FY 1999                           IMATRON INC.                         FORM 10-K
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K


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


                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
                         Commission file number 0-12405



                               [IMATRON INC. LOGO]



                            a New Jersey Corporation
                               I.D. No. 94-2880078
              389 Oyster Point Blvd, South San Francisco, CA 94080
                            Telephone (650) 583-9964



Securities Registered Pursuant to Section 12 (6) of the Act: NONE
Securities Registered Pursuant to Section 12 (9) of the Act: 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 [ ]    No [ ]

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FY 1999                           IMATRON INC.                         FORM 10-K
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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 8, 2000, on the Nasdaq  National  Market
System ($4.75 per share) was approximately $449,918,143.  For the purpose of the
foregoing  computation,  only  the  directors  and  executive  officers  of  the
Registrant were deemed to be affiliates.  This determination of affiliate status
is not necessarily a conclusive determination for other purposes.

As of March 8, 2000,  Registrant had  100,759,119  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   1999  Annual  Meeting  of
Shareholders,  to be filed with the  Commission on, or before 120 days after the
end of the 1998 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 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 (x).












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 CONTIBUTE
TO SUCH DIFFERENCES  INCLUDE,  WITHOUT LIMITATION,  THE CONSIDERATIONS SET FORTH
UNDER "MANAGEMENT'S  DISCUSSION AND ANYALYSIS OF FINANCIAL CONDITION AND RESULTS
OF  OPERATIONS."  THE COMPANY  EXPRESSLY  DISCLAIMS ANY OBLIGATION TO UPDATE ANY
FORWARD LOOKING STATEMENTS.



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                                     PART I

ITEM 1 - BUSINESS

                                     GENERAL

Imatron Inc. was  incorporated  in New Jersey in 1983.  References  in this Form
10-K to "Imatron", "the Company", "we", "our", and "us" refer to Imatron Inc., a
New Jersey  Corporation.  The Company 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 fixed  scanning  electron  beam. The
scanner  is used in  large  and  midsize  hospitals  and  free-standing  imaging
clinics.  In addition to providing  service,  parts and maintenance to hospitals
and clinics  that  operate  its  scanners,  the Company  also offers its service
capability to other manufacturers of high tech medical equipment.

HeartScan Imaging,  Inc.  ("HeartScan"),  incorporated in Delaware in 1993, is a
diagnostic services subsidiary of the Company.  HeartScan offers coronary artery
scanning  ("CAS") and Coronary Artery Disease ("CAD") risk assessment  services.
Its five  centers in the United  States were sold in 1999.  It's last  remaining
center is located in Cascais,  Portugal. Plans are for this last site to be sold
in the fiscal year 2000.

                              PRODUCT AND SERVICES
                                   EBT SCANNER

PRODUCT DESCRIPTION

A  conventional  CT scanner is a diagnostic  imaging device in which a single or
multiple  cross-sectional  (tomographic)  images of a patient's  anatomy  are/is
acquired from multiple intensity  readings  (samplings) taken as an x-ray source
mechanically  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 EBT scanner  design  differs  significantly  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 gun
that  generates a focused,  high-intensity  electron beam which is steered along
stationary x-ray target rings to produce a rotating  fan-shaped x-ray beam. This
patented electron beam technology permits  significantly faster scanning speeds.
The  Company's  scanner  can  acquire  CT  images  at a scan  speed of 50 to 100
milliseconds  per slice in contrast to  conventional  CT scanners  that  require
between 0.5 and 3 seconds per slice to acquire an image. Second, the Imatron EBT
Scanner permits rapid scanning of multiple  contiguous images without moving the
patient. With these features, the EBT 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 EBT  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  prospective  ECG  triggering.  This  mode  employs  scan  times  from  100
milliseconds  to 2 seconds  as  compared  to 0.5 to 3 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 prospective ECG triggering.  The Continuous
Volume  Scanning mode can acquire up to 140 images in 15 seconds,  outperforming
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 1998, the Company  completed its version 12.4 software  development.
Software  version  12.4  brings the  C-150XP  and  C-150LXP  into full year 2000
compliance,  using 4 digits for all dates.  The new  software  version  also has
algorithmic improvements which affect image quality, allowing improved images of

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FY 1999                           IMATRON INC.                         FORM 10-K
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the head,  chest,  and abdomen,  especially with the high  resolution  detector.
Software  version 12.4 was thoroughly  tested in late 1998, and was released for
general use in January 1999.

In March 1998, the Company  developed and released for sale to its customers the
High  Resolution  Detector  System  (HRDS)  for its EBT  scanners.  The new HRDS
increased  the spatial  resolution  of the single  slice mode from 7 to 9.5 line
pairs per  centimeter  and the  multi-slice  mode from 3 to 4.50 line  pairs per
centimeter. The increased spatial resolution improved the scanner's performance,
especially  in  neurologic,  pulmonary,  and  abdominal  applications.  It  also
increased the total number of detector  channels  from 1,296 to 3,456,  improved
image data correction during reconstruction, and enhanced overall image quality.

In October  1997,  the Company  received the 510(k)  market  clearance  from the
Federal Food and Drug Administration  ("FDA") for cardiac specific  applications
included on the UltraAccess workstation. These applications include 3-D "Calcium
Scoring" and cardiac  perfusion.  In November 1997, the Company  received 510(K)
market clearance from the FDA for its new 3456 Channel Dual Slice Detector Array
C-150 EBT scanner.

In November 1999, the Company  received 510(k) market clearance from the FDA for
the Electron Beam Angiography (EBA) application of its scanner.

MARKETS

The Company sells its EBT scanner in the diagnostic medical imaging market. This
market includes several  different  modalities such as CT,  ultrasound,  nuclear
medicine,  coronary 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  image  presentation  on a video  monitor.  In  some  cases,  these  imaging
modalities compete with one another for the same type of procedure.

These systems have been evaluated in the diagnosis of cardiac diseases,  but the
extent of application of several is limited due to image degradation, artifacts,
and  distortions  arising  from the  heart's  motion as it beats at a  frequency
greater than the scanning speed of these systems. The fast scanning speed of the
EBT scanner  allows it to "freeze"  the motion of the beating  heart in order to
image and quantify small calcium deposits in the coronary  arteries.  The images
that result are sharp and free of motion  related  artifacts.  The procedure for
accurately  measuring the volume and extent of coronary artery  calcification 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  accounts  for   approximately   500,000  deaths.  Of  particular
importance is the fact that in approximately 150,000 cases annually,  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,  indicates  a clear need for a safe and  effective  test for the
earliest stages of coronary heart disease.

The correlation between calcium in the coronary arteries,  atherosclerosis,  and
myocardial  infraction  (heart  attack) has been known since the 1950's.  By the
mid-1960's,  selective  coronary  angiography  was  introduced and soon became a
routine procedure.  Since that time,  coronary  angiography,  which demonstrates
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"),
thallium stress nuclear medicine and stress  echocardiography  are commonly used
as an  indication  for coronary  angiography.  These tests produce a significant
percentage of false  abnormal  results such that as many as 25% - 35% percent of
the  coronary  angiograms  conducted  are  deemed to be normal.  Since  coronary
angiography is both expensive and invasive,  the patient in these false abnormal
cases is unnecessarily exposed to some risk of morbidity, or even death, as well
as a  significant  radiation  dose. 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 tests for diagnosing coronary artery disease.

The  Company  further  believes  that  research  demonstrates  that  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 may slow,
stop, or regress in response to  treatment.  Until now, the only way to directly
determine the effect of life-style modification and lipid-lowering pharmacologic

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FY 1999                           IMATRON INC.                         FORM 10-K
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treatment on coronary artery disease was to perform  repeated  invasive,  costly
coronary angiography or invasive intravascular ultrasound.

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  that 30% - 35% of people  with
elevated cholesterol levels do not develop coronary artery disease.  Since there
has not been,  until the advent of the EBT scanner,  a method to identify  those
who  are  beginning  to  develop  coronary  disease,  individuals  with  a  high
cholesterol reading have been treated as if they will develop heart disease. The
Company believes that CAS is a powerful and cost-effective method for detecting,
or  ruling  out,  coronary  artery  disease  and  represents  a  unique  market.
Currently,  only  the  EBT  scanner  can  provide  the  necessary  technological
capability to address these clinical application  requirements.  Notwithstanding
the  foregoing,  to  date,  CAS 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.

In  addtion  to the CAS test,  the  Company's  EBT  technology  received  market
clearance from the FDA in November,  1999 for a newly developed  procedure known
as Electron Beam  Angiography  ("EBA").  This unique  procedure  utilizes a less
invasive intravenous injection of x-ray contrast agent as opposed to threading a
catheter into the femoral artery to the heart as required by conventional  x-ray
coronary  angiography.  In the EBA  procedure,  a series of contiguous  contrast
enhanced images is obtained and electronically transmitted to a powerful desktop
3-D  workstation.  The resulting  three  dimensional EB angiogram can be used to
determine  the  patency  of  coronary  artery  bypass  grafts,  stents  and  the
effectiveness  of  "balloon"  angioplasty  procedures.  The  combination  of the
Company's EBT scanner's  unparalleled image acquisition speed with new, powerful
PC microprocessor  driven workstations provides unique 3-D imaging capability in
the  heart,  lungs,  colon,  and other  organs.  EBA offers  the  potential  for
significant  cost savings when  evaluating  patients with atypical chest pain by
detecting significant levels of coronary stenosis non-invasively.

Imatron  believes  that possible  factors  affecting the demand for its 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.

CUSTOMER SERVICE

The Company and its distributors provide  installation,  customer warranty,  and
service to their  respective  customers.  Imatron  provides  warranty on the EBT
scanner during the 12-month  period  following  installation.  In addition,  the
Company provides other product support  services,  including a telephone hotline
for customer  inquiries,  product  enhancements  and maintenance  releases.  The
Company  also  offers  training  at  customers'   locations  and  the  Company's
facilities to both end-users and distributors.

In  1997,  Imatron  expanded  its  service  business  to  include  installation,
warranty,  repair,  training and support services to other manufacturers of high
tech  medical  equipment.  Imatron  entered  into  a  two-year  service  support
agreement in February 1998,  with AccuImage  Diagnostics,  to provide  worldwide
customer  support  service  for  its   Three-Dimensional   Volume  Visualization
Workstation.

The  Company  maintains   customer  support  centers  in  South  San  Francisco,
California and Munich, Germany and field service personnel in the United States,
Europe and Asia for its service business.  Together with its  distributors,  the
Company   services   over  115  installed   EBT  systems   worldwide   including
approximately 20 systems manufactured by vendors other than Imatron. The Company
generates  service revenues under service contracts with Imatron and non-Imatron
customers,  providing  service on a "contract" and "time and material"  basis to
such customers after the warranty period.

RESEARCH AND DEVELOPMENT CONTRACTS

For the period  from March 31, 1995 to March 31,  1998,  the Company and Siemens
Corporation  ("Siemens")  operated  under  a 1995  Memorandum  of  Understanding
whereby  Siemens  provided  $15,000,000  to the  Company's  C-150  Evolution EBT
scanner  research  and  development  program  paid to the  Company in  quarterly
non-refundable  payments. The results of the collaborative research were jointly
owned by the parties and cross  licensed.  For the period from March 31, 1995 to

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FY 1999                           IMATRON INC.                         FORM 10-K
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March 31,  1998  Siemens  retained  exclusive  distribution  rights  in  certain
geographical  regions  for sales of the  C-150/Evolution  scanner.  The  Company
recognized  revenue  of  $1,250,000,   $5,000,000,   and  $5,000,000  under  the
collaborative agreement in 1998, 1997, and 1996, respectively.

On  April  1,  1998,  Imatron's  obligations  and  Siemens'  funding  under  the
Memorandum of Understanding  terminated.  In addition,  Siemens  surrendered its
exclusive distribution rights and Imatron assumed worldwide distribution for its
C-150 scanners. Imatron continues to provide scanner service support to Siemens'
customers under the service support agreement signed with Siemens. For an agreed
upon amount,  Imatron provides all pre-installation site planning,  installation
and application  support,  as well as, warranty and maintenance  services,  as a
subcontractor to Siemens.  Revenues for services are recognized ratably over the
life  of  the  contracts  while  other  service  revenues  are  recognized  upon
completion of work.

On July 22, 1997,  the Company and  TeraRecon,  Inc., a  privately-held  company
engaged in the design of high-speed image processing devices for medical imaging
systems,  entered  into a  development  agreement.  The  agreement  requires the
delivery by TeraRecon to Imatron of a real-time image reconstruction  system for
use in conjunction with Imatron's EBT scanner. Upon completion of prototypes and
delivery,  the  TeraRecon  RTR-2000  system will be exclusive  to Imatron's  EBT
scanner and will expand the EBT  scanner's  current  applications  to include CT
fluorography,  real-time  viewing  of EBT  images,  EBT  guidance  of  minimally
invasive surgical procedures and timings of contrast studies.

In  consideration  for the  successful  development  and  delivery  of  RTR-2000
systems,  the Company has agreed to issue an aggregate of 6,000,000  warrants to
purchase the  Company's  Common Stock at $4.50 per share.  The warrants  will be
issued in  installments  based on  TeraRecon  achieving  certain  milestones  in
connection with the development of the image reconstruction system. In addition,
TeraRecon has agreed to pay Imatron an aggregate of $2,000,000  for 4,000,000 of
the  6,000,000  warrants and to make royalty  payments to Imatron equal to 3% of
net sales of certain RTR-2000 systems sold to third parties.  As of December 31,
1998, the Company has issued to TeraRecon  warrant to purchase  4,000,000 shares
of Imatron Common Stock.

In February  1999,  the Company and TeraRecon  agreed to modify the  development
agreement  releasing  TeraRecon  from its  obligation  to purchase the remaining
2,000,000  stock  purchase  warrants.  TeraRecon  has  agreed to  develop a more
stable,  reliable,  and  easier-to-maintain  image  reconstruction  system at no
additional  cost to  Imatron  and  upgrade  five units of the  current  RTR-2000
systems  for no more than  $25,000  per unit.  Imatron  canceled  the 3% royalty
payment pursuant to the original agreement.

                                    MARKETING

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

The Company sells its EBT scanner directly and through distributors. The Company
has, or had, the following distribution arrangements:

UNITED STATES, CANADA, AND EUROPE

In April 1995,  pursuant to a Memorandum of  Understanding,  the Company entered
into an agreement with Siemens giving Siemens the exclusive  right to distribute
the Company's EBT scanner in the United  States,  Canada,  Europe and India (see
"Transactions With Siemens  Corporation" below). On April 1, 1998, the exclusive
distribution  rights  reverted  to Imatron  and the  Company  assumed  worldwide
distribution for its scanners.  Siemens  purchased two and seven EBT scanners in
1998 and 1997,  respectively.  In 1999, in response to the  cancellation of this
distribution agreement, the Company expanded its direct sales force from 3 to 15
individuals who sold 15 EBT scanners in the United States.

On July 1, 1998, the Company entered into a non-exclusive sales agency agreement
with GE Medical  Systems  ("GEMS") to sell EBT  scanners  throughout  the United
States and Canada. The agreement provides that all contracts  resulting from the

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joint  marketing  effort are written  directly by the Company.  Imatron  assumes
installation  and  customer  service   responsibilities,   while  GEMS  provides
financing options for customers  purchasing the equipment.  The Company believes
that the marketing alliance with GEMS will enhance its distribution capabilities
in Northern America and penetrate the EBT scanner market more  effectively.  The
contract has a term of 2 years with an option to extend for an  additional  year
at GEM's sole discretion. The Company has agreed to pay GEMS a commission on all
sales  directly  resulting from the Company's  corporate  alliance with GEMS. In
1999,  the Company sold one EBT scanner  under this  agreement.  There can be no
assurance  that the GEMS sales  agency  agreement  will result in  significantly
increased sales by the Company.

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 EBT
scanners in Japan.  The joint venture was designated as Imatron Japan,  Inc. and
is owned by Tobu Land System Company, Kino Corporation and Imatron in increments
of 51%, 25% and 24% respectively.

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 Japan, Inc. took
delivery of two, two, three,  and five C-150 EBT scanner systems from Imatron in
1999, 1998, 1997, and 1996, respectively. Imatron Japan, Inc. also purchased two
refurbished EBT systems in 1995. These units, paid for by irrevocable letters of
credit,   are  without  a   right-of-return   provision   and  have  no  special
arrangements.  In  connection  with these sales,  the Company  paid  $130,000 in
commissions for each new C-150 EBT scanner sold to Imatron Japan,  Inc.  through
1996. As of 1997, these commissions were reduced to $60,000 per each new machine
sold to Imatron Japan, Inc. Due to the economic  uncertainties in Japan, Imatron
Japan,  Inc. was able to accept only two  scanners  each in 1999 and 1998 out of
the five originally ordered for each of the fiscal years.

RELIANCE ON DISTRIBUTORS

Historically,  a substantial  portion of the Company's sales of its scanners was
done  through  distributors  or sales  agents.  There is no  assurance  that the
Company's  distributors  or sales  agents  will meet their  contractual  minimum
obligations  (if any) on a timely basis.  Failure by  distributors to meet their
obligations  could  adversely  affect the  Company's  operations  and  financial
position.   During  1999  the  Company  conducted   extensive  training  of  its
distributors and added distributors in Germany, Korea, Argentia,  Greece, Egypt,
Saudi Arabia and Turkey.  Additionally,  during 1999,  the Company  expanded its
direct  force  from  3 to  15  individuals  and  no  longer  has  any  exclusive
distributors in the United States.

SALES INFORMATION

The  scanner  sales  price  varies  depending  on  customer   requirements.   In
particular, sales to Siemens, Imatron Japan, Inc. and certain distributors/sales
agents have a lower gross  margin than sales to other third  parties.  The sales
price (with the sole exception of Imatron Japan, Inc.) includes  installation by
field service personnel,  system check and certification,  customer applications
training,  and a 12-month warranty.  In addition,  local taxes and import duties
may be added. This price, which is 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
volume to offset the higher cost.

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

                                             1999     1998     1997
                                             ----     ----     ----

          Total export sales                   4        6       15

                      TRANSACTIONS WITH SIEMENS CORPORATION

In  March  1991,  the  Company  entered  into a  Basic  Agreement  with  Siemens
Corporation  which consisted of four separate  subagreements,  each of which has
been  subsequently  modified  in  various  respects  by the  parties.  The  four

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subagreements  included a $4 million  term loan;  a  distribution  agreement;  a
development agreement; and a license agreement.

On March 31, 1995, the Company and Siemens  entered into a three-year  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,  Siemens
agreed to exchange the Company's $4.0 million note for five patents,  subsequent
to an arms-length  negotiation  between the two parties and to a royalty-bearing
license  back to Imatron  (see Patents and  Licenses  below).  In addition,  the
minimum purchase provision of the previous distribution  agreement was canceled.
The sale of the patents has no material impact on the Company as Siemens granted
to Imatron a non-exclusive,  irrevocable,  perpetual  royalty-bearing license on
the  transferred  patents.  These patents were not part of the technology  being
developed  under  the  Collaborative  Research  Agreement  between  Siemens  and
Imatron.  The gain calculated as the difference  between the patents' book value
of $0 and the net carrying amount of the  extinguished  debt of $4,000,000,  was
recognized as income in 1995.

Pursuant to the fee arrangements  with regard to the use of the technology under
the transferred  patents,  Imatron will pay to Siemens  royalties of $20,000 for
each new C-150 unit (or other EBT unit produced by Imatron after April 1, 1995),
commencing  with the 21st C-150 (or other Imatron EBT) unit produced in any year
and  continuing  thereafter for ten years after such first quarter in which such
21st unit is produced.  To date,  Imatron has not produced more than 20 scanners
in any year, and therefore, no royalties have been due under this 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  would  jointly  conduct  research  and
development  over  a  three  year  period  directed  toward  the  electron  beam
technology  used in the Company's  C-150 product.  Both Siemens and Imatron have
irrevocable,  perpetual, royalty free, fully paid licenses covering the electron
beam  technology  developed  under the  collaborative  research,  subject to the
following terms and conditions:

     (a)  During  the term of the MOU,  a  complete  copy of which  was filed as
          Exhibit  10.80 to the Company's  1994 Report on the Form 10-K,  either
          Party may  sublicense,  transfer or assign its rights in the  electron
          beam  technology  or use the same,  in whole or in part, to develop or
          manufacture  medical  products for third  parties  with prior  written
          consent of the other Party.

     (b)  Imatron  may not grant to any third  party any license in the field of
          medical  imaging  under  any or all of the  electron  beam  technology
          during the term of the MOU and for three years thereafter.

     (c)  Either Party may sublicense the technology to its parent, subsidiaries
          or 50% or more owned affiliates.

     (d)  Either Party may sublicense, assign or transfer the technology as part
          of its sale of the assets or business relating to the C-150.

     (e)  With regard to manufacturing C-150 scanners, the C-150 system can only
          be  manufactured  by Siemens  after fifty  scanners are  manufactured,
          sold, transferred and/or delivered to Siemens by Imatron in any fiscal
          year; or upon default or refusal of Imatron at any time to perform its
          obligations  to  Siemens  with  respect  to the  design,  manufacture,
          service, support, supply of products and parts in order for Siemens to
          meet its obligations to third parties.

Pursuant  to the  collaborative  research  agreement,  Siemens  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.  No milestones or other performance related results were tied to
the payment of funds by Siemens. The Company recognized revenue ratably over the
three year period as its commitment to perform  research and  development  under
the agreement was incurred ratably over the same period.

The Company was not obligated to return the amount  funded by Siemens.  However,
Siemens had the right to terminate the collaborative  research upon three months
written  notice in the event  objectives  agreed  upon by both  parties  had not
achieved  reasonable  progress.  The Company's  obligations under this agreement
were as follows:

     (a)  Imatron was responsible for managing and performing all  collaborative
          research conducted under the MOU.

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                                       8
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FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

     (b)  The  primary  goals  of  Imatron  include  cost  reductions,  improved
          quality, performance enhancement and upgradeability.

     (c)  Imatron funds an amount equal to 50% of Siemens'  contribution for the
          sole purpose of conducting the collaborative reasearch.

     (d)  Imatron  provides  Siemens  detailed  accounting  on the use of monies
          contributed pursuant to the agreement.

Third,  Siemens was appointed Imatron's exclusive  distributor for the Company's
C-150 EBT scanner in the United States,  Canada,  Europe,  and India for a three
year period  effective April 1, 1995, and ending March 31, 1998.  Siemens agreed
to use its best  efforts  to  distribute  the  Company's  C-150  product  in its
exclusive markets subject to no minimum purchase obligations.

In April 1997,  Imatron and Siemens  entered into a service  support  agreement,
whereby the Company will provide  customer  services for C-150  scanners sold by
Siemens.  For an agreed-upon amount,  Imatron will provide all  pre-installation
site planning,  installation and application  support,  as well as, warranty and
post-warranty  services,  as a subcontractor  to Siemens.  Revenues for warranty
services are  recognized  over the life of the  contracts,  while other  service
revenues are recognized upon completion of work.

On April 1, 1998, Imatron's  obligations and Siemens' contribution under the MOU
terminated and Imatron assumed worldwide distribution for its C-150 scanners.

                                   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,  Marconi Medical Systems, Philips Medical Systems,
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,
Acuson  and ADAC  Laboratories,  markets  equipment  using  one or more of these
technologies. 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 Imatron's EBT scanner.

The  Company  believes  that in  order to  compete  successfully  against  these
competitors,  it must  continue to  demonstrate  that the EBT scanner is both an
acceptable  substitute for  conventional  CT scanners in areas of the body where
motion  is  not  a   limitation,   and  that  the  EBT  Scanner  is  a  valuable
cardiopulmonary diagnostic tool capable of producing unique and useful images of
the heart and lung.  Although  the  Company  believes  that the EBT  Scanner can
produce  general  purpose  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.

Also,  the Company  believes that  customers and  potential  customers  expect a
continuing  development  effort to improve the functionality and features of the
scanner.  As  a  result,  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 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
and 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 EBT
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.

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                                       9
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FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

                                  MANUFACTURING

The Company  manufactures  its scanner at its South San  Francisco,  California,
headquarters  facility.  To date, the typical  manufacturing  cycle has required
approximately  five  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.  January 6, 1999
Imatron  purchased one of its suppliers  Caral  Manufacturing,  Inc.  (Caral) to
assure itself of a steady, low cost supply of certain stainless steel,  critical
parts. In recent years, the Company has developed  alternative  sources for many
of its scanner  subcomponents  and continues its programs to qualify new vendors
for the remaining  critical  parts.  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.

                              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  FDA  of  the  marketing,  manufacturing,   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  Quality System  Regulations.  The FDA
enforces  additional  regulations  regarding  the safety of equipment  utilizing
x-rays,  which  includes  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 the C-150 EBT scanner.  The Company  believes  that it is
presently  in  substantial  compliance  with  the  QSR  requirements  and  other
regulatory issues promulgated by the FDA.

On May 4, 1999 the Food and Drug  Administration's  (FDA) Center for Devices and
Radiological Health, Promotion and Advertising Staff, issued a Warning Letter to
Imatron.  The Warning Letter expressed FDA's objection with certain  promotional
materials and press releases made by Imatron.  It also indicated FDA's objection
to claims  made on  Imatron's  web site.  Upon  receipt of this  letter  Imatron
responded to the FDA in writing.  This  response  clearly  enumerates  Imatron's
position and  details,  where  necessary,  specific  actions to alleviate  FDA's
concern and began a good faith  dialog  between  Imatron and the FDA to properly
resolve these  issues.  This dialog  continues and Imatron  believes such dialog
will resolve the matter fully and finally.

In November,  1999 the Company received its most current 510(k) market clearance
from the FDA.  This  clearance  allows the  Imatron  device to be  marketed  and
promoted  for  Electron  Beam  Angiography.  Such use is  consistent  with  uses
classified 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 EBT
scanner 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,  and can have a  material  adverse  effect  on the
development of the Company's business and its future profitability.

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

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                                       10
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FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

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.

The  Company's  primary  customers  operate in the highly  regulated  healthcare
industry.  Existing and future  governmental  regulations could adversely impact
the market  for the  Company's  EBT  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
("OSHA") and the Environmental  Protection Agency ("EPA").  In some cases, state
or local regulations may be more strict than regulations  imposed by the Federal
government.  The Company  believes  that it is in  substantial  compliance  with
California  regulations  applicable  to its business.  In January 1997,  the FDA
conducted  routine  inspections  of  Imatron's  manufacturing  operations.   The
inspection  concluded  without  Notices  of  Observations.   Imatron  frequently
provides  field   modifications   or  updates  of  components  and  software  to
operational sites.  Imatron voluntarily advised the FDA during these inspections
that certain field  corrections  were ongoing.  The FDA concurred with Imatron's
decision to field upgrade certain sites and assigned  recall numbers  Z304/307-7
and Z-289/299-7. There has been no recalls or notices of observations by the FDA
in 1998 or 1999.

Sales of  medical  devices  outside  the United  States  are  subject to foreign
regulatory requirements that vary widely from country to country. These laws and
regulations  range  from  simple  product  registration  requirements,  in  some
countries,  to complex clearance and production controls in others. As a result,
the processes and time periods required to obtain foreign marketing approval may
be longer  or  shorter  than  those  necessary  to obtain  FDA  approval.  These
differences  may affect the efficiency and  timeliness of  international  market
introduction of the Company's  products,  and there can be no assurance that the
Company  will be able to  obtain  regulatory  approvals  or  clearances  for its
products in foreign countries.

In January 1995, CE mark  certification  procedures became available for medical
devices for countries in the European Union ("EU"). The successful completion of
the  designated  procedures  would allow  certified  devices to be placed on the
market in all EU countries. In order to obtain the right to affix the CE mark to
its  products,  medical  device  companies  must obtain  certification  that its
processes meet European  quality  standards,  including  certification  that its
design and manufacturing  facility complies with ISO 9001 standards.  After June
1998, medical devices may not be sold in EU countries unless they display the CE
mark. In May 1998, Imatron received the CE Marking, which indicates that the EBT
scanner meets the safety  requirements  for  marketing in all EU  countries.  In
addition,  the Company  successfully  obtained  registration  under the ISO 9001
standards  in  December  1997.  The  inability  or failure of the Company or its
international  distributors  to comply with varying  foreign  regulations or the
imposition of new regulations could restrict or, in certain countries, result in
the prohibition of the sale of the Company's business.

                              PATENTS AND LICENSES

Imatron relies heavily on proprietary technology and intellectual property 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.  Under the
continuing  sublicense  agreement,  as amended,  Imatron  will make  payments to
Emersub  equal to 2.125% of net sales of new C-150  scanners  sold by Imatron in
exchange  for  the  Company's   exclusive  use  of  Patent  #4,352,021,   "X-ray
Transmission  Scanning  System and Method and Electron  Beam X-ray Scan Tube for
Use  Therewith",  through  the  remaining  life of such  patent.  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. UC cancelled the license to Emersub on October 8, 1997. UC has agreed
to  grant  the  Company  a  license  for the  remaining  life of the  patent  on
substantially  the same terms as the  Emersub  license  agreement.  Imatron  has
agreed to pay UC  royalties  in the amount of $9,185 for each new  scanner  sold
from January 1, 1997 through  September 28, 1999,  the patent  expiration  date.

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                                       11
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FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

Royalty  expenses  related to the sublicense  agreement for 1999, 1998, and 1997
were $77,790, $137,775, and $165,330, respectively.

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

In addition,  Imatron holds  twenty-seven  U.S.  Patents of its own (each with a
remaining  life  in  excess  of one  year)  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.  Pursuant to the Memorandum of  Understanding  with Siemens
(see  "Transactions  With Siemens  Corporation"),  the Company  transferred five
patents to Siemens,  two of which cover features of the Company's C-150 scanner,
in complete  consideration  of the  cancellation  by Siemens of the $4.0 million
notes payable to the Company. The transferred patents were as follows:

     1.   U.S.  4,521,901 - Scanning Electron Beam Computed  Tomography  Scanner
          with Ion Aided Focusing.

     2.   U.S.  4,531,226  -  Multiple  Electron  Beam  Target  for use in X-Ray
          Scanner.

     3.   U.S. 4,535,243 - X-Ray Detector for High Speed X-Ray Scanning System.

     4.   U.S. 4,736,396 - Tomosynthesis using High Speed CT Scanning System.

     5.   U.S.  5,193,105 - Ion  Controlling  Electrode  Assembly for a Scanning
          Electron Beam Computed Tomography Scanner.

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 (or other  EBT unit  produced  by
Imatron after April 1, 1995),  commencing  with the 21st C-150 (or other Imatron
EBT) unit  produced in any year and  continuing  thereafter  for ten years after
such first quarter in which such 21st unit is produced. To date, Imatron has not
produced  more than 20 scanners in any year and,  therefore,  no royalties  have
been due under this agreement.

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 materially  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 December 31, 1999, the Company had 202  employees,  including 49 employees
in service, 30 in  sales/marketing,  51 scientists and engineers in research and
development,  52  employees  in  manufacturing,  and 20 employees in finance and
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
labor relations with its employees.

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                                       12
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FY 1999                           IMATRON INC.                         FORM 10-K
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                                 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 1992 and 1993. In 1994,  the Company  incurred its
first year of net income from  continuing  operations  amounting  to  $3,221,000
partially  offset by $911,000 of net losses incurred by discontinued  operations
of  HeartScan.  In 1999,  1998,  and 1997,  the Company  incurred  net losses of
$6,586,000,  $14,781,000,  and  $11,422,000,  respectively.  The net losses were
partially a result of the operating  losses incurred by discontinued  operations
of HeartScan which amounted to $1,989,000,  $4,507,000, and $6,428,000, in 1999,
1998, and 1997,  respectively.  In 1999, the operating losses from  discontinued
operations  were  partially  offset  by a gain on sale of  assets  amounting  to
$1,049,000.  The net losses recorded reflect non-cash  minority interest expense
of $874,000 and $1,744,000 recorded in 1998 and 1997, respectively,  as a result
of the accounting treatment relative to its convertible Series A Preferred Stock
having "beneficial  conversion features." 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.  Also in
1996,  HeartScan raised  $14,798,000 (net of offering costs) for use exclusively
to develop its operations.  In 1999, the Company raised  $8,621,000 for the sale
of shares of common stock and common stock  warrants to its  President and other
institutional  investors (see Note 11 to the Notes to the Consolidated Financial
Statement).  As of December 31, 1999, the Company has a consolidated accumulated
deficit of $104,083,000.

The  Company's  liquidity  is affected  by many  factors,  including  the normal
ongoing   operations  of  the  business  and  other   factors   related  to  the
uncertainties  of  the  industry  and  global   economies.   Although  the  cash
requirements  will  fluctuate  based on  timing  and  extent  of these  factors,
management  believes  that cash  existing at December 31, 1999 together with the
estimated  proceeds from ongoing sales of products and services and  divestiture
of the  HeartScan  operations  in 1999 will provide the Company with  sufficient
cash for operating  activities  and capital  requirements  through  December 31,
2000.

NEED FOR ADDITIONAL FINANCING

To satisfy  the  Company's  capital  and  operating  requirements  beyond  1999,
profitable operations,  additional public 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.

MATERIAL DEPENDENCE UPON KEY PERSONNEL

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

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FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

HIGH COST OF SCANNER

The distributor list price of Imatron's EBT 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 EBT
scanner  was  first  used in 1992.  87  C-150,  C-100 and  C-150L  scanners  are
currently  installed in a clinical  setting.  The Company  believes  that market
acceptance of the EBT 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  EBT  that  will  allow  the  Company  to  operate
profitably.

THIRD-PARTY REIMBURSEMENT OF COST OF CT SCANS

FDA clearance to market does not guarantee or imply reimbursement by third-party
payers 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.

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,  healthcare 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,
often being  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 profitability,  as to which
there can be no assurance,  there is no present anticipation that dividends will

================================================================================
                                       14
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

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  86,909  square feet of leased
space in  buildings  located in South San  Francisco,  California,  under leases
expiring in February  2004. In addition,  the Company  sub-leases  approximately
18,677 square feet to certain tenants with leases expiring in February 2004.

The Company also leases  business and  residential  properties  in Germany under
operating leases expiring in March 2000 and July 2002. The business  facility is
being used as a service center for its European customers while the residence is
for expatriates assigned in Germany.

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, 1999.

                                     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.

                       1999                  1998
                  ----------------      ----------------
Quarter           High        Low       High        Low
-------           ----        ---       ----        ---

First             $2.28      $1.03      $3.03      $2.25
Second             1.44       0.84       4.00       2.25
Third              1.84       1.06       2.81       1.13
Fourth             3.81       1.03       2.59        .81

As of March 8, 2000,  there were  approximately  6,400  holders of record of the
Company's  common  stock.  On March 8, 2000,  the closing price of the Company's
common stock on Nasdaq was $4.75.

                              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.

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                                       15
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

ITEM 6 -  SELECTED FINANCIAL DATA

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

<TABLE>
<CAPTION>
OPERATING INFORMATION
  Year Ended December 31                     1999        1998        1997        1996        1995
                                           --------    --------    --------    --------    --------
<S>                                        <C>         <C>         <C>         <C>         <C>
Total revenues from continuing
  operations                               $ 37,549    $ 30,660    $ 37,317    $ 24,823    $ 26,374
Operating loss from continuing
  operations                               $ (5,835)   $ (9,535)   $ (3,915)   $ (8,065)   $ (3,693)

Income (loss) from continuing operations   $ (5,646)   $ (9,400)   $ (3,250)   $ (5,892)   $    163
Loss from discontinued operations          $   (940)   $ (4,507)   $ (6,428)   $ (4,573)   $ (2,612)
Net loss                                   $ (6,586)   $(14,781)   $(11,422)   $(13,737)   $ (2,449)
Basic and diluted loss per share from
  continuing operations                    $  (0.06)   $  (0.11)   $  (0.04)   $  (0.08)         --
Number of shares used
  in per share calculations                  94,680      83,941      78,461      74,406      57,598

BALANCE SHEET INFORMATION

  At December 31                             1999        1998        1997        1996        1995
                                           --------    --------    --------    --------    --------
  Working capital                          $ 22,217    $ 12,813    $ 26,003    $ 33,042    $ 14,252
  Total assets                               40,643      31,982      43,165      47,488      27,459
  Long term obligations
    including capital lease
    obligations                                 125          39         121         182         235
  Total liabilities                          13,818      12,991      11,840       9,962      11,234
  Minority interest                              93         331      14,255      12,323          --
  Shareholders' equity                       26,732      18,660      17,070      25,203      16,225
</TABLE>

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

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                                       16
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

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

                         LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1999,  working  capital  increased  to  $22,217,000  compared to
December  31,  1998  working  capital of  $12,813,000  primarily  as a result of
increased  revenues and cash  realized  from private  placement  offerings.  The
current ratio increased to 2.7:1 at December 31, 1999 from 2.1:1 at December 31,
1998.

The Company's  total assets  increased to  $40,643,000  compared to December 31,
1998  total  assets  of  $31,982,000.  Cash and cash  equivalents  increased  to
$9,198,000  in 1999 from  $1,445,000  in 1998.  The  increase in cash was due to
proceeds  realized  from  private  placements,  exercises  of warrants and stock
options,  and increase in scanner sales. Cash used in continuing  operations was
$1,267,000  for twelve  months ended  December 31, 1999  compared to  $7,893,000
during the same period in 1998.  Cash was used to fund the  operating  activties
resulting  from net  loss  from  operations,  an  increase  in  receivables  and
reductions  in accounts  payable  and  deferred  revenues.  The use of cash from
operations  was  partially  offset by a decrease in inventory and an increase in
other accrued liabilities. Other primary sources of non-cash items included loss
on discontinued operations and common stock issued for services in lieu of cash.
The increase in  receivables  and  decrease in  inventory  were due to increased
scanner  shipments  to 19 in 1999 from 15 during  the same  period in 1998.  The
decrease  in  inventory  was also due to a decrease in the number of scanners in
finished  goods to 2 in 1999 from 8 during the same period in 1998. In 1999, the
decrease in finished goods was partially  offset by increases in purchased parts
and  work-in-process  to meet anticipated  shipments in the first half of fiscal
year 2000. In 1998,  scanner  orders were either  delayed or canceled due to the
financial  instability in the Asia/Pacific  market,  resulting in an increase in
the number of scanners in finished goods. Growth in trade receivables was mainly
due to the record level of scanner  shipments in the fourth quarter of 1999. The
decrease  in  accounts  payable  resulted  from  payments to vendors to maintain
balances to a more current basis.

Cash  provided by  discontinued  operations  was $770,000 for the twelve  months
ended December 31, 1999 compared to $499,000  during the same period in 1998 due
to the  proceeds  from the sale of  HeartScan  centers  partially  offset by the
buy-out of HeartScan scanners on lease during 1999. Net losses from discontinued
operations  for the twelve  month period  ended  December 31, 1999  decreased to
$940,000  as  compared  to  $4,507,000  (net  of  gain  on  sale  of  assets  of
discontinued  business) for the same period in 1998 . The decrease in losses was
primarily due to the sale of certain HeartScan business  operations,  which were
consistently operating at a loss since inception.

The Company's investing activities for the year ended December 31, 1999 included
acquisition of Caral  amounting to $273,000 (net of cash acquired) and purchases
of marketable  securities and equipment  amounting to $4,062,000 and $1,148,000,
respectively,  offset by  maturities of  marketable  securities  of  $2,063,000.
Capital  expenditures  included  approximately  $437,000  for the  purchase  and
installation  of the MK  Enterprise  Resource  Planning  System.  The  Company's
investing  activities  for 1998 included  purchases of securities  available for
sale and capital  equipment.  The Company purchased $642,000 of equipment during
1998,  primarily  consisting  of  computer  and  test  equipment.  In  addition,
significant items affecting cash flows during fiscal 1998 included maturities of
marketable securities of $1,065,000.

================================================================================
                                       17
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

Key  financing  activitites  for the year ended 1999  included  proceeds  from a
private  offering  whereby the Company sold 7,672,313 shares of its common stock
for  $8,621,000.  Cash raised through  employee  participation  in the Company's
stock option and purchase  plans and excercise of warrants were  $2,788,000  and
$1,446,000 in 1999 and 1998, respectively.

The Company's  liquidity is affected by many  factors,  some based on the normal
ongoing  operations of the business and others related to the  uncertainties  of
the industry and global economies. Although the cash requirements will fluctuate
based on timing and extent of these factors,  management believes that cash, and
cash equivalents  existing at December 31, 1999 and the estimated  proceeds from
ongoing  sales of products  and  services in 2000 will  provide the Company with
sufficient  cash for  operating  activities  and  capital  requirements  through
December 31, 2000.
The Company  expects to devote  substantial  capital  resources  to research and
development,  to support a direct sales force and  marketing  operations  and to
continue to support its  manufacturing  capacity and facilities.  To satisfy the
Company's capital and operating requirements beyond 2000, profitable operations,
additional  public  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 CONTINUING OPERATIONS

1999 vs 1998

Overall  revenues for the year ended December 31, 1999 of $37,549,000  increased
$6,889,000  or 22%  compared to revenues of  $30,660,000  for the same period in
1998. Net product revenues  increased to $29,891,000 in 1999 from $22,547,000 in
1998 due to 19  scanners  having been sold in 1999  compared  to 15 in 1998.  In
addition,  upgrade  revenues  increased to  $1,490,000  in 1999 from $272,000 in
1998.  Service  revenues  slightly  increased  1% to  $6,938,000  in  1999  from
$6,863,000 in 1998 due to an increase in scanners under service  contract offset
by  a  decrease  in  spare  parts  shippped.  Development  contract  revenue  of
$1,250,000  recorded in 1998 represented a non-refundable  payment received from
Siemens to compensate the Company for its research and  development  efforts for
which  Siemens  received  certain  rights  under the three  year  Memorandum  of
Understanding.  There were no  payments  received  from  Siemens for 1999 as the
Memorandum of Understanding expired on April 1, 1998.

Total  cost of  revenues  as a percent of  revenues  for the year ended 1999 was
lower at 72% as compared with 76% in 1998. Product cost of revenues as a percent
of product revenues decreased to 68% in 1999 from 75% in 1998. The gross margins
in 1998  were  adversely  affected  by a mix in the sales  prices  of  scanners.
Although the cost of a scanner remains  constant for all new scanner sales,  the
price varied  depending on the  customer.  In  particular,  sales to Siemens and
Imatron  Japan,  Inc.  had a lower  sales  price and  consequently  lower  gross
margins,  than sales to other parties.  The decrease in the cost of revenue as a
percentage  of revenue for scanners was due to the decrease in scanner  sales to
these  distributors to two in fiscal year 1999 from four in fiscal year 1998 and
a sale of a refurbished  scanner with higher gross margins in 1999. Service cost
of revenues as a percent of service revenue decreased to 89% in 1999 from 93% in
1998 due to improved  scanner  performance  reducing  the costs to maintain  the
scanners and higher gross margins on spare parts shipped.  In 1998,  revenues on
spare parts  shipped to Imatron  Japan,  a major  customer,  were  deferred  and
related costs were  recognized due to the  customer's  difficulty in paying as a
result of the economic and currency uncertainties in Japan. As a major customer,
the Company  extended  credit  beyond the normal  terms to ensure the  continued
service for its 29 installed scanners purchased from the Company.

================================================================================
                                       18
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

Operating  expenses for the year ended 1999  decreased to  $16,332,000 or 43% of
revenues,  compared to  $16,901,000,  or 55% of revenues in 1998.  Research  and
development expenses of $7,045,000 in 1999 decreased from $7,869,000 in 1998 due
to a reduction in headcount and  completion  of certain R&D projects.  Marketing
and sales  expenses  increased to  $6,244,000  in 1999 from  $4,456,000  in 1998
primarily due to increases in promotional  activities and headcount to establish
a larger  sales and  marketing  organization  to better  serve the  growing  EBT
market.  Administrative expenses decreased to $2,622,000 in 1999 from $4,576,000
in 1998 due  primarily  to a  decrease  in the bad debt  provision  relating  to
certain  distributors.  Goodwill  amortization  amounting  to  $139,000  in 1999
represents  the  amortized  portion of goodwill  related to the  acquisition  of
Caral.  Restructuring  charges of  $282,000  relates to  severance  and  related
benefits  paid by the Company  during the first  quarter of 1999 as part of it's
reorganization plan.

Other income  increased to $257,000 for the year ended 1999 from $155,000 in the
comparable  period of 1998.  The  increase  was due to higher  average  cash and
investment  balances  during 1999 compared to 1998 resulting from cash generated
from  scanner  sales,  private  offering  of the  Company's  common  stock,  and
exercises of warrants and stock  options in 1999.  Interest  expense  represents
interest incurred on capital lease obligations on certain office equipment.

The  Company  incurred a non-cash  charge to income of  $874,000  recorded  as a
return to minority  interest expense for the year ended 1998, in connection with
certain beneficial  conversion  features granted to the holders of the HeartScan
convertible Series A Preferred Stock.

1998 vs 1997

Overall  revenues for the twelve months ended  December 31, 1998 of  $30,660,000
decreased  $6,657,000  or 18% compared to revenues of  $37,317,000  for the same
period in 1997.  Net product  revenues  decreased  to  $22,547,000  in 1998 from
$27,368,000  in 1997 due to 15 scanners  shipped in 1998 compared to 18 in 1997.
Certain Asian countries were experiencing banking and currency difficulties that
led to economic  slowdowns or recessions in those countries.  This, in turn, has
resulted  in reduced  demand  for the  Company's  products.  For  instance,  the
purchasing power of the Company's Asian customers declined as a result of, among
other things, difficulties in obtaining credit and the decline in value of their
currencies.  These  customers  canceled  or  delayed  orders  for the  Company's
products and may continue to cancel or delay additional orders. Scanner sales in
this region  decreased to two shipments to Japan in 1998 from eight shipments to
Japan, China,  Singapore and Malaysia in 1997. Weak sales in Asia were partially
offset by an increase  in sales to United  States  customers  as a result of the
termination  of the exclusive  distribution  rights to Siemens in April 1, 1998.
The Company sold eight  scanners for  domestic  sites while  Siemens sold one in
1998. In 1997, Siemens sold two scanners in the United States.  Service revenues
increased 39% to  $6,863,000 in 1998 from  $4,949,000 in 1997 due to an increase
in scanners under service  contract.  The increase  resulted  primarily from the
service  support  agreement  entered  into with  Siemens.  Development  contract
revenue decreased to $1,250,000 in 1998 from $5,000,000 in 1997 due to the terms
of the three year Memorandum of Understanding entered into with Siemens expiring
as of April 1, 1998.

Total cost of revenues as a percent of  revenues  for the twelve  months of 1998
was 76% as compared  with 63% in 1997.  Product cost of revenues as a percent of
product revenues increased to 75% in 1998 from 72% in 1997 due to shipment of 15
scanners compared to 18 shipments in 1997. Service cost of revenues as a percent
of service revenue  increased to 93% in 1998 from 79% in 1997 due to an increase
in headcount to support the scanner service  contracts under the Siemens service
agreement  and other new scanner  sites.  In  addition,  revenues on spare parts
shipped to Imatron Japan Inc., a major customer, were deferred and related costs
were  recognized due to the  customer's  difficulty in paying as a result of the
economic and currency  uncertainties  in Asia. As a major customer,  the Company
has extended credit beyond the normal terms to Imatron Japan, Inc. to ensure the
continued service for its 27 scanners purchased from the Company.

Operating expenses for the twelve months of 1998 decreased 4% to $16,901,000, or
55% of revenues,  compared to $17,583,000,  or 47% of revenues in 1997. Research
and development expenses of $7,869,000 in 1998 decreased from $9,713,000 in 1997
due to a decrease in in-house research for new product development programs as a
result of the  termination of the three year  Memorandum of  Understanding  with
Siemens.  Marketing  and sales  expenses  increased to  $4,456,000  in 1998 from
$3,749,000  in  1997  primarily  due  to  increases  in  headcount  and  outside
commissions related to scanner sales, partially offset by a decrease in expenses
related to studies  conducted  on the C-150  scanners.  Administrative  expenses
increased to  $4,576,000  in 1998 from  $4,121,000  in 1997 due  primarily to an
increase in  investor  relations  expenses  offset by a decrease in the bad debt
provision relating to certain distributors.

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                                       19
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

Other income  decreased to $155,000 for the twelve  months of 1998 from $692,000
in the comparable  period of 1997. The decrease was  attributable  to lower cash
balances and  investments in  interest-bearing  securities  primarily due to the
operating  loss  incurred.  Interest  expense  represents  interest  incurred on
capital lease obligations on certain office equipment.

The  Company  incurred a non-cash  charge to income of $874,000  and  $1,744,000
recorded as a return to minority  interest  expense for the twelve  months ended
December 31, 1998 and 1997, respectively,  in connection with certain beneficial
conversion features granted to the holders of the HeartScan convertible Series A
Preferred Stock.

Discontinued operation:

On July 13, 1998,  the Company  announced  its intention to divest its HeartScan
subsidiary.  Accordingly,  the Company  restated  its  financial  statements  to
reflect the  classification  of HeartScan as a  discontinued  operation  for all
periods presented (See Note 17).

During the twelve  months of 1998 and 1997,  the  Company  reported  losses from
discontinued operations of $4,507,000 and $6,428,000, respectively, which relate
to the  discontinued  operations  of the HeartScan  subsidiary.  The decrease in
operating  loss was  primarily due to an increase in number of patient scans and
the closure of the Seattle  center  which had been  consistently  operating at a
loss.  In  addition,  HeartScan  ceased  all radio and print  advertising  which
significantly reduced overhead costs.

At the  measurement  date,  the Company  estimated that although a gain would be
realized upon the ultimate sale,  HeartScan  would  continue to incur  operating
losses  through the disposal  date. In the fourth  quarter of 1998,  the Company
changed its strategy from selling HeartScan to a single buyer to that of selling
the  individual  centers to buyers  located in the cities where the centers were
located.  At December 31, 1998, the Company  reassessed its estimate of the gain
on disposal to reflect the Company's  change in strategy.  The Company  adjusted
its  accrued  loss and  expected  gain to reflect  1999 losses to be incurred of
approximately  $1,900,000  through the disposal  date and a realized net gain on
disposal of approximately $1,900,000.

In 1999, the Company sold the San Francisco, Pittsburgh, Houston, and Washington
DC centers.  While the  $1,989,000  in losses  incurred by these centers met the
Company's  expectations,  the net gain  upon  disposal  was  somewhat  less than
expectations at $1,049,000.  The 1999 $940,000 loss from discontinued operations
reflects our actual results as compared to our estimates at December 31, 1998.

The Company expects that the discontinued operations will continue to operate at
a loss through the disposal of its final center in Cascais,  Portugal.  However,
management's  current best estimate  indicates that the disposal of the disposal
of the Cascais center will result in a gain.

NEW ACCOUNTING STANDARDS

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging Activities" (SFAS 133), and in July 1999 issued Financial Accounting
Standard  No.  137,   "Accounting   For  Derivative   Instruments   and  Hedging
Activities-Deferral  of the  Effective  Date  of  FASB  Statement  No.  133,  an
Amendment of FASB Statement No. 133" (SFAS 137).  SFAS 137 delayed the effective
date for SFAS 133 for fiscal years  beginning  after June 15, 2000.  The Company
does not believe that the impact of this statement  will have a material  effect
on the  financial  position or results of  operations  upon the adoption of this
accounting standard.

YEAR 2000 COMPLIANCE

The Company  successfully  completed the final phase of its  conversion to MK in
August  1999.  The  Company  has  not  experienced   any  significant   business
disruptions  as a result  of Year  2000  issues,  nor has it  incurred  material
expenditures.  The  Company  will  continue to monitor  its  internal  operating
systems  as well as third  parties  with  whom the  Company  does  business,  to
identify  and  address  any  potential  risk  situations  related  to Year 2000.
However,  there  can be no  assurance  that the  Company  will not be  adversely
affected by these suppliers and service providers in the future,  and that these
expenditures will not be material.

================================================================================
                                       20
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company has held investments consisting of interest bearing investment grade
instruments consistent with the Company's investment portfolio.  The Company has
also entered into leasing  arrangements.  At December 31, 1999,  the Company had
money market mutual funds,  certificates  of deposit and commercial  paper which
mature in less than twelve months.  Additionally,  the Company maintained leases
for certain office equipment that have been accounted for as capital leases with
a total obligation of $155,000 as of December 31, 1999.

The Company  does not  believe  that it is subject to any  material  exposure to
interest rate, foreign currency or other market risks.

ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

                                 Not applicable.

                                    PART III

ITEM 10 - EXECUTIVE OFFICERS OF THE REGISTRANT

The executive officers of the Company and their ages and positions are set forth
below. Unless otherwise indicated, officers are full-time employees and serve at
the discretion of the Board of Directors.

     Name                     Age    Position
     ----                     ---    --------
     Dr. Douglas P. Boyd      58     Chairman of the Board,
                                     Chief Technology Officer

     S. Lewis Meyer           55     Chief Executive Officer

     Terry Ross               52     President

     Frank Cahill             53     Vice President, Finance and Administration,
                                     Chief Financial Officer, Secretary

*    Dr.  Douglas  Boyd is a founder of Imatron and 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 also an
     Adjunct  Professor of Radiology  (Physics) at the University of California,
     San Francisco,  where he spends  approximately  five percent of his time on
     university  duties.  In  addition,  Dr.  Boyd is a  Director  for  InVision
     Technologies,  Inc.,  a  publicly  held  company  engaged in the design and
     manufacture of explosives detection computed

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                                       21
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

          tomography (CT) scanners for the baggage,  parcel, and freight market.
          InVision  Technologies is a former Imatron joint venture company which
          was established in 1990.

          Recognized  internationally for his pioneering work in the development
          of fan-beam CT scanners,  Xenon detector arrays, and EBT, Dr. Boyd has
          been  awarded  ten  U.S.  patents.  He has  published  more  than  100
          scientific papers and is a frequent speaker at university seminars and
          other  symposia.  In 1993 he was awarded the  prestigious  Conway Safe
          Sky's Award for  contributions to airline travel safety related to the
          development of a CT baggage explosives detection system.

          Dr. Boyd received his B.S. in Physics from the University of Rochester
          in 1963 and a Ph.D. in Physics from Rutgers University in 1968.

     *    S. Lewis Meyer was appointed  President,  Chief Executive  Officer and
          Director  of Imatron in June 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
          magnetic  resonance systems and analytical  nuclear magnetic resonance
          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
          service providers,  and related medical professionals.  Prior thereto,
          he was  President  and Chief  Executive  Officer  of  American  Health
          Services Corp.  (now Insight Health Services  Corp.),  a developer and
          operator of  diagnostic  imaging  and  treatment  centers.  During his
          tenure at  American  Health  Services  Corp.,  it was one of the fifty
          fastest growing public companies in the United States.

          In addition to his duties as President and Chief Executive  Officer of
          Imatron,  Mr. Meyer serves as a Director for Finet  Holdings  Corp., a
          publicly held company  engaged in electronic  real estate and mortgage
          banking services.

          Mr. Meyer  received his B.S.  degree in Physics from the University of
          the Pacific,  Stockton,  California, in 1966, a M.S. degree in Physics
          from Purdue  University  in 1968,  and a Ph.D.  in Physics from Purdue
          University in 1971.

     *    Terry Ross was appointed  President of Imatron in January  1999.  From
          1989 to 1998,  Mr. Ross was  President,  Chief  Executive  Officer and
          Director of Cemax-Icon,  Inc., a medical imaging  manufacturer.  Prior
          thereto,  he was Vice President of Sales and Marketing of the Company.
          Mr. Ross also held executive sales positions at Picker  International,
          Inc. and ADAC  Laboratories,  Inc.,  all of which are medical  imaging
          companies.

     *    Frank   Cahill  was   appointed   Vice   President   of  Finance   and
          Administration,  Chief Financial Officer,  and Secretary of Imatron on
          January 2, 2000.  Prior to joining the  Company,  Mr.  Cahill has held
          management  positions  from  "Fortune  500"  companies  in New York to
          smaller start-up  companies since relocating to California three years
          ago. Most recently he was Vice President - Finance and  Administration
          at Berkeley Heart Lab, Inc., the developer of a unique test to measure
          lipid particle  density and Chief Financial  Officer at MED-COR Health
          Information Solutions, Inc. a healthcare consulting and service firm.

          Mr.  Cahill  while at Ernst & Young  in New  York  became a  Certified
          Public  Accountant.  He has received an M.B.A. from Rutgers University
          and a B.S. in Physics from St. Peters College both in New Jersey.

ITEM 11 - EXECUTIVE COMPENSATION

The  information  required  on  items  11,  12 and 13  will be  included  in the
Company's  definitive proxy statement or as an amendment to the Form 10-K, under
cover of Form 8. The  information  required  in Part III will be filed  with the
Securities  Exchange  Commission  no later  than 120 days  after  the end of the
fiscal year.

================================================================================
                                       22
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

                                     PART IV

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

     (a)  The following documents are filed as part of this Form:

          1.   Consolidated  Financial  Statements - See "Index to  Consolidated
               Financial Statements" attached hereto and made a part hereof.

          2.   Financial  Statement  Schedule  -  Schedule  II -  Valuation  and
               qualifying accounts.  All other schedules are omitted as 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 or are  incorporated  herein by reference as
               part of this report.

     (b)  Form 8-K Reports: None

================================================================================
                                       23
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

                                   SIGNATURES

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


Dated: March 24, 2000              IMATRON INC.
                                   -----------------------------------


                               By: FRANK CAHILL
                                   -----------------------------------
                                   Chief Financial Officer, Vice President,
                                   Finance and Administration, Secretary

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

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


                      Director,
-------------------   Chairman of the Board                       March 24, 2000
Douglas P. Boyd

                      Director                                    March 24, 2000
-------------------
William J. McDaniel

                      Director                                    March 24, 2000
-------------------
John L. Couch

                      Director                                    March 24, 2000
-------------------
Allen Chozen

                      Director                                    March 24, 2000
-------------------
Richard Myler

                      Director,                                   March 24, 2000
-------------------   Chief Executive Officer
S. Lewis Meyer        (Principal Executive Officer)


                      Director                                    March 24, 2000
-------------------   President
Terry Ross

                      Director                                    March 24, 2000
-------------------
Aldo J. Test

                      Chief Financial Officer, Vice President,    March 24, 2000
-------------------   Finance and Administration, Secretary
Frank Cahill          (Principal Financial Officer and
                      Principal Accounting Officer)

================================================================================
                                       24
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

                                IMATRON INC.
                 Index to Consolidated Financial Statements

STATEMENT                                                                   PAGE
---------                                                                   ----

Report of KPMG LLP, Independent Auditors                                     26

Consolidated Balance Sheets as of December 31, 1999, and 1998                27

Consolidated Statements of Operations for the years ended
December 31, 1999, 1998, and 1997                                            28

Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999, 1998, and 1997                                            29

Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998, and 1997                                                         30

Notes to Consolidated Financial Statements                                   32

================================================================================
                                       25
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

                    Report of KPMG LLP, Independent Auditors



The Board of Directors and Stockholders
Imatron Inc.:

We have audited the consolidated balance sheets of Imatron Inc. and subsidiaries
as of December 31, 1999 and 1998,  and the related  consolidated  statements  of
operations,  shareholders'  equity,  and cash flows for each of the years in the
three-year  period ended December 31, 1999. In connection with our audits of the
consolidated financial statements,  we have also audited the financial statement
schedule  listed  in the  index at Item  14(a)2.  These  consolidated  financial
statements  and  financial  statement  schedule  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
consolidated  financial statements and financial statement 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 financial  position of Imatron Inc. and
subsidiaries  as of  December  31,  1999  and  1998,  and the  results  of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 1999,  in  conformity  with  generally  accepted  accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole,  presents  fairly,  in all material  respects,  the information set forth
therein.


                                                   /s/ KPMG LLP


San Francisco, California
February 14, 2000

================================================================================
                                       26
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================
                                  IMATRON INC.
                           Consolidated Balance Sheets
                                 (In thousands)

                                                              December 31,
                                                         -----------------------
ASSETS                                                     1999         1998
                                                         ---------    ---------
Current assets
  Cash and cash equivalents                              $   9,198    $   1,445
  Short-term investments                                     1,999           --
  Accounts receivable (net of allowance for
    doubtful accounts of $2,876 and
    $3,272 at December 31, 1999 and 1998):
         Trade accounts receivable                           8,570        7,228
         Accounts receivable from joint venture                582          659
  Inventories                                               12,965       14,433
  Prepaid expenses                                           1,030          825
  Net current assets of discontinued operations              1,019           --
                                                         ---------    ---------
Total current assets                                        35,363       24,590

Property and equipment, net                                  2,900        2,275
Other assets                                                 1,911        1,631
Long-term net assets of discontinued operations                469        3,486
                                                         ---------    ---------

Total assets                                             $  40,643    $  31,982
                                                         =========    =========
LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
  Accounts payable                                       $   2,998    $   3,515
  Other accrued liabilities                                 10,118        7,978
  Capital lease obligations - due within one year               30           64
  Net current liabilities of discontinued operations            --          220
                                                         ---------    ---------
Total current liabilities                                   13,146       11,777

  Deferred income on sale leaseback transactions               367          875
  Deferred income on service contract                          180          300
  Capital lease obligations                                    125           39
                                                         ---------    ---------
Total liabilities                                           13,818       12,991
                                                         ---------    ---------
Minority interest                                               93          331
                                                         ---------    ---------
Shareholders' equity
  Common stock, no par value; 150,000 shares authorized;
    100,042 and 88,295 shares issued and outstanding
    in 1999 and 1998, respectively                         121,566      107,475
  Additional paid-in capital                                 9,399        9,340
  Deferred compensation                                         --         (170)
  Notes receivable from shareholders                          (150)        (488)
  Accumulated deficit                                     (104,083)     (97,497)
                                                         ---------    ---------
Total shareholders' equity                                  26,732       18,660
                                                         ---------    ---------

Total liabilities and shareholders' equity               $  40,643    $  31,982
                                                         =========    =========

              The accompanying notes are an integral part of these
                       consolidated financial statements.

================================================================================
                                       27
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

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

<TABLE>
<CAPTION>
                                                              Years ended December 31,
                                                          --------------------------------
                                                            1999        1998        1997
                                                          --------    --------    --------
<S>                                                       <C>         <C>         <C>
Revenues
   Product sales                                          $ 29,891    $ 22,547    $ 27,368
   Service                                                   6,938       6,863       4,949
   Other products sales                                        720          --          --
   Development contracts                                        --       1,250       5,000
                                                          --------    --------    --------
        Total revenue                                       37,549      30,660      37,317
                                                          --------    --------    --------
Cost of revenues
   Product sales                                            20,188      16,931      19,747
   Service                                                   6,162       6,363       3,902
   Other products sales                                        702          --          --
                                                          --------    --------    --------

        Total cost of revenues                              27,052      23,294      23,649
                                                          --------    --------    --------
Gross profit                                                10,497       7,366      13,668
                                                          --------    --------    --------
Operating expenses
   Research and development                                  7,045       7,869       9,713
   Marketing and sales                                       6,244       4,456       3,749
   General and administrative                                2,622       4,576       4,121
   Goodwill amortization                                       139          --          --
   Restructuring charges                                       282          --          --
                                                          --------    --------    --------
        Total operating expenses                            16,332      16,901      17,583
                                                          --------    --------    --------

Operating loss                                              (5,835)     (9,535)     (3,915)
Interest and other income                                      257         155         692
Interest expense                                               (68)        (20)        (27)
                                                          --------    --------    --------
Loss from continuing operations before provision
  for income taxes                                          (5,646)     (9,400)     (3,250)
Provision for income taxes                                      --          --          --
                                                          --------    --------    --------

Loss from continuing operations                             (5,646)     (9,400)     (3,250)

Loss from discontinued operations                             (940)     (4,507)     (6,428)
Non cash return to minority interest                            --        (874)     (1,744)
                                                          --------    --------    --------

Net loss                                                  $ (6,586)   $(14,781)   $(11,422)
                                                          ========    ========    ========
Net loss per common share:
  Loss from continuing operations - basic and diluted     $  (0.06)   $  (0.11)   $  (0.04)
                                                          ========    ========    ========

  Loss from discontinued operations - basic and diluted   $  (0.01)   $  (0.05)      (0.08)
                                                          ========    ========    ========

  Net loss - basic and diluted                            $  (0.07)   $  (0.18)      (0.15)
                                                          ========    ========    ========
Number of shares used in basic and diluted per share
  calculations                                              94,680      83,941      78,461
                                                          ========    ========    ========
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.

================================================================================
                                       28
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

                                  IMATRON INC.
                 Consolidated Statements of Shareholders' Equity
                                 (In thousands)

<TABLE>
<CAPTION>
                                            Common Stock    Additional  Deferred              Accum-
                                        ------------------   Paid-in     Compen-   Notes      ulated
                                         Shares    Amount    Capital     Sation  Receivable   Deficit     Total
                                         ------    ------    -------     ------  ----------   -------     -----
<S>                                      <C>       <C>        <C>         <C>                 <C>         <C>
Balances at December 31, 1996
(Restated)                               77,919  $ 89,223     7,390    $  (116)  $     --   $ (71,294)  $ 25,203
Common stock issued for employee stock
  purchase plans, stock bonus and the
  exercise of warrants and employee
  stock options                             896     1,505        --         --         --          --      1,505
Deferred compensation from
   issuance of stock options by
   consolidated subsidiary                   --        --        --       (186)        --          --       (186)
Amortization of deferred
   compensation                              --        --        --         70         --          --         70
Warrants issued for services                 --        --     1,750                                        1,750
Compensation expense related to
   the extension of the stock
   option exercise period                    --        --       150         --         --          --        150
Net loss                                     --        --        --         --                (11,422)   (11,422)
                                        -------  --------    ------    -------   --------   ---------   --------
Balances at December 31, 1997            78,815  $ 90,728    $9,290    $  (232)  $     --   $ (82,716)  $ 17,070
Common stock issued for employee stock
  purchase plans, stock bonus and the
  exercise of warrants and employee
  stock options                           1,984     1,949        --         --         --          --      1,949
Conversion of subsidiary's
  convertible series A preferred
  stock to company's common stock         7,496    14,798        --         --         --          --     14,798
Amortization of deferred
  compensation                               --        --        --         62         --          --         62
Warrants issued for services                 --        --        50         --         --          --         50
Notes receivable from officers
  for exercise of stock options              --        --        --         --       (488)         --       (488)
Net loss                                     --        --        --         --         --     (14,781)   (14,781)
                                        -------  --------    ------    -------   --------   ---------   --------
Balances at December 31, 1998            88,295  $107,475    $9,340    $  (170)  $   (488)  $ (97,497)  $ 18,660
Common stock issued for employee stock
  purchase plans, stock bonus and the
  exercise of warrants and employee
  stock options                           3,118     4,016        --         --         --          --      4,016
Common stock and warrants sold in
  a private placement, net of
  offering costs                          7,673     8,621        --         --         --          --      8,621
Common stock issued for
  acquisition of subsidiary                 956     1,454        --         --         --          --      1,454
Reversal of deferred
  compensation  due  to
  cancellation of stock options
  of discontinued operations                 --        --        --        170         --          --        170
Warrants issued per employment
  contract                                   --        --        10         --         --          --         10
Non-cash expense related to
  options issued to
   non-employee directors                    --        --        49         --         --          --         49
Repayments of notes receivable               --        --        --         --        338          --        338
Net loss                                     --        --        --         --         --      (6,586)    (6,586)
                                        -------  --------    ------    -------   --------   ---------   --------
Balances at December 31, 1999           100,042  $121,566    $9,399    $    --   $   (150)  $(104,083)  $ 26,732
                                        =======  ========    ======    =======   ========   =========   ========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

================================================================================
                                       29
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

                                  IMATRON INC.
                      Consolidated Statements of Cash Flows
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                 Years Ended December 31
                                                             --------------------------------
                                                               1999        1998        1997
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Cash flows from operating activities:
Net loss                                                     $ (6,586)   $(14,781)   $(11,422)
Adjustments to reconcile net loss to net
  cash used in operating activities:
Depreciation and amortization                                     757         780         665
Net loss from discontinued operations                             940       4,507       6,428
Goodwill amortization                                             139          --          --
Amortization of deferred compensation                              --          62          70
Non-cash return to minority interest                               --         874       1,744
Non-cash compensation expense for extension
  of stock option exercise period                                  --          --         150
Options and warrants issued for services                           49          50         750
Common stock issued for good and services                       1,228         503         270
Loss on disposal of assets                                         22          20           2
Changes in operating assets and liabilities:
Accounts receivable                                              (969)      1,495      (4,016)
Inventories                                                     1,730      (1,507)     (2,533)
Prepaid expenses                                                 (202)       (428)      1,198
Other assets                                                      950        (417)       (814)
Accounts payable                                                 (671)        553         501
Other accrued liabilities                                       1,974       1,017       1,062
Deferred income                                                  (628)       (621)        377
                                                             --------    --------    --------
Net cash used in operating activities:                         (1,267)     (7,893)     (5,568)
Net cash provided by (used in) discontinued operations            770         499      (2,426)
                                                             --------    --------    --------
                                                                 (497)     (7,394)     (7,994)
                                                             --------    --------    --------
Cash flows from investing activities:
Capital expenditures                                           (1,148)       (642)     (1,018)
Purchases of short-term investments                            (4,062)       (885)     (8,982)
Maturities of short-term investments                            2,063       1,065      14,880
Acquisition of subsidiary, net of cash acquired                  (273)         --          --
                                                             --------    --------    --------
Net cash (used in) provided by investing activities:           (3,420)       (462)      4,880
                                                             --------    --------    --------
Cash flows from financing activities:
Payments of obligations under capital leases                      (87)        (57)        (61)
Proceeds from issuance of warrant                                  10          --       1,000
Proceeds from issuance of common stock                         11,409       1,446       1,235
Loans to stockholders                                              --        (488)         --
Repayment of loans to stockholders                                338          --          --
Proceeds from issuance of stock of discontinued operations         --          --           2
                                                             --------    --------    --------
Net cash provided by financing activities                      11,670         901       2,176

Net (decrease) increase in cash and cash equivalents            7,753      (6,955)       (938)
Cash and cash equivalents, at beginning of year                 1,445       8,400       9,338
                                                             --------    --------    --------
Cash and cash equivalents, at end of year                    $  9,198    $  1,445    $  8,400
                                                             ========    ========    ========
</TABLE>
                                    Continued

================================================================================
                                       30
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

                                  IMATRON INC.
                Consolidated Statements of Cash Flows, continued
                                 (In thousands)

<TABLE>
<CAPTION>
<S>                                                          <C>         <C>         <C>
Supplemental Disclosure of Noncash Investing and
  Financing Activities:
   Deferred compensation from common stock option
   grant of discontinued operations                          $     --    $     --    $    186
                                                             ========    ========    ========
   HeartScan's conversion of preferred stock to
    Imatron common stock                                     $     --    $ 14,798    $     --
                                                             ========    ========    ========
   Equipment acquired under capital leases:
     Continuing operations                                   $    139    $     39    $     --
                                                             ========    ========    ========

     Discontinued operations                                 $     --    $     --    $  1,500
                                                             ========    ========    ========
   Cash paid for interest on capital lease obligations:
     Continuing operations                                   $     70    $     20    $     27
                                                             ========    ========    ========

     Discontinued operations                                 $    247    $    390    $    494
                                                             ========    ========    ========

   Cash paid for income taxes                                $     --    $     --    $     --
                                                             ========    ========    ========
</TABLE>

              The accompanying notes are an integral part of these
                       consolidated financial statements.

================================================================================
                                       31
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

                                  IMATRON INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1999

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  Electron  Beam  Tomography
scanner.  The scanner is used in large and mid-sized hospitals and free standing
imaging  clinics.  Imatron Inc.  provides  service,  parts,  and  maintenance to
hospitals  and clinics that operate its scanners,  as well as medical  equipment
manufactured by other companies.

BASIS OF CONSOLIDATION

The  consolidated  financial  statements  include the  accounts of Imatron  Inc.
("Imatron")  and all  its  subsidiaries  (collectively,  the  "Company"),  after
elimination of all intercompany transactions and accounts.

On July 13,  1998,  the  Company  adopted  a formal  plan to sell its  HeartScan
subsidiary  in order for the Company to focus more  comprehensively  on the core
business of manufacturing  and servicing  quality EBT scanners.  For all periods
presented, the financial statements reflect the Company's HeartScan segment as a
discontinued operation.

On January 6, 1999,  Imatron  acquired a 100%  interest  in Caral  Manufacturing
("Caral")  in  an  acquisition  accounted  for  under  the  purchase  method  of
accounting (see Note 6). Beginning  January 6, 1999, the financial  position and
operating results of Caral were consolidated with those of the Company.

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.

NEW ACCOUNTING STANDARDS

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging Activities" (SFAS 133), and in July 1999 issued Financial Accounting
Standard  No.  137,   "Accounting   For  Derivative   Instruments   and  Hedging
Activities-Deferral  of the  Effective  Date  of  FASB  Statement  No.  133,  an
Amendment of FASB Statement No. 133" (SFAS 137).  SFAS 137 delayed the effective
date for SFAS 133 for fiscal years  beginning  after June 15, 2000.  The Company
does not believe that the impact of this statement  will have a material  effect
on the  financial  position or results of  operations  upon the adoption of this
accounting standard.

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 EBT 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 in the United States,  Europe, Canada, and India;
and through Imatron Japan, Inc. in Japan, as well as through other  distributors
in the Pacific Rim. The Company generally  requires cash deposits or irrevocable
letters of credit for scanners  ordered and maintains  allowances  for potential
credit  losses.  There have been no losses  arising  from the sale of  scanners.
Spare parts are sold on terms to distributors and end-users.

================================================================================
                                       32
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

The  Company's  revenues  are  principally  derived  from  the  sales of the EBT
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 other critical parts.

CASH EQUIVALENTS

Cash  equivalents  consist of money market funds and highly  liquid  investments
with  maturities  of three  months or less from the date of  purchase to be cash
equivalents.

FINANCIAL INSTRUMENTS

In  accordance  with  Statement  of  Financial  Accounting  Standards  No.  115,
"Accounting for Certain  Investments in Debt and Equity Securities," the Company
has  classified  all  investments  as   available-for-sale.   Available-for-sale
securities are carried at fair value,  with unrealized gains and losses reported
as a separate component of other comprehensive income (loss), if material.  Fair
values of investments are based on quoted market prices.  Short-term investments
at December 31, 1999 consist of  government  securities  classified as available
for sale. There were no short-term investments at December 31, 1998.

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.

The carrying  amounts  reported in the balance sheet for  receivables,  accounts
payable,  accrued  liabilities and capital lease  obligations  approximate  fair
value due to their short-term maturities.

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
the estimated effects of excess and obsolete inventories.

The company policy is to reserve 100% on obsolete inventories,  defined as parts
that are no longer used in production,  upgrades and repairs. Parts that are not
defined as obsolete  are  classified  into  different  subsections.  The reserve
percentages  for each  subsection  represent  the  total  value of parts in each
subsection that have the potential to be obsolete in the next 12 months.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost and are depreciated on a straight-line
method over their estimated useful lives. 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.

Estimated useful lives are as follows:

            Machinery and equipment           3 - 5 years
            Furniture and fixtures            3 - 5 years
            Leasehold improvements                5 years

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                                       33
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FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

Scanner  equipment under a capital lease is amortized over the term of the lease
(five years),  using the  units-of-production  method (number of scans) based on
the estimated usage of the equipment.  Upon purchase of the scanner, the Company
produces a projection  of its  anticipated  scans for a particular  scanner at a
particular  location.  The average projected scans for all centers by year is as
follows:

            Year                            Budgeted Scans
            ----                            --------------
            1                                   2,530
            2                                   6,160
            3                                   7,216
            4                                   7,920
            5                                   7,920
                                               ------
                                               31,746
                                               ======

Consistent  with the schedule  above,  depreciation is recorded at the higher of
actual or budgeted scans so that the scanner is fully  depreciated at the end of
five years.

GOODWILL AND LONG-LIVED ASSETS

Goodwill  represents  the  excess  of cost  over net  assets  of  Caral,  and is
amortized  on a straight  line method over 10 years.  The Company  accounts  for
goodwill  and other  long-lived  assets  under,  SFAS No. 121,  "Accounting  for
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to Be Disposed Of."
SFAS No. 121  requires  that  goodwill  and  long-lived  assets be reviewed  for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying amount of assets may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying  amount of an asset to
future net cash flows expected to be generated by the asset.  If such assets are
considered  to be impaired,  the  impairment to be recognized is measured by the
amount by which the carrying  amount of the asset  exceeds the fair value of the
assets.  Assets to be  disposed  of are  reported  at the lower of the  carrying
amount or fair value less costs to sell. Based on these evaluations,  there were
no  adjustments to the carrying value of goodwill and other long lived assets in
the fiscal periods reported.

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
accrued  liabilities.  Revenues related to development  contracts are recognized
ratably over the contract  (see note 9).  Revenues  from clinics are  recognized
when services are performed for the clinic customer and reported as discontinued
operations for all periods presented.

SALE LEASEBACK ARRANGEMENT

The Company sold a scanner in 1998 and 1997 to  third-party  leasing  companies.
HeartScan,  in turn,  entered into leasing  arrangements  with these third-party
leasing companies to obtain use of these scanners in its clinics. The provisions
of these leasing arrangements include monthly rental payments over a 5-year term
with a  guarantee  of the  payments by Imatron.  HeartScan  accounted  for these
leases as capital leases.  Imatron  recognized revenue equal to its scanner cost
and has deferred the profit on its sales to the leasing  companies.  The Company
is amortizing  its deferred  profit to product sales over the five-year  term of
the HeartScan leases.  Imatron recognized  $356,000,  $501,000,  and $501,000 of
deferred  profit for these leases for the years ended  December 31, 1999,  1998,
and 1997, respectively.

RESEARCH AND DEVELOPMENT

Research and development expenditures are charged to operations as incurred.

================================================================================
                                       34
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FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

ADVERTISING COSTS

Advertising and promotion costs are expensed as incurred.

INCOME TAXES

The  Company  accounts  for  income  taxes in  accordance  with  SFAS  No.  109,
"Accounting  for Income  Taxes." Under SFAS No. 109,  deferred  income taxes are
recognized for tax  consequences in future years of differences  between the tax
bases of assets and liabilities and their  financial  reporting  amounts at each
balance sheet date based on enacted tax laws and statutory tax rates expected to
apply in the periods in which the  differences  are  expected to affect  taxable
income.

NET LOSS PER SHARE

The Company  computes and discloses  its net loss per share in  accordance  with
SFAS No. 128,  "Earnings  per Share."  SFAS No. 128  establishes  standards  for
computing and  presenting  earnings per share.  Basic loss per share is computed
based on the weighted average number of common shares  outstanding,  and diluted
loss per share is computed based on the weighted average number of common shares
and  dilutive  potential  common  shares  outstanding  during the period.  Stock
options and warrants have not been included in the  computation  as their effect
would have been antidilutive.

STOCK-BASED COMPENSATION

The Company follows the provisions of SFAS No. 123,  "Accounting for Stock-Based
Compensation,"   and  has  elected  to  continue  to  account  for   stock-based
compensation  using methods  prescribed in Accounting  Principles  Board Opinion
("APB")  No.  25,  "Accounting  for Stock  Issued  to  Employees,"  and  related
interpretations.


Note 2 - FINANCIAL INSTRUMENTS

Investments were as follows:

                                                               December 31,
                                                          ----------------------
                                                            1999         1998
                                                          --------      -------
                                                             (In thousands)

Money market mutual funds                                 $  4,600      $ 1,113
Certificate of deposit                                          --          189
Commercial paper                                             6,597          143
                                                          --------      -------
Total investments                                           11,197        1,445

Less amounts classified as cash and cash equivalents        (9,198)      (1,445)
                                                          --------      -------

Short-term investments                                    $  1,999      $    --
                                                          ========      =======

Cost approximated fair value of all investments at December 31, 1999 and 1998.

================================================================================
                                       35
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

Note 3 - INVENTORIES

Inventories were as follows:

                                                              December 31,
                                                         ----------------------
                                                           1999           1998
                                                         --------        -------
                                                            (In thousands)

Purchased parts and sub-assemblies                       $ 4,272         $ 2,863
Service parts                                              1,747           1,883
Work-in-progress                                           4,718           3,177
Finished products                                          2,228           6,510
                                                         -------         -------

                                                         $12,965         $14,433
                                                         =======         =======


Note 4 - PROPERTY AND EQUIPMENT, Net

Property and equipment, at cost, were as follows:

                                                              December 31,
                                                         ----------------------
                                                           1999          1998
                                                         --------       -------
                                                            (In thousands)

Machinery and equipment                                  $  6,644       $ 5,697
Furniture and fixtures                                      1,527         1,234
Leasehold improvements                                      2,386         2,153
                                                         --------       -------
                                                           10,557         9,084

Less accumulated depreciation and amortization             (7,657)       (6,809)
                                                         --------       -------

                                                         $  2,900       $ 2,275
                                                         ========       =======

================================================================================
                                       36
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

Note 5 - OTHER ACCRUED LIABILITIES

Other accrued liabilities were as follows:

                                                                December 31,
                                                            --------------------
                                                             1999          1998
                                                            -------       ------
                                                              (In thousands)

Warranty and product upgrades                               $ 3,436       $2,175
Deferred income on sale leaseback transactions                  114          616
Customer deposits                                             1,362          225
Employee compensation                                         1,372        1,090
Deferred service revenues                                     2,017        1,619
Other                                                         1,817        2,253
                                                            -------       ------

                                                            $10,118       $7,978
                                                            =======       ======

Note 6 - ACQUISITIONS

CARAL MANUFACTURING

On January 6, 1999  (closing  date)  Imatron  acquired a 100%  interest in Caral
Manufacturing  ("Caral").  Caral was a major vendor of Imatron and  manufactures
custom-made parts for scanners.

The purchase price of the acquisition was comprised of $275,000 in cash, 624,113
shares of common  stock  issued at closing  plus an issuance of shares of common
stock  based on the market  price of the  Company's  common  stock as of July 6,
1999. The shares issued at closing were valued at $825,000 or $1.3219 per share,
which is the  average  stock  price  for the  period  from  December  7, 1998 to
December 18, 1998, the period  surrounding the date the terms of the acquisition
were agreed. The security price of the Company's common stock as of July 6, 1999
was below $2.90 per share,  and as part of the  agreement,  the  Company  issued
332,279  additional  shares.  In accordance with EITF 97-15, the contingency was
valued at $629,000.

The acquisition  was accounted for using the purchase method of accounting,  and
accordingly,  the operating results of Caral have been included in the Company's
consolidated  financial  statements  from January 6, 1999 forward.  The purchase
price was  allocated to the  underlying  assets and  liabilities  based on their
respective  estimated fair values at the date of acquisition.  The fair value of
assets acquired was $660,461 and liabilities assumed was $320,000. The excess of
the aggregate  purchase price over the fair market value of net assets  acquired
amounting to $1,389,000  is classified as goodwill,  and amortized on a straight
line method over 10 years.  For the year ended  December 31, 1999,  amortization
expense on goodwill was $139,000.

The following  unaudited pro forma financial  information  presents the combined
results of  operations  for the period  ended  December  31, 1998 of Imatron and
Caral as if the  acquisition  had occurred as of the  beginning  of 1998,  after
giving effect to certain adjustments,  including  amortization of goodwill.  The
pro forma  financial  information  does not  necessarily  reflect the results of
operations  that would have occurred had Imatron and Caral  constituted a single
entity during the period ended December 31,1998 (in thousands,  except per share
amounts):

                                                             Twelve months ended
                                                              December 31, 1998
                                                              -----------------
                                                                 (Unaudited)

Net sales                                                         $ 31,770
                                                                  ========
Net loss                                                          $(15,171)
                                                                  ========
Loss per share - basic and diluted                                $  (0.18)
                                                                  ========
Number of shares used in basic and diluted per
  share calculations                                                85,395
                                                                  ========

================================================================================
                                       37
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

POSITRON CORPORATION

On January 25, 1999, the Company  acquired  9,000,000  shares of common stock of
Positron  Corporation  ("Positron")  representing  a 55% interest  for $100.  On
August 18, 1999,  the ownership  interest of the Company in Positron was diluted
to 16% as a result of the completion of a private equity financing of Positron's
common  stock.  As  such,  Imatron's  control  in  Positron  was  temporary  and
accordingly,  the Company  accounted for its  investment in Positron at cost for
the year ended December 31, 1999.

In conjunction  with the execution of a letter of intent and the consummation of
the  purchase  business  combination  with  Positron,  the Company  made working
capital  advances to Positron  under a $600,000  credit  facility at an interest
rate 1/2% over the prime.  As of December  31,  1999,  Positron  has paid up its
obligation of $600,000 including $59,000 of interest to the Company.

Note 7 -RESTRUCTURING AND REORGANIZATION CHARGES

On February 8, 1999,  the Company  implemented  a  restructuring  plan to reduce
costs and improve  operating  efficiencies.  The plan  included  elimination  of
approximately  20% of the  Company's  workforce in various  departments  and its
HeartScan  subsidiary  including disposal of its HeartScan  operations (see Note
17). In  addition,  the Company put a  moratorium  on salary  increases  for its
executive  management team effective until the Company meets its financial goals
and objectives.  The cost  associated  with this reduction in staff,  consisting
primarily of severance and related benefits, was $282,000 and was accrued in the
first quarter of 1999.

Note 8 - RELATED PARTY TRANSACTIONS

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.  The Company  expensed the $20,000  investment  upon payment.  The Joint
Venture  agreement  between  Imatron and Imatron  Japan,  Inc.  does not require
additional  funding by Imatron.  Imatron 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 $2,800,000,  $2,800,000,  and $4,648,000 in
1999,  1998,  and 1997,  respectively,  from sales to the Joint  Venture and has
$2,052,000  and  $1,982,000  in accounts  receivable  from the Joint  Venture at
December 31, 1999 and 1998,  respectively.  All scanner sales to Imatron  Japan,
Inc.  are either  fully paid in  advance  or sold under  irrevocable  letters of
credit without a right of return.

NOTES RECEIVABLE FROM OFFICERS

At December  31,  1998,  the Company  held three notes  receivable  amounting to
$336,000,  $115,000 and $37,000 from the Company's Chief Executive Officer,  the
Chairman of the Board,  and the former Chief  Financial  Officer,  respectively.
These notes arose from transactions in 1998,  whereby the Company provided loans
for the  purchase of 925,000  shares of common stock under the  Company's  stock
option plan.  At December 31, 1999,  the remaining  balance on notes  receivable
amounted to  $149,500.  The loans are full  recourse and  collateralized  by the
shares  of  common  stock  and the  personal  property  of the  executives.  The
receivable is shown on the balance sheet as a reduction in equity.

================================================================================
                                       38
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

Note 9 - COLLABORATION AGREEMENTS

SIEMENS CORPORATION

For the period  from March 31, 1995 to March 31,  1998,  the Company and Siemens
Corporation  ("Siemens")  operated  under  a 1995  Memorandum  of  Understanding
whereby Siemens  provided  $15,000,000 to the Company's C-150 Evolution  scanner
research and development program paid to the Company in quarterly non-refundable
payments.  The results of the  collaborative  research were jointly owned by the
parties and cross licensed. For the period from March 31, 1995 to March 31, 1998
Siemens retained exclusive  distribution rights in certain  geographical regions
for sales of the C-150 Evolution scanner.

On  April  1,  1998,  Imatron's  obligations  and  Siemens'  funding  under  the
Memorandum of Understanding  terminated.  In addition,  Siemens  surrendered its
exclusive distribution rights and Imatron assumed worldwide distribution for its
C-150 scanners. Imatron continues to provide scanner service support to Seimens'
customers under an April 1997 service support agreement signed with Siemens. For
an agreed upon amount,  Imatron  provides all  pre-installation  site  planning,
installation  and  application  support,  as well as,  warranty and  maintenance
services,  as a subcontractor  to Siemens.  Revenues for services are recognized
ratably  over  the  life of the  contracts  while  other  service  revenues  are
recognized upon completion of work.

TERARECON INC.

On July 22, 1997,  the Company and  TeraRecon  Inc.,  a technology  company that
produces  high speed  image  processing  devices for  medical  imaging  systems,
entered into a development  agreement whereby TeraRecon  provided Imatron with a
real-time image reconstruction  system for use in conjunction with Imatron's EBT
scanner.  The RTR-2000  system is exclusive to Imatron's EBT scanner and is used
to  expand  its  current  applications  to  include  new  three-dimensional,  CT
flurography or real-time  viewing of computerized  tomography (CT) images. It is
an accessory to the base scanner  which certain  customers  may find useful.  It
will not render any existing equipment obsolete.

In  consideration  for the  successful  development  and  delivery  of  RTR-2000
systems,  the Company  agreed to issue an  aggregate  of  6,000,000  warrants to
purchase the Company's  common stock at $4.50 per share. In addition,  TeraRecon
agreed to pay the  Company an  aggregate  of  $2,000,000  for  4,000,000  of the
6,000,000 warrants and make royalty payments to Imatron .

Pursuant to the development  agreement,  the Company issued a total of 4,000,000
warrants to TeraRecon and received $1,000,000 for the 2,000,000 warrants issued.

In February  1999,  the Company and TeraRecon  agreed to modify the  development
agreement by releasing  TeraRecon  from its obligation to purchase the remaining
2,000,000  warrants.  In  addition,  TeraRecon  agreed to develop a more stable,
reliable,  and  easier-to-maintain  image reconstruction system at no additional
cost to Imatron and upgrade  five units of the current  RTR-2000  systems for no
more than $25,000 per unit.  Imatron agreed to cancel the 3% royalty payment per
unit under the original agreement.

As Imatron did not receive a license in the  TeraRecon  technology  nor is there
any  future  alternative  uses  to  the  prototypes  purchased  by  Imatron,  in
accordance with SFAS No. 2,  "Accounting for Research and Development  Costs," a
$50,000 and $750,000 charge to research and  development  expense was recognized
in  1998  and  1997,  respectively,   upon  TeraRecon  meeting  the  agreed-upon
milestones.  In  accordance  with  SFAS No.  123,  "Accounting  for  Stock-Based
Compensation," the Company's recorded research and development expense was based
on the fair market value of the warrants at the time of issuance using an option
pricing model less any cash received.

GENERAL ELECTRIC MEDICAL SYSTEMS

On July 1, 1998, the Company entered into a non-exclusive  distributor agreement
with GE Medical Systems (GEMS) to sell EBT scanners throughout the United States
and Canada. The agreement  provides that all contracts  resulting from the joint
marketing  effort  are  written   directly  by  the  Company.   Imatron  assumes
installation  and customer  service  activities,  while GEMS provides  financing
options for customers  purchasing the equipment.  The contract has a term of two

================================================================================
                                       39
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

years with an option to extend for an additional year at GEMS's sole discretion.
This  agreement  does not constitute a licensing or transfer of any of Imatron's
intellectual  property to GEMS.  The Company has agreed to pay GEMS a commission
on all sales directly resulting from the Company's corporate alliance with GEMS.
In 1999,  the Company sold one EBT scanner under this  agreement and has accrued
$250,000 on sales commissions.

Note 10 - COMMITMENTS and CONTINGENCIES

OPERATING LEASES

The  Company  leases its  present  facilities  under  various  operating  leases
expiring  between July 1998 and December 2005.  Future  minimum rental  payments
under the leases as of December 31, 1999, are as follows (in thousands):

          2000                              $ 1,017
          2001                                1,023
          2002                                1,065
          2003                                1,134
          2004 and thereafter                   190
                                            -------
          Total                             $ 4,429
                                            =======

Rent expense for operating leases totaled $1,022,000,  $972,000, and $914,000 in
1999, 1998, and 1997, respectively.

CAPITAL LEASE OBLIGATIONS

The Company leases certain equipment under non-cancelable  lease agreements.  In
addition,  HeartScan  leased  scanners for its  clinics,  payments of which were
guaranteed  by Imatron.  As of December  31, 1999,  equipment  under the capital
lease arrangements and included in property and equipment  aggregated  $165,000.
Accumulated  amortization  related  to  this  equipment  totaled  $21,000  as of
December 31, 1999.

Future minimum lease  payments  under capital lease  obligations at December 31,
1999, are as follows (in thousands):

          2000                                       $ 50
          2001                                         50
          2002                                         50
          2003                                         50
          2004                                          6
                                                     ----
          Total minimum payments                      206

          Less amounts representing interest          (51)
                                                     ----
          Total principal                             155

          Less portion due within one year            (30)
                                                     ----
          Long-term portion                          $125
                                                     ====

Deferred  income  on  sale-leaseback   transactions  amounted  to  $481,000  and
$1,491,000 at December 31, 1999 and 1998, respectively.

Interest paid on long-term  obligations  including capital lease obligations was
$70,000, $20,000, and $27,000 in 1999, 1998, and 1997, respectively.

================================================================================
                                       40
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

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 Imatron Associates (the predecessor to the
Company).  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  #4,352,021,  "X-ray  Transmission  Scanning System and Method and
Electron Beam X-ray Scan Tube for Use Therewith" in exchange for modified annual
royalty  payments to Emersub equal to 2.125% of net sales of certain  components
of the C-150 EBT scanner. On October 8, 1997, UC canceled the license to Emersub
and  granted  the  Company a license  for the  remaining  life of the  patent on
substantially the same terms as the Emersub license agreement. Imatron agreed to
pay UC  royalties  in the amount of $9,185 for each scanner sold from January 1,
1997 through  September 28, 1999,  the patent  expiry date.  Royalties for 1999,
1998, and 1997 were $77,790, $137,775 and $156,145, respectively.

Pursuant to the 1995  Memorandum  of  Understanding  with  Siemens,  the Company
transferred  five  patents  to  Siemens,  two of  which  cover  features  of the
Company's  C-150  scanner.  Siemens has 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 (or other  EBT unit  produced  by
Imatron after April 1, 1995),  commencing  with the 21st C-150 (or other Imatron
EBT) unit  produced in any year and  continuing  thereafter  for ten years after
such first quarter in which such 21st unit is produced. To date, Imatron has not
produced  more than 20 scanners in any year and,  therefore,  no royalties  have
been due under this agreement.

Note 11- CAPITAL STOCK

COMMON STOCK

On  July  7,  1997,  the  Company  filed  an  amendment  to its  Certificate  of
Incorporation.  The  amendment,  which was approved by the Board of Directors on
April 30, 1997, and by the  shareholders at the annual meeting on June 30, 1997,
increases the number of authorized shares of the Company's Common Stock from 100
million shares to 150 million.

During 1999,  the Company sold a total of 904,600 shares of Imatron common stock
to an investor,  netting  proceeds of $2,596,000.  These shares were sold at the
prevailing  market  price at the time of sale,  ranging  from $1.66 to $3.99 per
share, or an average price of $2.87 per share. During the first quarter of 1999,
the  Company  also  issued  314,659  shares of Imatron  common  stock to certain
vendors as payment for accounts payable invoices amounting to $413,000, or $1.31
per  share.  There  were  no  other  securities  issued  in  relation  to  these
transactions.  These shares were  registered  with the  Securities  and Exchange
Commission in 1996.

On June 15,  1999,  the  Company  closed a  private  placement  offering  of the
Company's common stock with the Company's President whereby the Company sold for
$3,025,000:

 - 3,767,713 shares of common stock;
 - An option to  purchase  up to an  additional  $3 million  of common  stock in
increments  of $500,000 at a price equal to 125% of the closing price (or $1.003
per share); and

 - A warrant to purchase  360,000  shares of common stock with an exercise price
of 130% of the  closing  price (or  $1.044 per  share)  with a one year  vesting
period and an expiration  date of June 15, 2004.  On July 23, 1999,  the Company
closed a private  placement  offering  of the  Company's  common  stock  whereby
3,000,000  shares of common stock and a warrant to purchase  1,000,000 shares of
common stock at $1.25 per share were sold for $3,000,000.

Proceeds  from  the  private  placements  will be  used  for  general  corporate
purposes.

================================================================================
                                       41
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

HEARTSCAN PREFERRED STOCK

HeartScan has authorized  1,000,000  shares of .001 par value  preferred  stock.
There are 200,000 issued and  outstanding  shares at December 31, 1999 and 1998,
of which,  100,000 shares have been  designated  "Series A Preferred  Stock" and
100,000 have been designated "Series B Preferred Stock."

The holders of outstanding shares of Series A and B Preferred Stock are entitled
to receive  dividends in preference to the payment of any dividends on HeartScan
common stock. Before any dividend may be paid on the common stock, a dividend in
an amount  equal to or  greater  than the  dividend  proposed  to be paid on the
common  shares must be paid to the Series A and B Preferred  Stock  holders.  To
date, no dividend has been distributed to the holders of preferred stock.

Each share of Series A and B Preferred Stock is entitled to ten votes.

Each share of Series A and B Preferred  Stock is convertible  into ten shares of
HeartScan  common  stock  at any  time  but  conversion  is  mandatory  upon the
successful completion of a HeartScan initial public offering.  Additionally, the
Series A Preferred  Stock is  convertible  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) a two-year period following  closing of the Preferred Stock offering (June
26, 1998); or b) a HeartScan  initial public offering.  If there is no HeartScan
initial public  offering by June 26, 1998,  Series A Preferred Stock 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 the  conversion.  Conversion may occur beginning June 26,
1998 and for each date that is three months thereafter to and including June 26,
2000.

Imatron was the holder of the Series B Preferred  Stock at December 31, 1999 and
1998.

The Series A Preferred  Stock was sold on June 26,  1996 in a private  placement
offering  at $160 per share  which  realized  net  proceeds  to the  Company  of
$14,798,000.  The  investment  by the Series A Preferred  Stock holders has been
accounted for as a minority interest holding in HeartScan with $5,890,000 of the
proceeds  being  allocated  to paid-in  capital for the  intrinsic  value of the
Imatron beneficial  conversion  feature.  Minority interest expense of $874,000,
and $1,744,000 was recognized for the amortization of the beneficial  conversion
feature for 1998 and 1997,  respectively.  The beneficial conversion feature was
fully amortized in 1998, as such, no minority interest expense was recognized in
1999.

On June 26,  1998 and  October 1, 1998,  shareholders  holding  94,331 and 5,669
shares,  respectively,  converted their Series A Preferred shares into 7,496,000
shares of Imatron common stock.

On 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.

================================================================================
                                       42
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

WARRANTS

A summary of the Company's  outstanding  warrants as of December 31, 1999, 1998,
and 1997 and  changes  during  the  years  then  ended is  presented  below  (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                    Warrants to Purchase    Weighted Average        Range of
                                        Common Shares        Exercise Price     Expiration Dates
                                    --------------------    ----------------    ----------------
<S>                                        <C>                   <C>               <C>
Outstanding at December 31, 1996           3,171                 $ 3.17            1998 - 2000
Issued                                     3,277                   4.34               2001
Exercised                                   (284)                  1.98            1998 - 2000
Canceled                                      --                     --
                                          ------                 ------            -----------
Outstanding at December 31, 1997           6,164                   3.85            2000 - 2001
                                          ======                 ======            ===========

Issued                                     1,130                   4.22               2002
Exercised                                   (213)                  1.82            2000 - 2002
Canceled                                      --                     --
                                          ------                 ------            -----------
Outstanding at December 31, 1998           7,081                   3.97            2000 - 2002
                                          ======                 --====            ===========

Issued                                     4,567                   1.08            2000 - 2004
Exercised                                 (1,150)                  1.28            2000 - 2002
Canceled                                      --                     --
                                          ------                 ------            -----------
Outstanding at December 31, 1999          10,498                 $ 3.00            2000 - 2004
                                          ======                 ======            ===========
</TABLE>

Charges  to  operations  relating  to the  issuance  of these  warrants  totaled
$10,000,  $50,000, and $750,000 in 1999, 1998, and 1997, respectively,  using an
option pricing model.

COMMON STOCK RESERVED

At December 31, 1999, the Company has reserved shares of common stock for future
issuances as follows (in thousands):

          Stock option plans                                     9,700
          Stock options outside the plans                          281
          Stock purchase plan                                      296
          Stock warrants                                        10,498
          Stock bonus plans                                        744
                                                                ------
          Total                                                 21,519
                                                                ======

Note 12 - STOCK-BASED COMPENSATION

PROFORMA STOCK COMPENSATION

At December 31, 1997,  Imatron has two and  HeartScan has one stock option plan,
which  are  described  below.  The  Company  applies  APB  No.  25  and  related
interpretations in accounting for its plans.

Proforma  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 and employee  stock  purchase plan under the fair value method of
that  Statement.  The fair  value of awards was  estimated  at the date of grant
using an option pricing model with the following weighted-average assumptions.

================================================================================
                                       43
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

                                               1999         1998        1997
                                              ------       ------      ------

     Expected stock price volatility          80.00%       80.20%       80.20%
     Risk-free interest rate                   6.91%        5.50%        6.27%
     Expected life - years                     8.00         7.53         3.54
     Expected dividend yield                   0.00%        0.00%        0.00%

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

<TABLE>
<CAPTION>
                                                               1999       1998        1997
                                                             --------   ---------   ---------
<S>                                                          <C>        <C>         <C>
     Net loss - as reported                                  $(6,586)   $(14,781)   $(11,422)
     Net loss - pro forma                                    $(8,579)   $(15,763)   $(12,516)
     Basic and diluted - net loss per share - as reported    $ (0.07)   $  (0.18)   $  (0.15)
     Basic and diluted - net loss per share - pro forma      $ (0.09)   $  (0.19)   $  (0.16)
</TABLE>

The weighted  average fair value of options granted in 1999, 1998, and 1997 were
$1.21, $1.92, and $2.57 per share, respectively.  The weighted average remaining
contractual life of all options at December 31, 1999, is 8.08 years.

The pro forma effect on net loss 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 vesting  options  become
exercisable.

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
initially  covered 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.

On July 13, 1998 at the annual meeting, the shareholders  approved the Company's
Amended and Restated Directors' Stock Option Plan, and an increase in the number
of  authorized  shares of common  stock  thereunder,  from  550,000 to 1,000,000
shares.

On June 18, 1999, at the annual meeting, the shareholders  approved an amendment
to the plan to increase the following:

     a)   The shares  authorized  thereunder  from  1,000,000  common  shares to
          1,500,000 common shares;

     b)   The  number of shares  granted  in the  Initial  Option to each  newly
          elected  eligible  director from 25,000 common shares to 40,000 common
          shares; and

     c)   The number of shares  granted in the  Annual  Option to each  eligible
          director from 25,000 common shares to 40,000 common shares.

All stock  options  under the  Directors  Plan are  granted at 85% of the common
stock's  fair market  value at the grant date.  Options  granted  under the plan
generally  vest  immediately  with an option for the Company to  repurchase  the
shares and expire ten years from the grant date.

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-employees,  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

================================================================================
                                       44
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

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.

On February 24, 1998, the Company  offered  employees  holding options under the
1993 Stock Option Plan,  the  opportunity  to exchange  such options for options
with an exercise  price equal to $2.56 per share,  the fair market  value of the
Company's  stock on that date.  Outstanding  options to purchase  760,597 shares
were repriced.

On October 23, 1998,  the Company  made an offer to its  employees to cancel and
re-grant at October 23,  1998,  all  outstanding  options with  exercise  prices
greater than $1.50. Outstanding options to purchase 1,158,992 shares at exercise
prices ranging from $1.78 to $2.56 were  re-granted  and repriced at $1.50,  the
closing price at October 23, 1998.

With respect to the October 23, 1998 option  repricing,  employees  were given 4
weeks to execute an agreement to obtain the lower  priced  options.  The Company
considered this offering  period and concluded that it had an immaterial  effect
on  compensation  expense  required to be recorded.  There was no such repricing
"window" for the February 24, 1998 option exchange.

On June 18, 1999, at the annual meeting, the shareholders  approved an amendment
to the 1993 Plan to increase the shares  authorized  thereunder  from  5,500,000
common shares to 11,500,000 common shares.

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
prior to 1998 under the plan generally vest evenly over four years following the
grant date and expire  five years from the grant date.  Options  granted in 1998
and  thereafter  generally  vest  evenly  over four  years  and  expire 10 years
subsequent to the date of grant.

================================================================================
                                       45
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

A summary of the activity under the Imatron stock option plans is as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
                                                       Outstanding Options
                                              ---------------------------------------
                                   Shares                    Exercise       Aggregate
                                 Available    Number of      price per      exercise
                                 for Grant      shares        share           price
                                 ---------    ---------    -------------    ---------
<S>                                <C>          <C>        <C>               <C>
Balances at December 31, 1996      2,254        2,857      $0.43 - $5.00     $2,908

Options expired                      (14)          --          $0.56             (8)
Options granted                   (1,219)       1,219      $1.78 - $3.31      3,129
Options exercised                      -         (305)     $0.48 - $2.63       (274)
Options canceled                      83          (83)     $0.56 - $2.63       (171)
                                  ------      -------      -------------     ------

Balances at December 31, 1997      1,104        3,688      $0.43 - $5.00      5,584

Shares reserved for issuance         450           --           --               --
Options granted                   (1,254)       1,254      $1.28 - $2.56      2,774
Options exercised                     --       (1,280)     $0.37 - $2.63       (724)
Options canceled                     178         (178)     $0.61 - $3.31       (411)
Options repricing:
   Options canceled                   --       (1,920)     $1.78 - $2.56     (4,988)
   Options re-granted                 --        1,920      $1.50 - $2.56      3,685
                                  ------      -------      -------------     ------

Balances at December 31, 1998        478        3,484      $0.61 - $5.00      5,920

Shares reserved for issuance       6,500           --           --               --
Options granted                   (3,367)       3,367      $1.00 - $2.19      4,998
Options exercised                     --         (762)     $0.37 - $2.56     (1,019)
Options canceled                     891         (891)      $1.00- $3.99     (1,479)
                                  ------      -------      -------------     ------

Balances at December 31, 1999      4,502        5,198      $0.71 - $5.00      8,420
                                  ======      =======      =============     ======
</TABLE>

The following table summarizes  information concerning Imatron's outstanding and
exercisable  options as of  December  31, 1999 (in  thousands,  except per share
amounts):

                                 Options Outstanding       Options Exercisable
                                ----------------------     --------------------
                                 Weighted                  Weighted
                                  Average     Weighted     Average
                                 Remaining    Average       Number
   Range of        Number of    Contractual   Exercise        of       Exercise
Exercise Prices     Shares         Life        Price        Shares       Price
---------------    ---------    -----------   --------     --------    --------

 $0.71 - $2.00       3,298          8.93        $1.25          855       $1.23
 $2.01 - $3.00       1,850          7.82        $2.20          382       $2.20
 $3.01 - $5.00          50          1.50        $4.99           50       $4.99
                                                -----
                     -----          ----                     -----       -----
                     5,198          8.47        $1.62        1,287       $1.66
                     =====          ====        =====        =====       =====

Options for 1,287,311,  1,448,685,  and 2,185,394 shares of the Company's common
stock were  exercisable  under the plans at December 31, 1999, 1998, and 1997 at
an  aggregate  exercise  price  of  $2,139,608,   $2,435,529,   and  $2,527,620,
respectively.

================================================================================
                                       46
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

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 have a
maximum term of ten years.

A summary of the  activity  under the HSI Stock  Option  Plan is as follows  (in
thousands, except per share amounts):

                                  Shares      Number of    Aggregate   Aggregate
                                 available     shares      Price per   exercise
                                 for grant   Outstanding     share       price
                                 ---------   -----------   ---------   ---------

Balances at December 31, 1996        63          115         $0.07       $  8

Shares reserved                     250           --            --         --
Options granted                    (154)         154         $0.25       $ 38
Options exercised                    --          (39)        $0.04       $ (2)
                                   ----         ----         -----       ----

Balances at December 31, 1997       159          230         $0.19       $ 44

Options exercised                    --           (9)        $0.05         --
Options canceled                    221         (221)        $0.19       $(44)
Options terminated                 (380)          --            --         --
                                   ----         ----         -----       ----

Balances at December 31, 1998        --           --            --         --
                                   ====         ====         =====       ====

On July 13, 1998, all  outstanding  options to purchase  HeartScan  common stock
were  canceled  as a result  of the  Company's  decision  to sell the  HeartScan
subsidiary.

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
awarded in any fiscal year.

On June 18, 1999, at the annual meeting, the shareholders  approved an amendment
to the plan to increase the authorized  shares from  1,200,000  common shares to
2,200,000 common shares. In addition,  the Company's Board of Directors approved
the increase in the number of shares  awarded in 1999 fiscal period from 400,000
shares to 650,000 shares.

The Company granted 644,173,  285,250, and 97,655 shares under the plan in 1999,
1998, and 1997,  respectively.  Accordingly,  the Company recorded  compensation
expense  equal to the fair  value of the stock  issued  amounting  to  $810,000,
$460,000, and $261,000 in 1999, 1998, and 1997, respectively.

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  beginning of the initial  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.

================================================================================
                                       47
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

On June 18, 1999, at the annual meeting, the shareholders  approved an amendment
to the plan to increase the number of shares  authorized  from 1,800,000  common
shares to 2,300,000 common shares.

A total of 244,902,  188,863, and 193,208 shares were issued at weighted average
purchase  price of $1.05,  $1.76,  and $2.00 per share in 1999,  1998, and 1997,
respectively.


Note 13 - RETIREMENT SAVINGS PLAN

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  $247,000,  $281,000,  and  $259,000  in  1999,  1998,  and  1997,
respectively.


Note 14- 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.

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

                                                             1999        1998
                                                           --------    --------
     Deferred tax assets:
      Net operating loss carryforwards                     $ 30,829    $ 31,315
      Federal credit carryforwards                            2,134       1,767
      Expenses not currently deductible for tax purposes      5,448       7,041
      Deferred revenue previously taxed                         233         376
      Other                                                   1,103         264
                                                           --------    --------
      Deferred tax assets                                    39,747      40,763
     Valuation allowance                                    (37,890)    (37,353)
                                                           --------    --------

     Net deferred tax assets                                  1,857       3,410
                                                           --------    --------
     Deferred tax liabilities:
      State income taxes                                      1,149       1,066
      Other                                                     708       2,344
                                                           --------    --------
     Deferred tax liabilities                                 1,857       3,410
                                                           --------    --------
      Net deferred taxes                                   $     --    $     --
                                                           ========    ========

The  net  change  in the  valuation  allowance  was  $537,000,  $5,272,000,  and
$3,243,000 for 1999, 1998, and 1997,  respectively,  principally  resulting from
net operating loss carryforwards.

The   reconciliation  of  income  tax  attributable  to  continuing   operations
calculated at the U.S.  federal  statutory  rate to the effective tax rate is as
follows:

                                             1999        1998        1997
                                             ----        ----        ----

     Federal statutory rate                  (34%)       (34%)       (34%)
     Effective state rate                     (6%)        (6%)        (6%)
     Goodwill amortization                    (1%)        --          --
     Valuation allowance                      41%         40%         40%
                                             ---         ---         ---
     Effective tax rate                        0%          0%          0%
                                             ===         ===         ===

Due to the issuance of preferred stock which occurred June 26, 1996, utilization
of the net operating loss and tax credit  carryforwards  for the Company and its
subsidiary, HeartScan, will be subject to separate return limitations.

================================================================================
                                       48
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

At December 31,  1999,  the Company has net  operating  loss  carryforwards  for
federal  and  state  income  tax  purposes  of  approximately   $70,006,000  and
$11,395,000,   respectively.   Additionally,   the  Company  has   research  and
development and alternative  minimum tax credit  carryforwards  of approximately
$2,134,000  at December 31, 1999.  The net  operating  loss and the research and
development tax credit  carryforwards  expire in various years from 2000 through
2019. In addition,  HeartScan has net operating loss  carryforwards  for federal
and  state  income   purposes  of   approximately   $17,032,000  and  $2,346,000
respectively.  The net operating loss carryforwards expire in various years from
2000 through 2019.

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

Note 15 - NET LOSS PER SHARE

The  computation  of basic and diluted  loss per share for both  continuing  and
discontinued operations for the years ended December 31, 1999, 1998 and 1997 are
as follows:

<TABLE>
<CAPTION>
                                                         1999        1998        1997
                                                        -------    --------    --------
                                                   (In thousands, except per share amounts)
<S>                                                     <C>        <C>         <C>
Loss from continuing operations                         $(5,646)   $ (9,400)   $ (3,250)
                                                        =======    ========    ========
Loss from discontinued operations                       $  (940)   $ (4,507)   $ (6,428)
                                                        =======    ========    ========
Net loss                                                $(6,586)   $(14,781)   $(11,422)
                                                        =======    ========    ========

Weighted average common shares - basic and diluted       94,680      83,941      78,461

Basic and diluted loss per share:
     Loss from continuing operations                    $ (0.06)   $  (0.11)   $  (0.04)
                                                        =======    ========    ========
     Loss from discontinued operations                  $ (0.01)   $  (0.05)   $  (0.08)
                                                        =======    ========    ========

     Net loss                                           $ (0.07)   $  (0.18)   $  (0.15)
                                                        =======    ========    ========

Antidilutive options and warrants not included
  in calculation                                            418         986       3,114
                                                        =======    ========    ========
</TABLE>

Note 16 - ENTERPRISE WIDE SEGMENT DISCLOSURES

The  Company  operates  in three  industry  segments.  Imatron  operates  in one
industry  segment in which it  designs,  manufactures,  services  and  markets a
computed  tomography  scanner;  HeartScan  operates  centers  that  perform  the
coronary artery scan procedures;  and Caral engages in the business of machining
and  fabrication  of metal and  plastic  components.  The  Company is  currently
selling its interests in HeartScan (see Note 17).

The scanner  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 third  parties.  The following
table  represents  the  scanner  sales  by  significant   geographic  areas  (in
thousands):

                                                 1999      1998      1997
                                                -------   -------   -------

     United States (a)                          $22,374   $12,931   $ 2,803
     Europe (b)                                   2,871     2,326     5,064
     Japan (c)                                    2,800     2,800     4,200
     Asia Pacific (d)                                --        --    10,896
     South Africa                                    --        --     2,130
     Dubai                                           --     1,837        --
     Brazil                                          --     1,880        --
                                                -------   -------   -------

       Total scanner sales (e)                   28,045    21,774    25,093

================================================================================
                                       49
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

       Sale leaseback profit recognized             356       501       501
       Upgrade sales                              1,490       272     1,774
                                                -------   -------   -------

       Total product sales                      $29,891   $22,547   $27,368
                                                =======   =======   =======

(a)  Sales to Siemens  amounted to  $800,000  and  $1,603,000  in 1998 and 1997,
     respectively.

(b)  Sales to Turkey  and  Germany  amounted  to  $2,871,000  in 1999.  Sales to
     Siemens amounted to $926,000 and $4,137,000 in 1998 and 1997, respectively.
     Sales  to   third-party   leasing   companies   under  the   sale-leaseback
     transactions amounted to $927,000 in 1997.

(c)  Sales to an affiliated customer, Imatron Japan, Inc.

(d)  Sales to customers in China, Malaysia, Singapore and Korea.

(e)  All sales are  denominated in US currency,  therefore,  there is no foreign
     currency risk.

The accounting  policies of the segments are the same as those  described in the
summary  of   significant   accounting   policies   included  in  the  Company's
consolidated  financial statements and notes thereto for the year ended December
31,  1999.  The  Company  evaluates  performance  based on  profit  or loss from
operations before income taxes not including non-recurring gains and losses.

The Company  accounts for  intersegment  sales and  transfers as if the sales or
transfers were to third parties, that is, at current market prices.

The following  table  summarizes the results of operations for the Company's two
major continuing  business  segments for the twelve month periods ended December
31, (in thousands):

<TABLE>
<CAPTION>
                                            Imatron     Caral    Eliminations   Consolidated
                                            -------     -----    ------------   ------------
<S>                                         <C>        <C>          <C>           <C>
     1999:
     Revenues from external customers       $ 36,829   $   720      $  --         $ 37,549
     Intersegment revenues                        --       805       (805)              --
     Total revenue                            36,829     1,525       (805)          37,549
     Operating loss                           (5,681)     (127)       (27)          (5,835)
     Total assets as of December 31, 1999     39,041       415       (301)          39,155


     1998:
     Revenues from external customers       $ 30,660   $    --      $  --         $ 30,660
     Intersegment revenues                        --        --         --               --
     Total revenue                            30,660   $    --      $  --         $ 30,660
     Operating loss                           (9,535)       --         --           (9,535)
     Total assets as of December 31, 1998     28,496        --         --           28,496
</TABLE>

Note 17 - DISCONTINUED OPERATION -- SALE OF HEARTSCAN SUBSIDIARY

On July 13, 1998 (the  measurement  date),  the Company adopted a formal plan to
sell  its  HeartScan   subsidiary  in  order  for  the  Company  to  focus  more
comprehensively  on the core business of  manufacturing  and serving quality EBT
scanners.  Accordingly,  the operating  results of the HeartScan  operations are
reflected as discontinued  operations for all periods presented in the Company's
statements  of  operations  and  as net  assets  (liabilities)  of  discontinued
operations in the December 31, 1999 and 1998 balance sheets.

At the  measurement  date,  the Company  estimated that although a gain would be
realized upon the ultimate sale,  HeartScan  would  continue to incur  operating
losses  through the disposal  date. In the fourth  quarter of 1998,  the Company

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                                       50
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

changed its strategy from selling HeartScan to a single buyer to that of selling
the  individual  centers to buyers  located in the cities where the centers were
located.  At December 31, 1998, the Company  reassessed its estimate of the gain
on disposal to reflect the Company's  change in strategy.  The Company  adjusted
its  accrued  loss and  expected  gain to reflect  1999 losses to be incurred of
approximately  $1,900,000  through the disposal  date and a realized net gain on
disposal of approximately $1,900,000.

Actual HeartScan results of operations are as follows (in thousands):

                                                     1999       1998       1997
                                                  -------    -------    -------

     Revenues                                     $ 1,920    $ 3,996    $ 2,542
     Costs and expenses                            (3,909)    (8,503)    (8,970)
                                                  -------    -------    -------
     Loss before income taxes                      (1,989)    (4,507)    (6,428)
     Gain on sale of assets of discontinued
       operations                                   1,049         --         --
     Provision for income taxes                        --         --         --
                                                  -------    -------    -------

     Loss from discontinued operations            $  (940)   $(4,507)   $(6,428)
                                                  =======    =======    =======

HeartScan statements of operations include costs of sales of $300,000, $602,000,
and $436,000 in 1999, 1998, and 1997, respectively, related to transactions with
Imatron.

A summary of the net assets of discontinued operation is as follows:

                                                                December 31,
                                                             -------------------
                                                              1999       1998
                                                             -------    -------
                                                               (In thousands)

     Cash and cash equivalents                               $ 1,245    $ 1,273
     Accounts receivable - net and other current assets          110        327
     Other current liabilities                                   (21)       (92)
     Lease obligations - current                                (315)    (1,728)
                                                             -------    -------
     Net current assets (liabilities) of discontinued
       operation                                             $ 1,019    $  (220)
                                                             -------    -------

     Property, plant and equipment, net                        1,360      6,381
     Other assets                                                 --          5
     Lease obligations - long-term portion                      (891)    (2,900)
                                                             -------    -------

     Long-term net assets of discontinued operation          $   469    $ 3,486
                                                             =======    =======

On February 10, 1999, the Company sold its HeartScan - San Francisco  center and
related C-150 scanner and other  equipment.  Proceeds from sale were  $1,500,000
resulting in a net gain of approximately $1,396,000.

On June 17, 1999, the Company sold its HeartScan - Pittsburgh center and related
C-150  scanner  and other  equipment  for  $650,000  resulting  in a net loss of
approximately $237,000.

On July 8, 1999, the Company sold the C-150 scanner formerly used by HeartScan -
Seattle for $625,000. The sale resulted in a net loss of approximately $617,000.

On November 19, 1999, the Company sold its HeartScan - Houston and Washington DC
centers and the related C-150 scanners and other equipment for  $2,200,000.  The
sale resulted in a net gain of approximately $507,000.

The Company is selling the remaining center located in Cascais, Portugal.

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                                       51
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

                                   SCHEDULE II

                                  IMATRON INC.
                 Valuation and Qualifying Accounts and Reserves
                                 (In thousands)

<TABLE>
<CAPTION>
                                                 Balance at
                                                     the       Charged to                Balance at
                                                beginning of   costs and                 end of the
              Description                        the period    expenses     Deductions     period
              -----------                        ----------    --------     ----------     ------
<S>                                                <C>           <C>         <C>           <C>
Balances for the year ended December 31, 1997:
Allowance for doubtful accounts receivable         $1,110        $1,380      $    --       $2,490
Inventory reserves                                  2,985           475         (101)       3,359
Reserve for warranty                                1,351         1,714       (1,275)       1,790

Balances for the year ended December 31, 1998:
Allowance for doubtful accounts receivable          2,490         1,155         (373)       3,272
Inventory reserves                                  3,359           520         (175)       3,704
Reserve for warranty                                1,790         1,575       (1,373)       1,992

Balances for the year ended December 31, 1999:
Allowance for doubtful accounts receivable          3,272           240         (636)       2,876
Inventory reserves                                  3,704           550       (1,582)       2,672
Reserve for warranty                                1,992         2,448       (1,210)       3,230
</TABLE>

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                                       52
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

            IMATRON INC. INDEX TO EXHIBITS FOR 10-K, FILED MARCH 2000

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 17, 1988.

3.3   (2)    Certificate of Amendment of Certificate of Incorporation filed with
             the New Jersey Secretary of State on  July 26, 1988.

3.4   (3)    Certificate of Correction of Certificate of Amendment of
             Certificate of Incorporation filed with the New Jersey Secretary of
             State on February 7, 1989.

3.5   (4)    Certificate of Amendment of Certificate of Incorporation filed with
             the New Jersey Secretary of State on March 29, 1990.

3.6   (5)    Certificate of Amendment of Certificate of Incorporation filed with
             the New Jersey Secretary of State on December 7, 1990.

3.7   (6)    Certificate of Amendment of Certificate of Incorporation filed with
             the New Jersey Secretary of State on July 7, 1997.

3.8   (7)    Bylaws, as amended April 30, 1992.

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

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

4.3   (10)   Form of Warrant issued to Gary Post on March 8, 1996.

4.4   (10)   Form of Warrant issued to investors in Private Offering concluded
             June 24, 1996.

4.5   (21)   Form of Warrant issued to TeraRecon Inc. on October 15, 1997.

4.6   (21)   Form of Warrant issued to TeraRecon Inc. on October 21, 1997.

4.7   (21)   Form of Warrant issued to investors in connection with a Private
             Offering which concluded January 28, 1997.

4.8   (22)   Form of Warrant issued to TeraRecon Inc. on April 24, 1998.

4.9   (25)   Form of Warrant issued to Terry Ross on June 15, 1999.

4.10  (25)   Form of  Warrant issued to Terry Ross on June 15, 1999.

4.11  (25)   Form of Warrant issued to Jose Maria Salema Garcao on July 30,
             1999.

10.1  (18)   1997 Stock Bonus Incentive Plan, as amended through June 19, 1999.

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                                       53
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

10.2  (15)   1998 Amended and Restated Non-Employee Director's Stock Option
             Plan, as amended through June 19, 1999.

10.3  (12)   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.

10.4  (12)   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.

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

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

10.7  (13)   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.

10.8  (14)   1993 Stock Option Plan, as amended through June 19, 1999.

10.9  (11)   1994 Employee Stock Purchase Plan, as amended through June 19,
             1999.

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

10.11 (16)   Agreement and Joint Company Agreement between the Company, Tobu
             Land System Company and Kino Corporation dated January 7, 1994.

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

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

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

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

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

10.17 (19)   Development Agreement dated July 22, 1997 between the Company and
             TeraRecon Inc.

10.18 (20)   Stock Purchase Agreement between the Company, HeartScan Imaging,
             Inc., and investors in a Private Offering which concluded June 24,
             1996.

10.19 (10)   Form of Warrant Purchase Agreement between the Company and
             investors in the Private Offering which concluded June 24, 1996.

10.20 (10)   Stock Purchase Agreement between the Company and Gary Post, dated
             March 8, 1996.

10.21 (21)   Agreement for Service Support dated February, 1997 between the
             Company and Siemens Medical Systems, Inc.

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                                       54
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

10.22 (21)   Warrant Purchase Agreement between the Company and TeraRecon Inc.
             dated October 15, 1997.

10.23 (21)   Warrant Purchase Agreement between the Company and TeraRecon Inc.
             dated October 21, 1997.

10.24 (22)   Warrant Purchase Agreement between the Company and TeraRecon Inc.
             dated April 24, 1998.

10.25 (23)   Loan Agreement between the Company and Positron Corporation dated
             May 1, 1998, with schedules and exhibits.

10.26 (23)   Stock Purchase Agreement, dated May 1, 1998 between the Company and
             Positron Corporation.

10.27 (24)   Sales Representative Agreement dated July 1, 1998.

10.28 (  )   Employment Agreement dated January 4, 1999 between the Company and
             Terry Ross.

10.29 (26)   Stock Purchase Agreement, dated June 16, 1999, between Imatron Inc.
             and Terry Ross.

10.30 (26)   Lock-Up Agreement, dated September 14, 1999, between Imatron Inc.
             and Terry Ross.

11.0         Computation of Per Share Earnings.

23.1         Consent of KPMG LLP


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

Footnotes

(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  Commission  on  February  3, 1989 (File No.  33-26833)  and
     incorporated herein by reference.

(3)  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
     filed  with the  Commission  on May 2,  1989  and  incorporated  herein  by
     reference.

(4)  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.

(5)  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.

(6)  Filed as an Exhibit to the  Company's  Registration  Statement  on Form 8-K
     filed  with the  Commission  on July 17,  1997 and  incorporated  herein by
     reference.

(7)  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.

(8)  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.

(9)  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.

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                                       55
<PAGE>
FY 1999                           IMATRON INC.                         FORM 10-K
================================================================================

(10) 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.

(11) Filed as an Exhibit to the  Company's  Registration  Statement  on Form S-8
     filed on January 7, 2000  (Registration  No.  333-94239)  and  incorporated
     herein by reference.

(12) 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.

(13) 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.

(14) Filed as an Exhibit to the  Company's  Registration  Statement  on Form S-8
     filed on January 7, 2000 (Registration No. 333-94245).

(15) Filed as an Exhibit to the  Company's  Registration  Statement  on Form S-8
     filed on January 7, 2000 (Registration No. 333-94237).

(16) 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.

(17) 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.

(18) Filed as an Exhibit to the Company's Registration Statement on Form S-8 POS
     filed on August 18, 1999  (Registration  No.  333-15081)  and  incorporated
     herein by reference.

(19) Filed as an Exhibit to the  Company's  Current  Report on Form 8-K filed on
     August 5, 1997 and incorporated herein by reference.

(20) Filed as an Exhibit to the  Company's  Current  Report on Form 8-K filed on
     July 1, 1996 and incorporated herein by reference.

(21) Filed on an Exhibit  to the  Company's  Annual  Report on Form 10-K for the
     fiscal year ended December 31, 1997 and incorporated herein by reference.

(22) Filed as an Exhibit to the  Company's  Registration  Statement  on Form S-3
     (Reg.  No.  333-51963)  filed on May 6,  1998 and  incorporated  herein  by
     reference.

(23) Filed as an Exhibit to the  Company's  Current  Report on Form 8-K filed on
     June 16, 1998 and incorporated herein by reference.

(24) Filed as an Exhibit to the Company's  Current Report on Form 8-K filed July
     20, 1998 and incorporated herein by reference.

(25) Filed as an  Exhibit  to the  Company's  Current  Report  on Form 8-K filed
     August 10, 1999, and incorporated herein by reference.

(26) Filed as an Exhibit to the  Company's  Registration  Statement  on Form S-3
     (Reg. No.  333-87195) filed on September 16, 1999, and incorporated  herein
     by reference.

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                                       56