SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549



                                    FORM 10-K/A
                                (Amendment no. 2)



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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
                         Commission file number 0-12405




                                  IMATRON INC.





                            a New Jersey Corporation
                               I.D. No. 94-2880078
              389 Oyster Point Blvd, South San Francisco, CA 94080
                            Telephone (415) 583-9964





                         Common Stock, without Par Value


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such shorter  periods 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

<PAGE>


The aggregate market value of the voting stock (which is the outstanding  Common
Stock) of the Registrant held by non-affiliates  thereof, based upon the closing
sale price of the Common Stock on March 18, 1997 on the Nasdaq  National  Market
System ($2.28 per share) was approximately $173,982,000.  For the purpose of the
foregoing  computation,  only  the  directors  and  executive  officers  of  the
Registrant were deemed to be affilliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

As of March 18, 1997,  Registrant  had 78,176,769  outstanding  shares of Common
Stock, no par value, which is the only class of shares publicly traded.

                       DOCUMENTS INCORPORATED BY REFERENCE

Parts  of  the  Proxy  Statement  for   Registrant's   1997  Annual  Meeting  of
Shareholders,  to be filed with the  Commission  on or before 120 days after the
end of the 1996 fiscal year, are incorporated by reference into Part III hereof.

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not 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-K
or any amendment to this form 10-K. [ ]


THIS ANNUAL REPORT ON FORM 10-K 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.  ACTUAL  RESULTS MAY
DIFFER  MATERIALLY FROM THOSE DESCRIBED IN ANY SUCH FORWARD LOOKING  STATEMENTS.
RISKS INHERENT IN IMATRON'S  BUSINESS AND FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH  DIFFERENCES  INCLUDE WITHOUT  LIMITATION THE  CONSIDERATIONS  SET FORTH
UNDER  "MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF  OPERATIONS."  THE COMPANY  EXPRESSLY  DISCLAIMS ANY OBLIGATION TO UPDATE ANY
FORWARD LOOKING STATEMENTS.

<PAGE>
                                     PART I

ITEM 1 - BUSINESS

                                     GENERAL

Imatron Inc. ("Imatron" or the "Company"), a New Jersey corporation incorporated
in 1983, is a technology-based  company  principally  engaged in the business of
designing,  manufacturing and marketing a high performance  computed  tomography
("CT") scanner.  This scanner uses Electron Beam Tomography  ("EBT")  technology
based on a scanning  electron  beam.  The scanner is used in large and  midsized
hospitals and free-standing imaging clinics. The Company provides service, parts
and maintenance to hospitals and clinics that operate its scanners.

The Company is also engaged in performing research and development for others in
the field of CT devices and  licensing its patents and know-how in the fields of
imaging sciences.

HeartScan Imaging,  Inc.  ("HeartScan"),  incorporated in Delaware in 1993, is a
services diagnostic  subsidiary of the Company.  After  completion of a private
placement that raised  $14,798,000 in net proceeds in July 1996 and the exercise
of certain  incentive  stock  options by HeartScan and Imatron  management  team
members,  at December 1996,  Imatron has a 49.5%  interest in HeartScan  Imaging
which has been consolidated with Imatron for financial  reporting  purposes as a
result  of  certain  exchange  provisions  included  in  the  private  placement
agreement(see  Notes  1, 7 and 12 to the  Notes  to the  Consolidated  Financial
Statements).  HeartScan  offers coronary  artery  scanning  ("CAS") and coronary
artery disease risk assessment services through its five Coronary Artery Disease
Risk Assessment Centers in South San Francisco, California, Seattle, Washington,
Houston,  Texas,  Pittsburgh,  Pennsylvania  and  Washington  D.C.  HeartScan is
engaged in the business of  developing a nationwide  network of coronary  artery
disease risk assessment centers.


                              PRODUCT AND SERVICES

                                 ULTRAFAST CT(R)

PRODUCT DESCRIPTION

A  conventional   CT  scanner  is  a  diagnostic   imaging  device  in  which  a
cross-sectional  (tomographic)  image of a patient's  anatomy is  acquired  from
multiple intensity readings  (samplings) taken as an x-ray source rotates around
the patient  during a scanning  cycle.  The  acquired  x-ray data are  processed
through a complex mathematical algorithm relating variations in the intensity of
x-rays  passing  through a patient's  body to tissue  density  differences.  The
acquired data are subsequently  reconstructed and displayed as images on a video
monitor, typically with white corresponding to high density matter, such as bone
or calcium,  and with black corresponding to low density matter, such as air. In
this  manner,  the  patient's  anatomy  can  be  displayed  in a  succession  of
cross-sectional, anatomical gray-scale representations.

The Imatron Ultrafast CT scanner design differs from conventional CT scanners in
two important ways.  First, the  mechanically  rotating x-ray tube technology of
conventional  CT scanners is replaced by a high power electron beam  accelerator
that  generates a focused,  high-intensity  electron beam which is steered along
stationary  target  rings to  produce a rotating  fan-shaped  x-ray  beam.  This
patented electron beam technology permits significantly faster scan speeds to be
achieved.  The  Company's  scanner  can acquire CT images at a rate of 50 to 100
milliseconds  per slice in contrast to  conventional  CT scanners  that  require
between 1 and 10 seconds per slice.  Second,  the Imatron  Ultrafast  CT permits
rapid scanning of multiple  contiguous  images without moving the patient.  With

<PAGE>

these  features,  the  Ultrafast CT scanner can perform  stop-action  or dynamic
studies of the heart and various  other  organs,  contributing  to the scanner's
usefulness for both diagnostic imaging and functional evaluation.

The Ultrafast  CT(R)  Scanner can be operated in three  scanning  modes:  Single
Slice mode,  Multi-Slice  mode and Continuous  Volume  Scanning mode. The Single
Slice mode can acquire up to 140 images per  acquisition and can be timed to the
heart  cycle  with  ECG  triggering.  This  mode  employs  scan  times  from 100
milliseconds  to 2  seconds  as  compared  to 1 to 4  second  exposure  times of
conventional CT scanners.  The Multi-Slice  mode  incorporates  scan times of 50
milliseconds  and can acquire up to 180 images in 6 seconds.  This mode can also
be timed over the  cardiac  cycle with ECG  triggering.  The  Continuous  Volume
Scanning mode can acquire up to 140 images in 15 seconds.  This  continuous data
acquisition mode of the scanner  outperforms spiral or helical scanning modes on
conventional CT scanners. Advantages include excellent slice registration for 3D
reconstruction,  respiratory motion-free pulmonary imaging,  pediatric scanning,
trauma, IV contrast reduction and increased patient throughput.

PRODUCT DEVELOPMENT

In December  1996,  the Company  completed its version 12.3 software  which more
than  tripled the image  acquisition  capability  on the  Company's  C-150 model
Ultrafast   CT   scanner.   Furthermore,   improvements   were   made  in  image
reconstruction  algorithms,  ECG triggering  capabilities and continuous  volume
scanning  modes.  After  completion of Beta testing in early 1997,  version 12.3
software will be available for sale.

In  addition,  the  Company  began  marketing  its new  workstation,  which when
connected  to the  scanner,  increases  the  functionality  and  flexibility  of
cross-sectional  scanning. Images can now be viewed in 2D, 3D, Maximum Intensity
Projections and real-time Multi-planar  reformatting.  This workstation can also
perform  auto  filming,   auto   archiving  and  DICOM   (digital   imaging  and
communications in medicine)  transfer.  The Company believes this  multi-tasking
feature, along with superior image display and manipulation  capabilites creates
a workstation  which will provide the user with  increased  capacity to process,
view, manipulate and store the data produced by the Ultrafast CT scanner.

MARKETS

The Company sells its CT scanner to the diagnostic medical imaging market.  This
market  includes  several  different  medical  imaging  modalities  such  as CT,
ultrasound,  nuclear  medicine,  digital  subtraction  angiography  and magnetic
resonance  imaging.  These  imaging  modalities  are based  upon the  ability of
x-rays, sound waves, gamma rays or magnetic fields to penetrate human tissue and
be  detected  by  electronic  devices  for  presentation  of an image on a video
monitor.  In some cases,  these imaging  modalities compete with one another for
the same type of diagnostic procedure.

All of these systems have been  evaluated in the diagnosis of cardiac  diseases,
but the extent of application  of several is limited due to distortions  arising
from the heart's  motion as it beats at a frequency  greater  than the  scanning
speed of these systems.  This is not the case for Imatron's Ultrafast CT. One of
the  significant  benefits of the fast scanning speed is the ability to "freeze"
the motion of the beating heart  allowing it to image and quantify small calcium
deposits in the  coronary  arteries,  resulting in sharp,  motion  artifact-free
images. This procedure is known as the coronary artery scan ("CAS").

Cardiovascular  disease is the  number  one cause of death in the United  States
accounting  for more than 950,000  deaths  annually.  Of these deaths,  coronary
heart  disease  contributes  to  approximately   500,000  deaths  annually.   Of
particular  importance is the fact that in approximately 150,000 cases annually,

<PAGE>

the first,  last and only  symptom of  coronary  heart  disease is a fatal heart
attack.  The Company  believes that this widespread  incidence of coronary heart
disease  in the  United  States,  coupled  with the fact that a large  number of
asymptomatic  individuals  experience heart attacks each year, indicates a clear
need for a safe and effective screening test for the earliest stages of coronary
heart disease.

The correlation between calcium in the coronary arteries,  atherosclerosis,  and
myocardial  infarction  (heart  attack) has been known since the 1950's.  In the
mid-1960's,  selective  coronary  angiography  was  introduced  and soon  became
routine.  Since that time coronary angiography,  which demonstrated narrowing or
occlusion of the coronary arteries,  has become the "gold standard" for positive
identification  of coronary  artery  disease.  Abnormal  results from  screening
tests,  such as exercise  electrocardiography  (ECG) and thallium stress nuclear
medicine are commonly  used as an  indication  for coronary  angiography.  These
tests produce a significant  percentage of false  abnormal  results such that as
many as twenty-five to thirty-five percent of the coronary angiograms  conducted
are deemed to be normal.  The importance of this high level of so-called  normal
angiograms is that coronary angiography is both expensive and invasive, exposing
the patient to some risk of  morbidity or even death.  In  addition,  statistics
indicate that some patients die suddenly after  receiving a "normal"  stress ECG
study and are then found, upon autopsy, to have had significant  coronary artery
disease.  The  Company  believes  these  statistics  illustrate  the  inadequate
predictive value of the standard,  noninvasive  screening tests used to diagnose
coronary artery disease.

The Company further believes that research demonstrates CAS has the potential to
accurately  identify  those  people who are  developing  early  coronary  artery
disease.  CAS can then serve as a feedback mechanism to monitor the treatment of
those with early  coronary  artery  disease,  a disease  which  recent  research
indicates that treatment may slow, stop or even regress. Until now, the only way
to directly  determine the effect of life-style  modification and lipid-lowering
pharmacologic  treatment  on coronary  artery  disease  was to perform  repeated
invasive coronary angiography.

For  those  patients  in whom CAS  detects  advanced  coronary  artery  disease,
intervention  may help prevent a crippling heart attack or sudden death. The CAS
test  also has great  potential  for  reducing  the  costs  associated  with the
unnecessary  treatment of those who have coronary risk factors, but show no sign
of coronary artery  disease.  It is estimated  thirty to thirty-five  percent of
people with elevated  cholesterol levels do not develop coronary artery disease.
Since there has not been, until the advent of the Ultrafast CT scanner, a method
to find those who are  beginning to develop  coronary  disease,  everyone with a
high  cholesterol  reading is treated as if they will develop the  disease.  The
Company believes that CAS is a powerful and  cost-effective  method of detecting
or ruling out coronary artery disease and represents a unique market. Currently,
only the Ultrafast CT scanner can provide the necessary technological capability
to  address  these  clinical  application   requirements.   Notwithstanding  the
foregoing,  CAS to date has not been broadly accepted as a method of identifying
coronary artery disease and there is no assurance that a significant market will
develop for this procedure.

Imatron  believes  that  possible  factors  affecting the demand for CT products
include,  among others,  potential  customers' budgetary  constraints  including
those imposed by government regulation, changes in the reimbursement policies of
the  government  and  third  party  insurers,  replacement  of older  equipment,
advancements in technology, and the introduction of new medical procedures.


<PAGE>

SERVICE

The Company and its distributors  provide  installation,  customer service,  and
warranty service to their respective Ultrafast CT customers.  Imatron provides a
warranty to its  distributors on parts only during the 12 month period following
installation and warrants replacement parts for 90 days.

The Company  maintains a staff of technical  support engineers who are available
on a contract basis to assist its  distributors  during  installations or during
emergencies. The Company also sells spare parts to its distributors.

CORONARY ARTERY SCANNING - HEARTSCAN IMAGING, INC.

In 1993,  the  Company  organized  HeartScan  Imaging,  Inc.  as a  wholly-owned
subsidiary.  During  that year,  HeartScan  opened a CAS pilot  facility  at the
Company's  headquarters  in  South  San  Francisco,  California.  The  principal
purposes of the  facility  are to test market a variety of consumer  advertising
and  professional  education  programs,   test  software  developments  for  the
Company's scanner products and serve as a corporate  demonstration  site for the
Company's products and services.

HeartScan is also engaged in the business of developing  coronary artery disease
("CAD") risk assessment  centers and has developed a business and financing plan
for a nationwide  network of  Company-owned  and  operated  CAD risk  assessment
centers.  The  services  of such  centers  are  being  marketed  to  physicians,
insurers,  employers and directly to the public.  As of December 31, 1996,  five
CAD risk  assessment  centers were owned and operated by HeartScan.  HeartScan's
near-term  business  strategy  involves the  development of five to six Coronary
Artery  Disease  Risk  Assessment  Centers  over  the  next  twelve  months  and
additional centers thereafter. There is no assurance that HeartScan will be able
to complete  the  centers  provided  for in its  business  plan.  The success of
HeartScan's  Coronary Artery Disease Risk Assessment Centers depends on a number
of factors  including,  but not limited to,  HeartScan's  ability to: obtain and
operate in compliance  with  appropriate  licensing from  applicable  regulatory
authorities;  develop working  relationships with local groups of cardiologists;
educate patients, referring physicians and third-party payors about the benefits
of the CAS and HeartScan's  centers;  and successfully  manage the operations of
the centers.  HeartScan anticipates negative cash flow and substantial operating
losses during the next several years of its operations and there is no certainty
that HeartScan can operate profitably.

In June, 1996, Imatron completed a private offering whereby Imatron sold 100,000
shares of HeartScan  Series A preferred stock to  unaffiliated  third parties at
$160.00 per share with realized proceeds of $14,798,000 (net of offering costs).
The sale of such shares,  together with the exercise of certain  incentive stock
options  by  members of the  HeartScan  and  Imatron  management  team,  reduced
Imatron's ownership in HeartScan to 49.5% as of December 31, 1996. The HeartScan
Series A Preferred  Stock may be exchanged at the sole option of the holder into
Imatron  common stock at an exchange  price of $5.00 per share until the earlier
of a) two year period following closing of the Preferred Stock offering; or b) a
HeartScan initial public offering. If there is no initial public offering within
24 months of the  Preferred  Stock  closing,  holders may convert the  HeartScan
Series A Preferred  Stock into Imatron common stock at a conversion  price equal
to the greater of $1.50 per share or a 27% discount  from the  weighted  average
closing  price  of  Imatron  common  stock  for  the 90 day  period  immediately
preceding  24  months of the  Preferred  Stock  closing  and each date that is 3
months  thereafter  to and  including  the  48th  month of the  Preferred  Stock
closing  (see  notes  1, 7 and 12 to the  Notes  to the  Consolidated  Financial
Statements).
HeartScan  believes the net proceeds  from the private  offering,  together with
lease and debt financing, will enable it to open five to six additional Coronary
Artery Disease Risk Assessment

<PAGE>

Centers over the next twelve months. In addition, a portion of the funds will be
used to develop a program to heighten public  awareness of the value of coronary
artery  scanning  and support and expand  collaborative  research to develop and
further refine  potential new tests that could be offered at HeartScan  centers.
To satisfy HeartScan's future capital and operating requirements and to complete
its business plan,  additional financing may be required.  There is no certainty
that HeartScan will, in the future, be able to sell its securities  privately or
in a  registered  public  offering.  If  additional  future  public  or  private
financing  is required by  HeartScan,  Imatron  may  experience  dilution of its
current ownership position in HeartScan, along with other holders of HeartScan's
securities.  If such financing cannot be obtained,  HeartScan may not be able to
complete its business  plan and may seek to sell some or all of its assets or to
merge with another company.

HeartScan is dependent on Imatron for the scanners  used in its Coronary  Artery
Disease Risk Assessment Centers.  HeartScan does not believe there are any other
machines which can accomplish the same tests. In the event that Imatron, for any
reason, should cease manufacturing such equipment,  HeartScan would be unable to
complete its business plan.

HeartScan's  competitors  are clinics and  hospitals  using either  Ultrafast CT
scanners or conventional CT scanners for coronary artery screening.  In order to
compete successfully  against these competitors,  it must develop a good working
relationship  with  cardiologists  and educate  the public and health  insurance
companies  about the  benefits of  coronary  artery  screening  tests as well as
significant advantages over other testing modalities in terms of accuracy, cost,
time and degree of invasiveness.

HeartScan's  near-term  plans for  opening new  clinics  will place  significant
strain on its administrative,  operational and financial resources and increased
demands on its  systems  and  controls.  If its  management  is unable to manage
growth effectively, HeartScan's operating results could be adversely effected.

RESEARCH AND DEVELOPMENT CONTRACTS

In March 1991, the Company  entered into an agreement  with Siemens  Corporation
("Siemens")  which included a Development  Agreement  (see  "Transactions  With
Siemens Corporation" below). Pursuant to the Development Agreement,  the Company
and Siemens  pursued the joint  development of certain EBT  technology  products
funded  by  Siemens.  Upon  successful  conclusion  of the  development  of such
products,  Siemens had the sole right to manufacture  the products.  The Company
recognized  $0,  $1,753,000  and  $5,013,000 of revenue  under this  Development
Agreement in 1996, 1995 and 1994, respectively.

On March 31, 1995,  the Company and Siemens  entered into a new  agreement  (the
"Memorandum of Understanding") pursuant to which the parties agreed to terminate
the  existing   Development   Agreement  and  substitute  in  its  place  a  new
collaborative   research  agreement.   Under  the  new  collaborative   research
agreement,  the parties will jointly  conduct  research and  development  over a
three year period directed toward certain  improvements  and enhancements to the
Company's  C-150 product.  Siemens agreed to fund an aggregate of $15 million of
Imatron-managed research and development for a three year period beginning April
1, 1995,  subject  to  addressing  mutually  agreed  upon goals and  objectives.
Pursuant to the funding, Imatron will contribute a portion equal to no less than
fifty percent of Siemens'  contribution  for the sole purpose of conducting  the
collaborative  research.  The  primary  goals of the  research  and  development
program are to develop and enhance the Ultrafast CT scanner system  performance,
increase product  reliability,  reduce  manufacturing  costs, and improve system
upgradability.  The results of the collaborative  research will be jointly owned
by the  parties  and  cross-licensed.  The  Company  recognized  $5,000,000  and
$3,884,000  of  revenue  under  the  collaborative  agreement  in 1996 and 1995,
respectively.

                                    MARKETING

The  Company's  Ultrafast  CT scanners  are  utilized by a variety of  customers
including  large  teaching and research  hospitals,  medium-size  hospitals  and
imaging clinics.

<PAGE>

The Company  sells its Ultrafast CT product  directly and through  distributors.
The Company has, or had, the following distribution arrangements:

UNITED STATES, CANADA, AND EUROPE

In April 1995,  pursuant to the Memorandum of  Understanding  above, the Company
entered into an agreement  with Siemens  giving  Siemens the exclusive  right to
distribute the Company's C-150 scanner in the United States,  Canada, Europe and
India. (see "Transactions With Siemens  Corporation"  below).  Siemens purchased
two, one, and six C-150 scanners in 1996, 1995 and 1994, respectively.

JAPAN

Beginning in 1986,  Mitsui & Co., Ltd.  ("Mitsui")  was the  distributor  of the
Company's   products  in  Japan,   either  directly  or  through  a  third-party
distributor.  On December 10, 1993  Imatron  entered  into two  agreements  with
Mitsui that became  effective in January 1994; the Settlement  Agreement and the
Transition Agreement. Pursuant to these agreements, Mitsui agreed to pay Imatron
$1.5 million in  consideration  of Imatron's  agreement to relieve Mitsui of its
obligation to purchase  additional  Ultrafast CT scanners from Imatron.  Imatron
agreed to purchase  certain  Ultrafast CT scanner  inventory  from Mitsui and to
undertake  all service and  warranty  responsiblitiy  for  Ultrafast CT scanners
installed in Japan.  Imatron further agreed to complete  certain sales contracts
currently in place between Mitsui and various end users in Japan.

On January 7, 1994,  Imatron  entered into a Joint Company  Agreement  with Tobu
Land System  Company  and Kino  Corporation  pursuant  to which a joint  venture
company  was  established  to  market,  sell,  install  and  service  Imatron CT
scanners.  The joint venture was designated as Imatron Japan,  Inc. and is owned
51% by Tobu Land System  Company,  25% by Kino  Corporation  and 24% by Imatron.
Imatron did not assume any financial  funding  requirements  associated with the
formation of Imatron Japan, Inc. The Company's investment in Imatron Japan, Inc.
is  carried at no value in the  accompanying  financial  statements.  Imatron is
under no  obligation  to fund the  operations  of  Imatron  Japan,  Inc.  and is
prepared to abandon its interest.

On  February  3,  1994,   Imatron  and  Imatron  Japan,   Inc.  entered  into  a
Distributorship  Agreement  pursuant  to  which  Imatron  Japan,  Inc.  has been
appointed as Imatron's exclusive  Distributor in Japan.  Imatron has transferred
its rights and obligations  under the Transition  Agreement  between Imatron and
Mitsui & Co. Ltd. to Imatron Japan,  Inc.  Imatron Japan,  Inc. took delivery of
five,  five,  and six C-150  Ultrafast CT scanner  systems from Imatron in 1996,
1995 and 1994, respectively.  Imatron Japan, Inc. also purchased two refurbished
Ultrafast CT systems in 1995. In connection  with these sales,  the Company pays
$130,000 in commissions for each new C-150 Ultrafast CT scanner sold to Imatron,
Japan Inc.

Imatron Japan,  Inc. has ordered 10 additional  Ultrafast CT scanner systems for
delivery in 1997 and 1998 with an option to purchase three additional systems in
the years 1997 and 1998, respectively.

RELIANCE ON DISTRIBUTORS

A  substantial  portion of the  Company's  sales of its scanners is done through
distributors. There is no assurance that the Company's distibutors will actually
meet their contractual  minimums on a timely basis.  Failure by the distributors
to meet their  obligations  could adversely affect the Company's  operations and
financial position.

<PAGE>

SALES INFORMATION

The end user list price for the  Ultrafast  CT scanner  varies  depending on the
configuration  and  country to which the  scanner is  shipped.  The sales  price
includes   installation   by  field   service   personnel,   system   check  and
certification,  customer  training in the scanner's use, and a limited  12-month
parts warranty.  In addition,  local taxes and import duties may be added.  This
price, which is significantly higher than that of conventional CT scanners,  may
serve to limit sales of the  Company's  scanner to larger  hospitals and medical
imaging  clinics that are able to generate a higher than average  patient  usage
volume to offset its higher cost.

Unit export sales for fiscal years ended December 31 are as follows:

                                        1996              1995             1994
                                        ----              ----             ----

 Total Export Sales                      8                 7                10


                      TRANSACTIONS WITH SIEMENS CORPORATION

In  March  1991,  the  Company  entered  into a  Basic  Agreement  with  Siemens
Corporation  ("Siemens") which consisted of four separate sub-agreements each of
which has been subsequently modified in various respects by the parties.

On March 31,  1995,  the Company  and Siemens  entered  into an  agreement  (the
"Memorandum of  Understanding"  or "MOU") pursuant to which the  relationship of
the  parties  as   established   by  the  Basic   Agreement  was   substantially
restructured.  Pursuant to the MOU, the  sub-agreements  of the Basic  Agreement
were terminated and a number of new  relationships  were created.  First, the $4
million term loan was canceled in exchange for the transfer to Siemens of all of
Imatron's interest in five patents subject to a royalty-bearing  license back to
Imatron and the cancellation of the minimum  purchase  provision of the previous
distribution agreement. Second, the parties agreed to terminate, as of March 31,
1995,  the existing  Development  Agreement  and  substitute  in its place a new
collaborative  research  agreement  pursuant to which the parties  will  jointly
conduct  research  and  development  over a three year  period  directed  toward
certain  improvements and enhancements to the Company's C-150 product  described
above.  Third,  Siemens was appointed  Imatron's  exclusive  distributor for the
company's C-150 Ultrafast scanner in the United States, Canada, Europe and India
for a three  year  period  effective  April 1, 1995 and ending  March 31,  1998.
Imatron retains exclusive  distribution rights in the rest of the world. Fourth,
the Company and Siemens granted  reciprocal  licenses to each other covering the
electron beam  technology  presently used (and to be developed)  relating to the
design and manufacture of electron beam products.

Pursuant to the new collaborative research agreement, Siemens has agreed to fund
a maximum aggregate of $15 million of  Imatron-managed  research and development
over the three years,  subject to addressing  certain mutually agreed upon goals
and objectives. Pursuant to the funding, Imatron will contribute a portion equal
to no less than fifty percent of Siemens'  contribution  for the sole purpose of
conducting  the  collaborative  research.  The primary goals of the research and
development program are to develop enhanced system performance, increase product
reliability,  reduce manufacturing costs, and improve system upgradability.  The
results of the  collaborative  research will be jointly owned by the parties and
cross-licensed.

Siemens has agreed to use its best efforts to  distribute  the  Company's  C-150
product in its exclusive markets subject to no minimum purchase obligations. The
term of the Distribution  Agreement may be extended for an additional three year
period,  upon mutual  agreement  by Imatron and  Siemens.  Any  extension of the

<PAGE>

agreement is subject to agreement on minimum purchase commitments and price.

Pursuant to the cross licensing agreement, Siemens has granted Imatron a license
to: (a) all of the research results from the prior  development  agreement;  (b)
the patents transferred by Imatron to Siemens; and (c) Siemens' rights under the
new collaborative  research agreement.  Imatron has granted a license to Siemens
in the  field  of  medical  imaging  to:  (a)  Imatron's  rights  under  the new
collaborative  research  agreement;  and (b) Imatron's electron beam technology.
Pursuant  to the  license,  Imatron has agreed not to grant to any third party a
license in the field of  medical  imaging  during  the term of the  Distribution
Agreement  and the  collaborative  research  agreement and for a period of three
years thereafter.  Siemens may not use Imatron's technology to manufacture C-150
scanners until Imatron has delivered to Siemens 50 such units in any year, or in
the event  Imatron is unable to perform  its  obligations  to Siemens  under the
Distribution Agreement.


                           INVISION TECHNOLOGIES, INC.

In 1990, the Company established a joint venture company, InVision Technologies,
Inc.  ("InVision")(formerly  Imatron Industrial Products,  Inc.), with FI.M.A.I.
Holding  S.A.  ("FI.M.A.I."),  a former  shareholder  of  Imatron,  to  develop,
manufacture,  market and support  advanced CT technology in the baggage,  parcel
and freight scanning market. Upon organization,  Imatron  contributed  $250,000,
certain  parts,  components  and material and entered into a Technology  License
Agreement.

The Technology  License Agreement between the Company,  FI.M.A.I.  and InVision,
grants InVision an exclusive, worldwide, perpetual and fully-paid license to use
the Company's technology and patents for the development,  manufacture, use, and
sale of compact medical scanner  products for military field  applications,  and
mail, freight, parcel or baggage scanner products.  Also, InVision has agreed to
grant back to Imatron an exclusive,  worldwide,  perpetual and fully-paid  right
and license to use InVision's technology and patents outside of InVision's field
of use.

In July 1996,  Imatron  sold its  remaining  shares of  InVision  common  stock.
InVision  common  stock was  carried  at no cost by  Imatron.  Imatron  realized
$1,756,000 from the InVision common stock sale. The gain on sale was recorded as
other income in the Company's  consolidated  financial  statements  for the year
ended December 31, 1996.

As of December 31, 1996, Imatron has no ownership interest in InVision.

                                   COMPETITION

In  the  non-cardiac  imaging  applications  market  (comprised  principally  of
hospital radiology  departments),  the Company's  principal  competition is from
current  manufacturers of conventional CT scanners,  including  General Electric
Company,  Siemens  Corporation,  Elscint,  Picker  International,  Inc., Philips
Medical  Systems  and  Toshiba  Medical  Corporation  and  others.  Non-invasive
diagnostic imaging techniques such as ultrasound,  radioisotope imaging, digital
subtraction  angiography  and  magnetic  resonance  imaging  are also  partially
competitive with the Company's  scanners.  Each of the companies named above, as
well as ATL, Accuson and ADAC Laboratories,  markets equipment using one or more
of these techniques. All of these companies have greater financial resources and
larger  staffs than those of the Company and their  products are, in most cases,
substantially less expensive than the Ultrafast CT scanner.

<PAGE>

The  Company  believes  that in  order to  compete  successfully  against  these
competitors,  it must continue to  demonstrate  that the Ultrafast CT scanner is
both an acceptable  substitute for conventional CT scanners in scanning areas of
the body where motion is not a limitation and a valuable cardiac diagnostic tool
capable of producing unique and useful images of the heart. Although the Company
believes that the Ultrafast CT can produce images of a quality and resolution as
good as, or superior to, images  produced by "state of the art"  conventional CT
scanners,  it lacks certain features that many competing premium scanners offer.
These  include  lack of a  high-resolution  mode.  There  is no  certainty  that
potential purchasers will accept the Company's scanner without such features.

Also,  the Company  believes that  customers and  potential  customers  expect a
continuing  development  effort to improve the functionality and features of the
scanner.  The Company  continually  seeks to develop  product  enhancements  and
improve product reliability.  Imatron's future success may depend on its ability
to  complete  certain  product  enhancement  and  product  reliability  projects
currently  in  progress,  as well as on its  continued  ability to  develop  new
products  or  product  enhancements  in  response  to new  products  that may be
introduced by other  companies.  There can be no assurance  that Imatron will be
able to continue to improve product  reliability or introduce new product models
or product enhancements as required to remain competitive.

Other factors,  in addition to those described above, that a potential purchaser
might  consider in the  decision to replace a  conventional  CT scanner  with an
Ultrafast  CT scanner  include  purchase  price,  patient  throughput  capacity,
anticipated  operating  expenses,  estimated useful life and post-sale  customer
service and support.  The Company  believes that its scanner is competitive with
respect to each of these factors.


                                  MANUFACTURING

The  Company  manufactures  its scanner at its South San  Francisco,  California
headquarters  facility.  To date, the typical  manufacturing  cycle has required
approximately six months from the authorization of manufacturing to the delivery
of a scanner.

Many  of the  components  and  sub-assemblies  used  in the  scanner  have  been
developed  and  designed  by  Imatron  to  its  custom  specifications  and  are
obtainable  from limited or single sources of supply.  In view of the customized
nature of many of these  components  and  sub-assemblies,  there may be extended
delays between their order and delivery. Delays in such delivery could adversely
affect Imatron's present and future production  schedules.  The Company has made
and continues to make inventory investments to acquire long lead time components
and  sub-assemblies  to minimize the impact of such delays. In recent years, the
Company has developed  alternative sources for many of its scanner subcomponents
and continues its programs to qualify vendors for the remaining critical parts.

Also,  certain vendors currently require  cash-on-delivery  or prepayment terms.
There can be no  assurance  that such  actions  will not  adversely  affect  the
Company's  production  schedule and its ability to deliver  products in a timely
manner. As a result of certain vendors currently  requiring  cash-on-delivery or
prepayment  terms,  the Company must  maintain  higher  levels of cash and other
sources of credit to fund material purchases than otherwise would be required.

<PAGE>

                              GOVERNMENT REGULATION

Amendments to the Federal Food, Drug, and Cosmetic Act ("Amendments") enacted in
1976, and regulations issued or authorized thereunder, provide for regulation by
the Federal Food and Drug Administration ("FDA") of the marketing,  manufacture,
labeling,  packaging,  sale and distribution of "medical devices," including the
Company's scanner.  Among these regulations are requirements that medical device
manufacturers register their manufacturing facilities with the FDA, list devices
manufactured  by them,  file  various  reports  and comply with  specified  Good
Manufacturing   Practice  (GMP)   regulations.   The  FDA  enforces   additional
regulations  regarding the safety of equipment  utilizing  x-rays,  including CT
scanners. Various states also impose similar regulations.

The Amendments also impose certain  requirements  which must be met prior to the
initial  marketing of medical  devices  introduced  into commerce  after May 28,
1976.  Other  requirements  imposed on medical  device  manufacturers  include a
pre-market  notification  process  commonly  known as the 510(k)  application to
market a new or modified  medical device.  Additionally,  and  specifically,  if
required by the FDA, a pre-market  approval (PMA) may be required.  This process
is  potentially  expensive  and time  consuming  and must be completed  prior to
marketing a new medical device. The Company has received appropriate  clearances
from the FDA to  market  both the  C-100 and C-150  Ultrafast  CT  scanner.  The
Company  believes that it is presently in  substantial  compliance  with the GMP
requirements and other regulatory issues promulgated by the FDA.

The FDA also regulates the safety and efficacy of radiological devices. Although
the Company believes it is in compliance with all applicable radiological health
regulations established by the FDA, there can be no assurance that the Ultrafast
CT scanner will continue to comply with all such standards and regulations  that
may be pronounced.  In any event,  compliance with all such  requirements can be
costly and time consuming,  with a resultant  materially adverse effect upon the
development of the Company's business and its future profitability.

FDA clearance to market does not guarantee or imply reimbursement by third-party
payors such as  Medicare,  Medicaid,  Blue  Cross/Blue  Shield or other  private
health  insurers.  Medicare  and  Medicaid  reimburse  for  procedures  that are
generally accepted or that have been proven safe and effective.  The Health Care
Financing  Administration ("HCFA"), which oversees Medicare and Medicaid payment
policies,  will not authorize  payment for procedures which are considered to be
experimental.  HCFA has determined that diagnostic  examinations of the head and
other parts of the body  performed by CT scanners are covered if the  contractor
who  administers  the local  Medicare  program finds that medical and scientific
literature  and opinion  support the effective use of a scan for the  particular
condition.

The Federal government and certain states have enacted cost-containment measures
such as the  establishment  of maximum fee  standards in an attempt to limit the
extent and cost of  governmental  reimbursement  of allowable  medical  expenses
under Medicare,  Medicaid and similar governmental  programs. A number of states
have  adopted,  or are  considering  the  adoption,  of similar  measures.  Such
limitations  have led to a reduction in, and may further  limit funds  available
for, the purchase of diagnostic  equipment such as the Company's  scanner and in
the number of  diagnostic  imaging  procedures  performed in hospitals and other
medical institutions such as HeartScan's imaging clinics.

Certain  states have adopted  requirements  that hospitals and other health care
facilities,  such as imaging  clinics,  obtain a Certificate of Need ("CON") for
major  capital  expenditures,  in the  absence  of  which  they  will be  denied
reimbursement for services and funding relating to such capital expenditures.  A
number of states have enacted more stringent CON  legislation  such as requiring
private physicians to obtain a CON for any CT scanner, regardless of cost. There
can be no assurance  that Imatron's  potential  customers will be able to secure
<PAGE>

CON's or will be willing to pursue the application procedure.

The Company's primary customers operate in the healthcare  industry.  The health
care  industry  is highly  regulated.  Both  existing  and  future  governmental
regulations  could  adversely  impact the market for the Company's  Ultrafast CT
scanner and the Company's business. The Company's operations are also subject to
regulation by other federal,  state and local governmental entities empowered to
enforce  pertinent  statutes  and  regulations,  such as those  enforced  by the
Occupational  Safety and Health Agency and the Environmental  Protection Agency.
In some  cases,  state or local  regulations  may be stricter  than  regulations
imposed by the federal  government.  The Company was most recently  inspected by
the  State  of  California,   Department  of  Occupational   Safety  and  Health
Administration  in November 1993.  Minor  violations were issued by Cal/OSHA and
were immediately  corrected by the Company.  The subsequent follow up inspection
in December 1993, by the same  regulatory  body,  yielded  satisfactory  results
without the issuance of further notice of violation.  The Company  believes that
it is in substantial  compliance with California  regulations  applicable to its
business.  In November 1996 and again in January 1997, the FDA conducted routine
inspections of Imatron's  manufacturing  operations.  Both inspections concluded
without Notices of Observations. Imatron frequently provides field modifications
or updates of components and software to operational sites.  Imatron voluntarily
advised  FDA during  these  inspections  that  certain  field  corrections  were
ongoing.  FDA concurred with Imatron's  decision to field upgrade  certain sites
and assigned recall numbers Z-304/307-7 and Z-298/299-7.  Imatron is required to
notify the FDA  periodically  of the status of these  corrections and again upon
completion.  Imatron is complying with these requests and expects  correction to
the  above  recall  numbers  by May 31,  1997.  Imatron  believes  that it is in
substantial compliance with the regulations promulgated by the FDA.

HeartScan's  activities are subject to extensive regulation,  generally by state
and  local  governmental   entities.   Although  HeartScan  believes  it  is  in
substantial  compliance with all applicable  radiological  health  standards and
regulations, there can be no assurance that its business will continue to comply
with all such standards and regulations  that may be promulgated.  In any event,
compliance with all such  requirements can be costly and time consuming,  with a
resultant materially adverse effect upon the development of HeartScan's business
and its  future  profitability.  HeartScan's  operations  are  also  subject  to
regulation by other federal,  state and local governmental entities empowered to
enforce  pertinent  statutes  and  regulations,  such as those  enforced  by the
Federal   Food  and  Drug   Administration,   Occupational   Safety  and  Health
Administration and the Environmental  Protection Agency. Changes in governmental
regulations or new  regulations  adopted in the future may materially  adversely
affect  Imatron's  business.  In some cases,  state or local  regulations may be
stricter than regulations imposed by the Federal government.


                              PATENTS AND LICENSES

Imatron relies heavily on  proprietary  technology  which it attempts to protect
through patents and trade secrets.

In February  1981,  the Company was granted the exclusive use for five years and
non-exclusive use thereafter of certain technology and a patent pending owned by
the  University  of  California  ("UC")  under the terms of a license  agreement
between  UC  and  Emersub,  a  wholly-owned  subsidiary  of a  former  principal
shareholder  of the Company,  and a  sublicense  agreement  between  Emersub and
Imatron Associates (the predecessor to the Company), respectively. In June 1986,
the license  and  sublicense  agreements  were  amended to extend the  Company's
exclusive use of the technology through the remaining 13-year life of the patent
in exchange for modified  minimum  annual royalty  payments.  Under the terms of
Emersub's  license with UC,  Emersub was  obligated  to make certain  additional
payments in connection with the license. In October 1990, pursuant to subsequent
amendments  of the  license and  sublicense  agreements  the  Company  issued an
aggregate  of 132,813  shares of Series A  Preferred  Stock to UC and Emersub in
satisfaction of this  obligation.  The University of California  converted their
125,000  Series A Preferred  Stock into  625,000  common  stock  shares in 1993.
Emersub  converted their 7,813 Series A Preferred Stock into 39,065 common stock
shares in September 1995.

Under the continuing sublicense  agreement,  as amended, the Company is required
to pay annual  royalties  to Emersub  equal to 2.125% of net sales of certain of
the Company's  products.  The Company's  Chairman of the Board,  Dr.  Douglas P.
Boyd, receives 6% of all of the royalties paid by Emersub to UC. Loss by Imatron
of its rights under the patent as a result of termination of its sublicense from
Emersub,  or the underlying  license,  could have a material adverse effect upon
Imatron's  business and future  prospects.  There are no present  disputes  with
either UC or Emersub.

Development  of  portions  of  the  technology  covered  by the  UC  patent  and
sublicensed  to Imatron has been funded in  substantial  part  through  research
financing made available to UC by the National Institutes of Health. As a result
of such  financing,  it is possible that the U.S.  Government may assert certain

<PAGE>

claims in such UC patents,  including  the right to a  royalty-free  license for
governmental use.

In addition,  Imatron holds  twenty-four  U.S.  Patents of its own (each with a
remaining  life  in  excess  of  3  years)  and  has  filed  three  U.S.  patent
applications  covering  various  integral  components of the scanner  including,
among others,  its electron  beam assembly and its x-ray  detector and has filed
applications  corresponding  to several of these  patents  and  applications  in
various European Patent Convention countries,  Canada and Japan. There can be no
assurance that any such  applications will result in the issuance of a patent to
the Company.  Imatron's patents and patent  applications have not been tested in
litigation and no assurance can be given that patent  protection  will be upheld
or will be as extensive as claimed. Furthermore, no assurance can be given as to
the Company's ability to finance  litigation  against parties which may infringe
upon  such  patents  or  parties  which  may claim  that the  Company's  scanner
infringes upon their patents.  However,  the agreement signed by the Company and
Siemens Corporation in March 1991 allows Siemens Corporation to enter litigation
in favor of Imatron.

On March 31, 1995, the Company and Siemens Corporation (Siemens) entered into an
agreement (the "Memorandum of Understanding") relating in part to certain of the
Company's patents (see  "Transactions  With Siemens  Corporation" ). Pursuant to
the agreement,  the Company  transferred  to Siemens five patents,  two of which
cover features of the Company's C-150 scanner,  in partial  consideration of the
cancellation  by Siemens of the $4 million term loan to the Company.  As part of
the  agreement  Siemens  granted to the  Company a  non-exclusive,  irrevocable,
perpetual  license to the five  patents.  The license is subject to a royalty of
$20,000  for  each  new  C-150  unit  sold by the  Company  beginning  with  the
twenty-first C-150 unit produced in any year.

In September 1995,  Siemens  asserted a claim against the Company  regarding the
lapse of certain foreign registrations of one of the patents assigned to Siemens
by the  Company in  connection  with the March 31,  1995  agreement  between the
companies. The technology involved in the patent is not used presently in any of
the Company's products.  The Company  substituted a patent,  subject to existing
license-back,  currently used in its technology,  for the previously transferred
patent. Representatives of Siemens have agreed with the Company to these terms.


In the event some or all of the Company's patent  applications are denied and/or
some or all of its patents held  invalid,  the Company  would be prevented  from
precluding its competitors from using the protected technology set forth in such
patent   applications  or  patents.   Because  the  Company's  products  involve
confidential  proprietary  technology and know-how, the Company does not believe
such a loss of patent  rights  would have a  material  adverse  effect  upon the
Company.

The Company also believes that many of its proprietary  technologies  are better
protected as trade secrets or  copyrights  than by patents.  Moreover,  although
protection  of the Company's  existing  proprietary  technologies  is important,
other  factors  such as product  development,  customer  support  and  marketing
ability are also important to the development of the Company's business.


                                    EMPLOYEES

As of February 1, 1997, the Company had 170 employees, including 30 employees in
service,  8 in  sales/marketing,  62  scientists  and  engineers in research and
development,  53  employees  in  manufacturing,  and 17 employees in finance and
administration.   HeartScan  had  37   employees,   including  26  employees  in
operations,   7  in  sales  and   marketing   and  4  employees   in   corporate
administration.  None of the employees are  represented  by a labor union and no
work stoppages or strikes have occurred. The Company believes that it has good

<PAGE>

labor relations with its employees.

                                 CERTAIN FACTORS

In evaluating  the Company and its business,  the  following  factors  should be
given careful consideration,  in addition to the information mentioned elsewhere
in this Form 10-K:

OPERATING HISTORY

Imatron was incorporated in February 1983, and incurred losses each quarter from
inception through December 31, 1990. Its first recorded  profitable year was the
year ended December 31, 1991 during which a $4,000,000 payment for the licensing
of  technology  to  Siemens  Corporation  was  received.  The  Company  incurred
additional net losses in both 1993 and 1992. In 1994,  the Company  incurred its
first year of net income  from  operations  amounting  to  $3,221,000  partially
offset by $911,000 of net losses  incurred by HeartScan.  In 1996 and 1995,  the
Company incurred net losses of $13,737,000 and $2,449,000, respectively. The net
losses are  partially a result of the  operating  losses  incurred by  HeartScan
which  amounted to $7,845,000  and  $2,132,000  in 1996 and 1995,  respectively.
There is no assurance  that Imatron can return to  profitable  operations in the
future.

In the  past,  Imatron  has  funded  its  losses  primarily  though  the sale of
securities in two public offerings and a number of private  placements,  through
the exercise of options and warrants,  through the 1991 license for medical uses
of its electron-beam  technology to Siemens  Corporation,  and through revolving
lines of credit.  In 1995, the Company raised $9,882,000 (net of offering costs)
in two offerings of Common Stock to certain  institutional  investors.  In 1996,
the Company received  $16,672,000 through the sale of shares of Common Stock and
the  exercise  of warrants  and stock  options  for shares of common  stock.  In
addition,   HeartScan  raised  $14,798,000  (net  of  offering  costs)  for  use
exclusively to develop its operations(see  notes 1, 7 and 12 to the Notes to the
Consolidated Financial  Statements).  As of December 31, 1996, the Company has a
consolidated  accumulated  deficit of  $71,294,000.  As of  December  31,  1996,
HeartScan has an accumulated deficit of $11,872,000.

Management  believes that cash,  cash  equivalents  and  short-term  investments
existing at December 31, 1996 and the  estimated  proceeds from ongoing sales of
products  and  services in 1996 will  provide the  Company  and  HeartScan  with
sufficient  cash for  operating  activities  and  capital  requirements  through
December 31, 1997.

NEED FOR ADDITIONAL FINANCING

To satisfy the Company's future capital and operating  requirements,  profitable
operations or additional public or private financing will be required. If future
public or private financing is required by the Company, holders of the Company's
securities may experience  dilution.  If such financing cannot be obtained,  the
Company may seek to sell or license  additional  portions of its technology,  to
sell some or all of its other assets or to merge with another company.

In addition,  HeartScan  may need  additional  financing to continue to fund its
plan to own and  operate  CAS  centers.  In the  event  HeartScan  can no longer
support its operating  expenses and is unable to raise  additional funds it will
have to curtail its center development and expansion activities.

MATERIAL DEPENDENCE UPON KEY PERSONNEL

The  Company  and  HeartScan  have been,  and will  continue  to be,  materially
dependent  upon  the  technical  expertise  of its  engineering  and  management
personnel. The loss of a

<PAGE>

significant number of such personnel would have a materially adverse effect upon
the  Company's  business  and future  prospects.  The Company  does not maintain
key-man life insurance.

HIGH COST OF SCANNER

The distributor  list price of Imatron's  Ultrafast CT scanner is  significantly
higher than that of commercially  available  conventional CT scanners and higher
than the price of "top-of-the-line"  scanners. Such pricing may limit the market
for Imatron's product.  Potential  customers' budgetary  limitations,  including
those imposed by government  regulation,  may often compel the purchase of lower
cost, conventional CT scanners.

LIMITED CLINICAL DEMONSTRATION OF CERTAIN ADVANTAGES OF THE COMPANY'S SCANNER

The Company's scanner has been used in a clinical  environment since April 1983.
Clinical  use of the C-100 XL scanner  model began in February  1989.  The C-150
Ultrafast  CT scanner  was first used in 1992.  Fifty-four  C-150  scanners  are
currently  installed in a clinical  setting.  The Company  believes  that market
acceptance of the Ultrafast CT scanner  continues to depend in substantial  part
upon the clinical demonstration of certain asserted technological advantages and
diagnostic capabilities. There is no assurance that these asserted technological
advantages  and  diagnostic  capabilities  will result in the  development  of a
significant  market for the  Ultrafast CT that will allow the Company to operate
profitably.

PRODUCT LIABILITY RISKS

As a manufacturer and marketer of medical diagnostic  equipment,  the Company is
subject to potential  product  liability  claims.  As a supplier of radiological
diagnostic  services,  HeartScan is also subject to potential  liability claims.
For example, the exposure of normal human tissue to x-rays, which is inherent in
the use of CT scanners for diagnostic imaging, may result in potential injury to
patients  subjecting  the  Company to  possible  liability  claims.  The Company
presently   maintains  primary  and  excess  product  liability  insurance  with
aggregate limits of $5.0 million per occurrence.  No assurance can be given that
the Company's product liability insurance coverage will continue to be available
or, if available, that it can be obtained in sufficient amounts or at reasonable
cost or that it will prove sufficient to pay any claims that may arise.

VOLATILITY OF STOCK PRICE

The  market  prices  for  securities  of  advanced  technology   companies  have
historically  been highly volatile,  including the market price of shares of the
Company's Common Stock. Future  announcements by the Company or its competitors,
including announcements concerning  technological  innovations or new commercial
products,  results  of  clinical  testing,  changes in  government  regulations,
regulatory  actions,  health care reform,  proprietary  rights,  litigation  and
public  concerns  as to the  safety  of  the  Company's  or  its  collaborators'
products, as well as period-to-period variances in financial results could cause
the market price of the Common Stock to  fluctuate  substantially.  In addition,
the stock market has experienced extreme price and volume fluctuations that have
particularly  affected the market price for many advanced  technology  companies
that have often been unrelated to the operating  performance of these companies.
These broad market  fluctuations  may  adversely  affect the market price of the
Company's Common Stock.

NO DIVIDENDS ON PREFERRED AND COMMON STOCK

The  Company  has not paid  dividends  on its  Preferred  or Common  Stock since
inception.   Even  if  its  future   operations   result  in   revenues   and/or

<PAGE>

profitability,  as to which  there  can be no  assurance,  there  is no  present
anticipation that dividends will be paid.  Rather,  the Company expects that any
future earnings will be applied toward the further  development of the Company's
business.

ITEM 2 - PROPERTIES

The   Company's   manufacturing,   research  and   development,   marketing  and
administrative  operations  occupy  approximately  70,000  square feet of leased
space in  buildings  located in South San  Francisco,  California  under  leases
expiring in October,  2001. Under certain future conditions the facilities could
be expanded to approximately 75,000 square feet.

The HeartScan  clinics located in Seattle,  WA, Houston,  TX,  Washington DC and
Pittsburgh,  PA occupy  approximately  3,000 square feet each of leased space in
medical buildings close to hospitals. The leases are renewable in July 1998, May
2000, December 2005 and June 2001, respectively.

The Company  believes its facilities are adequate for its current needs and that
suitable  additional  or  substitute  space  will  be  available  as  needed  to
accommodate any future expansion of the Company's operations.


ITEM 3 - LEGAL PROCEEDINGS

None.

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

There were no matters submitted to a vote of Imatron's  shareholders  during the
quarter ended December 31, 1996.



<PAGE>


                                     PART II

ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER 
         MATTERS
         
Since April 1985, the Company's  Common Stock has traded on the Nasdaq  National
Market System under the Nasdaq symbol "IMAT".

The following table sets forth, for the periods indicated, the range of high and
low sales prices, all as reported by Nasdaq.  These prices reflect  inter-dealer
prices, without retail mark-up,  mark-down or commission and may not necessarily
represent actual transactions.

                              1996                                  1995
                         --------------                        ---------------
Quarter:                High          Low                    High          Low
                    -----------   ------------            -----------   --------
First                 $ 3.50        $ 1.75                 $ 1.31        $ .97
Second                  8.38          3.00                   1.22          .81
Third                   6.63          3.94                   3.63          .75
Fourth                  4.81          2.50                   2.97         1.47

As of March 18,  1997 there were  approximately  6,823  holders of record of the
Company's  common  stock.  On March 18, 1997 the closing  price of the Company's
common stock on Nasdaq was $ 2.28.


                              DIVIDEND INFORMATION

The Company has paid no cash  dividends on its Common Stock since  incorporation
and anticipates that for the foreseeable future. It will retain any earnings for
use in its business.

<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA

                                  IMATRON INC.
                         SELECTED FINANCIAL INFORMATION
                    (In thousands, except per share amounts)

                                    OPERATING INFORMATION

Year Ended December 31       1996        1995      1994        1993       1992
---------------------      ---------   --------   --------     -------   ------

Total revenues              $25,768   $26,700    $33,571     $25,111   $14,263
Net income(loss)           $(13,737)  $(2,449)   $ 2,310     $(2,871)  $(6,523)
Net income(loss)per share   $ (0.18)   $ (0.04)  $  0.04     $ (0.06)  $ (0.15)
Number of shares used
  in per share calculations  74,406     57,598     62,102      47,865    43,294


                            BALANCE SHEET INFORMATION

At December 31              1996         1995       1994       1993       1992
---------------           ---------   ---------   ---------  ---------  --------

Working capital          $ 33,042     $ 14,252    $ 8,741    $ 5,536    $ 6,971
Total assets             $ 53,192     $ 30,876    $21,173    $15,903    $18,602
Long-term debt           $     -      $    -      $ 4,992    $ 4,992    $ 4,992
Total liabilities        $ 15,666     $ 14,651    $14,303    $12,265    $12,332
Minority Interest        $ 12,323     $    -      $  -       $  -       $   -
Shareholders' equity     $ 25,203     $ 16,225    $ 6,870    $ 3,638    $ 6,270

The Company did not pay any cash dividends on its Common Stock during any of the
periods presented above.

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

                         LIQUIDITY AND CAPITAL RESOURCES
    
At December 31, 1996, the Company had working capital of $33.0 million which was
a 131%  increase  compared to working  capital of $14.3  million at December 31,
1995. The current ratio increased to 4.4:1.0 from 2.4:1.0 at December 31, 1995.

The  Company's  assets  increased  in 1996 by 72% to $53.2  million  compared to
December  31,  1995 total  assets of $30.9  million  primarily  due to  proceeds
realized  of $31.7  million  (net of  offering  costs)  from  private  placement
offerings and exercises of warrants and stock options. In addition, property and
equipment  increased by $2.5 million exclusive of $2.7 million in additions that
are related to capitalized  leases.  Capital lease obligations were entered into
in  1996  principally  due to the  establishment  of two  new  HeartScan  clinic
scanners.  The deferred  income of $1.4 million is related to deferred profit on
sales of scanners under sale-leaseback arrangements.

In connection with the March 1995 Memorandum of Understanding with Siemens,  the
$4 million  note  payable to Siemens was  cancelled in exchange for five patents
and termination of the minimum purchase obligations.

<PAGE>

Management  believes that cash,  cash  equivalents  and  short-term  investments
existing at December 31, 1996 and the  estimated  proceeds from ongoing sales of
products and services in 1996 will provide the Company with  sufficient cash for
operating activities and capital requirements through December 31, 1997.

HeartScan  anticipates that 1997 capital  equipment  acquisitions  will increase
from 1996 due to the expansion of clinic base.

To satisfy  the  Company's  capital  and  operating  requirements  beyond  1997,
profitable  operations,  additional  public  and/or  private  financing  or  the
incurrence  of debt may be required.  If future  public or private  financing is
required by the Company,  holders of the  Company's  securities  may  experience
dilution.  There can be no assurance  that equity or debt sources,  if required,
will be available or, if available, will be on terms favorable to the Company or
its shareholders.

The Company does not believe  that  inflation  has had a material  effect on its
revenues or results of operations.

                              RESULTS OF OPERATIONS

1996 vs. 1995

Overall  revenues  decreased 3% to $25,768,000 in 1996 from $26,700,000 in 1995.
Product sales,  including $1.8 million under  sale-leaseback  arrangements  with
various  leasing  companies in both 1996 and 1995,  increased 6% due to a higher
option/upgrade  revenues.  There were 10 scanners and 1 refurbished unit sold in
1996 versus 10 scanners in 1995. Service revenues decreased 37% to $3,465,000 in
1996 from $5,529,000 in 1995 primarily due to lower spare parts shipment.  Spare
parts  revenues  declined  to  $1,540,000  in 1996 from  $3,431,000  in 1995 due
primarily to a reduction in the purchase of spare parts by Siemens  Corporation.
The  reduction  in spare  parts  purchased  by  Siemens  was the  result  of the
termination  of the 1991 Basic  Agreement in 1995 wherein  Siemens was no longer
required to purchase a minimum number of scanners per year, thereby,  decreasing
the  amount  of spare  parts  they  required.  Siemens  purchases  decreased  by
$1,505,000 to $669,000 in 1996 from $2,174,000 in 1995. Research and development
contract revenues decreased by 11% to $5,000,000  compared to $5,637,000 in 1995
due to the lower revenue  recognized under the Memorandum of Understanding  with
Siemens as compared  to the  previous  Siemens  development  agreement  that was
terminated in March 1995.  Clinic revenues  related to the HeartScan  subsidiary
increased by 181% to $1,293,000 in 1996 compared to $460,000 in 1995 as a result
of additional coronary artery disease risk assessment centers operating in 1996.
There were five  clinics  operating  in 1996 as compared to two in 1995.  Of the
existing clinics,  only San Francisco clinic had comparable annual results as it
was the only clinic opened for the full year in 1996 and 1995.  Revenues for San
Francisco  clinic  increased  by $214,000 or 61% due to an increase in number of
patient scans resulting from promotional and marketing efforts by HeartScan.

The costs of  revenues  as a percent  of  revenues  for 1996 is higher at 96% as
compared to 89% in 1995.  The change in the cost of revenue as a  percentage  of
revenue for  scanners to 89% for the year ended  December  31, 1996 from 87% for
the year ended  December  31,  1995 is a result of a mix in the sales  prices of
scanners to customers.  Although the cost of a scanner remains  constant for all
scanner sales, the sales price varies depending on the customer requirements. In
particular,  sales to  Siemens,  Imatron  Japan  Inc.  and  third-party  leasing
companies  have a lower  gross  margin than sales to other  third  parties.  The
increase  in the cost of revenue as a  percentage  of revenue  for  scanners  is
consistent  with the increase in scanner sales to Siemens and Imatron Japan Inc.
to seven out of eleven  in fiscal  year 1996 from six out of ten in fiscal  year
1995. Service cost of revenues as a percent of service revenues increased to 91%
in 1996 as  compared  to 71% in 1995 due  primarily  to lower  volume  of spares
shipped.  Development contract revenue and cost of revenue of $5,000,000 each is
identical in 1996 due to the terms of the three year Memorandum of Understanding
with Siemens. In 1995,  development revenue also included a development contract
with Siemens which provided a higher gross margin to the Company.  This contract
was terminated in 1995.  Clinic cost of revenues as a percent of clinic revenues
decreased  to  173%  in 1996 as  compared  to  293%  in  1995  primarily  due to
additional revenues related to the establishment of new HeartScan clinics.

Operating  expenses of $13,390,000 for 1996 increased by 45% as compared to 1995
expenses of $9,225,000.  Research and development expenses of $3,318,000 reflect
the research and  development  spending not covered by the Siemens  research and
development contract.  Marketing and sales expenses increased to $4,676,000 from
$3,137,000 in 1995  primarily  due to higher  advertising  expenses  incurred by
HeartScan and expenses related to studies conducted promoting the benefit of the
Company's product.  General and administrative  expenses increased to $5,396,000
from  $2,658,000 in 1995 mainly due to increases in bad debt expense  related to
Imatron  receivables and overhead  expenses related to the  establishment of new
HeartScan  clinics.  Bad debt expense increased to $939,000 in 1996 from $11,000
in 1995.  The increase of $939,000 in 1996 was  primarily the result of reserves
created for receivables related to spare parts sold to two distributors, Imatron
Japan Inc. and CLCC, who were  experiencing cash flow problems during that time.
Receivable from Imatron Japan, Inc. amounted to $2,660,000,  of which,  $725,000
was reserved as of December 31, 1996.  $1,430,000 of this receivable was related
to the scanner sale,  backed up by an irrevocable  letter of credit and paid the
following month. The reserved amount represented  oustanding  receivable greater
than 90 days. The recent Asian crisis  continues to limit the Company's  ability
to pursue collection of these amounts.

Other income  decreased to $2,508,000 from $4,021,000 in 1995 as a result of the
transaction  recorded in 1995  canceling the $4.0 million term loan with Siemens
in exchange for the transfer of five Imatron EBT patents and the cancellation of
Siemens' existing minimum purchase  obligations under the previous  distribution
agreement.  In 1996, the Company recognized  $1,756,000 in other income from the
sale of 59,090 shares of Invision Technologies common stock.

Interest  expense  increased  to  $564,000  in 1996  from  $312,000  in 1995 due
primarily to an increase in capital lease obligations related to scanners leased
back by HeartScan.

In June 1996,  Imatron  completed a private  placement  offering whereby 100,000
shares of  HeartScan  Series A  Preferred  Stock were sold at $160 per share and
realized net proceeds of  $14,798,000.  The preferred  stock is convertible on a
ten-to-one basis into HeartScan common shares at any time.  Mandatory conversion
of the  preferred  stock  into  common  stock  will  occur  upon the  successful
completion  of a HeartScan  initial  public  offering.  The  HeartScan  Series A
Preferred  Stock may be  exchanged at the sole option of the holder into Imatron
common stock at an exchange price of $5.00 per share until the earlier of a) two
year period following closing of the Preferred Stock offering; or b) a HeartScan
initial public offering. If there is no initial public offering within 24 months
of the  Preferred  Stock  closing,  holders may convert the  HeartScan  Series A
Preferred  Stock into Imatron common stock,  at a conversion  price equal to the
greater of $1.50 per share or a 27% discount from the weighted  average  closing
price of Imatron  common  stock for the 90 day Period  immediately  preceding 24
months of the Preferred Stock closing and each date that is 3 months  thereafter
to and including the 48th month of the Preferred Stock closing.

In March  1997,  subsequent  to the  Company  finalizing  its 1996  consolidated
financial  statements,  the Securities and Exchange Commission ("SEC") announced
its position on accounting for the issuance of convertible  preferred stock with
a nondetachable  conversion feature that is deemed "in the money" at the date of
issue (a "beneficial conversion feature").  The beneficial conversion feature is
initially recognized and measured by allocating a portion of the preferred stock
proceeds   equal  to  the   intrinsic   value  of  that  feature  to  additional
paid-in-capital.  The intrinsic  value is calculated at the date of issue as the
difference of the conversion  price and the quoted market price of the Company's
common stock,  into which the security is convertible,  multiplied by the number
of shares into which the security is  convertible.  The discount  resulting from
the allocation of proceeds to the beneficial  conversion feature is treated as a
dividend and is recognized as a return to the  preferred  shareholders  over the
minimum period in which the preferred shareholders can realize that return (i.e.
from the date the securities are issued to the date they are first convertible).
The  accounting  for the beneficial  conversion  feature  requires the use of an
unadjusted quoted market price (i.e. no valuation discounts allowed) as the fair
value used in order to determine the  intrinsic  value  dividend.  Additionally,
preferred  dividends  of a  subsidiary  are  included in minority  interest as a
charge against income.

Prior to applying the  accounting  described  above,  in its  previously  issued
financial statements, the Company had not recognized an intrinsic value dividend
on the HeartScan  preferred  stock which was issued in June 1996. The discounted
conversion  features of this  preferred  stock into  Imatron  common  stock (the
immediate conversion at $5.00 per share and the conversion in two years from the
date of the  preferred  stock  issuance at a 27%  discount)  was provided to the
preferred shareholders,  in essence to provide them with an exit strategy in the
absence  of a  HeartScan  IPO (see Notes 1 and 7).  Thus,  the  Company  did not
believe a discount  should be recognized on a  contingently  issuable  security.
Furthermore,  at the time of agreeing to the terms of the transaction the $5 per
share  immediate  conversion  price was above the market price of the  Company's
common stock but at the time the HeartScan  preferred stock was actually issued,
the market price had  increased  to $5.75 and  thereafter,  it dropped  below $5
again.  Accordingly,  the Company did not believe  that any  calculation  of the
discount should include the impact of this short-term market fluctuation.

In December 1997, the staff of the SEC gave a speech further  refining its March
1997 announcement. Based on discussions with the staff of the SEC in April 1998,
the staff concluded that the Company should retroactively apply its announcement
because  it should be  applied  to  contingently  issuable  securities  and,  as
discussed in the December speech, the portion  attributable to the discount that
could have been obtained  immediately  on conversion  (even though the share had
not been  registered  yet) should be recognized on the day the preferred  shares
were issued.  The balance of the  discount  based on a market value of $5.75 per
common share is being recognized over two years from the date of issuance.

The consolidated  financial statements as of and for the year ended December 31,
1996 have been  restated to give effect to the  accounting  treatment  described
above. The restatement  resulted in (1) a  reclassification  in the consolidated
balance  sheet  of  $5,890,000   reducing  minority   interests  and  increasing
additional  paid-in  capital  (equity)  and (2) the  recognition  of a  minority
interest  charge  of  $3,272,000  (including  $2,400,000  as of the  date of the
perferred  shares  were  issued) in the  consolidated  statement  of  operations
increasing the Company's net loss from $10,465,000 to $13,737,000. The remaining
discount of $2,618,000  will be charged to minority  interests  through June 30,
1998.

The restatement of the previously issued 1996 consolidated financial statements,
in order to apply  the accounting  described herein for the intrinsic value of
the  beneficial  conversion  features,  does not  affect  the cash  flows of the
Company. The minority interest is recognized as an increase in minority interest
in the balance sheet.If the preferred shareholders elect to convert their shares
to Imatron  common  stock,  the minority  interest  will then convert to Imatron
equity.

     

1995 vs. 1994

Overall revenues  decreased 20% from $33,571,000 in 1994 to $26,700,000 in 1995.
Product sales,  including  $1,820,000 under the  sale-leaseback  arrangements in
1995,  decreased  35% due to decreased  scanner  shipments  which was  partially
offset by higher  option/upgrade  revenues.  Scanner  shipments  in 1995 were 10
units versus 16 units in 1994. Service revenues increased 16% from $4,750,000 in
1994 to  $5,529,000  in 1995  primarily  due to  higher  spare  parts  shipment.
Research and development  contract revenues went up by 5% to $5,637,000 compared
to $5,380,000 in 1994.  Clinic  revenues  increased by 99% due to an increase in
number of patient scans attributed to increased clinic advertisements.

Product  costs as a  percentage  of revenues was 89% in 1995 versus 71% in 1994.
This  increase  was the result of lower  realized  per unit revenue and overhead
expenses  being  allocated  to a smaller  number of units.  The cost of  service
revenues  as a  percentage  of revenues  decreased  to 71% in 1995 versus 85% in
1994. This decrease was the result of lower scanner  maintenance  costs. Cost of
clinic  revenues as a percentage of revenues went up to 293% as compared to 226%
in 1994  because  of  start-up  expenses  related  to the  establishment  of new
HeartScan clinics.

The cost of development  contracts as a percent of development contract revenues
decreased to 88% in 1995 versus 97% in 1994. The continued high level of cost is
due primarily to head count and associated costs required to continue activities
under the Siemens Collaborative Agreement.

Operating  expenses for 1995 increased by 38% as compared to 1994.  Research and
development  expenses are 63% higher in 1995  primarily due to the increased use
of  consultants.  Marketing  and sales  expenses were up 51% in 1995 versus 1994
primarily  because of commissions paid for scanners sold to Imatron Japan KK and
increased marketing costs for HeartScan,  a wholly-owned  subsidiary of Imatron.
General and administrative expenses increased 6% in 1995 as compared to 1994.

The  increase  in other  income  in 1995 is a result of the  elimination  of the
$4,000,000  term loan with  Siemens in exchange for the transfer of five Imatron
EBT  patents  and  the  cancellation  of  Siemens'   existing  minimum  purchase
obligations under the previous distribution agreement.

Interest  expense  decreased  44%  as  compared  to  1994  primarily  due to the
elimination of the $4,000,000 term loan with Siemens.



ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
         DATA

See  Consolidated  Financial  Statements and  Consolidated  Financial  Statement
Schedules listed in Item 14 (a) 1 and 2.


<PAGE>

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

None.


                                    PART III


ITEM 10:  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The  directors and executive  officers of  Registrant,  their ages and executive
positions as appropriate,  are set forth below.  Directors are elected for terms
of one  year or,  if  appointed  mid-term,  serve  until  the  next  meeting  of
shareholders.  Unless otherwise indicated,  officers are full-time employees and
serve at the discretion of the board of directors.

Name                    Age     Director      Executive Position
Dr. Douglas P. Boyd     55      Yes           Chairman of the Board; 
                                              Chief Technology Officer
John L. Couch           55      Yes
S. Lewis Meyer          52      Yes           President; Chief Executive Officer
Jose Filipe Guedes      50      Yes
William J. McDaniel     54      Yes
Terry Ross              49      Yes
Aldo J. Test            73      Yes
Gary H. Brooks          48      No            Vice President, Finance & 
                                              Administration, Chief Financial 
                                              Officer, Secretary 

Dr. Boyd has held several positions with the Company since its inception in 1983
including  Chief  Executive  Officer,  President,  Chief  Technical  Officer and
Director.  Dr.  Boyd is  currently  Chairman  of the Board and Chief  Technology
Officer.  He is an Adjunct Professor of Radiology (Physics) at the University of
California,  San Francisco  ("UCSF") and spends  approximately 5% of his time on
his duties at the University.  He has held various academic  positions with UCSF
for more than the past  five  years.  Dr.  Boyd also  serves  as a  director  of
InVision Technologies, Inc.
<PAGE>

Dr. Couch has been a director of the Company since its inception in 1983. In May
1987 he became Vice President,  Scientific  Affairs. He served as Secretary from
March 1990 to December 1993.
   
Mr.  Guedes was  elected a director of the  Company on October  11,  1996.  From
January  1991  to  March  1995  he  acted  as the  Chief  Executive  Officer  of
Cerexport/Vista  Alegre, a ceramic  manufacturer.  In 1996 Mr. Guedes became the
President of Ceramic, S.A., a ceramic tile manufacturer.

Admiral  William J.  McDaniel,  M.D., a retired United States Navy Rear Admiral,
was  elected a director  on  January  28,  1997.  From 1992 to 1995 he was Chief
Executive  Officer of Naval  Medical  Center,  Portsmouth,  Virginia,  a 346 bed
tertiary  training  medical  center  for the  Navy.  From  1995 to 1997  Admiral
McDaniel was the Surgeon General of the U.S. Pacific  Command.  In such position
he was responsible for all U.S. military  contingency plans for the Pacific half
of the world,  including preparing for responses to wartime,  natural disasters,
and peacetime humanitarian relief efforts.

Mr. Meyer was elected  President and Chief  Executive  Officer of the Company on
June 23, 1993.  From April 1991 until joining the Company he was Vice President,
Operations of Otsuka  Electronics  (U.S.A.),  Inc.,  Fort Collins,  Colorado,  a
manufacturer  of clinical  MR systems and  analytical  NMR  spectrometers.  From
August  1990  to  April  1991  he was a  founding  partner  of  Medical  Capital
Management,  a company  engaged  in  providing  consulting  services  to medical
equipment   manufacturers,   imaging  services  providers  and  related  medical
professionals.  Prior thereto he was President  and Chief  Executive  Officer of
American Health  Services Corp., a developer and operator of diagnostic  imaging
and treatment centers. Mr. Meyer is a director of BSD Medical Corporation and
Finet Holdings Corporation.
    
Mr. Ross has been a director of the Company since January 1987 and served as its
Vice  President,  Marketing and Sales from October 1985 to December 1987.  Since
January 1988 Mr. Ross has been  President of CEMAX ICON,  Inc., a privately held
company  engaged in the  manufacture  and sale of medical imaging and networking
software.
<PAGE>

Mr. Test has been a director of the Company since its inception in 1983. He is a
senior  partner of the San Francisco  and Palo Alto law firm of Flehr,  Hohbach,
Test,  Albritton & Herbert where he has  practiced  patent law for more than the
past five years.

Mr. Brooks was  appointed  Vice  President,  Finance and  Administration,  Chief
Financial Officer and Secretary of Imatron in December, 1993. For the five years
prior to joining Imatron, he was Chief Financial Officer for Avocet, a privately
held sports electronics manufacturer.  Prior thereto, he held progressively more
responsible positions in accounting and finance at several Fortune 500 companies
including Ford, Rockwell, Bendix and ITT.
                                    

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section  16(a) of the  Securities  Exchange Act of 1934  requires the  Company's
directors,  executive  officers,  and persons who own more than ten percent of a
registered  class  of the  Company's  equity  securities,  to  file  reports  of
ownership and changes in ownership with the Securities and Exchange  Commission.
Executive  officers,  directors,  and greater than ten percent  shareholders are
required by SEC  regulation  to furnish  the Company  with copies of all Section
16(a)  forms they file.  
   
Based  solely on its  review  of the  copies of such  forms  received  by it, or
written  representations  from  certain  reporting  persons that no Forms 5 were
required for those persons,  the Company believes that one report was not timely
filed. Aldo Test, a director of the Company,  was one month late filing a Form 4
beneficial  ownership  report  reflecting  aggregate  sales of 55,000  shares of
Company stock.
    
<PAGE>

ITEM 11 - EXECUTIVE COMPENSATION

The Summary Compensation Table shows certain  compensation  information for each
person who served as Chief Executive  Officer during the year and the other most
highly  compensated  executive  officers whose aggregate  compensation  exceeded
$100,000  for  services  rendered  in all  capacities  during  fiscal  year 1996
(collectively referred to as the "Named Executive Officers").  Compensation data
is shown for the fiscal  years ended  December  31,  1996,  1995 and 1994.  This
information includes the dollar value of base salaries, bonus awards, the number
of stock options granted,  and certain other compensation,  if any, whether paid
or deferred.



<TABLE>

                           SUMMARY COMPENSATION TABLE
<CAPTION>

                                                                               Long Term
                                                                              Compensation
                                                     Annual Compensation        Awards
     Name and Principal                                                        Options/             All Other
          Position              Year       Salary($)(a)         Bonus            SARS           Compensation (b)
<S>                             <C>           <C>              <C>            <C>                     <C>
Douglas P. Boyd                 1996          166,000                                                 4,700
Chairman of the                 1995          158,000                                                 4,620
Board                           1994          150,000                                                 2,250

S. Lewis Meyer                  1996          211,000                          75,000(d)              4,750
 President and Chief             1995         201,000                                                 4,620
 Executive Officer               1994         196,833          25,000(c)                              1,845


Dale E. Grant (h)               1996          172,000                                                 3,193
Executive Vice  President       1995          164,000                          75,000(f)
                                1994          156,000         50,000(e)       400,000(g)

Gary H. Brooks                  1996          131,000                          40,000(i)              3,880
Vice President and              1995          125,000                          37,500(f)              3,627
Chief Financial Officer         1994          120,000                                                 1,710

----------------------------- ---------- ------------------ -------------- ----------------- ------------------------
<FN>

(a) Amounts shown include cash and non-cash compensation earned with respect to
    the year shown above.
(b) Represents the Company's matching contributions to its 401(k) plan.
(c) Represents portion of a $75,000 bonus payable to Mr.Meyer upon commencement
    of his employment with the Company.
(d) Represents HeartScan options granted in February 1996 under the HeartScan  
    1995 Stock Option Plan, $142, 500 in deferred compensation was recorded in 
    1996.
(e) Represents a bonus payable to Mr. Grant upon commencement of his employment
    with the Company.
(f) Represents HeartScan options granted in October 1995 under the HeartScan 
    1995 Stock Option Plan.
(g) Represents options granted in January 1994 under the 1994 Stock Option Plan.
(h) Mr. Grant resigned as the Executive Vice President of the Company as of 
    September 1, 1996. He is currently the President and Chief Operating Officer
    of HeartScan Imaging, Inc.
(i) Represents options granted in March 1996 under the 1994 Stock Option Plan.
</FN>
</TABLE>
<PAGE>

   

Options Granted in Last Fiscal Year
  -------------------------------------

The following  table sets forth the options  granted during the last fiscal year
to each of the named executive officers of Registrant.

<TABLE>

                      Option/SAR Grants In Last Fiscal Year

==========================================================================================================================
<CAPTION>
                                                                           Potential Realizable Value
                                    Individual Grants                      at Assumed Annual Rates
                                                                           of Stock Price Appreciation
                                                                           For Option Term
==========================================================================================================================

                   Number of    %Of Total
                   Securities   Options
                   Under        Granted to
                   Options      Employees     Exercise or
                   Granted      in Fiscal     Base Price      Market     Expiration
Name               (#)          Year(a)       ($/Sh)          Price      Date          0%($)      5%($)(b)     10%($)(b)
=====              ========    ==========    ============    ======     ===========   =======    ========     =========
<S>                <C>          <C>           <C>             <C>         <C>           <C>        <C>          <C>
Douglas P. Boyd    -0-          -0-           -0-             -0-         -0-           -0-        -0-          -0-
                   
Gary Brooks        40,000       9.1%         $2.06            $2.06      3/01/01        -0-       $11,040      $24,440

Dale E. Grant      -0-          -0-           -0-             -0-         -0-           -0-        -0-          -0-

S. Lewis Meyer     -0-          -0-           -0-             -0-         -0-           -0-        -0-          -0-

<FN>

(a) Based on 439,728 options granted to all employees.
(b) Based on 5-year option term and annual compounding; results in total 
    appreciation of 27.6% (at 5% per year) and 61.1% (at 10% per year).

</FN>
</TABLE>
    
<PAGE>


Option Exercises in Last Fiscal Year and Year-End Option Values
---------------------------------------------------------------
The following table sets forth the options exercised during the last fiscal year
by named executive officers of Registrant.

<TABLE>

       Aggregated Options Exercised and Option Values in Fiscal Year 1996


<CAPTION>
                                                             Number of securities         Value of unexercised
                                                             underlying unexercised       In-the-Money options at
                                                             options at year-end (#)           year-end ($)
                   Shares acquired           Value
Name               on exercise (#)        realized ($)       exercisable/unexercisable    exercisable/unexercisable
----               ---------------        ------------       -------------------------    -------------------------
<S>                 <C>                   <C>                    <C>                       <C>                 
Douglas P. Boyd        -0-                  -0-                  211,200/18,750              $590,328/$53,109
S. Lewis Meyer      400,000(a)            $2,400,000             525,000/75,000            $1,445,063/$206,438
Dale E. Grant       150,000               $  872,062              74,000/125,000             $213,305/$360,313
Gary H. Brooks      100,000               $  644,875              57,500/82,500             $156,519/$103,331
<FN>

(a) Represents shares acquired on exercise of warrants granted at the time of 
    employment.

</FN>
</TABLE>

Compensation of Directors

Aldo Test, a director of the Company, renders consulting services to the Company
on a month-to-month  basis for which he received  compensation of $16,200 during
1996,  and  may be  expected  to do so in the  future.  The law  firm of  Flehr,
Hohbach,  Test,  Albritton & Herbert, of which Mr. Test is a member,  represents
the Company with respect to intellectual property matters and may be expected to
continue to do so in the future. Terry Ross, a director of the Company,  renders
consulting  services to the  Company  pursuant  to a  month-to-month  consulting
agreement  which  commenced in November 1993. In 1996 Mr. Ross received  $18,000
pursuant to such agreement. 
<PAGE>

Non-Employee Director Options. In connection with their services to the Company,
directors who are not employees of the Company have periodically  received stock
options  under  the  1991   Non-Employee   Directors'  Stock  Option  Plan  (the
"Directors' Plan") to purchase shares of Common Stock. The exercise price of the
options is 85% of the fair market value of the Common Stock on the date of grant
as quoted on the NASDAQ National Market System.  Typically,  the options granted
to directors vest 25% per year on the  anniversary of the date of grant and have
a term of five years. Each option terminates prior to the expiration date if the
optionee's service as a non-employee  director, or, subsequently as an employee,
of the Company terminates.

In 1991 the directors and shareholders  approved the Directors' Plan in order to
attract and retain highly  qualified  non-employee  directors by providing  each
non-employee director with an opportunity to purchase the Company's stock and to
provide  incentives  for such persons to exert maximum  efforts on behalf of the
Company.  Subject to provisions  relating to adjustments  upon changes in stock,
the  Directors'  Plan  currently  covers an aggregate  of 550,000  shares of the
Company's Common Stock.

The Directors'  Plan is  administered  by the Board of Directors.  The Board may
suspend or terminate the  Directors'  Plan at any time.  If no such  termination
occurs, the Directors' Plan will terminate in the year 2001.
<PAGE>

Options may be granted only to directors of the Company who are not employees of
the Company or any affiliate of the Company.  The  Directors'  Plan provides for
the automatic grant of options to purchase shares of Common Stock of the Company
to  non-employee  directors.  Each  person  elected  for the first  time to be a
Non-Employee Director automatically receives an option to purchase 25,000 shares
of the Company's  Common  Stock.  The  Directors'  Plan also provides that every
non-employee  director is to receive an option to purchase 25,000 shares on July
1st of each year if such  director  served  continuously  as such for the entire
preceding twelve months.
   
The  non-employee  directors  (Messrs.  Guedes,  McDaniel,  Ross and  Test)  are
entitled  to receive  options to purchase  25,000  shares each under the plan on
July 1st of each year.  In fiscal 1996  Messrs.  Ross and Test  received  25,000
shares each at an option price of $4.99 per share and Mr. Guedes received 25,000
shares at an exercise price of $3.99 per share representing  options for service
during the  1995-1996  plan year.  In January 1997,  Admiral  McDaniel  received
25,000  shares at an option  price of $2.24 per  share  upon his  election  as a
director of the  Company.  In  addition,  directors  who are not officers of the
Company are eligible for  reimbursement  in accordance  with Company  policy for
their expenses in connection  with attending  meetings of the Board of Directors
and any committees thereof.

Employee Director Compensation.  Employees who serve as directors of the Company
(Dr. Boyd, Dr. Couch and Mr. Meyer) receive no additional  compensation for such
service. Dr. Boyd and Mr. Meyer are also named executive officers of the Company
and their compensation is reflected in the Summary  Compensation Table contained
elsewhere in this  statement.  In fiscal 1996 Dr. Couch, in his capacity as Vice
President, Scientific Affairs, received options to purchase 20,000 shares of the
Company's  Common  Stock under the 1993 Stock  Option Plan at an option price of
$2.06 per share.



Employment Contracts,Termination of Employment and Change-in-Control 
Arrangements

S. Lewis Meyer became  President and Chief  Executive  Officer of the Company on
June 14, 1994. In connection  with such  employment the Company  entered into an
Executive  Employment  Agreement  with Mr. Meyer  providing  for an initial term
ending December 31, 1994 and continuing for rolling six month periods.  Pursuant
to the  agreement  Mr.  Meyer is entitled to a base salary of $185,000  per year
subject to annual review,  a one time hiring bonus of $75,000,  a  non-qualified
stock option to purchase  600,000 shares of the Company's  Common Stock at $0.58
per share (85% of the closing price of a share of the Company's  Common Stock on
the date of grant)  (subsequently  repriced to $0.56),  to be vested over a four
year period,  a warrant to purchase 400,000 shares of the Company's Common Stock
at an  exercise  price of  $1.50  (subsequently  reduced  to  $0.75  per  share)
exercisable for six years commencing June 14, 1994, but not later than 12 months
following Mr. Meyer's termination of employment, and certain other benefits.
    
<PAGE>

Compensation Committee Report

This report is provided by the Compensation  Committee of the Board of Directors
(the  "Committee")  to assist  stockholders  in  understanding  the  Committee's
objectives and procedures in  establishing  the  compensation of Imatron's Chief
Executive  Officer  and other  executive  officers.  The  Committee,  made up of
non-employee  Directors,  is responsible for establishing and  administering the
Company's executive  compensation  program. None of the members of the Committee
are  eligible  to receive  awards  under the  Company's  incentive  compensation
programs.

Imatron's executive  compensation  program is designed to motivate,  reward, and
retain the  management  talent  needed to achieve its  business  objectives  and
maintain its  competitiveness  in the medical imaging industry.  It does this by
utilizing  competitive  base  salaries  that  recognize a  philosophy  of career
continuity and by rewarding  exceptional  performance and  accomplishments  that
contribute to the Company's success.

                      Compensation Philosophy and Objective

The  philosophical  basis of the compensation  program is to pay for performance
and the level of responsibility of an individual's position. The Committee finds
greatest  value in executives who possess the ability to implement the Company's
business plans as well as to react to  unanticipated  external  factors that can
have a significant impact on corporate  performance.  Compensation decisions for
all executives,  including the named executive  officers and the Chief Executive
Officer, are based on the same criteria. These include quantitative factors that
directly  improve the Company's  short-term  financial  performance,  as well as
qualitative  factors that  strengthen  the Company  over the long term,  such as
demonstrated  leadership  skills and the ability to deal quickly and effectively
with difficulties which sometimes arise.
   
The Committee believes that compensation of Imatron's key executives should:

             *Link rewards to business results and stockholder returns;
             *Encourage  creation of stockholder  value and  achievement of
              strategic objectives; 
             *Maintain an appropriate balance between
              base salary and  short-and  long-term  incentive  opportunity;
             *Attract and retain,  on a long-term  basis,  highly qualified
              executive   personnel;   and   
             *Provide total compensation opportunity that is competitive with
              that provided by competitors in the medical imaging industry, 
              taking into account relative company size and performance as well
              as individual responsibilities and performance.
    
<PAGE>

                     Key Elements of Executive Compensation

Imatron's  executive  compensation  program  consists  of three  elements:  Base
Salary,  Short-Term  Incentives and Long-Term  Incentives.  Payout of short-term
incentives depends on corporate  performance  measured against annual objectives
and  overall  performance.   Payout  of  the  long-term  incentives  depends  on
performance of Imatron stock, both in absolute and relative terms.

Base Salary

A  competitive  base salary is crucial to support the  philosophy  of management
development and career  orientation of executives.  Salaries are targeted to pay
levels of the Company's competitors and companies having similar  capitalization
and revenues, among other attributes. Executive salaries are reviewed annually.

Short-Term Incentive

Short-term  awards  to  executives  are made in cash  and in stock to  recognize
contributions  to the  Company's  business  during the past  year.  The bonus an
executive  receives  is  dependent  on  individual   performance  and  level  of
responsibility.  Assessment  of an  individual's  relative  performance  is made
annually  based  on a number  of  factors  which  include  initiative,  business
judgment, technical expertise, and management skills.
   
Stock Bonus  Incentive Plan. In 1988 the  shareholders  approved the adoption of
the 1987 Stock Bonus Incentive Plan. Under the terms of the Stock Bonus Plan the
Committee may award shares of the Company's Common Stock to employees, including
executive  officers.

Long-Term Incentive

Long-term  incentive  awards  provided  by   shareholder-approved   compensation
programs are designed to develop and maintain  strong  management  through share
ownership and incentive awards.  Stock options were the only long term incentive
granted to executive officers in 1996.
    


<PAGE>

Stock Option Plan. In 1994, the  shareholders  approved the adoption of the 1993
Stock  Option Plan (which  replaced  the 1983 Stock  Option  Plan).  In 1995 the
directors and shareholders approved an increase in the number of shares reserved
under the Option Plan from  3,000,000  shares to 5,500,000  shares.  At the sole
discretion  of the  Committee,  eligible  officers  and  employees  periodically
receive options to purchase shares of the Company's Common Stock pursuant to the
Option  Plan.  The value of the  options  depends  entirely on  appreciation  of
Imatron  stock.  Grant of options  depends  upon  quarterly  and annual  Company
performance, as determined by review of qualitative and quantitative factors. As
of March 31, 1997 1,204,041 shares were available for issuance under the plan.

Employee Stock Purchase  Plan. In 1994 the directors and  shareholders  approved
the adoption of the 1994 Employee Stock Purchase Plan. All employees,  including
executive  officers,  may  purchase  shares of the  Company's  Common Stock at a
discount of 15% from the market price of the shares.  The Plan became  effective
January 1, 1994. In 1996 228,222 shares were purchased under the plan.

1996  Compensation.  During 1996 the Company's revenues decreased 25.6% from the
prior  year and the  Company  incurred  a loss of  $10,465,000  versus a loss of
$2,449,000 during the prior fiscal year.  However,  the Company made significant
progress in improving its technology,  raised additional equity capital and bank
credit to finance the future growth of its HeartScan Imaging,  Inc.  subsidiary,
and was  successful in the opening of additional  coronary  artery  disease risk
assessment centers. Based on this performance, only selective cost-of-living and
merit salary increases were implemented  during the year and no new stock option
grants or  bonuses  of cash or stock  were  given  during  the year to any Named
Executive Officers except an option to purchase 40,000 shares of Common Stock at
$2.06 was granted to Gary H. Brooks,  Vice President Finance and  Administration
and Chief Financial  Officer in connection  with his annual merit review.  Stock
Options were granted to other  employees of the Company based on the  employee's
level of responsibility and other factors.  If the Company's financial condition
improves in 1997,  the  Company  anticipates  implementing  a program of regular
merit salary  adjustments  for executive  officers  together with other forms of
compensation  such as incentive  stock option awards and bonus payments based on
achievement of specific goals and objectives.
<PAGE>

                     
1996 Chief Executive Officer Compensation

On March 1,  1996 Mr.  Meyer's  base  salary  was  increased  from  $195,000  to
$205,000, and effective January 1, 1997 was increased to $215,250,  both actions
reflecting  modest cost of living increases.  In addition,  in February 1996 and
specifically  in  recognition  of  his  efforts   regarding  the  formation  and
capitaliztion  of HeartScan  Imaging,  Inc.,  Mr. Meyer was granted an option to
purchase  75,000  shares of HSI  common  stock at $0.10 per share,  as  reported
elsewhere in this  statement.  The  Committee  believes that the base salary and
other terms and conditions of his  employment are consistent  with the foregoing
philosophy   and   objectives   and   reflect   the   scope  and  level  of  his
responsibilities.

Members of the Compensation Committee

Terry Ross
Aldo Test




Share Investment Performance

The following table compares the total return performance of the Company for the
periods  indicated  with the  performance  of the NASDAQ Index  (presented  on a
dividends  reinvested  basis)  and  the  performance  of the  Hambrecht  & Quist
Technology  Index. The Company's shares are traded on the NASDAQ National Market
System  under the symbol  "IMAT".  The  Hambrecht  & Quist  Technology  Index is
comprised of the publicly traded stocks of 200 technology  companies and include
companies in the electronics,  medical and related  technology  industries.  The
total return indices reflect  reinvested  dividends and are weighted on a market
capitalization basis at the time of each reported data point.


Year              1991       1992        1993      1994      1995       1996
----              ----      ------      ------    ------    ------     -----

Imatron Inc.       100       51.48       23.53     51.48     94.12     155.91

Hambrecht & Quist  
Technology Index   100      115.02      125.52    145.70    218.76     262.49

NASDAQ Index       100      116.38      133.59    130.59    184.67     223.16
    
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
             --------------------------------------------------------------

The  following  tables,  based in part upon  information  supplied by  officers,
directors and principal  shareholders,  set forth certain information  regarding
the ownership of the Company's voting  securities as of March 1, 1997 by (i) all
those known by the Company to be beneficial  owners of more than five percent of
any class of the Company's  voting  securities;  (ii) each director;  (iii) each
named executive  officer;  and (iv) all executive  officers and directors of the
Company as a group.  Unless  otherwise  indicated,  each of the shareholders has
sole voting and investment power with respect to the shares  beneficially owned,
subject to community property laws where applicable.



Security Ownership of Certain Beneficial Owners(a)

                                              Amount of Direct
                   Name and Address of        Beneficial 
Title of Class     Beneficial Owner           Ownership         Percent of Class
--------------     ----------------           ---------         ---------------
Common             Marukin Corporation(b)     5,471,617                  7.0%


(a)  Security  ownership   information  for  beneficial  owners  is  taken  from
     statements  filed with the Securities and Exchange  Commission  pursuant to
     Sections 13(d), 13(g) and 16(a) and information made known to the Company.

(b)   Marukin Corporation, 6, Rokuban-Cho Chiyoda-Ku, Tokyo 10


<TABLE>
Security Ownership of Directors and Executive Officers

The table below presents the security  ownership of the Company's  Directors and
Named Executive Officers.
<CAPTION>

Title of                                                Amount and Nature  of            Percent of
Class             Name of Beneficial Owner              Beneficial Ownership(a)          Class(b)
<S>               <C>                                     <C>                              <C>
Common            Douglas P. Boyd                         2,048,251(c)                     2.6%
Common            Gary H. Brooks                             83,042(d)                        *
Common            John L. Couch                              34,000(e)                        *
Common            Dale E. Grant                             124,000(e)                        *
Common            Jose Filipe Guedes                              0                           *
Common            William J. McDaniel                        16,000                           *
Common            S. Lewis Meyer                            568,996(f)                        *
Common            Terry Ross                                      0                           *
Common            Aldo Test                                  35,000(g)                        *
Common            All Directors and Executive Officers    2,908,303(h)                     3.7%
                  as a Group
--------
<FN>

* Does not exceed 1% of the referenced class of securities.
(a)   Ownership is Direct unless indicated otherwise.
                                                               
(b)  Calculation  based on 78,176,769  shares of Common Stock  outstanding as of
March 18, 1997.

(c)  Includes 1,830,801 shares owned directly and 217,450 shares issuable  upon
the exercise of stock options that are exercisable as of March 31, 1997 or that
will become exercisable within 60 days thereafter.

(d)  Includes 10,542 shares owned directly and 72,500 shares issuable upon the
exercise of stock options that are exercisable as of March 31, 1997 or that will
become exercisable within 60 days thereafter.

(e)  All shares are issuable upon the exercise of stock options that are 
exercisable as of March 31, 1997 or that will become exercisable  within 60 days
thereafter.

(f)  Includes 6,496 shares owned directly and 562,500 shares issuable upon the
exercise of stock options that are exercisable as of March 31, 1997 or that will
become exercisable within 60 days thereafter.

(g)  Includes 10,000 shares owned  directly and 25,000 shares issuable upon the
exercise of stock options exercisable as of March 31, 1997 or that will become
exercisable  within 60 days thereafter.

(h) Includes 1,035,450 shares that directors and executive officers had the 
right to acquire pursuant to the exercise of options that were exercisable on
March 31, 1997 or that will become exercisable within 60 days thereafter.  The
percentage of beneficial ownership assumes the exercise of the aforesaid options
by officers and directors.

</FN>
</TABLE>
<PAGE>

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
          ----------------------------------------------
    
None.

                                 PART IV

ITEM 14 - EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON 
          FORM 8-K

(a)  1.  Consolidated Financial Statements  See "Index to Consolidated
         Financial Statements" attached here to and made a part hereof.

     2.  Consolidated Financial Statement Schedules  Schedule II - Valuation
         and qualifying accounts.  All other schedules are omitted because they
         are not applicable, or the required information is shown in the
         financial statements or the notes thereto.

     3.  Exhibits  The exhibits listed on the accompanying "Index to Exhibits"
         are filed as part hereof and are incorporated herein by reference.

(b)      Reports on Form 8-K

         None filed during the Company's fourth quarter ended December 31, 1996.

<PAGE>
   
                              SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities  Exchange
Act of 1934,  the Registrant has duly caused this amended report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dated:  May 4, 1998             IMATRON INC.



                                    By  S. Lewis Meyer
                                       ----------------
                                        S. Lewis Meyer
                                        President, Chief Executive Officer

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

  SIGNATURE                      TITLE                            DATE
-------------------      ------------------------         ---------------------


Douglas P. Boyd                    Director,                     May 4, 1998
---------------                    Chairman of the Board
Douglas P. Boyd                    


William J. McDaniel                Director                      May 4, 1998 
-------------------                                      
William J. McDaniel                                                           

John L. Couch                      Director                      May 4, 1998
--------------
John L. Couch


Jose Filipe Guedes                 Director                      May 4, 1998
-------------------
Jose Filipe Guedes


S. Lewis Meyer                     Director,                     May 4, 1998
--------------                     President and Chief                      
S. Lewis Meyer                     Executive Officer


Terry Ross                         Director                      May 4, 1998
-----------
Terry Ross


Aldo J. Test                       Director                     May 4 , 1998
------------
Aldo J. Test


Gary H. Brooks                     Chief Financial Officer,     May 4, 1998
--------------                     Vice President, Finance       
Gary H. Brooks                     and Administration, Secretary



<PAGE>

                                  IMATRON INC.
                   Index to Consolidated Financial Statements


STATEMENT                                                              PAGE


Report of Independent Auditors                                          25

Consolidated Balance Sheets at December 31, 1996 and 1995               26

Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994                                        27

Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994                                        28

Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994                                        29

Notes to Consolidated Financial Statements                              30


<PAGE>


                         Report of Independent Auditors


Board of Directors and Shareholders
Imatron Inc.

We have audited the accompanying  consolidated balance sheets of Imatron Inc. as
of  December  31,  1996 and 1995,  and the related  consolidated  statements  of
operations,  shareholders' equity, and cash flows for each of the three years in
the period  ended  December  31, 1996.  Our audits also  included the  financial
statement  schedule  listed  in the  index  at Item 14 (a).  These  consolidated
financial  statements  and  schedule  are the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements and schedule based on our audits.

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, the consolidated  financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Imatron
Inc.  at  December  31,  1996 and  1995,  and the  consolidated  results  of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 1996, in conformity with generally accepted accounting  principles.
Also, in our opinion, the related financial statement schedule,  when considered
in relation to the basic financial statements taken as a whole,  presents fairly
in all material respects the information set forth therein.

As discussed in Note 12 of the Notes to the Consolidated  Financial  Statements,
the Company has restated its 1996 consolidated  financial statements with regard
to accounting for convertible securities having beneficial conversion features.

                                                         ERNST & YOUNG LLP

San Francisco, California
February 14, 1997,
except for Note 12 as to which the date is April 10, 1998


<PAGE>

<TABLE>

                                  
                             (Amounts in thousands)
<CAPTION>
                                                                                    December 31,
ASSETS                                                                          1996                  1995
------                                                                 --------------------    ------------------

                                                                           (Restated)
<S>                                                                        <C>                    <C>
Current assets
     Cash and cash equivalents                                             $ 10,862               $    7,269
                                                                                                
     Short-term investments                                                  14,171                    1,266
     Accounts receivable (net of allowance for doubtful acccounts
          of $1,110 and $171 at December 31, 1996 and 1995):                  
       Trade accounts receivable                                              2,940                    3,083
       Accounts receivable from affiliate                                     2,660                    2,957
     Notes receivable                                                          -                         250
     Inventories                                                             10,393                    8,937
     Prepaid expenses                                                         1,659                      563
                                                                        --------------------    ------------------
                 Total current assets                                        42,685                   24,325
                                                                             


Property and equipment, net                                                  10,102                    6,260
Other assets                                                                    405                      291
                                                                        ------------------    ------------------

                 Total assets                                             $  53,192             $     30,876
                                                                        ===================   ==================

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
      Borrowings under line of credit                                     $       -             $       992
                                                                                                     
      Accounts payable                                                        2,461                   2,785
      Other accrued liabilities                                               5,994                   5,607
      Captial lease obligations - due within one year                         1,188                     689
                                                                        -------------------    ------------------

                 Total current liabilities                                    9,643                  10,073

Deferred income on sale leaseback transactions                                1,419                   1,267
Capital lease obligations                                                     4,604                   3,311
                                                                        ------------------    ------------------

                 Total liabilities                                           15,666                  14,651

Commitments and contingencies - Notes 3 and 6

Minority interest - Notes 1, 7 and 12                                        12,323                     -      

Shareholders' equity
      Common stock, no par value; authorized-100,000 shares; issued
         and outstanding-77,919 shares in 1996 and 68,835 shares in 1995     89,223                  72,282
      Deferred compensation                                                   (116)                     -
      Additional paid-in capital                                              7,390                   1,500
      Accumulated deficit                                                   (71,294)                (57,557)
                                                                        ------------------  -----------------

      Total shareholders' equity                                             25,203                  16,225
                                                                       -----------------    ------------------

                Total liabilities and shareholders' equity               $   53,192            $     30,876
                                                                       =================    ==================
<FN>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
</FN>
</TABLE>
<PAGE>

<TABLE>

                                  IMATRON INC.
                      Consolidated Statements of Operations
                (Amounts in thousands, except per share amounts)

<CAPTION>

                                                                                        Years ended December 31,
                                                          
                                                                           1996               1995               1994
                                                                       ---------------    ---------------    --------------
                                                                        (Restated)
<S>                                                                     <C>                   <C>            <C>
Revenues
     Product sales                                                      $      14,236         $ 13,254       $      23,210
     Product sale-leaseback arrangements                                        1,774              1,820                 -
     Service                                                                    3,465              5,529             4,750
     Development contracts                                                      5,000              5,637             5,380
     Clinics                                                                    1,293                460               231
                                                                       ---------------    ---------------    --------------
                       Total revenues                                          25,768             26,700            33,571
                                                                       ---------------    ---------------    --------------
Cost of revenues
     Product sales                                                             12,617             11,533            16,556
     Product sale-leaseback arrangements                                        1,774              1,820                 -
     Service                                                                    3,158              3,952             4,021
     Development contracts                                                      5,000              4,978             5,227
     Clinics                                                                    2,238              1,350               521
                                                                       ---------------    ---------------    --------------
                       Total cost of revenues                                  24,787             23,633            26,325
                                                                       ---------------    ---------------    --------------

Gross profit                                                                      981              3,067             7,246

Operating expenses
     Research and development                                                   3,318              3,430             2,101
     Marketing and sales                                                        4,676              3,137             2,077
     General and administrative                                                 5,396              2,658             2,519
                                                                       ---------------    ---------------    --------------
                       Total operating expenses                                13,390              9,225             6,697
                                                                       ---------------    ---------------    --------------

Operating income (loss)                                                      (12,409)            (6,158)               549

Interest and other income                                                       2,508              4,021             2,342
Interest expense                                                                (564)              (312)             (558)
                                                                       ---------------    ---------------    --------------
Income (loss) before provision for income taxes                              (10,465)            (2,449)             2,333
                                                                       
Provision for income taxes                                                          -                  -              (23)
                                                                       ---------------    ---------------    --------------
Income (loss) before minority interest expense                               (10,465)            (2,449)             2,310     
                                                                      
Non cash return to minority interest                                         ( 3,272)                  -                -
                                                                       ---------------    ---------------    --------------
Net income (loss)                                                        $  (13,737)        $   (2,449)        $    2,310 
                                                                       ===============    ===============    ==============
Net income (loss) per common share                                        $   (0.18)         $   (0.04)         $    0.04
                                                                       ===============    ===============    ==============
Number of shares used in per share calculations                               74,406             57,598            62,102
                                                                       ===============    ===============    ==============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>

<PAGE>
<TABLE>


                                  IMATRON INC.
                 Consolidated Statements of Shareholders' Equity
                             (Amounts in thousands)
<CAPTION>
                                                                                                 
                                           Preferred Stock       Common Stock                    Additional             
                                           ---------------      ------------          Deferred    paid-in      Accumulated
                                           Shares      Amount     Shares     Amount  Compensation  Capital       Deficit     Total 
                                          ---------------------------------------------------------------------------------------- 
<S>                                         <C>        <C>        <C>        <C>         <C>       <C>         <C>         <C>   
Balances at December 31, 1993               2,008      $3,997     48,354     $55,559      -        $1,500      $(57,418)   $3,638

Preferred stock converted to
common stock                                 (700)      (1,395)    3,500       1,395     -            -             -         -  
Common stock issued for employee
stock bonus and purchase plan,
and exercise of employee stock 
options                                        -           -       1,650         837      -            -             -         837
Common stock issued for services               -           -         127          85      -            -             -          85
Net income                                     -           -          -           -       -            -           2,310     2,310
                                            --------------------------------------------------------------------------------------
Balances at December 31, 1994               (1,308)     2,602     53,631      57,876      -          1,500       (55,108)    6,870

Preferred stock converted to
common stock                                 1,308     (2,602)     6,539       2,602       -           -              -         - 
Common stock sold in a private
placement, net of offering costs               -          -        6,459       9,882       -           -              -      9,882
Common stock issued for employee
stock bonus and purchase plans,
and exercise of employee stock
options                                        -          -        1,656       1,147         -         -              -      1,147 
Warrants exercised                             -          -          550         775         -         -              -        775
Net income                                     -          -           -           -          -         -           (2,449)  (2,449)
                                            ---------------------------------------------------------------------------------------
Balances at December 31, 1995                  -          -       68,835      72,282       -         1,500        (57,557)  16,225

Common stock sold in a private
placement, net of offering costs               -          -        4,559      11,348      -           -              -     11,348 
Common stock issued for employee
stock purchase plans, stock bonus,
and exercise of employee stock 
options                                        -          -        1,188       1,194       -           -              -      1,194
Common stock issued for services                                     115         269       -                                   269
Deferred compensation from issuance
of stock options by consolidated subsidiary    -          -         -            -        (143)       -               -      (143)
Amortization of deferred compensation          -          -         -            -          27        -               -        27
Warrants exercised                             -          -        3,222       4,130        -         -               -      4,130
Issuance of subsidiary's convertible   
Series A preferred stock                       -          -           -         -           -       5,890            -       5,890
Net loss (restated)                            -          -           -           -         -         -           (13,737) (13,737)
                                            ---------------------------------------------------------------------------------------
Balances at December 31, 1996                  -        $ -       77,919     $89,223      $(116)    $7,390        $(71,294) $25,203
                                            =======================================================================================
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>

                                  IMATRON INC.
                      Consolidated Statements of Cash Flows
                             (Amounts in thousands)
<CAPTION>
                                                                        Years Ended December 31,
                                                      1996                 1995                 1994
                                                 ---------------    -----------------     ----------------
                                                    (restated)   
<S>                                                <C>                  <C>                   <C>
Cash flows from operating activities:
Net income(loss)                                   $(13,737)            $ (2,449)             $  2,310
Adjustments to reconcile net income(loss)to net
  cash used in operating activities:
      Depreciation and amortization                   1,374                1,709                 1,786
      Other income                                       -                (4,000)                    -
      Amortization of deferred compensation              27                    -                     -
      Common stock issued for services                  269                    -                    85
      Non cash return to minority interest            3,272                  -                     -
Changes in operating assets and liabilities:
      Accounts and notes receivable                     690                1,216                (2,945)
      Inventories                                    (1,456)                (701)               (3,343)
      Prepaid expenses                               (1,096)                  53                  (252)
      Other assets                                      140                  (26)                 (414)
      Accounts payable                                 (324)              (1,457)                2,232
      Other accrued liabilities                         387                  538                   584
      Deferred income                                   152                1,267                  (778)
                                                 ---------------    -----------------     ----------------
Net cash used in operating activities               (10,302)              (3,850)                 (735)
                                                 ---------------    -----------------     ----------------

Cash flows from investing activities:
Capital expenditures                                 (2,489)              (1,132)                 (621)
Purchases of available-for-sale securities          (38,891)                   -                    -
Purchases of held-to-maturity securities                 -                (1,000)                   -
Maturities of available-for-sale securities          24,720                    -                    -
Maturities of held-to-maturity securities             1,000                    -                    -
                                                ---------------    -----------------     ----------------

Net cash used in investing activities               (15,660)              (2,132)                (621)
                                                ---------------    -----------------     ----------------

Cash flows from financing activities:
Payments of obligations under capital leases           (923)                (247)                   -
Payment of notes payable                               (992)                   -                    -
Proceeds from issuance of common stock               16,672               11,804                  837
Proceeds from issuance of preferred stock
  of consolidated subsidiary                         14,798                    -                    -
                                               ---------------    -----------------     ----------------

Net cash provided by financing activities            29,555               11,557                  837
                                               ---------------    -----------------     ----------------

Net increase(decrease)in cash and cash equivalents    3,593                5,575                (519)

Cash and cash equivalents, at beginning of year       7,269                1,694                2,213
                                               ---------------    -----------------     ----------------

Cash and cash equivalents, at end of year        $   10,862          $    7,269          $      1,694
                                               ===============    =================     ================


Supplemental Disclosure of Non-cash Investing 
and Financing Activities:

Deferred compensation from common stock 
option grant of consolidated subsidiary          $     143          $       -              $      -
                                              ===============     ================     =================
Preferred stock converted to common stock        $       -          $    2,602             $   1,395
                                              ================     ===============     ==================
Equipment acquired under capital leases          $   2,715          $    4,247             $     -
                                              ================    ================     ==================
<FN>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
</FN>
</TABLE>

<PAGE>

                                  IMATRON INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1996

Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF COMPANY

Imatron   Inc.,  a  New  Jersey   corporation   incorporated   in  1983,   is  a
technology-based  company  principally  engaged in the  business  of  designing,
manufacturing, and marketing a high performance computed tomography scanner. The
scanner  is used in large and  mid-sized  hospitals  and free  standing  imaging
clinics.  The Company provides  service,  parts and maintenance to hospitals and
clinics that operate its scanners.  In addition,  the Company operates  coronary
artery scanning test facilities  through its  consolidated  subsidary  HeartScan
Imaging, Inc. ("HeartScan"),in the United States.

The consolidated  financial  statements include the accounts of Imatron Inc. and
its  subsidiary  HeartScan  Imaging,  Inc.  (collectively  the  "Company").  All
intercompany accounts and transactions have been eliminated in consolidation.


HeartScan  was  incorporated  in  Delaware  in 1994.  As of  December  31,  1996
Imatron's  interest in HeartScan is 49.5% (see Note 7). On June 28, 1996 Imatron
sold 100,000 shares of HeartScan Series A preferred stock to unaffiliated  third
parties.  The sale  reduced the  Company's  ownership  interest in  HeartScan to
48.3%.  Imatron originally  reported $554,000 (48.3%) of HeartScan losses in its
third  quarter  of fiscal  1996  using the  equity  method  of  accounting.  The
remaining  losses of $594,000 were  attributed to the preferred  stock ownership
interest of HeartScan in the third quarter of fiscal 1996. Due to certain equity
exchange  provisions  provided to these HeartScan  preferred  shareholders  (see
Notes 7 and  12),  HeartScan's  1996  results  of  operations  have  been  fully
consolidated   for  the  year  ended  December  31,  1996  in  the  accompanying
consolidated financial statements.  The result of the consolidation of HeartScan
was to increase the Company's net loss by $4,573,000 for the year ended December
31, 1996. Of this amount,  $594,000 of losses that were originally attributed to
the preferred shareholders' ownership interest in the third quarter of 1996 have
now been  consolidated  with the  Company's  1996  losses.  No future  HeartScan
operating  losses will be  attributed to the  preferred  shareholders  until the
preferred  stock exchange  provisions are  extinguished.  Additionally,  the net
proceeds realized from the Heartscan preferred stock offering will be classified
as a  minority  interest  in the  Company's  balance  sheet  until the  exchange
provisions are extinguished.

The  Company's  results  of  operations  in fiscal  1996  includes  revenues  of
$1,293,000 attributed to HeartScan's 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 amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates.


<PAGE>


CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

Cash equivalents consist of liquid instruments purchased with a maturity date of
three months or less and money market  funds.  In accordance  with  Statement of
Financial  Accounting  Standards No. 115, "Accounting for Certain Investments in
Debt and Equity  Securities,"  the Company has  classified all 1996 purchases of
investments as available-for-sale.  Available-for-sale securities are carried at
amounts which  approximate fair value, with unrealized gains and losses reported
in a separate  component of shareholders'  equity,  if material.  Fair values of
investments  are  based on  quoted  market  prices.  Short-term  investments  at
December 31, 1996 consist of A1, P1 commercial papers and government securities.

As  of  December  31,  1995,  the  company  classified  certain  investments  as
held-for-maturity.   All  held-to-maturity   investments  matured  during  1996.
Management determines the appropriate classification of marketable securities at
the time of purchase and reevaluates  such  designation as of each balance sheet
date.

Realized   gains   and   losses,   and   declines   in   value   judged   to  be
other-than-temporary  are included in other income.  The cost of securities sold
is based on the specific identification method.

CONCENTRATIONS OF RISK

The  Company's  primary  customers  operate  in  the  healthcare  industry.  The
healthcare  industry is highly regulated.  Both existing and future governmental
regulations  could  adversely  impact the market for the Company's  Ultrafast CT
scanner and the Company's business. The Company's operations are also subject to
regulation by other federal,  state and local governmental entities empowered to
enforce  pertinent  statutes  and  regulations,  such as those  enforced  by the
Occupational Safety and Health Agency and the Environmental Protection Agency.

The Company sells its products  primarily through exclusive  distributors in the
United States,  Europe,  Canada, India, Imatron Japan, Inc. in Japan, as well as
other  distributors  in the Pacific  rim.  The  Company  usually  requires  cash
deposits  based on a percentage of the sales price and maintains  allowances for
potential credit losses. Such losses have been within management's expectations.

The Company invests its excess cash in short-term  instruments  with at least an
A1/P1 credit  rating.  These funds have  virtually no principal  risk and have a
variable  interest rate. The Company has not experienced any principal losses on
its investments.

The Company revenues are principally derived from the Ultrafast CT scanner. Many
of the components and sub-assemblies used in the scanner have been developed and
designed by Imatron to its custom specifications and are obtainable from limited
or single sources of supply.  In view of the customized  nature of many of these
components and sub-assemblies,  there may be extended delays between their order
and delivery.  Delays in such delivery could adversely affect Imatron's  present
and future  production  schedules.  The Company has made and  continues  to make
inventory investments to acquire long lead time components and sub-assemblies to
minimize the impact of such delays.  In recent years,  the Company has developed
alternative  sources for many of its scanner  subcomponents  and  continues  its
programs to qualify vendors for the remaining critical parts.

INVENTORIES

Inventories are stated at the lower of standard cost (which approximates cost on
a first-in,  first-out basis) or market.  Provisions are made in each period for
<PAGE>

the  estimated  effects of excess and obsolete  inventories.  Actual  excess and
obsolete   inventories  may  differ  from  the  Company's   estimates  and  such
differences could be material to the consolidated financial statements.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and are depreciated on a straight-line
method over their  estimated  useful lives (3-5 years).  Equipment under capital
leases, except for scanner equipment,  and leasehold  improvements are amortized
on a straight-line method over the lesser of their estimated useful lives or the
remaining term of the related leases.

Scanner  equipment  under  capital  lease is  amortized  over a period using the
units-of-production  method based on the estimated usage of the equipment. It is
reasonably  possible  that the  estimates of  anticipated  scans,  the remaining
useful  lives,  or both will be reduced  significantly  in the near  term.  As a
result, the carrying amount of the scanner equipment could be reduced materially
in future periods.

RESTRICTED CASH

In connection  with a sales agreement in 1994, the Company has issued letters of
credits to a purchasor related to performance bond requirements.  The letters of
credit are  collaterized  by  certificates  of deposit  totalling  approximately
$160,000  and  $155,000 at December  31,1996 and 1995  respectively.  These this
restricted cash amounts have been classified as non-current  assets (included in
other assets).

JOINT VENTURE COMPANY

In 1994,  the  Company  formed a joint  venture,  Imatron  Japan,  Inc.  ("Joint
Venture") with two unrelated parties.  Imatron holds a 24% interest in the Joint
Venture,  which is carried at no value in the accompanying  consolidated balance
sheets.  Imatron has no  financial  commitments,  and is prepared to abandon its
interest in the Joint Venture,  which is being funded by the other joint venture
partners.

The Company  recognized  revenues of $8,726,000 and $9,213,000 in 1996 and 1995,
respectively,  from sales to the Joint Venture and has $2,660,000 and $2,957,000
in accounts  receivable  from the Joint  Venture at December  31, 1996 and 1995,
respectively.

REVENUE RECOGNITION

Revenues  related to product sales are recognized  upon shipment to the customer
or to a customer designated location,  at which time title and risk of ownership
passes. The Company accrues for estimated installation and warranty costs at the
time of sale.  Revenues  related  to service  are  recognized  ratably  over the
relevant  contractual  period or as the service is  performed.  Service  revenue
billed but  unearned  is included on the  consolidated  balance  sheets as other

<PAGE>

accrued  liabilities.  Revenues related to development  contracts are recognized
ratably over the contract.  Revenues from clinics are  recognized  when services
are performed for the clinic customer.

RESEARCH AND DEVELOPMENT

Research and development expenditures are charged to operations as incurred.

NET INCOME / (LOSS) PER SHARE

Net loss per common share in 1996 and 1995 has been computed  using the weighted
average number of common shares outstanding. Net income per common share in 1994
has been computed using the weighted average number of common shares outstanding
after considering the dilutive effect of convertible preferred shares (using the
"as if"  converted  method) and common  stock  options and  warrants  (using the
"treasury stock" method).


Note 2 - INVESTMENTS

Investments as of December 31, were as follows (in thousands):

                                               1996                   1995
                                        -----------------     ---------------- 
Money market mutual funds                      $4,262               $  352
U.S. government obligations                     8,077                1,000
Certificate of deposit                             96                  266
Commercial paper                               12,231                    -
                                        -----------------     ----------------

Total investments                              24,666                1,618

Less amounts classified as cash equivalents   (10,495)                (352)
                                        -----------------     ----------------

Short-term investments                     $   14,171            $   1,266
                                        =================     ================

As of December 31, 1996, all investments  were classified as available for sale.
As of December 31, 1995, all investments  were  classified as  held-to-maturity,
other   than   money   market   mutual   funds,   which   were   classified   as
available-for-sale. There were no material gross realized or unrealized gains or
losses in any category of investment in 1996 or 1995.

Note 3  -  TRANSACTIONS WITH SIEMENS CORPORATION


In March 1995, the Company and Siemens  Corporation  ("Siemens")  entered into a
Memorandum of Understanding.  Under the terms of the Memorandum,  Siemens agreed
to provide a maximum $15 million to the Company's C-150  Evolution  Ultrafast CT
scanner  research and development  program over the next three years in order to
improve and  enhance the  scanner.  Imatron  funds a portion  equal to a minimum
fifty percent of Siemens'  contribution  for the sole purpose of conducting  the
collaborative  agreement.  In connection  with this  agreement,  Siemens retains
exclusive  distribution rights,  through March 31, 1998, in certain geographical
regions for sales of the  C-150/Evolution  scanner.  The Company has  recognized
$5,000,000  and  $3,884,000  of  revenue  under  the  collaborative  development
agreement  in 1996 and 1995,  respectively.  This  revenue  has been  recognized
ratably  over the year as research  and  development  has been  performed by the
Company.  The  payments  received by the Company  are not  refundable  under any
circumstances. Under the now expired product development agreement with
<PAGE>

Siemens,  the Company  recognized  $0,  $1,753,000  and $5,013,000 in revenue in
1996, 1995 and 1994, respectively.

In conjunction with this Memorandum of  Understanding,  Imatron  transferred the
ownership  of five  Imatron  EBT patents to Siemens  and  cancelled  the minimum
purchase  provision of the previous  distribution  agreement in  satisfaction of
Imatron's $4 million note payable to Siemens.  Imatron has classified the entire
$4 million as other income in 1995.

In September 1995,  Siemens  asserted a claim against the Company  regarding the
lapse of certain foreign registrations of one of the patents assigned to Siemens
by the  Company in  connection  with the March 31,  1995  agreement  between the
companies. The technology involved in the patent is not used presently in any of
the Company's products.  The Company  substituted a patent,  subject to existing
license-back,  currently used in its technology,  for the previously transferred
patent. Representatives of Siemens have agreed with the Company to these terms.


Note 4  -  BALANCE SHEET DETAIL
           (in thousands) 

                                                           December 31,
                                                      1996             1995
                                                 -------------     ------------
Inventories consist of:

Purchased parts and sub-assemblies             $     2,994       $      2,594
Service parts                                        1,142              1,079
Work-in-process                                      2,574              2,403
Finished product                                     3,683              2,861
                                                 -------------    -------------

Inventories                                    $    10,393       $      8,937
                                               =============     ==============

Property and equipment, at cost, consist of:

Machinery and equipment                      $      11,964       $      9,266
Furniture and fixtures                               1,408              1,444
Leasehold improvements                               3,442              2,380
                                             ---------------     --------------
                                                    16,814             13,090

Less accumulated depreciation and amortization      (6,712)            (6,830)
                                             ---------------     --------------

Net property and equipment                   $      10,102       $      6,260
                                             ===============     ==============

Other accrued liabilities consist of:

Warranty and product upgrades                 $      1,867       $      1,740
Customer deposits                                    2,345              2,331
Employee compensation                                  758                628
Deferred service revenues                              225                265
Other                                                  799                643
                                             ---------------     --------------

Other accrued liabilities                     $      5,994       $      5,607
                                             ==============     ==============
<PAGE>

Note 5  - DEBT

At December 31, 1995,  debt  consisted of borrowings due under a line of credit,
at prime rate plus one percent. At December 31, 1996, the Company has $5,000,000
available  under a line of  credit.Interest  paid  was  $582,000,  $386,000  and
$479,000 in 1996, 1995 and 1994, respectively.

Note 6  -  COMMITMENTS, CONTINGENCIES AND OTHER

OPERATING LEASES

The  Company  leases its  present  facilities  under  various  operating  leases
expiring between December 31, 1996 and December 31, 2005.  Future minimum rental
payments under the leases as of December 31, 1996 are as follows (in thousands):

                                 1997                         $   1,168
                                 1998                             1,118
                                 1999                             1,047
                                 2000                             1,046
                                 2001                               834
                                 Thereafter                         353
                                                            ------------
                                 Total remaining                 $5,566
                                                            ============

Rent expense for all leases totaled  $1,080,000,  $921,000 and $855,000 in 1996,
1995 and 1994, respectively.

CAPITAL LEASE OBLIGATIONS

The Company leases certain equipment under  noncancelable  lease agreements.  In
addition,  HeartScan leases four scanners for its clinics, payments of which are
guaranteed  by  Imatron.  The  equipment  leased by Imatron  and  HeartScan  are
accounted for as capital  leases.  As of December 31, 1996,  equipment under the
capital lease  arrangements  and included in property and equipment,  aggregated
$6,962,000.  Accumulated  amortization  totalled  $674,000 at December 31, 1996.
Amortization expense is included in depreciation and amortization.

Future minimum lease  payments  under capital lease  obligations at December 31,
1996 are as follows (in thousands):

           1997                            $    1,718
           1998                                 1,764
           1999                                 1,759
           2000                                 1,477
           2001                                   431
                                        -----------------
           Total minimum payments               7,149

           Less amounts representing interest  (1,357)
                                       -----------------
           Total principal                      5,792

           Less portion due within one year    (1,188)
                                       -----------------
                   Long-term portion    $       4,604
                                       =================
<PAGE>

The Company sold two scanners to leasing finance institutions during fiscal 1996
and 1995,  which  were  immediately  leased  back to  HeartScan.  The sales were
accounted for as  sales-leaseback  transactions.  Remaining  deferred  income on
sale-leaseback  transactions  amounted to $1,419,000  and $1,267,000 at December
31, 1996 and 1995, respectively.

LICENSE AGREEMENTS

In February  1981,  the Company was granted the exclusive use for five years and
nonexclusive use thereafter of certain  technology and a patent pending owned by
the  University of California  ("UC") under the terms of license and  sublicense
agreements  between UC and  Emersub  Incorporated  ("Emersub"),  a wholly  owned
subsidiary  of Emerson  Radio Corp.,  and Emersub and Imatron  Associates,  (the
predecessor  to the  Company),  respectively.  In June  1986,  the  license  and
sublicense  agreements were amended to extend the Company's exclusive use of the
technology  through the  remaining  life of the patent in exchange  for modified
annual royalty  payments.  The sublicense  agreement,  as amended,  requires the
Company to pay annual  royalties to Emersub  equal to 2.125% of the net sales of
products utilizing the licensed technology. Charges to operations for 1996, 1995
and 1994 were $91,470, $91,470 and $151,980, respectively.

Note 7  -  CAPITAL STOCK

COMMON STOCK

In 1995, the Company closed a private placement of its common stock. The private
placement  realized  proceeds of $9,882,000  (net of offering costs) through the
sale of 1,200,000  units. A unit consists of five shares of Imatron Inc.  Common
Stock  and  one  five-year  Imatron  Inc.  Common  Stock  purchase  warrant.  In
connection with the private placements,  the Company issued an additional 91,819
units as a result of the  adjustment  on the  stock  price  based on the  60-day
average  price as stated in the Common Stock  purchase  agreement.  The adjusted
price per unit was $8.25 or $1.65 per share of Common Stock.

In 1996,  Imatron sold 4,500,000  shares of common stock and issued  warrants to
purchase common shares in two private placement  offerings,  netting proceeds of
$11,348,000.  In addition,  in 1996, the company issued additional 59,093 shares
of common  stock as a result of the  adjustment  on the stock price based on the
60-day average price  pertaining to the previous 1995 private  placement.  As of
December  31,  1996,  no further  rights for  adjustments  remain for the common
stock.

HEARTSCAN EQUITY TRANSACTIONS

In June 1996,  Imatron  completed a private  placement  offering whereby 100,000
shares of  HeartScan  Series A  Preferred  Stock were sold at $160 per share and
realized net proceeds of  $14,798,000.  The preferred  stock is convertible on a
ten-to-one basis into HeartScan common shares at any time.  Mandatory conversion
of the  preferred  stock  into  common  stock  will  occur  upon the  successful
completion  of a HeartScan  initial  public  offering.  The  HeartScan  Series A
Preferred  Stock may be  exchanged at the sole option of the holder into Imatron
common stock at an exchange price of $5.00 per share until the earlier of a) two
year period following closing of the Preferred Stock offering; or b) a HeartScan
initial public offering. If there is no initial public offering within 24 months
of the  Preferred  Stock  closing,  holders may convert the  HeartScan  Series A
Preferred  Stock into Imatron  common  stock at a conversion  price equal to the
greater of $1.50 per share or a 27% discount from the weighted  average  closing
price of Imatron  common  stock for the 90 day period  immediately  preceding 24
months of the Preferred Stock closing and each date that is 3 months  thereafter
to and including the 48th month of the Preferred Stock closing (see Note 12).

<PAGE>

Due to the exchange  provision  built into the private  offering as discussed in
the preceding paragraph,  Imatron will include HeartScan's results of operations
in its consolidated financial statements until either the conclusion of the four
year exchange period or a HeartScan initial public offering.

The HeartScan Series A Preferred Stock is held entirely by an unaffiliated third
parties and is  classified  in the  accompanying  consolidated  balance sheet at
December 31, 1996 as a minority interest.

The  terms of the  preferred  stock  provide  certain  additional  rights to the
holders  including  participation  and approval of any future  HeartScan  equity
financing and approval of transactions with affiliates.

The terms of the Series A Preferred Shares include  1,000,000  authorized shares
and 100,000 issued and outstanding shares at December 31, 1996.

As of December 31, 1996, 30,002 warrants to purchase one share each of HeartScan
Common  Stock  were  issued  in  connection  with  the  above-mentioned  private
placement. These warrants are exercisable at $16.00 per share and expire in June
2001.

<TABLE>
WARRANTS

<CAPTION>
At December 31, 1996,  outstanding  warrants to purchase shares of the Company's
common  stock  were  as  follows:                                                      Shares  reserved for 
                                                                                       exercise of warrants
                                                                                    ---------------------------

<S>                                                                                            <C>    
Warrants, expiring in 2000, to purchase shares of common stock at $2.31 per                      826,038
  share issued under the October 1995 private placement
Warrants,  expiring  in 2001,  to purchase  shares of common  stock at $1.71 per                 162,609
  share  issued to Sitrick & Company in lieu of investor  relation fees
Warrants, expiring in 1999, to purchase shares of common stock at $3.25 per                    1,200,000
  share issued under the May 1996 private placement
Warrants, expiring in 1999, to purchase shares of common stock at $3.75 per                      800,000
  share issued under the May 1996 private placement
Warrants, expiring in 2001, to purchase shares of common stock at $6.20 per                      182,803
  share issued under the 1996 HeartScan  private placement                           -------------------------
Total at December 31, 1996                                                                     3,171,450
                                                                                     ===========================
<FN>

In 1995, warrants were exercised to purchase a total of 550,000 shares of common
stock at prices ranging from $1.00 to $1.50 per share.

In 1996,  warrants  were  exercised to purchase a total of  3,222,000  shares of
common stock at prices ranging from $0.40 to $2.31 per share.
</FN>
</TABLE>


Note 8 -  STOCK BONUS PLAN AND STOCK OPTION PLANS

STOCK BONUS PLAN

In  February  1987,  the  Company  adopted  the 1987 Stock  Bonus Plan which was
approved by the shareholders.  The stock bonus plan was adopted to reward and to
provide  incentive  to  participants  for  services.  The total number of common
shares that may be granted is 1,200,000 with no more than 400,000 shares
<PAGE>

awarded in any fiscal year. In 1996, the Company granted 19,409 shares under the
plan.  There  were no shares  granted  under  the plan in 1995 and  1994.  As of
December 31, 1996, 770,910 common shares are reserved for future grants.

DIRECTOR STOCK OPTION PLAN

In June 1991, the Company  adopted a non-employee  Directors'  Stock Option Plan
for the  directors of Imatron.  The  Directors  Plan  provides for the automatic
grant of  non-statutory  options to non-employee  directors.  The Directors Plan
covers 250,000 shares of the Company's  common stock.  In June 1993 an amendment
to the non-employee  Directors Plan was approved increasing the number of shares
to 550,000.  Under the plan,  options for  425,000  shares have been  granted to
non-employee Directors.

EMPLOYEE STOCK OPTION PLAN

In March 1983,  the Company  adopted a stock option plan which  provides for the
granting of incentive stock options to employees and non-statutory stock options
to non-employee  directors,  and certain consultants.  The shareholders approved
the plan,  as amended,  in March 1984.  In 1993 the original  plan ("1983 Plan")
terminated and a new plan ("1993 Plan") was approved. The terms of the 1993 Plan
are consistent  with the terms of the 1983 Plan.  During 1995, the  shareholders
approved  an increase  in the number of shares  reserved  for the 1993 Plan from
3,000,000 to 5,500,000.

All incentive  stock options are granted at the common stock's fair market value
at the grant date and  non-statutory  stock options are granted at not less than
85% of the common stock's fair market value at the grant date.  Options  granted
under the plan  generally  vest evenly over four years  following the grant date
and expire five years from the grant date.

STOCK BASED COMPENSATION

The Company has elected to follow Accounting  Principles Board Opinion No. 25, "
Accounting for Stock Issued to Employees ("APB 25") and related  Interpretations
in accounting for its employee stock options  because,  as discussed  below, the
alternative  fair value  accounting  provided for under FASB  Statement No. 123,
"Accounting for Stock-Based  Compensation" ("SFAS 123"),  requires use of option
valuation models that were not developed for use in valuing stock options. Under
APB 25,  compensation  expense is measured as the excess of the market  price of
the underlying stock over the exercise price on the date of the grant, if any.

Pro forma information  regarding net loss and loss per share is required by SFAS
123, and has been  determined  as if the Company has  accounted for its employee
stock options under the fair value method of that  Statement.  The fair value of
these  options was estimated at the date of grant using a  Black-Scholes  option
pricing model with the following weighted-average assumptions:

                                             1996                      1995
                                             ----                      ----

  Expected stock price volatility           80.2%                     80.2%
  Risk-free interest rate                    6.25%                     6.37%
  Expected life - Years                      3.64                      3.55
  Expected dividend yield                    0.00%                     0.00%

The Black-Scholes option  valuation  model was developed for use in estimating
the fair value of traded  options  which have no  vesting  restrictions  and are
fully  transferable.  In addition,  option valuation models require the input of
<PAGE>

highly  subjective  assumptions  including the expected stock price  volatility.
Because the Company's employee stock options have characteristics  significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is  amortized  to expense  over the  options'  vesting  period.  Had the Company
elected to recognize compensation expense based on the fair value of the options
granted at grant dates as  prescribed  by SFAS 123,  net loss and loss per share
would have been increased to the pro forma amounts  indicated in the table below
(in thousands):

                                                1996                1995
                                             ----------          ----------
 Net loss - as reported                       ($13,737)           ($2,449)
 Net loss - pro forma                         ($14,156)           ($2,620)
 Loss per share - as reported                   ($0.18)            ($0.04)
 Loss per share - pro forma                     ($0.19)            ($0.05)

The weighted  average  fair value of options  granted in 1996 and 1995 was $2.63
and $1.24 per share,  respectively.  The weighted average remaining  contractual
life of all options at December 31, 1996 is 3.64 years.

The pro forma effect on net loss for 1996 is not representative of the pro forma
effect on net income in future years because it does not take into consideration
pro  forma  compensation  expense  related  to  grants  prior to  1995,  and the
compensation  expense  that will be  recognized  in future  years as the  graded
vesting periods become exercisable.
<PAGE>

<TABLE>

A summary of the activity under the stock option plans is as follows:
<CAPTION>

                                                                           Outstanding Options
                                                            Shares        ---------------------             Aggregate
                                                           available        Number      Price per            Exercise
                                                           for grant       of shares      share          price(in thousands)
                                                          -----------     ----------   -------------        ----------
<S>                                                      <C>              <C>          <C>                   <C>      
Balances at December 31, 1993                             2,392,000        3,745,216   $0.48 - $0.56         $2,523

   Options granted                                       (2,230,808)       2,230,808   $0.43 - $1.22          2,052
   Options exercised                                          -           (1,147,002)  $0.48 - $0.61          (616)
   Options cancelled                                        236,263         (236,263)  $0.48 - $1.22          (173)
   1983 option plan termination                             (28,563)           -       $0.51 - $0.56          (159)
                                                        -------------    -----------   -------------         -------

Balances at December 31, 1994                               368,892        4,592,759   $0.43 - $1.22         $3,627

   Shares reserved - 1993 Plan                            2,500,000             -                                -
   1983 option plan termination                             (83,950)            -      $0.51 - $0.56            (45)
   Options granted                                         (413,800)         413,800           $1.03            426
   Options exercised                                         -            (1,320,377)  $0.51 - $1.22           (981)
   Options cancelled                                        301,125         (301,125)  $0.56 - $1.22           (288)
                                                       ---------------   ------------  -------------        --------
Balances at December 31, 1995                             2,672,267        3,385,057   $0.43 - $1.22         $2,739

   1983 option plan termination                              (5,550)          -        $0.51 - $0.56             (3)
   Options granted                                         (514,728)         514,728           $2.06          1,060
   Options exercised                                           -            (940,235)  $0.51 - $2.06           (795)
   Options cancelled                                        102,175         (102,175)  $0.56 - $1.22            (93)
                                                      ----------------  -------------  -------------       ----------
Balances at December 31, 1996                             2,254,164        2,857,375   $0.43 - $2.06          $2,908
                                                      ================  =============  =============        ==========

</TABLE>
<TABLE>

The  following  table   summarizes   information   concerning   outstanding  and
exercisable  options as of  December  31,  1996 (In  thousands  except per share
amounts):
<CAPTION>

                       Options Outstanding                                           Options Exercisable
                                        Weighted
                                        Average
Range of Exercise                      Remaining            Weighted                                 Weighted Average
   Prices            Number of        Contractual           Average              Number of           Exercise Price
   ------             Shares             Life             Exercise Price           Shares                            
                  --------------    ---------------     ---------------       -----------------    --------------------
<S>                    <C>               <C>                 <C>                   <C>                 <C>            
$0.51 - $2.00          2,421             3.30                $0.75                 1,534               $0.75
$2.01 - $3.50            361             4.00                $2.06                    55               $2.06
$3.51 - $5.00             75             4.70                $4.67                     0                   0
                  --------------   ----------------     ---------------       -----------------    --------------------
                       2,857             3.64                $1.02                 1,589               $0.92
                  ==============   ================     ===============       =================    ====================
<FN>
Options for 1,588,533 and  1,406,997  shares of the Company's  common stock were
exercisable  under  the  plans at  December  31,  1996 and 1995 at an  aggregate
exercise price of $1,460,599 and $1,146,916, respectively.
</FN>
</TABLE>
<PAGE>

In October 1995,  HeartScan  approved the adoption of the HeartScan Imaging Inc.
1995 Stock Option Plan ("HSI Stock Option Plan") which provides for the granting
of  incentive  stock  options to employees  and  nonstatutory  stock  options to
employees,  nonemployee directors, and certain consultants.  All incentive stock
options are granted at the common  stock's  fair market  value at the grant date
and  nonstatutory  stock  options are granted at not less than 85% of the common
stock's  fair market  value at the grant date.  Options  granted  under the plan
generally  vest  annually  over four  years  following  the grant date and has a
maximum term of ten years.

<TABLE>

A summary of the activity under the HSI Stock Option Plan is as follows:
<CAPTION>
                                                                        Outstanding Options
                                                     Shares            --------------------           Aggregate  
                                                     available          Number        Price per        Exercise
                                                     for grant         of shares        share      Price(in thousands)
<S>                                                   <C>               <C>            <C>               <C>
Balances at December 31, 1994                              -                -             -               -
  
 Shares reserved - 1995 Plan                           250,000              -             -               -
 Options granted                                      (112,500)         112,500        $0.001             -
                                                  ----------------   ------------  --------------   -----------
 
Balances at December 31, 1995                          137,500           112,500       $0.001             -

 Options granted                                       (75,000)           75,000       $0.100             $8
 Options exercised                                          -            (72,656)      $0.001             -
                                                  ----------------   -------------  -------------   -----------
Balances at December 31, 1996                           62,500           114,844       $0.07             $8
                                                  ================   =============   ===========     ===========
<FN>

At December  31, 1996,  options to purchase  18,750  shares of HeartScan  common
stock were exercisable at an aggregate exercise price of $1,875.
</FN>
</TABLE>

The  difference  between  the  exercise  price  and fair  market  value,  of the
HeartScan's  common stock at the date of issue of the stock  options,  totalling
$143,000  has  been  recorded  as  deferred  compensation  and  a  component  of
stockholders' equity. Of this amount,  $27,000 has been recognized as an expense
through  December 31, 1996.  The  remaining  $116,000  will be  recognized as an
expense as the shares vest over a period of up to four years.

COMMON STOCK RESERVED

At December 31, 1996, the Company has reserved shares of common stock for future
issuances as follows (in thousands):


        Stock option plans                                               5,111
        Stock options outside the plans                                  1,500
        Stock purchase plan                                                727
        Stock warrants                                                   3,347
        Stock bonus plan                                                   771
        Conversion of HeartScan Preferred A                             10,667
                                                                ---------------
        Total                                                           22,123
                                                                ===============

<PAGE>
Note 9  -  STOCK PURCHASE PLAN AND RETIREMENT SAVINGS PLAN

EMPLOYEE STOCK PURCHASE PLAN

In March 1994, the Company adopted an employee stock purchase plan covering most
employees.  Under  the  plan,  employees  may  contribute  up to  10%  of  their
compensation to purchase  shares of the Company's  common stock at the lesser of
85% of the  stock's  fair  market  value at the  offering  period or end of each
three-month  interim offering period. The maximum number of shares offered under
the Plan is 1,800,000  shares of common  stock.  At December  31, 1996,  727,095
shares were reserved and available for future  issuance  under the plan. A total
of 228,222, 334,975 and 503,243 shares were issued at an average price of $1.44,
$0.75 and $0.75 per share in 1996, 1995 and 1994, respectively.

RETIREMENT SAVINGS PLAN

In 1987,  the  Company  established  a  qualified  retirement  plan,  under  the
provisions of section  401(K) of the Internal  Revenue  Code, in which  eligible
employees may participate.  Substantially all participants in this plan are able
to defer  compensation  up to the  annual  maximum  amount  allowable  under the
Internal  Revenue Service  regulations.  The Plan was amended in 1994 to provide
for   employer   contributions   equal  to  50%  of  every  dollar  of  employee
contribution,  with a maximum of 6% of employee wages.  The Company  contributed
approximately   $212,000,   $169,000  and  $76,000  in  1996,   1995  and  1994,
respectively.

Note 10  -  INCOME TAXES

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes.
<TABLE>

Significant  components of the Company's  deferred tax assets and liabilities as
of December 31, are as follows (in thousands):
<CAPTION>

                                                            1996              1995
                                                       ---------------    -------------
<S>                                                     <C>               <C> 
Deferred tax assets:
   Net operating loss carryforwards                     $  24,489         $  19,733
   Federal credit carryforwards                               842               880
   Expenses not currently deductible for tax purposes       3,446                - 
   Deferred revenue previously taxed                          614                - 
   Other                                                      150             2,807
       Deferred tax assets                                      -                 - 
                                                       ---------------    -------------
                                                           29,541            23,420
Valuation allowance
                                                          (28,838)          (22,407)
                                                       ---------------    -------------
     Net deferred tax assets
                                                              703             1,013
Deferred tax liabilities:
  Capitalized development costs                                 -                42
  State income taxes                                          479               504
  Other                                                       224               467
                                                       ---------------    -------------
      Deferred tax liabilities                                703             1,013

  Net deferred taxes                                    $       -          $      -
                                                       ===============    =============
</TABLE>
<PAGE>


The  net  change  in the  valuation  allowance  was  $6,431,000,  $925,000,  and
($1,792,000) for 1996, 1995 and 1994,  respectively,  principally resulting from
net operating loss carryforwards.

The reconciliation of income tax attributable to continuing  operations compared
at the U.S. federal statutory rates to income tax expense is as follows:

                                           1996           1995           1994
                                     -----------      ----------    -----------
Federal statutory rate                 (34%)              (34%)            34%
Net operating loss carry forwards        -                  -             (33%)
Valuation Allowance                     34%                34%              -
                                     ------------     ----------    -----------
Effective tax rate                       0%                 0%              1%
                                     ===========     ===========     ==========

Due to the issuance of preferred stock which occurred June 28, 1996, utilization
of the net operating loss and tax credit  carryforwards  for the Company and its
subsidiary, HeartScan, will be subjected to separate return limitations.

At  December  31,  1996 the Company has net  operating  loss  carryforwards  for
federal  and  state  income  tax  purposes  of  approximately   $61,200,000  and
$10,600,000 respectively. Additionally, the Company has research and development
and alternative  minimum tax credit  carryforwards of approximately  $842,000 at
December 31, 1996. The net operating loss and the research and  development  tax
credit carryforwards expire in various years from 1998 through 2011.

In addition,  HeartScan has net  operating  loss  carryforwards  for federal and
state  income  tax  purposes  of   approximately   $7,500,000  and   $1,800,000,
respectively.  The net operating loss carryforwards expire in various years from
2001 through 2011.

Pursuant to the Tax Reform Act of 1986, annual  utilization of the Company's net
operating  loss and tax credit  carryforwards  may be  limited  if a  cumulative
change in ownership  of more than 50% is deemed to occur  within any  three-year
period.

Note 11  -  SEGMENT INFORMATION AND FOREIGN SALES

The Company operates in one industry  segment in which it designs,  manufactures
and markets a computed  tomography  scanner.  The Company has distributors  that
sell and  service  its  scanner  throughout  the  world.  Sales of  products  to
end-users   outside  the  United  States  were   $11,528,000,   $13,254,000  and
$14,990,000 in 1996, 1995 and 1994, respectively.

Note 12 - RESTATEMENT

In March  1997,  subsequent  to the  Company  finalizing  its 1996  consolidated
financial  statements,  the Securities and Exchange Commission ("SEC") announced
its position on accounting for the issuance of convertible  preferred stock with
a nondetachable  conversion feature that is deemed "in the money" at the date of
issue (a "beneficial conversion feature").  The beneficial conversion feature is
initially recognized and measured by allocating a portion of the preferred stock
proceeds   equal  to  the   intrinsic   value  of  that  feature  to  additional
paid-in-capital.  The intrinsic  value is calculated at the date of issue as the
difference of the conversion  price and the quoted market price of the Company's
common stock,  into which the security is convertible,  multiplied by the number
of shares into which the security is  convertible.  The discount  resulting from
the allocation of proceeds to the beneficial  conversion feature is treated as a
dividend and is recognized as a return to the  preferred  shareholders  over the
minimum period in which the preferred shareholders can realize that return (i.e.
from the date the securities are issued to the date they are first convertible).
The  accounting  for the beneficial  conversion  feature  requires the use of an
unadjusted quoted market price (i.e. no valuation discounts allowed) as the fair
value used in order to determine the  intrinsic  value  dividend.  Additionally,
preferred  dividends  of a  subsidiary  are  included in minority  interest as a
charge against income.

Prior to  applying  the  accounting  described  above in its  previously  issued
financial statements, the Company had not recognized an intrinsic value dividend
on the HeartScan  preferred  stock which was issued in June 1996. The discounted
conversion  features of this  preferred  stock into  Imatron  common  stock (the
immediate conversion at $5.00 per share and the conversion in two years from the
date of the  preferred  stock  issuance at a 27%  discount)  was provided to the
preferred shareholders,  in essence to provide them with an exit strategy in the
absence  of a  HeartScan  IPO (see Notes 1 and 7).  Thus,  the  Company  did not
believe a discount  should be recognized on a  contingently  issuable  security.
Furthermore,  at the time of agreeing to the terms of the transaction the $5 per
share  immediate  conversion  price was above the market price of the  Company's
common stock but at the time the HeartScan  preferred stock was actually issued,
the market price had  increased  to $5.75 and  thereafter,  it dropped  below $5
again.  Accordingly,  the Company did not believe  that any  calculation  of the
discount should include the impact of this short-term market fluctuation.

In December 1997, the staff of the SEC gave a speech further  refining its March
1997 announcement. Based on discussions with the staff of the SEC in April 1998,
the staff concluded that the Company should retroactively apply its announcement
because  it should be  applied  to  contingently  issuable  securities  and,  as
discussed in the December speech, the portion  attributable to the discount that
could have been obtained  immediately on conversion  (even though the shares had
not been  registered  yet) should be recognized on the day the preferred  shares
were issued.  The balance of the  discount  based on a market value of $5.75 per
common share is being recognized over two years from the date of issuance.

The consolidated  financial statements as of and for the year ended December 31,
1996 have been  restated to give effect to the  accounting  treatment  described
above. The restatement  resulted in (1) a  reclassification  in the consolidated
balance  sheet  of  $5,890,000   reducing  minority   interests  and  increasing
additional  paid-in  capital(equity)  and  (2)  the  recognition  of a  minority
interest  charge  of  $3,272,000  (including  $2,400,000  as of the  date of the
preferred  shares  were  issued) in the  consolidated  statement  of  operations
increasing the Company's net loss from $10,465,000 to $13,737,000. The remaining
discount of $2,618,000  will be charged to minority  interests  through June 30,
1998.

The restatement of the previously issued 1996 consolidated financial statements,
in order to apply the accounting  described herein for the intrinsic value of
the  beneficial  conversion  features,  does not  affect  the cash  flows of the
Company. The minority interest is recognized as an increase in minority interest
in the balance sheet.If the preferred shareholders elect to convert their shares
to Imatron  common  stock,  the minority  interest  will then convert to Imatron
equity.

<PAGE>

                                  IMATRON INC.
                                Index of Exhibits

Exhibit                                                                  SEC
Number                Description                                      Page No.
 
(See Footnotes)

3.1             (1)    Certificate of Incorporation of the Company as
                       amended as of March 31, 1983

3.2             (2)    Certificate of Amendment of Certificate of
                       Incorporation filed with the New Jersey Secretary
                       of State on June 7, 1988

3.3             (2)    Certificate of Amendment of Certificate of
                       Incorporation filed with the New Jersey Secretary
                       of State on June 17, 1988

3.4             (2)    Certificate of Amendment of Certificate of
                       Incorporation filed with the New Jersey Secretary
                       of state on  July 26, 1988

3.5             (9)    Certificate of Correction of Certificate of
                       Amendment of Certificate of Incorporation filed
                       with the New Jersey Secretary of State on
                       February 7, 1989

3.6            (10)    Certificate of Amendment of Certificate of
                       Incorporation filed with the New Jersey Secretary
                       of State on March 29, 1990

3.7            (11)    Certificate of Amendment of Certificate of
                       Incorporation filed with the New Jersey Secretary
                       of State on December 7, 1990

3.8            (12)    Bylaws, as amended April 30, 1992



<PAGE>
Exhibit                                                                   SEC
Number            Description                                          Page No.

(See Footnotes)

4.1            (23)    Form of Warrant issued to investors in Private
                       Offering concluded October 19, 1995

4.2            (24)    Form of Warrant issued to investors in Private 
                       Offering concluded May 24, 1996

4.3            (25)    Warrant issued to Sitrick And Company Inc. in
                       conjunction with public relations services

4.4            (25)    Form of Warrant issued to investors in HeartScan
                       Private Offering concluded June 24, 1996
    
10.1            (1)    Sublicense Agreement between the Company and
                       Emersub Incorporated dated February 1, 1981

10.2            (6)    Amendment to Sublicense Agreement between
                       Registrant and Emersub Incorporated dated
                       June 30, 1986


10.6            (7)    Lease Agreement between the Company and Diodati
                       Trust and Patrician Association, Inc. for the
                       premises located at 389 Oyster Point Boulevard,
                       South San Francisco, California

10.7            (3)    Common Stock Purchase Agreement dated February
                       26, 1987 between the Company and Mitsui & Co.
                       (U.S.A.), Inc.

10.8            (9)    Common Stock Purchase Agreement dated February
                       26, 1988 between the Company and Pacific
                       Scientific Commerce Ltd.

10.9           (10)    License Agreement dated as of September 13, 1988
                       between the Company and EMI Limited

10.10           (8)    Series A Preferred Stock Purchase Agreement,
                       dated as of July 20, 1988, by and among the
                       Company, FI.M.A.I. Holding S.A. and Compagnie
                       Financiere Espirito Santo, S.A.

10.11           (9)    Convertible Debenture between the Company and
                       Analogic Corporation

10.12          (26)    1997 Stock Bonus Incentive Plan

10.14           (9)    Security Agreement dated December 15, 1988
                       between the Company and John Hancock Leasing
                       Corporation and Promissory Note dated December
                       30, 1988 from the Company to John Hancock Leasing
                       Corporation

10.15           (9)    Agreement to Issue Warrant dated January 19, 1989
                       between the Company and John Hancock Leasing Corporation
<PAGE>

Exhibit                                                                  SEC
Number                 Description                                     Page No.
 
(See Footnotes)

10.16           (9)    Amendment dated July 20, 1987 to Lease dated
                       August 23, 1983 by and between the Company and
                       Diodati Property Trust and Patrician Associates, Inc.

10.17          (10)    Series B Preferred Stock Purchase Agreement and
                       Option to Form Joint Venture dated March 26, 1990
                       between the Company and FI.M.A.I. Holding, S.A.,
                       and the exhibits thereto
 

10.18          (10)    Letter Agreement dated March 26, 1990 between
                       the Company and FI.M.A.I. Holding, S.A.

10.19          (10)    Second Amendment to Sublicense Agreement between
                       Company and Emersub Incorporated dated
                       October 10, 1990

10.20          (12)    Polly Force Distribution Agreement

10.21          (13) *  Basic Agreement between the Company and Siemens
                       Corporation dated March 14, 1991

10.22          (13)    Loan Agreement between the Company and Siemens
                       Corporation dated March 14, 1991

10.23          (12)    Revolving Line of Credit Agreement between the
                       Company and Instituto Bancario San Paolo di
                       Torino dated November 9, 1990

10.24          (13)    Registration Rights Agreements dated November 6,
                       1990 among the Company, FI.M.A.I. Holding, S.A.
                       and Societe d'Investissments dans des
                       Entreprises Commerciales, Industrielles et
                       Technologiques S.A.
 
10.25          (13)    Stockholders Agreement dated August 13, 1990
                       between the Company and FI.M.A.I. Holding, S.A.

10.26          (13)    Sales and Distribution Agreement dated July 20,
                       1988 between the Company and FI.M.A.I. Holding,
                       S.A.

10.27          (13) *  Exclusive Importer Agreement dated November 12,
                       1990 between the Company and Mitsui & Co., Ltd.

10.28          (13) *  Distributorship Agreement dated November 12, 1990
                       among the Company, Mitsui & Co., Ltd. and PASCO
                       Corporation
<PAGE>

Exhibit                                                                SEC
Number          Description                                         Page No.
 
(See Footnotes)

10.29          (13)    Common Stock Purchase Agreement dated October 15,
                       1990 between the Company and PASCO Corporation

10.30          (14)    Revolving Line of credit Agreement between the
                       Company and Istituto Bancario San Paolo di Torini
                       dated March 4, 1992

10.31          (14)    Reimbursement and Security Agreement between the
                       Company and FIMAI Holding, S.A. dated February
                       22, 1992

10.32          (14)    Stock Pledge Agreement between the Company and
                       FI.M.A.I. Holding, S.A. dated February 22, 1992

10.33          (14)    Promissory Note dated February 22, 1992 granted
                       to Italimprese S.p.A.

10.34          (14)    Sales Agreement between the Company and Picker
                       International, Inc. dated March 11, 1992

10.35          (14)    1991 Non-Employee Director's Stock Option Plan

10.36          (14)    Agreement dated December 12, 1991 between the
                       Company and Mitsui & Co. Ltd.

10.37          (14)    Letter Agreement dated April 2, 1992 from
                       FI.M.A.I. Holding S.A.

10.38          (15)    Lease Agreement between the Company and J. Grant
                       Monahon, James S. Keagy and Jeffrey H.
                       Stevenson, as Trustees of AEW #79 Trust for the
                       premises located at 389 Oyster Point Boulevard,
                       South San Francisco, California, dated November
                       1, 1991

10.39          (15)    Amendment No. 1 to Lease Agreement between the
                       Company and J. Grant Monahon, James S. Keagy
                       and Jeffrey H. Stevenson, as Trustees of AEW #79
                       Trust for the premises located at 389 Oyster
                       Point Boulevard, California, dated June 15, 1992

10.40          (15)    Second amendment to Sublicense Agreement between
                       the Company and Emersub Incorporated dated
                       October 1, 1990

10.41          (15)    Agreement dated October 31, 1991, to terminate
                       Lease Agreement dated August 23, 1983
<PAGE>

Exhibit                                                                  SEC
Number         Description                                             Page No.
 
(See Footnotes)

10.42          (15)    Release and Settlement Agreement between the
                       Company and Arthur P. Gould & Co. dated July 27,
                       1992

10.43          (16)    Revolving line of credit agreement between the
                       Company and Instituto Bancario San Paolo di
                       Torini dated September 15, 1992

10.44          (16)    First Amendment to Agreement for revolving line
                       of credit between the Company and Instituto
                       Bancario San Paolo di Torini dated February
                       2, 1993

10.45          (16)    Right of first refusal and option agreement
                       between the Company and FI.M.A.I. Holding, S.A.
                       dated January 22, 1993

10.46          (16) *  Amendment No.1 to Basic Agreement between the
                       Company and Siemens Corporation dated
                       September 30, 1992

10.47          (16)    Amendment No.1 to loan agreement between the
                       Company and Siemens Corporation dated
                       December 31, 1992

10.48          (16)    Amendment No.2 to loan agreement between the
                       Company and Siemens Corporation dated March 12,
                       1993

10.49          (16)    Mortgage and Security Agreement dated as of March 12,
                       1993 between Imatron Inc. and Siemens Corporation

10.50          (16) *  Patent License Agreement dated as of March 12, 1993
                       between Imatron Inc. and Severson & Werson, A
                       Professional Corporation

10.51          (16)    Escrow Holder Agreement dated as of March 12, 1993
                       by and among Imatron Inc., Siemens Corporation and
                       Severson & Werson, A Professional Corporation

10.52          (16) *  Sole License Agreement dated as of March 12, 1993
                       between Imatron Inc. and Siemens Corporation

10.53          (16)    C-150 License Agreement dated as of March 12, 1993
                       between Imatron Inc. and Siemens Corporation

10.54          (16) *  License Agreement dated as of March 12, 1993
                       between Imatron Inc. and Siemens Corporation
<PAGE>

Exhibit                                                                   SEC
Number          Description                                            Page No.
 
(See Footnotes)

10.55          (16)    Amendment No. 2 to Lease Agreement between the
                       Company and J. Grant Monahon, James S. Keagy
                       and Jeffrey H. Stevenson, as Trustees of AEW #79
                       Trust for the premises located at 389 Oyster
                       Point Boulevard, California dated December 31, 1992

10.56          (16)    Termination Agreement dated December 9, 1992,
                       terminating Stockholders Agreement dated August
                       13,1990, between the Company and FI.M.A.I.
                       Holding, S.A.

10.57          (16)    Amendment No.1 dated February 23, 1993, to
                       Release & Settlement Agreement

10.58          (16)    Form of Registration Rights Agreement between the
                       Company and investors in Private Offering
                       concluded September 15, 1992

10.59          (17)    1993 Stock Option Plan, as amended to date

10.60          (18)    1994 Employee Stock Purchase Plan, as amended to date

10.61          (19)    Settlement Agreement dated December 10, 1993
                       between the Company and Mitsui & Co., ltd.

10.62          (19)    Transition Agreement dated December 10, 1993
                       between the Company and Mitsui & Co., Ltd.

10.63          (20)    Amendment No. 2 to Basic Agreement dated
                       December 14, 1993 between the Company and
                       Siemens Corporation.

10.64          (20)    Amendment to Loan Agreement and Waiver dated
                       December 14, 1993 between the Company and
                       Siemens Corporation.

10.65          (21)    Executive Employment Agreement dated as of June
                       11, 1993 between the Company and S. Lewis Meyer.

10.66          (21)    Warrant Agreement dated June 7, 1993 between the
                       Company and S. Lewis Meyer.

10.67          (21)    Employment Agreement dated December 15, 1993
                       between the Company and Gary H. Brooks.

10.68          (21)    Employment Agreement dated October 1, 1993
                       between the Company and Dale Grant.
<PAGE>

Exhibit                                                                  SEC
Number         Description                                             Page No.
 
(See Footnotes)

10.69          (21)    Agreement and Joint Company Agreement between
                       the Company, Tobu Land System Company and
                       Kino Corporation dated January 7, 1994

10.70          (21)    Distributorship Agreement between the Company and
                       Imatron Japan K. K. dated February 3, 1994.

10.71          (21)    First Amendment to Distributorship Agreement between
                       the Company and Imatron Japan K. K. dated February
                       8, 1994.

10.72          (21)    Memorandum of Understanding dated February 2,
                       1994 between the Company and Siemens AG,
                       Medical Engineering Group.

10.73          (21)    Memorandum of Understanding dated February 2,
                       1994 between Company and Siemens AG,
                       Medical Engineering Group (Evolution Upgrade project
                       and distribution agreement).

10.74          (21)    Letter Agreement dated March 7, 1994 from FI.M.A.I.
                       Holding S. A.

10.75          (22) *  Amendment No. 3 to Basic Agreement dated March 1,
                       1994 between the Company and Siemens Corporation.

10.76          (22) *  Amendment No. 4 to Basic Agreement dated as of
                       October 20, 1994 between the Company and Siemens
                       Corporation.

10.77          (22) *  Amendment No. 5 to Basic Agreement dated as of
                       November 17, 1994 between the Company and Siemens
                       Corporation.

10.78          (22) *  Amendment No. 6 to Basic Agreement dated as of
                       December 28, 1994 between the Company and Siemens
                       Corporation and related Letter Agreement dated
                       December 29, 1994.
<PAGE>

10.79          (22) *  Amendment No. 7 to Basic Agreement dated as of
                       February 28, 1995 between the Company and Siemens
                       Corporation.

10.80          (22) *  Memorandum of Understanding dated March 31, 1995
                       between the Company and Siemens Corporation.

                                                                          SEC
                                                                       Page No.

11.0           Computation of Per Share Earnings.                         -

23.0           Consent of Independent Auditors.                           -


_______________          
                Confidential Treatment Request granted by the Securities
                and Exchange  Commission.

 
<PAGE>

(1)       Filed as an exhibit to the Company's Registration Statement on Form
          S-1 filed with the  Commission on June 1, 1983 (File No. 2-84146)
          and incorporated herein by reference.

(2)       Filed as an exhibit to the Company's Registration Statement on Form
          S-8 filed with the  Comission on February 3, 1989 (File No. 33-26833)
          and incorporated herein by reference.

(3)       Filed as an exhibit to the Company's Annual Report on Form 10-K for
          the fiscal year ended December 31, 1986 and incorporated herein by
          reference.

(4)       Filed as an exhibit to Amendment No. 2 to the Company's Registration
          Statement on Form S-1 filed with the Commission on November 12, 1986
          (File No. 33-8668) and incorporated herein by reference.

(5)       Filed as an exhibit to Amendment No. 1 to the Company's
          Registration Statement on Form S-1 filed with the Commission on
          November 5, 1986 (File No. 33-8668) and incorporated herein by
          reference.

(6)       Filed as an exhibit to the Company's Registration Statement on Form
          S-1 filed with the Commission on September 11, 1986 (File No. 33-
          8668) and incorporated herein by reference.

(7)       Filed as an exhibit to the Company's Annual Report on Form 10-K for
          the fiscal year ended December 31, 1983 and incorporated herein by
          reference.

(8)       Filed as an exhibit to the Company's Current Report on Form 8-K filed
          with the Commission on September 16, 1988.

(9)       Filed as an exhibit to the Form 8 Amendment Number 1 to the
          Company's Annual Report on Form 10-K for the fiscal year ended
          December 31, 1988 and incorporated herein by reference.

(10)      Filed as an exhibit to the Company's Annual Report Form 10-K for the
          Fiscal year ended December 31, 1989 and incorporated herein by
          reference.

(11)      Filed as an exhibit to the Company's Registration Statement Form S-3
          filed on January 24, 1991 (File No. 33-38676) and incorporated
          herein by reference.

(12)      Filed as an exhibit to Post-Effective Amendment Number 1 to the
          Company's Registration Statement Form S-3 filed with the
          Commission on May 5, 1992 (File No. 33-32218) and incorporated
          herein by reference.

 (13)     Filed as an exhibit to the Company's Annual Report on Form 10-K for
          the fiscal year ended December 31, 1990 and incorporated herein by
          reference.

<PAGE>

(14)      Filed as an exhibit to the Company's Annual Report on Form 10-K for
          the fiscal year ended December 31, 1991 and incorporated herein by
          reference.

(15)      Filed as an exhibit to the Company's Amendment No.1 to Post-
          Effective Amendment No.1  to Form S-3 (file No. 33-32218) filed with
          the Commission on August 7, 1992 and   incorporated herein by
          reference.

(16)      Filed as an exhibit to the Company's Annual Report on Form 10-K for 
          the fiscal year ended December, 1992 and incorporated herein by 
          reference.

(17)      Filed as an exhibit to the Company's Registration Statement on Form
          S-8 filed on August 3, 1993 (Registration No. 33-66992).

(18)      Filed as an exhibit to the Company's Registration Statement on Form
          S-8 filed on November 16, 1993 (Registration No. 33-71786).

(19)      Filed as an Exhibit to the Company's Current Report on Form 8-K
          filed on January 26, 1994.

(20)      Filed as an Exhibit to the Company's Current Report on Form 8-K
          filed on February 4, 1994

(21)      Filed as an Exhibit to the Company's Annual Report on Form 10-K
          for the fiscal year ended December 31 1993, and incorporated herein by
          reference.

(22)      Filed as an Exhibit to the Company's Annual Report on Form 10-K
          for the fiscal year ended December 31,1994 and incorporated herein by
          reference.

(23)      Filed as an Exhibit to the Company's Registration Statement on Form
          S-8 filed on October 30, 1996 (Registration No. 333-15081) and
          incorporated herein by reference.

(23)      Filed as an Exhibit to the Company's Registration Statement on Form
          S-3 filed on May 10, 1996 (Registration No. 333-3529) and 
          incorporated herein by reference.

(24)      Filed as an Exhibit to the Company's Registration Statement on Form
          S-3 filed on June 25, 1996 (Registration No. 333-6749) and 
          incorporated herein by reference.

(25)      Filed as an Exhibit to the Company's Registration Statement on Form
          S-3 filed on September 6, 1996 (Registration No. 333-11515) and
          incorporated herein by reference.