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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C. 20549
                            ------------------------
 
                                   FORM 10-K
                            ------------------------
 
(MARK ONE)
 
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934.
 
          FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1997. (FEE REQUIRED)
 
[ ]   TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934.
 
                         FOR THE TRANSITION PERIOD FROM
                             ------------------ TO
                              ------------------ .
 
                          COMMISSION FILE NO. 0-27186
 
                           RAYTEL MEDICAL CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
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<S>                                           <C>
                   DELAWARE                                     94-2787342
         (STATE OR OTHER JURISDICTION                         (IRS EMPLOYER
      OF INCORPORATION OR ORGANIZATION)                    IDENTIFICATION NO.)
</TABLE>
 
               2755 CAMPUS DRIVE, SUITE 200, SAN MATEO, CA 94403
         (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)            (ZIP CODE)
 
                                 (650) 349-0800
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
 
        SECURITIES REGISTERED PURSUANT TO SECTION 16(B) OF THE ACT: NONE
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                         COMMON STOCK, $0.001 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 period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.     Yes [X]     No [ ]
 
     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]
 
     The aggregate market value of the registrant's Common Stock held by
non-affiliates as of November 28, 1997 was $95,417,970 based on the closing sale
price of the Common Stock, as reported on the Nasdaq National Market System on
that day.
 
     The number of shares of the registrant's Common Stock outstanding on
November 28, 1997 was 8,917,210.
 
                      DOCUMENTS INCORPORATED BY REFERENCE:
 
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<CAPTION>
                   DOCUMENT                                 WHERE INCORPORATED
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<S>                                           <C>
Annual Report to Stockholders for fiscal year
  ended September 30, 1997                                       Part II
Proxy Statement for the Annual Meeting to be
  held on March 5, 1998                                          Part III
</TABLE>
 
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                                     PART I
 
     This report includes a number of forward-looking statements which reflect
the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed in "Item 17. Management's Discussion
and Analysis of Financial Conditions and Results of Operations - Business
Environment and Future Financial Results" and elsewhere in this report, that
could cause actual results to differ materially from historical results or those
anticipated. In this report, the words "anticipates," "believes," "expects,"
"intends," "future," "goals" and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
 
ITEM 1. BUSINESS
 
     Raytel Medical Corporation is a provider of healthcare services, focusing
on the needs of patients with cardiovascular disease ("CVD"). The Company
believes, based on its industry experience, that it is the leading provider of
remote cardiac monitoring and testing services utilizing transtelephonic
monitoring technology in the United States. The Company's goal is to become a
leading CVD healthcare management company by developing a network of integrated
heart centers that will coordinate or provide a full range of diagnostic,
therapeutic and follow-up services, augmented by Raytel's cardiac monitoring and
testing services. Raytel intends to develop its heart centers in affiliation
with cardiology physician groups and hospitals delivering high quality patient
care. Raytel believes its planned heart centers will address the cost
containment pressures currently shaping the healthcare industry.
 
     Raytel currently manages one hospital-based heart center in Southern
California and has entered into an agreement to develop and manage a second
hospital-based heart center in Texas. The Company also owns and operates eight
free-standing cardiovascular diagnostic facilities and two hospital-based
cardiac catheterization laboratories and manages three physician practices,
including a 20-physician multi-specialty medical group located in Port St.
Lucie, Florida. In addition, the Company provides outpatient diagnostic imaging
services through operating and investment interests in four free-standing
imaging centers.
 
     Raytel was incorporated in California in October 1981 under the name Raytel
Labs, Inc. and changed its name to Raytel Medical Imaging, Inc. in 1983 and to
Raytel Systems Corporation in 1985. In August 1987, the Company was
reincorporated in Delaware under the name Raytel Systems Corporation. Following
the organization of its majority-owned subsidiary Raytel Corporation in 1990,
the Company changed its name to Raytel Holding Corporation. In October 1992, the
Company changed its name to Raytel Medical Corporation. Unless the context
otherwise requires, "Raytel" or the "Company" as used herein refers to Raytel
Medical Corporation, a Delaware corporation, and its consolidated subsidiaries.
The Company's executive offices are located at 2755 Campus Drive, Suite 200, San
Mateo, California 94403, and its telephone number is (650) 349-0800.
 
RECENT CORPORATE DEVELOPMENTS
 
     During the fiscal year ended September 30, 1997, the Company expanded its
CVD healthcare service operations and its physician practice management business
through several strategic transactions.
 
     Acquisition of Nonmedical Assets of Southeast Texas Cardiology Associates,
P.A.
 
     In September 1996, the Company acquired certain nonmedical assets and
assumed certain liabilities of Southeast Texas Cardiology Associates, P.A., a
cardiology practice in Beaumont, Texas, and entered into a long-term agreement
to manage the nonmedical aspects of the medical practice.
 
     Acquisition of Nonmedical Assets of Comprehensive Cardiology Consultants, a
Medical Group, Inc.
 
     In November 1996, the Company acquired certain nonmedical assets and
assumed certain liabilities of Comprehensive Cardiology Consultants, a Medical
Group, Inc., a cardiology practice in Granada Hills, California, and entered
into a long-term agreement to manage the nonmedical aspects of the medical
practice.
 
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     Cardiac Surgery Services
 
     In June 1997, the Company, through an affiliated professional corporation
owned by F. David Rollo, M.D., who serves as the Company's Executive Medical
Director and a member of the Board of Directors, entered into an exclusive
contract with Granada Hills Community Hospital (at which the Company operates a
heart center) to provide cardiac surgery services at the hospital. Through this
affiliated professional corporation, the Company contracted with a leading
cardiovascular surgeon to provide cardiac surgery services at the hospital.
 
     Acquisition of Cardiovascular Ventures, Inc.
 
     In August 1997, the Company acquired all of the outstanding capital stock
of Cardiovascular Ventures, Inc. ("CVI"). CVI owns and operates seven
free-standing outpatient cardiovascular diagnostic facilities located in Texas,
Louisiana and Maryland, and owns and manages a 20-physician multi-specialty
medical practice in Port St. Lucie, Florida. The aggregate purchase price was
$21,600,000 consisting of cash in the amount of $15,780,000; contingent
promissory notes in the aggregate principal amount of $820,000; and 500,000
shares of Common Stock of the Company.
 
     The Baptist Hospital of Southeast Texas
 
     In October 1997, the Company entered into an agreement with The Baptist
Hospital of Southeast Texas under which the Company will develop a portion of
the hospital as an on-site heart center, which the Company will manage along
with the existing cardiac catheterization facility located at the hospital.
 
OVERVIEW OF CARDIOVASCULAR DISEASE AND ITS TREATMENT
 
     Cardiovascular disease is the leading cause of death in the United States
and represents the highest percentage of hospital patient days of stay. CVD is a
category of illnesses that generally develop progressively, and in many cases
asymptomatically, over a number of years. As a result, CVD frequently goes
undiagnosed until the patient suffers an acute episode such as a stroke or heart
attack. CVD manifests itself in a number of disease states, including
atherosclerosis, electrophysiological defects, valvular dysfunction, congestive
heart failure, hypertension and congenital defects. The American Heart
Association (the "AHA") estimates that approximately 57 million people in the
United States suffer from one or more forms of CVD, and coronary heart disease
(heart attack) caused 487,490 deaths in the United States during 1994, or 1 out
of every 4.7 deaths. During 1997, as many as 1.5 million Americans will have a
new or recurrent heart attack, and about one-third of them will die. According
to AHA estimates, the medical costs associated with the treatment of CVD in 1997
will be approximately $158.5 billion, or approximately 12% of total healthcare
expenditures in the United States. Due to the aging of the United States
population, the Company believes that the need for medical services to diagnose
and treat CVD will increase significantly in the future.
 
BUSINESS STRATEGY
 
     Raytel's objective is to be a leader in the coordination and provision of
CVD services across the continuum of cardiac care through a network of heart
centers, augmented by Raytel's remote cardiac monitoring and testing services.
The Company is pursuing this objective through the following strategies:
 
     Focus on Establishment of Heart Centers. Raytel is focusing its primary
efforts on the establishment of heart centers designed to coordinate or provide
quality, integrated CVD services on a cost-effective basis. The Company believes
that these heart centers will offer substantial benefits over the traditional
fragmented healthcare delivery system to all of the constituencies involved in
CVD care. Patients will benefit from the convenience of dealing with a single
entity administering their CVD management needs and providing many services at a
single location. Referring physicians will benefit from simplified referral
patterns and more consistent patient treatment. Cardiologists and other
professionals affiliated with the centers will benefit from
 
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local access to a wider range of complementary specialists and diagnostic
equipment as well as management, marketing and administrative resources. The
Company believes that its heart centers will be able to offer more integrated
services at a lower cost than traditional providers, thus addressing the cost
containment objectives of managed care plans and other third-party payors. All
of these constituencies will benefit from improved accountability.
 
     Leverage Expertise and Existing Businesses. Raytel has significant
experience in providing diagnostic and monitoring services to CVD patients and
in acquiring and operating geographically dispersed healthcare service
businesses. The Company believes that the expertise it has acquired through the
management and operation of its existing businesses, including its extensive
experience in marketing, billing and collection, as well as its existing
relationships with cardiologists, hospitals and third-party payors, will be of
substantial benefit to the Company in the establishment and operation of its
heart centers. Raytel intends to integrate the services provided at its heart
centers by making its current and future cardiac monitoring and testing services
available to heart center patients.
 
     Develop Affiliations with Providers. Raytel plans to develop its heart
centers on a regional basis, in cooperation with cardiology groups and hospitals
with a reputation for the delivery of high quality services among referring
primary care physicians and the general population in the communities that they
serve. As part of its strategy to create a flexible format for its heart
centers, the Company will seek to establish relationships with cardiovascular
and thoracic surgeons and other specialists who perform invasive therapeutic
procedures not offered at the heart center in order to create consistent
referral patterns and assure the seamless delivery of quality service throughout
the continuum of cardiac care.
 
     Expand Managed Care Relationships. The Company believes that interaction
with managed care organizations will become an increasingly important element in
the provision of cardiac care, including care for Medicare patients, and that
third-party payors will increasingly prefer to contract with providers offering
a wide range of cardiovascular services provided on a multistate or regional
basis. Raytel actively markets its existing healthcare services to managed care
plans and provides value added services, such as utilization review and outcome
studies, to such organizations. The Company intends to utilize its experience in
working with managed care plans to market the services of its heart centers to
such organizations. The Company believes that the ability to offer payors a
system of integrated and coordinated cardiac care on a cost-effective basis will
constitute a competitive advantage in obtaining contracts with such payors.
 
     Develop Standardized Protocols and Information Systems. The Company
believes that the management of outcomes and the development and ongoing
refinement of guidelines and protocols for the diagnosis, treatment and
management of CVD, reflecting currently accepted practices, is important for
improving the consistency of patient care and reducing overall costs of
treatment. Raytel intends to establish a medical advisory board, comprised of
cardiologists and other specialists and sub-specialists, to work with the
Company and its physician and hospital affiliates, to define guidelines for
diagnosis, treatment and management of various CVD disease states. The Company
also intends to expand its existing information systems to collect and analyze
clinical and financial data at its heart centers to promote more efficient
practice patterns and better enable the Company to negotiate managed care
contracts.
 
     Expand the Company's Telemedical Business. The Company believes that the
establishment of heart centers will enhance its ability to market its cardiac
monitoring and testing services. Raytel also intends to utilize its technology
and expertise as well as its operating and administrative systems to address
additional transtelephonic applications in the treatment and management of
cardiac patients and thereby widen the range of cardiac services offered both
nationally and through its heart centers.
 
     Pursue Strategic Acquisitions. Raytel has built its existing organization
largely through a series of acquisitions. The Company believes that it is often
more cost-effective to acquire and reconfigure an existing business than to
establish a new business. The Company believes that its experience in
identifying, structuring and completing acquisitions of healthcare service
organizations and effectively integrating these organizations will enable it to
take advantage of future acquisition opportunities that arise as a result of the
trends toward consolidation of healthcare service providers. Raytel intends to
explore opportunities to establish heart centers
 
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and expand its other cardiac businesses through additional strategic
acquisitions, including the acquisition of the assets of physician practices.
 
RAYTEL HEART CENTERS
 
     The principal element in Raytel's strategy is the development and operation
of heart centers that will coordinate or provide integrated CVD services to
patients, including management of the patient's diagnostic, therapeutic and
follow-up needs. The Company anticipates that each heart center will include a
catheterization laboratory, specialized diagnostic equipment, examination and
consultation rooms, an operating room, patient beds and monitoring equipment.
Personnel at the heart center will perform diagnostic services, coordinate
therapeutic care with affiliated physicians and/or hospitals, conduct
post-therapeutic follow-up programs and enroll patients in cardiac monitoring
and testing programs.
 
     The Company currently operates two catheterization laboratories, has
completed the construction of a diagnostic catheterization laboratory in
Fremont, California, in collaboration with Stanford Health Services which is
awaiting licensing by the California Department of Health Services (see Item 3.
Legal Proceedings) and is in negotiations for the development of an additional
facility in Beaumont, Texas. As a result of the CVI acquisition, the Company
acquired eight additional free-standing diagnostic cardiovascular facilities,
one of which is associated with the multi-specialty medical practice in Florida.
Four of the eight cardiovascular diagnostic facilities are located in Texas, two
are located in Louisiana and one is located in Maryland.
 
     The Company has also entered into a 10-year agreement with Granada Hills
Community Hospital ("GHCH") in Southern California under which it is managing an
existing, on-site heart center. In October 1997, the Company entered into a
10-year agreement with The Baptist Hospital of Southeast Texas in Beaumont,
Texas to develop and manage a fully integrated heart center with a cardiac
catheterization laboratory. In addition, Raytel is evaluating opportunities for
the development and acquisition of additional heart centers.
 
     The Raytel Heart Center Approach
 
     The Company plans to organize an integrated delivery system for
cardiovascular services in each region in which it develops a heart center.
Raytel heart centers will be designed and developed on a region-by-region basis
to maximize the available resources and address the specific needs of each
community served. The structure of the heart centers will be flexible to permit
the Company to proactively respond to the restructuring of the healthcare system
as it occurs. The Company intends to develop its heart centers in conjunction
with academic medical centers, established hospitals and cardiology specialists.
In certain cases, the Company may develop heart centers by acquiring the assets
of cardiology practices and negotiating long-term agreements to provide
management services to such practices. The heart centers will be located on
hospital premises or in free-standing facilities in close proximity to the
hospitals or to physicians with whom the heart centers are affiliated. The heart
centers will be designed to enable affiliated cardiologists and cardiovascular
surgeons to perform a comprehensive range of diagnostic procedures on-site.
Therapeutic procedures will generally be performed by physicians either at the
affiliated hospital or the heart center. Post-therapeutic monitoring and
follow-up programs will be offered through the Company's cardiac monitoring
services and through on-site programs to be developed by the Company in
conjunction with its physician and hospital affiliates.
 
     The Company believes that the heart centers and the related integrated
delivery systems will be well positioned in their local markets to capture
patients enrolled in HMOs and other managed care programs, as well as patient
referrals from local primary care physicians and the heart centers' affiliated
hospitals.
 
     Cardiovascular Diagnostic Facilities
 
     The Company operates two hospital-based cardiac catheterization
laboratories (the "Catheterization Laboratories"). In August 1997, the Company
acquired CVI, which is the owner and operator of eight free-standing
cardiovascular diagnostic facilities (the "Cardiovascular Diagnostic
Facilities"). Cardiac catheterization utilizes catheters and sophisticated
diagnostic instruments to evaluate the functioning of the heart and the coronary
arteries. A narrow, flexible tube, or catheter, is inserted through a main
artery in the leg or arm and
 
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guided into the patient's coronary arteries, where a cardiologist can use the
catheter to perform various tests to diagnose the nature and extent of the
patient's coronary artery disease.
 
     The Cardiovascular Diagnostic Facilities acquired from CVI are located in
Houston, Dallas, San Antonio and Fort Worth, Texas; East New Orleans and
Alexandria, Louisiana; Towson, Maryland; and Port St. Lucie, Florida. All of
these Cardiovascular Diagnostic Facilities are owned by limited partnerships,
and the Company, through a separate wholly-owned subsidiary for each limited
partnership, serves as the corporate general partner which serves as the
day-to-day manager of each facility. The Company owns a majority interest in
seven of the facilities and owns 100% of the Florida facility. The limited
partnerships have a term of 20 years or more in all but one facility and that
one expires on December 31, 2001. In three of the Cardiovascular Diagnostic
Facilities, the Company provides nuclear cardiology diagnostic services in
addition to the cardiac catheterization procedures described above. Several of
the remaining five Cardiovascular Diagnostic Facilities may be expandable in the
future to include nuclear cardiology diagnostic services.
 
     The two hospital-based facilities, located at Southmore Hospital in
Pasadena, Texas, a suburb of Houston, and Mesquite Hospital in Mesquite, Texas,
a suburb of Dallas, are each operated under contracts with the respective
hospitals under which Raytel provides equipment, technical staff and certain
management and administrative services. The hospitals provide space for the
facility within the hospital, all supplies, and credentialing of physicians. The
Company receives a fee from the hospital on a per procedure basis, with a
guaranteed minimum monthly payment. The contract with Southmore Hospital expires
in March 1998, and the contract with Mesquite Hospital expires in January 1999.
In addition to diagnostic catheterization procedures, the Southmore facility
currently performs pacemaker installations, peripheral vascular angioplasty and
peripheral stent installations. There can be no assurance that the Company will
be successful in negotiating extensions of the terms of the Southmore or
Mesquite contracts.
 
     Physicians practicing at the Cardiovascular Diagnostic Facilities and the
Catheterization Laboratories are not obligated to refer patients to or practice
at these facilities and in many cases also practice at nearby hospitals.
 
     Northern California Heart Center
 
     In January 1996, the Company entered into an agreement with Stanford Health
Services ("SHS") to develop a diagnostic cardiac catheterization facility (the
"Northern California Heart Center") in Fremont, California. In November 1996,
the Company completed the construction of the facility. In September 1997, the
regional office of Licensing and Certification of the California Department of
Health Services denied the request for a license to operate the facility. The
Company has filed an administrative appeal of the decision by the regional
office and the status of the appeal is still pending. In addition, the Company
has filed a Petition for Writ of Mandate requesting that the Superior Court of
California order the Department of Health Services to issue the appropriate
license. See "Item 3. Legal Proceedings." There can be no assurance that the
Company will be able to obtain such licensure or any additional licenses that
may be required to expand the services offered at the facility.
 
     Raytel Heart Center at Granada Hills Community Hospital
 
     The Company has entered into an agreement with GHCH, in the San Fernando
Valley north of Los Angeles, pursuant to which Raytel manages an integrated
heart center located on the premises of the hospital. Granada Hills Community
Hospital is a general, acute care hospital. The hospital's heart program
includes cardiac catheterization procedures, stress testing, ultrasound and
other diagnostic services, cardiovascular and cardiothoracic surgical procedures
and cardiac rehabilitation programs.
 
     There are two phases to Raytel's agreement with the hospital. Under Phase
I, known as the interim agreement, the Company manages the hospital's heart
center, leases space from the hospital, provides capital equipment and has
provided improvements to consolidate the hospital's program in a contiguous
physical location. The Company is responsible for supervising and coordinating
all day-to-day operations of the heart center, including administrative support
and on-site management. The Company is also primarily responsible for marketing
and public relations activities and assists the hospital in the negotiation and
administration of
 
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contracts with managed care organizations and other third-party payors and in
its compliance with Medicare coverage and accreditation requirements and
governmental licensing and certification matters. All medical services at the
facility are the responsibility of the hospital and its medical staff. If
implemented as originally contemplated by the Company and the hospital, under
Phase II, the duties and responsibilities of the parties will remain the same as
under Phase I. The principal difference between Phase I and Phase II is the
method of calculating the procedure costs for which Raytel reimburses the
hospital.
 
     In December 1997, the Company filed a demand for arbitration pursuant to
the terms of its 10-year agreement with GHCH requesting that an independent
arbitrator order GHCH to comply with the provisions of the agreement (see Item
3, Legal Proceedings). At the present time, the Company cannot predict when
Phase II of the agreement will be implemented.
 
     Through an affiliated medical group, the Company and GHCH entered into an
exclusive agreement for Raytel to be the exclusive provider of cardiac surgery
services at the hospital and to manage the hospital's cardiovascular surgery
program. The Company has entered into an agreement with a leading cardiothoracic
surgeon to provide the cardiac surgery services at the hospital. The initial
term of the agreement is nine years, coinciding with the term of the agreement
with the hospital to manage the heart program. The affiliated medical group is
owned by F. David Rollo, M.D., who serves as the Company's Executive Medical
Director and a member of the Company's Board of Directors. The Company, through
a subsidiary, provides management services to the medical group.
 
     Raytel Heart Center at The Baptist Hospital of Southeast Texas
 
     In October 1997, the Company entered into an agreement with The Baptist
Hospital of Southeast Texas in Beaumont, Texas, pursuant to which Raytel will
develop and manage an integrated heart center located on the premises of the
hospital. The Baptist Hospital is a general, acute care hospital. The hospital's
heart program includes cardiac catheterization procedures, stress testing,
ultrasound and other diagnostic services, cardiovascular and cardiothoracic
surgical procedures and cardiac rehabilitation programs. The agreement is
subject to termination under certain circumstances, including the failure by
either party to maintain any material license, Joint Commission on Accreditation
of Healthcare Organizations accreditation or Medicare certification for the
hospital. During the term of the agreement, the parties have each agreed to
refrain from competitive activities.
 
RAYTEL PHYSICIAN PRACTICE MANAGEMENT
 
     The Company expanded its physician practice management business during
fiscal 1997 through its acquisitions of cardiology practices in Beaumont, Texas,
and Granada Hills, California. Through its acquisition of Cardiovascular
Ventures, Inc. ("CVI") in August 1997, the Company acquired a 20-physician
multi-specialty medical group which focuses on cardiology, located in Port St.
Lucie, Florida.
 
RAYTEL CARDIAC MONITORING SERVICES
 
     The Company is the largest provider of cardiac monitoring and testing
services in the United States utilizing transtelephonic pacemaker monitoring
("TTM"), cardiac event detection ("CEDS") and Holter monitoring technology. The
Company believes that its TTM-based services are the most cost-effective means
of testing the performance of implanted cardiac pacemakers and detecting
symptoms of transient arrhythmias. The Company has also offered Holter
monitoring services since its acquisition of assets from Cardio Data Services,
Inc. in June 1996.
 
     Pacemaker Monitoring
 
     The Company believes, based on its industry experience, that it is the
largest provider of transtelephonic pacemaker monitoring services in the United
States, currently serving over 80,000 patients with implanted pacemaker systems.
 
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     Pacemaker systems are designed to assist the human heart in maintaining an
adequate pumping rate. A pacemaker is an electronic device that is implanted in
the patient and is designed to monitor and, if necessary, to stimulate the
patient's heartbeat. As it senses the heart's failure to respond to normal
physiologic signals, the pacemaker emits electrical pulses directly into the
atrium and/or the ventricle of the heart, causing the heart muscle to contract
and pump blood through the patient's body. A pacemaker system consists of the
pacemaker device, sensing and pacing leads and a battery.
 
     The purpose of pacemaker monitoring is to enable the patient to maintain a
normal lifestyle without the fear of an unexpected system failure. Pacemaker
monitoring can detect failures in the pacemaker system as well as changes in the
patient's heart rhythms that can cause the system to become ineffective. In
TTM-based pacemaker monitoring, the pacemaker system and its interaction with
the patient's heart is tested by conducting periodic, prescheduled ECG
examinations. The patient is provided with a battery-powered ECG transmitter
which detects the heart's impulses from the surface of the skin, converts these
impulses into an acoustic signal and transmits the signal over ordinary
telephone lines to one of the Company's three technical operations centers,
where the signal is converted and displayed on a computer screen or strip chart
recorder.
 
     The Company's pacemaker monitoring services are prescribed by the patient's
physician. After receipt of a prescription and enrollment by the Company, the
patient is sent a transmitter and trained to use the device over the telephone
by one of the Company's technologists. Unlike most physician-operated monitoring
services, the Company's monitoring services are provided 24 hours a day, seven
days a week in order to accommodate unscheduled calls from patients experiencing
problems.
 
     Each patient is tested on a schedule recommended by his or her prescribing
physician with such prescription updated annually. The Company generates most of
its pacemaker monitoring revenues from reimbursement by Medicare and payors of
supplemental Medicare benefits. Patients are typically tested between three and
12 times per year. The Company is reimbursed for pacemaker monitoring services
on a per-call basis. Routine pacemaker testing is performed in accordance with a
prearranged, computer generated schedule. A trained technologist telephones the
patient and requests that the patient initiate transmission of ECG data which is
received by recorders in one of the Company's technical operations centers. Once
a continuous graph displaying the rhythm of the heart and the pacemaker is
generated, this data is interpreted by the technologist to determine the status
of the implanted pacemaker and its relationship to the patient's cardiac rhythm.
If problems with the pacemaker system are noted or a serious abnormality is
detected, including an abnormality in the heart's own rhythm (an arrhythmia),
the patient's physician is notified immediately by telephone. After each test,
the results are promptly reviewed by a supervising technologist and a
cardiologist and a written report is mailed to the patient's physician.
 
     Cardiac Event Detection Service
 
     The Company operates the Cardiac Event Detection Service ("CEDS"), which
tests and documents transtelephonically an ambulatory patient's cardiac rhythm
irregularities while the patient is experiencing symptoms. CEDS testing aids in
the diagnosis of transient cardiac arrhythmias, including atrial and ventricular
abnormalities, such as tachycardia, which causes the heart to beat at an
abnormally rapid and potentially life threatening rate. During its fiscal year
ended September 30, 1997, Raytel tested over 39,000 patients for potential
transient arrhythmic events. The Company believes, based on its industry
experience, that it is the largest provider of these services in the United
States.
 
     Upon enrollment in its CEDS program, the Company provides the patient with
a cardiac event recorder for a testing period lasting up to 30 days. Upon
experiencing symptoms, the patient activates the event recorder to capture one
or more ECGs which the patient will later transmit to one of the Company's two
CEDS technical operations centers for analysis. Skilled technologists, under the
supervision of cardiac care nurses and cardiologists, make preliminary
evaluations of these transmissions for cardiac irregularities. Unlike similar
services offered by individuals or small clinics, the Company's centers are
staffed 24 hours a day, seven days a week to respond to a patient's needs on a
timely basis. Emergency medical response is initiated for CEDS patients when
necessary. Regardless of the number of calls placed, payors reimburse the
Company on a 30-day program basis for its CEDS service.
 
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     Holter Monitoring Services
 
     Since its acquisition of assets from Cardio Data Services, Inc. in June
1996, the Company has offered Holter monitoring services, and the Company
believes, based on its industry experience, that it is the largest provider of
Holter monitoring services in the United States, currently serving over 51,000
patients annually. Holter monitoring tests and documents an ambulatory patient's
cardiac rhythm irregularities while the patient is fitted with a recording
device, with leads attached to the patient's chest, typically for a single
24-hour period. Should Holter monitoring or other testing procedures fail to
detect an arrhythmia event in a symptomatic patient, the patient's physician
often will refer the patient to an event detection service such as CEDS.
 
     Training and Quality Assurance
 
     All of the Company's pacemaker monitoring technologists undergo a formal
six-week training program that includes basic cardiac physiology, the operation
of pacemaker devices, the interaction of pacemaker systems with the heart, and
the administration and interpretation of ECG tests. As technologists become more
experienced, they are trained to monitor increasingly complex pacemaker systems.
Technologists administering the Company's CEDS and Holter services undergo
training in the interpretation of ECG data to detect symptoms of cardiac
arrhythmia.
 
     The Company maintains a rigorous quality assurance program. The Company's
technologists are directed by board-certified cardiologists with special
training in the fields of cardiac pacing and electrophysiology. Each pacemaker
monitoring test is separately reviewed by a supervising technologist and a
cardiologist. CEDS transmissions and Holter test results are evaluated by
technologists under the supervision of cardiac care nurses and cardiologists.
 
DIAGNOSTIC IMAGING SERVICES
 
     The Company provides outpatient diagnostic imaging services through
operating and investment interests in seven free-standing imaging centers (the
"Imaging Centers"). The Company also operates the Raytel Imaging Network, a
specialized preferred provider network currently consisting of 474 independent
imaging centers located from Virginia to New York, including five centers
managed by the Company.
 
     Diagnostic imaging technology consists of a number of medical diagnostic
modalities, many of which integrate computer hardware and software. These
modalities include magnetic resonance imaging (MRI), computed tomography ("CT"),
nuclear medicine, radiography/fluoroscopy ("R/F"), ultrasound, general x-ray and
mammography. These imaging modalities are generally non-invasive (with the
exception of the injection of contrast material in certain techniques and the
occasional use of sedating agents) and subject the patient either to sound waves
(ultrasound), X-rays (CT, R/F and X-ray mammography) or radio waves and magnetic
fields (MRI) to gather data that aid in medical diagnosis. These diagnostic
technologies enable physicians to view certain internal body anatomy and
pathology and in many instances provide early diagnostic capability and aid in
effective treatment planning without the need for more costly exploratory
surgery.
 
     The principal diagnostic imaging modality in use at the Imaging Centers is
MRI. MRI is used to provide high resolution images of the soft tissue of the
body. In the field of cardiology, MRI is used for the assessment of congenital
and anatomical cardiac defects. Other MRI techniques, such as MR angiography,
are also used in the assessment of peripheral vascular and other cardiovascular
diseases. The Imaging Centers also provide a wide range of imaging services for
the diagnosis of neurological disorders of the head, neck and spine, as well as
imaging of the musculoskeletal system and a variety of internal organs,
including the liver and prostate, and the female pelvis.
 
     Raytel Imaging Centers
 
     The Imaging Centers are located in four states. All of the Imaging Centers
offer MRI services, and four offer other imaging modalities. The Company owns
four of the Imaging Centers and holds its interests in the other three through
investments in limited partnerships (the "Ventures"), to which the Company
provides
 
                                        9
<PAGE>   10
 
management services, including data processing, billing and collection,
accounting, marketing services and operational supervision.
 
     The Ventures were established for fixed terms. During the year ended
September 30, 1997 the Company sold its interest in an imaging center in
Orlando, Florida, and its interest in an imaging center in Manhattan expired in
accordance with its original term. In addition, its joint ventures with Medical
Diagnostics, Inc., under which it operated three Imaging Centers in
Massachusetts, also expired in accordance with its original terms. The three
remaining Ventures have terms that expire between 1999 and 2026.
 
     Raytel Imaging Network
 
     The trends toward cost containment and managed care have resulted in
changes in the patterns of patient referrals to diagnostic imaging facilities,
adversely affecting the profitability of independent imaging centers and
encouraging the formation of networks of independent centers. Many independent
operators of diagnostic imaging facilities lack the management and marketing
expertise and systems, as well as the experience in dealing with large managed
care organizations, that are necessary to effectively establish and operate such
networks. The Company's experience in dealing with a wide variety of managed
care organizations and its established, centralized marketing, scheduling,
billing and accounting systems provide the Company with the capability to
establish and operate networks of independent diagnostic imaging centers. In
addition, the Company's purchasing power allows it to provide participating
centers with supplies, such as contrast agents, film and other medical and
technical supplies, and with equipment maintenance and other services at
considerable cost savings.
 
     The Raytel Imaging Network (the "Network") is a dedicated network of
diagnostic imaging facilities established to provide services to patients
participating in healthcare benefit programs offered by municipal and state
employers, corporations that self-insure, third-party insurance carriers, union
health and welfare plans and managed care providers. Independent imaging centers
enter into fixed fee contractual relationships with the Network to provide
imaging services to patients referred by payors which have contracted with the
Network for services at a negotiated fee. The Network handles scheduling for
patients whose healthcare benefit programs participate in the Network and
guarantees these participating entities a fixed fee for all radiology procedures
performed in Network centers. The Network also offers centralized billing
services for those procedures, promptly reports the results of the studies to
the patient's referring physician and the outcomes of the studies to the
administrators responsible for the management of the patient's healthcare
program.
 
     The Network is a preferred provider organization with participating imaging
centers in the states of New Jersey, Pennsylvania, Delaware, Maryland, New York
and Virginia. The Network currently provides diagnostic imaging services under
referral arrangements with approximately 90 organizations administering
healthcare programs covering more than 600,000 individual participants.
 
SALES AND MARKETING
 
     The Company's marketing activities are directed at managed care
organizations, cardiologists and referring physicians. The Company maintains a
central managed care sales group that negotiates and manages contracts with
managed care organizations. The Company's marketing organization also supervises
the marketing of its TTM-based services to physicians nationwide and supports
the efforts of local centers to market their services to referring physicians in
the communities they serve.
 
     Raytel Cardiac Monitoring and Testing Services
 
     The Company markets its cardiac monitoring and testing services nationwide
through a sales force made up of 16 full-time regional field managers who direct
a network of over 350 part-time salespersons and independent sales
representatives, supported by the Company's customer service and telemarketing
personnel. The Company's sales force works closely with the approximately 15,000
physicians currently prescribing the Company's pacemaker monitoring services.
The Company works closely with all major pacemaker manufacturers and has
agreements with certain manufacturers for the distribution of the Company's
services through
 
                                       10
<PAGE>   11
 
their direct sales forces. In addition, the Company has arrangements with the
major pacemaker manufacturers to place its prescription form in the document
packages included with their pacemakers.
 
     The Company differentiates its cardiac monitoring and testing services from
most of its competitors by providing its services 24 hours a day, seven days a
week. In addition, the Company offers technologists who specialize in monitoring
specific pacemaker models (the more complex the unit, the more expertise a
technologist is required to have), extensive quality control procedures,
computerized reports for complex pacemakers, detailed reporting procedures for
abnormal findings and an extensive database on pacemaker performance.
 
     Diagnostic Imaging Services
 
     The Company markets services of the Imaging Centers it manages through a
team approach tailored to the needs of each Imaging Center. The Company's
central sales organization coordinates the Imaging Center's marketing activities
with the Imaging Center's radiologists. The principal selling effort is directed
toward the local base of referring physicians. In support of the selling effort,
the Company provides marketing materials, including newsletters and brochures
and holds routine educational sessions for physicians. The Company also assists
the Imaging Center in addressing needs of managed care organizations by
negotiating contracts with these organizations and working closely with
insurance plan administrators, HMO personnel, workers' compensation coordinators
and hospital administrators.
 
     Raytel Heart Centers, Cardiovascular Diagnostic Facilities and
Catheterization Laboratories
 
     The Company markets the services of its heart centers, cardiovascular
diagnostic facilities and catheterization laboratories using the basic approach
employed with the Imaging Centers. Each facility undertakes marketing activities
specifically structured for its local or regional market. The manager of each
facility initiates and maintains contact with local referring physicians. The
Company's central sales organization supports the local selling effort with
marketing materials and assistance in the development of clinical outreach
programs designed to make the capabilities of the center available to
underserved segments of the community. The center manager coordinates local
physician contacts with the Company's cardiac monitoring and testing sales force
to cross-sell the Company's transtelephonic pacemaker monitoring, Holter
monitoring and cardiac event detection services. The Company's central sales
group negotiates contacts with managed care organizations. This group also
assists the center manager in addressing the needs of such organizations.
 
     Raytel Physician Practice Management Services
 
     The Company markets services of the physician practices it manages through
a team approach tailored to the needs of each physician practice, in the same
fashion used to market the services of the Imaging Centers and its heart centers
and other cardiac facilities.
 
BILLING AND COLLECTION
 
     The Company's cardiac monitoring and testing operations generate a high
volume of relatively low-cost services delivered to patients living throughout
the United States. The Company derives substantially all of its transtelephonic
pacemaker monitoring, cardiac event detection services, and Holter monitoring
revenues from Medicare and other third-party payors and, in most cases, renders
bills to at least two payors for each procedure. In the year ended September 30,
1997 the Company generated more than one million bills to Medicare and other
third-party payors related to these businesses. Accordingly, the Company's
success in these businesses is substantially dependent upon the efficiency of
its billing and collection systems.
 
     All of the billing and collection functions for the Company's cardiac
testing operations are centralized at the Company's facilities in Connecticut.
The Company has specialized data management systems that it uses to obtain and
record primary and secondary insurance data at the time of patient enrollment
and to maintain and update that information. The Company's billing and
collection staff is specially trained in third-party coverage and reimbursement
procedures. The Company communicates continuously with carriers administering
Medicare and has established procedures that allow it to submit most primary
Medicare claims
 
                                       11
<PAGE>   12
 
electronically, on a batch-billing basis. In addition, the Company maintains a
database on the billing procedures and requirements of more than 1,500 insurance
carriers, which enables it to efficiently process claims to primary, secondary
and tertiary private insurers. Computerized billing and collection reports allow
the Company's personnel to continually monitor open accounts.
 
     Due to the complexity of the billing and collection process, the Company,
like many other healthcare service providers, experiences normal payment cycles
that are considerably longer than those customary in many other industries. The
Company typically experiences billing cycles of 60 to 240 days from the billing
date, depending on the type and number of third-party payors, although billing
cycles can be even longer in certain situations. Based upon its experience, the
Company believes that its specialized data processing system and its extensive
background in processing high volume, third-party claims serve to minimize
collection cycles and the incidence of rejected claims due to incomplete or
inaccurate information.
 
     The Company bills and collects for the Imaging Centers, physician
practices, heart centers and other cardiac facilities that it manages.
 
THIRD-PARTY REIMBURSEMENT
 
     The Company derives substantially all of its revenues from Medicare, HMOs
and commercial insurers and other third-party payors. Both government and
private payment sources have instituted cost containment measures designed to
limit payments made to healthcare providers, by reducing reimbursement rates,
limiting services covered, increasing utilization review of services,
negotiating prospective or discounted contract pricing, adopting capitation
strategies and seeking competitive bids. There can be no assurance that such
measures will not adversely affect the amounts or types of services that may be
reimbursable to the Company in the future, or that the future reimbursement for
any service offered by the Company will be sufficient to cover the costs and
overhead allocated to such service by the Company, either of which could have a
material adverse effect on the Company's operating results. The Company cannot
predict with any certainty whether or when additional changes in Medicare,
Medicaid or other third-party reimbursement rates or policies will be
implemented. However, such future changes could have a material adverse effect
on the Company's business, financial condition or operating results.
 
     Reimbursement rates vary depending on the type of third-party payors.
Changes in the composition of third-party payors from higher reimbursement rate
payors to lower reimbursement rate payors could have an adverse effect on the
Company's operating results. In addition, the Company anticipates that it may
increasingly offer its services to third-party payors on a capitated or other
risk-sharing basis. To the extent that patients or enrollees covered by a
risk-sharing contract require more frequent or extensive services than is
anticipated by the Company, the revenue derived from such contract may be
insufficient to cover the costs of the services provided. Insufficient revenue
under capitated or other risk-sharing contracts could have a material adverse
effect on the Company's business, financial condition or operating results.
 
GOVERNMENT REGULATION
 
     The healthcare industry is highly regulated, and there can be no assurance
that the regulatory environment in which the Company operates will not change
significantly and adversely in the future. In general, the scrutiny of methods
and levels of payment of healthcare providers and companies is increasing.
 
     On August 5, 1997, President Clinton signed the Balanced Budget Act of 1997
("BBA") into law. Two of the areas affected most profoundly by this law are (1)
fraud and abuse, and (2) the effort of the federal government to use its
purchasing power to expand health care options for Medicare beneficiaries while
using pressure from increased competition to control costs. The fraud and abuse
provisions build on many of the provisions that were enacted by the Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"). In addition to
the specific changes, the fraud and abuse provisions of the BBA signify an
apparent shift to the Office of the Inspector General of the Department of
Health and Human Services (the "OIG") of not only enforcement power, but policy
making authority as well. In addition, the BBA broadened the authority for the
Health Care Financing Administration ("HCFA") to enter into contracts for
providing
 
                                       12
<PAGE>   13
 
managed care to Medicare beneficiaries by expanding the type of managed care
options available to Medicare beneficiaries.
 
     On October 31, 1997, the Secretary of the Department of Health and Human
Services ("HHS") published final regulations implementing a number of changes
proposed in June 1997. One of the changes replaced the independent physiological
laboratory ("IPL") with the creation of the independent diagnostic testing
facility (the "IDTF"). An IDTF is a diagnostic facility, distinct from a
physician's office or hospital, that does not directly use test results to treat
patients. The facility exists to perform diagnostic testing procedures. The
Company's cardiac monitoring and testing services currently operate as an IPL.
By June 1998, the Company will have replaced all its designations as an IPL with
the new designation as an IDTF, as required by the new regulations.
 
     The Company believes that healthcare legislation, regulations and
interpretations will continue to change and, as a result, routinely monitors
developments in healthcare law. The Company expects to modify its agreements and
operations from time to time as the business and regulatory environment changes.
While the Company believes it will be able to structure all of its agreements
and operations in accordance with applicable law, the lack of definitive
interpretations of many statutory and regulatory provisions means that there can
be no assurance that the Company's arrangements are in compliance with such
provisions or will not be successfully challenged.
 
     Government Reimbursement Programs
 
     The federal government maintains the Medicare health insurance program for
the aged. Individual states have programs for medical assistance to the indigent
known generally as Medicaid, which are partially financed by the federal
government. Federal Medicaid funds are currently conditioned on state compliance
with federal requirements. A significant portion of the Company's revenues is
received under Medicare and other government programs. Both the Medicare and
Medicaid programs are subject to statutory and regulatory changes, retroactive
and prospective rate adjustments, administrative rulings, interpretations of
policy, intermediary determinations, and government funding restrictions, all of
which may materially increase or decrease the rate of program payments to
healthcare facilities and other healthcare suppliers and practitioners.
 
     The Company's existing heart centers, cardiovascular diagnostic facilities
and catheterization laboratories derive a substantial portion of their revenue
from payments made under the Medicare program, and the Company anticipates that
future facilities will also derive significant revenues from these sources. In
order to participate in this program, a newly-developed facility must be
certified after officials administering the Medicare program in the state where
the facility is located, or their designees, have conducted a survey of the
facility, a process that cannot commence until the facility opens and begins
providing services to patients. Once a facility is certified, it will be
reimbursed by Medicare for services performed from the date on which a
satisfactory survey is conducted in connection with the certification of the
facility or such later date as an acceptable plan is submitted to correct any
deficiencies noted in the survey. The Company expects that delays in the
certification process may occur and may increase with the funding limitations
being imposed on certifying authorities. Combined with the billing and
collection cycle for Medicare reimbursement that all healthcare facilities
experience, these delays could result in a three to six month working capital
deficiency during the start-up phase for newly developed cardiac centers. These
working capital deficiencies will have to be funded by the Company through
working capital advances to the facilities using funds provided by operating or
financing activities.
 
     Stark Legislation and Fraud and Abuse Laws
 
     The Company is subject to a variety of laws and regulations governing the
referral of patients to facilities with whom the referring physician has a
financial relationship.
 
     Subject to certain exceptions, physicians who have a financial relationship
with an entity providing healthcare services are prohibited by federal law (the
"Stark Legislation") from referring or admitting patients to that entity for the
provision of certain designated services reimbursable under Medicare or
 
                                       13
<PAGE>   14
 
Medicaid, as well as certain other federally assisted state healthcare programs.
The entity providing healthcare services is also prohibited from presenting, or
causing to be presented, a claim or bill for the designated services furnished
pursuant to a prohibited referral. Possible sanctions for violations of the
Stark Legislation include civil monetary penalties, exclusion from the Medicare
and Medicaid programs and forfeiture of amounts collected in violation of such
prohibition. The Stark Legislation prohibits a physician who owns stock of a
company from referring patients to the medical facilities in which such company
has an ownership interest unless such Company's stockholders' equity exceeds
$75.0 million.
 
     In addition to the limitations of the Stark Legislation, a number of states
have laws which apply to referrals made for services reimbursed by all payors,
and not simply Medicare or Medicaid. Some of these laws may extend to the
services furnished by medical facilities in which the Company has an ownership
interest and, absent the availability of an exception under such laws, could
prohibit physicians with ownership interests in the Company from referring any
patients to such facilities.
 
     The Company is also subject to the illegal remuneration provisions of the
federal Social Security Act and similar state laws ("Fraud and Abuse Laws")
which collectively impose civil and criminal sanctions on persons who solicit,
offer, receive or pay any remuneration, directly or indirectly, for referring a
patient for treatment that is paid for in whole or in part by Medicare, Medicaid
or similar state or private programs. The courts and the Office of the Inspector
General of HHS have stated that the Fraud and Abuse Laws are violated where even
one purpose, as opposed to a primary or sole purpose, of the arrangement is to
induce referrals. Violations of the Fraud and Abuse Laws are punishable by
criminal or civil penalties, which may include exclusion or suspension of the
provider from future participation in the Medicare, Medicaid and similar state
and federal programs, as well as substantial fines. The federal government has
published exemptions, or "safe harbors," for business transactions that will be
deemed not to violate the federal Fraud and Abuse Laws. Although satisfaction of
the requirements of these safe harbors provides protection from criminal
prosecution or penalties under the federal anti-kickback legislation, failure to
meet the safe harbors does not necessarily mean a transaction violates the
statutory prohibitions. Due to the breadth of the statutory provisions of the
Fraud and Abuse Laws and the absence of definitive regulations or court
decisions addressing the type of arrangements by which the Company and its
affiliated entities conduct and will conduct their business, from time to time
certain of their practices may be subject to challenge under these laws. In
October 1995, Congress passed a bill that would extend the prohibitions of the
Fraud and Abuse Laws to all third-party payors, governmental and private. In the
Health Insurance Portability Act of 1996 ("HIPAA") and the Balanced Budget Act
of 1997 ("BBA"), Congress expanded the government fraud and abuse controls in a
number of ways and added a provision for obtaining advisory opinions from the
Office of the Inspector General of HHS regarding physician self-referral
compliance with the Stark Legislation.
 
     The Company has attempted to structure its business relations to comply
with the Stark Legislation, the Fraud and Abuse Laws and all other applicable
healthcare laws and regulations. However, there can be no assurance that such
laws will be interpreted in a manner consistent with the Company's practices.
The Company holds interests in three diagnostic imaging centers through
investments in the Ventures. Such litigation was settled with no material
adverse consequences to the Company. There can be no assurance that additional
challenges under such laws or regulations or new laws or regulations will not
require the Company or its affiliated entities to change their practices or will
not have a material adverse effect on the Company's business, financial
condition or operating results. In addition, state legislatures and other
governmental entities are considering additional measures restricting or
regulating referrals, and there can be no assurance that new laws or regulations
will not be enacted which will require restructuring of the Company's operations
or otherwise have a material adverse effect on the Company's business, financial
condition or operating results.
 
     Certificates of Need and Other Licensing Requirements
 
     Certain states in which the Company operates or may operate in the future
prohibit the establishment, expansion or modification of certain healthcare
facilities and the services provided at such facilities, including heart
centers, catheterization laboratories and diagnostic imaging centers, without
first obtaining a certificate of need ("CON") or comparable license from the
appropriate state regulatory agency. In addition to any CON or comparable
licensing requirements that may apply, heart centers, catheterization
laboratories and
 
                                       14
<PAGE>   15
 
diagnostic imaging centers developed or operated by the Company may also be
required to comply with other licensing requirements, which vary from state to
state. Obtaining CON approval or comparable licensing is typically an expensive
and lengthy process and may involve adversarial proceedings initiated by
competing facilities or taxpayer groups. The existence of these laws may make it
more difficult for the Company to develop heart centers, catheterization
laboratories or other diagnostic facilities or expand the services provided at
such facilities or its other diagnostic imaging facilities.
 
     Under current California regulations, the performance of cardiac
catheterization procedures is generally restricted to licensed general acute
care hospitals. In 1996, the Company applied for a license for its free-standing
cardiac catheterization laboratory in Fremont, California under a pilot program.
Although this pilot program was repealed in 1993, the Company believes that it
meets all of the requirements for the granting of a license, because the entity
holding the permit for such a facility was in active status as of December 31,
1993. The regional office of the California Department of Health Services
notified the Company by letter dated September 8, 1997 that its application for
the license was denied. The Company has filed a notice of appeal with the
Department of Health Services appealing the decision by the regional office for
Licensing and Certification, and has also filed a petition for a writ of mandate
with the California Superior Court requesting that the court order the
Department to issue the license. There can be no assurance that the court will
enter the order requested by the Company or that the Company will be successful
in its appeal of the decision denying the application. If the Company cannot
obtain such license, it is uncertain under current California regulations
whether the Company could otherwise separately obtain a license to operate a
free-standing catheterization laboratory.
 
     Restrictions on Corporate Practice of Medicine
 
     The laws of certain states in which the Company operates or may operate in
the future prohibit non-physician entities from practicing medicine, exercising
control over physicians or engaging in certain practices such as fee-splitting
with physicians. Although the Company has structured its affiliations with
physician groups so that the physicians maintain exclusive authority regarding
the delivery of medical care, there can be no assurance that these laws will be
interpreted in a manner consistent with the Company's practices or that other
laws or regulations will not be enacted in the future that could have a material
adverse effect on the Company's business. If a corporate practice of medicine
law is interpreted in a manner that is inconsistent with the Company's
practices, the Company would be required to restructure or terminate its
relationship with the applicable physician group to bring its activities into
compliance with such law. The termination of, or failure of the Company to
successfully restructure, any such relationship could result in fines or a loss
of revenue that could have a material adverse effect on the Company's business,
financial condition or operating results.
 
MEDICAL MALPRACTICE INSURANCE
 
     In general, the Company does not, itself, engage in the practice of
medicine and requires physicians performing medical services at its facilities
to maintain medical malpractice insurance. In the case of HIPSL, a wholly-owned
subsidiary, the Company employs approximately 20 physicians, who are performing
medical services as members of a multi-specialty medical group. The other
licensed professionals in this practice, such as registered nurses, nurse
practitioners and technicians, perform their professional duties under the
direct supervision of the physicians. With the exception of the physician
employees of HIPSL, the Company's employees do not practice medicine. However,
certain of its employees are or will be involved in the delivery of healthcare
services to the public under the supervision of physicians. To protect the
Company from medical malpractice claims, including claims associated with its
employees' activities, the Company, or the Ventures for which the Company serves
as general partner, maintains professional liability and general liability
insurance on a "claims made" basis in amounts deemed appropriate by management
based upon the nature and risks of the Company's business. Such policies provide
malpractice coverage in the amount of $1 million per occurrence with an
aggregate limit of $3 million. Insurance coverage under such policies is
contingent upon a policy being in effect when a claim is made, regardless of
when the events which caused the claim occurred. The cost and availability of
such coverage has varied widely in recent years. While the Company
 
                                       15
<PAGE>   16
 
believes its insurance policies are adequate in amount and coverage for its
current operations, there can be no assurance that the coverage maintained by
the Company is sufficient to cover all future claims. In addition, there can be
no assurance that the Company will be able to obtain such insurance on
commercially reasonable terms in the future.
 
COMPETITION
 
     The healthcare service businesses in which the Company is currently engaged
are highly competitive. The restructuring of the healthcare system is leading to
rapid consolidation of the existing highly-fragmented healthcare delivery system
into larger and more organized groups and networks of healthcare providers. The
Company expects competition to increase as a result of this consolidation and
ongoing cost containment pressures among other factors. In executing its
business strategy, the Company competes with management services organizations,
for-profit and nonprofit hospitals, HMOs and other competitors that are seeking
to form strategic alliances with physicians or provide management services to
physicians or to diagnostic and therapeutic facilities owned by such physicians.
In operating its heart centers, the Company encounters competition from
physician groups, general acute care hospitals and free-standing and
hospital-based cardiac care facilities located in the same markets.
 
     The Company's cardiac monitoring and testing programs compete with a number
of smaller, regional commercial entities as well as hospitals, clinics and
physicians who generally provide these services as an adjunct to their primary
practice. Principal competitive factors are the availability and quality of
service. The Company believes that it competes favorably with most of its
smaller competitors based on its 24 hour a day, seven day a week service,
specialized technical staff and sophisticated billing and collection system.
Certain of its competitors, including local physicians and hospitals, may have
certain competitive advantages over the Company based upon their direct
relationships with patients.
 
     Cardiac catheterization and other cardiac diagnostic and therapeutic
procedures, as well as diagnostic imaging procedures, are performed in
hospitals, private physicians' offices, clinics operated by group practices of
physicians and independent catheterization facilities. Although the Company and
its affiliates operate in locations throughout the United States, competition
focuses on physician referrals at the local market level. Principal competitors
in each of the Company's markets are hospital and physician affiliated
facilities, some of which may have greater financial and other resources than
the Company, more experience and greater name recognition than the local
managers and physicians associated with the Company's Imaging Centers,
Cardiovascular Diagnostic Facilities and Catheterization Laboratories, or better
ties to the local medical community. Successful competition for referrals is a
result of many factors, including quality and timeliness of test results, type
and quality of equipment, facility location, convenience of scheduling and,
increasingly, relationships with managed care programs. The Company believes
that it competes favorably with other providers of these services based on the
quality of its service, its emphasis on sophisticated equipment, and the
professionalism of its staff, among other factors. Other independent companies
(including some which have substantially greater financial and operating
resources than the Company) are in the business of establishing facilities
similar to the facilities in which the Company has or may obtain interests and
providing management services to such facilities, including at least one
publicly-held Company of which the Company is aware whose primary business
consists of the development and operation of cardiac care centers.
 
EMPLOYEES
 
     As of November 30, 1997, the Company employed approximately 827 full time
equivalent employees. None of the Company's employees are covered by collective
bargaining contracts.
 
ITEM 2. PROPERTIES
 
     The principal operations of the Company and its subsidiaries are conducted
at facilities located in Windsor, Connecticut, New York, New York, Haddonfield,
New Jersey, San Mateo, California, and Port St. Lucie, Florida. The Windsor
facility, consisting of approximately 33,000 square feet, is occupied under a
lease expiring in July 1999. In August 1997, the Windsor facility was expanded
by the addition of
 
                                       16
<PAGE>   17
 
approximately 8,500 square feet in an adjoining building that is occupied under
a lease expiring in November 2002. The New York facility, consisting of
approximately 23,300 square feet, is occupied under a lease expiring in
September 2001. The Haddonfield facility, consisting of approximately 11,000
square feet, is occupied under a lease expiring in June 1999. The San Mateo
facility, consisting of approximately 2,400 square feet, is occupied under a
lease expiring in June 1998. The Port St. Lucie facility, consisting of
approximately 2,868 square feet, is occupied under a lease expiring in December
2002. In addition, through seven of its consolidated Imaging Centers, the
Company leases a total of approximately 31,000 square feet in facilities located
in New York, New Jersey, California and Pennsylvania. Through its acquisition of
CVI in August 1997, the Company acquired eight Cardiovascular Diagnostic
Facilities in Texas, Louisiana, Maryland and Florida. As a result of its
acquisition of CVI, the Company leases a total of approximately 89,000 square
feet in these facilities. The Company generally considers its properties to be
in good condition and suitable for the Company's anticipated needs.
 
ITEM 3. LEGAL PROCEEDINGS
 
     In September 1997, the Company's application for a license to operate a
free-standing diagnostic catheterization facility in Fremont, California, was
denied by the California Department of Health Services. The Company filed an
administrative appeal requesting that the Department of Health Services
reconsider the denial of the application by the regional office of Licensing and
Certification. In addition, in November 1997, the Company filed a Petition for
Writ of Mandate requesting that the Superior Court of the State of California
for the County of Sacramento order the Department of Health Services to issue
the appropriate license, or in the alternative, to find that the Department of
Health Services lacks jurisdiction to regulate the operation of the diagnostic
catheterization facility.
 
     In December 1997, the Company filed a demand for binding arbitration
pursuant to the terms of its 10-year agreement with GHCH requesting that an
independent arbitrator order GHCH to comply with the provisions of the
agreement. The Company alleged in this demand that GHCH breached its agreement
by failing to negotiate the terms of the definitive agreement and by failing to
make available certain cardiac surgery facilities and professional personnel on
a timely basis to permit the Company to fulfill its contractual obligations
under the agreement. The Company also alleged that GHCH has breached its
agreement by failing to make required payments on a timely basis under the terms
of the agreement. The Company is requesting declaratory relief as well as
monetary damages.
 
     Raytel and its subsidiaries are parties to other litigation and claims
arising out of its ongoing business operations. The Company believes that none
of these matters, either individually or in the aggregate, are likely to have a
material adverse effect on the Company's business, financial condition or
operating results.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
 
                                       17
<PAGE>   18
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The information required by this item is incorporated by reference to
information set forth under the heading "Stock Data Nasdaq Symbol: RTEL" on page
31 of the Company's 1997 Annual Report to Stockholders.
 
ITEM 6. SELECTED FINANCIAL DATA
 
     The information required by this item is incorporated by reference to the
information set forth under the heading "Five Year Financial Summary" on page 9
of the Company's 1997 Annual Report to Stockholders.
 
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
       OF OPERATIONS
 
     The information required by this item is incorporated by reference to
information set forth under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 10 to 15 of the
Company's 1997 Annual Report to Stockholders.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The information required by this item is incorporated by reference to the
financial statements and supplementary data on pages 16 to 29 of the Company's
1997 Annual Report to Stockholders.
 
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
       DISCLOSURE
 
     Not Applicable.
 
                                       18
<PAGE>   19
 
                                    PART III
 
     Certain information required by Part III is omitted from this report in
that the Company intends to file its definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this report, and certain information therein is
incorporated herein by reference.
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The information required by this Item is incorporated by reference to
information set forth in the Proxy Statement under the heading "Proposal No.
1 -- Election of Directors -- Executive Officers and Directors."
 
     The information required by this Item with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to information set forth in the Proxy Statement under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance."
 
ITEM 11. EXECUTIVE COMPENSATION
 
     The information required by this Item is incorporated by reference to
information set forth in the Proxy Statement under the heading "Executive
Compensation and Other Matters."
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information required by this Item is incorporated by reference to
information set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management."
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information required by this Item is incorporated by reference to
information set forth in the Proxy Statement under the heading "Certain
Transactions."
 
                                       19
<PAGE>   20
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
     (a) 1. FINANCIAL STATEMENTS:Report of Independent Public Accountants
 
            Consolidated Statements of Operations for the Years Ended September
            30, 1997, 1996 and 1995
 
            Consolidated Balance Sheets as of September 30, 1997 and 1996
 
            Consolidated Statements of Changes in Stockholders' Equity for the
            Years Ended September 30, 1997, 1996 and 1995
 
            Consolidated Statements of Cash Flows for the Years Ended September
            30, 1997, 1996 and 1995
 
            Notes to Consolidated Financial Statements
 
            Supplementary Data: Quarterly Financial Data (unaudited)
 
         2. FINANCIAL STATEMENT SCHEDULES:
 
            Report of Independent Public Accountants
 
            Schedule II -- Valuation and Qualifying Accounts
 
         3. EXHIBITS:
 
            The exhibits which are filed with this Form 10-K, or incorporated
            herein by reference, are set forth in the Exhibit Index, which
            immediately precedes the exhibits to this Report.
 
     (b) REPORTS ON FORM 8-K DURING THE QUARTER ENDED SEPTEMBER 30, 1997
 
     The Company filed one report on Form 8-K during the quarter ended September
30, 1997. The report was filed on September 2, 1997 and reported under Item 2
the acquisition of Cardiovascular Ventures, Inc.
 
                                       20
<PAGE>   21
 
                                   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.
 
                                          RAYTEL MEDICAL CORPORATION
 
                                          By:     /s/ RICHARD F. BADER
 
                                            ------------------------------------
                                                      Richard F. Bader
                                            Chairman and Chief Executive Officer
Dated: December 30, 1997
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated on
the dates indicated.
 
<TABLE>
<CAPTION>
            SIGNATURE                               TITLE                          DATE
----------------------------------    ----------------------------------    ------------------
<C>                                   <S>                                   <C>
 
       /s/ RICHARD F. BADER           Chairman of the Board and Chief       December 16, 1997
----------------------------------    Executive Officer (Principal
        (Richard F. Bader)            Executive Officer)
 
        /s/ ALLAN ZINBERG             President, Chief Operating Officer    December 16, 1997
----------------------------------    and Director
         (Allan Zinberg)
 
     /s/ E. PAYSON SMITH, JR.         Senior Vice President and Chief       December 16, 1997
----------------------------------    Financial Officer (Principal
      (E. Payson Smith, Jr.)          Financial and Accounting Officer)
 
      /s/ THOMAS J. FOGARTY           Director                              December 16, 1997
----------------------------------
       (Thomas J. Fogarty)
 
       /s/ ALBERT J. HENRY            Director                              December 16, 1997
----------------------------------
        (Albert J. Henry)
 
                                      Director                              December __, 1997
----------------------------------
         (Gene I. Miller)
 
        /s/ F. DAVID ROLLO            Director                              December 16, 1997
----------------------------------
         (F. David Rollo)
 
     /s/ DAVID E. WERTHEIMER          Director                              December 16, 1997
----------------------------------
      (David E. Wertheimer)
</TABLE>
 
                                       21
<PAGE>   22
 
              REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
 
To the Board of Directors and Stockholders of
Raytel Medical Corporation:
 
     We have audited in accordance with generally accepted auditing standards,
the consolidated balance sheets of Raytel Medical Corporation and Subsidiaries
as of September 30, 1997 and September 30, 1996 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for
each of the three years in the period ended September 30, 1997 included in this
Form 10-K, and have issued our report thereon dated November 13, 1997. Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying schedule is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission rules and is not part of the basic financial
statements. The information reflected on the schedule has been subjected to the
auditing procedures applied in the audits of the basic financial data, and in
our opinion, fairly states in all material respects the financial data required
to be set forth therein in relation to the basic financial statements taken as a
whole.
 
                                          /s/ ARTHUR ANDERSEN LLP
 
                                          --------------------------------------
                                          Arthur Andersen LLP
 
Hartford, Connecticut
November 13, 1997
 
                                       22
<PAGE>   23
 
                                  SCHEDULE II
 
                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
              FOR THE YEARS ENDED SEPTEMBER 30,1997, 1996 AND 1995
 
                       VALUATION AND QUALIFYING ACCOUNTS
 
<TABLE>
<CAPTION>
                              BALANCE AT     CHARGED TO                                    BALANCE AT
                              BEGINNING       COST AND                                       END OF
        DESCRIPTION            OF YEAR        EXPENSES       OTHER(1)      DEDUCTIONS         YEAR
----------------------------  ----------     ----------     ----------     -----------     ----------
<S>                           <C>            <C>            <C>            <C>             <C>
September 30, 1997
  Allowance for doubtful
     accounts...............  $5,855,000     $5,387,000     $1,946,000     $(6,999,000)    $6,189,000
September 30, 1996
  Allowance for doubtful
     accounts...............  $7,709,000     $5,352,000                    $(7,206,000)    $5,855,000
September 30, 1995
  Allowance for doubtful
     accounts...............  $8,220,000     $5,187,000                    $(5,698,000)    $7,709,000
</TABLE>
 
                                       23
<PAGE>   24
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER                                       EXHIBIT TITLE
----------     ------------------------------------------------------------------------------
<C>            <S>
  2.1 (1)      Stock Purchase Agreement, dated as of August 11, 1997, by and among Raytel
               Medical Corporation, Cardiovascular Ventures, Inc. ("CVI") and the
               stockholders of CVI, together with the form of the Escrow Agreement attached
               thereto as Exhibit B and the form of the Contingent Promissory Note attached
               thereto as Exhibit M.
  3.1 (2)      Restated Certificate of Incorporation of the Registrant.
  3.2 (3)      Bylaws of the Registrant, as amended.
*10.1 (4)      1983 Incentive Stock Option Plan, as amended.
*10.2 (4)      1990 Stock Option Plan, as amended.
*10.3 (4)      1995 Outside Directors Stock Option Plan.
*10.5 (4)      Executive Deferred Compensation Plan.
*10.7 (4)      Form of Indemnity Agreement for officers and directors.
*10.8 (4)      Employment Agreement dated September 28, 1995 between the Registrant and
               Richard F. Bader.
*10.9 (4)      Employment Agreement dated September 28, 1995 between the Registrant and Allan
               Zinberg.
*10.10(4)      Employment Agreement dated September 28, 1995 between the Registrant and E.
               Payson Smith, Jr.
 10.22(4)      Lease Agreement dated March 6, 1992 between the Registrant and Peninsula
               Office Park, as amended.
 10.23(4)      Lease dated August 27, 1993 between the Registrant and USGC Joint Venture.
 10.24(4)      Agreement of Lease dated July 22, 1983 between the Registrant and C.E. Towers
               Co., as amended, with Lease Assignment and Assumption Agreement dated February
               26, 1993 between the Registrant and Medtronic, Inc. and Consent of C.E. Towers
               Co. dated February 12, 1993.
 10.25(4)      Letter of Intent dated May 31, 1995 between the Registrant and Stanford Health
               Services and related letter dated June 12, 1995 from Bruce A. Reitz, M.D.
+10.26(4)      American Diagnostics and Management, Inc. Diagnostic Catheterization Services
               Agreement dated September 2, 1992 between American Diagnostics And Management,
               Inc. ("ADAM") and Southmore Medical Center, as assumed from ADAM by
               Registrant.
+10.27(4)      American Diagnostics And Management, Inc. Diagnostic Catheterization Services
               Agreement dated June 10, 1993 between ADAM and Southmore Medical Center, as
               assumed from ADAM by Registrant.
 10.28(4)      Joint Venture Agreement dated March 3, 1988 between Medical Imaging Partners,
               L.P. and California Medical Imaging Services, Inc., as amended, and related
               agreements.
 10.29(4)      Joint Venture Agreement dated November 25, 1987 between Medical Imaging
               Partners, L.P. and Mastercare Diagnostic Limited Partners, as amended, and
               related agreements.
 10.30(4)      MRI Diagnostic Partners I, L.P. 1986 Limited Partnership Agreement dated
               December 31, 1986, and related agreements and MRI Building Partners, L.P. 1986
               Agreement of Limited Partnership dated December 31, 1986.
 10.31(4)      Amended and Restated Joint Venture Agreement dated August 6, 1990 between
               Medical Imaging Partners, L.P. and Medical Diagnostics, Inc., and related
               agreements.
 10.32(4)      Letter Agreement dated October 2, 1995 between the Registrant and Bank of
               Boston Connecticut.
</TABLE>
 
                                       24
<PAGE>   25
 
<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER                                       EXHIBIT TITLE
----------     ------------------------------------------------------------------------------
<C>            <S>
+10.34(5)      Cardiac Catheterization Facility and Administrative Services Agreement dated
               January 10, 1996 between the Company and Stanford Health Services.
+10.35(6)      Letter Agreement dated January 9, 1996 between the Company and International
               Philanthropic Hospital Foundation, doing business as Granada Hills Community
               Hospital.
+10.36(7)      Cardiac Catheterization Facility and Administrative Services Agreement dated
               January 10, 1996 between the Company and Stanford Health Services.
+10.37(8)      Letter Agreement dated January 9, 1996 between the Company and International
               Philanthropic Hospital Foundation, doing business as Granada Hills Community
               Hospital.
+10.38(9)      Master Transaction Agreement, dated as of August 21, 1996, but effective as of
               September 18, 1996, between and among Raytel Medical Corporation, Raytel Texas
               Physician Services, Inc., Raytel Southeast Management, L.P., Southeast Texas
               Cardiology Associates, P.A., Southeast Texas Cardiology Associates II, P.A.,
               Rodolfo P. Sotolongo, M.D., Wayne S. Margolis, M.D., Michael L. Smith, M.D.,
               and Miguel Castellanos, M.D. Reference is made to Exhibit 2.1.
+10.39(10)     Agreement for the Purchase and Sale of Assets, dated as of August 21, 1996,
               but effective as of September 18, 1996, between and among Raytel Medical
               Corporation, Raytel Texas Physician Services, Inc., Raytel Southeast
               Management, L.P., Southeast Texas Cardiology Associates, P.A., Southeast Texas
               Cardiology Associates II, P.A., Rodolfo P. Sotolongo, M.D., Wayne S. Margolis,
               M.D., and Michael L. Smith, M.D. Reference is made to Exhibit 2.2.
+10.40(11)     Management Services Agreement, dated and effective as of September 18, 1996,
               between Cardiology Management Partnership, a Texas general partnership, and
               Southeast Texas Cardiology Associates II, P.A., as assigned to Raytel
               Southeast Management, L.P. Reference is made to Exhibit 2.3.
*10.41(12)     Employee Stock Purchase Plan dated May 8, 1996.
 10.42(12)     Amended and Restated Credit Agreement, and form of Promissory Note dated
               August 14, 1996 among the Registrant, Bank of Boston Connecticut and Banque
               Paribas, and Bank of Boston Connecticut, as agent.
 10.43(12)     Promissory Note in the amount of $15,000,000 between the Registrant and Bank
               of Boston Connecticut dated September 2, 1996.
 10.44(12)     Promissory Note in the amount of $10,000,000 between the Registrant and Banque
               Paribas dated September 2, 1996.
 10.45         First Amendment to Amended and Restated Credit Agreement, dated June 4, 1997
               among the Registrant, Bank of Boston Connecticut and Banque Paribas, and Bank
               of Boston Connecticut, as agent.
 10.46         Second Amendment to Amended and Restated Credit Agreement, dated September 26,
               1997 among the Registrant, Bank of Boston Connecticut and Banque Paribas, and
               Bank of Boston Connecticut, as agent.
 10.47         Promissory Note in the amount of $27,000,000 between the Registrant and Bank
               of Boston Connecticut dated September 26, 1997.
 10.48         Promissory Note in the amount of $18,000,000 between the Registrant and Banque
               Paribas dated September 26, 1997.
 10.49(13)     Stock Purchase Agreement, dated as of August 11, 1997, by and among Raytel
               Medical Corporation, Cardiovascular Ventures, Inc. and the stockholders of
               CVI, together with the form of the Escrow Agreement attached thereto as
               Exhibit B and the form of the Contingent Promissory Note attached thereto as
               Exhibit M.
</TABLE>
 
                                       25
<PAGE>   26
 
<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER                                       EXHIBIT TITLE
----------     ------------------------------------------------------------------------------
<C>            <S>
 10.50         Noncompetition Agreement, dated as of August 15, 1997, by and between David E.
               Wertheimer and Raytel Medical Corporation.
 10.51         Employment Agreement, dated as of January 1, 1996, by and between David E.
               Wertheimer, M.D., and Heart Institute of Port St. Lucie, Inc., an indirect
               wholly-owned subsidiary of Registrant as a result of the CVI acquisition.
 10.52         Amendment to Employment Agreement, dated as of March 17, 1997, by and between
               David E. Wertheimer, M.D., and The Heart Institute of Port St. Lucie, Inc., an
               indirect wholly-owned subsidiary of Registrant as a result of the CVI
               acquisition.
 13.1          Portions of Annual Report to Stockholders incorporated by reference in this
               Report on Form 10-K.
 21.1          List of subsidiaries of the Registrant.
 23.1          Consent of Arthur Andersen LLP.
 27            Financial Data Schedule
</TABLE>
 
---------------
 
  *  Constitutes a management contract or compensatory plan required to be filed
     pursuant to Item 14(c) of Form 10-K.
 
  +  Confidential treatment has been granted as to a portion of this Exhibit.
 
 (1) Incorporated by reference to identically numbered exhibit to the
     Registrant's Form 8-K Reports filed on August 29, 1997 (the "August 1997
     Form 8-K").
 
 (2) Incorporated by reference to identically numbered exhibits to the
     Registrant's Form 10-Q Report for the quarter ended December 31, 1995 (the
     "December 1995 Form 10-Q").
 
 (3) Incorporated by reference to Exhibit 3.3 to the Registrant's Registration
     Statement on Form S-1, No. 33-97860, which became effective on November 30,
     1995 (the "1995 Registration Statement").
 
 (4) Incorporated by reference to identically numbered exhibit to the 1995
     Registration Statement.
 
 (5) Incorporated by reference to Exhibit 10.1 to the December 1995 Form 10-Q.
 
 (6) Incorporated by reference to Exhibit 10.2 to the December 1995 Form 10-Q.
 
 (7) Incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q
     Report for the quarter ended June 30, 1996 (the "June 1996 Form 10-Q").
 
 (8) Incorporated by reference to Exhibit 10.2 to the June 1996 Form 10-Q.
 
 (9) Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K
     Report filed on October 3, 1996 (the "October 1996 Form 8-K").
 
(10) Incorporated by reference to Exhibit 2.2 to the October 1996 Form 8-K.
 
(11) Incorporated by reference to Exhibit 2.3 to the October 1996 Form 8-K.
 
(12) Incorporated by reference to identically numbered exhibits to the
     Registrant's Form 10-K Report for the year ended September 30, 1996.
 
(13) Incorporated by reference to Exhibit 2.1 to the August 1997 Form 8-K.
 
                                       26