.

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

14

INFLATION

General inflation over the last four 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

Any statements set forth above which are not historical facts are
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:

- our strategy;

- our liquidity and capital requirements;

- our debt levels and ability to obtain financing and service
our debt;

- competitive pressures and trends in the performance
automotive products industry;

- cyclicality and economic condition of the industries we
currently serve;

- our ability to successfully integrate acquired companies;

- prevailing levels of interest rates;

- legal proceedings and regulatory matters;

- general economic conditions; and

- other risks identified herein and in other documents filed by
the Company with the Securities and Exchange Commission.

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. You are cautioned not to place undue
reliance on these forward-looking statements. We undertake no obligation to
update or revise any forward-looking statements. All subsequent written or oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by these cautionary 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, but will be subject
to annual impairment tests. Other intangible assets will continue to be
amortized over their useful lives.

The Company will apply the new rules on accounting for goodwill and
other intangible assets beginning in the first quarter of 2002. Application of
the nonamortization provisions of SFAS No. 142 is expected to result in an
increase in income before income taxes of approximately $5.8 million per year.
During 2002, the Company will perform the first of the required impairment tests
of goodwill and indefinite lived intangible assets as of January 1, 2002 and has
not yet determined what the effect of these tests will be on the earnings and
financial position of the Company.

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 and had no material effect
on the Company's results of operations or financial position.

ITEM 7A- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General. Holley's exposure to interest rate changes is primarily
related to its variable rate debt which may be outstanding from time to time
under its $41.0 million credit facility with Fleet Capital. The interest rates
of both the $36.0 million revolving portion of the credit facility and the $5.0
million term facility are based on the London Interbank Offered Rate (LIBOR) or
base rate. Because the interest rate on the credit facility is variable, the
Company's cash flow may be affected by increases in either the LIBOR or prime
rate. As of the end of 2001, Holley's outstanding balance on the revolving
credit facility was $28.8 million (offset by cash in transit of $2.2 million).

Sensitivity Analysis. To assess exposure to interest rate changes,
Holley has performed a sensitivity analysis assuming that it had drawn the full
$36.0 million balance available under the revolving line of credit. If the prime
rate increased 100 basis points, the increase in monthly interest payment would
equal $30,000.

ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Item 14 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 on 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 years ended December 31, 2000 and 1999
contained no adverse opinion or disclaimer of opinion and neither of those
reports was qualified or modified as to uncertainty, audit scope or accounting
principle. During the fiscal years ended December 31, 2000 and 1999, 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.

15

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 31, 2002. Directors are elected for a one
year term of office at the annual stockholder's meeting.

NAME AGE POSITION
- ---- --- --------

Jeffrey G. King 40 Chief Executive Officer, President and Director

A. Bruce Reynolds 61 Vice President, Chief Financial Officer and Secretary

John H. Nickoloff 49 Vice President and General Manager - Remanufacturing Business

Christopher Lacovara 37 Vice President, Treasurer, Assistant Secretary and Director

Evan D. Wildstein 31 Vice President, Assistant Secretary and Director

James A. Kohlberg 44 Director

James D. Wiggins 54 Chairman of the Board and Director

William F. Andrews 70 Director

Samuel P. Frieder 37 Director

JEFFREY G. KING. Chief Executive Officer, President and Director. Mr. King
joined Holley as Chief Executive Officer in 1997. Prior to joining Holley, Mr.
King was Executive Vice President and Chief Operating Officer of Lincoln Brass
Works, where he began in 1994 as Vice President of Sales and Marketing. From
1984 to 1994, he held positions with increasing responsibility at Arvin
Industries, an automotive systems and components company, ultimately becoming
the manager of new business development for its electronics unit, director of
sales and marketing and business unit manager for Arvin's Gabriel Ride Control
Products.

A. BRUCE REYNOLDS. Vice President, Chief Financial Officer, and Secretary. Mr.
Reynolds joined Holley in August 2000. Prior to joining Holley, Mr. Reynolds
most recently served as Chief Financial Officer of Powell Building Group from
1999 to 2001 and Saba Medical Technology, Inc. from 1997 to 1999. Mr. Reynolds
also served as Chief Financial Officer and Treasurer of National Auto/Truckstops
Inc. from 1993 through 1997, a nationwide truck stop and travel center company.
In addition, Mr. Reynolds has also held senior financial positions in the
automotive, electronics, packaging and chemical conversion industries, including
Chrysler Corporation, Bunker-Ramo Corporation, United States Can Inc. and
Woodbridge Holdings, Inc. Mr. Reynolds filed for Chapter 11 personal bankruptcy
in 1998, which was closed and resolved in 2000.

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.

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.

JAMES D. WIGGINS. Chairman of the Board and Director. Mr. Wiggins has been
Chairman since April 16, 2001 and a Director since 1998. Mr. Wiggins is
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, Inc. from 1996 through its
acquisition by Tomkins PLC in 1998, and prior to that, was President and CEO of
Bridge Products 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.

16

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. Our 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.

Compensation of Executive Officers. The following table shows, for the
three most recent fiscal years, the compensation paid to or earned by our Chief
Executive Officer and the four other most highly compensated executive officers
who were serving at the end of fiscal year 2001.

SUMMARY COMPENSATION TABLE

NAME AND
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS (3)
- ------------------ ---- ------ ----- -----------

Jeffrey G. King (1) 2001 $251,954 $100,000 -0-
Chief Executive Officer 2000 226,437 -0- -0-
1999 219,500 -0- -0-

A. Bruce Reynolds (1) (2) 2001 $138,705 $ 25,000 -0-
Chief Financial Officer 2000 54,281 -0- 200,000

John H. Nickoloff (1) 2001 $127,337 $ 60,000 -0-
Vice President - Performance and 2000 111,335 -0- -0-
Remanufacturing 1999 110,906 -0- -0-

William H. Bass (1) 2001 $131,729 $ 10,000 -0-
Vice President - Marketing 2000 $125,671 -0- -0-
1999 105,424 -0- 150,000

(1) Certain of the executives participate in Holley's 401(k) plan. Under
the plan, Holley matches contributions 100% up to a maximum of 6% of
the participant's total salary and bonus for that year. In 2001,
Holley paid the following amounts in 401(k) matches: Jeffrey G.
King--$10,200; William H. Bass--$-0-; A. Bruce Reynolds--$2,600; John
H. Nickoloff--$6,941. Each of the executives also participates in
Holley's group health and dental insurance plan.

(2) Mr. Reynolds joined Holley in August 2000.

(3) Options to buy stock of KHPP Holdings, Inc. the direct parent of
Holley.

OPTION GRANTS IN LAST FISCAL YEAR

No options were granted during 2001.

17

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 31, 2002 by our directors, executive officers, persons known by us
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 Owned
Name and Address of -----------------------------
Beneficial Owner Number Percentage
- ------------------- ------ ----------

KHPP Holdings, Inc. (1) 1,000 100%

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

1. KHPP Holdings, Inc.'s business address is: c/o Kohlberg & Company,
L.L.C., 111 Radio Circle, Mt. Kisco, New York, 10549. The voting common stock of
KHPP Holdings, Inc. is owned beneficially and of record as follows: KHPP
Acquisition Company, L.P.--97.14%; Jeffrey G. King--0.40%; Robert L.
Wineland--0.21%; James R. Vance--0.34%; John Nickoloff--0.19%; and other
unaffiliated investors--1.72%. James A. Kohlberg indirectly owns 100% of KHPP
Acquisition Company, L.P. Mr. King and Mr. Nickoloff also hold the same officer
positions with KHPP Holdings, Inc. as they hold with Holley. Furthermore, James
A. Kohlberg, Christopher Lacovara, Evan D. Wildstein and Samuel P. Frieder are
affiliates of Kohlberg & Company, L.L.C., which controls KHPP Acquisition
Company, L.P. See Directors and Executive Officers of the Registrant. The
business address of each such persons is: c/o Holley Performance Products Inc.,
1801 Russellville Rd., Bowling Green, Kentucky 42101.

2. The directors and officers of Holley do not own common stock of Holley,
but own common stock of KHPP Holdings, Inc. as indicated in footnote (1) above,
which owns all of the common stock of Holley. See footnote (1) above.

ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Pursuant to a fee arrangement, Holley pays Kohlberg & Company, L.L.C.
an annual management fee (plus expenses) 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, we paid Kohlberg an aggregate of $0.8 million under this management fee
agreement.

18

PART IV

ITEM 14 - 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 F-1 hereof.

(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Registrant during the last quarter of the fiscal year ended December
31, 2001.

(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 F-1 hereof.

19

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).

3.2a Certificate of Incorporation of Holley Performance Systems, Inc. (filed as Exhibit 3.2a
to the Registration Statement on Form S-4, Commission File No. 333-89061, and
incorporated herein by reference).

3.2b Bylaws of Holley Performance Systems, Inc. (filed as Exhibit 3.2b to the Registration
Statement on Form S-4, Commission File No. 333-89061, and incorporated herein by
reference).

3.3a Articles of Incorporation of Weiand Automotive Industries, Inc., as amended (filed as
Exhibit 3.3a to the Registration Statement on Form S-4, Commission File No. 333-89061,
and incorporated herein by reference).

3.3b Bylaws of Weiand Automotive Industries, Inc. (filed as Exhibit 3.3b to the Registration
Statement on Form S-4, Commission File No. 333-89061, and incorporated herein by
reference).

3.4a Articles of Incorporation of Lunati Cams, Inc., as amended (filed as Exhibit 3.4a to
the Registration Statement on Form S-4, Commission File No. 333-89061, and incorporated
herein by reference).

3.4b Bylaws of Lunati Cams, Inc. (filed as Exhibit 3.4b to the Registration Statement on
Form S-4, Commission File No. 333-89061, and incorporated herein by reference).

3.5a Articles of Incorporation of Hooker Industries, Inc. (filed as Exhibit 3.7a to the
Registration Statement on Form S-4, Commission File No. 333-89061, and incorporated
herein by reference).

3.5b Bylaws of Hooker Industries, Inc. as amended (filed as Exhibit 3.7b to the Registration
Statement on Form S-4, Commission File No. 333-89061, and incorporated herein by
reference).

3.6a Articles of Incorporation of Biggs Manufacturing, Inc. (filed as Exhibit 3.8a to the
Registration Statement on Form S-4, Commission File No. 333-89061, and incorporated
herein by reference).

3.6b Bylaws of Biggs Manufacturing, Inc. (filed as Exhibit 3.8b to the Registration
Statement on Form S-4, Commission File No. 333-89061, and incorporated herein by
reference).

3.7a Articles of Incorporation of Nitrous Oxide Systems, Inc. (filed as Exhibit 3.9a to the
Registration Statement on Form S-4, Commission File No. 333-89061, and incorporated
herein by reference).

3.7b Bylaws of Nitrous Oxide Systems, Inc. (filed as Exhibit 3.9b to the Registration
Statement on Form S-4, Commission File No. 333-89061, and incorporated herein by
reference).

3.8a Articles of Incorporation of Earl's Supply Company, Inc. (filed as Exhibit 3.10a to the
Registration Statement on Form S-4, Commission File No. 333-89061, and incorporated
herein by reference).

3.8b Bylaws of Earl's Supply Company, Inc. (filed as Exhibit 3.10b to the Registration
Statement on Form S-4, Commission File No. 333-89061, and incorporated herein by
reference).

4.1 Indenture for the 12-1/4% 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 12-1/4% 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).

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, 2000, 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.

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.

21* Subsidiaries of Holley Performance Products Inc.

24* Power of Attorney (included on signature page hereto).

*Filed herewith.

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/ A. Bruce Reynolds
----------------------------------------------------
Chief Financial Officer

Date: April 16, 2002

Each person whose signature appears below hereby constitutes and
appoints A. Bruce Reynolds and Jeffrey G. King, or either of them, the true and
lawful attorney-in-fact and agents of the undersigned, with full power of
substitution and resubstitution, for and in the name, place and stead of the
undersigned, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Report, and to file the same,
with all exhibits thereto, and other documents in connection herewith, with the
Commission, and hereby grants to such attorney-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or its substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.

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/ Jeffrey G. King Chief Executive Officer, President and April 16, 2002
- ------------------------- Director
(principal executive officer)

/s/ A. Bruce Reynolds Vice President, Chief Financial Officer April 16, 2002
- ------------------------- and Secretary
(principal financial officer and principal
accounting officer)

/s/ Christopher Lacovara Vice President, Treasurer, Assistant April 16, 2002
- ------------------------- Secretary and Director

/s/ Evan D. Wildstein Assistant Secretary and Director April 16, 2002
- -------------------------

/s/ James A. Kohlberg Director April 16, 2002
- -------------------------

/s/ William F. Andrews Director April 16, 2002
- -------------------------

/s/ James D. Wiggins Chairman of the Board of Directors April 16, 2002
- ------------------------- and Director

/s/ Samuel P. Frieder Director April 16, 2002
- -------------------------

INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

FINANCIAL STATEMENTS

Report of Ernst & Young LLP, Independent Auditors F-2

Report of Arthur Andersen LLP, Independent Public Accountants F-3

Consolidated Balance Sheets as of December 31, 2000 and 2001 F-4

Consolidated Statements of Operations for the
years ended December 31, 1999, 2000 and 2001 F-5

Consolidated Statements of Stockholder's Equity for
the years ended December 31, 1999, 2000 and 2001 F-6

Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 2000 and 2001 F-7

Notes to Consolidated Financial Statements F-9

FINANCIAL STATEMENT SCHEDULE

Report of Arthur Andersen LLP on Financial Statement Schedule S-I

Schedule II -- Valuation and Qualifying Accounts S-II

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.

F-1

REPORT OF INDEPENDENT AUDITORS

Board of Directors and Stockholder
Holley Performance Products Inc.

We have audited the accompanying consolidated balance sheet of Holley
Performance Products Inc. and subsidiaries as of December 31, 2001, and the
related consolidated statements of operations, stockholder's equity and cash
flows for the year then ended. Our audit also included the financial statement
schedule listed on the Index at Item 14(a) as of December 31, 2001 and for the
year 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 audit.

We conducted our audit 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 audit provides 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 the
results of their operations and their cash flows for the year 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 for the year 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 failed to comply with a covenant of the revolving credit
facility at December 31, 2001. The loan agreement has been amended subsequent to
December 31, 2001. The Amended 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.

/s/ Ernst & Young LLP

Nashville, Tennessee
April 12, 2002, except for the last
three paragraphs of Note 1 and the second
paragraph of Note 7, as to which the
date is April 15, 2002

F-2

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-3

HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2000 AND 2001

(Dollars in Thousands)

DECEMBER 31, December 31,
ASSETS 2000 2001
------------ -----------

CURRENT ASSETS:
Cash and cash equivalents $ 6,967 $ 234
Accounts receivable, net of allowance for doubtful accounts of
$964 and $866 at December 31, 2000 and 2001, respectively 27,273 19,999
Inventories 34,759 34,607
Deferred income taxes 3,514 5,773
Income taxes receivable 1,305 308
Other current assets 1,020 1,497
--------- ---------
Total current assets 74,838 62,418

PROPERTY, PLANT AND EQUIPMENT, NET 32,791 26,068
INTANGIBLE ASSETS
Costs in excess of net assets acquired 111,658 111,658
Trade names 42,900 42,900
Other 14,904 15,030
--------- ---------
169,462 169,588
Less accumulated amortization (12,762) (19,502)
--------- ---------
Total intangible assets, net 156,700 150,086
--------- ---------
Total assets $ 264,329 $ 238,572
========= =========

LIABILITIES AND STOCKHOLDER'S EQUITY

CURRENT LIABILITIES:
Current portion of long-term debt $ 34,950 $ 31,158
Accounts payable 11,833 14,060
Accrued liabilities 18,957 15,548
--------- ---------
Total current liabilities 65,740 60,766

LONG-TERM DEBT, NET OF CURRENT PORTION 149,432 147,663
DEFERRED INCOME TAXES 16,841 21,936
OTHER NONCURRENT LIABILITIES 537 438

STOCKHOLDER'S EQUITY:
Common stock, $1.00 par value; 1,000 shares authorized, issued
and outstanding 1 1
Paid-in capital 52,499 52,499
Accumulated deficit (20,721) (44,731)
--------- ---------
Total stockholder's equity 31,779 7,769
--------- ---------
Total liabilities and stockholder's equity $ 264,329 $ 238,572
========= =========

See accompanying notes.

F-4

HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands)

Year Ended December 31,
--------------------------------------------
1999 2000 2001
--------- --------- ---------
(Note 2)

NET SALES $ 130,091 $ 163,503 $ 146,987

COST OF SALES 87,727 114,220 110,017
--------- --------- ---------
Gross profit 42,364 49,283 36,970
--------- --------- ---------

SELLING EXPENSES 16,386 24,631 19,460

GENERAL AND ADMINISTRATIVE EXPENSES 10,810 18,239 9,247

MANAGEMENT FEES TO RELATED PARTY 893 942 779

PLANT RELOCATION COSTS 1,089 654 --

AMORTIZATION EXPENSE 4,536 5,542 5,777
--------- --------- ---------
Operating income (loss) 8,650 (725) 1,707
--------- --------- ---------

INTEREST EXPENSE 11,848 23,109 22,450

OTHER EXPENSE -- 122 387
--------- --------- ---------

LOSS BEFORE TAXES AND EXTRAORDINARY
ITEM (3,198) (23,956) (21,130)

INCOME TAX (BENEFIT) EXPENSE (171) (7,808) 2,880
--------- --------- ---------

LOSS BEFORE EXTRAORDINARY ITEM (3,027) (16,148) (24,010)

EXTRAORDINARY ITEM, NET OF TAXES 1,654 511 --
--------- --------- ---------

NET LOSS $ (4,681) $ (16,659) $ (24,010)
========= ========= =========

See accompanying notes.

F-5

HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

(Dollars in Thousands)

RETAINED
EARNINGS
COMMON PAID-IN (ACCUMULATED
STOCK CAPITAL DEFICIT) TOTAL
--------- --------- ----------- ---------

BALANCE, DECEMBER 31, 1998 $ 1 $ 42,419 $ 619 $ 43,039

Equity contributions -- 10,080 -- 10,080
Net loss (Note 2) -- -- (4,681) (4,681)
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 1999 (Note 2) 1 52,499 (4,062) 48,438

Net loss -- -- (16,659) (16,659)
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 2000 1 52,499 (20,721) 31,779

Net loss -- -- (24,010) (24,010)
--------- --------- --------- ---------
BALANCE, DECEMBER 31, 2001 $ 1 $ 52,499 $ (44,731) $ 7,769
========= ========= ========= =========

See accompanying notes.

F-6

HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

Year Ended December 31,
-------------------------------------------
1999 2000 2001
---------- --------- ---------
(Note 2)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,681) $ (16,659) $ (24,010)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:

Depreciation and amortization 10,128 12,993 14,904
Amortization of debt discount 197 685 685
Loss (gain) on disposal of fixed assets (37) -- 461
Deferred income taxes 547 (6,515) 2,836
Write-off of existing finance costs, net 1,654 511 --
Changes in assets and liabilities, net of
acquisitions:
Accounts receivable (6,482) 582 7,274
Inventories (3,518) (3,634) 152
Income taxes receivable (4,112) 2,807 997
Other current assets (1,407) 1,563 (477)
Accounts payable (762) 2,200 2,227
Accrued liabilities 853 (1,970) (3,508)
--------- --------- ---------
Net cash provided by (used in)
operating activities (7,620) (7,437) 1,541
--------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,642) (4,290) (1,977)
Proceeds on disposal of fixed assets 10 -- 75
Cash paid for acquisitions (60,685) (670) --
--------- --------- ---------
Net cash used in investing activities (65,317) (4,960) (1,902)
--------- --------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations 182,727 55,987 128
Principal payments on long-term obligations (113,713) (37,232) (6,374)
Financing costs (6,811) (750) (126)
Equity contributions 10,080 -- --
--------- --------- ---------
Net cash provided by (used in)
financing activities $ 72,283 $ 18,005 $ (6,372)
--------- --------- ---------

(Continued)

F-7

HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

(Continued)

Year Ended December 31,
--------------------------------------------
1999 2000 2001
--------- --------- ---------

NET CHANGE IN CASH $ (654) $ 5,608 $ (6,733)

BALANCE AT BEGINNING OF YEAR 2,013 1,359 6,967
--------- --------- ---------
BALANCE AT END OF YEAR $ 1,359 $ 6,967 $ 234
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 6,581 $ 21,095 $ 20,804
========= ========= =========
Cash paid (received) for income taxes $ 2,921 $ (4,354) $ (1,300)
========= ========= =========
NONCASH TRANSACTIONS:

Issuance of debt for distribution facility under
capital lease $ 2,395 $ 237 $ --
========= ========= =========

See accompanying notes.

F-8

HOLLEY PERFORMANCE PRODUCTS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands)

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, 2000 and 2001, and the consolidated
statements of operations, stockholder's equity and cash flows for the years
ended December 31, 1999, 2000, and 2001 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.

F-9

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 1999, 2000 and 2001. Also, as described in
Note 7, the Company has not complied with the interest coverage covenant on its
revolving credit facility. The Company was required to have an interest coverage
ratio of 1.15:1.00 during the period from the closing date to December 31, 2001;
however, management received a waiver of the non-compliance of the interest
coverage ratio covenant from the bank on April 15, 2002. Management has also
received an amendment to the borrowing base calculation and future interest
ratio covenant requirements. The Company is dependent on its revolving credit
facility to fund its working capital needs. The Company's ability to operate
within the cash available under its revolving credit facility, as amended, and
to comply with the financial covenants required under that facility are
dependent on improving earnings before interest, taxes, depreciation and
amortization (EBITDA) and reducing the level of working capital necessary to
operate the business.

Management believes that the Company will be in compliance with the revolving
credit facility's quarterly financial ratio covenants during 2002, as amended,
and that the revolving credit facility will be adequate to allow the Company to
fund its working capital needs during 2002. 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 2002, management
is implementing actions designed to reduce working capital, maintain sales, and
increase gross profit while controlling operating expenses. Although management
believes that its actions will reduce working capital, maintain sales, and
improve gross profit while controlling operating expenses, there is no assurance
that it will be successful. The consolidated financial statements do not include
any adjustments to reflect the possible future effects on recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.

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 2001 presentation. These reclassifications had 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:

SALES RETURNS

Estimated sales returns and allowances are recorded as a charge against
sales in the period in which the related sales are recognized. The
Company allows customers to return products when certain
Company-established criteria are met. The Company estimates sales returns
based primarily upon actual returns, planned product discontinuances, and
promotional sales. Returned products, which are recorded as inventories are
valued based upon expected realizability. The physical condition and
marketability of the returned products are the major factors considered in
estimating realizable value. Actual returns, as well as realized values on
returned products, may differ significantly, either favorably or
unfavorably, from those estimates if factors such as economic conditions,
customer inventory levels or competitive conditions differ from the
Company's expectations.

ALLOWANCE FOR DOUBTFUL ACCOUNTS

Accounts receivable represent receivables from customers in the ordinary
course of business. The Company is subject to losses from uncollectible
receivables in excess of its allowances. The Company maintains allowances
for doubtful accounts for estimated losses from customers' inability to
make required payments. In order to estimate the appropriate level of this
allowance, the Company analyzes historical bad debts, customer
concentrations, current customer creditworthiness, current economic trends
and changes in customer payment patterns. If the financial conditions of
the Company's customers were to deteriorate and to impair their ability to
make payments, additional allowances may be required in future periods. The
Company's management believes that all appropriate allowances have been
provided.

INVENTORY VALUATION

The Company's inventories are stated at the lower of cost or market. Cost
is determined by the first-in, first-out (FIFO) method, including material,
labor and factory overhead. Inventory on hand may exceed future demand
either because the product is obsolete, or the amount on hand is more than
can be used to meet future needs. The Company identifies potentially
obsolete and excess inventory by evaluating overall inventory levels. In
assessing the ultimate realization of inventories, the Company is required
to make judgments as to future demand requirements and compare those with
the current or committed inventory levels. If future demand requirements
are less favorable than those projected by management, additional inventory
write-downs may be required.

F-10

WARRANTIES

The Company provides for the estimated cost of product warranties at the
time revenue is recognized. While the Company engages in extensive product
quality programs and processes, including actively monitoring and
evaluating the quality of its component suppliers, the warranty obligation
is affected by product failure rates, and material usage and service
delivery costs incurred in correcting a product failure. Should actual
product failure rates or material usage or service delivery costs differ
from the Company's estimates, revisions to the estimated warranty liability
may be required.

GOODWILL AND INTANGIBLE ASSET IMPAIRMENT

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

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

In accordance with Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets," on January 1, 2002, the
Company ceased to amortize goodwill and indefinite-lived intangible assets.
In lieu of amortization, the Company is required to perform an initial
impairment review of goodwill and indefinite-lived intangible assets in
2002 and an annual impairment review thereafter. If the Company determines
through the impairment review process that goodwill and indefinite-lived
intangible assets have been impaired, the Company would record the
impairment charge in its statement of operations.

INCOME TAXES

The Company uses the liability method to account for income taxes. The
preparation of consolidated financial statements involves estimating the
Company's current tax exposure together with assessing temporary
differences resulting from differing treatment of items for tax and
accounting purposes. These differences result in deferred tax assets and
liabilities, which are included in the consolidated balance sheets. An
assessment of the recoverability of the deferred tax assets is made, and a
valuation allowance is established based upon this assessment. The Company
is included in the consolidated federal income tax return of Holdings.

F-11

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.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of highly liquid investments, purchased with
an original maturity of three months or less.

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 1999 and 2000 by $248 and $372, respectively. The change in
accounting principle has been applied to 1999 by retroactively restating the
financial information. The change in accounting principle had no effect on the
period from May 16, 1998 to December 31, 1998, as all inventories were revalued
to fair value at May 16, 1998 in connection with the Acquisition and, as a
result, approximated the FIFO method of determining inventory value as of
December 31, 1998.

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

Building and improvements 10-25
Machinery and equipment 3-5
Computer equipment 3-5
Furniture 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

Financing costs are amortized over the term of the related outstanding debt
using the effective interest method. The excess of the aggregate purchase price
over the fair value of net assets of businesses acquired (goodwill) is amortized
on a straight-line basis over a period of 40 years. Trade names are amortized on
a straight-line basis over their estimated useful lives of 40 years. 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.

Amortization, including amortization of financing costs, which is classified as
interest expense in the accompanying consolidated statements of operations was
$4,536, $6,427 and $6,740 for the years ended December 31, 1999, 2000 and 2001,
respectively.

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,
2001, 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 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.

PLANT RELOCATION COSTS

Plant relocation costs include expenses related to the closure of acquired
manufacturing facilities and the related movement of inventory and fixed assets
to the Company's manufacturing facilities in Bowling Green, Kentucky or
Aberdeen, Mississippi.

ADVERTISING

Advertising production costs are expensed the first time the advertising takes
place. Total advertising expenses were $2,319, $3,103, and $1,719 for the years
ended December 31, 1999, 2000 and 2001, 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 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 $2,380,
$2,170, and $809 for the years ended December 31, 1999, 2000 and 2001
respectively, and are classified as a component of general and administrative
expenses in the accompanying consolidated statements of operations.

F-12

LONG-LIVED ASSETS

When factors are present which indicate the cost of assets may not be recovered,
the Company evaluates the realizability of its long-lived assets based upon the
anticipated future undiscounted cash flows generated by the asset. If this
review indicates that long-lived assets will not be recoverable based on
undiscounted cash flows of the related assets, the Company writes down the
long-lived asset to estimated fair value.

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, 2000, 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 $145,376, was approximately $75,000. At
December 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 have a carrying value of
$146,061, was approximately $72,000.

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, 1999, 2000, and 2001 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 will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of SFAS No. 142 is expected to result in an increase
in income before income taxes of approximately $5,800 per year. During 2002, the
Company will perform the first of the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002 and has not yet
determined what the effect of these tests will be on the earnings and financial
position of the Company.

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

F-13

3. ACQUISITIONS

HOOKER

Effective July 29, 1999, Holley acquired 100% of the outstanding stock of
Hooker. The transaction has been accounted for as a purchase. The accompanying
consolidated financial statements include the results of operations of Hooker
subsequent to July 29, 1999. The purchase price was $22,082, excluding certain
costs related to financing and consummating the transaction. The principal
stockholders of Hooker also entered into agreements not to compete with the
Company. The purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values as follows:

Purchase price $22,082
Financing and other transaction costs 1,406
-------
Total purchase price 23,488
-------

Less: value assigned to assets and liabilities:
Current assets 4,685
Property, plant and equipment 1,993
Financing costs 800
Trade name 3,830
Covenants not to compete 700
Deferred tax liabilities, net (2,091)
Current liabilities (1,956)
-------
7,961
-------
Goodwill $15,527
=======

FLOWTECH

Effective October 1, 1999, Holley acquired 100% of the outstanding stock of
FlowTech. The transaction has been accounted for as a purchase. The accompanying
consolidated financial statements include the results of operations of FlowTech
subsequent to October 1, 1999. The purchase price was $6,569, excluding certain
costs related to financing and consummating the transaction. The principal
stockholders of FlowTech also entered into covenants not to compete with the
Company. The purchase price was allocated to the assets acquired and liabilities
assumed based on their estimated fair values as follows:

Purchase price $ 6,569
Financing and other transaction costs 306
-------
Total purchase price 6,875
-------

Less: value assigned to assets and liabilities:
Current assets 3,170
Property, plant and equipment 1,339
Other assets 90
Trade name 4,240
Covenants not to compete 800
Deferred tax liabilities, net (1,955)
Current liabilities (1,591)
-------
6,093
-------
Goodwill $ 782
=======

F-14

NOS

Effective October 26, 1999, Holley acquired 100% of the outstanding stock
of NOS. The transaction has been accounted for as a purchase. The accompanying
consolidated financial statements include the results of operations of NOS
subsequent to October 26, 1999. The purchase price was $12,500, excluding
certain costs related to financing and consummating the transaction. The
principal stockholders of NOS also entered into covenants not to compete with
the Company. The purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values as follows:

Purchase price.............................................. $12,500
Financing and other transaction costs....................... 386
-------
Total purchase price.............................. 12,886
-------
Less: value assigned to assets and liabilities:
Current assets............................................ 2,195
Property, plant and equipment............................. 106
Trade name................................................ 3,150
Covenants not to compete.................................. 1,400
Deferred tax liabilities, net............................. (1,341)
Current liabilities....................................... (1,321)
Non-current liabilities................................... (11)
-------
4,178
-------
Goodwill.................................................... $ 8,708
=======

EARL'S

Effective October 28, 1999, Holley acquired 100% of the outstanding stock of
Earl's. The transaction has been accounted for as a purchase. The accompanying
consolidated financial statements include the results of operations of Earl's
subsequent to October 28, 1999. The purchase price was $14,500, excluding
certain costs related to financing and consummating the transaction. The
principal stockholders of Earl's also entered into covenants not to compete with
the Company. The purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair values as follows:

Purchase price.............................................. $14,500
Financing and other transaction costs....................... 519
-------
Total purchase price.............................. 15,019
-------
Less: value assigned to assets and liabilities:
Current assets............................................ 4,432
Property, plant and equipment............................. 1,542
Trade name................................................ 3,700
Covenants not to compete.................................. 1,450
Deferred tax liabilities, net............................. (999)
Current liabilities....................................... (3,723)
-------
6,402
-------
Goodwill.................................................... $ 8,617
=======

In 1999, the Company finalized its purchase price allocations for the
Acquisition and the acquisitions of Weiand and Lunati. In 2000, the Company
finalized its purchase price allocations for the acquisitions of Hooker,
FlowTech, NOS and Earl's, with the primary changes resulting from the allocation
of purchase price to reflect trade names on the acquired entities and the
related deferred tax liabilities.

F-15

4. INVENTORIES

Inventories of the Company consist of the following:

5. PROPERTY, PLANT AND EQUIPMENT

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

========= =========

Depreciation expense was $5,592, $6,566 and $8,164 for the years ended December
31, 1999, 2000 and 2001, respectively.

6. ACCRUED LIABILITIES

Accrued liabilities of the Company consist of the following:

F-16

7. LONG-TERM DEBT

Long-term debt as of December 31, 2000 and 2001 consisted of the
following:

DECEMBER 31, 2000 DECEMBER 31, 2001
----------------- -----------------

Secured revolving line of credit facility due to a bank;
interest due quarterly at a variable rate based on LIBOR
or prime at the Company's option, plus the applicable
margin rate (4.44% at December 31, 2001) maturing
December 28, 2005......................................... $34,650 $ 28,814

Senior notes, interest payable semi-annually in March and
September at 12.25%; maturing September 15, 2007; net of
debt discount of $4,624 and $3,939, respectively.......... 145,376 146,061

Other long-term obligations................................. 4,356 3,946
-------- --------
184,382 178,821

Less current portion........................................ (34,950) (31,158)
-------- --------
$149,432 $147,663
======== ========

F-17

In December 2000, the Company replaced its existing senior credit
facility with Credit Agricole IndoSuez, (consisting of a $35.0 million revolving
credit facility) with a $41.0 million facility (the "Credit Arrangement")
provided by Fleet Capital Corporation that matures in December 2005. This Credit
Arrangement is comprised of two parts: a $36.0 million revolving credit facility
(the "Revolving Credit Facility") and a $5.0 million term facility to be used
for fixed asset purchases, as required. The Revolving Credit Facility was
amended on April 15, 2002. The amended Revolving Credit Facility reduces the
maximum borrowings to $34.6 million at April 4, 2002 and, with incremental
reductions, to a maximum of $31.0 million at June 15, 2002. The Revolving Credit
Facility has an interest coverage covenant only. During the term of the
Revolving Credit Facility, the Company was required to have an interest coverage
ratio of 1.0:1.0 from the closing date to March 31, 2001, 1.10:1.0 from the
closing date to June 30, 2001, 1.10:1.0 from the closing date to September 30,
2001, and 1.15:1.0 from the closing date to December 31, 2001. The interest
coverage ratios for the term of the amended Revolving Credit Facility are
1.20:1.0 for the year-to-date periods each ending on March 31, June 30,
September 30, and December 31, 2002; 1.25:1.0 for the trailing four quarters
each ending on March 31, June 30, September 30, and December 31, 2003, 2004 and
2005. Borrowings under the facility are limited to 75% of eligible receivables
and the lesser of $25 million (amended to $15.5 million at May 11, 2002 and
thereafter) or 55% of eligible inventories. As discussed in Note 1, at December
31, 2001, the Company was not in compliance with the interest coverage ratio
and, on April 15, 2002, received a waiver for the noncompliance. Beginning April
2001, Holley must have borrowing availability of $2.0 million if EBITDA on a
trailing twelve month basis is equal to or less than $28.0 million, $1.0 million
if EBITDA is less than or equal to $32.0 million but greater than $28.0 million,
or $0 if greater than $32.0 million. Fleet Capital has a perfected security
interest in all the assets of Holley. The Credit Arrangement also requires
mandatory principal prepayments from any proceeds from the sale of the Company's
assets or common stock.

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

At December 31, 2001, the Company had borrowings of $28.8 million
outstanding under the Revolving Credit Facility and $0.2 million in cash. The
Company had no unused credit availability at December 31, 2001 due to the event
of default.

On September 20, 1999, the Company issued $150 million of 12 1/4%
senior notes due 2007 at a discount of 3.7% (the "Senior Notes"). The debt
discount will be amortized as a non-cash charge to interest expense using the
effective interest method over the term of the debt. The Senior Notes are
unsecured and subordinate to the Company's other indebtedness. The proceeds from
the Senior Notes were used to repay existing indebtedness and to fund the
acquisitions of FlowTech, NOS and Earl's in October 1999. Upon repayment of
amounts outstanding under the existing indebtedness, the Company recognized an
extraordinary charge to write-off the deferred financing costs of $2,668 in
1999. This charge has been included in the accompanying consolidated statement
of operations, net of the associated tax benefit of $1,014, as an extraordinary
item.

Future maturities of long-term debt for the years following
December 31, 2001 are as follows:

2002........................................................ $ 31,158
2003........................................................ 185
2004........................................................ 107
2005........................................................ 114
2006........................................................ 120
Thereafter.................................................. 151,076
--------
Total maturities.................................. 182,760
Less debt discount.......................................... (3,939)
--------
$178,821
========

In connection with the Revolving Credit Facility, the Credit
Arrangement requires lockbox agreements which provide for all receipts to be
swept daily to reduce borrowings outstanding. These agreements, combined with
the existence of a Material Adverse Effect (MAE) clause in the Credit
Arrangement, cause the Revolving Credit Facility to be classified as a current
liability, per guidance in the FASB's Emerging Issues Task Force 95-22, "Balance
Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements
that Include Both a Subjective Acceleration Clause and a Lock-Box Arrangement."
The MAE clause, which is a typical requirement in commercial credit agreements,
allows the lender to require the loan to become due if it determines there has
been a material adverse effect on the operations, business, properties, assets,
liabilities, condition or prospects. The classification of the Revolving Credit
Facility as a current liability at December 31, 2000 is a result only of the
combination of the two afore-mentioned factors: the lockbox agreements and the
MAE clause. However, the Revolving Credit Facility does not expire or have a
maturity date within one year, but rather has a final expiration date of
December 28, 2005.

The Revolving Credit Facility was reclassified from long-term to
current as of December 31, 2000.

F-18

8. INCOME TAXES

The provision (benefit) for income taxes before extraordinary item consisted of
the following:

Year Ended December 31,
----------------------------
1999 2000 2001
----- ------- ------

Current tax provision (benefit)
Federal $ -- $(1,169) $ --
State -- (124) 44
----- ------- ------
-- (1,293) 44
Deferred tax provision (benefit)
Federal (153) (5,829) 2,537
State (18) (686) 299
----- ------- ------
(171) (6,515) 2,836
----- ------- ------

Total provision (benefit) $(171) $(7,808) $2,880
===== ======= ======

The Company also realized deferred tax benefits of $1,014 in 1999, $314 in 2000
and $-0- in 2001 associated with the extraordinary item resulting from the
writeoff of deferred financing costs.

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

Year Ended December 31,
--------------------------------------------------
1999 2000 2001
--------------- -------- --------

U.S. federal statutory rate (34.0)% (34.0)% (34.0)%
State taxes on income, net of
federal benefit (4.0) (4.0) (3.5)
Non-deductible amortization 17.5 3.7 4.1
Valuation allowance -- -- 46.9
Other 0.4 1.5 0.1
------ ------ ------
Income tax provision (benefit) (20.1)% (32.8)% 13.6%
====== ====== ======

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

DECEMBER 31,
--------------------------
2000 2001
-------- --------

Deferred tax assets -- current:
Reserves on assets $ 2,686 $ 4,077
Liabilities not yet deductible 3,351 3,289
-------- --------
Deferred tax assets -- current 6,037 7,366

Deferred tax liabilities -- current:
LIFO reserve (2,523) (1,593)
-------- --------
Deferred tax liabilities -- current (2,523) (1,593)
-------- --------
Net deferred tax assets -- current $ 3,514 $ 5,773
======== ========

Deferred tax assets -- noncurrent:
Net operating loss carryforwards $ 5,310 $ 9,798
Other 204 175
-------- --------
5,514 9,973
Less valuation allowance -- 9,798
-------- --------
Deferred tax assets -- noncurrent 5,514 175

Deferred tax liabilities -- noncurrent:
Trade name (15,194) (15,043)
Covenants not to compete (1,517) (1,202)
Amortization -- (650)
Property, plant and equipment (5,644) (5,216)
-------- --------
Deferred tax liabilities -- noncurrent (22,355) (22,111)
-------- --------
Net deferred tax liabilities -- noncurrent $(16,841) $(21,936)
========= =========
Total deferred tax assets $ 11,551 $ 17,339
========= =========
Total deferred tax liabilities $(24,878) $(23,704)
========= =========
Total valuation allowance $ -- $ 9,798
========= =========

The Company has federal and state net operating loss carryforwards of
approximately $26,000 as of December 31, 2001 that will expire from 2019 through
2021. During 2001, the Company established a valuation allowance of $9,798 due
to the uncertainty of the ultimate realization of net operating loss
carryforwards.

F-19

9. 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, 1999, 2000 and 2001, the Company's contribution expense related to these
plans totaled $865, $956 and $945, respectively.

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, 1999, 2000 and 2001, 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.

2000 2001
------- -------

CHANGE IN BENEFIT OBLIGATION
Benefit obligation, beginning of year $3,913 $ 4,290
Service cost 1,126 981
Interest cost 249 268
Benefit payments (228) (89)
Actuarial gain (770) (540)
------ -------
Benefit obligation, end of year $4,290 $ 4,910
====== =======
FAIR VALUE OF PLAN ASSETS
Fair value of plan assets, beginning of year $ 521 $ 1,738
Employer contributions 1,460 1,949
Return on assets (15) 66
Benefit payments (228) (89)
------- -------
Fair value of plan assets, end of year $1,738 $ 3,664
====== =======

F-20

2000 2001
------- -------

FUNDED STATUS
Funded status $(4,290) $(4,910)
Plan assets 1,738 3,664
Unrecognized prior service costs 173 158
Unrecognized actuarial gain (349) (731)
------- -------
Net accrued benefit liability recognized $(2,728) $(1,819)
======= =======

YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 2000 2001
------ ------- -------

COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 928 $ 1,126 $ 981
Interest cost 263 249 268
Expected return on plan assets -- (99) (188)
Amortization of prior service cost -- 15 15
(Gain)/loss -- -- (36)
------ ------- -------
Net periodic benefit cost $1,191 $ 1,291 $ 1,040
====== ======= =======

Assumptions used in the accounting:

2000 2001
---- ----

Discount rate 7.25% 7.25%
Rates of increase in compensation levels 4.00 4.00
Expected long-term weighted average
rate of return on assets 8.00 8.00

10. LEASE COMMITMENTS

The aggregate future minimum fixed lease obligations under operating leases for
the Company as of December 31, 2001, are as follows:

OPERATING
LEASES
---------

2002 $ 1,553
2003 818
2004 571
2005 107
2006 17
Thereafter 138
---------
Total minimum lease payments $ 3,204
=========

Total rent expense for the Company's operating leases was approximately $1,280,
$2,374 and $1,982 for the years ended December 31, 1999, 2000 and 2001,
respectively.

F-21

11. 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 13.5%, 13.4% and 11.6% of total net sales for the years
ended December 31, 1999, 2000 and 2001, respectively. Approximately 2.3% and
1.4% of the Company's accounts receivable at December 31, 2000 and 2001,
respectively, were from this customer. Management believes the credit risk
associated with this customer is low.

12. COMMITMENTS AND CONTINGENCIES

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

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

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

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

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

F-22

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

13. RELATED-PARTY TRANSACTIONS

In 1999, the Company paid fees totaling $766 to Kohlberg in conjunction with the
acquisitions of Hooker, Flowtech, NOS and Earl's (Note 3). These fees have been
capitalized along with other acquisition costs incurred in the transactions.

Pursuant to a management agreement, 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 $893, $942 and $779 for the
years ended December 31, 1999, 2000 and 2001, respectively.

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, 2001, 2,991,637 options remain outstanding.

14. 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-23

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

HIGH
PERFORMANCE REMANUFACTURED
PARTS PARTS TOTAL
=========== ================ =========

YEAR ENDED DECEMBER 31, 1999
Net sales $ 104,562 $ 25,529 $ 130,091
Gross profit 35,373 6,991 42,364

YEAR ENDED DECEMBER 31, 2000
Net sales $ 139,669 $ 23,834 $ 163,503
Gross profit 43,789 5,494 49,283

YEAR ENDED DECEMBER 31, 2001
Net sales $ 127,565 $ 19,422 $ 146,987
Gross profit 32,714 4,256 36,970

Summary balance sheet data for inventory and property, plant and equipment for
each of the Company's reportable segments as of December 31, 2000 and 2001 are
shown in the following table:

HIGH
PERFORMANCE REMANUFACTURED
PARTS PARTS TOTAL
=========== ================ =========

AS OF DECEMBER 31, 2000
Inventories $ 31,108 $ 3,651 $ 34,759
Property, plant and equipment 30,467 2,324 32,791

AS OF DECEMBER 31, 2001
Inventories $ 31,259 $ 3,348 $ 34,607
Property, plant and equipment 24,235 1,833 26,068

15. KEY SUPPLIER

The Company is dependent on one supplier for the zinc castings and one supplier
for aluminum manifold castings used in its production process. Purchases from
these suppliers account for approximately 12%, 9% and 12% of annual raw material
purchases for the years ended December 31, 1999, 2000 and 2001, respectively.

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 and Senior Notes.

The information that follows presents condensed consolidating financial
information as of and for the years ended December 31, 2001, 2000 and 1999 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-24

Consolidating Balance Sheet
December 31, 2000
---------------------------------------------------------------
Holley
Performance
Products Inc.
(Parent Company Subsidiary
Only) Guarantors Eliminations Consolidated
---------------- ---------- ------------ -------------

ASSETS:

CURRENT ASSETS:
Cash and cash equivalents $ 6,487 $ 480 $ -- $ 6,967
Accounts receivable, net 26,691 582 -- 27,273
Inventories 25,696 9,063 -- 34,759
Deferred income taxes -- 3,514 -- 3,514
Income taxes receivable 1,305 -- -- 1,305
Intercompany receivable -- 9,770 (9,770) --
Other current assets 1,020 -- -- 1,020
-------- -------- -------- --------
Total current assets 61,199 23,409 (9,770) 74,838

PROPERTY, PLANT AND EQUIPMENT, NET 22,867 9,924 -- 32,791
INVESTMENT IN SUBSIDIARIES 75,199 -- (75,199) --
INTANGIBLE ASSETS
Costs in excess of net assets acquired 69,482 42,176 -- 111,658
Trade names 37,610 5,290 -- 42,900
Other 5,739 9,165 -- 14,904
-------- -------- --------- --------
112,831 56,631 -- 169,462
Less accumulated amortization (8,868) (3,894) -- (12,762)
-------- -------- --------- --------
Total intangible assets, net 103,963 52,737 -- 156,700
-------- -------- -------- --------
Total assets $263,228 $ 86,070 $(84,969) $264,329
======== ======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY:

CURRENT LIABILITIES:
Current portion of long-term debt $ 34,432 $ 518 $ -- $ 34,950
Accounts payable 11,176 657 -- 11,833
Intercompany payable 9,770 -- (9,770) --
Accrued liabilities 17,044 1,913 -- 18,957
------- -------- -------- --------
Total current liabilities 72,422 3,088 (9,770) 65,740

LONG-TERM DEBT, NET OF CURRENT PORTION 149,432 -- -- 149,432

DEFERRED INCOME TAXES 9,058 7,783 -- 16,841

OTHER NONCURRENT LIABILITIES 537 -- -- 537

STOCKHOLDER'S EQUITY:
Common stock 1 88,074 (88,074) 1
Paid-in capital 52,499 -- -- 52,499
Accumulated deficit (20,721) (12,875) 12,875 (20,721)
-------- -------- -------- --------
Total stockholder's equity 31,779 75,199 (75,199) 31,779
-------- -------- -------- --------
Total liabilities and stockholder's $263,228 $ 86,070 $(84,969) $264,329
equity ======== ======== ======== ========

F-25

Consolidating Balance Sheet
December 31, 2001
---------------------------------------------------------------
Holley
Performance
Products Inc.
(Parent Company Subsidiary
Only) Guarantors Eliminations Consolidated
---------------- ---------- ------------ -------------

ASSETS:

CURRENT ASSETS:
Cash and cash equivalents $ 72 $ 162 $ -- $ 234
Accounts receivable, net 19,543 456 -- 19,999
Inventories 19,385 15,222 -- 34,607
Deferred income taxes 3,641 2,132 -- 5,773
Income taxes receivable 152 156 -- 308
Intercompany receivable -- -- -- --
Other current assets 1,370 127 -- 1,497
------------- ----------- ------------ -------------
Total current assets 44,163 18,255 -- 62,418

PROPERTY, PLANT AND EQUIPMENT, NET 19,706 6,362 26,068
INVESTMENT IN SUBSIDIARIES 65,235 -- (65,235) --
INTANGIBLE ASSETS
Costs in excess of net assets acquired 69,482 42,176 -- 111,658
Trade names 37,610 5,290 -- 42,900
Other 5,865 9,165 -- 15,030
------------- ----------- ------------ -------------
112,957 56,631 -- 169,588
Less accumulated amortization (13,356) (6,146) -- (19,502)
------------- ----------- ------------ -------------
Total intangible assets, net 99,601 50,485 -- 150,086
------------- ----------- ------------ -------------
Total assets $228,705 $75,102 $ (65,235) $238,572
============= =========== ============ =============
LIABILITIES AND STOCKHOLDER'S EQUITY:

CURRENT LIABILITIES:
Current portion of long-term debt $ 31,050 $ 108 $ -- $ 31,158
Accounts payable 13,577 483 -- 14,060
Intercompany payable -- -- -- --
Accrued liabilities 14,317 1,231 -- 15,548
------------- ----------- ------------ -------------
Total current liabilities 58,944 1,822 -- 60,766

LONG-TERM DEBT, NET OF CURRENT PORTION 147,401 262 -- 147,663

DEFERRED INCOME TAXES 14,153 7,783 -- 21,936

OTHER NONCURRENT LIABILITIES 438 -- -- 438

STOCKHOLDER'S EQUITY:
Common stock 1 88,074 (88,074) 1
Paid-in capital 52,499 -- -- 52,499
Accumulated deficit (44,731) (22,839) 22,839 (44,731)
------------- ----------- ------------ -------------
Total stockholder's equity 7,769 65,235 (65,235) 7,769
------------- ----------- ------------ -------------
Total liabilities and stockholder's $ 228,705 $75,102 $ (65,235) $ 238,572
equity ============= =========== ============ =============

F-26

Consolidating Statement of Operations
Year ended December 31, 1999
---------------------------------------------------------------
Holley
Performance
Products Inc.
(Parent Company Subsidiary
Only) Guarantors Eliminations Consolidated
---------------- ---------- ------------ -------------

NET SALES $104,589 $151,691 $(126,189) $ 130,091

COST OF SALES 72,145 141,771 (126,189) 87,727
--------- ---------- --------- ---------

Gross profit 32,444 9,920 -- 42,364
--------- ---------- --------- ---------
SELLING EXPENSES 12,363 4,023 -- 16,386

GENERAL AND ADMINISTRATIVE EXPENSES 4,409 6,401 -- 10,810

MANAGEMENT FEES TO RELATED PARTY 893 -- -- 893

PLANT RELOCATION COSTS -- 1,089 -- 1,089

AMORTIZATION EXPENSE 3,153 1,383 -- 4,536
--------- ---------- --------- ---------
Operating income (loss) 11,626 (2,976) -- 8,650
--------- ---------- --------- ---------

INTEREST EXPENSE 11,798 50 -- 11,848
--------- ---------- --------- ---------

LOSS BEFORE TAXES AND EXTRAORDINARY
ITEM (172) (3,026) -- (3,198)

INCOME TAX BENEFIT (59) (112) -- (171)
--------- ---------- --------- ---------

LOSS BEFORE EXTRAORDINARY ITEM (113) (2,914) -- (3,027)

EQUITY IN LOSS OF SUBSIDIARIES 2,914 -- (2,914) --

EXTRAORDINARY ITEM, NET OF TAXES 1,654 -- -- 1,654
--------- ---------- --------- ---------

NET LOSS $ (4,681) $ (2,914) $ 2,914 $ (4,681)
========= ========== ========= =========

Consolidating Statement of Cash Flows
Year ended December 31, 1999
---------------------------------------------------------------
Holley
Performance
Products Inc.
(Parent Company Subsidiary
Only) Guarantors Eliminations Consolidated
---------------- ---------- ------------ -------------

CASH FLOWS FROM OPERATING ACTIVITIES $ (8,576) $ 956 $ -- $ (7,620)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,605) (37) -- (4,642)
Proceeds on disposal of fixed assets 10 -- -- 10
Cash paid for acquisitions (60,685) -- -- (60,685)
------------ ---------- ---------- ----------
Net cash used in investing activities (65,280) (37) -- (65,317)
------------ ---------- ---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations 182,727 -- -- 182,727
Principal payments on long-term obligations (112,819) (894) -- (113,713)
Financing costs (6,811) -- -- (6,811)
Equity contributions 10,080 -- -- 10,080
------------ ---------- ---------- ----------
Net cash provided by (used in)
financing activities 73,177 (894) -- 72,283
------------ ---------- ---------- ----------

NET CHANGE IN CASH (679) 25 -- (654)

CASH AT BEGINNING OF YEAR 1,907 106 -- 2,013
------------ ---------- ---------- ----------

CASH AT END OF YEAR $ 1,228 $ 131 $ -- $ 1,359
============ ========== ========== ==========

F-27

Consolidating Statement of Operations
Year ended December 31, 2000
---------------------------------------------------------------
Holley
Performance
Products Inc.
(Parent Company Subsidiary
Only) Guarantors Eliminations Consolidated
---------------- ---------- ------------ -------------

NET SALES $ 91,481 $226,775 $(154,753) $163,503

COST OF SALES 69,037 199,936 (154,753) 114,220
-------- ---------- -------- --------

Gross profit 22,444 26,839 -- 49,283
-------- ---------- -------- --------
SELLING EXPENSES 5,585 19,046 -- 24,631

GENERAL AND ADMINISTRATIVE EXPENSES 1,189 17,050 -- 18,239

MANAGEMENT FEES TO RELATED PARTY 942 -- -- 942

PLANT RELOCATION COSTS -- 654 -- 654

AMORTIZATION EXPENSE 3,304 2,238 -- 5,542
-------- ---------- -------- --------
Operating income (loss) 11,424 (12,149) -- (725)
-------- ---------- -------- --------

INTEREST EXPENSE 23,028 81 -- 23,109

OTHER EXPENSE 122 -- -- 122
-------- ---------- -------- --------

LOSS BEFORE TAXES AND EXTRAORDINARY
ITEM (11,726) (12,230) -- (23,956)

INCOME TAX BENEFIT (3,822) (3,986) -- (7,808)
-------- ---------- -------- --------

LOSS BEFORE EXTRAORDINARY ITEM (7,904) (8,244) -- (16,148)

EQUITY IN LOSS OF SUBSIDIARIES 8,244 -- (8,244) --

EXTRAORDINARY ITEM, NET OF TAXES 511 -- -- 511
-------- ---------- -------- --------
NET LOSS $(16,659) $ (8,244) $ 8,244 $(16,659)
======== ========== ======== ========

Consolidating Statement of Cash Flows
Year ended December 31, 2000
---------------------------------------------------------------
Holley
Performance
Products Inc.
(Parent Company Subsidiary
Only) Guarantors Eliminations Consolidated
---------------- ---------- ------------ -------------

CASH FLOWS FROM OPERATING ACTIVITIES $ (7,635) $ 198 $ -- $ (7,437)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,290) -- -- (4,290)
Cash paid for acquisitions (670) -- -- (670)
------------ ---------- ---------- --------
Net cash used in investing activities (4,960) -- -- (4,960)
------------ ---------- ---------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations 55,469 518 -- 55,987
Principal payments on long-term obligations (36,865) (367) -- (37,232)
Financing costs (750) -- -- (750)
------------ ---------- ---------- --------
Net cash provided by financing activities 17,854 151 -- 18,005
------------ ---------- ---------- --------

NET CHANGE IN CASH 5,259 349 -- 5,608

CASH AT BEGINNING OF YEAR 1,228 131 -- 1,359
------------ ---------- ---------- --------

CASH AT END OF YEAR $ 6,487 $ 480 $ -- $ 6,967
============ ========== ========== ========

F-28

Consolidating Statement of Operations
Year ended December 31, 2001
---------------------------------------------------------------
Holley
Performance
Products Inc.
(Parent Company Subsidiary
Only) Guarantors Eliminations Consolidated
---------------- ---------- ------------ -------------

NET SALES $ 78,629 $ 207,765 $ (139,407) $ 146,987
COST OF SALES 60,199 189,225 (139,407) 110,017
--------- ---------- --------- ---------

Gross profit 18,430 18,540 -- 36,970
--------- ---------- --------- ---------
SELLING EXPENSES 4,417 15,043 -- 19,460

GENERAL AND ADMINISTRATIVE EXPENSES 574 8,673 -- 9,247

MANAGEMENT FEES TO RELATED PARTY 779 -- -- 779

AMORTIZATION EXPENSE 3,525 2,252 -- 5,777
--------- ---------- --------- ---------
Operating income (loss) 9,135 (7,428) -- 1,707
--------- ---------- --------- ---------
INTEREST EXPENSE 22,421 29 -- 22,450

OTHER EXPENSE 380 7 -- 387
--------- ---------- --------- ---------

LOSS BEFORE TAXES (13,666) (7,464) -- (21,130)

INCOME TAX EXPENSE 380 2,500 -- 2,880
--------- ---------- --------- ---------

(14,046) (9,964) -- (24,010)

EQUITY IN LOSS OF SUBSIDIARIES 9,964 -- (9,964) --
--------- ---------- --------- ---------

NET LOSS $ (24,010) $ (9,964) $ 9,964 $(24,010)
========= ========== ========= =========

Consolidating Statement of Cash Flows
Year ended December 31, 2001
---------------------------------------------------------------
Holley
Performance
Products Inc.
(Parent Company Subsidiary
Only) Guarantors Eliminations Consolidated
---------------- ---------- ------------ -------------

CASH FLOWS FROM OPERATING ACTIVITIES $ 1,786 $ (245) $ -- $ 1,541

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,977) -- -- (1,977)
Proceeds on disposal of fixed assets -- 75 -- 75
------------ ---------- ---------- ----------
Net cash used in investing activities (1,977) 75 -- (1,902)
------------ ---------- ---------- ----------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations 128 -- -- 128
Principal payments on long-term obligations (6,226) (148) -- (6,374)
Financing costs (126) -- -- (126)
------------ ---------- ---------- ----------
Net cash provided by (used in)
financing activities (6,224) (148) -- (6,372)
------------ ---------- ---------- ----------

NET CHANGE IN CASH (6,415) (318) -- (6,733)
CASH AT BEGINNING OF YEAR 6,487 480 -- 6,967
------------ ---------- ---------- ----------
CASH AT END OF YEAR $ 72 $ 162 $ -- $ 234
============ ========== ========== ==========

F-29

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.

Arthur Andersen LLP

Nashville, Tennessee
March 9, 2001

S-1

FINANCIAL STATEMENT SCHEDULE
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS

(1) Allowances as a result of acquisitions.

(2) Write-offs.

(3) Columns C and D for 2000 and 1999 are presented net.

S-2