<PAGE>   1

                    U. S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

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


     FOR THE FISCAL YEAR ENDED                     COMMISSION FILE NO.
         DECEMBER 31, 1998                             000-28112


                           MOTORVAC TECHNOLOGIES, INC.
                 (Name of Small Business Issuer in its Charter)


              DELAWARE                                      33-0522018
    (State or Other Jurisdiction of                      (I.R.S. Employer
    Incorporation or Organization)                      Identification No.)


                1431 S. Village Way, Santa Ana, California 92705
               (Address of Principal Executive Offices)(Zip Code)


                    Issuer's telephone number: (714) 558-4822


      Securities registered pursuant to Section 12(b) of the Exchange Act:

                                      None


      Securities registered pursuant to Section 12(g) of the Exchange Act:

                          Common Stock, $0.01 Par Value


Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]

The issuer's revenues for the fiscal year ended December 31, 1998 were
$10,017,020.

The aggregate market value of the voting and non-voting stock held by
non-affiliates of the issuer as of March 15, 1999, was $3,163,044. Shares of
common stock held by each officer and director and by each person who owns 5% or
more of the outstanding common stock of the Company have been excluded because
such persons may be deemed to be affiliates.

The total number of shares outstanding of the Issuer's Common Stock was
4,464,918 as of March 15, 1999.

--------------------------------------------------------------------------------
                       DOCUMENTS INCORPORATED BY REFERENCE

Issuer's definitive Proxy Statement to be filed with the Commission pursuant to
Regulation 14A in connection with the Issuer's 1999 Annual Meeting of
Stockholders is incorporated herein by reference into Part III of this report.

<PAGE>   2

                           MOTORVAC TECHNOLOGIES, INC.

                                   FORM 10-KSB
                          YEAR ENDED DECEMBER 31, 1998

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
Item
Number                                                                       Page
------                                                                       ----

                                     PART I
<C>      <S>                                                                 <C>
  1.     Description of Business.............................................  3
  2.     Description of Property............................................. 15
  3.     Legal Proceedings................................................... 15
  4.     Submission of Matters to a Vote of Security Holders................. 15

                                     PART II

  5.     Market for Common Equity and Related Stockholders Matters........... 15
  6.     Management's Discussion and Analysis of Financial
         Condition and Results of Operations................................. 17
  7.     Financial Statements................................................ 20
  8.     Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosures................................ 20

                                    PART III

  9.     Directors, Executive Officers, Promoters and Control Persons;
         Compliance with Section 16(a) of the Exchange Act................... 20
  10.    Executive Compensation.............................................. 20
  11.    Security Ownership of Certain Beneficial Owners and Management...... 20
  12.    Certain Relationships and Related Transactions...................... 21
  13.    Exhibits and Reports on Form 8-K.................................... 21
         Signatures.......................................................... 25
         Power of Attorney................................................... 25
</TABLE>


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                                     PART I



This Annual Report on Form 10-KSB contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended. The Company intends that such statements shall be protected by the safe
harbors provided for in such sections. Such statements are subject to risks and
uncertainties that could cause actual results to vary materially from those
projected in the forward-looking statements, including, but not limited to,
those set forth in "Risk Factors" below and in the Company's other periodic
filings with the Securities and Exchange Commission (the "Commission"). The
Company may experience significant fluctuations in future operating results due
to a number of economic, competitive, governmental and technological factors,
including, among other things, changes in laws, the size and timing of customer
orders, new or increased competition, delays in new product introductions and
enhancements, quality control difficulties, changes in market demand, market
acceptance of new products, product returns, seasonality in product purchases by
distributors and end users, and pricing trends in the automotive after-market
industry in general, and in specific, markets in which the Company is active.
Any of these factors, or others, could cause operating results to vary
significantly from those in prior periods, and those projected in the
forward-looking statements.


ITEM 1. DESCRIPTION OF BUSINESS.

            MotorVac Technologies, Inc. (the "Company") designs, develops,
assembles, markets and sells the MotorVac CarbonClean System, its primary
product line, for the diagnosis, maintenance and repair of internal combustion
engine fuel systems primarily for the automotive after-market repair and service
industry. The MotorVac CarbonClean System is comprised of a fuel system cleaning
machine and a proprietary cleaning detergent. Servicing an engine with the
MotorVac CarbonClean System enhances engine performance by removing dirt, carbon
deposits and other contaminants from fuel systems of both gasoline and
diesel-powered engines. Additionally, the MotorVac CarbonClean System's
diagnostic capabilities help to ensure fuel system safety and reliability by
allowing the technician to check fuel pressure, fuel volume and system leak down
(internal fuel pressure system loss). The Company believes that its MotorVac
CarbonClean System enhances both the vehicle manufacturers' mandated goal to
develop efficient fuel distribution systems that meet increasingly stringent
state and federal emission requirements and customer demands for enhanced engine
performance and improved fuel economy.

            The Company markets diesel engine cleaning systems under the trade
name Industrial Diesel Tune System ("IDT"). The IDT essentially functions the
same way as the MotorVac CarbonClean System but is designed to handle the unique
properties of a diesel engine. The IDT system works on all types of diesel
engine applications, including on-highway, marine, construction, transit,
agricultural, mining, industrial and power generation. It is designed to address
a fleet operator or owner-operator's concerns for low engine emissions, low fuel
costs and low maintenance costs.

            The Company also designs, assembles, markets and sells the
TRANSTECH(R) Transmission Service System. This product, first offered in
December 1997, allows the vehicle's transmission pump to flush out the old fluid
and pump in new fluid, allowing for essentially all of the old fluid to be
replaced. The Company believes TRANSTECH(R) provides a shop owner with a
quicker, safer and more profitable way to service automatic transmission
systems. The system is unique because it provides the operator with two service
modes--fluid replacement only and fluid plus filter replacement. The Company
believes that this service will give repair shops the ability to upsell the
service and provide an OEM recommended service.

            In 1998, the Company launched a new division called Automotive
Solutions. This division will market products specifically to the quick-service
market, including approximately 20,000 lube and tune centers in the United
States alone. The Company believes that its primary product line does not fit
the requirements of a typical quick-service shop operator. These shops are
looking for services that can be performed in under fifteen minutes. The first
product introduced in this division is the Carbon Tune product line. This line
consists of a three-step fuel system cleaning kit, and the CT2100 System, a
small, portable engine decarbonizer and fuel system cleaning machine. The CT2100
System


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<PAGE>   4

is a quick and simple delivery device for the Carbon Tune detergents. A Carbon
Tune service is a ten-minute service that does not require a certified
technician to complete.

            The Company was incorporated in the State of Delaware on June 19,
1992 as CarbonClean Corporation. In August 1992, the Company acquired certain
assets from Enviromotive, Inc. ("EMI"), an independent third party, which, in
February 1992, had acquired the assets from the Chapter 11 Trustee in the Parker
Automotive Corporation bankruptcy proceeding. At the same time, a then existing
affiliate of the Company licensed from EMI the worldwide rights to utilize
certain patent rights and certain trademarks and service marks, including the
name "CarbonClean" (collectively, the "EMI Property"), and the affiliate of the
Company sublicensed to the Company the right to utilize the EMI Property in the
United States and Canada. In March 1993, CarbonClean Corporation changed its
name to MotorVac Technologies, Inc. The trade name MotorVac is used by the
Company throughout North America. The Company also uses the trade name
CarbonClean in North America, but the Company uses the CarbonClean name outside
of the United States and Canada because the Company believes the trade name
CarbonClean has stronger brand name recognition outside the United States and
Canada. Through a series of restructuring effected in 1994 and 1995, the Company
acquired the license to utilize the EMI property worldwide. Effective as of
December 31, 1995, the Company purchased all of the EMI Property from EMI.


INDUSTRY OVERVIEW

            The Fuel System Contamination Problem. Today's engines are computer
controlled and, although generally effective in providing reliable performance
and reasonable fuel mileage while complying with applicable state and federal
emission standards, they provide little opportunity for adjustment when
driveability problems occur.

            The Company believes that the automotive service and repair
industry, along with vehicle owners, are experiencing some or all of the
following problems:

            o           Driveability Problems. A driveability problem is present
                        when a vehicle is not performing well and the problem is
                        difficult to solve or repair.

            o           Tune-Ups. Tune-ups are presently done as preventive
                        maintenance and do not usually correct or reduce
                        driveability problems with today's engines.

            o           Emissions. In response to emission programs established
                        in most states, emission testing and repair has become a
                        major profit center for many automotive service and
                        repair facilities, most of which do not have a complete
                        fuel system cleaning service.


            Alternative Solutions. In addition to the Company's products, the
Company believes there are presently three main product lines broadly available
to address the market opportunity created by the fuel system contamination
problem:

                        The first product solution is positioned as a fuel tank
            additive and marketed as a fuel system cleaner by such companies as
            Wynn's International, Inc., First Brands Corporation (which markets
            and sells STP) and Pennzoil Company (which markets and sells
            GUMOUT).

                        The second product solution is presented by national
            brands of gasoline, such as Chevron with Techron and Mobil, that
            include additives that purport to clean fuel injectors and other
            parts of the fuel system.

                        The third product solution, currently offered by
            companies such as Borg Warner and Champion, are pressurized spray
            cans that contain solvents which are sprayed into the engine's fuel
            system, usually without the aid of any mechanical process regulating
            pressure and flow or longevity of the cleaning process.


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            The Company believes that the foregoing methods provide an
incomplete solution to the fuel system contamination problem primarily because
(i) they usually introduce the cleaning additive in a more diluted form than the
MotorVac CarbonClean System and/or (ii) the cleaning additive does not remain in
the fuel system during the cleaning process for as long a period of time as with
the MotorVac CarbonClean System. In addition, some of the chemical solutions are
highly flammable and could actually contribute to the engine contamination
problem.

            The MotorVac CarbonClean System Solution. The Company markets and
sells the MotorVac CarbonClean System for the diagnosis, maintenance and repair
of both gasoline and diesel engine fuel systems. The MotorVac CarbonClean System
is comprised of a machine and a proprietary detergent. Servicing an engine with
the MotorVac CarbonClean System simultaneously accomplishes two goals:

                        Diagnosis. The MotorVac CarbonClean System is a fuel
            system diagnostic tool that allows the technician to check fuel
            pressure, fuel volume, system leak down and fuel pump, and to
            perform "dead-head" tests in order to identify problems and ensure
            overall system reliability and safety.

                        Repair. The MotorVac CarbonClean System is a repair tool
            that enhances engine performance by removing dirt and carbon
            deposits, through a three-step process, from the complete fuel
            system (air intake through the fuel rail, throttle plate, idle
            control devices, injector screens and pintel, intake valves,
            combustion chamber, O2 sensor, catalytic converters and exhaust
            system components). Central to the cleaning process is the MotorVac
            CarbonClean detergent, which is a proprietary detergent that is safe
            for use in all engines and that survives combustion, thereby
            cleaning the entire fuel system from the air intake through the
            catalytic converter.

            The Automatic Transmission Service Problem. According to industry
studies, over 13 million transmissions fail every year. One of the most common
causes of transmission failure is fluid contamination. The Company believes that
the traditional "drop the pan" method of flushing and replacing automatic
transmission fluid is incomplete and hazardous. It is incomplete because this
method only replaces approximately 25% of the old fluid, leaving most of the
old, dirty and burnt fluid trapped in the torque converter, clutch drums and
valve body. It is hazardous because there is always a potential for spills on
the technician or on the shop floor.

            The TRANSTECH(R) System Solution. The Company markets and sells the
TRANSTECH(R) Transmission Service System for exchanging automatic transmission
fluid. The TRANSTECH(R) is designed to connect to transmission coolers and
exchange virtually 100% of the used fluid in the vehicle's transmission. Using a
closed-loop connection, the service eliminates the potential for hazardous fluid
spills. A TRANSTECH(R) service takes approximately fifteen minutes. The system
also allows the shop to offer an OEM recommended service, which includes a
transmission filter change.


MOTORVAC'S PRODUCTS

            The MotorVac CarbonClean System and IDT System--Product Overview.

            The Company markets and sells internal combustion engine fuel system
cleaning systems for both gasoline and diesel-powered engines under the trade
names MotorVac CarbonClean System in the United States and Canada and
CarbonClean System in other international markets. The MotorVac CarbonClean
System is comprised of fuel system cleaning machines and proprietary cleaning
detergents designed for both gasoline and diesel engines.

            The gasoline system machine is a twelve-volt-powered two-line
cleaning system which connects to the engine through vehicle-specific adapters
for all types of carbureted and fuel-injected engines. The machine passes a
detergent and gas mixture over the components of the fuel system. Carbon, gum
and varnishes built up in these areas are softened and removed, and then passed
out the exhaust.

            The Company markets its diesel engine cleaning system under the
trade name Industrial Diesel Tune ("IDT"), which is comprised of a patented
diesel engine cleaning machine and a proprietary diesel detergent. The IDT
System


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<PAGE>   6

passes a concentrated mixture of MotorVac3D cleaning detergent and diesel fuel
through the components of the fuel system while the engine is running. The
system removes both organic and inorganic fuel deposits that build up in the
fuel injectors, injection pumps and combustion chambers.

            The Company believes that its proprietary cleaning detergent is the
safest and most effective engine fuel system cleaner on the market. It is safe
for use on all engine components and will not harm injectors or any sensitive
computer components. The Company has obtained test results that indicate that
the MotorVac CarbonClean System and the IDT System improve the performance of
the vehicle, increase fuel mileage and reduce harmful emissions.

            The Company also markets and sells, both separately and together
with its fuel system cleaning machines, standard and deluxe adapter kits which
allow the Company's fuel system cleaning machines to be connected to the fuel
system lines of most vehicles on the road today.

            During the Company's fiscal year ended December 31, 1997, the
Company derived approximately 75% of its total sales from sales of fuel system
cleaning machines, approximately 17% of total sales from sales of fuel system
cleaning detergent, and 8% of its total sales of adapters and parts. During the
twelve-month year ended December 31, 1998, the Company derived approximately 73%
of its total sales from sales of fuel system and transmission cleaning machines
(including 29% from TRANSTECH(R)), approximately 21% of its total sales from
fuel system cleaning detergents, and 6% of its total sales from sales of
adapters and parts.


TRANSTECH(R) Transmission Service System -- Product Overview.

            The TRANSTECH(R) System is an automatic transmission fluid exchange
machine. Unlike a typical transmission service which only replaces approximately
25% of the used fluid, the TRANSTECH(R) can replace virtually 100% of the old
fluid with new fluid in about fifteen minutes. The Company believes that it
provides a shop owner with a quicker, safer and more profitable way to service
automatic transmission systems. The system is unique because it provides the
operator with two service modes--fluid replacement only and fluid plus filter
replacement. The Company believes that this will give the repair shop the
ability to upsell the service and provide an OEM-recommended service.


            Carbon Tune Engine Decarbonizing and Fuel System Cleaning
            Kit -- Product Overview.

            Carbon Tune is a three-part kit that cleans the air intake system,
fuel system, combustion chambers and exhaust system of the vehicle. The kit
includes an air intake aerosol, an engine decarbonizer and a patented fuel
conditioner that helps keep the engine clean. The air intake aerosol is the same
air intake detergent used in the MotorVac CarbonClean System. The fuel
conditioner is a new patented product used as a fuel additive and is included as
part of the service. The kit is also sold in concentrated form to the consumer
after the service to maintain the peak performance of the engine.

            The Company believes that the products used in this kit provides the
quick-serve shop operator with the safest and most effective fuel system
cleaning product in the quick service market. Carbon Tune products do not
contain alcohol or any flammable chemicals. In addition, its formulas have been
proven effective by independent tests and have been used in thousands of
professional MotorVac services worldwide.

            Product Warranties. The Company offers a limited warranty covering
parts for a period of one year from the date of sale to the end user on all
equipment distributed in the United States. For equipment delivered
internationally, the Company provides a limited parts warranty only for a period
of either 12 or 18 months from the date of shipment. The Company also offers a
limited warranty for a period of one year for all of its proprietary fuel system
detergents. During the Company's fiscal year ended December 31, 1997, the
Company's aggregate warranty expense was approximately $108,000. During the
Company's fiscal year ended December 31, 1998, the Company's aggregate warranty
expense was approximately $213,000. The increase in 1998 was due to expenses
incurred for correction of a flow control device; this problem has been
corrected and no further warranty cost for this device is anticipated. There


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can be no assurance that future warranty expense will not have an adverse effect
on the Company's results of operations or financial condition.

            Fuel System Cleaning Detergents. The Company markets and sells its
proprietary fuel system detergents in both the United States and international
markets utilizing different trade names in different markets. All of the
Company's detergents clean dirt, varnish, waxes, carbon and other types of
contaminants that build up in critical areas of the engine. The Company's
detergents will not damage vehicle surfaces or paint, and are safe for use on
all engine fuel system components (will not harm injectors or any sensitive
computer components).


PRODUCT DISTRIBUTION

            The Company's products are currently sold through a national and
international distribution network consisting primarily of the categories
described below:

            Snap-on Incorporated. The Company sells the MotorVac CarbonClean
System, the IDT System, the TRANSTECH(R) System, the CT 2100 and the MotorVac
CarbonClean Detergent and Top Engine Cleaner to Snap-on for distribution through
Snap-on's tool and equipment network, made up in the U.S. of approximately 3,800
Snap-on dealers and approximately 325 tech reps selling to approximately 300,000
automotive after-market consumers.

            Snap-on is a leading manufacturer and distributor of high-quality
hand tools, power tools, tool storage products, diagnostics and shop equipment
and information services primarily for use by professional technicians.

            The Company entered into an Exclusive Distribution Agreement dated
as of April 10, 1995 (the "Snap-on Distribution Agreement") with Snap-on.
Pursuant to the Snap-on Distribution Agreement, the Company appointed Snap-on as
its exclusive distributor in the United States and Canada of the Company's "Sun"
branded engine cleaning systems, fuel system detergent, transmission systems and
enhanced adapter kits. The Company has the right, however, to enter into other
distribution arrangements in the United States and Canada for machines that
perform the same functions as the Sun System being sold through Snap-on and for
its fuel system detergent in the same formulation as that sold to Snap-on, as
long as the container is different and provided that the machines are not
identical in design to the Sun System. In order to maintain its exclusivity,
Snap-on must meet minimum purchase requirements set forth in the Snap-on
Distribution Agreement. The Snap-on Distribution Agreement expired on April 10,
1998 but under an annual Automatic Renewal Provision, was extended to April 10,
1999. Neither Snap-on nor the Company had delivered written notice of
cancellation as of February 10, 1999. Accordingly, the Company anticipates
automatic renewal as of April 10, 1999. However, the agreement may be terminated
prior to such dates in the event of certain defaults by the Company or Snap-on.

            Other Independent Distributors. The Company also markets the
MotorVac CarbonClean System, the Carbon Tune System, the TRANSTECH(R) System and
IDT System throughout the United States and Canada through a small network of
independent distributors. In addition, the Company markets the CarbonClean
System, the TRANSTECH(R) System and IDT System in over 55 countries worldwide
through local and, in some cases, multinational independent distributors.

            In general, the Company's international distribution agreements
provide that the distributor has the exclusive right to sell and distribute the
Company's products within the specified territory. The distribution agreements
generally include minimum performance goals that, if not met, entitle the
Company to terminate the agreements.

            During the fiscal years ended December 31, 1998 and 1997,
respectively, sales of the Company's products to divisions of Snap-on
Incorporated accounted for approximately 73% and 72%, respectively, of the
Company's net sales. No other distributor or customer accounted for more than
10% of the Company's net sales in the years ended 1998 and 1997.

            For the fiscal year ended December 31, 1998 and the fiscal year
ended December 31, 1997, international sales accounted for approximately 18% and
26%, respectively, of the Company's net sales.


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MARKETING

            The Company's primary market consists of automotive service and
repair shops, including independent, chain and dealership facilities. The
Company estimates that there are over 300,000 automotive service and repair
shops in the United States and Canada and approximately 1.5 million in other
countries.

            The Company has retained the services of a press relations agency
for the purpose of increasing consumer awareness of the MotorVac CarbonClean
service through editorial coverage in general consumer and enthusiast
publications, including daily newspapers.


ASSEMBLY AND QUALITY ASSURANCE

            The Company assembles, finishes and packages its fuel system
cleaning machines at its Santa Ana, California facilities. See
"Business--Properties." The Company purchases the component parts utilized in
the assembly of its fuel system cleaning machines from independent third-party
suppliers and the Company assembles the machines at its facility. The Company's
internal manufacturing operations consist primarily of the production of
prototypes, test engineering, material and component part purchasing, assembly,
testing, quality control and technical service.

            The Company anticipates that its existing production facilities and
equipment will be adequate to meet the Company's manufacturing needs for the
next two to three years for its existing product lines.

            The Company maintains the MotorVac quality control system that
begins with design and continues through assembly, marketing, sales and customer
service. The Company involves its design and engineering department,
manufacturing personnel, marketing and sales departments in quality control.

            As stated above, the Company relies upon outside suppliers for the
manufacture of the component parts for its fuel system cleaning machines.
Although certain of these component parts are obtained from a single supplier or
a limited number of suppliers, the Company believes that there are a sufficient
number of alternative sources of supply for all of the component parts utilized
in its machines, except for the pumps incorporated into its machines. With
respect to the pumps, the Company currently relies upon Tuthill Corporation, a
single supplier, to manufacture a Company-designed proprietary pump. While the
Company believes it could secure another manufacturer of the pump, as pumps from
alternate suppliers have been tested and approved, any significant interruption
in deliveries of pumps could have a material adverse effect upon the Company's
results of operations and financial condition until such time as the Company was
able to secure an alternative supplier.

            While, to date, the Company has not experienced any significant
interruptions in the supply of its components, there is no assurance that
significant supply interruptions will not occur in the future.


BACKLOG

            The Company normally does not have any significant backlog.


COMPETITION

            The automotive service and after-market products industries are
highly competitive and require substantial technical expertise and capital
resources. These industries are characterized by an abundance of manufacturers
focusing on the technician, equipment and other after-market performance
enhancements. The Company believes that competition in the automotive service
and after-market products industries is based primarily on product performance,
ease of operation, price, product selection, product availability and service.
The Company's core products compete with


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a variety of products designed to clean engine fuel systems and reduce emissions
while improving performance, including gasoline fuel additives, detergent
additives that are mixed with fuel in the fuel tank, and solvents that are
introduced directly into the fuel system, either with or without the aid of a
mechanical delivery system. The Company's transmission service product competes
with a variety of different systems designed to flush old fluid out of the
vehicle's transmission system and replace it with new fluid. Some competitive
systems are strictly fluid exchange machines, while others allow the technician
to replace the transmission filter and perform an OEM-recommended service. Most
of the Company's competitors in each of these product categories have
significantly greater financial, manufacturing, marketing, distribution and
other resources than the Company.

            With respect to direct competition with the Company's integrated
fuel system cleaning machine and detergent delivery system, the Company is aware
of a few manufacturers that produce products capable of performing functions
similar to those performed by the Company's products. One such competitor is
Injector Clean Systems, Inc., which manufactures a fuel injector cleaning
machine and cleaning detergent. Their product is distributed worldwide by
Bilstein Corporation under the Bilstein brand. In addition, a large number of
companies, such as Wynn's International, Inc., First Brands Corporation (which
markets and sells STP) and Pennzoil Company (which markets and sells GUMOUT),
offer fuel additives that are marketed as fuel system cleaners with claims that
they improve performance, reduce exhaust emissions and improve fuel economy.
Moreover, many national brands of gasoline, including Chevron with Techron and
Mobil, advertise that their gasoline additives clean fuel injectors and other
parts of the fuel system.

            With respect to direct competition with the Company's transmission
service system, the Company is aware of several manufacturers that produce
products capable of performing functions similar to those performed by the
Company's products. One competitor is Wynn's International, which markets the
TransServe systems and also competes with the Company in the fuel system service
equipment market. Other competitors include Norco Industries (which markets the
Flo-Dynamics line of machines) and Century Manufacturing (which markets the
T-Tech machines).

            The business of providing an integrated fuel system cleaning service
is relatively new and the Company anticipates that competition will likely
increase from existing competitors, companies that are not currently competitors
but have the financial resources and expertise to compete in this market and
newly-formed companies as market awareness of the fuel system contamination
problem increases, and as and when government-mandated emissions testing
programs expand. The same is true for the Company's transmission service
product. Increased competition from manufacturers or distributors of fuel system
or transmission system service products similar to that offered by the Company
could result in price reductions, reduced margins and loss of market share, all
of which could have a material adverse effect on the Company's results of
operations and financial condition. There can be no assurance that the Company
will be able to successfully compete in this marketplace.


GOVERNMENTAL REGULATION

            The Company's operations are subject to a number of federal, state
and local laws relating to environmental, health, safety and labor matters. The
Company believes its business is operated in substantial compliance with all
material applicable government regulations. There can be no assurance that
future regulations will not require the Company to modify its products, business
or operations to meet environmental, health, safety or labor requirements, or
that the Company will be able, for financial or other reasons, to comply with
such future requirements. Failure to comply with future governmental regulations
could subject the Company to fines and injunctions, which could result in a
material adverse effect on the Company's results of operations and financial
condition. Although the Company is not aware of any claim involving violation of
environmental, health, safety or labor laws or regulations, there can be no
assurance that such claims may not arise in the future, which may have a
material adverse effect on the Company.

            The Company's products are marketed in part based on their ability
to reduce air pollution and other harmful emissions from diesel and gasoline
internal combustion engines as required by foreign, federal, state and local
governmental regulations. Significant changes in such laws that reduce or alter
clean air requirements, or the failure of the Company's products to enhance
compliance with such laws in the future, could have a material adverse effect on
the Company's results of operations.


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INTELLECTUAL PROPERTY

            The Company relies on patent and trademark protection and
nondisclosure agreements to protect its intellectual property. The Company
believes that its owned and licensed trade names and trademarks are critical to
the Company's marketing strategy and its business.

            The Company licensed the rights under a patent which covered certain
aspects of the Company's gasoline and diesel fuel system cleaning machines. The
license agreement terminated on May 1, 1997. The Company has its own patents
pending on its fuel system cleaning machines. Regarding the TRANSTECH(R)
machine, the Company has purchased the patent from a third party in exchange for
royalty payments which amounted to approximately $25,000 in 1998.

            The Company purchases all of its fuel system cleaning detergents
from Shrader Packaging Co., Inc. ("Shrader"), a single supplier, under an
Exclusive Supply Agreement. Under the agreement's terms, Shrader has agreed to
produce and deliver to the Company, and the Company has agreed to buy, all of
the detergents required by the Company in its business. The Company is also
required to make minimum annual purchases of $250,000 per year (this requirement
has been met for 1998), subject to annual inflation based increases. Shrader has
agreed to limit price increases to increases in its material costs and operating
overhead as necessary to maintain Shrader's profit margins. Under the Exclusive
Supply Agreement, Shrader has agreed that it will not produce or sell any
detergents substantially similar to the chemical formulations produced for the
Company or which are in competition with the Company's chemical formulations
without the Company's written permission.

            In exchange for its exclusive rights to the chemical formulations,
the Company has agreed that in the event that it ceases purchasing the chemical
formulations from Shrader, it will purchase Shrader's remaining inventory of
chemical formulations and Shrader will not, for a period of one year thereafter,
sell any of the chemical formulations to any distributors of the Company or any
competitors of the Company. In addition, the Company has obtained a right of
first refusal from Shrader to purchase Shrader's worldwide rights to the
chemical formulations. The chemical formulations used in the Company's
detergents are the proprietary property and a trade secret of Shrader but, to
the Company's knowledge, are not patented or otherwise protected. There can be
no assurance that Shrader will be able to maintain its chemical formulations as
trade secrets or that others will not independently develop chemical
formulations that are similar to or competitive with Shrader's chemical
formulations. The Company believes that the proprietary nature of the Company's
detergents and the Company's exclusive right to obtain those detergents from
Shrader are important to the Company's business and any loss of such proprietary
protection or the exclusive rights to obtain the detergents could have a
material adverse effect on the Company's results of operations and financial
condition. See "Risk Factors--Dependence Upon Single Sources of Supply; Lack of
Long Term Supply Contracts for Machine Components."


RESEARCH AND DEVELOPMENT

            For the fiscal years ended December 31, 1998, the Company spent
$22,893 on research and development; in 1997, the Company spent $21,220.


EMPLOYEES

            As of December 31, 1998, the Company had 42 employees, all of which
 were full-time employees, including 14 employed in sales and marketing, 19
 employed in research and development, technical support and production, and
9 employed as administrative, accounting and support staff. None of the
Company's employees are represented by unions, and the Company considers its
employee relations to be good.


                                       10

<PAGE>   11

RISK FACTORS

Historical Operating Losses; Accumulated Deficit; Profitability Uncertain

            From August 28, 1992 (inception) for each year through December 31,
1998, with the exception of 1997, the Company incurred net losses. As of
December 31, 1998, the Company had an accumulated deficit of $12,047,741. There
can be no assurance that the Company will be able to achieve or maintain
profitable operations in the future. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."


Dependence Upon Single Sources of Supply; Lack of Long Term Supply Contracts for
Machine Components

            The formulations utilized in the Company's gasoline and diesel
detergents are manufactured by Shrader, an independent third party. These
formulations are the proprietary property and a trade secret of such party, but
are not, to the Company's knowledge, patented or otherwise protected. There can
be no assurance that the supplier will be able to maintain its chemical
formulations as trade secrets or that others will not independently develop
chemical formulations that are similar to or competitive with the supplier's
chemical formulations. The Company currently relies upon this supplier as its
primary supplier of the Company's gasoline and diesel engine detergents under
the terms of an exclusive supply agreement (the "Exclusive Supply Agreement").
The Company considers its detergents to be important proprietary assets. The
loss by the supplier of the proprietary protection for its detergent formulas, a
significant interruption in detergent deliveries by the supplier or the
inability to obtain detergents from the supplier for any reason for any
significant period of time could have a material adverse effect upon the Company
and its results of operations. See "Business--Intellectual Property."

            The Company relies upon outside suppliers for the manufacture of the
component parts of its fuel system cleaning and transmission service machines.
The Company does not have written long-term contracts with any of these
suppliers. The Company generally estimates its anticipated need for components
over a three-month period and submits purchase orders to its suppliers for such
amounts. There can be no assurance that the Company's suppliers will be able to
make timely delivery of components in the future. The inability of the Company
to obtain the components necessary to enable it to fill its then-existing orders
for any reason, including, but not limited to, shortages, product delays or work
stoppages experienced by the Company's suppliers, could have a material adverse
effect on the Company's results of operations and financial condition.

            Certain of the Company's component parts are obtained from a single
supplier or a limited number of suppliers. The Company believes, however, that
there are a sufficient number of alternative sources of supply for all of the
component parts utilized in its machines, except for the pumps incorporated into
its machines. With respect to the pumps, the Company relies upon Tuthill
Corporation, a single supplier, to manufacture a Company-designed proprietary
pump. While the Company believes it could secure another manufacturer of the
pump, any significant interruption in deliveries of the pumps could have a
material adverse effect upon the Company's results of operations and financial
condition until such time as the Company was able to secure an alternative
supplier.


Dependence Upon Significant Customer

            During the fiscal year ended December 31, 1998 and December 31,
 1997, the Company derived approximately 73% and 72%, respectively, of its total
 sales from sales to Snap-on, Incorporated, a distributor of the Company's
products. No other customer accounted for more than 10% of the Company's net
sales during these years. Any significant decrease in sales to Snap-on, which
are not offset by increases in sales to other existing or new distributors,
would have a material adverse effect upon the Company's results of operations
and financial condition.


                                       11
<PAGE>   12

Future Capital Requirements

            The Company believes that available working capital at December 31,
1998 of $ 3,486,973 will be sufficient to allow the Company to meet its
obligations as they become due through January 1, 2000. To the extent that the
Company's cash flow from operations, if any, are insufficient to fund the
Company's activities, the Company will be required to raise additional funds
through equity or debt financings. No assurance can be given that such financing
will be available on terms acceptable to the Company, if at all, and if
available, such financing may result in further dilution to the Company's
stockholders and/or in additional interest expense. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."


Competition; Technological Developments

            The automotive service and after-market products industries are
highly competitive and require substantial technical expertise and capital
resources. These industries are characterized by an abundance of manufacturers
focusing on the technician, equipment and other after-market performance
enhancements. The Company believes that competition in the automotive service
and after-market products industries is based primarily on product performance,
ease of operation, price, product selection, product availability and service.
The Company's products compete with a variety of products designed to clean
engine fuel systems and reduce emissions while improving performance, including
gasoline fuel additives, chemical formulations that are mixed with fuel in the
fuel tank, and chemical formulations that are introduced directly into the fuel
system either with or without the aid of a mechanical delivery system. Most of
the Company's competitors in each of these product categories have significantly
greater financial, manufacturing, marketing, distribution and other resources
than the Company.

            With respect to direct competition with the Company's integrated
fuel system cleaning and detergent delivery system, the Company is aware of a
few small manufacturers and a number of distributors, including Bilstein, that
produce products capable of performing some functions similar to those performed
by the Company's products. In addition, a large number of companies, such as
Wynn's International, Inc., First Brands Corporation (which markets and sells
STP) and Pennzoil Company (which markets and sells GUMOUT), offer fuel additives
that are marketed as fuel system cleaners with claims that they improve
performance, reduce exhaust emissions and improve fuel economy. Moreover, many
national brands of gasoline, including Chevron with Techron and Mobil, advertise
that their gasoline additives clean fuel injectors and other parts of the fuel
system.

            With respect to direct competition with the Company's transmission
service system, the Company is aware of several manufacturers that produce
products capable of performing functions similar to those performed by the
Company's products. One competitor is Wynn's International, which markets the
TransServe systems and also competes with the Company in the fuel system service
equipment market. Other competitors include Norco Industries (which markets the
Flo-Dynamics line of machines) and Burman Products (which markets the T-Tech
machines).


Dependence Upon Trademarks, Patents and Proprietary Rights

            The Company's success is, in part, dependent upon the protection
afforded by the patented technology incorporated in some of the fuel system
cleaning machines manufactured by the Company, the Company's rights to its
trademarks "MotorVac" and "CarbonClean" and the goodwill associated therewith.
In the event of a legal challenge, the Company would be required to defend its
patents and trademarks and there can be no assurance that the Company would
prevail in such a proceeding. Additionally, the Company must identify and
prosecute infringement by others in order to protect its patents and trademarks.
Trademark and patent litigation entails substantial legal and other costs. There
can be no assurance that the Company will have the necessary financial resources
to defend or prosecute its rights in connection with any such litigation.
Responding to, defending or bringing claims related to the Company's rights to
its intellectual property may require the Company's management to redirect its
resources to address such claims, which could have a material adverse effect on
the Company's business, financial condition and results of operations. Moreover,
if any significant suppliers of the Company are subjected to claims challenging
their proprietary rights, the Company could be materially adversely affected if
such suppliers' operations are significantly interrupted or if they are


                                       12
<PAGE>   13

unable to defend their respective proprietary rights against such a challenge.
See "Risk Factors--Dependence Upon Single Sources of Supply; Lack of Long Term
Supply Contracts for Machine Components" and "Business--Intellectual Property."


Variability in Operating Results

            The Company may experience significant fluctuations in future
operating results due to a number of factors including, among other things, the
size and timing of customer orders, new or increased competition, delays in new
product enhancements and new product introductions, quality control
difficulties, changes in market demand, market acceptance of new products,
product returns, seasonality in product purchases by distributors and end users
and pricing trends in the automotive after-market industry in general, and in
the specific markets in which the Company is active. Any of these factors could
cause operating results to vary significantly from prior periods. Significant
variability in orders during any period may have a material adverse impact on
the Company's cash flow or work flow, and any significant decrease in orders
could have a material adverse impact on the Company's results of operations and
financial condition. As a result, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and
should not be relied upon as any indication of future performance. Fluctuations
in the Company's operating results could cause the price of the Company's Common
Stock to fluctuate substantially. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."


Dependence on International Sales

            A significant element of the Company's business strategy is to
continue to expand in selected international markets. In the Company's fiscal
year ended December 31, 1998 and December 31, 1997, respectively, the Company
derived approximately 18% and 26%, respectively, of total sales from
international markets. The Company's international sales efforts are subject to
the customary risks of doing business abroad, including exposure to regulatory
requirements, political and economic instability, barriers to trade, trade
restrictions (including import quotas), tariff regulations, foreign taxes,
restrictions on transfer of funds, difficulty in obtaining distribution and
support and export licensing requirements, any of which could have a material
adverse effect on the Company's results of operations and financial condition.
The Company sells its products in United States dollar denominations only.
Consequently, a weakening in the value of foreign currencies relative to the
U.S. dollar and potential fluctuations in foreign currency exchange rates could
have an adverse impact on the Company's sales and could cause the Company to
reduce its selling prices, which could have a negative impact on gross margins
on international sales. See "Business--Product Distribution."


Risk of Product Liability

            The nature of the Company's business exposes it to risk from product
liability claims. The Company currently maintains product liability insurance
for its products worldwide, with limits of $10,000,000 per occurrence and
$11,000,000 in the aggregate, per annum. There can be no assurance that the
Company's insurance will be adequate to cover future product liability claims,
or that the Company will be successful in maintaining adequate product liability
insurance at commercially reasonable rates. Any losses that the Company may
suffer from future liability claims, including the successful assertion against
the Company of one or a series of large uninsured claims in excess of the
Company's coverage, may have a material adverse effect on the Company's
business, financial condition and results of operation. Even if the Company is
successful in the defense of product liability claims, the defense of product
liability claims generally requires substantial expenditures of funds and
management time which could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, any
product liability litigation may have a material adverse effect on the
reputation and marketability of the Company's products.
See "Business--Product Warranties."


                                       13
<PAGE>   14

Governmental Regulation

            The Company's products are marketed in part based on their ability
to reduce air pollution and other harmful emissions from diesel and gasoline
combustion engines as required by foreign, federal and state governmental
regulations, as well as their ability to fix some driveability problems and
increase fuel economy. Significant changes in such laws that reduce clean air
requirements or the failure of the Company's products to enhance compliance with
such laws in the future could have a material adverse effect on the Company's
results of operations. Additionally, there may be changes in governmental
regulations related to environmental, health, safety or labor matters with which
the Company will have to comply. There can be no assurance that the Company will
be able, for financial or other reasons, to comply with the requirements of any
future changes in governmental regulations. Failure to comply with future
governmental regulations could subject the Company to fines and injunctions,
which could result in a material adverse effect on the Company's results of
operations and financial condition. Although the Company is not aware of any
claim involving violation of environmental, health, safety or labor laws or
regulations, there can be no assurance that such a claim may not arise in the
future, which may have a material adverse effect on the Company. See
"Business--Governmental Regulation."


Control by Existing Stockholders

            At March 10, 1999, EMIIC, the principal stockholder of the Company,
and the Company's directors and officers collectively, beneficially owned
approximately 65.7 % of the Company's Common Stock (EMIIC, 62.1 %; the Company's
directors and officers, 3.6 %). Consequently, these persons will have the
ability to control the election of all the Company's directors, to determine the
outcome of most corporate actions submitted to the vote of the Company's
stockholders and to generally control the affairs and management of the Company.
See "Security Ownership of Certain Beneficial Owners and Management." In
addition, such concentration of ownership and control may have the effect of
delaying, deferring or preventing a change of control in the Company.


Dependence on Key Personnel

            The Company's success is dependent, in part, upon the continued
services of certain key executive officers, including Lee W. Melody, the
Company's President and Chief Executive Officer. The loss of any one of its key
executive officers could have a material adverse effect on the Company's results
of operations and financial condition. The continued success of the Company may
also be dependent upon its ability to attract and retain highly qualified
marketing, sales and other personnel. There can be no assurance that the Company
will be able to recruit and retain such personnel. See "Directors, Executive
Officers, Promoters and Control Persons; Compliance with Section 16(a) of the
Exchange Act."


Possible Issuance of Preferred Stock; Anti-takeover Effect of Delaware Law

            The Company is authorized to issue up to 500,000 shares of preferred
stock, par value $.01 per share (the "Preferred Stock"). The Preferred Stock may
be issued in one or more series, the terms of which may be determined at the
time of issuance by the Board of Directors, without further action by the
Company's stockholders, and may include voting rights, preferences as to
dividends and liquidation, conversion and redemption rights, and sinking fund
provisions as determined by the Board of Directors. Although the Company has no
present plans to issue any shares of Preferred Stock, the issuance of any
additional shares of Preferred Stock in the future could affect the rights of
the holders of Common Stock and thereby reduce the value of the Common Stock. In
particular, specific rights granted to future holders of Preferred Stock could
be used to restrict the Company's ability to merge with or sell its assets to a
third party, thereby preserving control of the Company by its present owners.
These provisions, together with certain provisions of Delaware law, may also
have the effect of delaying or preventing changes in control or management of
the Company which could adversely affect the market price of the Company's
Common Stock.


                                       14
<PAGE>   15

ITEM 2.  DESCRIPTION OF PROPERTY

            The Company's executive offices, research and product development,
assembly, warehousing and distribution facilities are currently housed in two
adjacent leased industrial buildings; comprised of approximately 34,500 square
feet located in a state-designated enterprise zone in Santa Ana, California.
Under the terms of the lease, the Company presently pays rent of approximately
$15,100 per month plus the Company's pro rata share of common area maintenance
and operating expenses. The lease expires in January of 2003.


ITEM 3.  LEGAL PROCEEDINGS.

            The Company, from time to time, is involved in routine litigation
incidental to the conduct of its business. There are currently no material
pending legal proceedings to which the Company is a party to or to which any of
its property is subject.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

            None.



                                     PART II


ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

            (a) The Company's Common Stock trades on the Nasdaq SmallCap Market
under the symbol "MVAC." The following table sets forth, for the periods
indicated, the high and low sales prices of the Company's Common Stock as
furnished by Nasdaq. Prices reflect inter-dealer prices without retail mark-up,
mark-down or commissions, and may not necessarily reflect actual transactions.

<TABLE>
<CAPTION>
                                    HIGH        LOW
                                    ----        ---
<S>                                 <C>        <C>
YEAR ENDED DECEMBER 31, 1997

            First Quarter           5 7/8      3
            Second Quarter          4 5/8      2 3/4
            Third Quarter           3 3/4      2 3/8
            Fourth Quarter          3          1 1/8

<CAPTION>
                                    HIGH        LOW
                                    ----        ---
<S>                                 <C>        <C>
YEAR ENDED DECEMBER 31, 1998

            First Quarter           2 9/16     1 3/4
            Second Quarter          2 1/4      1
            Third Quarter           1 3/8       11/16
            Fourth Quarter          1            1/2
</TABLE>


                                       15
<PAGE>   16

            There were approximately 102 holders of record of the Company's
Common Stock as of February 26, 1999.

            No dividends have been declared or paid on the Company's Common
Stock.

            For the year ended December 31, 1998, the Company issued incentive
and nonstatutory stock options to purchase an aggregate of 66,500 shares of
Common Stock to directors, officers, employees and consultants. The exercise
price for such options ranged between $.75 and $1.88 per share. The Company
issued such options in reliance upon the exemption provided by Section 4(2) of
the Securities Act.

(b)         In accordance with the Securities and Exchange Commission Rule 463
and Item 701 of Regulation S-B, effective September 2, 1997, the Company hereby
incorporates the information formerly included in Form SR for the period ended
December 31, 1998.

(1)         File Number and Effective date of Registration Statement:
            o           April 25, 1996
            Commission File Number:
            o           333-1866-LA
(2)         Date offering commenced:
            o           April 25, 1996
(3)         If offering terminated before any securities were sold, an 
            explanation for such termination:
            o           N/A
(4)         If offering did not terminate before any securities were sold,
            discuss:

<TABLE>
<C>                     <S>                                                                     <C>
            (i)         Whether the offering has terminated and, if so, whether
                        it terminated before the sale of all securities
                        registered: o The offering terminated after the sale of
                        all securities registered.
            (ii)        The name(s) of the managing underwriter(s), if any:
                        o           Meridian Capital Group, Inc.
            (iii)       The title of each class of securities registered:
                        o           Common Stock, $.01 par value
            (iv)        On account of the issuer:
                                    Amount registered:
                                    o           1,210,000 shares
                                    Aggregate price of offering amount 
                                    registered:
                                    o           $6,503,750
                                    Amount sold:
                                    o           1,210,000 shares
                                    Aggregate offering price of amount sold to 
                                    date:
                                    o           $6,503,750
                        On account of any Selling Security Holder(s):
                                    Amount registered:
                                    o           32,850 shares
                                    Aggregate offering price of amount 
                                    registered:
                                    o           $176,569
                                    Amount sold:
                                    o           32,850 shares
                                    Aggregate offering price of amount sold:
                                    o           $176,569

            (v)                     Direct or indirect payments to directors, officers,         Direct or indirect
                                    general partners of the issuer or their associates;         payments to others
                                    to persons owning 10% or more of any class of               (X if estimate)
                                    equity securities of the issuer and to affiliates of
                                    the issuer.  (X if estimate)
</TABLE>


                                       16

<PAGE>   17

<TABLE>
<S>                               <C>
Underwriters discounts
    and commissions               650,375
Finders' Fees
Expenses paid to or for
   the Underwriters               195,113
Other Expenses                    504,788
Total Expenses                  1,350,276
</TABLE>
            (vi)        Net offering proceeds to issuer after deducting the
                        total expenses described in Subsection (v) above: 

                        o  $5,153,474

            (vii)       Use of Proceeds:

<TABLE>
<CAPTION>
                        Direct or indirect payments to
                        directors, officers, general
                        partners of the issuer or their
                        associates; to persons owning
                        10% or more of any class of            Direct or    
                        equity securities of the issuer    indirect payments
                        and to affiliates of the               to others    
                        issuer. (X if estimate)             (X if estimate)       Total
                        -------------------------------    -----------------    ---------
<S>                     <C>                                <C>                  <C>
Repayment of
 Indebtedness                      123,572                     1,500,000        1,623,572
Working Capital                                                1,061,269        1,060,869
Repayment of Interest
 on Indebtedness                   836,428                                        836,428

Investments:
            Short Term CD's                                    1,500,000        1,500,000
            Other Cash and 
              Cash Equivalents                                   132,605          132,605
                                                                                ---------
                                                                                5,153,474
                                                                                =========
</TABLE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

            The following discussion and analysis should be read together with
the financial statements and notes thereto included elsewhere in this Annual
Report on Form 10-KSB.


OVERVIEW

            The Company designs, develops, assembles, markets and sells machines
for the diagnosis, maintenance and repair of internal combustion engine fuel and
transmission systems primarily for the automotive after-market repair and
service industry. The Company markets and sells its fuel system cleaning and
transmission machines and detergents through various distribution channels, both
in the United States and Canada ("Domestic"), primarily under the trade name
MotorVac, and outside the United States and Canada ("International") under the
trade name CarbonClean.

            The Company elected to change its fiscal year end to December 31
from March 31, effective with the fiscal year ended December 31, 1995. The
following discussion and analysis addresses the results of the Company's
operations for the twelve months ended December 31, 1998, as compared to the
Company's results of operations for the twelve months ended December 31, 1997,
except as otherwise noted. On May 1, 1996, the Company consummated an initial
public offering (the "IPO") of 1,100,000 shares of its common stock, resulting
in gross proceeds of approximately $5,912,500. On June 13, 1996, the Company
completed the sale of an additional 110,000 shares of its Common Stock


                                       17

<PAGE>   18

upon exercise of the underwriter's overallotment option (the "Overallotment"),
resulting in gross proceeds to the Company of approximately $591,250.

            This Annual Report on Form 10-KSB contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934 (the "Exchange
Act"), and the Company intends that such forward-looking statements be subject
to the safe harbors created thereby. The Company may experience significant
fluctuations in future operating results due to a number of factors, including,
among other things, the size and timing of customer orders, new or increased
competition, new product introductions, delays in new product enhancements,
quality control difficulties, changes in market demand, market acceptance of new
products, product returns, seasonality in product purchases by distributors and
end users, changes in inventory levels, and pricing trends in the automotive
after-market industry in general, and in the specific markets in which the
Company is active. Any of these factors could cause operating results to vary
significantly from prior periods. Significant variability in orders during any
period may have a material adverse impact on the Company's cash flow or work
flow, and any significant decrease in orders could have a material adverse
impact on the Company's results of operations and financial condition. As a
result, the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as any
indication of future performance. Fluctuations in the Company's operating
results could cause the price of the Company's Common Stock to fluctuate
substantially.

            Assumptions relating to the foregoing involve judgments with respect
to, among other things, future economic, competitive and market conditions, all
of which are difficult or impossible to predict accurately, and many of which
are beyond the control of the Company. In addition, the business and operations
of the Company are subject to substantial risks which increase the uncertainty
inherent in the forward-looking statements, including, but not limited to, those
set forth under "Risk Factors" contained in this Annual Report on Form 10-KSB
and the Company's other periodic filings with the Commission. In light of the
significant uncertainties inherent in the forward-looking information included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives or plans
of the Company will be achieved.

RESULTS OF OPERATIONS

The results of operations for the years ended December 31, 1998 and 1997 were as
follows:

<TABLE>
<CAPTION>
                                    Year Ended        Year Ended
                                     12/31/98          12/31/97
                                   ------------      ------------
<S>                                <C>               <C>         
NET SALES                          $ 10,017,020      $  9,875,739
COST OF SALES                         5,548,288         5,618,286
                                   ------------      ------------
GROSS PROFIT                          4,468,732         4,257,453
OPERATING EXPENSES                    4,905,145         3,983,205
                                   ------------      ------------
(LOSS) INCOME FROM OPERATIONS          (436,413)          274,248
INTEREST INCOME, NET                    (56,504)          (41,696)
                                   ------------      ------------
(LOSS) INCOME BEFORE PROVISION
     FOR INCOME TAXES                  (379,909)          315,944
PROVISION FOR INCOME TAXES                5,558             4,136
                                   ------------      ------------
NET (LOSS) INCOME                  $   (385,467)     $    311,808
                                   ============      ============
</TABLE>


COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 1998 TO THE TWELVE MONTHS ENDED
DECEMBER 31, 1997

            Net Sales. Net sales for the year ended December 31, 1998 of
$10,017,020 increased $141,281(approximately 1%) from $9,875,739 for the year
ended December 31, 1997. The primary reason for the sales increase was
TRANSTECH(R) machines and detergents; these increases were partially offset by
declines in gas and diesel machine sales.


                                       18

<PAGE>   19

            Cost of Sales. Cost of sales for the year ended December 31, 1998
decreased by $69,998 (approximately 1%) to $5,548,288 from $5,618,286 for the
year ended December 31, 1997. Cost of sales as a percent of net sales, for the
year ended December 31, 1998, was 55% versus 57% of net sales for the year ended
December 31, 1997. The primary reason for the slight cost of sales decrease as a
percent of sales was that detergent sales, which have a lower cost as a
percentage of net sales, made up a higher proportion of total net sales in 1998
compared to 1997.

            Operating Expenses. Operating expenses for the year ended December
31, 1998 of $4,905,145 increased $921,940 (approximately 23%) from $3,983,205
for the year ended December 31, 1997. The major reasons for the increase were a
litigation settlement of approximately $344,000, offsetting 1997 expenses,
selling expenses of approximately $213,000 for the new Automotive Solutions
division initiated in 1998, and approximately $184,000 in advertising cost
increases including approximately $84,000 for independent testing to validate
the successful performance of the Company's diesel machine.

             (Loss) Income from Operations. As a result of the above, the loss
from operations for the year ended December 31, 1998 of $436,413 decreased by
$710,661 from operating income of $274,248 for the year ended December 31, 1997.


LIQUIDITY AND CAPITAL RESOURCES

For the Twelve Months Ended December 31, 1998

            Cash at December 31, 1998 was $1,632,605. Cash of $421,284 was
generated by operating activities for the year ended December 31, 1998. Cash
flow used in financing activities for the year was $349,646, and cash used for
investing activities was $104,153. The net result was a decrease in cash of
$32,515 from the year earlier. Working capital, at $3,486,973, decreased by
$177,760 from 1997, and the current ratio increased to 4.7:1 from 3.7:1 in 1997.

            The Company maintains a $1,500,000 revolving line of credit expiring
March 31, 1999 at the bank's prime rate. The line is secured by a certificate of
deposit of $1,500,000 expiring the same date. At December 31, 1998, there were
no borrowings under the line. There are no financial covenants in the line of
credit.


INFORMATION SYSTEMS AND THE YEAR 2000

            The Company has made an assessment of the ability of its primary
information systems to properly utilize dates beyond year 1999. The results of
this review indicate these systems are Year 2000 Compliant, and that no material
system design or correction effort will be required.

            The developer of the primary accounting and business software the
Company uses has stated that the subject system and software are Year 2000
Compliant. Notwithstanding this representation, the Company plans, by the end of
the Second Quarter of 1999, to run appropriate live-system testing to confirm
compliance. Diagnostic tests have already been performed on the key system
modules; the primary modules tested positive. Certain secondary modules that
were deficient can be remedied with standard software additions at modest cost.
The Company has also tested its desktop computer environment and related network
structure. These tests have identified certain routine upgrades which will
achieve compliance, and the Company is proceeding to implement the upgrades.
Because the accounting software system is so widely used, the Company, at this
time, does not anticipate any significant problems in being compliant with
respect to its systems, nor will it require significant expenditures to effect
compliance.

            The Company has contacted its major vendors and customers to assure
that their systems are Year 2000 compliant. These parties have responded that
they all intend to be Year 2000 Compliant. There is no assurance that any of
these parties will not have compliance problems. The Company has one customer
that represents 73% of its sales for 1998 and has several key vendors whose
source and supply may not be easily replaced. A Year 2000 Compliance problem
incurred by this customer or key vendors could have a materially adverse effect
on the Company's business.


                                       19

<PAGE>   20

            The Company is using several software/systems third-party advisors
who are experienced in Y2K compliance issues. To perform remaining tests and add
hardware where necessary, the Company estimates expenditures will not exceed
$25,000.


STOCK REPURCHASE PROGRAM

            On September 24, 1998, the Board of Directors announced approval of
the repurchase and cancellation of up to 451,492 shares of its Common Stock,
which, at that time, constituted approximately 10% of the Company's outstanding
shares. New shares of Common Stock will be reserved for issuance under a stock
compensation plan pursuant to which participating directors may elect to receive
shares of Common Stock of the Company in lieu of such directors' annual retainer
and meeting attendance fees, and for an employee stock purchase plan for
participating employees and officers of the Company. Stock purchases under the
repurchase program commenced October 2, 1998, and through December 31, 1998, an
aggregate of 61,000 shares of Common Stock have been repurchased for aggregate
consideration of $56,375.


ITEM 7.  FINANCIAL STATEMENTS.

            The information required by this item is included in Pages F-1
through F-13 attached hereto and incorporated herein by reference.


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURES.

            None.


                                    PART III


ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; 
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

            The information required by this item is incorporated herein by
reference from Issuer's Definitive Proxy Statement to be filed with the
Commission pursuant to Regulation 14A in connection with the Issuer's 1999
Annual Meeting of Stockholders (the "Proxy Statement") under the headings
"Proposal 1--Election of Directors," "Section 16(A), Beneficial Ownership
Reporting Compliance" and "Additional Information--Management."


ITEM 10.  EXECUTIVE COMPENSATION.

            The information required by this item is incorporated herein by
reference from Issuer's Proxy Statement under the heading "Executive
Compensation."


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

            The information required by this item is incorporated herein by
reference from Issuer's Proxy Statement under the heading "Security Ownership of
Certain Beneficial Owners and Management."


                                       20
<PAGE>   21

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

            The information required by this item is incorporated herein by
reference from Issuer's Proxy Statement under the heading "Certain
Transactions."


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

            (a)         See Exhibit Index below.

            (b)         The Company did not file any reports on Form 8-K during
                        the quarter ended December 31, 1998.


                                       21
<PAGE>   22

                           MOTORVAC TECHNOLOGIES, INC.

                          EXHIBIT INDEX TO FORM 10-KSB

                      FOR THE YEAR ENDED DECEMBER 31, 1998


<TABLE>
<CAPTION>

EXHIBIT
NUMBER                                                      DESCRIPTION
------                                                      -----------
<C>               <S>
 3.1 (1)          Amended and Restated Certificate of Incorporation.

 3.2 (1)          Third Amended and Restated Bylaws, as amended.

 4.1              Reference is made to Exhibits 3.1 and 3.2.

 4.2 (1)          Specimen Stock Certificate.

10.1 (1)          Letter Agreement dated February 12, 1996, by and among the Registrant, Enviromotive, Inc. and
                  International Turbo Center, Inc.

10.2 (1)+         1996 Stock Incentive Award Plan of Registrant.

10.3 (1)+         Form of 1996 Director Nonqualified Stock Option Agreement.

10.4 (1)+         Form of 1996 Employee Nonqualified Stock Option Agreement.

10.5 (1)+         1996 Director Stock Plan of Registrant.

10.6 (1)+         Amended and Restated Employment Agreement dated March 21, 1996, between the Registrant and Allan
                  T. Maguire.

10.7 (1)          Form of Consent to Amendment of Registration Rights Agreement and Stock Purchase Warrant and
                  Waiver of Notice entered into between the Registrant and each of the holders of Stock Purchase Warrants
                  to purchase Series B Preferred Stock.

10.8 (2)          Products Distribution Agreement dated May 1, 1996, by and between the Registrant and Sun Electric De
                  Mexico, S.A. De C.V.

10.9 (1)          Transfer Agreement dated October 23, 1995, by and between CarbonClean International Ltd. and the
                  Registrant.

10.10 (1)         Transfer Agreement dated October 23, 1995, by and between MIML and the Registrant.

10.11             (1) Amended and Restated Secured Subordinated Promissory Note dated December 31, 1995 in the original
                  principal amount of $1,040,000 payable by the Registrant in favor of The WH & NC Eighteen Corporation.

10.12 (1)         Security Agreement dated August 3, 1995, by and between the Registrant and The WH & NC Eighteen
                  Corporation.

10.13 (3)         First Amendment to Purchase Agreement dated September 30, 1996, by and among the Registrant,
                  International Turbo Center, Inc., and Enviromotive, Inc.

10.14 (5)         Products Distribution Agreement dated December 1, 1996, by and between the Registrant and Snap-on
                  Tools Japan K.K.
</TABLE>


                                       22
<PAGE>   23

<TABLE>
<C>               <S>
10.15 (5)         Products Distribution Agreement dated January 6, 1997, by and between the Registrant and China Motor-
                  Vehicle Safety Appraisal and Inspection Center.

10.16 (1)         Products Distribution Agreement dated January 27, 1995, by and between the Registrant and DeCarbon
                  Pty. Ltd.

10.17 (1)         Supplier Purchase Agreement dated April 10, 1995, by and between the Registrant and Snap-on
                  Incorporated.

10.18 (1)         Exclusive Distribution Agreement dated April 10, 1995, by and between the Registrant and Snap-on
                  Incorporated.

10.19 (1)         Products Distribution Agreement dated November 16, 1995, by and between the Registrant and
                  Automotive Diagnostics.

10.20 (1)         Letter Agreement dated February 12, 1996, by and among the Registrant, Enviromotive, Inc., and
                  International Turbo Center, Inc.

10.21 (1)         Standard Industrial Lease--Multi-Tenant dated November 29, 1995, by and between Northern McFadden
                  Limited Partnership, an Illinois limited partnership, and the Registrant.

10.22 (4)         Products Distribution Agreement dated March 28, 1996, by and between the Registrant and Cameo (QLD)
                  Pty. Ltd.

10.23 (1)+        Employment Agreement dated October 24, 1994, by and between the Registrant and Lee William Melody,
                  as amended as of November 3, 1995.

10.24 (1)         Employment Agreement dated as of November 20, 1995 by and between the Registrant and Michael G.
                  Arkell.

10.25 (1)         Offer Letter to Michael G. Hosch dated December 16, 1992, from the Registrant, as amended by
                  Memorandum dated March 21, 1995.

10.26 (1)         Form of Indemnity Agreement entered into with each of the Registrant's officers and directors.

10.27 (1)         Amendment to Stockholders Voting Agreement dated March 8, 1996, by and among the Registrant, Erin
                  Mills International Investment Corporation, George H. David and Robert G. Reese.

10.28 (1)         Purchase Agreement dated February 22, 1996, but made effective as of December 31, 1995, by and among
                  the Registrant, International Turbo Center, Inc. and Enviromotive, Inc.

10.29 (1)         MotorVac Technologies, Inc. Cash Bonus Plan.

10.30 (1)         Letter Agreement dated April 5, 1996, between the Registrant and Shrader Packaging Co., Inc.
                  amending the Exclusive Supply Agreement and granting a right of first refusal to the Registrant.

10.31 (5)         Settlement Agreement and Mutual Release dated January 6, 1997, by and between the Registrant,
                  DeCarbon Australia Pty. Ltd., Carbon Clean Corporation Pty. Ltd., Carbon Tune Pty. Ltd., Chris Somas,
                  Roydn Sweet and Jim Litis (collectively "DeCarbon").

10.32 (5)         First Amendment and Modification to Settlement Agreement and Mutual Release, by and between the
                  Registrant and DeCarbon, dated January 4, 1997.

10.33 (5)         Second Amendment and Modification to Settlement Agreement and Mutual Release, by and between the
                  Registrant and DeCarbon, dated January 7, 1997.
</TABLE>


                                       23
<PAGE>   24

<TABLE>
<C>               <S>
10.34 (5)         Letter Agreement confirming settlement between the Registrant and Lee W. Melody on the one hand, and
                  Robert L. Fisher and ETCO on the other hand, dated March 14, 1997.

10.35 (3)         Letter Agreement dated September 15, 1996, by and between the Registrant and Automotive Diagnostics
                  canceling the Products Distribution Agreement dated November 16, 1995, along with the Product Labeling
                  Agreement.

10.36 (3)         Products Distribution Agreement dated September 15, 1996, by and between the Registrant and Cartek
                  International, Inc.

10.37 (1)         Letter Agreement dated as of December 31, 1995, between the Registrant and EMIIC amending certain
                  promissory notes and waiving certain defaults thereunder.

10.38 (5)         Settlement Agreement and Mutual Release dated March 27, 1997, by and between Lee W. Melody and the
                  Registrant on the one side, and Robert L. Fisher and ETCO on the other.

10.39 (6)         Employment Agreement dated as of November 13, 1997, by and between the Registrant and David P.
                  Nelson.

10.40 (6)         Termination Agreement dated as of September 26, 1997, by and between the Registrant and Allan T.
                  Maguire.

10.41 (7)+        First Amendment to 1996 Stock Incentive Award Plan of Registrant.

10.42 (7)+        First Amendment to Form of 1996 Director Non-Qualified Stock Option Agreement.

10.43 (7)+        First Amendment to Form of 1996 Employee Non-Qualified Stock Option Agreement.

10.44 (7)+        1998 Employee Stock Purchase Plan and related offering document.

10.45 (7)+        1998 Stock Compensation Plan.

11.1              Statement of Calculation of Net Loss Per Share and Supplementary Net Loss Per Share.

24.1              Power of Attorney.  Reference is made to page 25.

27.1              Financial Data Schedule in accordance with Article 5 of Regulation S-X.

27.2 (6)          Financial Data Schedule in accordance with Article 5 of Regulation S-X, restated for year-end 1996 and
                  quarters ended June 30, 1996 and September 30, 1996.

27.3 (6)          Financial Data Schedule in accordance with Article 5 of Regulation S-X, restated for quarters ended March
                  31, 1997, June 30, 1997 and September 30, 1997.
</TABLE>

------------

(1)         Previously filed as an exhibit to the Registration Statement on Form
            SB-2, as amended (No. 333-1866-LA), and incorporated herein by
            reference.

(2)         Previously filed as an exhibit to the Form 10-QSB for the period
            ended March 31, 1996, and incorporated herein by reference.

(3)         Previously filed as an exhibit to the Form 10-QSB for the period
            ended September 30, 1996, and incorporated herein by reference.


                                       24

<PAGE>   25

(4)         Previously filed as an exhibit to the Form 10-QSB for the period
            ended June 30, 1996, and incorporated herein by reference.

(5)         Previously filed as an exhibit to Form 10-KSB for the year ended
            December 31, 1996, and incorporated herein by reference.

(6)         Previously filed as an exhibit to Form 10-KSB for the year ended
            December 31, 1997, and incorporated herein by reference.

(7)         Previously filed as an exhibit to Form S-8 dated December 28, 1998,
            and incorporated herein by reference.

 +          Indicates a management contract or compensatory plan or arrangement.



                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                  MotorVac Technologies, Inc.


Date:   March 26, 1999            By: /s/ Lee W. Melody
        --------------                ------------------------------------------
                                      Lee W. Melody
                                      President and Chief Executive Officer
                                      (Principal Executive Officer)


Date:   March 26, 1999            By: /s/ David P. Nelson
        --------------                ------------------------------------------
                                      David P. Nelson
                                      Vice President of Finance, Chief Financial
                                      Officer, Treasurer and Secretary
                                      (Principal Accounting Officer)




                                POWER OF ATTORNEY

            KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Lee W. Melody his attorney-in-fact, with
the power of substitution, for him, in any and all capacities, to sign any
amendments to this report, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and conforming all that the attorney-in-fact, or his
substitute, may do or cause to be done by virtue hereof.


                                       25
<PAGE>   26

In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated:

<TABLE>
<CAPTION>
            Signature                        Title                            Date
            ---------                        -----                            ----
<S>                                        <C>                          <C>

/s/ Ronald J. Monark                       Chairman of the Board,       March 26, 1999
----------------------------------         Director
Ronald J. Monark                           


/s/ Lee W. Melody                          President and Chief          March 26, 1999
----------------------------------         Executive Officer,
Lee W. Melody                              Director


/s/ David P. Nelson                        Vice President of Finance,   March 26, 1999
----------------------------------         Chief Financial Officer,
David P. Nelson                            Treasurer and Secretary


/s/ Stephen L. Greaves                     Director                     March 26, 1999
----------------------------------
Stephen L. Greaves


/s/ Grant Ferrier                          Director                     March 26, 1999
----------------------------------
Grant Ferrier


/s/ Gerald C. Quinn                        Director                     March 26, 1999
----------------------------------
Gerald C. Quinn


/s/ Daniel P. Whelan                       Director                     March 26, 1999
----------------------------------
Daniel P. Whelan
</TABLE>


                                       26

<PAGE>   27


                          INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                                     PAGE
                                                                                     ----
<S>                                                                                  <C>
Independent Auditors' Report                                                         F-2

Financial Statements:

Balance sheets as of December 31, 1998 and 1997                                      F-3

Statements of operations for the years ended December 31, 1998 and 1997              F-4

Statements of stockholders' equity for the years ended December 31, 1998 and 1997    F-5

Statements of cash flows for the years ended December 31, 1998 and 1997              F-6

Notes to financial statements                                                        F-7
</TABLE>


                                      F-1
<PAGE>   28

                          INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders of
   MotorVac Technologies, Inc.:


We have audited the accompanying balance sheets of MotorVac Technologies, Inc.
(the "Company") as of December 31, 1998 and 1997, and the related statements of
operations, stockholders' equity and cash flows for the years then ended. 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 generally accepted auditing
standards. 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, such financial statements present fairly, in all material
respects, the financial position of MotorVac Technologies, Inc. as of December
31, 1998 and 1997, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.




DELOITTE & TOUCHE LLP

Costa Mesa, California
March 2, 1999


                                       F-2
<PAGE>   29

                           MOTORVAC TECHNOLOGIES, INC.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                               DECEMBER 31,        DECEMBER 31,
                                                                                   1998                1997
                                                                               ------------        ------------
<S>                                                                            <C>                 <C>         
                                                  ASSETS
CURRENT ASSETS:
      Cash and cash equivalents (Note 6)                                       $  1,632,605        $  1,665,120
      Accounts Receivable, net of allowance for doubtful accounts
        of $84,662 (1998) and  $43,542 (1997)                                       866,357           1,763,212
      Inventories, net of reserve of $63,099 (1998)
         and $69,610 (1997) (Note 3)                                              1,667,333           1,197,544
      Other Current Assets - including deposits with vendors of $196,030
        (1998), and $133,565 (1997)                                                 275,245             394,100
                                                                               ------------        ------------
      Total Current Assets                                                        4,441,540           5,019,976

PROPERTY AND EQUIPMENT, net (Note 4)                                                242,666             231,928

INTANGIBLE ASSETS, net of accumulated amortization of $1,185,155
       (1998) and $867,064 (1997) (Note 2)                                          639,288             957,379

OTHER ASSETS                                                                         17,227              17,227
                                                                               ------------        ------------
                                                                               $  5,340,721        $  6,226,510
                                                                               ============        ============

                                  LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
      Accounts Payable and Other Current Liabilities (Note 5)                  $    954,567        $  1,105,243
      Short-term note payable to bank (Note 6)                                                          250,000
                                                                               ------------        ------------
           Total Current Liabilities                                                954,567           1,355,243

COMMITMENTS AND CONTINGENCIES (Note 7)

STOCKHOLDERS' EQUITY (Notes 1, 10 and 11):
      Common Stock, $.01 par value; 10,000,000 shares authorized;
        4,453,918 issued and outstanding                                             44,539              45,149
      Additional paid-in capital                                                 16,467,788          16,523,553
      Employee Stock Loans                                                          (78,432)            (35,161)
      Accumulated Deficit                                                       (12,047,741)        (11,662,274)
                                                                               ------------        ------------
      Total Stockholders' Equity                                                  4,386,154           4,871,267
                                                                               ------------        ------------
                                                                               $  5,340,721        $  6,226,510
                                                                               ============        ============
</TABLE>


(See Accompanying Notes to Financial Statements)


                                       F-3
<PAGE>   30

                           MOTORVAC TECHNOLOGIES, INC.

                            Statements of Operations

<TABLE>
<CAPTION>
                                                         YEAR ENDED          YEAR ENDED
                                                        DECEMBER 31,        DECEMBER 31,
                                                            1998                1997
                                                        ------------        ------------
<S>                                                     <C>                 <C>         
NET SALES (Note 12)                                     $ 10,017,020        $  9,875,739
COST OF SALES                                              5,548,288           5,618,286
                                                        ------------        ------------
GROSS PROFIT                                               4,468,732           4,257,453
OPERATING EXPENSES (Note 7)                                4,905,145           3,983,205
                                                        ------------        ------------
(LOSS) INCOME FROM OPERATIONS                               (436,413)            274,248
INTEREST INCOME, NET                                         (56,504)            (41,696)
                                                        ------------        ------------
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES             (379,909)            315,944
PROVISION FOR INCOME TAXES (Note 8)                            5,558               4,136
                                                        ============        ============
NET (LOSS) INCOME                                       $   (385,467)       $    311,808
                                                        ============        ============
BASIC (LOSS) EARNINGS  PER SHARE                        $      (0.09)       $       0.07
                                                        ============        ============
WEIGHTED AVERAGE SHARES USED TO CALCULATE BASIC
 (LOSS) EARNINGS  PER SHARE                                4,503,285           4,514,918
                                                        ============        ============
DILUTED (LOSS) EARNINGS  PER SHARE                      $      (0.09)       $       0.07
                                                        ============        ============
WEIGHTED AVERAGE SHARES USED TO CALCULATE DILUTED
   (LOSS) EARNINGS PER SHARE                               4,503,285           4,514,918
                                                        ============        ============
</TABLE>


(See Accompanying Notes to Financial Statements)


                                       F-4
<PAGE>   31

                           MOTORVAC TECHNOLOGIES, INC.

                       Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                           COMMON STOCK          ADDITIONAL     EMPLOYEE
                                       ---------------------      PAID-IN         STOCK        ACCUMULATED
                                         SHARES      AMOUNT       CAPITAL         LOANS           DEFICIT          TOTAL
                                       ---------     -------    -----------     ---------      ------------      ----------
<S>                                    <C>           <C>        <C>             <C>            <C>               <C>       
BALANCE, January 1, 1997               4,514,918     $45,149    $16,523,553     $              $(11,974,082)     $4,594,620
Net Income                                                                                          311,808         311,808
Employee Stock Loans                                                              (35,161)                          (35,161)
                                       ---------     -------    -----------     ---------      ------------      ----------
BALANCE, December 31, 1997             4,514,918      45,149     16,523,553       (35,161)      (11,662,274)      4,871,267
Net Loss                                                                                           (385,467)       (385,467)
Employee Stock Loans                                                              (43,271)                          (43,271)
Shares Repurchased under Plan            (61,000)       (610)       (55,765)                                        (56,375)
                                       ---------     -------    -----------     ---------      ------------      ----------
BALANCE, December 31, 1998             4,453,918     $44,539    $16,467,788     $ (78,432)     $(12,047,741)     $4,386,154
                                       =========     =======    ===========     =========      ============      ==========
</TABLE>

(See Accompanying Notes to Financial Statements)


                                       F-5

<PAGE>   32

                          MOTORVAC TECHNOLOGIES, INC.

                           Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                          YEAR ENDED         YEAR ENDED
                                                                         DECEMBER 31,       DECEMBER 31,
                                                                             1998               1997
                                                                         -----------        -----------
<S>                                                                      <C>                <C>        
CASH FLOWS  FROM OPERATING ACTIVITIES:
Net (Loss)Income                                                         $  (385,467)       $   311,808
Adjustments to reconcile net (loss) income to net cash 
  provided by operating activities:
    Depreciation and amortization                                            411,506            463,776
    Net change in operating assets and liabilities:
        Accounts receivable                                                  896,855           (543,183)
        Inventories                                                         (469,789)           (32,133)
        Other Current Assets                                                 118,855             65,365
        Accounts payable and other current liabilities                      (150,676)           210,631
                                                                         -----------        -----------

          Net cash provided by operating activities                          421,284            476,264

CASH FLOWS FROM INVESTING ACTIVITY -
    Purchase of property and equipment                                      (104,153)           (85,972)

CASH FLOWS FROM FINANCING ACTIVITIES:
    Repurchase of Common Stock                                               (56,375)
    Advances to key employees for stock purchases                            (43,271)           (35,161)
    Repayment of notes payable to bank                                      (250,000)        (1,250,000)
                                                                         -----------        -----------
        Net cash used in financing activities                               (349,646)        (1,285,161)
                                                                         -----------        -----------

NET DECREASE IN CASH                                                         (32,515)          (894,869)

CASH AND CASH EQUIVALENTS, beginning of year                               1,665,120          2,559,989
                                                                         -----------        -----------
CASH AND CASH EQUIVALENTS, end of year                                   $ 1,632,605        $ 1,665,120
                                                                         ===========        ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:

        Interest paid                                                    $    20,897        $    62,338
                                                                         ===========        ===========

        Income taxes paid                                                $     5,132        $     1,309
                                                                         ===========        ===========
</TABLE>

(See Accompanying Notes to Financial Statements)


                                       F-6
<PAGE>   33

                           MOTORVAC TECHNOLOGIES, INC.

                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
                                   (Continued)


1.          GENERAL

            Incorporation - MotorVac Technologies, Inc. (the "Company") was
            incorporated under the general corporation law of the State of
            Delaware on June 19, 1992 as CarbonClean Corporation ("CCC"). On
            March 12, 1993, CCC changed the name of the corporation to MotorVac
            Technologies, Inc.

            Line of Business - The Company designs, develops, assembles, markets
            and sells the MotorVac CarbonClean System, the TransTech System and
            proprietary detergent primarily to the automotive after-market
            industry through various distribution channels both in the U.S. and
            Canada under the trade name MotorVac, and outside the U.S. and
            Canada under the trade name CarbonClean.

            Fiscal Year - The Company's year-end for financial reporting and
            income tax purposes is December 31.


2.          SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

            Revenue Recognition - The Company recognizes revenue when products
            are shipped.

            Concentration of Credit Risk - The Company's revenues are generated
            primarily from credit sales. The Company performs ongoing credit
            evaluations of its customers and maintains reserves for potential
            credit losses. The Company does not require collateral for its
            receivables.

            Significant Supplier - The Company currently relies on a supplier as
            a sole source of the Company's gasoline and diesel engine detergents
            under the terms of an exclusive supply contract. The Company
            considers its detergents to be a critical proprietary asset. The
            loss of the supplier of the proprietary product or an inability to
            obtain detergent from the supplier for any significant period of
            time could have a material adverse effect on results of operations.

            Use of Estimates - The preparation of financial statements in
            conformity with generally accepted accounting principles requires
            management to make estimates and assumptions that affect the
            reported amounts of assets and liabilities and disclosure of
            contingent assets and liabilities at the date of the financial
            statements and the reported amounts of revenues and expenses during
            the reporting periods. Actual results could differ from those
            estimates.

            Inventories - Inventories are stated at the lower of cost,
            determined by the first-in, first-out (FIFO) method, or market.

            Basic and Diluted (Loss) Earnings Per Common Share - The Company
            adopted Statement of Financial Accounting Standard (SFAS) No. 128,
            "Earnings per Share," for the year ended 1997. Basic (loss) earnings
            per common share is computed as net (loss) income divided by the
            weighted average number of common shares outstanding during the
            period. Diluted net (loss) earnings per common share is computed as
            net income divided by the weighted average number of common shares
            and potential common shares, using the treasury stock method,
            outstanding during the period. Common stock equivalents are excluded
            from the (loss) earnings per share calculation when the effect would
            be anti-dilutive.

            Depreciation and Amortization - Depreciation and amortization are
            provided using the straight-line method over the following estimated
            useful lives:

<TABLE>
<CAPTION>
<S>                                           <C>    
            Computer equipment and software               5 years
            Machinery and equipment                       5 years
            Furniture and fixtures                        5 years
            Leasehold improvements            Lesser of life of lease or 5 years
</TABLE>


                                       F-7
<PAGE>   34

                           MOTORVAC TECHNOLOGIES, INC.

                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
                                   (Continued)


            Intangible Assets - Intangible assets, consisting of organization
            costs and a covenant not-to-compete, are stated at cost and
            amortized using the straight-line method over the lesser of five
            years or the useful life of the asset. The Company has certain
            patents, trademarks and other rights that are amortized using the
            straight-line method over five years or 3% of net sales, if greater
            in any year. The recoverability of intangibles is measured based on
            gross profit margin on the sale of related products and is evaluated
            annually.

            Income Taxes - The Company provides for income taxes in accordance
            with SFAS No. 109, "Accounting for Income Taxes." SFAS No. 109 is an
            asset and liability approach that requires the recognition of
            deferred tax assets (if realizable) and liabilities for the expected
            future tax consequences of events that have been recognized in the
            Company's financial statements or tax returns. In estimating future
            tax consequences, the Company generally considers all expected
            future events other than enactments of changes in the tax law or
            rates. In the event the future consequences of differences between
            financial reporting bases and the tax bases of the Company's assets
            and liabilities result in a deferred tax asset, SFAS No. 109
            requires an evaluation of the probability of being able to realize
            the future benefits indicated by such asset. A valuation allowance
            related to a deferred tax asset is recorded when it is more likely
            than not that some portion or all of the deferred tax asset will not
            be realized.


3.          INVENTORIES

            Inventories, which include materials, supplies, labor and
            manufacturing overhead, are summarized as follows:

<TABLE>
<CAPTION>
                                             1998               1997
                                         -----------        -----------
<S>                                      <C>                <C>        
            Materials and supplies       $   878,548        $   755,079
            Work in process                   45,731             17,069
            Finished product                 806,153            495,006
            Reserve                          (63,099)           (69,610)
                                         -----------        -----------
                                         $ 1,667,333        $ 1,197,544
                                         ===========        ===========
</TABLE>


4.          PROPERTY AND EQUIPMENT

            Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                      1998              1997
                                                      ----              ----
<S>                                                 <C>              <C>      
            Computer equipment and software         $ 260,171        $ 241,232
            Machinery and equipment                   304,042          226,826
            Furniture and fixtures                    172,879          164,881
            Leasehold improvements                      2,434            2,434
                                                    ---------        ---------
                                                      739,526          635,373
            Less accumulated depreciation and
             amortization                            (496,860)        (403,445)
                                                    ---------        ---------
                                                    $ 242,666        $ 231,928
                                                    =========        =========
</TABLE>


                                       F-8
<PAGE>   35

                           MOTORVAC TECHNOLOGIES, INC.

                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
                                   (Continued)



5.          ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES

            Accounts payable and other current liabilities consist of the
            following:

<TABLE>
<CAPTION>
                                               1998             1997
                                            ----------       ----------
<S>                                         <C>              <C>       
            Accounts payable                $  643,365       $  818,955
            Other current liabilities          311,202          286,288
                                            ----------       ----------
                                            $  954,567       $1,105,243
                                            ==========       ==========
</TABLE>


6.          SHORT-TERM NOTE PAYABLE TO BANK

            Short-term note payable consists of a note payable to Imperial Bank.
            The note is collateralized by a $1,500,000 certificate of deposit on
            deposit with the bank. Interest is payable monthly at prime (7.75%
            at December 31, 1998). Principal is due March 31, 1999. No
            borrowings were outstanding as of December 31, 1998.


 7.         COMMITMENTS AND CONTINGENCIES

            Leases - The Company leases an office and manufacturing facility
            under an operating lease.

            Future minimum annual payments on the noncancelable facility lease
            are as follows:

<TABLE>
<S>                                                    <C>      
                    Year ending December 31:
                              1999                     $ 175,131
                              2000                       187,986
                              2001                       195,277
                              2002                       199,932
                              2003                        16,690
                                                       ---------
                                                       $ 775,016
                                                       =========
</TABLE>

            Under the lease agreement, the Company is required to pay various
            expenses including maintenance, insurance, utility costs and
            property taxes. Rental expense amounted to $177,686 and $136,326 for
            the years ended December 31, 1998 and 1997, respectively.

            Employment Contracts - The Company has entered into employment
            contracts with four officers of the Company. Such contracts provide
            for minimum annual salaries aggregating $495,000 at December 31,
            1998. The contracts have one-year or multiple-year automatic
            renewals based on the Company's failing to give "Notice of
            Non-Renewal" sixty (60) days before the expiration of such
            contracts. In the event of termination of a contract by the Company
            without cause, the Company would be required to pay continuing
            salary payments for specified periods in accordance with the
            contracts.

            Litigation Recovery - During the year ended December 31, 1997, the
            Company received a litigation settlement and insurance
            reimbursements totaling $344,000 relating to a lawsuit between
            itself and DeCarbon Australia Pty. Ltd., et al., that was settled in
            the Company's favor. These amounts are recorded as an offset to
            operating expenses in the accompanying financial statements.


                                       F-9
<PAGE>   36

                           MOTORVAC TECHNOLOGIES, INC.

                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
                                   (Continued)


8.          INCOME TAXES

            The components of the provision for income tax expense are as
            follows:

<TABLE>
<CAPTION>
                                            1998         1997
                                           ------       ------
<S>                                        <C>          <C>
            Current:
               Federal                     $   --       $2,571
               State                        5,558        1,565
                                           ------       ------
                                            5,558        4,136
            Deferred:
               Federal                         --           --
               State                           --           --
                                           ------       ------
            Total                          $5,558       $4,136
                                           ======       ======
</TABLE>

            Taxes on income vary from the statutory Federal income rate applied
to earnings before taxes on income taxes as follows:

<TABLE>
<CAPTION>
                                                                1998             1997
                                                              ---------        ---------
<S>                                                           <C>              <C>      
            Statutory federal income tax rate (35%)
              applied to earnings before income taxes         $(132,968)       $ 110,581
            State income taxes, net of federal benefits           1,079           16,682
            Change in valuation allowances                      119,970         (124,614)
            Effects of lower federal income tax rate              3,799           (3,159)
            Miscellaneous permanent items                         9,758           21,413
            Other                                                 3,920          (16,767)
                                                              ---------        ---------
                                                              $   5,558        $   4,136
                                                              =========        =========
</TABLE>

            Deferred income tax assets and liabilities arising from differences
            between accounting for financial statement purposes and tax
            purposes, less valuation reserves are as follows:

<TABLE>
<CAPTION>
                                                                       1998               1997
                                                                    -----------        -----------
<S>                                                                 <C>                <C>        
            Deferred tax assets:
               Net operating loss carryforwards                     $ 3,251,709        $ 3,214,019
               Capitalized costs                                        421,600            419,122
               Accruals and reserves                                    162,267            103,747
               Property and equipment                                    39,365             42,399
               Other                                                        556              4,613
                                                                    -----------        -----------
                                    Total deferred tax assets         3,875,497          3,783,900
            Less valuation allowance                                 (3,870,125)        (3,750,155)
                                                                    -----------        -----------
            Deferred tax assets, net                                      5,372             33,745
            Deferred tax liabilities                                     (5,372)           (33,745)
                                                                    -----------        -----------
            Net deferred tax asset (liability)                      $        --        $        --
                                                                    ===========        ===========
</TABLE>


                                      F-10
<PAGE>   37

                           MOTORVAC TECHNOLOGIES, INC.

                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
                                   (Continued)



            The Company has fully reserved for net deferred tax assets whose
            realization depends on future taxable income. The valuation
            allowance increased by $119,970 during 1998 and decreased by
            $124,614 during 1997.

            As of December 31, 1998, the Company has tax net operating loss
            carryforwards available to offset taxable income of approximately
            $9,207,380 and $3,322,166 for federal and state purposes,
            respectively. The federal and state net operating loss carryforwards
            begin expiring in 2007 and 1999, respectively. The Company also has
            federal and California research and development credit carryovers of
            approximately $41,000 and $18,000, respectively, which begin
            expiring in 2007.

            Pursuant to Section 382 of the Internal Revenue Code, use of the
            Company's net operating loss and credit carryforwards may be limited
            if the Company experiences a cumulative change in ownership of
            greater than 50% in a moving three-year period. Ownership changes
            could impact the Company's ability to utilize net operating losses
            and credit carryforwards remaining at the ownership change date. The
            limitation will generally be determined by the fair market value of
            common stock outstanding prior to the ownership change, multiplied
            by the applicable federal rate.


9.          NOTES RECEIVABLE FROM COMPANY EXECUTIVES

            In 1997 and 1998, the Company executed notes receivable from five of
            its top executives in the principal amount of $78,432. The proceeds
            were used by the executives to purchase shares of Company common
            stock on the open market. The notes, which carry an interest rate of
            5.69%, are due the earlier of three years from date of advance or
            the date the executive terminates for any reason. The notes are
            collateralized by the shares purchased. The notes receivable are
            treated as a contra-equity account in the accompanying balance
            sheet.


10.         STOCK PURCHASE PLAN

            On September 24, 1998, the Board of Directors announced approval of
            the repurchase and cancellation of up to 451,492 shares of its
            Common Stock, which, at that time, constituted approximately 10% of
            the Company's outstanding shares. New shares of Common Stock will be
            reserved for issuance under a stock compensation plan pursuant to
            which participating directors may elect to receive shares of Common
            Stock of the Company in lieu of such directors' annual retainer and
            meeting attendance fees, and for an employee stock purchase plan for
            participating employees and officers of the Company. Stock purchases
            under the repurchase program commenced October 2, 1998, and through
            December 31, 1998, an aggregate of 61,000 shares of Common Stock
            have been repurchased for aggregate consideration of $56,375.


11.         STOCK INCENTIVE AWARD PLAN

            In 1994, the Company adopted the 1994 Stock Incentive Award Plan
            (the "1994 Plan"). The Company has reserved an aggregate of 126,400
            shares of common stock for issuance under the 1994 Plan. All options
            were granted at fair market value at the date of grant. On February
            9, 1996, the Company's Board of Directors approved the 1996 Stock
            Incentive Award Plan (the "Incentive Plan") and the 1996 Director
            Stock Plan (the "Director Plan"). These plans provide for the
            Company to issue options to purchase up to 325,000 and 50,000
            shares, respectively, of the Company's Common Stock at fair market
            value on the date of grant. All options granted have been granted in
            accordance with the provisions of the 1994 Plan and the Incentive
            Plan. Provisions of the plans call for options to be granted at the
            estimated fair market value which is generally the average of the
            bid and ask price on the date of the grant. As of December 31, 1998,
            options representing 203,498 shares were exercisable.


                                      F-11
<PAGE>   38

                           MOTORVAC TECHNOLOGIES, INC.

                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
                                   (Continued)


            Stock option activity for the years ended December 31, 1998 and 1997
is as follows:

<TABLE>
<CAPTION>
                                                 NUMBER OF         PRICE PER
                                                  SHARES             SHARE
                                                 ---------       --------------
<S>                                              <C>             <C> 
            BALANCE, January 1, 1997              396,440        $5.10 to $6.13
            Granted                                28,176        $2.81 to $4.69
            Options lapsed                        (67,046)       $5.10 to $5.38
                                                  -------
            BALANCE, December 31, 1997            357,570        $2.81 to $6.13
            Granted                                66,500        $0.75 to $1.88
            Options lapsed                        (11,061)       $5.10 to $5.38
                                                  -------
            BALANCE, December 31, 1998            413,009        $0.75 to $6.13
                                                  =======
</TABLE>


            The Company continues to account for its stock-based awards using
            the intrinsic value method in accordance with Accounting Principles
            Board Opinion No. 25, Accounting for Stock Issued to Employees, and
            its related interpretations. No compensation expense has been
            recognized in the financial statements for employee stock
            arrangements.

            SFAS No. 123, Accounting for Stock-Based Compensation, requires the
            disclosure of pro forma net income and earnings per share had the
            Company adopted the fair value method as of the beginning of fiscal
            1995. Under SFAS No. 123, the fair value of stock-based awards to
            employees is calculated through the use of option-pricing models,
            even though such models were developed to estimate the fair value of
            freely tradable, fully transferable options without vesting
            restrictions, which significantly differ from the Company's stock
            option awards. These models also require subjective assumptions,
            including future stock price volatility and expected time to
            exercise, which greatly affect the calculated values. The Company's
            calculations were made using the Black-Scholes option-pricing model
            with the following weighted average assumptions: expected life, 120
            months following grant (except for approximately 44 months on 13,930
            shares); stock volatility, 77% in 1998, 47% to 69% in 1997;
            risk-free interest rate 5.5% to 5.6% in 1998, 6.2% to 6.7% in 1997;
            and no dividends during the expected term. Forfeitures are
            recognized as they occur. If the computed fair values of the 1998,
            1997 and 1996 awards had been amortized to expense over the vesting
            period of the awards, pro forma net loss would have been $512,316
            ($.11 per share) in 1998, and net income would have been $208,516
            ($0.05 net income per share) in 1997. However, the impact of
            outstanding stock options granted prior to 1995 has been excluded
            from the pro forma calculation; accordingly, the 1997 and 1998 pro
            forma adjustments are not indicative of future period pro forma
            adjustments, when the calculation will apply to all applicable stock
            options.

            The weighted average remaining contractual life and weighted average
            exercise price are 6.7 years and $4.71, respectively. The weighted
            average fair value of options granted during the years ended
            December 31, 1998 and December 31, 1997 was $1.63 and $2.76,
            respectively.


                                      F-12
<PAGE>   39

                           MOTORVAC TECHNOLOGIES, INC.

                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
                                   (Continued)


12.         CONCENTRATION OF NET SALES

            Approximately 73% and 72% of the Company's net sales were made to
            one customer during the years ended December 31, 1998 and 1997,
            respectively. A decision by this customer to decrease the amount
            purchased from the Company or to cease distributing the Company's
            products could have a material adverse effect on the Company's
            financial conditions and results of operations.

            The Company sells its products through distributors in the domestic
            (defined as U.S. and Canada) and the international marketplace. The
            Company sells three types of products (% of sales for 1998 and 1997
            indicated): vehicle engine decarbonizing machines (44% and 72%),
            detergent for use in the decarbonizing machines (21% and 17%), and
            vehicle transmission flush machines (29% and 3%); an additional 6%
            and 8% of sales is for machine parts. The sales process is
            structured geographically between domestic and international. All
            machine products are produced at, or distributed from, the same
            plant. The Company's major customers typically purchase all three
            product types. The Company uses information based on products and
            geographic location; however, the business activities are managed as
            a single segment. For the years ended December 31, 1998 and 1997,
            net sales by region were as follows:

<TABLE>
<CAPTION>
                                             YEAR ENDED        YEAR ENDED
                                            DECEMBER 31,      DECEMBER 31,
                                               1998              1997
                                            -----------       -----------
<S>                                         <C>               <C>        
            North America                   $ 8,210,703       $ 7,293,614
            South and Central America           132,850           505,193
            Europe                              338,170           272,796
            Middle East and Africa              348,273            24,008
            Asia                                987,024         1,780,128
                                            -----------       -----------
                                            $10,017,020       $ 9,875,739
                                            ===========       ===========
</TABLE>


                                      F-13

<PAGE>   40

                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                                      DESCRIPTION
------                                                      -----------
<C>               <S>
 3.1 (1)          Amended and Restated Certificate of Incorporation.

 3.2 (1)          Third Amended and Restated Bylaws, as amended.

 4.1              Reference is made to Exhibits 3.1 and 3.2.

 4.2 (1)          Specimen Stock Certificate.

10.1 (1)          Letter Agreement dated February 12, 1996, by and among the Registrant, Enviromotive, Inc. and
                  International Turbo Center, Inc.

10.2 (1)+         1996 Stock Incentive Award Plan of Registrant.

10.3 (1)+         Form of 1996 Director Nonqualified Stock Option Agreement.

10.4 (1)+         Form of 1996 Employee Nonqualified Stock Option Agreement.

10.5 (1)+         1996 Director Stock Plan of Registrant.

10.6 (1)+         Amended and Restated Employment Agreement dated March 21, 1996, between the Registrant and Allan
                  T. Maguire.

10.7 (1)          Form of Consent to Amendment of Registration Rights Agreement and Stock Purchase Warrant and
                  Waiver of Notice entered into between the Registrant and each of the holders of Stock Purchase Warrants
                  to purchase Series B Preferred Stock.

10.8 (2)          Products Distribution Agreement dated May 1, 1996, by and between the Registrant and Sun Electric De
                  Mexico, S.A. De C.V.

10.9 (1)          Transfer Agreement dated October 23, 1995, by and between CarbonClean International Ltd. and the
                  Registrant.

10.10 (1)         Transfer Agreement dated October 23, 1995, by and between MIML and the Registrant.

10.11             (1) Amended and Restated Secured Subordinated Promissory Note dated December 31, 1995 in the original
                  principal amount of $1,040,000 payable by the Registrant in favor of The WH & NC Eighteen Corporation.

10.12 (1)         Security Agreement dated August 3, 1995, by and between the Registrant and The WH & NC Eighteen
                  Corporation.

10.13 (3)         First Amendment to Purchase Agreement dated September 30, 1996, by and among the Registrant,
                  International Turbo Center, Inc., and Enviromotive, Inc.

10.14 (5)         Products Distribution Agreement dated December 1, 1996, by and between the Registrant and Snap-on
                  Tools Japan K.K.
</TABLE>
<PAGE>   41

                         EXHIBIT INDEX  -- (Continued)

<TABLE>
<C>               <S>
10.15 (5)         Products Distribution Agreement dated January 6, 1997, by and between the Registrant and China Motor-
                  Vehicle Safety Appraisal and Inspection Center.

10.16 (1)         Products Distribution Agreement dated January 27, 1995, by and between the Registrant and DeCarbon
                  Pty. Ltd.

10.17 (1)         Supplier Purchase Agreement dated April 10, 1995, by and between the Registrant and Snap-on
                  Incorporated.

10.18 (1)         Exclusive Distribution Agreement dated April 10, 1995, by and between the Registrant and Snap-on
                  Incorporated.

10.19 (1)         Products Distribution Agreement dated November 16, 1995, by and between the Registrant and
                  Automotive Diagnostics.

10.20 (1)         Letter Agreement dated February 12, 1996, by and among the Registrant, Enviromotive, Inc., and
                  International Turbo Center, Inc.

10.21 (1)         Standard Industrial Lease--Multi-Tenant dated November 29, 1995, by and between Northern 
                  McFadden Limited Partnership, an Illinois limited partnership, and the Registrant.

10.22 (4)         Products Distribution Agreement dated March 28, 1996, by and between the Registrant and Cameo (QLD)
                  Pty. Ltd.

10.23 (1)+        Employment Agreement dated October 24, 1994, by and between the Registrant and Lee William Melody,
                  as amended as of November 3, 1995.

10.24 (1)         Employment Agreement dated as of November 20, 1995 by and between the Registrant and Michael G.
                  Arkell.

10.25 (1)         Offer Letter to Michael G. Hosch dated December 16, 1992, from the Registrant, as amended by
                  Memorandum dated March 21, 1995.

10.26 (1)         Form of Indemnity Agreement entered into with each of the Registrant's officers and directors.

10.27 (1)         Amendment to Stockholders Voting Agreement dated March 8, 1996, by and among the Registrant, Erin
                  Mills International Investment Corporation, George H. David and Robert G. Reese.

10.28 (1)         Purchase Agreement dated February 22, 1996, but made effective as of December 31, 1995, by and among
                  the Registrant, International Turbo Center, Inc. and Enviromotive, Inc.

10.29 (1)         MotorVac Technologies, Inc. Cash Bonus Plan.

10.30 (1)         Letter Agreement dated April 5, 1996, between the Registrant and Shrader Packaging Co., Inc. 
                  amending the Exclusive Supply Agreement and granting a right of first refusal to the Registrant.

10.31 (5)         Settlement Agreement and Mutual Release dated January 6, 1997, by and between the Registrant,
                  DeCarbon Australia Pty. Ltd., Carbon Clean Corporation Pty. Ltd., Carbon Tune Pty. Ltd., Chris Somas,
                  Roydn Sweet and Jim Litis (collectively "DeCarbon").

10.32 (5)         First Amendment and Modification to Settlement Agreement and Mutual Release, by and between the
                  Registrant and DeCarbon, dated January 4, 1997.

10.33 (5)         Second Amendment and Modification to Settlement Agreement and Mutual Release, by and between the
                  Registrant and DeCarbon, dated January 7, 1997.
</TABLE>
<PAGE>   42
                          EXHIBIT INDEX -- (Continued)

<TABLE>
<C>               <S>
10.34 (5)         Letter Agreement confirming settlement between the Registrant and Lee W. Melody on the one hand, and
                  Robert L. Fisher and ETCO on the other hand, dated March 14, 1997.

10.35 (3)         Letter Agreement dated September 15, 1996, by and between the Registrant and Automotive Diagnostics
                  canceling the Products Distribution Agreement dated November 16, 1995, along with the Product Labeling
                  Agreement.

10.36 (3)         Products Distribution Agreement dated September 15, 1996, by and between the Registrant and Cartek
                  International, Inc.

10.37 (1)         Letter Agreement dated as of December 31, 1995, between the Registrant and EMIIC amending certain
                  promissory notes and waiving certain defaults thereunder.

10.38 (5)         Settlement Agreement and Mutual Release dated March 27, 1997, by and between Lee W. Melody and the
                  Registrant on the one side, and Robert L. Fisher and ETCO on the other.

10.39 (6)         Employment Agreement dated as of November 13, 1997, by and between the Registrant and David P.
                  Nelson.

10.40 (6)         Termination Agreement dated as of September 26, 1997, by and between the Registrant and Allan T.
                  Maguire.

10.41 (7)+        First Amendment to 1996 Stock Incentive Award Plan of Registrant.

10.42 (7)+        First Amendment to Form of 1996 Director Non-Qualified Stock Option Agreement.

10.43 (7)+        First Amendment to Form of 1996 Employee Non-Qualified Stock Option Agreement.

10.44 (7)+        1998 Employee Stock Purchase Plan and related offering document.

10.45 (7)+        1998 Stock Compensation Plan.

11.1              Statement of Calculation of Net Loss Per Share and Supplementary Net Loss Per Share.

24.1              Power of Attorney.  Reference is made to page 25.

27.1              Financial Data Schedule in accordance with Article 5 of Regulation S-X.

27.2 (6)          Financial Data Schedule in accordance with Article 5 of Regulation S-X, restated for year-end 1996 and
                  quarters ended June 30, 1996 and September 30, 1996.

27.3 (6)          Financial Data Schedule in accordance with Article 5 of Regulation S-X, restated for quarters ended March
                  31, 1997, June 30, 1997 and September 30, 1997.
</TABLE>

--------------------------
(1)         Previously filed as an exhibit to the Registration Statement on Form
            SB-2, as amended (No. 333-1866-LA), and incorporated herein by
            reference.

(2)         Previously filed as an exhibit to the Form 10-QSB for the period
            ended March 31, 1996, and incorporated herein by reference.

(3)         Previously filed as an exhibit to the Form 10-QSB for the period
            ended September 30, 1996, and incorporated herein by reference.

(4)         Previously filed as an exhibit to the Form 10-QSB for the period
            ended June 30, 1996, and incorporated herein by reference.

(5)         Previously filed as an exhibit to Form 10-KSB for the year ended
            December 31, 1996, and incorporated herein by reference.

(6)         Previously filed as an exhibit to Form 10-KSB for the year ended
            December 31, 1997, and incorporated herein by reference.

(7)         Previously filed as an exhibit to Form S-8 dated December 28, 1998,
            and incorporated herein by reference.

 +          Indicates a management contract or compensatory plan or arrangement.