<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, 1997                                            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, 1997 were
$9,875,739.

The aggregate market value of the voting stock held by non-affiliates of the
issuer as of March 18, 1998, was $3,478,922. Shares of common stock held by each
officer and director and by each person who owns 5% of 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
4,514,918 as of March 20, 1998.
--------------------------------------------------------------------------------
                       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 1998 Annual Meeting of
Stockholders is incorporated herein by reference into Part III of this report.

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                           MOTORVAC TECHNOLOGIES, INC.
                                   FORM 10-KSB
                          YEAR ENDED DECEMBER 31, 1997
                                TABLE OF CONTENTS



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

<S>       <C>                                                                   <C>
    1.    Description of Business............................................... 3
    2.    Description of Property...............................................16
    3.    Legal Proceedings.....................................................16
    4.    Submission of Matters to a Vote of Security Holders...................16

                                     PART II

    5.    Market for Common Equity and Related Stockholders Matters.............17
    6.    Management's Discussion and Analysis of Financial
          Condition and Results of Operations...................................19
    7.    Financial Statements..................................................22
    8.    Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosures..................................22

                                    PART III

    9.    Directors, Executive Officers, Promoters and Control Persons;
          Compliance with Section 16(a) of the Exchange Act.....................22
    10.   Executive Compensation................................................22
    11.   Security Ownership of Certain Beneficial Owners and Management........22
    12.   Certain Relationships and Related Transactions........................23
    13.   Exhibits, Lists and Reports on Form 8-K...............................23
          Signatures............................................................27
          Power of Attorney.....................................................27
</TABLE>



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<PAGE>   3

                                     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, 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 SEC.
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 insure 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
tradename 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 Transmission Service System. This new product 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 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 the repair
shop the ability to upsell the service and provide an OEM recommended service.

            In early 1998, the Company expects to launch a new division called
Automotive Solutions. It is anticipated that this division will market products
specifically to the quick-service market, including approximately 20,000 lube
centers and 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.


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<PAGE>   4



            The first product to be introduced by Automotive Solutions is Carbon
Tune, a three-part kit that will clean the air intake system, fuel system,
combustion chambers and exhaust system of the vehicle, but not to the extent the
MotorVac CarbonClean System will. The kit includes an air intake aerosol, an
engine decarbonizer and a patented fuel additive that will help keep the engine
clean. This additive will be included as part of the service and also will be
sold in concentrated form to the consumer after the service to maintain the peak
performance of the engine.

            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 tradename MotorVac is used by the
Company throughout North America. The Company also uses the tradename
CarbonClean in North America, but the Company uses the CarbonClean name outside
of the United States and Canada because the Company believes the tradename
CarbonClean has stronger brand name recognition outside the United States and
Canada. Through a series of restructurings 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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<PAGE>   5



            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.

            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 "dead-head"
            test 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 survives combustion, thereby cleaning the
            entire fuel system from the air intake through the catalytic
            converter.

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
tradenames 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 12-volt powered 2-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
tradename Industrial Diesel Tune ("IDT"), which is comprised of a patented
diesel engine cleaning machine and a proprietary diesel detergent. The IDT
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, 1996, the
Company derived approximately 75% of its total sales from the sale of fuel
system cleaning machines, approximately 22% of total sales from the sales of
fuel system

                                        5

<PAGE>   6
cleaning detergent, and 3% of its total sales from adapters and parts. During
the twelve-month year ended December 31, 1997, the Company derived approximately
75% of its total sales from sales of fuel system and transmission cleaning
machines (including 3% from TRANSTECH), approximately 17% of its total sales
from fuel system cleaning detergents, and 8% of its total sales from sales of
adapters and parts.

            TRANSTECH Transmission Service System -- Product Overview.

            The TRANSTECH System is an automatic transmission fluid exchange
machine. Unlike a typical transmission service which only replaces approximately
25% of the used fluid, the TRANSTECH can replace virtually 100% of the old fluid
with new fluid in about twenty 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 will clean 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 will help 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 will be
included as part of the service. It will also be 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 will provide
the 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.

            Carbon Tune is expected to be marketed exclusively to quick-service
distributors and shop operators because it meets their criteria for low cost,
quick turnaround and profitable add-on services.


            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, 1996, the
Company's aggregate warranty expense was approximately $41,000. During the
Company's fiscal year ended December 31, 1997, the Company's aggregate warranty
expense was approximately $108,000; the increase reflects the higher number of
machines in the field. There 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 for both the United States and international
markets utilizing different tradenames 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).


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<PAGE>   7



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/Sun Electric Corporation Division. The Company
sells the MotorVac CarbonClean System, the IDT System, the TRANSTECH System 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. Sales
are to individual automotive technicians, shop owners and professional equipment
users for use in automotive service and repair shops, industrial and
governmental entities and original equipment manufacturers, throughout the
United States and Canada.

            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 expires on April 10,
1998 but is automatically renewable for additional one-year terms unless either
party gives written notice of cancellation within sixty (60) days prior to the
expiration of such term. Neither Snap-on nor the Company had delivered written
notice of cancellation as of February 10, 1998. Accordingly, the Company
anticipates automatic renewal as of April 10, 1998. In addition, the agreement
may be terminated prior to such dates in the event of certain defaults by the
Company or Snap-on.

            John Bean Company. The Company also sells machines and detergent
through John Bean Company's sales and distribution network in the United States,
Canada and in a number of international markets. John Bean Company ("John Bean")
is a division of Snap-on Incorporated and is a leading manufacturer of under-car
and under-hood maintenance and diagnostic equipment with approximately sixty
distributors worldwide. John Bean markets the Company's products to automotive
service and repair shops throughout the United States and Canada and certain
other international markets.

            Other Independent Distributors. The Company also markets the
MotorVac CarbonClean System, the TRANSTECH 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 System and
IDT System in over 55 countries worldwide through local and, in some cases,
multinational independent distributors. The Company sells its products to a
number of distributors covering the United States, Canada and many other
international markets, including, but not limited to, Australia, New Zealand,
China, Taiwan, Korea, Japan, India, Indonesia, the Philippines, Poland, Greece,
Turkey, Italy, France, Great Britain, Germany, a number of Middle Eastern and
African countries, South America, Mexico and others.

            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, 1996 and December 31,
1997, respectively, sales of the Company's products to divisions of Snap-on
Incorporated accounted for approximately 59% 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 1996 and 1997.



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SALES

            The Company's customer service department is divided into two
sections, technical service and order entry. The Company maintains toll-free
(800) hot lines for the Company's distributors, customers and service
technicians.

            The Company's sales department is divided into two divisions, one
for the United States and Canada and one for all other international markets.
The Company employs several Regional Managers in the United States and Canada,
and two Industrial Diesel Tune Specialists. Regional Managers are responsible
for training and sales support for the Sun/Snap-on and John Bean Company sales
group.

For the fiscal year ended December 31, 1997 and the fiscal year ended December
31, 1996, international sales accounted for approximately 26% and 29%,
respectively, of the Company's net sales.


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. Other market segments which the Company may pursue include fleet
operators, government agencies, marine, stationary engines and quick-service
outlets.

            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.

            The Company has initiated, and Snap-on is now participating in, what
the Company believes is the first automotive after-market repair guarantee,
which the Company calls "MotorVac or Your Money Back." This guarantee is
extended by the Company through the service technician to the vehicle owner, who
purchases a MotorVac CarbonClean service in the United States or Canada. Simply
stated, if the customer cannot feel the difference in his vehicle within one
week after the service is performed, his money will be refunded. To date, tens
of thousands of cleanings have been performed since 1995 and, to the Company's
knowledge, only five people have requested their money back.

            Impact of Clean Air Regulations. The Company believes that the
continued worldwide concern with reducing air pollution and other harmful
emissions from diesel and gasoline internal combustion engines represents a
positive market opportunity for the Company's products.

            United States Federal Laws. The vehicle emissions testing industry
developed guidelines in response to the Clean Air Act of 1970 (the "Clean Air
Act") and subsequent amendments thereto. The Clean Air Act Amendments of 1977
required, for the first time, the implementation of rudimentary inspection and
maintenance ("I/M") programs in certain metropolitan areas. The 1990 Amendments
classified U.S. metropolitan areas by the degree of air pollution and required
the U.S. Environmental Protection Agency ("EPA") to review and revise its
regulations on I/M programs. On November 5, 1992, the EPA adopted regulations
(the "Regulations") that require approximately 181 metropolitan areas in 38
states and the District of Columbia, with a total of approximately 87 million
vehicles, to have either a basic or enhanced I/M program in place by specified
dates. The number of areas requiring basic and enhanced I/M is continuously
updated by the EPA, and in February 1995, the EPA published a report indicating
that a total of 179 metropolitan areas required I/M, 84 of which (with
approximately 57 million vehicles) required enhanced I/M programs and 95 of
which (with approximately 30 million vehicles) required basic I/M programs.

            The Company believes that many vehicles that fail emissions
inspections are suffering from engine contamination due to driving habits or
poor quality gas or suffering from inadequate or infrequent engine maintenance.
Consequently, the Company believes servicing a vehicle with the MotorVac
CarbonClean System provides motorists with a quick and economical way to bring
their vehicles into compliance.


                                        8

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            California Smog Check Program. California, which has one of the
nation's most severe air quality problems, has approximately 25% of the vehicles
nationwide that are, or will be, subject to the new federal testing
requirements. California has licensed approximately 35,000 mechanics and 8,400
repair shops, dealers and fleets to perform emissions inspections and repairs.
The State of California mandates bi-annual emissions certification under its
emission control program. Under recently passed legislation, California has
upgraded both the licensing requirements for mechanics and developed new
mandatory equipment requirements for inspection and repair facilities. As part
of the new legislation, vehicle emissions inspections will be required to test
for oxides or nitrogen in enhanced program areas in addition to hydrocarbons,
carbon monoxide and carbon dioxide. In addition to these new inspection
equipment requirements, the California Bureau of Automotive Repair ("BAR") will
be authorized to list vehicle maintenance practices that reduce vehicle
emissions.

            International Clean Air Programs. The Company believes that the
proliferation of clean air programs internationally represents a significant
opportunity for the sale of the Company's machines and detergent.


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.





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<PAGE>   10



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 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 small 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., who 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 Burman Products (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.

                                       10

<PAGE>   11


            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.


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 tradenames 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.

            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 its 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, which has been exceeded by actual
purchases, 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, 1997 and December 31, 1996,
the Company spent $21,220 and $68,697, respectively, on research, development
and testing.


EMPLOYEES

            As of December 31, 1997, the Company had 44 employees, all of which
were full-time employees, including 14 employed in sales and marketing, 15
employed in research and development, technical support and production, and

                                       11

<PAGE>   12



15 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.


RISK FACTORS

Historical Operating Losses; Accumulated Deficit; Profitability Uncertain

            From August 28, 1992 (inception) through December 31, 1996, the
Company incurred net losses. For the year ended December 31, 1997, the Company
reported its first net profit of $311,808. In addition, as of that date, the
Company had an accumulated deficit of $11,662,274. There can be no assurance
that the Company will be able to maintain profitable operations. 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 the
sole 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, 1997 and December 31,
1996, the Company derived approximately 72% and 59%, respectively, of its total
sales from sales to Sun Electric Corporation, a division of Snap-on,
Incorporated ("Sun/Snap-on"), 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 Sun/Snap-on, which are not offset by

                                       12

<PAGE>   13



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.


Future Capital Requirements

            The Company believes that available working capital at December 31,
1997 of $3,665,000 will be sufficient to allow the Company to meet its
obligations as they become due through January 1, 1999. 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).

            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 the market awareness of the fuel system contamination
problem increases, and if and when government-mandated emissions testing
programs expand. Increased competition from manufacturers or distributors of
systems offering similar fuel system cleaning services or detergents could
result in price reductions, reduced margins and loss of market share or could
render the Company's technology obsolete, all of which could have a material
adverse effect on the Company's results of operations and financial condition.
Although the Company is aware of a number of competitors that have attempted to
duplicate the Company's detergent formulations, to date the Company is not aware
of any competitor that has been successful in duplicating the formulations.
There can be no assurance that the Company will be able to successfully compete
in this marketplace or develop sufficient new products or chemical formulations
to maintain its position in the

                                       13

<PAGE>   14



market, and any failure to do so could have a material adverse effect on its
results of operations and financial condition. See "Business--Competition."


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 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; Seasonality

            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. Further, the
Company's business is seasonal. Historically, the Company's net sales have been
lowest in the first quarter of each calendar year, and the Company anticipates
that this trend will continue in the future. The primary reason for the decrease
in net sales in the first quarter is the impact of buying patterns in both the
domestic and international markets following the holiday period in November and
December, and traditionally slower sales in the automotive equipment
after-market following these holiday 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, 1997 and December 31, 1996, respectively, the Company
derived approximately 26% and 29%, 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

                                       14

<PAGE>   15



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."


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 18, 1998, EMIIC, the principal stockholder of the Company,
and the Company's directors and officers collectively beneficially owned
approximately 64.6% of the Company's Common Stock (EMIIC, 61.4%; the Company's
directors and officers, 3.2%). 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.



                                       15

<PAGE>   16



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.


ITEM 2.     DESCRIPTION OF PROPERTY

            The Company's executive offices, research and product development,
assembly, warehousing and distribution facilities are currently housed in a
single leased industrial building comprised of approximately 24,360 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 $10,300
per month plus the Company's pro rata share of common area maintenance and
operating expenses. The lease expires in January of 2003. If the Company's
current growth rate continues, it may, within the next year, need additional
storage and shipping plant space. The Company believes that such space is
available within close proximity and at reasonable rental rates.


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.



                                       16

<PAGE>   17
                                     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, 1996

               Second Quarter (from April 26, 1996)             7     3 3/8
               Third Quarter.............................   6 1/8     4 1/2
               Fourth Quarter............................   6 3/4     4 11/32
</TABLE>

<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
</TABLE>


            There were approximately 103 holders of record of the Company's
Common Stock as of March 12, 1998.

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

            For the year ended December 31, 1997, the Company issued incentive
and nonstatutory stock options to purchase an aggregate of 28,176 shares of
Common Stock to directors, officers, employees and consultants. The exercise
price for such options ranged between $2.81 and $4.69 per share. The Company
issued such options in reliance upon the exemption provided by Section 4(2)
of the Securities Act of 1933, as amended (the "Act").

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

(1)  File Number and Effective date of Registration Statement:
     [ ]           April 25, 1996
     Commission File Number:
     [ ]           333-1866-LA
(2)  Date offering commenced:
     [ ]            April 25, 1996
(3)  If offering terminated before any securities were sold, an
     explanation for such termination:
     [ ]            N/A
(4)  If offering did not terminate before any securities were sold, discuss:
    (i)     Whether the offering has terminated and, if so, whether
            it terminated before the sale of all securities
            registered:
            [ ] The offering terminated after the sale of
                all securities registered.

    (ii)    The name(s) of the managing underwriter(s), if any:
            [ ]         Meridian Capital Group, Inc.
    (iii)   The title of each class of securities registered:
            [ ]         Common Stock, $.01 par value
    (iv)    On account of the issuer:
               Amount registered:
               [ ]         1,210,000 shares
               Aggregate price of offering amount registered:
               [ ]         $6,503,750
               Amount sold:
               [ ]         1,210,000
               Aggregate offering price of amount sold to date:
               [ ]         $6,503,750
            On account of any Selling Security Holder(s):
               Amount registered:
                   [ ]         32,850
                   Aggregate offering price of amount registered:
                   [ ]         $176,569
                   Amount sold:
                   [ ]         32,850
                   Aggregate offering price of amount sold:
                   [ ]         $176,569
    (v)     Direct or indirect payments to directors,        Direct or indirect
            officers, general partners of the issuer         payments to others
            or their associates; to persons owning           (X if estimate)
            10% or more of any class of equity
            securities of the issuer and to
            affiliates of the issuer.  (X if estimate)

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

    (vi)    Net offering proceeds to issuer after deducting the
            total expenses described in Subsection (v) above:
            [ ] $5,153,474
    (vii)   Use of Proceeds:
               Direct or indirect payments to directors,     Direct or indirect
               officers, general partners of the issuer      payments to others
               or their associates; to persons owning 10%     (X if estimate)
               or more of any class of equity securities
               of the issuer and to affiliates of the
               issuer. (X if estimate)

Repayment of
  Indebtedness                 123,572                          1,250,000
Working Capital                                                 1,278,354
Repayment of Interest
   on Indebtedness             836,428
Investments:
[ ]     Short Term CD's                                         1,500,000
[ ]     Other Cash and
        Cash Equivalents                                          165,120


                                       18
<PAGE>   18



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

            MotorVac Technologies, Inc. (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, 1997, as compared to the
Company's results of operations for the twelve months ended December 31, 1996,
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 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 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 Form 10-KSB and
the Company's other periodic filings with the SEC. 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.



                                       19

<PAGE>   19
RESULTS OF OPERATIONS

The results of operations for the years ended December 31, 1997 and 1996 were as
follows:

<TABLE>
<CAPTION>
                                            Year Ended     Year Ended
                                             12/31/97       12/31/96
                                           -----------    -----------
<S>                                        <C>            <C>
NET SALES                                  $ 9,875,739    $ 8,242,735
COST OF SALES                                5,618,286      5,026,486
                                           -----------    -----------
GROSS PROFIT                                 4,257,453      3,216,249
OPERATING EXPENSES                           3,983,205      4,338,332
                                           -----------    -----------

INCOME (LOSS) FROM OPERATIONS                 274,248     (1,122,083)
INTEREST (INCOME) EXPENSE- INCL
     FROM RELATED PARTIES                     (41,696)       157,751
                                          -----------    -----------
INCOME (LOSS) BEFORE PROVISION
     FOR INCOME TAX                           315,944     (1,279,834)
PROVISION FOR INCOME TAX                        4,136          1,256
                                          -----------    -----------
NET INCOME (LOSS)                         $   311,808    ($1,281,090)
                                          ===========    ===========
</TABLE>


COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 1997 TO THE TWELVE MONTHS ENDED
DECEMBER 31, 1996

            Net Sales. Net sales for the year ended December 31, 1997 of
$9,875,739 increased $1,663,004 (approximately 20%) from $8,242,735 for the year
ended December 31, 1996. The primary reason for the sales increases was an
approximate 25% increase in domestic and international fuel cleaning machine
shipments, primarily from higher sales to Snap-on.

            Cost of Sales. Cost of sales for the year ended December 31, 1997
increased by $591,800 (approximately 12%) to $5,618,286 from $5,026,486 for the
year ended December 31, 1996. Cost of sales as a percent of sales, for the year
ended December 31, 1997, was 57% versus 61% of sales for the year ended December
31, 1996. The primary reasons for the cost of sales decrease as a percent of
sales were larger quantity discounts from higher purchase levels and engineering
changes that reduced material costs.

            Operating Expenses. Operating expenses for the year ended December
31, 1997 of $3,983,205 decreased $355,127 (approximately 8%) from $4,338,332 for
the year ended December 31, 1996. The major reason for the decline was a
decrease in legal expenses of approximately $292,000 reflecting reduced
litigation activity in 1997; also, insurance recoveries and legal settlements
provided other income of approximately $344,000 in 1997 compared to about $7,500
in 1996. Offsetting the above were increases in operating expenses of
approximately $273,000 in 1997, primarily to support increased revenues.

            Income (Loss) from Operations. As a result of the above, the income
from operations for the year ended December 31, 1997 of $274,248 improved by
$1,396,331 from a loss of $1,122,083 for the year ended December 31, 1996.

            Interest (Income) Expense. Interest income for the year ended
December 31, 1997 of $41,696 (net) improved by $199,447 from a net expense of
$157,751 for the year ended December 31, 1996. The improvement was a result of
proceeds from the initial public offering providing interest income only part of
the year in 1996.


LIQUIDITY AND CAPITAL RESOURCES


For the Twelve Months Ended December 31, 1997

            Cash at December 31, 1997 was $1,665,120. Cash of $476,264 was
generated by operating activities for the year ended December 31, 1997. Cash
flow used in financing activities for the year was $1,285,161, reflecting the
paydown of the note payable to the bank. The net result was a decrease in cash
of $894,869 from the year earlier period.

                                       20

<PAGE>   20



Working capital, at $3,664,733, improved by $654,451 from 1996, and the current
ratio increased to 3.7:1 from 2.3:1 in 1996.

            The Company maintains a $1,500,000 revolving line of credit expiring
March 31, 1998 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, 1997, $250,000 was
outstanding under the line. There are no financial covenants in the line of
credit.

            The Company presently expects that current cash resources and the
available capacity under the line of credit, together with cash generated from
operations, will be sufficient to meet its operating and capital requirements
for the next twelve months. There can be no assurances that additional capital
will be available to the Company on favorable terms or at all.


For the Twelve Months Ended December 31, 1996

            Cash at January 1, 1996 was $5,008. Cash used in operating
activities, which includes changes in current assets and current liabilities,
except notes and amounts payable to related parties and ex-licensor, was
$2,801,557 for the twelve months ended December 31, 1996. Cash used in investing
activities was $73,316, which primarily represents purchase of computer
equipment and software, and manufacturing molds. Cash from financing activities
for the twelve months ended December 31, 1996 was $5,429,854. This amount
includes net proceeds from the issuance of 1,210,000 shares of common stock of
$5,151,978, proceeds from the issuance of notes payable to EMIIC and related
parties of $680,000, payments of notes payable to EMIIC and related parties of
$1,543,572, payments to ex-licensor of $358,552 and proceeds from the issuance
of notes payable to Imperial Bank of $1,500,000. The Company, during the twelve
months ended December 31, 1996, paid $930,127 for interest and $1,256 for taxes.
In addition, the Company (i) converted 95,295 shares of Preferred Stock, Series
A with a carrying value of $4,659,499, into 966,247 shares of common stock, (ii)
converted 54,300 shares of Preferred Stock, Series B, with a carrying value of
$2,170,425, into 570,150 shares of common stock, (iii) converted $4,410,300 of
notes payable to EMIIC into 820,521 shares of common stock, and (iv) reduced the
payable to ex-licensor by $79,993 (non-cash) by receiving a discount for paying
other amounts due early, which totaled approximately $280,052 at that time. Cash
at December 31, 1996 was $2,559,989, of which $1,500,000 is pledged as
collateral for a bank loan of an equal amount.


INFORMATION SYSTEMS AND THE YEAR 2000

            The Year 2000 issue is a problem created by the fact that most
computer software programs have been written using two digits rather than four
to represent a specific year. Any of MotorVac's computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculation
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.

            The Company's initial evaluation of its present software and
computer systems indicates they are able to properly utilize dates beyond year
1999. Notwithstanding this, the Company desires to upgrade its current computer
capabilities and is currently engaged in a comprehensive project to replace its
information and manufacturing computer software with programs that will provide
better data more efficiently and properly recognize the Year 2000. The new
system will include new hardware and packaged software purchased from large
vendors who will have represented that these systems are already Year 2000
compliant.

            The Company will utilize both internal and external resources to
test all of its software for Year 2000 compliance, and the Company expects to
complete the project in mid-1999. The estimated cost for this project could
range as high as $100,000, including the cost of new systems, which will be
capitalized. It is anticipated that this cost will be funded through operating
cash flows. There can be no assurance that these estimates will be achieved and
actual results could differ materially from those plans. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.


                                       21

<PAGE>   21



            MotorVac plans to maintain communications with all of its
significant vendors and large customers to determine the extent to which
MotorVac is vulnerable to those third parties' failure to remedy their own Year
2000 issues. There can be no assurance that the systems of other companies will
be timely converted, or that a failure to convert by another company, or a
conversion that is incompatible with MotorVac's systems, would not have a
material adverse effect on MotorVac. Failure by the Company and/or its vendors
and customers to complete Year 2000 compliance work in a timely manner could
have a material adverse effect on certain of the Company's operations.


ITEM 7.     FINANCIAL STATEMENTS.

            The information required by this item is included in Pages F-1
through F-16 attached hereto and incorporated herein by reference.


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

            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 1998
Annual Meeting of Stockholders (the "Proxy Statement") under the headings
"Proposal 1--Election of Directors," "Compliance with Section 16(a) of the
Securities Exchange Act of 1934" 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."


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 Relationships
and Related 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,
                  1997.

                                       22

<PAGE>   22



                           MOTORVAC TECHNOLOGIES, INC.
                          EXHIBIT INDEX TO FORM 10-KSB
                      FOR THE YEAR ENDED DECEMBER 31, 1997



<TABLE>
<CAPTION>

EXHIBIT
NUMBER                              DESCRIPTION
--------                            -----------

<S>               <C>
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>

                                       23

<PAGE>   23
<TABLE>
<S>               <C>
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>

                                       24

<PAGE>   24
<TABLE>
<S>          <C>

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

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

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 27.

27.1         Financial Data Schedule in accordance with Article 5 of
             Regulation SX.

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

27.3         Financial Data Schedule in accordance with Article 5 of
             Regulation SX, 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.

+     Indicates a management contract or compensatory plan or arrangement.



                                       25

<PAGE>   25



                                   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:                            By:  /s/ Lee W. Melody
     ----------------------         -------------------------------------------
                                    Lee W. Melody
                                    President and Chief Executive Officer
                                    (Principal Executive Officer)


Date:                            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.















                                       26

<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, 1998
--------------------------------            Director
Ronald J. Monark


/s/ Lee W. Melody                           President and Chief                   March 26, 1998
--------------------------------            Executive Officer,
Lee W. Melody                               Director



/s/ David P. Nelson                         Vice President of Finance,            March 26, 1998
--------------------------------            Chief Financial Officer,
David P. Nelson                             Treasurer and Secretary


/s/ Stephen L. Greaves                      Director                              March 26, 1998
--------------------------------
Stephen L. Greaves


/s/ Grant Ferrier                           Director                              March 26, 1998
--------------------------------
Grant Ferrier


/s/ Gerald C. Quinn                         Director                              March 26, 1998
--------------------------------
Gerald C. Quinn


/s/ George L. Schmutz                       Director                              March 26, 1998
--------------------------------
George L. Schmutz


/s/ William E. Maya                         Director                              March 26, 1998
--------------------------------
William E. Maya


/s/ Daniel P. Whelan                        Director                              March 26, 1998
--------------------------------
Daniel P. Whelan
</TABLE>


                                       27

<PAGE>   27



                                  EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                              DESCRIPTION
--------                            -----------

<S>               <C>
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>

                                       28

<PAGE>   28
<TABLE>
<S>               <C>
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>

                                       29

<PAGE>   29
<TABLE>
<S>          <C>

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

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

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 27.

27.1         Financial Data Schedule in accordance with Article 5 of
             Regulation SX.

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

27.3         Financial Data Schedule in accordance with Article 5 of
             Regulation SX, 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.

+     Indicates a management contract or compensatory plan or arrangement.

                                       30
<PAGE>   30
                           MOTORVAC TECHNOLOGIES, INC.



                       FINANCIAL STATEMENTS FOR THE YEARS
                      ENDED DECEMBER 31, 1997 AND 1996 AND
                          INDEPENDENT AUDITORS' REPORT


<PAGE>   31

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                   PAGE
<S>                                                                                <C>

INDEPENDENT AUDITORS' REPORT                                                       F-3

FINANCIAL STATEMENTS:

Balance sheets as of December 31, 1997 and 1996                                    F-4

Statements of operations for the years ended December 31, 1997 and 1996            F-5

Statements of stockholders' equity for the years ended December 31, 1997 and 1996  F-6

Statements of cash flows for the years ended December 31, 1997 and 1996            F-7

Notes to financial statements                                                      F-8

</TABLE>

                                       F-2

<PAGE>   32

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, 1997 and 1996, 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, 1997 and 1996, and the results of their operations and their cash flows for
the years then ended, in conformity with generally accepted accounting
principles.


DELOITTE & TOUCHE LLP

Costa Mesa, California
March 7, 1998


                                       F-3

<PAGE>   33

                            MOTORVAC TECHNOLOGIES, INC.
                                  BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                DECEMBER 31,        DECEMBER 31,
                                                                                    1997                1996
                                                                                ------------        ------------
<S>                                                                             <C>                 <C>
                            ASSETS

CURRENT ASSETS:
  Cash and cash equivalents (Note 6)                                            $  1,665,120        $  2,559,989
  Accounts Receivable, net of allowance for doubtful accounts
    of $43,542 (December 31, 1997) and  $14,952 (December 31, 1996)                1,763,212           1,220,029
  Inventories, net of reserve of $69,610 (December 31, 1997)
     and $40,000 (December 31, 1996) (Note 3)                                      1,197,544           1,165,411
  Other Current Assets - (including deposits with vendors of $133,565 at
    December 31, 1997, and $345,779 at December 31, 1996)                            394,100             459,465
                                                                                ------------        ------------
  Total Current Assets                                                             5,019,976           5,404,894

PROPERTY AND EQUIPMENT, net (Note 4)                                                 231,928             259,651

INTANGIBLE ASSETS, net of accumulated amortization of
  $867,064 (December 31, 1997) and $516,983 (December 31, 1996) (Note 2)             957,379           1,307,460


OTHER ASSETS                                                                          17,227              17,227
                                                                                ------------        ------------

                                                                                $  6,226,510        $  6,989,232
                                                                                ============        ============

             LIABILITIES & STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts Payable and Other Current Liabilities (Note 5)                       $  1,105,243        $    894,612
  Short-term note payable to bank (Note 6)                                           250,000           1,500,000
                                                                                ------------        ------------
       Total Current Liabilities                                                   1,355,243           2,394,612


COMMITMENTS AND CONTINGENCIES (Note 7)


STOCKHOLDERS' EQUITY (Notes 1, 11 and 12):
  Common stock, $.01 par value; 10,000,000 shares authorized;
    4,514,918 issued and outstanding                                                  45,149              45,149
  Additional paid-in capital                                                      16,523,553          16,523,553
  Employee Stock Loans                                                               (35,161)
  Accumulated Deficit                                                            (11,662,274)        (11,974,082)
                                                                                ------------        ------------

  Total Stockholders' Equity                                                       4,871,267           4,594,620
                                                                                ------------        ------------

                                                                                $  6,226,510        $  6,989,232
                                                                                ============        ============
</TABLE>

                 (See Accompanying Notes to Financial Statements)

                                       F-4

<PAGE>   34
                          MOTORVAC TECHNOLOGIES, INC.
                            Statements of Operations


<TABLE>
<CAPTION>

                                                        YEAR ENDED         YEAR ENDED
                                                        DECEMBER 31,       DECEMBER 31,
                                                            1997              1996
                                                        -----------        -----------
<S>                                                     <C>                <C>
NET SALES (Note 13)                                     $ 9,875,739        $ 8,242,735

COST OF SALES                                             5,618,286          5,026,486
                                                        -----------        -----------
GROSS PROFIT                                              4,257,453          3,216,249

OPERATING EXPENSES (Note 7)                               3,983,205          4,338,332
                                                        -----------        -----------
INCOME (LOSS) FROM OPERATIONS                               274,248         (1,122,083)

INTEREST (INCOME) EXPENSE NET (Note 9)                      (41,696)           157,751
                                                        -----------        -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES             315,944         (1,279,834)

PROVISION FOR INCOME TAXES (Note 8)                           4,136              1,256
                                                        -----------        -----------
NET INCOME (LOSS)                                       $   311,808        $(1,281,090)
                                                        ===========        ===========

BASIC EARNINGS (LOSS) PER SHARE                         $      0.07        $     (0.31)
                                                        ===========        ===========
WEIGHTED AVERAGE SHARES USED TO CALCULATE BASIC
  EARNINGS (LOSS) PER SHARE                               4,514,918          4,140,845
                                                        ===========        ===========
DILUTED EARNINGS (LOSS) PER SHARE                       $      0.07        $     (0.31)
                                                        ===========        ===========
WEIGHTED AVERAGE SHARES USED TO CALCULATE DILUTED
  EARNINGS (LOSS) PER SHARE                               4,514,918          4,140,845
                                                        ===========        ===========

SUPPLEMENTARY DATA (Note 1)
  Historical data                                                          $(1,281,090)
  Pro forma reduction in interest expense                                      132,416
                                                                           -----------
PRO FORMA NET LOSS                                                         $(1,148,674)
                                                                           ===========
PRO FORMA NET LOSS PER SHARE AND COMMON
  EQUIVALENT SHARES                                                        $     (0.28)
                                                                           ===========
PRO FORMA WEIGHTED AVERAGE OUTSTANDING COMMON AND
  COMMON EQUIVALENT SHARES                                                   4,165,481
                                                                           ===========
</TABLE>


                (See Accompanying Notes to Financial Statements)

                                      F-5
<PAGE>   35


                           MOTORVAC TECHNOLOGIES, INC.
                       Statements of Stockholders' Equity


<TABLE>
<CAPTION>
                                             SERIES A               SERIES B
                                          PREFERRED STOCK        PREFERRED STOCK        COMMON STOCK           ADDITIONAL
                                          ---------------        ---------------      -----------------         PAID-IN
                                         SHARES     AMOUNT      SHARES    AMOUNT      SHARES     AMOUNT         CAPITAL
                                         ------     ------      ------    ------      ------     ------         -------
<S>                                      <C>         <C>        <C>        <C>       <C>         <C>          <C>
BALANCE, January 1, 1996                 95,295      $953       54,300     $543      948,000    $ 9,480      $ 6,995,448


Issuance of Common Stock to                                                          820,521      8,205        4,402,095
  EMIIC in exchange for Debt

Exchange of Series A Preferred
  Stock for Common Stock (Note 11)      (95,295)      (953)                          966,247      9,662           (8,709)

Exchange of Series B Preferred
 Stock for Common Stock (Note 11)                              (54,300)    (543)     570,150      5,702           (5,159)

Issuance of Shares on Initial Public
  Offering                                                                         1,210,000     12,100        5,139,878

Net Loss

                                         ------      ----       ------     ----    ---------    -------      -----------
BALANCE, December 31, 1996                   --        --           --       --    4,514,918     45,149       16,523,553

Net Income

Employee Stock Loans

                                         ------      ----       ------     ----    ---------    -------      -----------
BALANCE, December 31, 1997                                                         4,514,918    $45,149      $16,523,553
                                         ======      ====       ======     ====    =========    =======      ===========

</TABLE>


<TABLE>
<CAPTION>
                                          EMPLOYEE
                                           STOCK        ACCUMULATED
                                           LOANS          DEFICIT           TOTAL
                                           -----          -------           -----
<S>                                        <C>         <C>               <C>
BALANCE, January 1, 1996                               $(10,692,992)     $(3,686,568)


Issuance of Common Stock to                                                4,410,300
  EMIIC in exchange for Debt

Exchange of Series A Preferred
  Stock for Common Stock (Note 11)                                                 0

Exchange of Series B Preferred
 Stock for common stock (note 11)                                                  0

Issuance of Shares on Initial Public
  Offering                                                                 5,151,978

Net Loss                                                 (1,281,090)      (1,281,090)

                                          ----------   -------------     ------------
BALANCE, December 31, 1996                              (11,974,082)       4,594,620

Net Income                                                  311,808          311,808

Employee Stock Loans                        (35,161)                         (35,161)

                                          ----------   -------------     ------------
BALANCE, December 31, 1997                 $(35,161)   $(11,662,274)      $4,871,267
                                          ==========   =============     ============

</TABLE>


                (See Accompanying Notes to Financial Statements)


                                      F-6
<PAGE>   36

                           MOTORVAC TECHNOLOGIES, INC
                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                         YEAR ENDED         YEAR ENDED
                                                                         DECEMBER 31,       DECEMBER 31,
                                                                             1997               1996
                                                                         -----------        -----------
<S>                                                                      <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss)                                                        $   311,808        $(1,281,090)
Adjustments to reconcile net income (loss) to net cash provided by
  (used in) operating activities:
  Depreciation and amortization                                              463,776            467,080
  Discounts earned for early payment to ex-licensor                                             (79,993)
  Net change in operating assets and liabilities:
    Accounts receivable                                                     (543,183)          (446,700)
    Inventories                                                              (32,133)           (56,161)
    Other                                                                     65,365           (284,914)
    Interest payable to related parties                                                        (649,901)
    Accounts payable and other current liabilities                           210,631           (469,878)
                                                                         -----------        -----------
      Net cash provided by (used in) operating activities                    476,264         (2,801,557)

CASH FLOWS FROM INVESTING ACTIVITY -
  Purchase of property and equipment                                         (85,972)           (73,316)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Net proceeds from issuance of 1,210,000 common shares                                       5,151,978
  Proceeds from issuance of notes payable to related parties                                    680,000
  Payments of notes payable to related parties                                               (1,543,572)
  Payments to ex-licensor                                                                      (358,552)
  Advances to employees for stock purchases                                  (35,161)
  Proceeds from (repayment) issuance of notes payable to bank             (1,250,000)         1,500,000
                                                                         -----------        -----------
    Net cash (used in) provided by financing activities                   (1,285,161)         5,429,854
                                                                         -----------        -----------
NET (DECREASE) INCREASE IN CASH                                             (894,869)         2,554,981

CASH AND CASH EQUIVALENTS, beginning of year                               2,559,989              5,008
                                                                         -----------        -----------
CASH AND CASH EQUIVALENTS, end of year                                   $ 1,665,120        $ 2,559,989
                                                                         ===========        ===========


SUPPLEMENTAL DISCLOSURES OF CASH FLOW
  INFORMATION:
    Interest paid                                                        $    62,338        $   930,127
                                                                         ===========        ===========
    Income taxes paid                                                    $     1,309        $     1,256
                                                                         ===========        ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH
  FINANCING ACTIVITIES:

    Conversion of Series A preferred stock to common stock, net                            $ 4,659,499
                                                                                            ===========
    Conversion of Series B preferred stock to common stock, net                            $ 2,170,425
                                                                                            ===========
    Conversion of notes payable to related parties to common stock                          $ 4,410,300
                                                                                            ===========
</TABLE>

                (See Accompanying Notes to Financial Statements)

                                      F-7

<PAGE>   37

                           MOTORVAC TECHNOLOGIES, INC.

                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996

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 - In January 1996, the Company's Board of Directors elected
        to change the Company's year-end for financial reporting purposes to
        December 31, effective December 31, 1995. The Company continues to
        report on a March 31 year-end for income tax purposes.

        Stock Split - The Company's Board of Directors and stockholders approved
        a 1-for-.316 reverse stock split of its common stock on February 29,
        1996. All share and per share amounts for 1996 included in the
        accompanying financial statements have been restated to reflect the
        reverse stock split.

        Initial Public Offering - The Company closed an initial public offering
        on May 1, 1996, and the overallotment on June 13, 1996, in which the
        Company sold 1,100,000 and 110,000 shares of common stock, respectively.
        Immediately prior to the closing of the initial public offering, the
        holders of the Series A preferred stock and Series B preferred stock
        converted that stock into 966,247 and 570,150 shares of common stock,
        respectively. At the same time, the Erin Mills International Investment
        Corporation ("EMIIC"), a related party, converted $4,410,300 of debt
        payable by the Company into 820,521 shares of common stock.

        Supplementary Net Loss - Supplementary net loss for the year ended
        December 31, 1996 represents the results of operations adjusted to
        reflect the impact of the elimination of interest expense related to the
        $4,410,300 in debt due EMIIC, and The WH & NC Eighteen Corporation ("WH
        & NC"), an affiliate of EMIIC, which was exchanged for common stock
        immediately prior to the consummation of the initial public offering.

        Supplementary Net Loss Per Common and Common Equivalent Share -
        Supplementary net loss per common and common equivalent share for 1996
        is computed by dividing supplementary net loss by the weighted average
        number of shares of common stock outstanding during the period. Weighted
        average common shares include common stock, options for the purchase of
        stock issued during the respective period using the treasury stock
        method, and the conversion of all outstanding shares of Series A and B
        preferred stock into shares of common stock, the assumed issuance of
        820,521 shares of common stock by the Company to effect the exchange
        (using an initial offering price of $5.375 per share) of $4,410,300 in
        borrowings and the issuance of 83,034 shares of common stock which would
        be necessary to generate gross proceeds of $446,309 of pro forma
        interest expenses due EMIIC and WH & NC.

                                       F-8

<PAGE>   38

                           MOTORVAC TECHNOLOGIES, INC.

                        NOTES TO FINANCIAL STATEMENTS FOR
                   THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                                   (Continued)

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.

        Net Income Per Common Share - The Company adopted Statement of Financial
        Accounting Standard (SFAS) No. 128, "Earnings per Share," for the year
        ended 1997, and retroactively restated for the year ended 1996 to
        conform with SFAS No. 128 as required. Basic net earnings (loss) per
        common share is computed as net income divided by the weighted average
        number of common shares outstanding during the period. Diluted net
        earnings (loss) 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
        and assumes conversion into common stock at the beginning of each period
        of all outstanding shares of convertible preferred stock.

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


               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


        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.


                                       F-9

<PAGE>   39

                           MOTORVAC TECHNOLOGIES, INC.

                        NOTES TO FINANCIAL STATEMENTS FOR
                   THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                                   (Continued)


        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.

        Recent Accounting Pronouncements - For the years beginning January 1,
        1998, the Company will adopt SFAS No. 130, "Reporting Comprehensive
        Income," and SFAS No. 131, "Disclosures About Segments of an Enterprise
        and Related Information." The Company is reviewing the impact of such
        statements on its financial statements.

        Reclassification - Certain reclassifications have been made to the 1996
        financial statements to conform to the 1997 presentation.

3.      INVENTORIES

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

<TABLE>
<CAPTION>
                                                 1997           1996
                                            -----------     -----------
<S>                                         <C>             <C>
               Materials and supplies       $   755,079     $   710,174
               Work in process                   17,069          74,902
               Finished product                 495,006         420,335
               Reserve                          (69,610)        (40,000)
                                            -----------     -----------
                                            $ 1,197,544     $ 1,165,411
                                            ===========     ===========
</TABLE>


4.      PROPERTY AND EQUIPMENT

        Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                      1997                1996
                                                   ---------           ---------
<S>                                                <C>                 <C>
               Computer equipment and software     $ 241,232           $ 212,872
               Machinery and equipment               226,826             145,260
               Furniture and fixtures                164,881             188,835
               Leasehold improvements                  2,434               2,434
                                                   ---------           ---------
                                                     635,373             549,401
               Less accumulated depreciation and
                amortization                        (403,445)           (289,750)
                                                   ---------           ---------
                                                   $ 231,928           $ 259,651
                                                   =========           =========
</TABLE>

                                      F-10

<PAGE>   40

                           MOTORVAC TECHNOLOGIES, INC.

                        NOTES TO FINANCIAL STATEMENTS FOR
                   THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                                   (Continued)

5.      ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES


        Accounts payable and other current liabilities consist of the following:

<TABLE>
<CAPTION>
                                                1997            1996
                                            -----------        --------
<S>                                         <C>                <C>
               Accounts payable              $  818,955        $632,431
               Other current liabilities        286,288         262,181
                                             ----------        --------
                                             $1,105,243        $894,612
                                             ==========        ========
</TABLE>

6.      SHORT-TERM NOTE PAYABLE

        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 (8.5% at December
        31, 1997).
        Principal is due March 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>
<CAPTION>
               Year ending December 31:
<S>                                                 <C>
                      1998                          $ 128,221
                      1999                            133,980
                                                    ---------
                                                    $ 262,201
                                                    =========
</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 $136,326 and $109,403 for the years
        ended December 31, 1997 and 1996, respectively.

        Employment Contracts - The Company has entered into employment contracts
        with four officers of the Company. Such contracts provide for minimum
        annual salaries aggregating $475,000 at December 31, 1997. 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.


                                      F-11

<PAGE>   41

                           MOTORVAC TECHNOLOGIES, INC.

                        NOTES TO FINANCIAL STATEMENTS FOR
                   THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                                   (Continued)

        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 included in operating expenses in the accompanying
        financial statements.


8.      INCOME TAXES

        The components of the federal and state income tax expense are as
        follows:


<TABLE>
<CAPTION>
                                 1997         1996
                                ------       ------
<S>                             <C>          <C>
               Current:
                  Federal       $2,571       $    0
                  State          1,565        1,256
                                ------       ------

                                 4,136        1,256
                                ------       ------

               Deferred:
                  Federal            0            0
                  State              0            0
                                ------       ------


                                     0            0
                                ------       ------


               Total            $4,136       $1,256
                                ======       ======
</TABLE>

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


<TABLE>
<CAPTION>
                                                                           1997           1996
                                                                        ---------        ---------
<S>                                                                     <C>              <C>
               Statutory federal income tax rate (35%)
               applied to earnings and before income taxes              $ 110,581        $(447,942)
               State income taxes, net of federal benefits                 16,682          (78,556)
               Change in valuation allowance                             (124,614)         447,874
               Benefits of lower federal income tax rate                   (3,159)          12,798
               Reduction in state tax carryforwards                                         75,923
               Miscellaneous permanent items                               21,413            5,681
               Other                                                      (16,767)         (14,522)
                                                                        ---------        ---------


                                                                        $   4,136        $   1,256
                                                                        =========        =========
</TABLE>

                                      F-12

<PAGE>   42

                           MOTORVAC TECHNOLOGIES, INC.

                        NOTES TO FINANCIAL STATEMENTS FOR
                   THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                                   (Continued)

        Deferred income tax assets and liabilities arising from differences
        between accounting for financial statement purposes and tax purposes,
        less valuation reserves at December 31, 1997:


<TABLE>
<CAPTION>
                                                               1997              1996
                                                           -----------        -----------
<S>                                                        <C>                <C>
        Deferred tax assets:
           Net operating loss carryforwards                $ 3,214,019        $ 3,538,841
           Capitalized costs                                   419,122            359,595
           Accruals and reserves                               103,747             81,939
           Property and equipment                               42,399              6,947
           Other                                                 4,613              4,150
                                                           -----------        -----------

                      Total deferred tax assets              3,783,900          3,991,472
        Less valuation allowance                            (3,750,155)        (3,874,769)
                                                           -----------        -----------
        Deferred tax assets, net                                33,745            116,703

        Deferred tax liabilities:

           Capitalized costs                                                     (116,703)
           Prepaids                                            (33,745)
                                                           -----------        -----------

                      Total deferred tax liabilities           (33,745)          (116,703)
                                                           -----------        -----------

        Net deferred tax asset (liability)                 $         0        $         0
                                                           ===========        ===========
</TABLE>


        The Company has fully reserved for net deferred tax assets whose
        realization depends on future taxable income. The valuation allowance
        decreased by $124,614 during 1997 and increased by $404,264 during 1996.

        As of December 31, 1997, the Company has tax net operating loss
        carryforwards available to offset taxable income of approximately
        $8,899,000 and $3,227,000 for federal and state purposes, respectively.
        The federal and state net operating loss carryforwards begin expiring in
        2007 and 1998, respectively. The Company also has federal and California
        research and development credit carryovers of approximately $41,000 and
        $16,000, 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 be determined by the fair market value of common stock outstanding
        prior to the ownership change, multiplied by the applicable federal
        rate.


                                      F-13

<PAGE>   43

                           MOTORVAC TECHNOLOGIES, INC.

                        NOTES TO FINANCIAL STATEMENTS FOR
                   THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                                   (Continued)

9.      RELATED-PARTIES TRANSACTIONS

        For the years ended December 31, 1997 and 1996, the Company recorded
        interest expense due to related parties of $0 and $280,905,
        respectively, which is recorded in interest (income) expense in the
        accompanying financial statements. All accrued interest payable due
        related parties was paid during the year ended December 31, 1996.


10.     NOTES RECEIVABLE FROM COMPANY EXECUTIVES

        In December 1997, the Company executed notes payable from five of its
        top executives in the principal amount of $35,161. 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.


11.     PREFERRED STOCK

        Series A Preferred Stock - On June 9, 1994, the stockholders of the
        Company exchanged $4,764,750 of notes payable for 95,295 shares of
        Series A preferred stock. Under the original terms, the Series A
        preferred stock was nonvoting, not convertible into common stock,
        redeemable at the option of the Company upon certain events, and had a
        6% cumulative dividend payable quarterly, if declared.

        Series B Preferred Stock - Under the original terms, the Series B
        preferred stock had a 6% cumulative dividend, payable quarterly, if
        declared, and was convertible at any time at the option of the holder or
        automatically converted upon a public offering into shares of the
        Company's common stock at a conversion price of $5.10 per share.

        The Company revised the terms of the above preferred stock issues as
        follows:

        Series A Preferred Stock - The Company provided a conversion privilege
        to these stockholders to convert to common shares all Series A preferred
        stock (including all accrued dividends thereon) at the actual initial
        public offering price per share.

        In conjunction with the issuance of Series B preferred shares, the
        Company issued warrants to purchase 5,500 shares of Series B preferred
        stock at $50 per share at any time through October 1998. At December 31,
        1997, all the warrants were outstanding and exercisable. No value has
        been ascribed to such warrants.

        Initial Public Offering - The holders of Series A preferred stock and
        Series B preferred stock converted such stock into 966,247 and 570,150
        shares of common stock, respectively, immediately prior to the
        consummation of the initial public offering.



                                      F-14

<PAGE>   44

                           MOTORVAC TECHNOLOGIES, INC.

                        NOTES TO FINANCIAL STATEMENTS FOR
                   THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                                   (Continued)


12.     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 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 day of the grant.
        As of December 31, 1997, options representing 127,567 shares were
        exercisable. Subsequent to December 31, 1995 but prior to consummation
        of the initial public offering, all options were granted at $5.10, which
        reflected fair market value at that time.

        Stock option activity for the years ended December 31, 1997 and 1996 is
        as follows:


<TABLE>
<CAPTION>
                                                   NUMBER OF        PRICE PER
                                                   SHARES           SHARE
                                                   ---------        ----------
<S>                                                <C>              <C>
               BALANCE, January 1, 1996            116,506          $ 5.10

               Granted                             288,594          $ 5.10   to $6.125

               Options lapsed                       (8,660)         $ 5.10
                                                   -------

               BALANCE, December 31, 1996          396,440          $ 5.10   to $6.125


               Granted                              28,176          $ 2.81   to $4.69

               Options lapsed                      (67,046)         $ 5.10   to $5.38
                                                   -------

               BALANCE, December 31, 1997          357,570
                                                   =======

</TABLE>

        As discussed in Note 1, 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,

                                      F-15

<PAGE>   45

                           MOTORVAC TECHNOLOGIES, INC.

                        NOTES TO FINANCIAL STATEMENTS FOR
                   THE YEARS ENDED DECEMBER 31, 1997 AND 1996
                                   (Continued)


        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 44 months on 13,930 shares); stock volatility, 47% to 69% in
        1997, 32% in 1996; risk-free interest rates, 6.2% to 6.7% in 1997, 5.5%
        in 1996; and no dividends during the expected term. Forfeitures are
        recognized as they occur. If the computed fair values of the 1997 and
        1996 awards had been amortized to expense over the vesting period of the
        awards, pro forma net income would have been $208,516 ($0.05 per share)
        in 1997, and net loss would have been $1,386,513 ($0.33 loss per share)
        in 1996. However, the impact of outstanding stock options granted prior
        to 1995 has been excluded from the pro forma calculation; accordingly,
        the 1996 and 1997 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 7.6 years and $5.33, respectively. The weighted
        average fair value of options granted during the years ended December
        31, 1997 and December 31, 1996 was $2.76 and $2.83, respectively.


13.     CONCENTRATION OF NET SALES

        Approximately 72% and 59% of the Company's net sales were made to one
        customer during the years ended December 31, 1997 and 1996,
        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. For the
        years ended December 31, 1997 and 1996, net sales by region were as
        follows:


<TABLE>
<CAPTION>
                                                 YEAR             YEAR
                                                ENDED             ENDED
                                              DECEMBER 31,      DECEMBER 31,
                                                 1997              1996
                                              ----------        ----------
<S>                                           <C>               <C>
        North America                         $7,293,614        $5,870,757
        South and Central America                505,193           292,721
        Europe                                   272,796           286,260
        Middle East and Africa                    24,008           140,627
        Asia                                   1,780,128         1,652,370
                                              ----------        ----------
                                              $9,875,739        $8,242,735
                                              ==========        ==========
</TABLE>



                                            F-16