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, 1997
                         Commission file number 0-12405




                                [GRAPHIC OMITTED]




                            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 ____x__      No_________

<PAGE>
The aggregate market value of the voting stock (which is the outstanding  Common
Stock) of the Registrant held by non-affiliates  thereof, based upon the closing
sale price of the Common  Stock on  February  2,  1998,  on the Nasdaq  National
Market System ($2.47 per share) was approximately $190,248,556.  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 February 2, 1998,  Registrant had 78,926,522  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   1998  Annual  Meeting  of
Shareholders,  to be filed with the  Commission on, or before 120 days after the
end of the 1997 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 ( ).



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.

<PAGE>







                       SECURITIES AND EXCHANGE COMMISSION
                                             


                                     PART I

                               ITEM 1 - BUSINESS

                                     GENERAL

Imatron Inc. ("Imatron" or the "Company"), a New Jersey corporation incorporated
in 1983, is a technology-based  company  principally  engaged in the business of
designing,  manufacturing and marketing a high performance  computed  tomography
("CT") scanner.  This scanner uses Electron Beam Tomography  ("EBT")  technology
based on a scanning  electron  beam.  The  scanner is used in large and  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.  After  completion of a private
placement that raised  $14,798,000 in net proceeds in July 1996 and the exercise
of certain  incentive  stock  options by HeartScan and Imatron  management  team
members at December  1997,  Imatron  has a 49.3%  interest  in  HeartScan  which
Imatron has fully  consolidated for financial  reporting purposes as a result of
certain  exchange  provisions  included  in  the  private  placement  agreement.
HeartScan  offers coronary  artery scanning  ("CAS") and Coronary Artery Disease
("CAD")  risk  assessment  services  through  its  five  centers  in  South  San
Francisco,   California;   Seattle,  Washington;   Houston,  Texas;  Pittsburgh,
Pennsylvania;  and Washington D.C.. HeartScan is engaged in developing marketing
programs  and  promotional  materials;  supporting  cost  benefit  analysis  and
clinical applications development;  leading negotiations with third party payers
and managed care  organizations  in order to achieve  profitable  operations  at
HeartScan centers and to demonstrate the commercial viability of coronary artery
scanning for the benefit of users and potential  purchasers of Imatron Ultrafast
CT scanners.


                              PRODUCT AND SERVICES
                                  ULTRAFAST CT

PRODUCT DESCRIPTION

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

The Imatron Ultrafast CT scanner design differs from conventional CT scanners in
two important ways.  First, the  mechanically  rotating x-ray tube technology of
conventional CT scanners is replaced by a high power electron gun that generates
a focused, high-intensity electron beam which is steered along stationary target
rings to produce a rotating  fan-shaped x-ray beam. This patented  electron beam
technology permits  significantly  faster scanning speeds. The Company's scanner
can acquire CT images at a rate of 50 to 100  milliseconds per slice in contrast
to  conventional CT scanners that require between 0.7 and 3 seconds per slice to
acquire an image.  Second,  the Imatron  Ultrafast CT permits rapid  scanning of
multiple contiguous images without moving the patient. With these features,  the
Ultrafast CT scanner can perform stop-action or dynamic studies of the heart and
various  other  organs,  contributing  to  the  scanner's  usefulness  for  both
diagnostic imaging and functional evaluation.

The Ultrafast CT scanner can be operated in three scanning modes:  Single Slice
mode, MultiSlice mode and Continuous Volume Scanning mode. The Single Slice mode
can acquire up to 140 images per acquisition and can be timed to the heart cycle
with ECG  triggering.  This mode employs scan times from 100  milliseconds  to 2
<PAGE>

seconds  as  compared  to 0.7 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 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  1996,  the Company  completed its version 12.3 software  which more
than  tripled the image  acquisition  capability  on the  Company's  C-150 model
Ultrafast   CT   scanner.   Furthermore,   improvements   were   made  in  image
reconstruction  algorithms,  ECG triggering capabilities,  and Continuous Volume
Scanning  modes.  After  completion of Beta testing in early 1997,  version 12.3
software became available for sale.

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

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 Ultrafast CT scanner.

MARKETS

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

All of these systems have been  evaluated in the diagnosis of cardiac  diseases,
but the extent of  application  of several is limited due to 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 speed of
the  Ultrafast CT 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.  This
procedure for measuring  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,  coupled  with  the fact  that a large  number  of  asymptomatic
individuals (650,000) experience heart attacks each year, indicates a clear need
for a safe and  effective  screening  test for the  earliest  stages of coronary
heart  disease.  The  correlation  between  calcium  in the  coronary  arteries,
atherosclerosis,  and myocardial  infraction (heart attack) has been known since
the 1950's. By the mid-1960's, selective coronary angiography was introduced and
soon became routine.  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

<PAGE>

abnormal results such that as many as twenty-five to thirty-five  percent of the
coronary  angiograms   conducted  are  deemed  to  be  normal.   Since  coronary
angiography  is both  expensive  and  invasive,  the  patient in these  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 screening tests for diagnosing coronary artery disease.

The Company further believes that research demonstrates CAS has the potential to
accurately  identify  those  people who are  developing  early  coronary  artery
disease.  CAS can then serve as a feedback mechanism to monitor the treatment of
those with early coronary  artery  disease,  a disease which may slow,  stop, or
even  regress in  response  to  treatment.  Until now,  the only way to directly
determine the effect of life-style modification and lipid-lowering pharmacologic
treatment on coronary artery disease was to perform repeated  invasive  coronary
angiography or 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 thirty to thirty-five  percent
of people  with  elevated  cholesterol  levels do not  develop  coronary  artery
disease. Since there has not been, until the advent of the Ultrafast CT scanner,
a method to find those who are beginning to develop coronary  disease,  everyone
with a high  cholesterol  reading has been  treated as if they will  develop the
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  Ultrafast  CT 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.

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

CUSTOMER SERVICE

The Company and its distributors  provide  installation,  customer service,  and
warranty service to their respective customers. Imatron provides warranty on the
Ultrafast  CT 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.  In conjunction with this transaction,  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  a  customer  support  center  in  South  San  Francisco
California and field service  forces in United  States,  Europe and Asia for its
service business.  Together with its distributors,  the Company services over 87
installed 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  bases to such  customers  after  the  warranty
period.

  
CORONARY ARTERY SCANNING - HEARTSCAN IMAGING, INC.

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

scanner, and serve as a corporate  demonstration site for the Company's products
and services.

The  services  of such  centers  are being  marketed  to  physicians,  insurers,
employers  and directly to the public.  As of December  31, 1997,  five CAD risk
assessment centers were owned and operated by HeartScan.

The success of HeartScan's  CAD risk  assessment  centers depends on a number of
factors  including,  but not  limited  to, the  ability to obtain and operate in
compliance with appropriate licensing from applicable regulatory authorities; to
develop working  relationships  with local groups of  cardiologists;  to educate
patients,  referring physicians and third party payers about the benefits of the
CAS and HeartScan's  centers;  and to successfully  manage the operations of the
centers.  HeartScan  anticipates  negative cash flow and  substantial  operating
losses  during the next several  years of its  operation;  there is no certainty
that HeartScan can operate profitably.

In June 1996,  Imatron completed a private offering whereby Imatron sold 100,000
shares of HeartScan  Series A preferred stock to  unaffiliated  third parties at
$160.00 per share with realized proceeds of $14,798,000 (net of offering costs).
The sale of such shares,  together with the exercise of certain  incentive stock
options  by  members of the  HeartScan  and  Imatron  management  team,  reduced
Imatron's  control in  HeartScan  to 49.3% as of December  31,  1997.  Imatron's
controlling  interest of 49.3% in HeartScan  is  comprised  of its  ownership of
100,000 shares of HeartScan  Series B Preferred  Shares on an as converted basis
plus 41,155 common shares of two individuals from HeartScan who are also working
for Imatron. The 50.7% held by investors outside of Imatron is calculated on the
basis of 100,000 shares of HeartScan Series A Preferred Stock  outstanding on an
as converted basis plus the 70,312 common shares of HeartScan's President who is
not an employee of Imatron.

The  HeartScan  Series A Preferred  Stock may be exchanged at the sole option of
the holder into  Imatron  common  stock at an exchange  price of $5.00 per share
until the earlier of a) a two year  period  following  closing of the  Preferred
Stock offering (June 26, 1996) ; or b) a HeartScan  initial public offering.  If
there is no initial  public  offering  within 24 months of the  Preferred  Stock
closing, holders may convert the HeartScan Series A Preferred Stock into Imatron
common stock at a conversion  price equal to the greater of $1.50 per share or a
27% discount from the weighted average closing price of Imatron common stock for
the 90 day period immediately preceding 24 months of the Preferred Stock closing
and each  date  that is 3 months  thereafter  to and  including  the 48th  month
following the Preferred  Stock  closing.  The quoted  closing price of Imatron's
common  stock at the date of the  closing of the  HeartScan  Series A  Preferred
Stock offering was $5.75 (See Notes 1, 7 and 12 to the Notes to the Consolidated
Financial Statements).

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

HeartScan  is  dependent  on  Imatron  for the  scanners  used  in its CAD  risk
assessment  centers.  HeartScan  does not believe  there are any other  machines
which can accomplish the same tests. In the event that Imatron,  for any reason,
should cease manufacturing such equipment, HeartScan would be unable to complete
its business  plan.  HeartScan's  competitors  are clinics and  hospitals  using
either  Ultrafast CT scanners or advanced  conventional CT scanners for coronary
artery screening. In order to compete successfully against these competitors, it
must  develop a good working  relationship  with  cardiologists  and educate the
public and health  insurance  companies  about the  benefits of coronary  artery
screening  tests,  as  opposed  to other  testing  modalities  with  respect  to
accuracy, cost, time, and degree of invasiveness.

HeartScan's 1998 objectives include,  but are not limited to, improved operating
results,  re-deployment of non-productive assets, development and implementation
of marketing  programs and negotiations with third party payers and managed care
organization for coverage of coronary artery  scanning.  HeartScan does not plan
to develop any  additional  centers in the United States  during 1998.  However,
<PAGE>

HeartScan does plan to develop 3-4 joint venture projects in Europe during 1998.
HeartScan  may seek to merge with or develop a joint venture  relationship  with
other  companies  either  currently  offering  CAD risk  assessment  services or
desiring to enter the business.

Based on Imatron's entry April 1, 1998 into the direct sales of its Ultrafast CT
scanner in the United States and Europe, the company plans to carefully evaluate
and  monitor the price of  HeartScan  in  supporting  the sale of  Ultrafast  CT
scanners in these markets.

RESEARCH AND DEVELOPMENT CONTRACTS

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

On March 31, 1995,  the Company and Siemens  entered into a new  agreement  (the
"Memorandum of Understanding") pursuant to which the parties agreed to terminate
the  existing   Development   Agreement  and  substitute  in  its  place  a  new
collaborative   research  agreement.   Under  the  new  collaborative   research
agreement, the parties agreed to jointly conduct research and development over a
three year period directed toward certain  improvements  and enhancements to the
Company's  C150 product.  Siemens  agreed to fund an aggregate of $15 million of
Imatron-managed research and development for a three year period beginning April
1, 1995,  subject to addressing  mutually agreed upon goals and  objectives.  No
milestones or other performance related results are tied to the payment of funds
by Siemens.  Pursuant to the funding, Imatron has contributed a portion equal to
no less than fifty  percent of  Siemens'  contribution  for the sole  purpose of
conducting the collaborative research.  Siemens has the right to audit the joint
development  program  and has done so. The  primary  goals of the  research  and
development  program are to develop and enhance the Ultrafast CT scanner  system
performance,  increase  product  reliability,  reduce  manufacturing  costs, and
improve  system  upgradability.  The results of the  collaborative  research are
jointly  owned by the parties  and  cross-licensed.  The Company is  recognizing
equal amount of revenue and cost of sales  ratably over the three year period as
its commitment to perform research and development  under the agreement is being
incurred  ratably  over the same  period.  The  Company  recognized  $5,000,000,
$5,000,000 and $3,884,000 of revenue under the collaborative  agreement in 1997,
1996, and 1995, respectively.

Imatron  and  Siemens  intend to continue  their  close  relationship  after the
Memorandum of  Understanding  expires in March 31, 1998.  Imatron has granted to
Siemens a right of first  refusal  to  collaborate  or work with  Imatron on any
future research and development of new technologies or new products with respect
to EBT/CT medical imaging products proposed to be pursued
by Imatron.

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  calls for the
delivery by TeraRecon to Imatron of a real-time image reconstruction  system for
use in  conjunction  with  Imatron's  Ultrafast CT scanner.  Upon  completion of
prototypes and when delivered,  the TeraRecon  RTR-2000 system will be exclusive
to  Imatron's  Ultrafast  CT scanner and will expand the  Ultrafast CT scanner's
current  applications  to  include,  CT  fluorography,  real-time  viewing of CT
images,  CT 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 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.
<PAGE>

As of October 21, 1997, the Company has issued a total of 3,000,000  warrants to
TeraRecon upon the successful  delivery of 4 Prototype I units.  Pursuant to the
development agreement,  TeraRecon paid the Company $1,000,000 for the warrant to
purchase 2,000,000 shares of the Company's common stock at $4.50 per share.

                                    MARKETING

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

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

UNITED STATES, CANADA, AND EUROPE

In April 1995,  pursuant to the Memorandum of  Understanding  above, the Company
entered into an agreement  with Siemens  giving  Siemens the exclusive  right to
distribute the Company's C-150 scanner in the United States,  Canada, Europe and
India (see "Transactions With Siemens  Corporation" below). As of April 1, 1998,
Imatron will take back exclusivity rights and assume worldwide  distribution for
its scanners.  Siemens  purchased  seven,  two, and one C-150  scanners in 1997,
1996, and 1995, respectively.

JAPAN

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

On January 7, 1994,  Imatron  entered into a Joint Company  Agreement  with Tobu
Land System  Company  and Kino  Corporation  pursuant  to which a joint  venture
company was established to market,  sell,  install and service Imatron Ultrafast
CT scanners.  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 three,  five,  and five C-150  Ultrafast  CT scanner  systems  from
Imatron  in 1997,  1996,  and  1995,  respectively.  Imatron  Japan,  Inc.  also
purchased two refurbished Ultrafast CT 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 Ultrafast CT scanner sold to Imatron
Japan,  Inc. through 1996. From 1997 onwards,  these commissions were reduced to
$60,000  per each new  machine  sold.  Imatron  Japan,  Inc.  has  ordered  five
additional  Ultrafast CT scanner  systems for delivery in 1998 with an option to
purchase three additional systems.

RELIANCE ON DISTRIBUTORS

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

SALES INFORMATION

The 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 other third parties. The sales
price  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
significantly  higher than that of conventional CT scanners,  may serve to limit
sales of the Company's  scanner to larger  hospitals and medical imaging clinics
that are able to generate a higher  than  average  patient  volume to offset the
higher cost.

Unit scanner export sales (see Note 11, Segment  Information  and Foreign Sales)
for fiscal years ended December 31 are as follows:

                             1997            1996             1995
                        ------------    ------------      ----------

Total export sales           15               8                7


                      TRANSACTIONS WITH SIEMENS CORPORATION

1991 AGREEMENT

In  March  1991,  the  Company  entered  into a  Basic  Agreement  with  Siemens
Corporation  ("Siemens") which consisted of four separate sub-agreements each of
which has been subsequently  modified in various respects by the parties.  These
agreements terminated on March 31, 1995.

Distribution  Agreement - Siemens had exclusive  rights to distribute  the C-150
scanners  worldwide  (excluding Japan, Hong Kong, China and Taiwan).  Under this
agreement  Siemens was obligated to purchase a minimum  number of C-150 scanners
at fixed prices.  In November  1992,  an amendment to the agreement  reduced the
annual  minimum  purchase  obligation by 50% from 12 to 6 scanners.  The sale of
scanners to Siemens was accounted for as product sales upon shipment to Siemens.

Development  Agreement - Imatron and Siemens agreed to the joint  development of
other  medical  scanner   products.   Siemens   provided  the  funding  for  the
development.  Imatron  recognized  revenue  under  this  agreement  based on the
successful completion of milestones set forth in the agreement.  Upon successful
conclusion of the development of other medical scanner products, Siemens had the
sole right to manufacture such products.  Upon the termination of the 1991 Basic
Agreement,  all  developed  technology  reverted  back  to  Imatron  as per  the
contract.

License Agreement - In connection with the above manufacturing  rights,  Imatron
agreed to grant Siemens a license for the applicable  technology in exchange for
a license  fee and future  royalty  payments.  Imatron  received a $4.0  million
non-refundable  license  fee in  1991.  Siemens'  rights  under  this  agreement
terminated upon the termination of the 1991 Basic Agreement.

Loan Agreement - Imatron and Siemens  entered into a loan agreement to provide a
loan facility of $4.0 million with an interest rate of prime plus 3%.

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   subject  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 have 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. Thus, 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 currently as income for the period.

<PAGE>

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- up 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 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 new collaborative research agreement, Siemens has agreed to fund
a maximum aggregate of $15 million of  Imatron-managed  research and development
over the three years,  subject to addressing  certain mutually agreed upon goals
and objectives.  No milestones or other performance  related results are tied to
the payment of funds by  Siemens.  The Company is  recognizing  equal  amount of
revenue and cost of sales  ratably over the three year period as its  commitment
to perform  research  and  development  under the  agreement  is being  incurred
ratably over the same period.

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

(a)  Imatron is  responsible  for  managing  and  performing  all  collaborative
research conducted under the MOU.
(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 Ultrafast CT scanner in the United States, Canada, Europe, and India for a
<PAGE>

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.

Effective April 1, 1998, Imatron's  obligations and Siemens'  contribution under
the MOU will  terminate.  In  addition,  Imatron  will take  back its  exclusive
distribution rights and assume worldwide distribution for its C-150 scanners.

                           INVISION TECHNOLOGIES, INC.

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

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

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

As of December 31, 1997, Imatron had no ownership interest in InVision.

                                   COMPETITION

In  the  non-cardiac  imaging  applications  market  (comprised  principally  of
hospital radiology  departments),  the Company's  principal  competition is from
current  manufacturers of conventional CT scanners,  including  General Electric
Company,  Siemens  Corporation,  Elscint,  Picker  International,  Inc., Philips
Medical Systems, 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
techniques.  All of these companies have greater financial  resources and larger
staffs  than  those of the  Company  and  their  products  are,  in most  cases,
substantially less expensive than the Ultrafast CT scanner.

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

projects  currently in progress,  as well as on its continued ability to develop
new products or product  enhancements  in response to new  products  that may be
introduced by other  companies.  There can be no assurance  that Imatron will be
able to continue to improve product  reliability or introduce new product models
or enhancements as required to remain competitive.

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

                                  MANUFACTURING

The Company  manufactures  its scanner at its South San  Francisco,  California,
headquarters  facility.  To date, the typical  manufacturing  cycle has required
approximately  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. 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 Good  Manufacturing  Practice  ("GMP")
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 C-150  Ultrafast CT scanner.  The
Company  believes that it is presently in  substantial  compliance  with the GMP
requirements  and other  regulatory  issues  promulgated  by the FDA. 

In October 1997, the Company  received the 510(K) market  clearance from the 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 Ultrafast CT scanner.

The FDA also regulates the safety and efficacy of radiological devices. Although
the Company believes it is in compliance with all applicable radiological health
regulations established by the FDA, there can be no assurance that the Ultrafast
CT scanner will continue to comply with all such standards and regulations  that
may be 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.
<PAGE>

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

The  Company's  primary  customers  operate  in  the  healthcare  industry.  The
healthcare  industry is highly regulated.  Both existing and future governmental
regulations  could  adversely  impact the market for the Company's  Ultrafast CT
scanner and the Company's business. The Company's operations are also subject to
regulation by other federal, state, and local governmental entities empowered to
enforce  pertinent  statutes  and  regulations,  such as those  enforced  by the
Occupational  Safety and Health Agency and the Environmental  Protection Agency.
In some  cases,  state or local  regulations  may be stricter  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 on going. The
FDA  concurred  with  Imatron's  decision  to field  upgrade  certain  sites and
assigned  recall  numbers  Z304/307-7  and  Z-289/299-7.  Imatron is required to
notify the FDA  periodically  of the status of these  corrections and again upon
completion.  Imatron is complying with these requests and expects  correction to
the  above  recall  numbers  by  May  31,  1998.  Imatron  believes  that  is in
substantial compliance with the regulations.

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  timeless 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
which  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.
The Company successfully  obtained  registration under the ISO 9001 standards in
December 1997 and is in the process of applying for CE mark certification. There
can  be  no  assurance  that  the  Company  will  be  able  to  obtain  CE  mark
certification  for its products.  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,  financial condition and
results of operations.

HeartScan's  activities are subject to extensive regulation,  generally by state
and  local  governmental   entities.   Although  HeartScan  believes  it  is  in
substantial  compliance  with  all  applicable  regulations,  there  can  be  no
assurance  that its business will continue to comply with all such standards and
regulations  that may be  established.  In any event,  compliance  with all such
requirements can be costly and time consuming,  and may have materially  adverse
effect on the development of HeartScan's business and its future  profitability.
HeartScan's  operations are also subject to regulation by other federal,  state,
and local  governmental  entities  empowered to enforce  pertinent  statutes and
regulations,  such as those enforced by the FDA,  OSHA, and the EPA.  Changes in
governmental regulations on new regulations adopted in the future may materially
adversely affect Imatron's  business.  In some cases, state or local regulations
may be stricter than regulations imposed by the Federal government.
<PAGE>

                              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. In June 1986,
the license  and  sublicense  agreements  were  amended to extend the  Company's
exclusive use of the technology through the remaining  thirteen-year life of the
patent in exchange for modified minimum annual royalty payments. Under the terms
of Emersub's  license with UC, Emersub was obligated to make certain  additional
payments in connection with the license. In October 1990, pursuant to subsequent
amendments  of the  license and  sublicense  agreements  the  Company  issued an
aggregate  of 132,813  shares of Series A  Preferred  Stock to UC and Emersub in
satisfaction of this  obligation.  The University of California  converted their
125,000  Series A Preferred  Stock into  625,000  common  stock  shares in 1993.
Emersub  converted their 7,813 Series A Preferred Stock into 39,065 common stock
shares in September 1995.

Under  the  continuing  sublicense  agreement,  as  amended,  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.  There are no present  disputes  with either UC or  Emersub.  Royalty
payments  to  Emersub  for 1997,  1996,  and 1995 were  $179,350,  $91,470,  and
$91,470, 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-eight  U.S.  Patents of its own (each with a
remaining  life  in  excess  of  3  years)  and  has  filed  three  U.S.  patent
applications  covering  various  integral  components of the scanner  including,
among others,  its electron beam assembly and its x-ray detector,  and has filed
applications  corresponding  to several of these  patents  and  applications  in
various European Patent Convention countries, Canada, and Japan. There can be no
assurance that any such  applications will result in the issuance of a patent to
the Company.  Imatron's patents and patent  applications have not been tested in
litigation and no assurance can be given that patent  protection  will be upheld
or will be as extensive as claimed. Furthermore, no assurance can be given as to
the Company's ability to finance  litigation  against parties which may infringe
upon  such  patents  or  parties  which  may claim  that the  Company's  scanner
infringes upon their patents.  However,  the agreement signed by the Company and
Siemens Corporation in March 1991 allows Siemens Corporation to enter litigation
in favor of Imatron.

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.

     This patent describes a method of regulating the rate of  neutralization of
     the  electron  beam due to  ionization,  by  introducing  an  inert  gas at
     controlled  pressure into the vacuum chamber. It is important to adjust the
     pressure so that the  neutralization  of the beam reaches  saturation,  and
     therefore, equilibrium before the beam hits the X-ray producing target.
<PAGE>

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

     This patent  describes a method of mounting  the  tungsten  X-ray-producing
     targets in an EBT scanner.  For  manufacturing  reasons it is necessary for
     each target to consist of several short  sections,  which must be joined so
     as to form a continuous  surface.  The patent  describes a clamping  system
     which ensures that the sections are properly positioned both relatively and
     absolutely.

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

     This patent  describes the basic  configuration  and structure of the X-ray
     and  EBT   scanners.   The  detector   consists  of  2  rings  of  multiple
     scintillators  mounted on  photodiodes  connected to active low pass filter
     amplifiers.

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

     This patent  describes a method of  producing  longitudinal  tomograms of a
     patient in an EBT scanner.  X-ray exposure of the patient is minimal.  This
     view of a patient is a prerequisite to producing axial  tomographic  images
     of the patient's anatomy.

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

     This patent  describes a periodic  axial  field Ion  Controlling  Electrode
     (ICE), a Rotatable  field Ion Controlling  Electrode  (RICE) and a Positive
     ion Electrode (PIE).

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 February 1, 1998, the Company had 195 employees, including 33 employees in
service,  15 in  sales/marketing,  63  scientists  and engineers in research and
development,  65  employees  in  manufacturing,  and 19 employees in finance and
administration.   HeartScan  had  32   employees,   including  23  employees  in
operations,   6  in  sales  and   marketing,   and  3  employees   in  corporate
administration.  None of the employees are  represented  by a labor union and no
work stoppages or strikes have occurred.  The Company  believes that it has good
labor relations with its employees. 

CERTAIN FACTORS

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

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  operations  amounting  to  $3,221,000  partially
offset by $911,000 of net losses incurred by HeartScan. In 1997, 1996, and 1995,
the Company  incurred net losses of  $11,422,000,  $13,737,000,  and $2,449,000,
respectively.  The net losses are  partially  a result of the  operating  losses
incurred by HeartScan which amounted to $8,172,000,  $7,845,000,  and $2,132,000
in 1997,  1996,  and 1995,  respectively.  The net losses  incurred by HeartScan
reflect non-cash minority interest expense of $1,744,000 and $3,272,000 recorded
in 1997 and 1996,  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  or  HeartScan  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  (see  notes  1,  7 and  12 to  the  Notes  to  the
Consolidated Financial  Statement).  As of December 31, 1997, the Company has a
consolidated  accumulated  deficit of  $82,716,000.  As of  December  31,  1997,
HeartScan has an accumulated deficit of $20,044,000.

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, cash
equivalents,  and short-term  investments existing at December 31, 1997 together
with the borrowing capability,  and the estimated proceeds from ongoing sales of
products  and  services in 1998 will  provide the  Company  and  HeartScan  with
sufficient  cash for  operating  activities  and  capital  requirements  through
December 31, 1998.

NEED FOR ADDITIONAL FINANCING

To satisfy the Company's future capital and operating  requirements,  profitable
operations or additional public or private financing will be required. If future
public or private financing is required by the Company, holders of the Company's
securities may experience  dilution.  If such financing cannot be obtained,  the
Company may seek to sell or license  additional  portions of its technology,  to
sell some or all of its other  assets,  or to merge  with  another  company.  In
addition,  HeartScan may need additional  financing to continue to fund its plan
to own and operate CAS centers. In the event HeartScan can no longer support its
operating  expenses  and is unable to raise  additional  funds,  it will have to
curtail its center development and expansion activities.

MATERIAL DEPENDENCE UPON KEY PERSONNEL

The  Company  and  HeartScan  have been,  and will  continue  to be,  materially
dependent  upon  the  technical  expertise  of its  engineering  and  management
personnel.  The loss of a  significant  number of such  personnel  would  have a
materially adverse effect upon the Company's business and future prospects.  The
Company does not maintain key-man life insurance.

HIGH COST OF SCANNER

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

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

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

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
be paid.  Rather,  the Company  expects that any future earnings will be applied
toward the further development of the Company's business.
<PAGE>

ITEM 2 - PROPERTIES

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

The 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 technical  service center for its European  customers  while the
residence is for expatriates assigned in Germany.

The HeartScan centers located in Seattle, WA; Houston,  TX; Washington,  DC; and
Pittsburgh,  PA; occupy  approximately 3,000 square feet each of leased space in
medical buildings close to hospitals. The leases are renewable in July 1998, May
2000, December 2005, and June 2001, respectively. The San Francisco center is in
one of  the  buildings  leased  by  Imatron  located  in  South  San  Francisco,
California.  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, 1997.
<PAGE>



                                    PART II

ITEM 5 - MARKET  FOR THE  REGISTRANT'S  COMMON  EQUITY AND  RELATED  STOCKHOLDER
MATTERS

Since April 1985, the Company's  Common Stock has traded on the Nasdaq  National
Market System under the Nasdaq symbol "IMAT."

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

                        1997                                 1996
              -------------------------           -------------------------
 
 Quarter:         High           Low                 High               Low
----------   -------------    ---------          ------------      ------------
First           $3.38           $1.88               $3.50              $1.75
Second           3.00            1.59               8.38                3.00
Third            2.94            2.34               6.63                3.94
Fourth           5.31            2.25               4.81                2.50

As of February 2, 1998, there were approximately  6,596 holders of record of the
Company's  common stock. On February 2, 1998, the closing price of the Company's
common stock on Nasdaq was $2.47.

                              DIVIDEND INFORMATION

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

<PAGE>


<TABLE>


ITEM 6 -  SELECTED FINANCIAL DATA


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

<CAPTION>

OPERATING INFORMATION


          Year Ended December 31           1997              1996               1995              1994               1993
                                       -------------    ----------------    --------------    --------------    ---------------

<S>                                      <C>                <C>                <C>              <C>               <C>         
Total revenues                           $   39,423         $    25,768        $   26,700       $    33,571       $     25,111
Operating income (loss)                  $ (10,144)         $  (12,409)        $ ( 6,158)       $       549       $    (2,871)
Net income (loss)                        $( 11,422)         $  (10,737)        $ ( 2,449)       $     2,310       $    (2,871)
Basic and diluted net income           
(loss) per share                         $   (0.15)         $    (0.18)        $  ( 0.04)       $     $0.04       $     (0.06)
Number of shares used
   in per share calculations                78,461              74,406             57,598            62,102             47,865
</TABLE>

<TABLE>

BALANCE SHEET INFORMATION


At December 31                        1997             1996               1995               1994               1993
                                ---------------   --------------    ---------------    ----------------   ---------------
 
<S>                                        <C>               <C>               <C>                <C>                <C>         
Working capital                    $     26,050      $    33,042       $     14,252       $       8,741      $      5,536
Total assets                             49,223           53,192             30,876              21,173            15,903
Long term obligations
   including capital lease
   obligations                            4,507            4,604              3,311               4,992             4,992
Total liabilities                        17,898           15,666             14,651              14,303            12,265
Minority Interest                        14,255           12,323                -                   -                 -
Preferred stock                            -                 -                 -                  1,308             2,008
Shareholders' equity                     17,070           25,203             16,225               6,870             3,638


<FN>

The Company did not pay any cash dividends on its Common Stock during any of the periods presented above.
</FN>
</TABLE>

<PAGE>

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

                         LIQUIDITY AND CAPITAL RESOURCES
                                                   

At December 31, 1997,  working  capital  decreased  to  $26,050,000  compared to
December 31, 1996 working  capital of  $33,042,000  primarily as a result of the
operating losses sustained by the Company amounting to $11,422,000.  The current
ratio at December 31, 1997 decreased to 3.2:1 from 4.4:1 at December 31, 1996.

The  Company's  assets  decreased to  $49,223,000  compared to December 31, 1996
total assets of $53,192,000.  Net cash used in operating  activities  during the
year ended  December 31, 1997 was  $10,791,000  compared to $10,302,000 in 1996.
The  primary  uses of cash result from  increase  in  accounts  receivables  and
inventories  during 1997.  The  increase in accounts  receivable  resulted  from
increasing  product  sales,  the  lengthening  of customer  payment terms due to
delays in product  installations  resulting from site preparation.  The economic
and currency related  uncertainties in other countries also resulted in delay of
payments.  Accounts  payable  decreased due to change in the timing of payments,
offset by an increase in purchases related to the volume of business.

Cash provided by investing  activities  increased  $28,756,000 to $13,096,000 in
1997 as compared to 1996 due to an increase in securities held for sale maturing
in  three  months  and  less  and  lower  capital  expenditures.  Key  financing
activities  for the year ended 1996 included  proceeds  from a private  offering
whereby  Imatron sold 100,000  shares of HeartScan  Series A preferred  stock to
unaffiliated  third  parties  with  realized  proceeds  of  $14,798,000  (net of
offering costs).  During the same period, the Company also sold 4,500,000 shares
of its common  stock in a private  placement  and issued  warrants  to  purchase
common stock, netting proceeds of $11,348,000. Additionally, proceeds from stock
options,  purchases in the employee stock purchase plan, and warrants  decreased
to $2,463,000  during the twelve month period in 1997 as compared to $16,672,000
during the same period in 1996.

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, cash
equivalents,  and short-term  investments existing at December 31, 1997 together
with the borrowing capability,  and the estimated proceeds from ongoing sales of
products  and  services in 1998 will  provide the  Company  and  HeartScan  with
sufficient  cash for  operating  activities  and  capital  requirements  through
December 31, 1998.

Currently,  the  Company  and its  subsidiary  do not have  significant  capital
commitments in 1998.

To satisfy  the  Company's  capital  and  operating  requirements  beyond  1998,
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 OPERATIONS

1997 vs. 1996

Total revenues for the year ended  December 31, 1997, of  $39,423,000  increased
$13,655,000  or 53%  compared  to 1996  revenues  of  $25,768,000.  Net  product
revenues  increased  to  $27,368,000  in 1997  from  $16,010,000  in 1996 due to
shipment of 18 scanners in 1997 as compared to 10 in 1996. Net product  revenues
in 1997 and 1996 include sales under  sale-leaseback  arrangements  amounting to
$927,000  and  $1,774,000  in 1997  and  1996,  respectively.  Service  revenues
<PAGE>

increased to  $4,513,000  in 1997 from  $3,465,000 in 1996 due to an increase in
scanners  under  service  contracts.  The increase  primarily  resulted from the
service  support  agreement  entered  into with  Siemens (see Note 6 to Notes to
Consolidated  Financial  Statements-  Transactions  with  Siemens  Corporation).
Development contract revenue of $5,000,000 non-refundable  payments 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 entered into in 1995.

Clinic revenues related to the HeartScan Imaging,  Inc. (HeartScan) increased by
97% to  $2,542,000  in 1997  compared to  $1,293,000 in 1996 due primarily to an
increase in the number of clinics  operating for the full year in 1997 from 3 in
1996 to 5 in 1997.  In  addition,  the number of patient  scans per clinic  also
increased due to promotional and marketing efforts by HeartScan. Although clinic
revenues  increased,  the addition of new clinics  increased net loss due to the
start-up  expenses of these clinics.  The Company  anticipated that the start-up
period would range from twelve to eighteen  months.  The start-up  phase for the
sites have taken longer than expected as acceptance of the coronary  artery scan
within the medical community has been slower than projected.

HeartScan started operations in its San Francisco clinic in 1993, Seattle clinic
in 1995 and Houston, Washington D.C. and Pittsburgh clinics in 1996. As a result
of the opening  schedule,  only the  following  clinics have  comparable  annual
results:
<TABLE>

                         1997                       1996                               1995
              -------------------------     ---------------------------   -------------------------------
               Revenues      Net Loss       Revenues        Net Loss            Revenues       Net Loss
             -----------   ------------    -----------     -----------     -------------- ---------------

<S>            <C>         <C>               <C>          <C>                 <C>            <C>        
San Francisco  $805,000    $ (772,000)       $562,000     $ (512,000)         $  348,000     $ (831,000)
Seattle         382,000      (929,000)        285,000       (917,000)
Houston         461,000    (1,103,000)        345,000       (785,000)

</TABLE>
Clinic costs of revenues as a percentage of clinic revenues decreased to 127% in
1997 as  compared  to 173% in 1996  primarily  due to an  increase  in  revenues
related to the  establishment  of additional  Heartscan  clinics and increase in
number of patient scans.  The increase in net loss for the San Franicsco  clinic
was the result of  allocation  of  capitalized  scanner  depreciation  and lease
interest expenses from other sites in 1997.

HeartScan recorded depreciation expense on capitalized lease scanners amounting
to $1,121,000,  $503,000, and $69,000 in 1997, 1996 and 1995, respectively.  The
fluctuation in the depreciation and  amortization  expense of capitalized  lease
scanners was due to the increase in scanners  placed in service between 1995 and
1997. The Seattle  HeartScan  center opened in 1995 with Houston,  Washington DC
and Pittsburgh centers opening in 1996. The scanner located in San Francisco was
a development product of the Company which was amortized starting in 1991 over a
5-year  period.  The scanner was  transferred to HeartScan San Francisco in 1993
and was fully amortized under Property and Equipment in 1995.

Total cost of  revenues  as a percent of  revenues  for 1997 was lower at 81% as
compared with 96% in 1996.  The change in the cost of revenue as a percentage of
revenue  for  scanners  from 89% in 1996 to 71% in 1997 was a result of a mix in
the sales  prices of scanners to customer  requirements.  Although the cost of a
scanner remains constant for all scanner sales, the sales price varies depending
on the  customer.  In  particular,  sales to Siemens,  Imatron  Japan,  Inc. and
third-party leasing companies (leasing scanners to HeartScan) have a lower gross
margin  than sales to other  parties.  The  decrease in the cost of revenue as a
percentage  of revenue for scanners is due to the  increase in scanner  sales to
customers  other than  distributors  to seven in fiscal  year 1997 from three in
fiscal year 1996 offset by shipments of ten scanners to Siemens,  Imatron Japan,
Inc. and third-party  leasing companies in 1997 from seven in 1996. Service cost
of revenues as a percent of service revenue decreased to 86% in 1997 from 91% in
1996 due to an increase in gross margin on spare parts sold.

Total operating expenses of $17,688,000  increased $4,298,000 or 32% compared to
1996 expenses of $13,390,000.  Research and  development  expenses of $4,713,000
increased  from  $3,318,000  in 1996 due to increases in headcount and materials
for projects undertaken in 1997.  Additionally,  the Company recorded a non-cash
charges of $750,000  for  warrants  issued to TeraRecon  for  achieving  certain
milestones in connection with the development of image reconstruction system and
compensation  expense of $150,000 for extending a stock option exercise  period.
No such expenses were recorded in 1996. Selling expenses increased to $6,821,000
<PAGE>

from $4,676,000 in 1996 primarily due to higher advertising expenses incurred by
HeartScan and expenses  related to studies  conducted  promoting the benefits of
the Company's  product.  Administrative  expenses  increased to $6,154,000  from
$5,396,000  due  primarily  to increase in bad debt  expense.  Bad debt  expense
increased to $1,648,000  in 1997 from $939,000 in 1996.  The increase of 709,000
in 1997 was primarily  the result of reserves  created for  receivables  over 90
days related to spare parts sold to  customers.  At December  31, 1997,  Imatron
Japan,  Inc.  had a total  reserve of  $1,323,000  against  the  receivables  of
$1,438,000.  The economic  crisis in Japan has  continued to limit the Company's
ability to pursue collection of these amounts.

Other income  decreased to $1,044,000  from  $2,508,000 in 1997 primarily due to
the  income  recognized  in 1996  for the  sale of  59,090  shares  of  InVision
Technologies common stock amounting to $1,756,000.

Interest expense paid in 1997 and 1996 were for capitalized lease obligations.

The Company  incurred a non-cash  change in income of $1,744,000  and $3,272,000
recorded  as  minority  interest  expense  in 1997 and  1996,  respectively,  in
connection with certain beneficial conversion features granted to the holders of
the HeartScan convertible Series A Preferred Stock (see Notes 1, 7 and 12 to the
Notes to the Consolidated Financial Statements).

RESULTS OF OPERATIONS

1996 vs. 1995

Overall  revenues  decreased 3% from $26,700,000 in 1995 to $25,768,000 in 1996.
Product sales,  including $1.8 million under  sale-leaseback  arrangements  with
various  leasing  companies in both 1996 and 1995,  increased 6% due to a higher
option/upgrade  revenues.  There were 10 scanners and 1 refurbished unit sold in
1996 versus 10 scanners in 1995.  Service revenues decreased 37% from $5,529,000
in 1995 to  $3,465,000  in 1996  primarily  due to lower spare  parts  shipment.
Research  and  development  contract  revenues  decreased  by 11% to  $5,000,000
compared to  $5,637,000 in 1995 due to the lower  revenue  recognized  under the
Memorandum  of  Understanding  with Siemens as compared to the previous  Siemens
development agreement that was terminated in March 1995. Clinic revenues related
to the HeartScan  subsidiary increased by 181% to $1,293,000 in 1996 compared to
$460,000  in 1995  as a  result  of  additional  coronary  artery  disease  risk
assessment centers (clinics) operating in 1996.

The costs of  revenues  as a percent  of  revenues  for 1996 is higher at 96% as
compared  to 89% in 1995.  Product  cost of  revenues  as a percent  of  product
revenues increased to 90% in 1996 from 89% in 1995 as a result of lower realized
margin on  scanners  sold.  Service  cost of  revenues  as a percent  of service
revenues  increased  to 91% in 1996 as compared to 71% in 1995 due  primarily to
lower volume of spares shipped. Development contract revenue and cost of revenue
is  identical  in  1996  due to  the  terms  of the  three  year  Memorandum  of
Understanding  with  Siemens.  In 1995,  development  revenue  also  included  a
development  contract with Siemens  which  provided a higher gross margin to the
Company.  This  contract was  terminated  in 1995.  Clinic cost of revenues as a
percent of clinic revenues decreased to 173% in 1996 as compared to 293% in 1995
primarily  due  to  additional  revenues  related  to the  establishment  of new
Heartscan clinics.

Operating  expenses of $13,390,000 for 1996 increased by 45% as compared to 1995
expenses of $9,225,000.  Research and development expenses of $3,318,000 reflect
the research and  development  spending not covered by the Siemens  research and
development contract.  Marketing and sales expenses increased to $4,676,000 from
$3,137,000 in 1995  primarily  due to higher  advertising  expenses  incurred by
HeartScan and expenses related to studies conducted promoting the benefit of the
Company's product.  General and administrative  expenses increased to $5,396,000
from  $2,658,000 in 1995 mainly due to increases in bad debt expense  related to
Imatron  receivables and overhead  expenses related to the  establishment of new
HeartScan clinics.

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

Interest expense increased to $564,000 from $312,000 in 1995 due primarily to an
increase in capitalized scanners leased back by HeartScan.
<PAGE>

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

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

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

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

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

The minority  interest is recognized as an increase in minority  interest in the
balance sheet.

The restatement of the Previously issued 1996 consolidated financial statements,
in order to apply to the accounting  described herein for the intrinsic value of
the  beneficial  conversion  features,  does not  affect  the cash  flows of the
Company.

YEAR 2000 COMPLIANCE

Many currently  installed  computer  systems and software  products are coded to
accept only 2 digit entries in the date code field.  Beginning in the year 2000,
these date code fields will need to accept 4 digit entries to  distinguish  21st
century  dates  from  the  20th  century  dates.  Systems  that do not  properly
recognize such  information  could generate  erroneous data or cause a system to
fail. As a result, in less than two years, computer systems/and or software used
by many  companies  may need to be  upgraded  to  comply  with  such  Year  2000
requirements.  The Company is utilizing both internal and external  resources to
identify, correct or reprogram, and test its internal systems, for the Year 2000
compliance.  The total cost of compliance and its effect on the Company's future
results of  operations is being  determined  as part of the detailed  conversion
process.
<PAGE>

The Company is  currently  seeking to ensure  that the  software  and  operating
systems included in its Ultrafast CT scanner is Year 2000 compliant. Failure (or
perceived failure) of such product to be Year 2000 compliant could significantly
adversely  affect  sales of the  Company.  Additionally,  year 2000 issues could
cause a significant number of companies, including current company customers, to
reevaluate  their  current  system  needs  and as a  result  consider  deferring
purchase  of  Ultrafast  CT  scanner.  Any of the  foregoing  could  result in a
material  adverse  effect  on the  Company's  business,  operating  results  and
financial condition.

ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

Not applicable

<PAGE>


                                    PART III

ITEM 10 - EXECUTIVE OFFICERS OF THE REGISTRANT

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

  Name                           Age                 Position
  -----------------------   ---------------     ----------------------------

Dr. Douglas P. Boyd              56                 Chairman of the Board,
                                                    Chief Technology Officer

S. Lewis Meyer                   53                 President,
                                                    Chief Executive Officer

Gary H. Brooks                   49                 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
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 Electron Beam CT, 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.


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 BSD Medical Corp. and Finet  Holdings  Corp.,
publicly  held  companies  engaged  in the  design  and  manufacture  of medical
hypothermia  equipment and electronic real estate and mortgage banking services,
respectively.  Mr. Meyer also serves on the  National  Board of Directors of the
American Electronics Association (AEA).
<PAGE>

Furthermore,  Mr.  Meyer serves as Chief  Executive  Officer and Chairman of the
Board of Imatron's subsidiary,  HeartScan Imaging, Inc., which provides coronary
artery disease risk  assessment  services in a nationwide  network of diagnostic
centers.

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.

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

Mr.  Brooks  also serves as Chief  Financial  Officer of  Imatron's  subsidiary,
HeartScan Imaging, Inc.

Mr.  Brooks  received  his  B.A.  in  Zoology  in 1970  from the  University  of
California,  Berkeley,  and a M.B.A.  in Finance and Accounting in 1973 from the
University of California, Los Angeles.

ITEM 11 - EXECUTIVE COMPENSATION

The  information  required  on  items  11,  12 and 13  will be  included  in the
Company's  difinitive proxy statement or as an amendment to the Form 10-K, under
cover of From 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.
                                     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  because they are not applicable,  or
the  required  information  is shown in the  financial  statements  or the notes
thereto

3. Exhibits - The exhibits  listed on the  accompanying  "Index to Exhibits" are
filed or are incorporated herein by reference as part of this report.

(b)  Form 8-K Reports:

 Item 4 - Changes in Registrant's certifying accountants filed on July 2, 1997

 Item 5 - Increase in authorized common stock filed on July 16, 1997

 Item 5 - Development agreement with TeraRecon Inc. filed on August 5, 1997

<PAGE>

                         SIGNATURES

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


Dated: April 15, 1998         IMATRON INC.
                              -----------------------------------


                         By:  S. Lewis Meyer
                              -----------------------------------
                              S. Lewis Meyer
                              President, Chief Executive Officer & Director

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,
------------------
Douglas P. Boyd                  Chairman of the Board            April 15, 1998
                                 Director
                                 
------------------
William J. McDanie                                                April 15, 1998
 
                                 Director
------------------
John L. Couch                                                     April 15, 1998

                                 Director
------------------
Jose Filipe Guedes                                                April 15, 1998
 
                                 Director, 
------------------
S. Lewis Meyer                   President and Chief Executive    April 15, 1998
                                  Officer         
                                 (Principal Executive Officer)

                                  Director
------------------
Terry Ross                                                        April 15, 1998

                                  Director
------------------
Aldo J. Test                                                      April 15, 1998

                              
------------------              Chief Financial Officer,           April 15,1998
Gary H. Brooks                  Vice President, Finance and 
                                Administration, Secretary           
                                (Principal Financial Officer and
                                Principal Accounting Officer)                 

<PAGE>


                                  IMATRON INC.
                   Index to Consolidated Financial Statements

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

    Report of KPMG Peat Marwick LLP, Independent Auditors                    30

    Report of Ernst & Young LLP, Independent Auditors                        31

    Consolidated Balance Sheets as of December 31, 1997, and 1996            32

    Consolidated Statements of Operations for the years ended                33
    December 31, 1997, 1996, and 1995

    Consolidated Statements of Shareholders' Equity for the years ended      34
    December 31, 1997, 1996, and 1995

    Consolidated Statements of Cash Flows for the years ended December 31,   35
    1997, 1996, and 1995

    Notes to Consolidated Financial Statements                               36

<PAGE>


              Report of KPMG Peat Marwick LLP, Independent Auditors



The Board of Directors and Stockholders
Imatron  Inc.:

     We have  audited  the  consolidated  balance  sheet  of  Imatron  Inc.  and
subsidiary as of December 3 1, 1997, and the related consolidated  statements of
operations,  shareholders'  equity,  and cash flows for the year then ended. Our
audit also included the financial statement schedule listed in the index at Item
14(a).   These   consolidated   financial   statements   and  schedule  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated  financial statements and financial schedule based
on our audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Imatron Inc. and
subsidiary  as of December 31,  1997,  and the results of its operations  and
their cash flows for the year then ended, 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.


                                                           KPMG Peat Marwick LLP

San Francisco, California
April 6, 1998
                       
<PAGE>
                Report of Ernst & Young LLP, Independent Auditors

The Board of Directors and Stockholders
Imatron  Inc.:

We have audited the consolidated balance sheet of Imatron Inc. and subsidiary as
of December 31, 1996,  and the related  consolidated  statements of  operations,
shareholders'  equity,  and cash  flows  for each of the  years in the  two-year
period ended December 31, 1996, our audits also included the financial statement
schedule as listed in the accompanying  index at Item 14(a).  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  will  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
subsidiary as of December 31, 1996,  and the results of its  operations  and its
cash flows for each of the years in the two-year period ended December 31, 1996,
in  conformity  with  generally  accepted  accounting  principles.  Also  in our
opinion,  the related financial statement schedule,  when considered in relation
to the  basic  consolidated  financial  statements  taken as a  whole,  presents
fairly, in all material respects, the information set forth therein.
 
As discussed in Note 12 of the Notes to the Consolidated  Financial  Statements,
the Company has restated its 1996 Consolidated  Financial Statements with regard
to to apply with a  accounting  for  convertible  securities  having  beneficial
conversion features.

                                                              Ernst & Young LLP

San Francisco, California
February 14, 1997, except for Note 12, as to which date is April 10, 1998
                                                              
<PAGE>
<TABLE>
<CAPTION>


                                                        IMATRON INC.
                                                 Consolidated Balance Sheets
                                                   (Amounts in Thousands)

                                                                                                    December 31,
                                                                                         -----------------------------------
ASSETS                                                                                         1997                1996
                                                                                         -----------------    ---------------
                                                                                                                  (restated)     
<S>                                                                                                 <C>                 <C>  
Current assets
    Cash and cash equivalents                                                             $        14,425      $      10,862
    Short-term investments                                                                            180             14,171
    Accounts receivable (net of allowance for doubtful accounts of $2,758
    and $1,110 at December 31, 1997 and 1996:
          Trade accounts receivable                                                                 8,215              2,940
          Accounts receivable from affiliate                                                        1,438              2,660
    Inventories                                                                                    12,926             10,393
    Prepaid expenses                                                                                  461              1,659
                                                                                         -----------------    ---------------
Total current assets                                                                               37,645             42,685

Property and equipment, net                                                                        10,359             10,102
Other assets                                                                                        1,219                405
                                                                                         -----------------    ---------------

Total assets                                                                              $        49,223      $      53,192
                                                                                         =================    ===============

LIABLITIES AND SHAREHOLDERS' EQUITY

Current liabilities
    Accounts payable                                                                                2,962              2,461
    Other accrued liabilities                                                                       7,055              5,994
    Capital lease  obligations - due within one year                                                1,578              1,188
                                                                                         -----------------    ---------------

Total current liabilities                                                                          11,595              9,643

Deferred income on sale leaseback transactions                                                      1,376              1,419
Deferred income on service contract                                                                   420                  -
Capital lease obligations                                                                           4,507              4,604
                                                                                         -----------------    ---------------

Total liabilities                                                                                  17,898             15,666
                                                                                          ----------------    ---------------
Commitments and contingencies - Note 6

Minority interest - Notes 1, 7 and 12                                                              14,255             12,323
                                                                                          ----------------    ---------------     
Shareholders' equity
    Common stock, no par value; authorized-150,000 shares; issued and
    outstanding 78,815 in 1997 and 77,919 shares in 1996                                           90,728             89,223
    Deferred compensation                                                                           (232)              (116)
    Additional paid-in capital                                                                      9,290              7,390
    Accumulated deficit                                                                           (82,716)           (71,294)
                                                                                         -----------------    ---------------

Total shareholders' equity                                                                         17,070             25,203
                                                                                         -----------------    ---------------

Total liabilities and shareholders' equity                                                 $       49,223      $      53,192
                                                                                         =================    ===============
<FN>

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

<TABLE>
<CAPTION>



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


                                                                                           Years ended December 31,
                                                                            --------------------------------------------------------
                                                                                 1997               1996                 1995
                                                                            ---------------    ----------------    -----------------
                                                                                                (Restated)
<S>                                                                                   <C>                  <C>                 <C>  
   Revenues
   Product sales                                                            $       26,441       $      14,236       $       13,254
   Product sale-leaseback arrangements                                                 927               1,774                1,820
   Service                                                                           4,513               3,465                5,529
   Development contracts                                                             5,000               5,000                5,637
   Clinics                                                                           2,542               1,293                  460
                                                                             --------------    ----------------    -----------------
                                                                            
 
            Total revenue                                                           39,423              25,768               26,700
                                                                            ---------------    ----------------    -----------------

Cost of revenues
   Product sales                                                                    18,820              12,617               11,533
   Product sale-leaseback arrangements                                                 927               1,774                1,820
   Service                                                                           3,898               3,158                3,952
   Development contracts                                                             5,000               5,000                4,978
   Clinics                                                                           3,234               2,238                1,350
                                                                            ---------------    ----------------    -----------------

            Total cost of revenues                                                  31,879              24,787               23,633
                                                                            ----------------    ---------------      ---------------
Gross profit                                                                         7,544                 981                3,067

Operating expenses
   Research and development                                                          4,713               3,318                3,430
   Marketing and sales                                                               6,821               4,676                3,137
   General and administrative                                                        6,154               5,396                2,658
                                                                            ---------------    ----------------    -----------------

         Total operating expenses                                                   17,688              13,390                9,225
                                                                            ---------------    ----------------    -----------------

Operating loss                                                                    (10,144)            (12,409)              (6,158)

Interest and other income                                                            1,044               2,508                4,021
Interest expense                                                                     (578)               (564)                (312)

                                                                            ---------------    ----------------    -----------------
Net loss before provision for income taxes                                         (9,678)            (10,465)              (2,449)

Provision for income taxes                                                            -                  -                        -

Loss before minority interest expense                                              (9,678)            (10,465)              (2,449)
Minority interest expense - non cash                                               (1,744)             (3,272)                    -
                                                                            ---------------    ----------------    -----------------

Net Loss                                                                    $     (11,422)       $    (13,737)      $       (2,449)
                                                                            ===============     ===============     ================
                                                      
Basic and diluted loss per common share                                     $      (0.15)        $     (0.18)       $        (0.04)
                                                                            ===============     ===============     ================

Number of shares used in basic and diluted per share calculations                   78,461              74,406               57,598
                                                                            ===============     ===============     ================
<FN>


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

<TABLE>
<CAPTION>  

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

                                 Preferred Stock            Common Stock         
                                -------------------     ---------------------      Deferred  Additional   Accum-
                                                                                   Compen-   Paid-in-     lated        
                                 Shares    Amount        Shares      Amount        sation    Capital      deficit     Total
                                --------- ----------    ---------- -----------    ---------- ---------- ----------- ----------
<S>                                <C>       <C>            <C>       <C>            <C>        <C>          <C>      <C>

Balances at December 31, 1994    (1,308)  $   2,602        53,631    $ 57,876             -   $  1,500    $(55,108)  $ 6,870
                                                                                                 

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

Common stock and warrants
   sold in a private
   placement, net of offering          -          -         4,559      11,348             -          -          -     11,348
   costs
Common stock issued for
   employee stock purchase
   plans, stock bonus, and
   exercise of employee stock
   options                             -          -         1,188       1,194             -          -          -      1,194
Common stock issued for
   services                            -          -           115         269             -          -          -        269
Deferred compensation from
   issuance of stock options
   by consolidated subsidiary          -          -             -           -         (143)          -          -      (143)
Amortization of deferred
   compensation                        -          -             -           -            27          -          -         27
Warrants exercised                     -          -         3,222       4,130             -          -          -      4,130
Issuance of subsidiary's
   convertible Series A
   preferred stock                    -          -             -           -             -        5,890         -       5,890
Net loss                              -          -             -           -             -          -      (13,737)   (13,737)
                                ---------  ----------    ---------- -----------    ----------   ---------- ----------- -------

Balances at December 31, 1996         -          -          77,919      89,223         (116)      7,390    (71,294)     25,203
(restated) 
Common stock issued for
   employee stock purchase
   plans, stock bonus, and
   exercise of employee stock
   options                             -          -           596         899             -       -           -           899
Common stock issued for
   services                            -          -            16          42             -       -           -             42
Deferred compensation from
   issuance of stock options
   by consolidated subsidiary          -          -             -           -         (186)        -          -           (186)
Amortization of deferred
   compensation                        -          -             -           -            70        -          -             70
Warrants exercised                     -          -           284         564            -         -          -            564
Warrants issued for services                                    -         -              -       1,000        -          1,000
Non-cash expense related to
   warrants issued for                 -          -             -         -              -        750         -            750
   services
Non-cash 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     $ (232)        $9,290    $ (82,716)    $17,070
                                ========= ==========    ========== ===========    ==========   ========== =========== ==========

<FN>

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

<TABLE>


                                                       

                                                           IMATRON INC.
                                            Consolidated Statements of Cash Flows
                                                   (Amounts in thousands)
                                                   Years Ended December 31
<CAPTION>
                                                                                 1997                 1996              1995
                                                                             ----------           ----------         -----------
                                                                                                   (restated)

<S>                                                                                 <C>               <C>              <C>        
      Net (loss)                                                               $  (11,422)       $  (13,737)         $  (2,449)
   Adjustments to reconcile net (loss) to net cash used in
     operating activities:
       Depreciation and amortization                                                2,318             1,374              1,709
       Other income                                                                   -                 -               (4,000)
       Amortization of deferred compensation                                          70                27                  -
       Non-cash minority interest expense                                           1,744             3,272                  -
       Non-cash compensation expense for extension of stock option                    150                -                   -
       exercise period
       Warrant issued for services                                                    750                 -                  -
       Common stock issued for services                                                42               269                  -
       Provision for bad debt                                                        1,648              939                 11    
   Changes in operating assets and liabilities:
       Accounts and notes receivable                                               (5,701)             (249)              1,205    
       Inventories                                                                 (2,533)           (1,456)               (701)
       Prepaid expenses                                                             1,198            (1,096)                 53
       Other assets                                                                 (994)               140                 (26)
       Accounts payable                                                               501              (324)             (1,457)
       Other accrued liabilities                                                    1,061               387                 538
       Deferred income                                                               377                152               1,267
                                                                             --------------     --------------      --------------

Net cash used in operating activities:                                           (10,791)           (10,302)            (3,850)
                                                                              --------------    --------------      --------------

Cash flows from investing activities
   Capital expenditures                                                          (1,075)           (2,489)              (1,132)
   Purchases of available-for sale-securities                                   (23,550)          (38,891)                 -
   Purchases of held-to-maturity securities                                           -                 -               (1,000)
   Maturities of available-for-sale securities                                   37,721            24,720                  -
   Maturities of held-to-maturity securities                                          -             1,000                 -
                                                                           --------------    --------------          --------------

Net cash provided by (used in) investing activities:                             13,096          (15,660)              (2,132)
                                                                           --------------    --------------          --------------

Cash flows from financing activities:
   Payments of obligations under capital leases                                 (1,207)             (923)                (247)
   Payment of notes payable                                                           -             (992)                  -
   Proceeds from issuance of warrant                                              1,000
   Proceeds from issuance of common stock                                         1,463            16,672              11,804
   Proceeds from issuance of stock of consolidated subsidiary                         2            14,798                   -
                                                                               --------------    --------------      --------------

Net cash provided by financing activities                                         1,258            29,555              11,557

Net increase  in cash and cash equivalents                                        3,563             3,593               5,575

Cash and cash equivalents, at beginning of year                                  10,862             7,269               1,694
                                                                             ==============    ==============       ==============
Cash and cash equivalents, at end of year                                    $     14,425       $    10,862        $    7,269
                                                                             ==============    ==============       ==============

Supplemental Disclosure of Noncash Investing and Financing Activities:
   Deferred compensation from common stock option grant of
     consolidated subsidiary                                                $         186     $        143          $        -
                                                                            ==============   ==============        =============
 Cash paid for interest                                                     $         521     $       582           $       386

   Preferred stock converted to common stock                                $         -       $         -           $      2,602
                                                                            ==============    ==============       =============
   Equipment acquired under capital leases                                  $      1,500       $      2,715         $      4,247
                                                                            ==============    ==============        =============
<FN>

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

<PAGE>
  

                                  IMATRON INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1997

Note 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF COMPANY

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

BASIS OF CONSOLIDATION

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

HeartScan  was  incorporated  in Delaware in 1994.  In October  1995,  HeartScan
issued to Imatron,  the Series A and Series B Preferred  Stocks in exchange  for
the issued and outstanding  shares of HeartScan Common Stock held by Imatron and
the $8,000,000 advances to HeartScan by Imatron.

On June 26, 1996,  Imatron sold 100,000  shares of HeartScan  Series A preferred
stock to unaffiliated third parties. The sale reduced the Company's  controlling
interest  in  HeartScan  to 48.3%.  Due to certain  equity  exchange  provisions
provided to these  HeartScan  Series A preferred  shareholders  (see notes 7 and
12),  HeartScan's  results of  operations  have been fully  consolidated  in the
accompanying  consolidated  financial  statements.  Future  HeartScan  operating
losses will not be attributed to the preferred  shareholders until the preferred
stock  exchange  provisions  are  extinguished.  Additionally,  the net proceeds
realized from the HeartScan  preferred stock offering are classified as minority
interest in the Company's consolidated balance sheet.

The Company's results of operations  attributed to HeartScan  operations include
revenues of $2,542,000,  $1,293,000, and $460,000, and net losses of $8,172,000,
$7,845,000  and   $2,232,000   for  the  fiscal  years  1997,   1996  and  1995,
respectively.  The net losses  include  non-cash  minority  interest  expense of
$1,744,000 and  $3,272,000  recorded in both 1997 and 1996,  respectively,  as a
result  of the  accounting  treatment  relative  to  its  convertible  Series  A
Preferred Stock having "beneficial conversion features".

As of December 31, 1997,  Imatron's  controlling  interest in HeartScan is 49.3%
(see Note 7).  Imatron's  interest in HeartScan is comprised of its ownership of
100,000 shares of HeartScan Series B Preferred Shares on an as converted basis.

The  HeartScan  Series A and B  Preferred  Stock have the right to vote with the
HeartScan  common stock holders on all HeartScan  matters with a number of votes
equal to the number of shares of common stock into which the Preferred  Stock is
convertible.  The terms of the preferred stock provide certain additional rights
to the holders,  including  participation  and approval of any future  HeartScan
equity financing and approval of transactions with affiliates.

USE OF ESTIMATES

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates.
<PAGE>

NEW ACCOUNTING STANDARDS

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards No. 130, "Reporting  Comprehensive  Income" (SFAS
130),  which will be effective for financial  statements  for periods  beginning
after December 15, 1997, and establishes  standards for reporting and display of
comprehensive  income  and  its  components  in a full  set of  general  purpose
financial   statements.   The  Company  will  make  the  required  reporting  of
comprehensive  income in its  consolidated  financial  statements  for the first
quarter ending March 31, 1998.

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of a Business
Enterprise"  (SFAS  131)  which  will  be  effective  for  financial  statements
beginning  after December 15, 1997, and  establishes  standards for  disclosures
about segments of an enterprise.  In its consolidated  financial  statements for
the year December 31, 1998, the Company will make the required disclosures.

LONG-LIVED ASSETS

The Company accounts for 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  long-lived   assets  and  certain   identifiable
intangibles   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.

CASH EQUIVALENTS

Cash equivalents consist of liquid instruments purchased with a maturity date of
three months or less and money market funds.

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 1997 and 1996 purchases of investments as available-for-sale.
Available-for-sale  securities  are carried at amounts  which  approximate  fair
value,  with  unrealized  gains and losses  reported in a separate  component of
shareholders' equity if material. Fair values of investments are based on quoted
market  prices.   Short-term   investments  at  December  31,  1997  consist  of
certificates of deposit.

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

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

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.

CONCENTRATIONS OF RISK

The  Company's  primary  customers  operate  in  the  healthcare  industry.  The
healthcare  industry is highly regulated.  Both existing and future governmental
regulations  could  adversely  impact the market for the Company's  Ultrafast CT
scanner and the Company's business. The Company's operations are also subject to
regulation by other federal, state, and local governmental entities empowered to

<PAGE>

enforce  pertinent  statutes  and  regulations,  such as those  enforced  by the
Occupational Safety and Health Agency and the Environmental Protection Agency.

The Company sells its products  primarily  through Siemens in the United States,
Europe,  Canada  and  India;  Imatron  Japan,  Inc.  in Japan,  as well as 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.  Some
receivables  relating  to such sales are taking a longer  time to collect due to
economic and currency  uncertainties in Asia. The Company has provided
for bad debts related spare part sales.

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

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

INVENTORIES

Inventories are stated at the lower of standard cost (which approximates cost on
a first-in,  first-out basis) or market.  Provisions are made in each period for
the estimated effects of excess and obsolete inventories.  The company policy is
to reserve  100% on obsolete  inventories,  defined as parts which are no longer
used in production, upgrades and repairs. The reserves are periodically reviewed
and verified by the Company's manufacturing department.

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.  The parts are  identified  by the Company's  manufacturing  and
customer service personnel,  since they have the most knowledge and expertise on
the  status  of each  part and how  they can be best  utilized  to  satisfy  the
Company's manufacturing and customer service requirements.

PROPERTY AND EQUIPMENT

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

Scanner  equipment  under capital lease is amortized  over 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:
<PAGE>

   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.

RESTRICTED CASH

In connection  with a sales  agreement in 1994,  the Company  issued  letters of
credit to a purchaser related to performance bond  requirements.  The letters of
credit  were  guaranteed  by  certificates  of  deposit  totaling  approximately
$160,000  and  $155,000 at December  31,  1996,  and 1995,  respectively.  These
restricted cash amounts were classified as non-current assets (included in other
assets). As of December 31, 1997, the related letters of credit have expired and
the underlying certificates of deposit amounting to $180,000 has been classified
under short term investments.

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.  Had the
Company  accounted for its investment under Accounting  Principles Board ("APB")
Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock,
there would not be a material  impact on the  Company's  consolidated  financial
statements  as the joint  venture  has a  cumulative  loss since the time of the
Company's  initial  investment.  No significant  profits are  anticipated in the
future. 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 $4,648,000,  $8,726,000,  and $9,213,000 in
1997,  1996,  and 1995,  respectively,  from sales to the Joint  Venture and has
$1,438,000,  $2,660,000,  and $2,957,000 in accounts  receivable  from the Joint
Venture at December 31, 1997, 1996, and 1995, respectively. All scanner sales to
Imatron Japan, Inc. are sold under irrevocable letters of credit without a right
of return.

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.

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.

RECLASSIFICATIONS

Certain amounts in the accompanying 1996 combined financial statements have been
reclassified or restated in order to conform to the 1997 presentation.  
<PAGE>

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 as  discussed  in Note 5.  Revenues  from clinics are
recognized when services are performed for the clinic customer.

SALE LEASEBACK ARRANGEMENT

The Company sold one, two and two scanners to third-party  leasing  companies in
1997,  1996 and 1995,  respectively.  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. The Company evaluated the criteria included in paragraph 7 of Statement
of Financial  Accounting  Standard  ("SFAS") No. 28,  Accounting  for Sales with
Leaseback,  and the  Emerging  Issues  Task  Force  ("EITF")  Issue  No.  90-14,
Unsecured  Guarantee by Parent of Subsidiary's  Lease Payments in Sale-Leaseback
Transaction, and concluded that these transactions were normal leaseback's to be
accounted for as sale-leaseback transactions. At their inception, the leasebacks
satisfied the criteria in paragraph 7(d) of SFAS No. 13,  Accounting for Leases,
and as such  HeartScan  accounts  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 amortized
$501,000,  $428,000 and $194,000 to product sales for these leases for the years
ended December 31, 1997, 1996 and 1995, respectively.

RESEARCH AND DEVELOPMENT

Research and development expenditures are charged to operations as incurred.

NET LOSS PER SHARE

The Company adopted SFAS No. 128, "Earnings per Share", as of December 31, 1997.
SFAS No. 128  establishes  standards for computing and  presenting  earnings per
share.  Net loss per share  (basic) is computed  based on the  weighted  average
number  of  common  shares  outstanding,  and net loss per  share  (diluted)  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.  All prior period net loss per share data was restated by the
Company upon the adoption of SFAS 128.


<TABLE>


                                                                                                            
(In thousands, except per share amounts)                     1997                   1996                 1995
                                                      ------------------     -----------------    ------------------
<S>                                                       <C>                   <C>                 <C>        
 Net loss                                                 $(11,422)             $  (13,737)         $   (2,449)
                                                      ==================     =================    ==================
Denominator for basic loss per share - weighted
 average common shares                                      78,461                  74,406                57,598
Dilutive stock options                                          -                       -                     -
                                                      ------------------     -----------------    ------------------
Denominator for diluted loss per share                      78,461                  74,406                 57,598
                                                      ==================     =================    ==================
Basic loss per share                                         (0.15)                  (0.18)                (0.04)
                                                      ==================     =================    ==================
Diluted loss per share                                      (0.15)                   (0.18)                (0.04)
                                                      ==================     =================    ==================
</TABLE>


<PAGE>


Note 2 - FINANCIAL INSTRUMENTS

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

                                                1997                 1996
                                            ---------------    -----------------

 Money market mutual funds                     $     1,635         $       4,262
 U.S. government obligations                         1,999                 8,077
 Certificate of deposit                                180                    96
 Commercial paper                                   10,791                12,231
                                            ---------------    -----------------

 Total investments                                  14,605                24,666

 Less amounts classified as cash and              (14,425)              (10,495)
   cash equivalents                         ---------------    -----------------

 Short-term investments                        $        180         $     14,171
                                            ===============    =================

<TABLE>
<CAPTION>

Note 3 - BALANCE SHEET DETAIL
              (in thousands)

                                                                                                December 31,
                                                                                    --------------------------------------
                                                                                          1997                 1996
                                                                                    -----------------    -----------------
Inventories consist of:                                                                     (Amount in thousands)
<S>                                                                                            <C>                     <C>         

Purchased parts and sub-assemblies                                                  $          3,212     $          2,994
Service parts                                                                                  1,398                1,142
Work-in-progress                                                                               3,611                2,574
Finished product                                                                               4,705                3,683
                                                                                    -----------------    -----------------

Inventories                                                                          $        12,926     $         10,393
                                                                                    =================    =================

Property and equipment, at cost, consist of:

Machinery and equipment                                                               $       14,191      $        11,964
Furniture and fixtures                                                                         1,589                1,408
Leasehold improvements                                                                         3,599                3,442
                                                                                    -----------------    -----------------
                                                                                              19,379               16,814

Less accumulated depreciation and amortization                                               (9,020)              (6,712)
                                                                                    -----------------    -----------------

     Net property and equipment                                                        $       10,359     $         10,102
                                                                                     ================    =================

Other accrued liabilities consist of:

Warranty and product upgrades                                                          $       2,322       $        1,867
                                                                                                                    
Customer deposits                                                                              2,162                2,345
Employee compensation                                                                            795                  758
Deferred service revenues                                                                        662                  225
Other                                                                                          1,114                  799
                                                                                    -----------------    -----------------

Other accrued liabilities                                                              $       7,055       $        5,994
                                                                                      =================    =================
 </TABLE>
<PAGE>

Note 4 - LINE OF CREDIT

As of December 31, 1997,  the Company has $5,000,000  available  under a line of
credit. Interest under thi line of credit is computed based on the average daily
loan balance at a rate equal to prime plus 0.25%.  Interest in computed based on
the prime plus 0.25%.  No amounts were  outstanding  as of December 31, 1997 and
1996. No amounts were  outstanding as of December 31, 1997 and 1996. The Company
must comply with certain financial ratios and  profitability.  The Company is in
compliance with all financial convenants at December 31, 1997.

Note 5 - COLLABORATION AGREEMENTS 

SIEMENS CORPORATION

In March 1995,  the Company and Siemens  Corporation  "Siemens"  entered  into a
Memorandum of Understanding.  Under the terms of the Memorandum,  Siemens agreed
to provide a maximum $15.0 million to the Company's C-150 Evolution Ultrafast CT
scanner  research and  development  program over a three year period in order to
improve and enhance the scanner.  No  milestones  or other  performance  related
results  are tied to the payment of funds by  Siemens.  Imatron  funds a portion
equal to a minimum  of fifty  percent of  Siemens'  contribution  or  $2,500,000
annually for three years,  for the sole purpose of conducting the  collaborative
agreement.  The Company is not obligated to return the amount funded by Siemens.
However,  Siemens has the right to terminate  the  collaborative  research  upon
three months written notice in the event objectives  agreed upon by both parties
are not achieving reasonable progress. The results of the collaborative research
are jointly owned by the parties and  cross-licensed.  In  connection  with this
agreement, Siemens retains exclusive distribution rights through March 31, 1998,
in certain  geographical  regions for sales of the C-150/Evolution  scanner. The
Company  is  recognizing  revenue  ratably  over the  three  year  period as its
commitment  to perform  research and  development  under the  agreement is being
incurred  ratably over the same period.  The Company has recognized  $5,000,000,
$5,000,000  and  $3,884,000  of  revenue  under  the  collaborative  development
agreement in 1997, 1996, and 1995, respectively.  The revenues recognized relate
to  non-refundable  payments intended to compensate the Company for its research
and development  efforts.  Under the now expired product  development  agreement
with Siemens, the Company recognized $1,753,000 in revenue in 1995.

In conjunction  with The Memorandum of  Understanding,  Imatron  transfererd the
ownership  of five  Imatron  EBT  patents to Siemens  and  canceled  the minimum
purchase  provision of the previous  distribution  agreement in  satisfaction of
Imatron's $4.0 million notes payable to Siemens.  Siemens agreed to exchange the
Company's $4.0 million notes payable  subsequent to an  arms-length  negotiation
between the two parties. These patents were not part of the technology developed
under the Collaborative Research Agreement between Siemens and Imatron. Thus, in
accordance with  Accounting  Principle  Board No. 26, "Early  Extinguishment  of
Debt", 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 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.

Effective April 1, 1998, Imatron's obligations and Siemens funding under the MOU
will terminate.  Siemens will also surrender its exclusive  distribution  rights
and Imatron will assume worldwide distribution for its C-150 scanners.

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 will provide Imatron with
a real-time image  reconstruction  system for use in conjunction  with Imatron's
Ultrafast CT scanner.  Upon completion and when  delivered,  the RTR-2000 system
will be exclusive to Imatron's  Ultrafast CT scanner and will 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 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 image  reconstruction  systems.  In addition,
TeraRecon has agreed to pay the Company 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.
<PAGE>

On October  21,  1997,  the  Company  issued a total of  3,000,000  warrants  to
TeraRecon upon the successful  delivery of 4 Prototype I units.  Pursuant to the
development agreement,  TeraRecon paid the Company $1,000,000 for the warrant to
purchase 2,000,000 shares of the Company's common stock at $4.50 per share.

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
$750,000  charge  to  research  and  development  expense  was  recognized  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.

Note 6 - COMMITMENTS, CONTINGENCIES, AND OTHER

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, 1997, are as follows (in thousands):

     1998                                      $       1,147
     1999                                              1,076
     2000                                              1,043
     2001                                                938
     2002                                                102
     Thereafter                                          215
                                             ================
     Total                                     $       4,521
                                             ================

Rent  expense for all leases  totaled  $1,211,000,  $1,080,000,  and $921,000 in
1997, 1996, and 1995, respectively.
<PAGE>

CAPITAL LEASE OBLIGATIONS

The Company leases certain equipment under non-cancelable  lease agreements.  In
addition,  HeartScan leases five scanners for its clinics, payments of which are
guaranteed  by  Imatron.  The  equipment  leased by Imatron  and  HeartScan  are
accounted for as Capital  Leases.  As of December 31, 1997,  equipment under the
capital lease  arrangements  and included in property and  equipment  aggregated
$8,462,000.   Accumulated   amortization   related  to  this  equipment  totaled
$1,846,986  as of  December  31,  1997.  Amortization  expense  is  included  in
depreciation and amortization.

Future minimum lease  payments  under capital lease  obligations at December 31,
1997, are as follows (in thousands):

    1998                                       $       2,075
    1999                                               2,124
    2000                                               1,842
    2001                                                 796
    2002                                                 365
                                             ----------------
    Total minimum payments                             7,202
                                              
    Less amounts representing interest               (1,117)
                                             ----------------
    Total principal                                    6,085

    Less portion due within one year                 (1,578)
                                             ================
    Long-term portion                          $      4,507
                                             ================

Remaining deferred income on sale-leaseback transactions amounted to $1,992,000,
$1,920,000, and $1,586,000 at December 31, 1997, 1996, and 1995, respectively.

Interest paid on long-term  obligations  including capital lease obligations was
$521,000, $582,000, and $386,000 in 1997, 1996, and 1995, respectively.

LICENSE AGREEMENTS

In February  1981,  the Company was granted the exclusive use for five years and
nonexclusive use thereafter of certain  technology and a patent pending owned by
the  University of California  ("UC") under the terms of license and  sublicense
agreements  between UC and  Emersub  Incorporated  ("Emersub"),  a wholly  owned
subsidiary  of Emerson  Radio  Corp.,  and Emersub and Imatron  Associates  (the
predecessor  to the  Company),  respectively.  In June  1986,  the  license  and
sublicense  agreements were amended to extend the Company's exclusive use of the
technology  through  the  remaining  life  of  the  patent  #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 the C-150 Ultrafast scanner. Charges to operations for
1997, 1996, and 1995 were $179,350, $91,470, and $91,470, respectively.

Pursuant  to  the  Memorandum  of  Understanding   with  Siemens,   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 million  term loan to the Company.  As part of the  agreement,
Siemens granted to the Company a non-exclusive,  irrevocable,  perpetual license
to the five patents. The license is subject to a royalty of $20,000 for each new
C-150  unit (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 7 - CAPITAL STOCK

COMMON STOCK

In 1995, the Company closed a private placement of its common stock. The private
placement  realized  proceeds of $9,882,000  (net of offering costs) through the
sale of 1,200,000  units. A unit consists of five shares of Imatron Inc.  Common
Stock and one five-year warrant to purchase one share of Imatron Common Stock at
$2.31 per share. In connection with the private  placements,  the Company issued
an  additional  91,819  units as a result of the  adjustment  on the stock price
based on the  60-day  average  price as  stated  in the  Common  Stock  purchase
agreement.  The  adjusted  price per unit was $8.25 or $1.65 per share of Common
Stock.

In 1996,  Imatron sold  4,500,000  shares of common  stock and issued  five-year
warrants to purchase  2,000,000  shares of common  stock at an average  price of
$3.45 per share,  netting  proceeds of  $11,348,000.  In addition,  in 1996, the
company  issued an  additional  59,093 shares of common stock as a result of the
adjustment on the stock price based on the 60-day  average  price  pertaining to
the previous 1995 private placement.  As of December 31, 1996, no further rights
for adjustments remain for the common stock.

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.
<PAGE>

HEARTSCAN EQUITY TRANSACTIONS

The terms of the Preferred Shares include  1,000,000  authorized shares with par
value of $.001.  There are 200,000 issued and outstanding shares at December 31,
1997 for all series of preferred stock of which 100,000  designated as "Series A
Preferred  Stock"  and  100,000  designated  as "Series B  Preferred  Stock" are
outstanding at December 31, 1997. 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 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 on the  Series A and B
Preferred Stock.
 
Each share of Series A and B  Preferred  Stock is  entitled  to ten votes and is
convertible  into ten shares of common  stock.  Series A  Preferred  Stock has a
preference  in  liquidation  over the common stock and other series of preferred
stock in the  amount  of  $160.00  per share  plus all  accumulated  and  unpaid
dividends.  Series B Preferred  Stock has a preference in  liquidation of $80.00
per share plus all accumulated and unpaid dividends, after payment has been made
to the holders of the Series A Preferred  Stock.  

To date, no dividend has been distributed to the holders of preferred stock.

Imatron  originally  reported  $554,000 (48.3%) of HeartScan losses in its third
quarter of 1996 using the equity method of accounting. The remaining net loss of
$594,000 were attributed to the preferred stock ownership  interest in HeartScan
in the third quarter of 1996. The result of the  consolidation of results of the
operations of HeartScan was to increase the Company's net loss by $4,573,000 for
the year ended  December 31, 1996. Of this amount,  $594,000 of losses that were
originally attributed to the preferred  shareholders'  ownership interest in the
third quarter of 1996 have now been consolidated with the Company's 1996 losses.
As of December  31,  1997,  $8,172,000  of losses were  attributed  to HeartScan
operations.

As of December 31, 1997,  Imatron's  controlling interest in HeartScan is 49.3%.
Imatron's  interest in HeartScan is comprised of its ownership of 100,000 shares
of  HeartScan  Series B Preferred  Shares on an as  converted  basis plus 41,155
common  shares  of two  individuals  from  HeartScan  who are also  working  for
Imatron.  The 50.7% held by investors  outside of Imatron is  calculated  on the
basis of 100,000 shares of HeartScan Series A Preferred Stock  outstanding on an
as converted basis plus the common shares of HeartScan's  President as he is not
an employee of Imatron.

The HeartScan  Series A Preferred Stock is held entirely by  unaffiliated  third
parties and is classified in the  accompanying  consolidated  balance  sheets at
December  31,  1997 and 1996,  as  minority  interest.  The  HeartScan  Series B
Preferred Stock is held entirely by Imatron.

CONVERTIBLE PREFERRED STOCK OF HEARTSCAN

On June 26, 1996, Imatron completed a private placement offering whereby 100,000
shares of  HeartScan  Series A  Preferred  Stock were sold at $160 per share and
realized net proceeds of  $14,798,000.  The preferred  stock is convertible on a
ten-to-one basis into HeartScan common shares at any time.  Mandatory conversion
of the  preferred  stock  into  common  stock  will  occur  upon the  successful
completion  of a HeartScan  initial  public  offering.  The  HeartScan  Series A
Preferred  Stock may be  exchanged at the sole option of the holder into Imatron
common  stock at an exchange  price of $5.00 per share until the earlier of a) a
two year period  following  closing of the  Preferred  Stock  offering;  or b) a
HeartScan initial public offering. If there is no initial public offering within
24 months of the  Preferred  Stock  closing,  holders may convert the  HeartScan
Series A Preferred  Stock into Imatron common stock at a conversion  price equal
to the greater of $1.50 per share or a 27% discount  from the  weighted  average
closing  price  of  Imatron  common  stock  for  the 90 day  period  immediately
preceding 24 months of the Preferred Stock closing (September 23, 1998) and each
date that is three months  thereafter to, including the 48th month following the
Preferred Stock closing.  The quoted closing price of Imatron's  common stock at
the date of the closing of the HeartScan  Series A Preferred  Stock offering was
$5.75 (See Note 12).

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


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


WARRANTS

<TABLE>


At December 31, 1997, outstanding warrants to purchase shares of the Company's common stock were as follows:
<CAPTION>
                                                                                                      Shares reserved for
                                                                                                       exercise of warrants
                                                                                                  --------------------------
<S>                                                                                                                <C>      
Warrants,  expiring in 2000,  to purchase  shares of common  stock at $2.31 per share  issued
  under the October 1995 private placement                                                                       404,547
Warrants,  expiring in 2001,  to purchase  shares of common  stock at $1.71 per share  issued
  under the October 1995 private placement                                                                       192,400
Warrants,  expiring in 2001, to purchase  shares of common stock at $1.71 per share issued to
  Sitrick & Company in lieu of investor relation fees                                                            107,300
Warrants, expiring in 2002, to purchase shares of common stock at $2.74 per
    share issued to Sitrick & Company in lieu of investor relation fees                                           77,040
Warrants,  expiring in 1999,  to purchase  shares of common  stock at $3.25 per share  issued
  under the May 1996 private placement                                                                         1,200,000
Warrants,  expiring in 1999,  to purchase  shares of common  stock at $3.75 per share  issued
  under the May 1996 private placement                                                                           800,000
Warrants,  expiring in 2001,  to purchase  shares of common  stock at $6.20 per share  issued
  under the 1996 HeartScan private placement                                                                     182,903
Warrants,  expiring in 2002, to purchase shares of common stock at $2.63 per share issued for
  professional services rendered to the Company                                                                  200,000
Warrants,  expiring in 2001, to purchase  shares of common stock at $4.50 per share issued to
  TeraRecon under the July 1997 development agreement                                                          1,000,000
Warrants,  expiring in 2001, to purchase  shares of common stock at $4.50 per share issued to
  TeraRecon under the July 1997 development agreement                                                          2,000,000
                                                                                               --------------------------

Total at December 31, 1997                                                                                    6,164,190
                                                                                               ==========================
<FN>

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

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

In 1997,  warrants were  exercised to purchase a total of 284,400 shares of common stock at prices ranging from $1.71 to $2.31 per
share
</FN>
</TABLE>

COMMON STOCK RESERVED

At December 31, 1997, the Company has reserved shares of common stock for future
issuances as follows (in thousands):

   Stock option plans                                              4,792
   Stock options outside the plans                                 1,500
   Stock purchase plan                                               534
   Stock warrants                                                  6,164
   Stock bonus plans                                                 673
   Conversion of HeartScan Preferred A                            10,667
                                                              -----------
   Total                                                          24,330
                                                              ===========

Note 8 - STOCK BASED COMPENSATION

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. The Company  granted  97,655,  19,409,  and 0 shares
under the plan in 1997, 1996, and 1995, respectively.  Accordingly,  the Company
recorded  compensation  expense  amounting to $261,000,  $69,000 and $0 in 1997,
1996 and 1995, respectively.  As of December 31, 1997, 673,255 common shares are
reserved for future grants.

EMPLOYEE STOCK PURCHASE PLAN

In March 1994, the Company adopted an employee stock purchase plan covering most
employees.  Under  the  plan,  employees  may  contribute  up to  10%  of  their
compensation to purchase  shares of the Company's  common stock at the lesser of
85% of the  stock's  fair  market  value at the  offering  period or end of each
three-month  interim offering period. The maximum number of shares offered under
the Plan is 1,800,000  shares of common  stock.  At December  31, 1997,  533,887
shares were reserved and available for future  issuance  under the plan. A total
of  193,208,  228,222,  and 334,975  shares  were issued at an average  price of
$2.06, $1.44, and $0.75 per share in 1997, 1996, and 1995, respectively.
<PAGE>

STOCK OPTION PLANS

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.  Accordingly,  no compensation cost
has been  recognized  for its fixed stock  option  plans and its stock  purchase
plans.

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

                                           1997          1996           1995
                                       -----------    ----------    -----------

 Expected stock price volatility           80.2%         80.2%          80.2%
 Risk-free interest rate                   6.27%         6.25%          6.37%
 Expected life - years                     3.54          3.64           3.55
 Expected dividend yield                   0.00%         0.00%          0.00%

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

                                        1997             1996            1995
                                  ---------------   -------------   -----------

 Net loss - as reported                 ($11,422)       ($13,737)       ($2,449)
 Net loss - pro forma                   ($12,452)       ($14,156)       ($2,620)
 Basic and diluted loss per share -           
   as reported                          ($0.15)         ($0.18)         ($0.04)
 Basic and diluted Loss per share -
   pro forma                            ($0.16)         ($0.19)         ($0.05)

The weighted  average fair value of options  granted in 1997, 1996 and 1995 were
$2.57, $2.63 and $1.24 per share,  respectively.  The weighted average remaining
contractual life of all options at December 31, 1997, is 3.54 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 graded  vesting  periods
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
covers 250,000 shares of the Company's  common stock.  In June 1993 an amendment
to the non-employee  Directors Plan was approved increasing the number of shares
to 550,000.

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 evenly over four years  following the grant date and expire five
years from the grant date.
<PAGE>

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 nonstatutory  stock options
to nonemployee directors, and certain consultants. The shareholders approved the
plan,  as  amended,  in March 1984.  In 1993 the  original  plan  ("1983  Plan")
terminated and a new plan ("1993 Plan") was approved. The terms of the 1993 Plan
are consistent  with the terms of the 1983 Plan.  During 1995, the  shareholders
approved  an increase  in the number of shares  reserved  for the 1993 Plan from
3,000,000 to 5,500,000.

All incentive  stock options are granted at the common stock's fair market value
at the grant date and  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 evenly over four years  following the grant date
and expire five years from the grant date.
 <TABLE>



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

                                                                               Outstanding Options
                                                              -------------------------------------------------------
                                                 Shares                               Exercise           
                                              Available for       Number of          price per          Aggregate
                                                 Grant             shares              share          exercise price
                                            ---------------    --------------    -----------------    ---------------
<S>                                                    <C>            <C>                 <C>                 <C>    

Balances at December 31, 1994                      368,892         4,592,759        $0.43 - $1.22         $    3,627
                                        
   Shares reserved - 1993 Plan                   2,500,000                 -                    -                  -
   1983 option plan termination                   (83,950)                 -        $0.51 - $0.56               (45)
   Options granted                               (413,800)           413,800                $1.03                426
   Options exercised                                     -       (1,320,377)        $0.51 - $1.22              (981)
   Options canceled                                301,125         (301,125)        $0.56 - $1.22              (288)
                                            ---------------    --------------    -----------------    ---------------

 Balances at December 31, 1995                   2,672,267         3,385,057        $0.43 - $1.22        $    2,739

   1983 option plan termination                    (5,550)                 -        $0.51 - $0.56                (3)
   Options granted                               (514,728)           514,728                $2.06              1,060
   Options exercised                                     -         (940,235)        $0.51 - $2.06              (795)
   Options canceled                                102,175         (102,175)        $0.56 - $1.22               (93)
                                            ---------------    --------------    -----------------    ---------------

Balances at December 31, 1996                    2,254,164         2,857,375        $0.43 - $2.06        $     2,908

   1983 option plan termination                   (14,000)                 -                $0.56                (8)
   Options granted                             (1,219,360)         1,219,360        $1.78 - $3.31              3,129
   Options exercised                                     -         (305,576)        $0.48 - $2.63              (274)
   Options canceled                                 83,273          (83,273)        $0.56 - $2.63              (171)
                                            ---------------    --------------    -----------------    ---------------

Balances at December 31, 1997                    1,104,077         3,687,886        $0.43 - $2.63        $    5,584
                                              ===============    ==============    =================    ===============
</TABLE>
<PAGE>

<TABLE>


The following  table  summarizes  information  concerning  outstanding  and  exercisable  options as of December 31, 1997 (in
thousands except per share amounts):
<CAPTION>

                                                          Options Outstanding                      Options Exercisable
                                                  -------------------------------------     -----------------------------------
                                                     Weighted
                                                      Average                                     Weighted
                                                     Remaining                                    Average
   Range of Exercise            Number of           Contractual       Weighted Average            Number of       
        Prices                   Shares                Life             Exercise Price             Shares        Exercise Price
------------------------     ----------------     ------------- ---    -----------------     ----------------    --------------
<S>                                    <C>               <C>                 <C>                      <C>            <C>    
     $0.51 - $2.00                     2,228           1.43                $0.79                      1,727         $0.79
     $2.01 - $3.50                     1,385           3.92                $2.51                        452         $2.51
     $3.51 - $5.00                        75           4.26                $4.66                          6         $3.99      
                             ================     ================   ==================     ================    ===============
                                       3,688           2.42                $1.51                      2,185         $1.16
                             ================     ================    =================     ================    ===============
</TABLE>

Options for 2,185,394,  1,588,533,  and 1,406,997 shares of the Company's common
stock were  exercisable  under the plans at December 31, 1997, 1996, and 1995 at
an  aggregate  exercise  price  of  $2,527,620,   $1,460,599,   and  $1,146,916,
respectively.

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.
<TABLE>


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


Options granted                                    (75,000)                75,000                0.100                 8
Options exercised                                         -               (72,656)                0.001                -
                                           -----------------      ------------------   ------------------    -------------------

Balances at December 31, 1996                       62,500                114,844           $     0.07           $     8
                                                                                                                      
                                            -----------------    ------------------   ------------------    ------------------

Shares reserved                                    250,000
Options granted                                   (153,500)               153,500           $     0.25            $     38
                                                                                                                       
Warrants issued                                    (30,002)                30,002                16.00                 480
Options exercised                                      -                  (38,811)                 0.04                 (2)
                                           ------------------   ------------------    --------------------     ---------------
                                         

     Balances at December 31, 1997                 128,998               259,535           $     2.02              $    524 
                                             =================    ==================   ==================    =================
</TABLE>

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

At  December  31,  1997,  there were 88,815  shares of  HeartScan  common  stock
exercisable at an aggregate exercise price of $489,813.

The  difference  between the exercise price and fair market value of HeartScan's
common  stock at the date of issue of the stock  options  totaling  $329,000 has
been recorded as deferred  compensation and a component of stockholders' equity.
Of this amount, $70,000 and $27,000 have been recognized as compensation expense
in 1997 and 1996, respectively.  The remaining $231,000 will be recognized as an
expense  as the  shares  vest over a period of up to four  years.  The value was
established  at $2.00 per share based on the fair value of Imatron  stock at the
time of issuance of the HeartScan options.
<PAGE>

<TABLE>


The following table summarizes  information  concerning  HeartScan's  outstanding and exercisable  options as of December 31,
1997 (in thousands except per share amounts):
<CAPTION> 
                                                          Options Outstanding                      Options Exercisable
                                                  -------------------------------------     -----------------------------------
                                                     Weighted
                                                      Average                                   Weighted
                                                     Remaining                                  Average
   Range of Exercise            Number of           Contractual       Weighted Average          Number of        
        Prices                   Shares                Life            Exercise Price           Shares          Exercise Price
------------------------     ----------------     ----------------    -----------------     ----------------    ---------------

<S>                                      <C>                                <C>                        <C>            <C>    
         $.001                         7,033           7.83                $0.001                         -           -
     $0.10 - $0.25                   222,500           9.17                $ 0.20                    58,813         $0.17
        $16.00                        30,002           7.83                $16.00                    30,002         $16.00
                            ================     ================     ================      ================    ===============
                                     259,535           8.98                $2.02                     88,815         $5.51
                             ================     ================    =================     ================    ===============
</TABLE>

Note 9 - 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  $259,000,  $212,000,  and  $169,000  in  1997,  1996,  and  1995,
respectively.

Note 10 - INCOME TAXES

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

Significant  components of the Company's  deferred tax assets and liabilities as
of December 31, are as follows (in thousands):
                                                     1997                1996
                                                   -----------    --------------

Deferred tax assets:
 Net operating loss carryforwards                  $  26,890      $       24,489
 Federal credit carryforwards                            970                 842
 Expenses not currently deductible for tax purposes    6,478               3,446
 Deferred revenue previously taxed                       394                 614
 Other                                                   265                 150
                                                   -----------    --------------
    Deferred tax assets                               34,997              29,541

Valuation allowance                                  (32,081)           (28,838)
                                                   -----------    --------------

 Net deferred tax assets                               2,916                 703
                                                   -----------    --------------

Deferred tax liabilities:
 State income taxes                                      764                 479
 Other                                                 2,152                 224
                                                   -----------    --------------
    Deferred tax liabilities                           2,916                 703
                                                   -----------    --------------
Net deferred taxes                                    $    -           $      -
                                                   ============    =============

The net  change in the  valuation  allowance  was  $3,243,000,  $6,431,000,  and
$925,000 for 1997, 1996 and, 1995 respectively,  principally  resulting from net
operating loss carry forwards.

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

                                            1997          1996          1995
                                          ----------    ----------    ---------
 Federal statutory rate                     (34%)         (34%)        (34%)
 Valuation allowance                         34%           34%          34%
                                         ==========    ==========    =========
 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 subjected to separate return limitations.

At December 31,  1997,  the Company has net  operating  loss  carryforwards  for
federal  and  state  income  tax  purposes  of  approximately   $62,237,000  and
$7,185,000, respectively. Additionally, the Company has research and development
and alternative  minimum tax credit  carryforwards of approximately  $970,000 at
December 31, 1997. The net operating loss and the research and  development  tax
credit  carry  forwards  expire in various  years  from 1998  through  2012.  In
addition,  HeartScan has net operating loss  carryforwards for federal and state
income purposes of approximately $13,315,000 and $6,177,000,  respectively.  The
net operating loss carryforwards expire in various years from 2001 through 2012.

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 11 - SEGMENT INFORMATION AND FOREIGN SALES

The Company operates in two industry segments.  Imatron operates in one industry
segment  in which it  designs,  manufactures,  services  and  markets a computed
tomography  scanner and HeartScan  Imaging,  Inc.,  which operates  centers that
perform the  coronary  artery scan  procedures.  Imatron's  identifiable  assets
principally consist of cash and cash equivalents,  receivables,  inventories and
net investments in HeartScan. The scanners used by HeartScan clinics represent a
the majority of HeartScan's  identifiable assets. The intercompany  eliminations
include  Imatron's  net  investments  in  HeartScan,  intercompany  profits  and
intercomapany  receivables.  The  following  table  summarizes  the  results  of
operations  for the  Company's two major  business  segments for each year ended
December 31:
<PAGE>

<TABLE>



                                                              Imatron          HeartScan     Eliminations    Consolidated
(In thousands)                                          ---------------   --------------  -------------- ----------------
1997:
<S>                                                             <C>                 <C>             <C>             <C>       
Sales to customers                                       $      28,288        $   14,350     $  (6,585)         $ 49,223
Sales to affiliated customers                                    5,084                -           (436)            4,648
Total Revenue                                                   37,317            2,542           (436)           39,423
Operating profit loss                                           (3,915)          (6,229)            -            (10,144)
Identifiable assets                                             37,376           14,350         (6,585)           49,223
Depreciation and amortization expense for
     the period                                                    665            1,653                            2,318
Capital expenditures for the period                              1,015               60                            1,075

1996:
Sales to customers                                        $      15,749        $   1,293      $      -          $  17,042
Sales to affiliated customers                                     9,092                -           (366)            8,726
Total revenue                                                    24,841            1,293           (366)           25,768
Operating profit loss                                           (8,046)           (4,343)           (20)          (12,409)
Identifiable assets                                              35,164           20,478         (2,450)           53,192
Depreciation and amortization expense for
  the period                                                        580              794              -             1,374
Capital expenditures for the period                               1,138            1,351              -             2,489

1995:
Sales to unaffiliated customers                           $      17,027        $     460           $  -         $  17,487
Sales to affiliated customers                                     9,346                -           (133)            9,213
Total revenue                                                    26,373              460           (133)           26,700
Operating loss                                                  (3,693)           (2,465)                          (6,158)
Identifiable assets                                              27,061             5,057          (1,242)          30,876
Depreciation and amortization expense for
  the period                                                      1,269              440              -             1,709
Capital expenditures for the period                                 588              544              -             1,132
</TABLE>

Foreign based revenues  relate to the sale of scanners by the Company.  The sale
of  scanners  to  end-users   outside  the  United   States  were   $22,290,000,
$10,398,000, and $11,300,000 in 1997, 1996, and 1995, respectively.  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):

                              1997                1996                 1995
                         ----------------    ----------------    ---------------

United States ( a )        $      2,803        $      2,747         $      1,821
Europe ( b )                      5,064               1,748                1,000
Japan   ( c )                     4,200               7,150                7,150
Asia Pacific ( d )               10,896               1,500                3,150
South Africa                      2,130            -                   -
                          ================    ================    ==============
Total scanner sales (e)  $     25,093        $     13,145            $    13,121
                          ================    ================    ==============


(a) Sales to third-party leasing companies under the sale-leaseback transactions
    amounted to $1,774,000  and $1,821,000 , 1996 and 1995,  respectively. Sales
    to Siemens amounted to $1,603,000 in 1997.
(b) Sales to Siemens amounted to $4,137,000, $1,748,000 and $1,000,000 in 1997, 
    1996 and 1995, respectively. Sales to third-party leasing companies under 
    the sale-leaseback transactions amounted to $977,000 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 are no foreign
    currency risk.
<PAGE>

A summary of identifiable assets of the HeartScan  segment (in thousands):

                                  1997              1996              1995
                            ----------------   -------------   ---------------
Cash                         $     6,025         $   9,617       $        187
Trade Receivables                   272               234                  41
Prepaid Expenses                     63                63                  51
                         ................  ................   ................
                       
Current Assets                    6,360            9,914                 279

Property and Equipment, net       7,985            8,059               4,773

Other Assets                          5            2,505                   5
                      ................... ................ ..................

Total Assets            $        14,350        $  20,478      $       5,057    
                       =================== ================ ==================

 

<PAGE>

Note 12 - RESTATEMENT

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

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

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

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

The minority  interest is recognized as an increase in minority  interest in the
balance sheet.

The restatement of the Previously issued 1996 consolidated financial statements,
in order to apply to the accounting  described herein for the intrinsic value of
the  beneficial  conversion  features,  does not  affect  the cash  flows of the
Company.

<PAGE>

IMATRON INC.
                           
                              Index of Exhibits


Exhibit                                                                 SEC
Number                     Description                                 Page No.

(See Footnotes)

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

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

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

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

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

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

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

3.9      (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 HeartScan Private 
                Offering concluded June 24, 1996.

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

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

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

<PAGE>

Exhibit                                                                 SEC
Number                     Description                                 Page No.

(See Footnotes)

10.1     (1)    Sublicense Agreement between the Company and Emersub
                Incorporated dated February 1, 1981.

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

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

10.4     (23)   1997 Stock Bonus Incentive Plan

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

10.6     (7)    Polly Force Distribution Agreement

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

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

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

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

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

10.12    (14)   1991 Non-Employee Director's Stock Option Plan

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

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

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

10.16    (15)   Agreement dated October 31, 1991, to terminate Lease Agreement 
                dated August 23, 1983
<PAGE>
Exhibit                                                                 SEC
Number                     Description                                 Page No.

(See Footnotes)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

10.32    (17)   1993 Stock Option Plan, as amended to date

10.33    (18)   1994 Employee Stock Purchase Plan, as amended to date

<PAGE>
Exhibit                                                                 SEC
Number                     Description                                 Page No.

(See Footnotes)

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

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

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

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

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

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

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

10.41    (21)   Employment Agreement dated October 1, 1993 between the Company 
                and Dale Grant.

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

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

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

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

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

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

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

10.49    (22)*  Amendment No. 4 to Basic Agreement dated as of October 20, 1994
                between the Company and Siemens Corporation.
<PAGE>
Exhibit                                                                 SEC
Number                     Description                                 Page No.

(See Footnotes)

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

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

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

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

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

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

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

10.57           Agreement for Service Support dated February, 1997 between the 
                Company and Siemens Medical Systems, Inc.

10.58           Warrant Purchase Agreement between the Company and TeraRecon 
                Inc. dated October 15, 1997

10.59           Warrant Purchase Agreement between the Company and TeraRecon 
                Inc. dated October 21, 1997

11.0            Computation of Per Share Earnings.

23.0           Consent of Independent Auditors.


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

<PAGE>


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

(2)     Filed as an Exhibit to the Company's Registration Statement on Form S-8 
        filed with the 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.

(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-1 
        filed with the Commission on September 11, 1986 (File No. 33-8668) and 
        incorporated herein by reference.

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

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

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

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

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

<PAGE>


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

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

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

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

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

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

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

(24)    Filed as an Exhibit to the Company's Current Report on Form 8-K filed
        on July 22, 1997 and incorporated herein by reference.

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

<PAGE>