FY 1998                           IMATRON INC.                         FORM 10-K
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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K



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


                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
                         Commission file number 0-12405


                                  IMATRON INC.


                            a New Jersey Corporation
                               I.D. No. 94-2880078
              389 Oyster Point Blvd, South San Francisco, CA 94080
                            Telephone (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
                                  -----          -----
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FY 1998                           IMATRON INC.                         FORM 10-K
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The aggregate market value of the voting stock (which is the outstanding  Common
Stock) of the Registrant held by non-affiliates  thereof, based upon the closing
sale price of the Common  Stock on February  10,  1999,  on the Nasdaq  National
Market System ($1.44 per share) was approximately $124,667,000.  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 10, 1999, Registrant had 89,459,174  outstanding shares of Common
Stock, no par value, which is the only class of shares publicly traded.


                       DOCUMENTS INCORPORATED BY REFERENCE

Parts  of  the  Proxy  Statement  for   Registrant's   1999  Annual  Meeting  of
Shareholders,  to be filed with the  Commission on, or before 120 days after the
end of the 1998 fiscal year, are incorporated by reference into Part III hereof.

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of  Registrant's  knowledge,  in  definitive  proxy  or  information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K (x).











THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD LOOKING  STATEMENTS  WITHIN THE
MEANING OF SECTION 27A OF THE  SECURITIES  ACT OF 1933, AS AMENDED,  AND SECTION
21E OF THE  SECURITIES  EXCHANGE  ACT OF 1934,  AS AMENDED.  ACTUAL  RESULTS MAY
DIFFER  MATERIALLY FROM THOSE DESCRIBED IN ANY SUCH FORWARD LOOKING  STATEMENTS.
RISKS  INHERENT IN IMATRON'S  BUSINESS AND FACTORS THAT COULD CAUSE OR CONTIBUTE
TO SUCH DIFFERENCES  INCLUDE,  WITHOUT LIMITATION,  THE CONSIDERATIONS SET FORTH
UNDER "MANAGEMENT'S  DISCUSSION AND ANYALYSIS OF FINANCIAL CONDITION AND RESULTS
OF  OPERATIONS."  THE COMPANY  EXPRESSLY  DISCLAIMS ANY OBLIGATION TO UPDATE ANY
FORWARD LOOKING STATEMENTS.



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FY 1998                           IMATRON INC.                         FORM 10-K
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                                     PART I
ITEM 1 - BUSINESS 
                                     GENERAL

Imatron Inc. was  incorporated  in New Jersey in 1983.  References  in this Form
10-K to "Imatron", "the Company", "we", "our", and "us" refer to Imatron Inc., a
New Jersey  Corporation.  The Company is a technology-based  company principally
engaged  in the  business  of  designing,  manufacturing  and  marketing  a high
performance computed tomography ("CT") scanner.  This scanner uses Electron Beam
Tomography  ("EBT") technology based on a scanning electron beam. The scanner is
used in large and  midsize  hospitals  and  free-standing  imaging  clinics.  In
addition to providing  service,  parts and  maintenance to hospitals and clinics
that operate its  scanners,  the Company also offers its service  capability  to
other manufacturers of high tech medical equipment.

HeartScan Imaging,  Inc.  ("HeartScan"),  incorporated in Delaware in 1993, is a
diagnostic services subsidiary of the Company.  HeartScan offers coronary artery
scanning  ("CAS") and Coronary Artery Disease  ("CAD") risk assessment  services
through its four centers  located in South San Francisco,  California;  Houston,
Texas; Pittsburgh,  Pennsylvania;  and Washington,  D.C. In July 1996, HeartScan
completed a private placement that raised  $14,798,000 in net proceeds.  On July
13, 1998, the Company adopted a formal plan to sell its HeartScan  subsidiary in
order for the  Company to focus more  comprehensively  on the core  business  of
selling,  marketing,  manufacturing  and  servicing  the  Company's  proprietary
Ultrafast CT scanners.  Currently,  Imatron has a 94.3%  interest in  HeartScan,
which Imatron has reflected as discontinued operations for all periods presented
in the  company's  statements of  operations  and as net assets of  discontinued
operations  in the December 31, 1998 and 1997  balance  sheets.  On February 25,
1999, the Company  announced the sale of its HeartScan - San Francisco  business
unit effective March 1, 1999.

                              PRODUCT AND SERVICES
                                 ULTRAFAST CT(R)
PRODUCT DESCRIPTION

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

The Imatron Ultrafast CT scanner design differs  significantly from conventional
CT scanners in two important ways.  First, the mechanically  rotating x-ray tube
technology of  conventional CT scanners is replaced by a high power electron gun
that  generates a focused,  high-intensity  electron beam which is steered along
stationary x-ray target rings to produce a rotating  fan-shaped x-ray beam. This
patented electron beam technology permits  significantly faster scanning speeds.
The  Company's  scanner  can  acquire  CT  images  at a scan  speed of 50 to 100
milliseconds  per slice in contrast to  conventional  CT scanners  that  require
between  0.7 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.

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FY 1998                           IMATRON INC.                         FORM 10-K
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The Ultrafast CT scanner can be operated in three scanning  modes:  Single Slice
mode,  Multi-Slice  mode and Continuous  Volume  Scanning mode. The Single Slice
mode can acquire up to 140 images per  acquisition and can be timed to the heart
cycle with ECG triggering. This mode employs scan times from 100 milliseconds to
2 seconds as  compared  to 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 1998, the Company  completed its version 12.4 software  development.
Software  12.4 brings the  Ultrafast  C-150XP and  C-150LXP  into full year 2000
compliance,  using 4 digits for all dates.  The new  software  version  also has
algorithmic improvements which affect image quality, allowing improved images of
the head,  chest,  and abdomen,  especially with the high  resolution  detector.
Software 12.4 was  thoroughly  tested in late 1998, and was released for general
use in January 1999 and will be provided at no charge to all hardware compatible
systems.

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

In addition,  the Company began marketing its new workstation,  the UltraAccess,
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 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.

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.  The procedure for
accurately  measuring the volume and extent of coronary artery  calcification is
known as the coronary artery scan ("CAS").
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FY 1998                           IMATRON INC.                         FORM 10-K
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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 a
routine procedure.  Since that time,  coronary  angiography,  which demonstrates
narrowing,  or  occlusion,  of the  coronary  arteries,  has  become  the  "gold
standard"  for positive  identification  of coronary  artery  disease.  Abnormal
results from  screening  tests,  such as exercise  electrocardiography  ("ECG"),
thallium stress nuclear medicine and stress  echocardiography  are commonly used
as an  indication  for coronary  angiography.  These tests produce a significant
percentage of false  abnormal  results such that as many as 25% - 35% percent of
the  coronary  angiograms  conducted  are  deemed to be normal.  Since  coronary
angiography is both expensive and invasive,  the patient in these false abnormal
cases is unnecessarily exposed to some risk of morbidity, or even death, as well
as a  significant  radiation  dose. In addition,  statistics  indicate that some
patients die suddenly after  receiving a "normal"  stress ECG study and are then
found,  upon autopsy,  to have had  significant  coronary  artery  disease.  The
Company believes these statistics  illustrate the inadequate predictive value of
the  standard,  noninvasive  screening  tests  for  diagnosing  coronary  artery
disease.

The  Company  further  believes  that  research  demonstrates  that  CAS has the
potential to accurately  identify those people who are developing early coronary
artery  disease.  CAS can then serve as a  feedback  mechanism  to  monitor  the
treatment of those with early coronary artery disease, a disease which may slow,
stop, or regress in response to  treatment.  Until now, the only way to directly
determine the effect of life-style modification and lipid-lowering pharmacologic
treatment on coronary artery disease was to perform  repeated  invasive,  costly
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 30% - 35% 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 identify
those who are beginning to develop  coronary  disease,  individuals  with a high
cholesterol reading have been treated as if they will develop heart disease. The
Company believes that CAS is a powerful and cost-effective method for detecting,
or  ruling  out,  coronary  artery  disease  and  represents  a  unique  market.
Currently, only the 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.

In addtion to the CAS test,  the Company  believes that EBT  technology can also
perform a newly developed  procedure  known as Coronary CT Angiography  ("CTA").
The CTA procedure utilizes an intravenous  injection of x-ray contrast medium as
opposed to threading a catheter into the femoral artery to the heart as required
by  conventional  x-ray coronary  angiography.  A series of contiguous  contrast
enhanced images is obtained and electronically transmitted to a powerful desktop
3-D  workstation.  The resulting  three  dimensional CT angiogram can be used to
determine the patency of coronary artery bypass grafts on the effectiveness of a
"balloon" angioplasty procedure.  The combination of the Company's EBT scanner's
unparalleled  image acquisition  capability with new, powerful PC microprocessor
driven workstations  provides unique 3-D imaging capability in the heart, lungs,
colon, and other organs.

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.
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FY 1998                           IMATRON INC.                         FORM 10-K
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CUSTOMER SERVICE

The Company and its distributors provide  installation,  customer warranty,  and
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.  Imatron  entered  into  a  two-year  service  support
agreement in February 1998,  with AccuImage  Diagnostics,  to provide  worldwide
customer  support  service  for  its   Three-Dimensional   Volume  Visualization
Workstation.

The  Company  maintains   customer  support  centers  in  South  San  Francisco,
California and Munich, Germany and field service personnel in the United States,
Europe and Asia for its service business.  Together with its  distributors,  the
Company   services   over  113  installed   EBT  systems   worldwide   including
approximately 20 systems manufactured by vendors other than Imatron. The Company
generates  service revenues under service contracts with Imatron and non-Imatron
customers,  providing  service on a "contract" and "time and material"  basis to
such customers after the warranty period.

RESEARCH AND DEVELOPMENT CONTRACTS

For the period  from March 31, 1995 to March 31,  1998,  the Company and Siemens
Corporation  ("Siemens")  operated  under  a 1995  Memorandum  of  Understanding
whereby Siemens provided  $15,000,000 to the Company's C-150 Evolution Ultrafast
CT scanner  research  and  development  program paid to the Company in quarterly
non-refundable  payments. The results of the collaborative research were jointly
owned by the parties and cross  licensed.  For the period from March 31, 1995 to
March 31,  1998  Siemens  retained  exclusive  distribution  rights  in  certain
geographical  regions  for sales of the  C-150/Evolution  scanner.  The  Company
recognized  revenue  of  $1,250,000,   $5,000,000,   and  $5,000,000  under  the
collaborative agreement in 1998, 1997, and 1996, respectively.

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

On July 22, 1997,  the Company and  TeraRecon,  Inc., a  privately-held  company
engaged in the design of high-speed image processing devices for medical imaging
systems,  entered  into a  development  agreement.  The  agreement  requires the
delivery by TeraRecon to Imatron of a real-time image reconstruction  system for
use in  conjunction  with  Imatron's  Ultrafast CT scanner.  Upon  completion of
prototypes  and  delivery,  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 the image reconstruction system. In addition,
TeraRecon has agreed to pay Imatron an aggregate of $2,000,000  for 4,000,000 of
the  6,000,000  warrants and to make royalty  payments to Imatron equal to 3% of
net sales of certain RTR-2000 systems sold to third parties.  As of December 31,
1998, the Company has issued to TeraRecon  warrant to purchase  4,000,000 shares
of Imatron Common Stock.
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FY 1998                           IMATRON INC.                         FORM 10-K
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In February  1999,  the Company and TeraRecon  agreed to modify the  development
agreement  releasing  TeraRecon  from its  obligation  to purchase the remaining
2,000,000  stock  purchase  warrants  for  $1,000,000.  TeraRecon  has agreed to
develop a more stable,  reliable,  and  easier-to-maintain  image reconstruction
system at no  additional  cost to Imatron and upgrade  five units of the current
RTR-2000  systems for no more than $25,000 per unit.  Imatron will cancel the 3%
royalty payment pursuant to the original agreement.

                                    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). On April 1, 1998, the
exclusive  distribution  rights  reverted  to Imatron  and the  Company  assumed
worldwide distribution for its scanners.  Siemens purchased two, seven, and two,
C-150 scanners in 1998, 1997, and 1996, respectively.  In 1998, the Company sold
nine C-150 scanners through its direct sales force in the United States.

On July 1, 1998, the Company entered into a non-exclusive sales agency agreement
with GE Medical  Systems  ("GEMS") to sell Ultrafast CT scanners  throughout the
United States and Canada.  The agreement  provides that all contracts  resulting
from the joint  marketing  effort are written  directly by the Company.  Imatron
assumes installation and customer service responsibilities,  while GEMS provides
financing options for customers  purchasing the equipment.  The Company believes
that the marketing alliance with GEMS will enhance its distribution capabilities
in Northern America and penetrate the C-150 scanner market more effectively. The
contract has a term of 2 years with an option to extend for an  additional  year
at GEM's sole discretion. The Company has agreed to pay GEMS a commission on all
sales directly resulting from the Company's  corporate alliance with GEMS. There
can be no  assurance  that  the GEMS  sales  agency  agreement  will  result  in
significantly increased sales by the Company.

JAPAN

On January 7, 1994,  Imatron  entered into a Joint Company  Agreement  with Tobu
Land System  Company  and Kino  Corporation  pursuant  to which a joint  venture
company was established to market,  sell,  install and service Imatron Ultrafast
CT scanners in Japan.  The joint venture was designated as Imatron  Japan,  Inc.
and is owned by Tobu Land  System  Company,  Kino  Corporation  and  Imatron  in
increments of 51%, 25% and 24% respectively.

On  February  3,  1994,   Imatron  and  Imatron  Japan,   Inc.  entered  into  a
Distributorship  Agreement  pursuant  to  which  Imatron  Japan,  Inc.  has been
appointed as Imatron's exclusive  distributor in Japan. Imatron Japan, Inc. took
delivery of two, three, and five C-150 Ultrafast CT scanner systems from Imatron
in 1998, 1997, and 1996,  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. As of 1997, these commissions were reduced to $60,000 per each new
machine sold to Imatron Japan, Inc. Due to the economic  uncertainties in Japan,
Imatron  Japan,  Inc.  was  able to  accept  only two  scanners  out of the five
originally ordered for 1998.

RELIANCE ON DISTRIBUTORS

Historically,  a substantial  portion of the Company's sales of its scanners was
done  through  distributors  or sales  agents.  There is no  assurance  that the
Company's  distributors  or sales  agents  will meet their  contractual  minimum
obligations  (if any) on a timely basis.  Failure by  distributors to meet their
obligations  could  adversely  affect the  Company's  operations  and  financial
position.
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FY 1998                           IMATRON INC.                         FORM 10-K
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SALES INFORMATION
The  scanner  sales  price  varies  depending  on  customer   requirements.   In
particular, sales to Siemens, Imatron Japan, Inc. and certain distributors/sales
agents have a lower gross  margin than sales to other third  parties.  The sales
price  includes  installation  by field  service  personnel,  system  check  and
certification,  customer  applications  training,  and a 12-month  warranty.  In
addition,  local  taxes and import  duties may be added.  This  price,  which is
higher than that of  conventional  CT scanners,  may serve to limit sales of the
Company's  scanner to larger hospitals and medical imaging clinics that are able
to generate a higher than average patient volume to offset the higher cost. Unit
scanner export sales for fiscal years ended December 31 are as follows:

                                  1998            1997             1996
                              ------------    ------------      ----------
Total export sales                  6              15                8

                      TRANSACTIONS WITH SIEMENS CORPORATION
In  March  1991,  the  Company  entered  into a  Basic  Agreement  with  Siemens
Corporation  which consisted of four separate  subagreements,  each of which has
been  subsequently  modified  in  various  respects  by the  parties.  The  four
subagreements  included a $4 million  term loan;  a  distribution  agreement;  a
development agreement; and a license agreement.

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

Pursuant to the fee arrangements  with regard to the use of the technology under
the transferred  patents,  Imatron will pay to Siemens  royalties of $20,000 for
each new C-150 unit (or other EBT unit produced by Imatron after April 1, 1995),
commencing  with the 21st C-150 (or other Imatron EBT) unit produced in any year
and  continuing  thereafter for ten years after such first quarter in which such
21st unit is produced.  To date,  Imatron has not produced more than 20 scanners
in any year, and therefore, no royalties have been due under this agreement.

Second,  the parties  agreed to  terminate,  as of March 31, 1995,  the existing
Development  Agreement and substitute in its place a new collaborative  research
agreement  pursuant to which the parties  would  jointly  conduct  research  and
development  over  a  three  year  period  directed  toward  the  electron  beam
technology  used in the Company's  C-150 product.  Both Siemens and Imatron have
irrevocable,  perpetual, royalty free, fully paid licenses covering the electron
beam  technology  developed  under the  collaborative  research,  subject to the
following terms and conditions:
(a)     During  the term of the MOU,  a  complete  copy of  which  was  filed as
        Exhibit  10.80 to the  Company's  1994  Report on the Form 10-K,  either
        Party may sublicense, transfer or assign its rights in the electron beam
        technology  or use  the  same,  in  whole  or in  part,  to  develop  or
        manufacture  medical  products  for third  parties  with  prior  written
        consent of the other Party.
(b)     Imatron  may not grant to any third  party any  license  in the field of
        medical imaging under any or all of the electron beam technology  during
        the term of the MOU and for three years thereafter.
(c)     Either Party  may  sublicense the technology to its parent, subsidiaries
        or 50% or more owned affiliates.
(d)     Either Party may  sublicense,  assign or transfer the technology as part
        of its sale of the assets or business relating to the C-150.
(e)     With regard to manufacturing  C-150 scanners,  the C-150 system can only
        be manufactured by Siemens after fifty scanners are manufactured,  sold,
        transferred  and/or  delivered to Siemens by Imatron in any fiscal year;
        or upon  default  or  refusal  of  Imatron  at any time to  perform  its
        obligations to Siemens with respect to the design, manufacture, service,
        support,  supply of products  and parts in order for Siemens to meet its
        obligations to third parties.
================================================================================
                                       8
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
Pursuant  to the  collaborative  research  agreement,  Siemens  agreed to fund a
maximum  aggregate of $15 million of  Imatron-managed  research and  development
over the three years,  subject to addressing  certain mutually agreed upon goals
and objectives.  No milestones or other performance related results were tied to
the payment of funds by Siemens. The Company recognized revenue ratably over the
three year period as its commitment to perform  research and  development  under
the agreement was incurred ratably over the same period.

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

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

(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
three year period  effective  April 1, 1995, and ending March 31, 1998.  Siemens
agreed to use its best efforts to distribute the Company's  C-150 product in its
exclusive markets subject to no minimum purchase obligations.

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

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

                                   COMPETITION

In  the  non-cardiac  imaging  applications  market  (comprised  principally  of
hospital radiology  departments),  the Company's  principal  competition is from
current  manufacturers of conventional CT scanners,  including  General Electric
Company,  Siemens  Corporation,  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
technologies. All of these companies have greater financial resources and larger
staffs  than  those of the  Company  and  their  products  are,  in most  cases,
substantially less expensive than the Ultrafast CT scanner.
================================================================================
                                       9
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
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
projects  currently in progress,  as well as on its continued ability to develop
new products or product  enhancements  in response to new  products  that may be
introduced by other  companies.  There can be no assurance  that Imatron will be
able to continue to improve product  reliability or introduce new product models
and enhancements as required to remain competitive.

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

                                  MANUFACTURING
The Company  manufactures  its scanner at its South San  Francisco,  California,
headquarters  facility.  To date, the typical  manufacturing  cycle has required
approximately  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 the 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.
================================================================================
                                       10
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
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.

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

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

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

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
effects 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 or new regulations adopted in the future may materially
================================================================================
                                       11
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
adversely affect Imatron's  business.  In some cases, state or local regulations
may be stricter than regulations imposed by the Federal government.

                              PATENTS AND LICENSES

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

In February 1981, the Company was granted the exclusive use, for five years, and
non-exclusive use thereafter,  of certain technology and a patent pending, owned
by the  University of California  ("UC") under the terms of a license  agreement
between  UC  and  Emersub,  a  wholly-owned  subsidiary  of a  former  principal
shareholder  of the Company,  and a  sublicense  agreement  between  Emersub and
Imatron  Associates (the  predecessor to the Company),  respectively.  Under the
continuing  sublicense  agreement,  as amended,  Imatron  will make  payments to
Emersub  equal to 2.125% of net sales of new C-150  scanners  sold by Imatron in
exchange  for  the  Company's   exclusive  use  of  Patent  #4,352,021,   "X-ray
Transmission  Scanning  System and Method and Electron  Beam X-ray Scan Tube for
Use  Therewith",  through  the  remaining  life of such  patent.  The  Company's
Chairman of the Board, Dr. Douglas P. Boyd,  receives 6% of all of the royalties
paid by  Emersub to UC.  Loss by  Imatron  of its  rights  under the patent as a
result of termination of its sublicense from Emersub, or the underlying license,
could  have a  material  adverse  effect  upon  Imatron's  business  and  future
prospects.  UC cancelled the license to Emersub on October 8, 1997.  Imatron has
agreed to pay UC royalties in the amount of $174,515 for scanners sold from that
date through December 31, 1998. UC has agreed to grant the Company a license for
the remaining life of the patent on substantially  the same terms as the Emersub
license agreement. Royalty expense related to the sublicense agreement for 1998,
1997, and 1996 were $137,775, $165,330, 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  thirty-three  U.S.  Patents of its own (each with a
remaining life in excess of a year) and has filed three U.S. patent applications
covering various integral components of the scanner including, among others, its
electron  beam  assembly  and its x-ray  detector,  and has  filed  applications
corresponding  to several of these patents and  applications in various European
Patent Convention  countries,  Canada, and Japan. There can be no assurance that
any such  applications  will result in the  issuance of a patent to the Company.
Imatron's patents and patent applications have not been tested in litigation and
no assurance  can be given that patent  protection  will be upheld or will be as
extensive as claimed. Furthermore, no assurance can be given as to the Company's
ability to finance  litigation  against  parties  which may  infringe  upon such
patents or parties which may claim that the  Company's  scanner  infringes  upon
their  patents.  However,  the  agreement  signed  by the  Company  and  Siemens
Corporation  in March 1991 allows  Siemens  Corporation  to enter  litigation in
favor of Imatron.  Pursuant to the Memorandum of Understanding with Siemens (see
"Transactions With Siemens  Corporation"),  the Company transferred five patents
to Siemens,  two of which cover  features of the  Company's  C-150  scanner,  in
complete  consideration of the cancellation by Siemens of the $4.0 million notes
payable to the Company. The transferred patents were as follows:

1.   U.S. 4,521,901 - Scanning  Electron  Beam Computed  Tomography Scanner with
     Ion Aided Focusing.
2.   U.S. 4,531,226 - Multiple Electron Beam Target for use in X-Ray Scanner.
3.   U.S. 4,535,243 - X-Ray Detector for High Speed X-Ray Scanning System.
4.   U.S. 4,736,396 - Tomosynthesis using High Speed CT Scanning System.
5.   U.S. 5,193,105 - Ion Controlling Electrode Assembly for a Scanning Electron
     Beam Computed Tomography Scanner.

As part of the  agreement,  Siemens  granted  to the  Company  a  non-exclusive,
irrevocable,  perpetual license to the five patents. The license is subject to a
royalty  of  $20,000  for each new C-150  unit (or other  EBT unit  produced  by
Imatron after April 1, 1995),  commencing  with the 21st C-150 (or other Imatron
EBT) unit  produced in any year and  continuing  thereafter  for ten years after
such first quarter in which such 21st unit is produced. To date, Imatron has not
produced  more than 20 scanners in any year and,  therefore,  no royalties  have
been due under this agreement.
================================================================================
                                       12
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
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 10, 1999, the Company had 180  employees,  including 50 employees
in service, 17 in  sales/marketing,  52 scientists and engineers in research and
development,  43  employees  in  manufacturing,  and 18 employees in finance and
administration.   HeartScan  had  24   employees,   including  20  employees  in
operations,   2  in  sales  and   marketing,   and  2  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:

OPERATING HISTORY

Imatron was incorporated in February 1983, and incurred losses each quarter from
inception through December 31, 1990. Its first recorded  profitable year was the
year ended December 31, 1991 during which a $4,000,000 payment for the licensing
of  technology  to  Siemens  Corporation  was  received.  The  Company  incurred
additional net losses in both 1992 and 1993. In 1994,  the Company  incurred its
first year of net income from  continuing  operations  amounting  to  $3,221,000
partially  offset by $911,000 of net losses incurred by discontinued  operations
of  HeartScan.  In 1998,  1997,  and 1996,  the Company  incurred  net losses of
$14,781,000,  $11,422,000,  and $13,737,000,  respectively.  The net losses were
partially a result of the operating  losses incurred by discontinued  operations
of HeartScan which amounted to $4,507,000,  $6,428,000, and $4,573,000, in 1998,
1997, and 1996, respectively.  The net losses recorded reflect non-cash minority
interest expense of $874,000,  $1,744,000 and $3,272,000  recorded in 1998, 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 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  note  10 to the  Notes  to the  Consolidated
Financial  Statement).  As of December 31, 1998,  the Company has a consolidated
accumulated deficit of $97,497,000.
================================================================================
                                       13
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
The  Company's  liquidity  is affected  by many  factors,  including  the normal
ongoing   operations  of  the  business  and  other   factors   related  to  the
uncertainties  of  the  industry  and  global   economies.   Although  the  cash
requirements  will  fluctuate  based on  timing  and  extent  of these  factors,
management  believes  that cash  existing at December 31, 1998 together with the
estimated  proceeds from ongoing sales of products and services and  divestiture
of the  HeartScan  operations  in 1999 will provide the Company with  sufficient
cash for operating  activities  and capital  requirements  through  December 31,
1999.

NEED FOR ADDITIONAL FINANCING

To satisfy  the  Company's  capital  and  operating  requirements  beyond  1999,
profitable operations,  additional public or private financing or the incurrence
of debt may be required.  If future  public or private  financing is required by
the Company,  holders of the Company's securities may experience dilution. There
can be no assurance that equity or debt sources, if required,  will be available
or, if available, will be on terms favorable to the Company or its shareholders.
The Company does not believe  that  inflation  has had a material  effect on its
revenues or results of operations.

MATERIAL DEPENDENCE UPON KEY PERSONNEL

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

HIGH COST OF SCANNER

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

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

The Company's scanner has been used in a clinical  environment since April 1983.
Clinical  use of the C-100 XL scanner  model began in February  1989.  The C-150
Ultrafast CT scanner was first used in 1992. 87 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.
================================================================================
                                       14
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
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.

ITEM 2 - PROPERTIES

The   Company's   manufacturing,   research  and   development,   marketing  and
administrative  operations  occupy  approximately  77,065  square feet of leased
space in  buildings  located in South San  Francisco,  California,  under leases
expiring in February 2004. Under certain future conditions, the facilities could
be expanded to approximately 94,365 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 service center for its European customers while the residence is
for expatriates assigned in Germany.

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

ITEM 3 - LEGAL PROCEEDINGS

None

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

There were no matters submitted to a vote of Imatron's  shareholders  during the
quarter ended December 31, 1998.
================================================================================
                                       15
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
                                     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.

                    1998                         1997
           ---------------------        ---------------------
Quarter       High        Low              High        Low
---------  ---------   ---------        ---------   --------- 
First       $  3.03     $  2.25          $  3.38     $  1.88
Second         4.00        2.25             3.00        1.59
Third          2.81        1.13             2.94        2.34
Fourth         2.59        0.81             5.31        2.25

As of February 10, 1999, there were approximately 6,700 holders of record of the
Company's common stock. On February 10, 1999, the closing price of the Company's
common stock on Nasdaq was $1.44.

                              DIVIDEND INFORMATION

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

ITEM 6 -  SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>

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

OPERATING INFORMATION

Year Ended December 31                                        1998            1997            1996            1995            1994
                                                           ---------       ---------       ---------       ---------       ---------
<S>                                                        <C>             <C>             <C>             <C>             <C>     
Total revenues from continuing operations                  $ 30,660        $ 37,317        $ 24,823        $ 26,374        $ 33,464
Operating income (loss) from continuing
   operations                                              $ (9,535)       $ (3,915)       $ (8,065)       $ (3,693)       $  1,460
Income (loss) from continuing operations                   $ (9,400)       $ (3,250)       $ (5,892)       $    163        $  3,221
Loss from discontinued operations                          $ (4,507)       $ (6,428)       $ (4,573)       $ ( 2,612)      $   (911)
Net income (loss)                                          $(14,781)       $(11,422)       $(13,737)       $ ( 2,449)      $  2,310
Basic and diluted income (loss) per share
   from continuing operations                              $  (0.11)       $  (0.04)       $  (0.08)       $ ( 0.00)       $   0.05
Number of shares used
   in per share calculations                                 83,941          78,461          74,406          57,598          62,102
</TABLE>
<TABLE>
BALANCE SHEET INFORMATION

At December 31                                             1998             1997             1996             1995             1994
                                                         -------          -------          -------          -------          -------
<S>                                                      <C>              <C>              <C>              <C>              <C>    
Working capital                                          $12,813          $26,003          $33,042          $14,252          $ 8,741
Total assets                                              31,982           43,165           47,488           27,459           21,173
Long term obligations
   including capital lease
   obligations                                               103              121              182              235            4,992
Total liabilities                                         12,991           11,840            9,962           11,234           14,303
Minority interest                                            331           14,255           12,323             --               --
Preferred stock                                             --               --               --               --              2,602
Shareholders' equity                                      18,660           17,070           25,203           16,225            6,870
</TABLE>
The Company did not pay any cash dividends on its Common Stock during any of the
periods presented above.
================================================================================
                                       16
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

                         LIQUIDITY AND CAPITAL RESOURCES

At December 31, 1998,  working  capital  decreased  to  $12,813,000  compared to
December 31, 1997 working  capital of  $26,003,000  primarily as a result of the
net loss  sustained  by the  Company.  The current  ratio  decreased to 2.1:1 at
December 31, 1998 from 3.6:1 at December 31, 1997.

The Company's  total assets  decreased to  $31,982,000  compared to December 31,
1997  total  assets  of  $43,165,000.  Cash and cash  equivalents  decreased  to
$1,445,000 in 1998 from $8,400,000 in 1997 as a result of the net loss sustained
by  the  Company  resulting  from  a  decrease  in  scanner  shipments  and  the
termination  of research  and  development  funding from  Siemens.  Cash used in
continuing  operations  was $7,893,000 for twelve months ended December 31, 1998
compared to $5,568,000 during the same period in 1997. Cash was used to fund the
operating  activties  resulting  from net loss  from  operations  and  increased
inventory.  The use of cash from operations was partially offset by increases in
accrued  liabilities.  The  increase in  inventory  resulted  from a decrease in
scanner  shipments  to fifteen in 1998 from  eighteen  during the same period in
1997.  Inventory  also  increased  due to scanner  orders that were  delayed for
shipment.  Accounts  payable  increased  as a  result  of  a  decrease  in  cash
associated with a decrease in scanner  shipments and the lengthening of customer
payment terms to meet customer requirements.

Cash  provided by  discontinued  operations  was $499,000 for the twelve  months
ended  December 31, 1998 compared to cash used  amounting to  $2,426,000  due to
decreased  operating losses of HeartScan  amounting to $4,507,000 for the twelve
months of 1998 compared to $6,428,000 for the same period in 1997.

     The  Company's   financing   activities  for  1998  included  purchases  of
securities  available  for sale and capital  equipment  . The Company  purchased
$642,000 of equipment during the year, primarily consisting of computer and test
equipment.  In addition,  significant  items  affecting cash flows during fiscal
1998 included maturities of marketable securities of $1,065,000. Items affecting
cash flows during  fiscal 1997 included  maturities of marketable  securities of
$14,880,000 and purchases of securities available for sale and capital equipment
amounting to $8,982,000 and  $1,018,000.  Key financing  activitites in 1998 and
1997 included $1,446,000 and $1,235,000,  respectively,  raised through employee
participation  in the Company's  stock option and purchase plans and exercise of
warrants.

The Company's  liquidity is affected by many  factors,  some based on the normal
ongoing  operations of the business and others related to the  uncertainties  of
the industry and global economies. Although the cash requirements will fluctuate
based on timing and extent of these factors,  management believes that cash, and
cash  equivalents  existing at December 31, 1998 together with the proceeds from
the impending sale of HeartScan,  and the estimated  proceeds from ongoing sales
of products and services in 1999 will provide the Company with  sufficient  cash
for operating activities and capital requirements through December 31, 1999.

Currently,  the Company's  significant  capital  commitments in 1999 include the
purchase of a new system for its Enterprise Resource Planning.

To satisfy  the  Company's  capital  and  operating  requirements  beyond  1999,
profitable operations,  additional public or private financing or the incurrence
of debt may be required.  If future  public or private  financing is required by
the Company,  holders of the Company's securities may experience dilution. There
can be no assurance that equity or debt sources, if required,  will be available
or, if available, will be on terms favorable to the Company or its shareholders.
The Company does not believe  that  inflation  has had a material  effect on its
revenues or results of operations.
================================================================================
                                       17
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
                        RESULTS OF CONTINUING OPERATIONS

1998 vs 1997

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

Total cost of revenues as a percent of  revenues  for the twelve  months of 1998
was 76% as compared  with 63% in 1997.  Product cost of revenues as a percent of
product  revenues  increased  to 75% in 1998 from 72% in 1997 due to shipment of
fifteen  scanners  compared  to  eighteen  shipments  in 1997.  Service  cost of
revenues as a percent of service  revenue  increased  to 93% in 1998 from 79% in
1997 due to an  increase in  overhead  expenses  to support the scanner  service
contracts  under the Siemens  service  agreement and other new scanner sites. In
addition,  revenues  on spare  parts  shipped to  Imatron  Japan  Inc.,  a major
customer,  were deferred and related costs were recognized due to the customer's
difficulty in paying as a result of the economic and currency  uncertainties  in
Asia.  As a major  customer,  the Company has extended  credit beyond the normal
terms to Imatron Japan, Inc. to ensure the continued service for its 31 scanners
purchased from the Company.

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

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

     The Company incurred a non-cash charge to income of $874,000 and $1,744,000
recorded as return to minority  interest  expense  for the twelve  months  ended
December 31, 1998 and 1997, respectively,  in connection with certain beneficial
conversion features granted to the holders of the HeartScan convertible Series A
Preferred  Stock  (see  Note  10 to  the  Notes  to the  Condensed  Consolidated
Financial Statements).
================================================================================
18
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
1997 vs 1996

Total revenues for the year ended  December 31, 1997, of  $37,317,000  increased
$12,494,000  or 50%  compared  to 1996  revenues  of  $24,823,000.  Net  product
revenues  increased  to  $27,368,000  in 1997  from  $16,163,000  in 1996 due to
shipment  of eighteen  scanners in 1997 as compared to ten 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  increased  to  $4,949,000  in 1997 from  $3,660,000  in 1996 due to an
increase in scanners under service  contracts.  The increase  primarily resulted
from the  service  support  agreement  entered  into with  Siemens.  Development
contract revenue of $5,000,000 represents  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.

Total cost of  revenues  as a percent of  revenues  for 1997 was 63% as compared
with 71% in 1996.  The change in the cost of revenue as a percentage  of revenue
for  scanners to 72% in 1997 from 90% in 1996 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 back 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 79% in 1997 from 86% in
1996 due to an increase in gross margin on spare parts sold.

Total operating expenses of $17,583,000  increased $2,400,000 or 16% compared to
1996 expenses of $15,183,000.  Research and  development  expenses of $9,713,000
increased  from  $8,318,000  in 1996 due to increases in headcount and materials
for projects  undertaken in 1997.  Additionally,  the Company recorded  non-cash
charges of $750,000  for  warrants  issued to TeraRecon  for  achieving  certain
milestones in connection with the development of an 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
$3,749,000  from  $3,014,000 in 1996 primarily due to increases in headcount and
expenses  related to studies  conducted  promoting the benefits of the Company's
product.  Administrative  expenses  increased to $4,121,000  from $3,851,000 due
primarily  to  increases  in bad debt  expense.  Bad debt  expense  increased to
$1,380,000 in 1997 from $1,080,000 in 1996. The increase of $300,000 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 Imatron  Japan,  Inc.  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 $692,000 in 1997 from $2,236,000  primarily due to the
income  recognized  in 1996 for the sale of the  Company's  interest in InVision
Technologies amounting to $1,756,000. Interest expense paid in 1997 and 1996 was
for capitalized lease obligations.

The Company  incurred a non-cash  charge to income of $1,744,000  and $3,272,000
recorded  as  a  non-cash  return  of  minority   interest  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
10 and 17 to the Notes to the Consolidated Financial Statements).

Discontinued operation:

On July 13, 1998,  the Company  announced  its intention to divest its HeartScan
subsidiary.  Accordingly,  the Company  restated  its  financial  statements  to
reflect the  classification  of  HeartScan  as  discontinued  operation  for all
periods  presented  (See Note 16 to the Company's  1998  Consolidated  Financial
Statements).

During the twelve  months of 1998 and 1997,  the  Company  reported  losses from
discontinued operation of $4,507,000 and $6,428,000,  respectively, which relate
to the  discontinued  operations  of the HeartScan  subsidiary.  The decrease in
operating  loss was  primarily due to an increase in number of patient scans and
the closure of the Seattle  center  which had been  consistently  operating at a
loss.  In  addtion,  HeartScan  ceased  all radio and  print  advertising  which
significantly reduced overhead costs.
================================================================================
                                       19
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
The Company expects that the discontinued  operation will continue to operate at
a loss through the disposal date.  However,  management's  current best estimate
indicates that a gain will result from disposal of the discontinued operation.

YEAR 2000 COMPLIANCE

The Company's State of Readiness

In 1997, the Company established a project team to coordinate existing Year 2000
activities  and address  remaining  Year 2000  issues.  The team has focused its
efforts on three areas:  (1)  information  systems  software and  hardware;  (2)
software and operating systems included in the C-150 scanner and (3) third-party
relationships.

The Company has reviewed its primary  financial and other  business  information
systems and it believes  that the systems will be able to manage and  manipulate
all material data involving the transition from 1999 to 2000 without  functional
or data  abnormality  and without  inaccurate  results related to such data. The
Company primarily uses ASK computer system for its Enterprise  Resource Planning
(ERP) and will be upgraded to  Manufacturing  Knowledge (MK) computer  system in
1999 which is Y2K  compliant.  The main purpose of the upgrade is to accommodate
addtional users to the system and increases in data storage and processing.  Had
the Company decided to continue to use ASK computer system for its ERP, the cost
to  make  the it  Y2K  compliant  would  be  less  than  $50,000.  A  series  of
comprehensive  training classes for the MK system is scheduled to begin in March
1999. The Company  anticipates  the  conversion  from ASK to MK to start in June
1999 and fully  implemented by August 1999.  The Company  estimates the cost for
the conversion to be less than $700,000.

The Company has  reviewed  the  software  associated  with the  operation of its
scanners to ensure Year 2000 compliance.  The Company is currently upgrading its
software with the release of Series 12.4  software that allows  4-digit space on
its images and compatibility with previous software image data. This software is
workable on XP systems only. For non-XP systems, a hardware upgrade is necessary
in order for the Series 12.4 software to function. Although images from scanners
will have "00" for the year 2000, it will not affect their functionality. Should
the  customer  elect not to  purchase  the  upgrade,  the  Company is  currently
formulating a "functional workaround procedure" which will likely involve manual
labeling of images to indicate the  corrected  dates.  The Company  expects this
procedure to be in place and  communicated to all its affected  customers by the
second quarter of 1999.  Series 12.4 completed its beta testing and was released
in the first quarter of 1999.

The Company has contacted all its suppliers, especially sole-source vendors, and
a review is underway to ensure Year 2000 compliance.  While the Company believes
the issues  associated  with Year 2000  compliance  are being  addressed,  there
remains  the risk that  suppliers  may  encounter  disruptions  due to Year 2000
compliance or the costs associated with implementing computer system changes. To
date,  the  Company  has  received  formal  responses  from all of its  critical
suppliers.  Most of them have  responded  that they  expect to address all their
significant  Y2K issues on a timely  basis.  The Company  regularly  reviews and
monitors  the  suppliers'  Y2K  readiness  plans and  performance.  Based on the
Company's risk  assessment,  selective  on-site  reviews may be performed.  Risk
analysis has been completed with the Company's base of suppliers and contingency
plans are now being developed and tested. All testing is targeted to be complete
by June 1, 1999. In some cases, to meet Y2K readiness,  the Company has replaced
suppliers or eliminated  suppliers  from  consideration  for new  business.  The
Company has also  contracted with multiple  transportation  companies to provide
product delivery alternatives.
================================================================================
                                       20
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
The Company's Risks and Contingency Plan

The  Company is working to  identify  and  analyze  the most  likely  worst-case
scenarios for third-party  relationships  affected by Y2K. These scenarios could
include  possible  infrastructure  collapse,  the  failure  of power  and  water
supplies, major transportation disruptions,  unforeseen product shortages due to
hoarding of products  and  sub-assemblies  and  failures of  communications  and
financial  systems.  Any one of these  scenarios could have a major and material
effect on the  Company's  ability to build its products and deliver  services to
its customers.  While the Company has contingency plans in place to address most
issues under its control,  an  infrastructure  problem outside of its control or
some combination of several of these problems could result in a delay in product
shipments  depending  on the nature and  severity of the  problems.  The Company
would expect that most utilities and service  providers would be able to restore
service within days although more pervasive system problems  involving  multiple
providers  could last two to four weeks or more  depending on the  complexity of
the systems and the effectiveness of their contingency plans.

Although the Company is dedicating  substantial  resources towards attaining Y2K
readiness,  there  is no  assurance  it will be  successful  in its  efforts  to
identify and address all Y2K issues. Even if the Company acts in a timely manner
to  complete  all  of  its  assessments;  identifies,  develops  and  implements
remediation  plans  believed to be  adequate;  and  develops  contingency  plans
believed to be adequate,  some  problems may not be  identified  or corrected in
time to prevent material adverse consequences to the Company.

Estimated Costs

The Company does not expect the costs  associated  with its Year 2000 efforts to
be substantial. Less than $1,000,000 has been allocated to address the Year 2000
issue, of which  approximately  $300,000 has been incurred  through December 31,
1998. The Company's aggregate cost estimate does not include time and costs that
may be incurred by the Company as a result of the failure of any third  parties,
including  suppliers,  to become Year 2000  compliant or costs to implement  any
contingency  plans. The discussion above regarding  estimated  completion dates,
costs, risks and other forward-looking  statements regarding Y2K is based on the
Company's best estimates given  information  that is currently  available and is
subject  to  change.   As  the  Company  continues  to  progress  with  its  Y2K
initiatives,  it may discover that actual  results will differ  materially  from
these estimates.


ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the past the  Company has held  investments  consisting  of interest  bearing
investment grade instruments consistent with the Company's investment portfolio.
The Company has also entered into credit facilities and leasing arrangements. At
December 31, 1998,  the Company had money market mutual funds,  certificates  of
deposit  and   commercial   paper  which  mature  in  less  than  three  months.
Additionally,  the Company  maintained  leases for five  scanners that have been
accounted  for as capital  leases  with a total  obligation  of  $103,000  as of
December 31, 1998.

The Company's foreign sales are denominated in U.S. Dollars.

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

ITEM 8 - CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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


ITEM 9 - CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE
        
Not applicable.

================================================================================
                                       21
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================

                                    PART III

ITEM 10 - EXECUTIVE OFFICERS OF THE REGISTRANT

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


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

      Dr. Douglas P. Boyd      57    Chairman of the Board,
                                     Chief Technology Officer

      S. Lewis Meyer           54    Chief Executive Officer

      Terry Ross               51    President

      Gary H. Brooks           50    Vice President, Finance and Administration,
                                     Chief Financial Officer, Secretary

o    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.

o    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  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.
================================================================================
                                       22
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
o    Terry Ross was appointed President of Imatron in January 1999. From 1989 to
     1998,  Mr. Ross was  President,  Chief  Executive  Officer and  Director of
     Cemax-Icon,  Inc., a medical imaging  manufacturer.  Prior thereto,  he was
     Vice  President of Sales and  marketing of the Company.  Mr. Ross also held
     executive   sales  positions  at  Picker   International,   Inc.  and  ADAC
     Laboratories, Inc., all of which are medical imaging companies.

o    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  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  definitive proxy statement or as an amendment to the Form 10-K, under
cover of Form 8. The  information  required  in Part III will be filed  with the
Securities  Exchange  Commission  no later  than 120 days  after  the end of the
fiscal year.

                                     PART IV

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

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

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

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

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

  (b)   Form 8-K Reports: None


================================================================================
                                       23
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================



                                   SIGNATURES

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


Dated: March 1999                     IMATRON INC.
                                      -----------------------------------


                                 By:  /s/ S. Lewis Meyer
                                      -----------------------------------
                                      S. Lewis Meyer
                                      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
---------------------     ----------------------------------------    ----------

/s/ Douglas P. Boyd       Director, Chairman of the Board
---------------------
Douglas P. Boyd                                                       March 1999

/s/ William J. McDaniel   Director
---------------------
William J. McDaniel                                                   March 1999

/s/ John L. Couch         Director
---------------------
John L. Couch                                                         March 1999

/s/ S. Lewis Meyer        Director, Chief Executive Officer
---------------------     (Principal Executive Officer)
S. Lewis Meyer                                                        March 1999
                          

/s/ Terry Ross            Director, President
---------------------
Terry Ross                                                            March 1999

/s/ Aldo J. Test          Director
---------------------
Aldo J. Test                                                          March 1999

/s/ Gary H. Brooks        Chief Financial Officer, Vice President,
---------------------     Finance and Administration, Secretary
Gary H. Brooks            (Principal Financial Officer and            March 1999
                          Principal Accounting Officer)


================================================================================
                                       24
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================


                   Index to Consolidated Financial Statements

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

  Report of KPMG LLP, Independent Auditors                                 26

  Report of Ernst & Young LLP, Independent Auditors                        27

  Consolidated Balance Sheets as of December 31, 1998, and 1997            28

  Consolidated Statements of Operations for the years ended                29
  December 31, 1998, 1997, and 1996

  Consolidated Statements of Shareholders' Equity for the years            30
  ended December 31, 1998, 1997, and 1996

  Consolidated Statements of Cash Flows for the years ended                31
  December 31, 1998, 1997, and 1996

  Notes to Consolidated Financial Statements                               33





================================================================================
                                       25
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================


                    Report of KPMG LLP, Independent Auditors


The Board of Directors and Stockholders
Imatron Inc.:

We have audited the  consolidated  balance sheets of Imatron Inc. and subsidiary
as of December 31, 1998 and 1997,  and the related  consolidated  statements  of
operations,  shareholders'  equity,  and cash flows for the years then ended. In
connection with our audits of the  consolidated  financial  statements,  we have
also  audited  the  financial  statement  schedule  listed  in the index at Item
14(a)2. These consolidated financial statements and financial statement schedule
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these  consolidated  financial  statements  and  financial
statement schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Imatron Inc. and
subsidiary as of December 31, 1998 and 1997, and the results of their operations
and their cash flows for the years 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 LLP

San Francisco, California
February 12, 1999



================================================================================
                                       26
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================

                          Independent Auditors' Report



The Board of Directors and Stockholders
Imatron Inc.

We  have  audited  the  accompanying   consolidated  statements  of  operations,
shareholders'  equity and cash flows of Imatron Inc. for the year ended December
31,  1996  listed  in the  Index at Item 14 (a).  These  consolidated  financial
statements  and  schedule as it relates to the year ended  December 31, 1996 are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements 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 results of operations and the cash flows
of Imatron  Inc.  for the year ended  December  31,  1996,  in  conformity  with
generally  accepted  accounting  principles.  Also, in our opinion,  the related
financial  statement  schedule  for the year  ended  December  31,  1996,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly in all material respects the information set forth therein.

As discussed in Note 17 of the Notes to the Consolidated  Financial  Statements,
the Company has restated its 1996 consolidated  financial statements with regard
to accounting for convertible securities having beneficial conversion features.



                                                          ERNST & YOUNG LLP

San Francisco, California
February 14, 1997, except for Note 17,
as to which the date is April 10, 1998
================================================================================
                                       27
<PAGE>
<TABLE>
FY 1998                                                     IMATRON INC.                                                   FORM 10-K
====================================================================================================================================
<CAPTION>
                                                            IMATRON INC.
                                                     Consolidated Balance Sheets
                                                           (In thousands)

                                                                                                                December 31,
                                                                                                       -----------------------------
ASSETS                                                                                                    1998                1997
------
                                                                                                       ---------          ----------
Current assets
<S>                                                                                                    <C>                <C>      
    Cash and cash equivalents                                                                          $   1,445          $   8,400
    Short-term investments                                                                                  --                  180
    Accounts  receivable  (net of allowance for doubtful  accounts of $3,272
    and $2,490 at December 31, 1998 and 1997):
           Trade accounts receivable                                                                       7,228              9,267
           Accounts receivable from joint venture                                                            659                115
    Inventories                                                                                           14,433             12,926
    Prepaid expenses                                                                                         825                397
    Net current assets of discontinued operations                                                           --                4,697
                                                                                                       ---------          ---------

Total current assets                                                                                      24,590             35,982

Property and equipment, net                                                                                2,275              2,394
Other assets                                                                                               1,631              1,214
Long-term net assets of discontinued operations                                                            3,486              3,575
                                                                                                       ---------          ---------

Total assets                                                                                           $  31,982          $  43,165
                                                                                                       =========          =========

LIABLITIES AND SHAREHOLDERS' EQUITY

Current liabilities
    Accounts payable                                                                                   $   3,515          $   2,962
    Other accrued liabilities                                                                              7,978              6,961
    Capital lease obligations - due within one year                                                           64                 56
    Net current liabilities of discontinued operations                                                       220               --
                                                                                                       ---------          ---------

Total current liabilities                                                                                 11,777              9,979

    Deferred income on sale leaseback transactions                                                           875              1,376
    Deferred income on service contract                                                                      300                420
    Capital lease obligations                                                                                 39                 65
                                                                                                       ---------          ---------

Total liabilities                                                                                         12,991             11,840
                                                                                                       ---------          ---------

Minority interest - notes 10 and 17                                                                          331             14,255
                                                                                                       ---------          ---------

Shareholders' equity
    Common stock, no par value; 150,000 shares authorized; 88,295 and
    78,815 shares issued and outstanding in 1998 and 1997, respectively                                  107,475             90,728
    Additional paid-in capital                                                                             9,340              9,290
    Deferred compensation                                                                                   (170)              (232)
    Notes receivable from stockholders                                                                      (488)              --
    Accumulated deficit                                                                                  (97,497)           (82,716)
                                                                                                       ---------          ---------

Total shareholders' equity                                                                                18,660             17,070
                                                                                                       ---------          ---------

Total liabilities and shareholders' equity                                                             $  31,982          $  43,165
                                                                                                       =========          =========
<FN>
                       The accompanying notes are an integral part of these consolidated financial statements.
</FN>
====================================================================================================================================
                                                                 28
</TABLE>
<PAGE>
<TABLE>
FY 1998                                                     IMATRON INC.                                                   FORM 10-K
====================================================================================================================================

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

                                                                                                  Years ended December 31,
                                                                                         -------------------------------------------
                                                                                           1998             1997              1996
                                                                                         --------         --------         ---------
                                                                                                                          (Restated)
<S>                                                                                      <C>              <C>              <C>     
Revenues
   Product sales                                                                         $ 22,547         $ 27,368         $ 16,163
   Service                                                                                  6,863            4,949            3,660
   Development contracts                                                                    1,250            5,000            5,000
                                                                                         --------         --------         --------
        Total revenue                                                                      30,660           37,317           24,823
                                                                                         --------         --------         --------
Cost of revenues
   Product sales                                                                           16,931           19,747           14,545
   Service                                                                                  6,363            3,902            3,160
                                                                                         --------         --------         --------
        Total cost of revenues                                                             23,294           23,649           17,705
                                                                                         --------         --------         --------
Gross profit                                                                                7,366           13,668            7,118

Operating expenses
   Research and development                                                                 7,869            9,713            8,318
   Marketing and sales                                                                      4,456            3,749            3,014
   General and administrative                                                               4,576            4,121            3,851
                                                                                         --------         --------         --------
        Total operating expenses                                                           16,901           17,583           15,183
                                                                                         --------         --------         --------
Operating loss                                                                             (9,535)          (3,915)          (8,065)

Interest and other income                                                                     155              692            2,236
Interest expense                                                                              (20)             (27)             (63)
                                                                                         --------         --------         --------
Loss from continuing operations before provision for income taxes                          (9,400)          (3,250)          (5,892)

Provision for income taxes                                                                   --               --               --
                                                                                         --------         --------         --------
Loss from continuing operations                                                            (9,400)          (3,250)          (5,892)

Loss from discontinued operations                                                          (4,507)          (6,428)          (4,573)

Non cash return to minority interest                                                         (874)          (1,744)          (3,272)
                                                                                         --------         --------         --------
Net loss                                                                                 $(14,781)        $(11,422)        $(13,737)
                                                                                         ========         ========         ========
Net loss per common share:
    Loss from continuing operations - basic and diluted                                  $  (0.11)        $  (0.04)        $  (0.08)
                                                                                         ========         ========         ========
    Loss from discontinued operations - basic and diluted                                $  (0.05)        $  (0.08)        $  (0.06)
                                                                                         ========         ========         ========
    Net loss - basic and diluted                                                         $  (0.18)        $  (0.15)        $  (0.18)
                                                                                         ========         ========         ========
Number of shares used in basic and diluted per share calculations                        $ 83,941         $ 78,461         $ 74,406
                                                                                         ========         ========         ========
<FN>
                       The accompanying notes are an integral part of these consolidated financial statements.
</FN>
====================================================================================================================================
                                                                 29
</TABLE>
<PAGE>
<TABLE>
FY 1998                                                     IMATRON INC.                                                   FORM 10-K
====================================================================================================================================
<CAPTION>
                                                            IMATRON INC.
                                           Consolidated Statements of Shareholders' Equity
                                                           (In thousands)

                                           Common Stock           Additional     Deferred                   Accum-
                                    ----------------------------    Paid-in      Compen-       Notes        ulated
                                       Shares         Amount        Capital       sation     Receivable    Deficit       Total
                                    --------------  ------------  ------------   ---------   -----------  -----------  ----------
<S>                                        <C>      <C>           <C>            <C>         <C>          <C>          <C>         
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 costs                        4,559        11,348            --          --           --            --      11,348
Common stock issued for
   employee stock purchase
   plans, stock bonus, and the
   exercise of warrants and
   employee stock options                   4,410         5,324            --          --           --            --       5,324
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
Issuance of subsidiary's
   convertible Series A
   preferred stock                             --            --         5,890          --           --            --       5,890
Net loss                                       --            --            --          --           --      (13,737)    (13,737)
                                    --------------  ------------  ------------   ---------   -----------  -----------  ----------
Balances at December 31, 1996
(Restated)                                 77,919        89,223         7,390       (116)           --      (71,294)      25,203

Common stock issued for
   employee stock purchase
   plans, stock bonus and the
   exercise of warrants and
   employee stock options                     896         1,505            --          --           --            --       1,505
Deferred compensation from
   issuance of stock options by
   consolidated subsidiary                     --            --            --       (186)           --            --        (186)
Amortization of deferred compensation          --            --            --          70           --            --          70
Warrants issued for services                   --            --         1,750                                              1,750
Compensation expense related to
   the extension of the stock
   option exercise period                      --            --           150          --           --            --         150
Net loss                                       --            --            --          --                   (11,422)    (11,422)
                                    --------------  ------------  ------------   ---------   -----------  -----------  ----------
Balances at December 31, 1997              78,815        90,728         9,290       (232)           --      (82,716)      17,070

Common stock issued for
   employee stock purchase
   plans, stock bonus and the
   exercise of warrants and                 1,984         1,949            --          --           --            --       1,949
   employee stock options
Conversion of subsidiary's convertible
   series A preferred stock to
   company's common stock                   7,496        14,798            --          --            --           --      14,798
Amortization of deferred compensation          --            --            --          62            --           --          62
Non-cash expense related to
   non-cash warrants issued for                --            --            50          --            --           --          50
   services
Notes receivable from officers
   for exercise of stock options               --            --            --          --         (488)           --       (488)
Net loss                                       --            --            --          --            --     (14,781)    (14,781)
                                    --------------  ------------  ------------   ---------   -----------  -----------  ----------
Balances at December 31, 1998              88,295   $   107,475   $     9,340    $  (170)    $    (488)   $ (97,497)   $  18,660
                                    ==============  ============  ============   =========   ===========  ===========  ==========
<FN>
                      The  accompanying  notes  are an  integral  part of  these consolidated financial statements.
</FN>
====================================================================================================================================
                                                                 30
</TABLE>
<PAGE>
<TABLE>
FY 1998                                                     IMATRON INC.                                                   FORM 10-K
====================================================================================================================================
<CAPTION>
                                                            IMATRON INC.
                                               Consolidated Statements of Cash Flows
                                                           (In thousands)

                                                                                                    Years Ended December 31
                                                                                         -------------------------------------------
                                                                                           1998             1997             1996
                                                                                         --------         --------         --------
                                                                                                                          (Restated)
<S>                                                                                      <C>              <C>              <C>      
Cash flows from operating activities:
   Net loss                                                                              $(14,781)        $(11,422)        $(13,737)
   Adjustments to reconcile net loss to net cash used in operating
     activities:
       Depreciation and amortization                                                          780              665              614
       Net loss from discontinued operations                                                4,507            6,428            4,573
       Amortization of deferred compensation                                                   62               70               27
       Non-cash return to minority interest                                                   874            1,744            3,272
       Non-cash compensation expense for extension of stock option
       exercise period                                                                       --                150             --
       Warrant issued for services                                                             50              750             --
       Common stock issued for services                                                       503              270              269
       Provision for bad debt                                                                 782            1,381              171
       Loss (gain) on disposal of assets                                                       20                2              (43)
   Changes in operating assets and liabilities:
       Accounts and notes receivable                                                          713           (5,397)             712
       Inventories                                                                         (1,507)          (2,533)          (1,456)
       Prepaid expenses                                                                      (428)           1,198           (1,083)
       Other assets                                                                          (417)            (814)             152
       Accounts payable                                                                       553              501             (324)
       Other accrued liabilities                                                            1,017            1,062              330
       Deferred income                                                                       (621)             377              152
                                                                                         --------         --------         --------
Net cash used in operating activities:                                                     (7,893)          (5,568)          (6,371)
Net cash provided by (used in) discontinued operations                                        499           (2,426)         (15,604)
                                                                                         --------         --------         --------
                                                                                           (7,394)          (7,994)         (21,975)
                                                                                         --------         --------         --------
Cash flows from investing activities:
   Capital expenditures                                                                      (642)          (1,018)          (1,118)
   Purchases of available-for-sale securities                                                (885)          (8,982)          (6,078)
   Maturities of available-for-sale securities                                              1,065           14,880             --
   Maturities of held-to-maturity securities                                                 --               --              1,000
                                                                                         --------         --------         --------
Net cash (used in) provided by investing activities:                                         (462)           4,880           (6,196)
                                                                                         --------         --------         --------
Cash flows from financing activities:
   Payments of obligations under capital leases                                               (57)             (61)             (51)
   Payment of notes payable                                                                  --               --               (992)
   Proceeds from issuance of warrant                                                         --              1,000             --
   Proceeds from issuance of common stock                                                   1,446            1,235           16,672
   Loans to stockholders                                                                     (488)            --               --
   Proceeds from issuance of stock of discontinued operations                                --                  2           14,798
                                                                                         --------         --------         --------
Net cash provided by financing activities                                                     901            2,176           30,427

Net (decrease) increase in cash and cash equivalents                                       (6,955)            (938)           2,256
Cash and cash equivalents, at beginning of year                                             8,400            9,338            7,082
                                                                                         --------         --------         --------
Cash and cash equivalents, at end of year                                                $  1,445         $  8,400         $  9,338
                                                                                         ========         ========         ========


====================================================================================================================================
                                                                 31
<PAGE>
FY 1998                                                     IMATRON INC.                                                   FORM 10-K
====================================================================================================================================

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

Supplemental Disclosure of Noncash Investing and Financing Activities:
   Deferred compensation from common stock option grant of
     discontinued operations                                                             $   --           $    186         $    143
                                                                                         ========         ========         ========
   HeartScan's conversion of preferred stock to Imatron common stock
                                                                                         $ 14,798         $   --           $   --
                                                                                         ========         ========         ========
   Equipment acquired under capital leases:
       Continuing operations                                                             $     39         $   --           $     10
                                                                                         ========         ========         ========

       Discontinued operations                                                           $   --           $  1,500         $  2,705
                                                                                         ========         ========         ========

   Cash paid for interest on capital lease obligations:
       Continuing operations                                                             $     20         $     27         $     59
                                                                                         ========         ========         ========

       Discontinued operations                                                           $    390         $    494         $    523
                                                                                         ========         ========         ========

   Cash paid for income taxes                                                            $   --           $   --           $   --
                                                                                         ========         ========         ========
<FN>
                       The accompanying notes are an integral part of these consolidated financial statements.
</FN>
====================================================================================================================================
                                                                 32
</TABLE>
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================

                                  IMATRON INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                December 31, 1998

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.  Imatron Inc. provides service, parts, and maintenance to hospitals and
clinics that operate its scanners, as well as medical equipment  manufactured by
other  companies.   In  addition,   HeartScan  Imaging,   Inc.,  Imatron  Inc.'s
consolidated  subsidiary,  operates  coronary artery scanning test facilities in
the United States.

BASIS OF CONSOLIDATION

The consolidated  financial  statements include the accounts of Imatron Inc. and
its 94.3% owned subsidiary HeartScan Imaging, Inc. All intercompany accounts and
transactions  have been  eliminated  in  consolidation.  Due to  certain  equity
exchange provisions  provided to HeartScan Series A preferred  shareholders (see
note 10),  HeartScan's results of operations have been fully consolidated in the
accompanying consolidated financial statements.

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

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.

COMPREHENSIVE INCOME (LOSS)

In June 1997,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting Standards No. 130, "Reporting  Comprehensive  Income" (SFAS
130),  which is effective for financial  statements for periods  beginning after
December  15, 1997,  and  establishes  standards  for  reporting  and display of
comprehensive  income (loss) and its components in a full set of general purpose
financial  statements.  The Company  adopted SFAS 130 as of January 1, 1998. The
Company, however, does not have any components of comprehensive income (loss) as
defined by SFAS 130 and  therefore,  for the years ended  December 31, 1998 1997
and 1996, comprehensive income (loss) is equivalent to the Company's net loss.

SEGMENT INFORMATION

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 is effective  for financial  statements  beginning
after  December  15, 1997,  and  establishes  standards  for  disclosures  about
segments of an enterprise.  The Company  adopted SFAS 131 as of January 1, 1998.
The Company has two reportable  segments,  the  manufacturer of scanners and the
operator of coronary artery scanning test facilities.

================================================================================
                                       33
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================

NEW ACCOUNTING STANDARDS

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial Accounting  Standards No. 133, "Accounting for Derivative  Instruments
and Hedging  Activities"  (SFAS 133),  which will be effective  for fiscal years
beginning  after June 15, 1999.  The Company does not believe that the impact of
this statement will have a material effect on the financial  position or results
of operations upon the adoption of this accounting standard.

CONCENTRATIONS OF RISK

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

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

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.

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   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 as a separate  component of
other comprehensive  income (loss), if material.  Fair values of investments are
based on quoted  market  prices.  Short-term  investments  at December  31, 1997
consist of  certificates  of deposit.  There were no short-term  investments  at
December 31, 1998.

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

The carrying  amounts  reported in the balance sheet for  receivables,  accounts
payable,  accrued  liabilities and capital lease  obligations  approximate  fair
value due to their short-term maturities.
================================================================================
                                       34
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================

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. Parts that are not
defined as obsolete  are  classified  into  different  subsections.  The reserve
percentages  for each  subsection  represent  the  total  value of parts in each
subsection that have the potential to be obsolete in the next 12 months.

PROPERTY AND EQUIPMENT

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

Estimated useful lives are as follows:

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

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

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

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

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.
================================================================================
                                       35
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================

REVENUE RECOGNITION

Revenues  related to product sales are recognized  upon shipment to the customer
or to a customer designated location,  at which time title and risk of ownership
passes. The Company accrues for estimated installation and warranty costs at the
time of sale.  Revenues  related  to service  are  recognized  ratably  over the
relevant  contractual  period or as the service is  performed.  Service  revenue
billed but  unearned  is included on the  consolidated  balance  sheets as other
accrued  liabilities.  Revenues related to development  contracts are recognized
ratably over the contract  (see note 8).  Revenues  from clinics are  recognized
when services are performed for the clinic customer.

SALE LEASEBACK ARRANGEMENT

The  Company  sold one scanner in 1997 and two  scanners in 1996 to  third-party
leasing companies.  HeartScan,  in turn, entered into leasing  arrangements with
these  third-party  leasing  companies  to obtain use of these  scanners  in its
clinics.  The provisions of these leasing  arrangements  include  monthly rental
payments  over a 5-year  term  with a  guarantee  of the  payments  by  Imatron.
HeartScan  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  recognized
$501,000,  $501,000  and  $428,000 of deferred  profit for these  leases for the
years ended December 31, 1998, 1997 and 1996, respectively.

RESEARCH AND DEVELOPMENT

Research and development expenditures are charged to operations as incurred.

ADVERTISING COSTS

Advertising and promotion costs are expensed as incurred.

INCOME TAXES

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

NET LOSS PER SHARE

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

STOCK-BASED COMPENSATION

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

Additionally,  the Company accounts for deferred compensation in accordance with
FASB  Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other
Variable Stock Option or Award Plans".

================================================================================
                                       36
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================

Note 2 - FINANCIAL INSTRUMENTS

Investments were as follows:

                                                              December 31,
                                                     ---------------------------
                                                         1998            1997
                                                     -----------     -----------
                                                            (In thousands)

Money market mutual funds                                $ 1,113          $ 924
Certificate of deposit                                       189            180
Commercial paper                                             143          7,476
                                                     -----------     -----------
Total investments                                          1,445          8,580

Less amounts classified as cash and cash equivalents      (1,445)        (8,400)
                                                     -----------     -----------

Short-term investments                                   $ --             $ 180
                                                     ===========     ===========

Note 3 - INVENTORIES

Inventories were as follows:

                                                              December 31,
                                                     ---------------------------
                                                         1998            1997
                                                     -----------     -----------
                                                            (In thousands)

Purchased parts and sub-assemblies                       $ 2,863        $ 3,212
Service parts                                              1,883          1,398
Work-in-progress                                           3,177          3,611
Finished products                                          6,510          4,705
                                                     -----------     -----------

                                                        $ 14,433       $ 12,926
                                                     ===========     ===========

Note 4 - PROPERTY AND EQUIPMENT, NET

Property and equipment, at cost, were as follows:

                                                              December 31,
                                                     ---------------------------
                                                         1998            1997
                                                     -----------     -----------
                                                            (In thousands)

Machinery and equipment                                  $5,697         $ 5,537
Furniture and fixtures                                    1,234           1,027
Leasehold improvements                                    2,153           2,181
                                                     -----------     -----------
                                                          9,084           8,745

Less accumulated depreciation and amortization           (6,809)        (6,351)
                                                     -----------     -----------

                                                         $2,275         $ 2,394
                                                     ===========     ===========

================================================================================
                                       37
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================

Note 5 - OTHER ACCRUED LIABILITIES

Other accrued liabilities were as follows:

                                                              December 31,
                                                     ---------------------------
                                                         1998            1997
                                                     -----------     -----------
                                                            (In thousands)

Warranty and product upgrades                             $2,175          $2,322
Customer deposits                                            841           1,954
Employee compensation                                      1,090             735
Deferred service revenues                                  1,619             663
Other                                                      2,253           1,287
                                                     -----------     -----------

                                                          $7,978          $6,961
                                                     ===========     ===========

Note 6 - LINE OF CREDIT

As of December 31, 1997,  the Company had $5,000,000  available  under a line of
credit  secured by foreign  receivables  that expired in August 1998. No amounts
were outstanding as of December 31, 1997.  Interest under the line of credit was
computed  based on the average  daily loan balance at a rate equal to prime plus
0.25%.

Note 7 - RELATED PARTY TRANSACTIONS

JOINT VENTURE COMPANY

In 1994,  the  Company  formed a joint  venture,  Imatron  Japan,  Inc.  ("Joint
Venture") with two unrelated parties.  Imatron holds a 24% interest in the Joint
Venture,  which is carried at no value in the accompanying  consolidated balance
sheets.  The Company  expensed the $20,000  investment  upon payment.  The Joint
Venture  agreement  between  Imatron and Imatron  Japan,  Inc.  does not require
additional  funding by Imatron.  Imatron is prepared to abandon its  interest in
the Joint Venture, which is being funded by the other Joint Venture partners.

The Company  recognized  revenues of  $2,800,000,  $4,648,000  and $8,726,000 in
1998,  1997,  and 1996,  respectively,  from sales to the Joint  Venture and has
$1,982,000  and  $1,438,000  in accounts  receivable  from the Joint  Venture at
December 31, 1998 and 1997,  respectively.  All scanner sales to Imatron  Japan,
Inc. are sold under irrevocable letters of credit without a right of return.

POSITRON CORPORATION

In conjunction with the execution of a letter of intent and the January 25, 1999
consummation  of a purchase  business  combination  (see Note 18) with  Positron
Corporation ("Positron"),  the Company made working capital advances to Positron
under a $600,000 credit facility.  The financing bears interest at 1/2% over the
prime  rate,  is due March 1, 2000 and is secured by all of  Positron's  assets.
Positron  has  been  operating  under  severe   liquidity  and  working  capital
constraints.  At December 31, 1998,  Imatron advanced to Positron $600,000 under
this credit facility which has been included in other assets.
================================================================================
                                       38
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================

NOTES RECEIVABLE FROM OFFICERS

At December  31,  1998,  the Company  held three notes  receivable  amounting to
$336,000,  $115,000 and $37,000 from the Company's Chief Executive Officer,  the
Chairman of the Board,  and the Chief  Financial  Officer,  respectively.  These
notes arose from transactions in 1998, whereby the Company provided loans with a
term of one year for the  purchase of 925,000  shares of common  stock under the
Company's  stock option plan.  Interest is charged at the applicable  short-term
federal  rates  as  prescribed  by  the  Internal  Revenue  Service  and  is due
quarterly.  The loans are full  recourse  and  collateralized  by the  shares of
common stock and the personal  property of the  executives.  The  receivable  is
shown on the balance sheet as a reduction in equity.

Note 8 - COLLABORATION AGREEMENTS

SIEMENS CORPORATION

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

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

TERARECON INC.

On July 22, 1997,  the Company and  TeraRecon  Inc.,  a technology  company that
produces  high speed  image  processing  devices for  medical  imaging  systems,
entered into a development agreement whereby TeraRecon 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 CT scanners with RTR-2000 systems sold to third parties.

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. In
March  1998,  the  Company  issued  another  warrant to  TeraRecon  to  purchase
1,000,000  shares of the Company's  common stock at $4.50 per share at no charge
for the delivery of the first Prototype II unit.
================================================================================
                                       39
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
In February  1999,  the Company and TeraRecon  agreed to modify the  development
agreement by releasing TeraRecon from its obligation to purchase 2,000,000 stock
purchase warrant for $1,000,000. In addition,  TeraRecon has agreed to develop a
more stable,  reliable, and easier-to-maintain image reconstruction system at no
additional  cost to  Imatron  and  upgrade  five units of the  current  RTR-2000
systems for no more than  $25,000 per unit.  Imatron has agreed to cancel the 3%
royalty payment per unit per the original agreement.

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

GENERAL ELECTRIC MEDICAL SYSTEMS

On July 1, 1998, the Company entered into a non-exclusive  distributor agreement
with GE Medical  Systems  (GEMS) to sell  Ultrafast CT scanners  throughout  the
United States and Canada.  The agreement  provides that all contracts  resulting
from the joint  marketing  effort are written  directly by the Company.  Imatron
assumes  installation  and  customer  service  activities,  while GEMS  provides
financing  options for customers  purchasing the  equipment.  The contract has a
term of two years with an option to extend for an additional year at GEMS's sole
discretion. This agreement does not constitute a licensing or transfer of any of
Imatron's  intellectual  property to GEMS.  The Company has agreed to pay GEMS a
commission on all sales directly resulting from the Company's corporate alliance
with GEMS.

Note 9 - COMMITMENTS and CONTINGENCIES

OPERATING LEASES

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

          1999                     $ 1,173
          2000                       1,223
          2001                       1,261
          2002                       1,310
          2003                       1,385
          Thereafter                   232
                            ================
          Total                    $ 6,584
                            ================

Rent expense for operating  leases  totaled  $972,000,  $914,000 and $819,000 in
1998, 1997, and 1996, respectively.

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, 1998,  equipment under the
capital lease  arrangements  and included in property and  equipment  aggregated
$275,000. Accumulated amortization related to this equipment totaled $182,000 as
of December 31, 1998.
================================================================================
                                       40
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
Future minimum lease  payments  under capital lease  obligations at December 31,
1998, are as follows (in thousands):

          1999                                                $ 74
          2000                                                  18
          2001                                                  10
          2002                                                  10
          2003                                                   7
                                                      ---------------
          Total minimum payments                               119

          Less amounts representing interest                  (16)
                                                      ---------------
          Total principal                                      103

          Less portion due within one year                    (64)
                                                      ===============
          Long-term portion                                     39
                                                      ===============

Deferred  income on  sale-leaseback  transactions  amounted  to  $1,491,000  and
$1,992,000 at December 31, 1998 and 1997, respectively.

Interest paid on long-term  obligations  including capital lease obligations was
$20,000, $27,000 and $63,000 in 1998, 1997, and 1996, 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 Imatron Associates (the predecessor to the
Company).  In June 1986, the license and sublicense  agreements  were amended to
extend the Company's  exclusive use of the technology through the remaining life
of the patent  #4,352,021,  "X-ray  Transmission  Scanning System and Method and
Electron Beam X-ray Scan Tube for Use Therewith" in exchange for modified annual
royalty  payments to Emersub equal to 2.125% of net sales of certain  components
of the C-150 Ultrafast scanner.  The Company is obligated to make annual royalty
payments through January 7, 2000. Charges to operations for 1998, 1997, and 1996
were $158,000, $179,350 and $91,470, respectively.

Pursuant to the 1995  Memorandum  of  Understanding  with  Siemens,  the Company
transferred  five  patents  to  Siemens,  two of  which  cover  features  of the
Company's  C-150  scanner.  Siemens has granted to the Company a  non-exclusive,
irrevocable,  perpetual license to the five patents. The license is subject to a
royalty  of  $20,000  for each new C-150  unit (or other  EBT unit  produced  by
Imatron after April 1, 1995),  commencing  with the 21st C-150 (or other Imatron
EBT) unit  produced in any year and  continuing  thereafter  for ten years after
such first quarter in which such 21st unit is produced. To date, Imatron has not
produced  more than 20 scanners in any year and,  therefore,  no royalties  have
been due under this agreement.

Note 10 - CAPITAL STOCK

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.

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.
================================================================================
                                       41
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================

HEARTSCAN PREFERRED STOCK

HeartScan has authorized  1,000,000  shares of .001 par value  preferred  stock.
There are 200,000 issued and outstanding shares at December 31, 1998 and 1997 of
which 100,000 shares have been designated "Series A Preferred Stock" and 100,000
have been designated "Series B Preferred Stock."

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

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

Each share of Series A and B Preferred  Stock is convertible  into ten shares of
HeartScan  common  stock  at any  time  but  conversion  is  mandatory  upon the
successful completion of a HeartScan initial public offering.  Additionally, the
Series A Preferred  Stock is  convertible  at the sole option of the holder into
Imatron  common stock at an exchange  price of $5.00 per share until the earlier
of a) a two-year period following  closing of the Preferred Stock offering (June
26, 1998); or b) a HeartScan  initial public offering.  If there is no HeartScan
initial public  offering by June 26, 1998,  Series A Preferred Stock holders may
convert the HeartScan  Series A Preferred  Stock into Imatron  common stock at a
conversion  price equal to the greater of $1.50 per share or a 27% discount from
the weighted average closing price of Imatron common stock for the 90-day period
immediately  preceding the  conversion.  Conversion may occur beginning June 26,
1998 and for each date that is three months thereafter to and including June 26,
2000.

Imatron was the holder of the Series B Preferred  Stock at December 31, 1998 and
1997.

The Series A Preferred  Stock was sold on June 26,  1996 in a private  placement
offering  at $160 per share  which  realized  net  proceeds  to the  Company  of
$14,798,000.  The  investment  by the Series A Preferred  Stock holders has been
accounted for as a minority interest holding in HeartScan with $5,890,000 of the
proceeds  being  allocated  to paid-in  capital for the  intrinsic  value of the
Imatron  beneficial  conversion feature (see Note 17). Minority interest expense
of $874,000,  $1,744,000 and $3,272,000 has been recognized for the amortization
of the beneficial conversion feature for 1998, 1997 and 1996, respectively.

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

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.
================================================================================
                                       42
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================

WARRANTS

A summary of the Company's  outstanding  warrants as of December 31, 1998,  1997
and 1996 and  changes  during  the  years  then  ended is  presented  below  (in
thousands, except per share amounts):
<TABLE>
<CAPTION>

                                                                       Warrants to Purchase      Weighted Average        Range of
                                                                           Common Shares          Exercise Price    Expiration Dates
                                                                       --------------------      ----------------   ----------------

<S>                                                                              <C>                     <C>             <C>       
Outstanding at December 31, 1995                                                 3,567                   1.40            1996 -1999
Issued                                                                           2,826                   3.25
Exercised                                                                       (3,222)                  1.28
Cancelled                                                                         --                                            --
                                                                                ------                   ----            -----------

Outstanding at December 31, 1996                                                 3,171                   3.17            1997 - 2000
                                                                                ======                   ====            ===========

Issued                                                                           3,277                   4.34
Exercised                                                                         (284)                  1.98
Cancelled                                                                         --                      --                    --
                                                                                ------                   ----            -----------

Outstanding at December 31, 1997                                                 6,164                   3.85            1998 - 2002
                                                                                ======                   ====            ===========

Issued                                                                           1,130                   4.22
Exercised                                                                         (213)                  1.82
Cancelled                                                                         --                      --                    --
                                                                                ------                   ----            -----------

Outstanding at December 31, 1998                                                 7,081                   3.97            1999 - 2002
                                                                                ======                   ====            ===========
<FN>
                              Charges to operations relating to the issuance of these warrants totaled
                                   $50,000, $750,000 and $0 in 1998, 1997 and 1996, respectively.
</FN>
</TABLE>

COMMON STOCK RESERVED

At December 31, 1998, the Company has reserved shares of common stock for future
issuances as follows (in thousands):

                    Stock option  plans                                    3,962
                    Stock options outside the plans                        1,500
                    Stock purchase plan                                      345
                    Stock warrants                                         7,081
                    Stock bonus plans                                        388
                                                                         -------
                           Total                                          13,276
                                                                         =======

Note 11 - 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  285,250,  97,655 and 19,409
shares under the plan in 1998, 1997, and 1996,  respectively.  Accordingly,  the
Company  recorded  compensation  expense  equal to the fair  value of the  stock
issued  amounting  to  $460,000,  $261,000  and $69,000 in 1998,  1997 and 1996,
respectively.
================================================================================
                                       43
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================

EMPLOYEE STOCK PURCHASE PLAN

In March 1994, the Company adopted an employee stock purchase plan covering most
employees.  Under  the  plan,  employees  may  contribute  up to  10%  of  their
compensation to purchase  shares of the Company's  common stock at the lesser of
85% of the stock's  fair market value at the  beginning of the initial  offering
period or end of each three-month interim offering period. The maximum number of
shares  offered under the Plan is 1,800,000  shares of common stock.  A total of
188,863,  193,208 and 228,222  shares were issued at weighted  average  purchase
price of $1.76, $2.06 and $1.44 per share in 1998, 1997, and 1996, respectively.
The  weighted  average  fair value of the purchase  rights  associated  with the
employee stock purchase plan were $0.29, $0.34 and $0.00 in 1998, 1997 and 1996,
respectively.

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.

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

                                               1998        1997        1996
                                            ---------    --------    --------

       Expected stock price volatility        80.20%      80.20%       80.20%
       Risk-free interest rate                 5.50%       6.27%        6.25%
       Expected life - years                   7.53        3.54         3.64
       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 except per share amounts):

                                                     1998      1997       1996
                                                   --------  --------   --------

Net loss - as reported                             ($14,781) ($11,422) ($13,737)
Net loss - pro forma                               ($15,763) ($12,516) ($14,156)
Basic and diluted-net loss per share-as reported     ($0.18)   ($0.15)   ($0.18)
Basic and diluted-net loss per share-pro forma       ($0.19)   ($0.16)   ($0.19)

The weighted  average fair value of options  granted in 1998, 1997 and 1996 were
$1.92, $2.57 and $2.63 per share,  respectively.  The weighted average remaining
contractual life of all options at December 31, 1998, is 5.47 years.

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

DIRECTOR STOCK OPTION PLAN

In June 1991, the Company  adopted a non-employee  Directors'  Stock Option Plan
for the  directors of Imatron.  The  Directors  Plan  provides for the automatic
grant of  non-statutory  options to non-employee  directors.  The Directors Plan
initially  covered 250,000 shares of the Company's common stock. In June 1993 an
amendment to the non-employee  Directors Plan was approved increasing the number
of shares to 550,000.
================================================================================
                                       44
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
On July 13, 1998 at the annual meeting, the shareholders  approved the Company's
Amended and Restated Directors' Stock Option Plan, and an increase in the number
of  authorized  shares of common  stock  thereunder,  from  550,000 to 1,000,000
shares.

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

EMPLOYEE STOCK OPTION PLAN

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

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

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

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

All incentive  stock options are granted at the common stock's fair market value
at the grant date and  non-statutory  stock options are granted at not less than
85% of the common stock's fair market value at the grant date.  Options  granted
prior to 1998 under the plan generally vest evenly over four years following the
grant date and expire  five years from the grant date.  Options  granted in 1998
generally vest evenly over four years and expire 10 years subsequent to the date
of grant.
================================================================================
                                       45
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
A summary of the activity under the Imatron stock option plans is as follows (in
thousands, except per share amounts):

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

<S>                                                             <C>                <C>              <C>                     <C>    
Balances at December 31, 1995                                   2,672              3,385            $0.43 - $1.22           $ 2,739

  Options expired                                                  (6)              --              $0.51 - $0.56                (3)
  Options granted                                                (514)               514            $2.06 - $5.00             1,060
  Options exercised                                              --                 (940)           $0.51 - $2.06              (795)
  Options canceled                                                102               (102)           $0.56 - $1.22               (93)
                                                              -------            -------            -------------           -------

Balances at December 31, 1996                                   2,254              2,857            $0.43 - $5.00           $ 2,908

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

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

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

Balances at December 31, 1998                                     478              3,484            $0.61 - $5.00             5,920
                                                              =======            =======            =============           =======
</TABLE>
The following table summarizes  information concerning Imatron's outstanding and
exercisable  options as of  December  31, 1998 (in  thousands,  except per share
amounts):

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

<S>     <C>                            <C>                 <C>                 <C>                   <C>       <C>  
        $0.61 - $2.00                  2,431               6.24                $1.34                   870     $1.09
        $2.01 - $3.50                    978               3.80                $2.36                   516     $2.30
        $3.51 - $5.00                     75               2.59                $4.66                    63     $4.79
                             ----------------     ----------------    -----------------     --------------    ------------
                                       3,484               5.47                $1.70                 1,449     $1.68
                             ================     ================    =================     ==============    ============
</TABLE>
Options for 1,448,685,  2,185,394 and 1,588,533  shares of the Company's  common
stock were  exercisable  under the plans at December 31, 1998, 1997, and 1996 at
an  aggregate   exercise  price  of  $2,435,529,   $2,527,620  and   $1,460,599,
respectively.
================================================================================
                                       46
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
In October 1995, HeartScan approved the adoption of the HeartScan Imaging,  Inc.
1995 Stock Option Plan ("HSI Stock Option Plan") which provides for the granting
of  incentive  stock  options to employees  and  nonstatutory  stock  options to
employees,  nonemployee directors, and certain consultants.  All incentive stock
options are granted at the common  stock's  fair market value at the grant date,
and  nonstatutory  stock  options are granted at not less than 85% of the common
stock's  fair market  value at the grant date.  Options  granted  under the plan
generally  vest  annually  over four years  following  the grant date and have a
maximum term of ten years.

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

<TABLE>
                                                Shares               Number of        Aggregate            Aggregate
                                             available for            shares          Price per            exercise
                                                 grant              outstanding         share                price
                                            -----------------    ----------------   ----------------     ----------------
<S>                                                  <C>                <C>           <C>                       <C>
Balances at December 31, 1995                        138                113           $0.001                    $--

Shares granted                                       (75)                75           $0.10                     $8
Options exercised                                     --                (73)          $0.001                    --
                                            -----------------    ----------------   ----------------     ----------------

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

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

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

 Options exercised                                     --                  (9)          $0.05                    --
 Options canceled                                      48                 (48)          $0.25                 $(12)
                                            -----------------    ----------------   ----------------     ----------------

 Balances at December 31, 1998                        207                  173          $0.18                   $32
                                            =================    ================   ================     ================
</TABLE>

The following table summarizes information  concerning  HeartScan's  outstanding
and exercisable options as of December 31, 1998 (in thousands,  except per share
amounts):

<TABLE>
                                                          Options Outstanding                     Options Exercisable
                                              --------------------------------------    ----------------------------------
                                                 Weighted                                  Weighted
                                                  Average             Weighted              Average
                                                 Remaining            Average               Number
          Range of           Number of          Contractual           Exercise                of              Exercise
       Exercise Prices        Shares               Life                Price                Shares              Price
-----------------------     --------------    ---------------    -------------------    ----------------    --------------
<S>     <C>                         <C>          <C>                    <C>                     <C>             <C>  
        $0.10 - $0.25               173          7.68                   $0.18                   131             $0.16
                            --------------    ---------------    -------------------    ----------------    --------------
                                    173          7.68                   $0.18                   131             $0.16
                            ==============    ===============    ===================    ================    ==============
</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.

Certain  options  were  granted to an officer of the Company  outside of the HSI
Stock  Option plan with  exercise  prices less than the fair market value of the
stock at the date of grant.  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, $62,000,  $70,000 and $27,000
have  been  recognized  as   compensation   expense  in  1998,  1997  and  1996,
respectively.  The  remaining  $168,000  will be recognized as an expense as the
shares vest over a period of up to four years.
================================================================================
                                       47
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================

Note 12 - 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  $281,000,   $259,000  and  $212,000  in  1998,  1997,  and  1996,
respectively.

Note 13 - 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):

<TABLE>
                                                                                              1998                1997
                                                                                     ----------------    ----------------
<S>                                                                                        <C>                <C>     
           Deferred tax assets:
            Net operating loss carryforwards                                               $31,135            $ 26,890
            Federal credit carryforwards                                                     1,767                 970
            Expenses not currently deductible for tax purposes                               7,041               6,478
            Deferred revenue previously taxed                                                  376                 394
            Other                                                                              264                 265
                                                                                     ----------------    ----------------
            Deferred tax assets                                                             40,763              34,997

           Valuation allowance                                                            (37,353)            (32,081)
                                                                                     ----------------    ----------------

           Net deferred tax assets                                                           3,410               2,916
                                                                                     ----------------    ----------------

           Deferred tax liabilities:
            State income taxes                                                               1,066                 764
            Other                                                                            2,344               2,152
                                                                                     ----------------    ----------------
           Deferred tax liabilities                                                          3,410               2,916
                                                                                     ----------------    ----------------

            Net deferred taxes                                                                $ --                 $--
                                                                                     ================    ================
</TABLE>
The net  change  in the  valuation  allowance  was  $5,272,000,  $3,243,000  and
$6,431,000 for 1998, 1997 and 1996, respectively, principally resulting from net
operating loss carryforwards.

The   reconciliation  of  income  tax  attributable  to  continuing   operations
calculated at the U.S.  federal  statutory  rate to the effective tax rate is as
follows:
                                          1998          1997         1996
                                    ----------    ----------    ---------
   Federal statutory rate                (34%)         (34%)         (34%)
   Valuation allowance                    34%           34%           34%
                                    ==========    ==========    =========
   Effective tax rate                      0%            0%           0%
                                    ==========    ==========    =========
================================================================================
                                       48
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
Due to the issuance of preferred stock which occurred June 26, 1996, utilization
of the net operating loss and tax credit  carryforwards  for the Company and its
subsidiary, HeartScan, will be subject to separate return limitations.

At December 31,  1998,  the Company has net  operating  loss  carryforwards  for
federal  and  state  income  tax  purposes  of  approximately   $70,445,000  and
$9,745,000, respectively. Additionally, the Company has research and development
and alternative minimum tax credit carryforwards of approximately  $1,767,000 at
December 31, 1998. The net operating loss and the research and  development  tax
credit  carryforwards  expire in  various  years  from  1999  through  2018.  In
addition,  HeartScan has net operating loss  carryforwards for federal and state
income purposes of approximately  $17,966,000 and $4,201,000  respectively.  The
net operating loss carryforwards expire in various years from 1999 through 2018.

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 14 - NET LOSS PER SHARE

The  computation  of basic and diluted  loss per share for both  continuing  and
discontinued operations for the years ended December 31, 1998, 1997 and 1996 are
as follows:
<TABLE>
                                                                                  1998              1997             1996
                                                                            ----------------  ----------------  -------------
                                                                                 (In thousands, except per share amounts)

<S>                                                                         <C>               <C>               <C>        
Loss from continuing operations                                             $    (9,400)      $    (3,250)          (5,892)
                                                                            ================  ================  =============
Loss from discontinued operations                                           $    (4,507)      $    (6,428)      $   (4,573)
                                                                            ================  ================  =============
Net loss                                                                    $   (14,781)      $   (11,422)      $  (13,737)
                                                                            ================  ================  =============

Weighted average common shares - basic and diluted                               83,941            78,461           74,406
                                                                            ================  ================  =============

Basic and diluted loss per share:
     Loss from continuing operations                                        $     (0.11)      $     (0.04)      $    (0.08)
                                                                            ================  ================  =============
     Loss from discontinued operations                                      $     (0.05)      $     (0.08)      $    (0.06)
                                                                            ================  ================  =============
     Net loss                                                               $     (0.18)      $     (0.15)      $    (0.18)
                                                                            ================  ================  =============

Antidilutive options and warrants not included in calculation                       986             3,114            2,608
                                                                            ================  ================  =============
</TABLE>

Note 15 - ENTERPRISE WIDE SEGMENT DISCLOSURES

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.,  operates centers that perform
the  coronary  artery  scan  procedures.  The Company is  currently  selling its
interests in HeartScan (see Note 16).
================================================================================
                                       49
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
Foreign  based  revenues  relate to the sale of  scanners  by the  Company.  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):

                                            1998          1997         1996
                                        ----------    ----------   ----------

United States ( a )                       $ 12,931       $ 2,803      $ 2,747
Europe ( b )                                 2,326         5,064        1,748
Japan ( c )                                  2,800         4,200        7,150
Asia Pacific ( d )                              --        10,896        1,500
South Africa                                    --         2,130           --
Dubai                                        1,837            --           --
Brazil                                       1,880            --           --
                                        ----------    ----------   ----------

    Total scanner sales (e)                 21,774        25,093       13,145

    Sale leaseback profit recognized           501           501          428
    Upgrade sales                              272         1,774        2,590
                                        ----------    ----------   ----------

    Total product sales                   $ 22,547      $ 27,368     $ 16,163
                                        ==========    ==========   ==========

(a) Sales to third-party leasing companies under the sale-leaseback transactions
    amounted to  $1,774,000 in 1996.  Sales to Siemens  amounted to $800,000 and
    $1,603,000 in 1998 and 1997, respectively.

(b) Sales to Siemens  amounted to $926,000,  $4,137,000  and $1,748,000 in 1998,
    1997 and 1996,  respectively.  Sales to third-party  leasing companies under
    the sale-leaseback transactions amounted to $927,000 in 1997.

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

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

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

Note 16 - DISCONTINUED OPERATION -- SALE OF HEARTSCAN SUBSIDIARY

On July 13, 1998 (the  measurement  date),  the Company adopted a formal plan to
sell  its  HeartScan   subsidiary  in  order  for  the  Company  to  focus  more
comprehensively  on the core  business  of  manufacturing  and  serving  quality
Ultrafast CT  scanners.  Accordingly,  the  operating  results of the  HeartScan
operations are reflected as discontinued operations for all periods presented in
the  Company's  statements  of  operations  and as net assets  (liabilities)  of
discontinued operations in the December 31, 1998 and 1997 balance sheets.

HeartScan statements of operations data are as follows (in thousands):

                                        1998           1997            1996
                                    -----------    -----------    ------------

Revenues                               $3,996         $2,542          $1,293
Costs and expenses                     (8,503)        (8,970)         (5,866)
                                    -----------    -----------    ------------
Loss before income taxes               (4,507)        (6,428)         (4,573)

Provision for income taxes                 --             --              --
                                    -----------    -----------    ------------
Loss from discontinued operations    $ (4,507)      $ (6,428)       $ (4,573)
                                    ===========    ===========    ============

HeartScan statements of operations include costs of sales of $602,000,  $436,000
and $366,000 in 1998, 1997 and 1996, respectively,  related to transactions with
Imatron.
================================================================================
                                       50
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
 A summary of the net assets of discontinued operation is as follows:

<TABLE>
                                                                                      December 31,
                                                                        -----------------------------------------
                                                                              1998                   1997
                                                                        ------------------     ------------------
                                                                                      (In thousands)
<S>                                                                               <C>                    <C>   
Cash and cash equivalents                                                         $1,273                 $6,025
Accounts receivable - net and other current assets                                   327                    334
Other current liabilities                                                           (92)                   (94)
Lease obligations - current                                                      (1,728)                (1,568)
                                                                        ------------------     ------------------
Net current assets (liabilities) of discontinued operation                       $ (220)                 $4,697
                                                                        ------------------     ------------------
Property, plant and equipment, net                                                 6,381                  7,966
Other assets                                                                           5                      5
Lease obligations - long-term portion                                            (2,900)                (4,396)
                                                                        ------------------     ------------------
Long-term net assets of discontinued operation                                    $3,486                 $3,575
                                                                        ==================     ==================
</TABLE>
The Company expects that the discontinued  operation will continue to operate at
a loss through the disposal date.

On February 10, 1999, the Company sold the HeartScan - San Francisco  center and
related C-150 scanner and other equipment for $1,500,000. The resulting net gain
on sale of  approximately  $1,492,000  will be  included in the "Gain on sale of
assets" in the Condensed  Consolidated  Statements  of Operations  for the three
months ended March 31, 1999.

The  Company is  selling  each  individual  center  separately.  The sale of the
Pittsburgh,  Houston,  and Washington,  D.C. centers of HeartScan is expected to
close in the first quarter of 1999.

Note 17 - RESTATEMENT

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

Prior to  applying  the  accounting  described  above in its  previously  issued
financial statements, the Company had not recognized an intrinsic value dividend
on the HeartScan  preferred  stock which was issued in June 1996. The discounted
conversion  features of this  preferred  stock into  Imatron  common  stock (the
immediate conversion at $5.00 per share and the conversion in two years from the
date of the  preferred  stock  issuance at a 27%  discount)  was provided to the
preferred shareholders,  in essence to provide them with an exit strategy in the
absence of a HeartScan  IPO (see note 10).  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.
================================================================================
                                       51
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
In December 1997, the staff of the SEC gave a speech further  refining its March
1997 announcement. Based on discussions with the staff of the SEC in April 1998,
the staff concluded that the Company should retroactively apply its announcement
because  it should be  applied  to  contingently  issuable  securities  and,  as
discussed in the December speech, the portion  attributable to the discount that
could have been obtained  immediately on conversion  (even though the shares had
not been  registered  yet) should be recognized on the day the preferred  shares
were issued.  The balance of the  discount  based on a market value of $5.75 per
common share is being recognized over two years from the date of issuance.

The consolidated  financial statements for the year ended December 31, 1996 have
been restated to give effect to the accounting  treatment  described  above. The
restatement  resulted  in the  recognition  of a  minority  interest  charge  of
$3,272,000  (including  $2,400,000 as of the date of the  preferred  shares were
issued) in the consolidated statement of operations increasing the Company's net
loss from $10,465,000 to $13,737,000.

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

Note 18 - SUBSEQUENT EVENTS

On January 6, 1999 (closing  date),  the Company  acquired  Caral  Manufacturing
("Caral") for $1,600,000.  Caral, a major vendor, manufactures custom-made parts
for the scanners  which is the most  expensive  component  of the  scanner.  The
purchase price  consisted of $275,000 in cash and 629,339  restricted  shares of
Imatron  common  stock  valued  at  $825,000  or  $1.3109  per  share  and other
acquisition related expenses of approximately  $50,000,  consisting primarily of
payments of legal fees. In addition, Imatron will issue Caral, shares of Imatron
common stock  equivalent  to $500,000 in six months from the closing date should
the average stock price remain or fall below $1.3109. The price is determined as
the average closing bid price of Imatron common stock on June 21 through July 2,
1999 (average  stock price).  If the value of the 629,339 shares issued to Caral
on closing  date,  based on the average  stock  price,  plus the cash payment of
$275,000 is below  $1,100,000,  Imatron will issue Caral additional shares based
on the  average  stock  price,  equivalent  to  $500,000  minus 50% in excess of
$1,100,000.  In no case will the value of the  additional  shares issued be more
than $500,000.

The  acquisition  will be accounted for using the purchase method of accounting,
and  accordingly,  the  operating  results  of  Caral  will be  included  in the
Company's  consolidated  financial  statements from January 6, 1999 forward. The
purchase price will be allocated to the underlying  assets and liabilities based
on their  respective  estimated  fair  values  at the date of  acquisition.  The
estimated fair value of assets acquired was $703,000 and liabilities assumed was
$320,000.  The excess of the aggregate purchase price over the fair market value
of net assets  acquired  will be  classified  as  goodwill,  and  amortized on a
straight line method over 15 years.

On January 25, 1999,  the Company  acquired a  controlling  interest in Positron
representing  9,000,000 shares of common stock for $100. Imatron is working with
third-party equity financing groups in an attempt to re capitalize  Positron and
support its re-entry into the medical  imaging market.  The acquisition  will be
accounted for using the purchase  method of  accounting,  and  accordingly,  the
operating  results of Positron  will be included in the  Company's  consolidated
financial  statements from January 25, 1999 forward.  The purchase price will be
allocated to the underlying  assets and  liabilities  based on their  respective
estimated  fair value at the date of  acquisition.  The estimated  fair value of
assets  acquired was  $860,000  and  liabilities  assumed was  $7,190,000  as of
December  31, 1998.  The excess of the  aggregate  purchase  price over the fair
market value of net assets acquired will be classified as goodwill and amortized
on a straight line basis over 15 years.
================================================================================
                                       52
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
On February 8, 1999,  the Company began  implementing  a  restructuring  plan to
reduce costs and improve operating  efficiencies.  The plan included elimination
of 59  positions  in  various  departments  of the  Company  and  its  HeartScan
subsidiary  including  disposal of its  HeartScan  operations  (see note 16). In
addition,  the Company put a moratorium  on salary  increases  for its executive
personnel  effective until the Company meets its financial goals and objectives.
The one-time cost associated with this reduction in staff,  consisting primarily
of severance and related  benefits,  is estimated to be  approximately  $400,000
which will be recorded in the first quarter of 1999.

================================================================================
                                       53
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================

                                                            SCHEDULE II
<TABLE>
<CAPTION>

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





                                                           Balance at
                      Description                        the beginning        Charged to                            Balance at
                                                         of the period         costs and                            end of the
                                                                                expenses         Deductions            period
   
<S>                                                           <C>              <C>                 <C>                <C>    
Balances for the year ended December 31, 1996:
    Allowance for doubtful accounts receivable                $  171           $  1,080            $ (141)            $ 1,110
    Inventory reserves                                         2,666                319                --               2,985
     Reserve for warranty                                      1,352                917              (918)              1,351

Balances for the year ended December 31, 1997:
    Allowance for doubtful accounts receivable                 1,110              1,380                --               2,490
    Inventory reserves                                         2,985                475              (101)              3,359
    Reserve for warranty                                       1,351              1,714            (1,275)              1,790

Balances for the year ended December 31, 1998:
    Allowance for doubtful accounts receivable                 2,490              1,155              (373)              3,272
    Inventory reserves                                         3,359                520              (175)              3,704
    Reserve for warranty                                       1,790              1,575            (1,373)              1,992
</TABLE>
================================================================================
                                       54
<PAGE>
FY 1998                           IMATRON INC.                         FORM 10-K
================================================================================
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    (26)   Agreement for Service Support dated February, 1997 between the 
                Company and Siemens Medical Systems, Inc.

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

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

10.60    (27)   Loan  agreement  between the Company  and  Positron  Corporation
                dated May 1, 1998, with schedules and exhibits.

10.61    (27)   Sales Representation Agreement dated July 1, 1998.

10.62           Employment  Agreement  dated January 4, 1999 between the Company
                and Terry Ross.

11.0            Computation of Per Share Earnings.

23.1            Consent of KPMG LLP.

23.2            Consent of Ernst & Young LLP.


_______________
*                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.

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

(27)    Filed as  an Exhibit to the Company's Registration Statement on Form S-3
        filed on May 6, 1998 (Registration No. 333-51963).

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