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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------
                                   FORM 10-K

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<C>          <S>
(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, 2001




    [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)



   OF THE
 SECURITIES
EXCHANGE ACT
  OF 1934



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                          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 of                          (I.R.S. Employer
         incorporation of organization)                        Identification No.)

  2755 CAMPUS DRIVE, SUITE 200, SAN MATEO, CA                         94403
    (Address of principal executive offices)                        (Zip Code)
</Table>

                                 (650) 349-0800
              (Registrant's telephone number, including area code)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                         COMMON STOCK, $0.001 PAR VALUE
                                (TITLE OF CLASS)

     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.  [ ]

     The aggregate market value of the voting stock of the Registrant held by
non-affiliates of the Registrant, based on the closing price of the Registrant's
Common Stock as quoted on the Nasdaq SmallCap Market on November 30, 2001, was
$8,297,135.60. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.

     The number of shares of the Registrant's Common Stock outstanding as of
November 30, 2001, was 2,919,776.

                      DOCUMENTS INCORPORATED BY REFERENCE

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                    DOCUMENT                                    WHERE INCORPORATED



  Proxy Statement for the 2002 annual meeting                        Part III
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                                     PART I

     This report includes a number of forward-looking statements which reflect
Raytel'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, or "CVD". We believe,
based on our industry experience, that we are the leading provider of remote
cardiac monitoring and testing services utilizing transtelephonic monitoring
technology in the United States.

     Raytel also owns and operates four freestanding cardiovascular diagnostic
facilities and two freestanding facilities that provide nuclear cardiology
diagnostic services. In addition, we provide outpatient diagnostic imaging
services, through operating and investment interests in nine freestanding
imaging centers and two ancillary facilities associated with two of the centers.
We also manage a diagnostic imaging provider network that operates in eight
mid-Atlantic states.

     Raytel was incorporated in California in October 1981 under the name Raytel
Labs, Inc. In August 1987, we were reincorporated in Delaware under the name
Raytel Systems Corporation. In October 1992, we changed our name to Raytel
Medical Corporation. Unless the context otherwise requires, "Raytel" as used
herein refers to Raytel Medical Corporation, a Delaware corporation, and its
consolidated subsidiaries. Raytel'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

  DISPOSITION OF FLORIDA MEDICAL CLINIC

     Through its acquisition of Cardiovascular Ventures, Inc. in August 1997,
Raytel acquired a 20-physician multi-specialty medical clinic located in Port
St. Lucie, Florida, which was operated by Raytel's wholly-owned subsidiary,
Heart & Family Health Institute of Port St. Lucie, or "HFHI." Effective January
1, 2001, Raytel completed the sale of HFHI to a new company organized by
physicians practicing at HFHI, including David E. Wertheimer, M.D., who had
served as President of HFHI, as well as an officer of Raytel and a member of
Raytel's Board of Directors. Raytel received a cash purchase price of
$8,311,000, net of transaction expenses, in exchange for all of the outstanding
common stock of HFHI. Following the completion of the transaction, Dr.
Wertheimer resigned as an officer and director of Raytel. Raytel's divestiture
of the Port St. Lucie Clinic follows the sale of Raytel's physician practice
management operations during 2000 as a part of Raytel's strategy of focusing on
its core businesses of providing cardiac monitoring and testing services and
operating cardiac diagnostic facilities and diagnostic imaging centers.

  REVERSE STOCK SPLIT

     On May 9, 2001, Raytel effected a one-for-three reverse split of its common
stock. The reverse split was implemented to increase the per share trading price
of Raytel's common stock in order to meet requirements for continued listing on
the Nasdaq SmallCap Market. All of the share and per share data in this report
reflect the reverse stock split.

                                        1
<PAGE>

  RESOLUTION OF INVESTIGATION BY THE U.S. DEPARTMENT OF HEALTH AND HUMAN
  SERVICES

     Raytel's wholly-owned subsidiary, Raytel Cardiac Services, or "RCS", was
the subject of a grand jury investigation begun in June 2000 and conducted under
the direction of the United States Attorney for the District of Connecticut and
the Office of the Inspector General of the U.S. Department of Health and Human
Services, or the "OIG." The investigation involved allegations of improprieties
in RCS' transtelephonic pacemaker monitoring operations and its billing
practices related to Medicare-covered services. In June 2001, RCS reached an
agreement with the federal government to resolve the issues which were the
subject of the investigation. In accordance with that agreement, RCS plead
guilty to a charge of obstructing a criminal investigation. In addition, in
September 2001, RCS entered into a settlement agreement with the government to
resolve related civil claims. Under the criminal and civil settlements, RCS
agreed to pay a total of $11,500,000 to the government over a five-year period.
See "Item 3. Legal Proceedings."

  CONSIDERATION OF STRATEGIC ALTERNATIVES

     In October 2001, Richard F. Bader, Raytel's Chairman and Chief Executive
Officer, Albert J. Henry, an investor and former director of Raytel, and RT
Acquisition Group, Inc., or "RTA," an entity formed by Messrs. Bader and Henry,
filed a Schedule 13-D with the Securities and Exchange Commission to announce
that the were evaluating the feasibility of entering into discussions regarding
a possible acquisition of Raytel by RTA. On December 18, 2001, this group
amended its filing to disclose that Balfour LLC, an entity controlled by Rory
Riggs, a Raytel stockholder, had agreed to act in concert with the other filing
stockholders for the purpose of submitting a non-binding proposal regarding a
possible acquisition of Raytel by RTA. The filing also disclosed a proposal by
RTA to acquire all of the outstanding shares of common stock of Raytel not owned
by Messrs. Bader, Henry, and Riggs and RTA and Balfour LLC (collectively, the
"RTA Bidding Group").

     Raytel's Board of Directors has appointed a Special Committee consisting of
independent directors Gene I. Miller and Allan Zinberg to act on the Board's
behalf with respect to any proposal made by the RTA Bidding Group. The Special
Committee has engaged Houlihan, Lokey, Howard & Zukin Capital, Inc. to serve as
financial advisors to the Special Committee with respect to the proposal and any
potential alternative transactions and also has engaged counsel to advise the
Special Committee.

     Raytel's Board of Directors, on the recommendation of the Special Committee
and with Mr. Bader abstaining, has granted to the RTA Bidding Group a limited
waiver under the triggering provisions of the Rights Agreement dated as of
August 14, 1998 between Raytel and BankBoston, N.A. to the extent necessary to
permit the RTA Bidding Group to evaluate, prepare, negotiate and finance a
potential acquisition of Raytel. The waiver under the Rights Agreement is
conditioned upon the RTA Bidding Group and its affiliates both holding less than
25% of the beneficial ownership of the outstanding common stock of the Company
and not acquiring additional securities of Raytel. For stockholders outside the
RTA Bidding Group, or in the event that the RTA Bidding Group violates the
conditions to the limited waiver, the triggering level under the Rights
Agreement remains ownership of 15% or more of Raytel's outstanding shares
without the prior approval of Raytel's Board of Directors.

     In addition, on December 6, 2001, the Special Committee of the Board of
Directors and RTA entered into a letter agreement under which Raytel agreed to
advance $75,000 to RTA to reimburse RTA for certain expenses incurred by RTA in
connection with a potential transaction, including the expenses of RTA's
financial advisers and counsel. The expense reimbursement is refundable by RTA
to Raytel only in the event that RTA acts in concert with another party who is
in the Company's industry, or an affiliate of such a party.

     The Special Committee has advised Raytel that its financial advisors have
recently received additional confidential, non-binding expressions of interest
to acquire Raytel from unaffiliated third parties who, unlike the RTA Bidding
Group, are not subject to the beneficial ownership disclosure requirements under
federal securities laws applicable to stockholders or groups of stockholders who
hold in excess of 5% of Raytel's outstanding common stock and who, accordingly,
have not made public their expressions of interest. The Special Committee has
also advised Raytel that it is undertaking a review of all the expressions of
interest, each of which is subject to various conditions.

                                        2
<PAGE>

     There is no present agreement between any member of the bidding parties and
Raytel with regard to any acquisition transaction. There can be no assurance
that the Special Committee will recommend to the Board any acquisition proposal,
or that any acquisition proposal, if recommended by the Special Committee and
approved by the Board, will be consummated.

     In the absence of any subsequent event that would cause the Company to make
a different determination, Raytel does not currently intend to announce the
outcome of the Special Committee's deliberations until either a definitive
agreement has been entered into or the Special Committee has discontinued its
work.

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, such as
atherosclerosis, electrophysiological defects, valvular dysfunction, congestive
heart failure, hypertension and congenital defects. Based upon 1998 data, the
American Heart Association estimates that approximately 60.8 million people in
the United States suffer from one or more forms of CVD. According to the AHA's
estimates, CVD claimed approximately 950,000 lives in 1998, representing 40.6%
of all deaths. According to the AHA, the risk of developing coronary heart
disease after the age of 40 is 49% for men and 32% for women. Due to the aging
of the United States population, Raytel believes that the need for medical
services to diagnose and treat CVD will continue to increase significantly in
the future.

BUSINESS STRATEGY

     Our principal objective is to maintain and extend our leadership position
as a provider of cardiac transtelephonic monitoring and testing services. We are
pursuing this objective through the following strategies:

     Expand Raytel's Telemedical Business.  We intend to utilize our technology
and expertise to address additional transtelephonic applications in the
treatment and management of cardiac patients and thereby widen the range of
services that Raytel offers.

     Develop Affiliations with Providers.  We intend to expand our telemedical
business 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.

     Expand Managed Care Relationships.  We believe 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 multi-state or regional
basis. We actively market our existing healthcare services to managed care plans
and provide value added services.

     Pursue Strategic Acquisitions.  We have built our existing organization
largely through a series of acquisitions. We believe that it is often more
cost-effective to acquire and reconfigure an existing business than to establish
a new business. We believe that our experience in identifying, structuring and
completing acquisitions of healthcare service organizations and effectively
integrating these organizations will enable us to take advantage of future
acquisition opportunities that arise as a result of the trends toward
consolidation of healthcare service providers. We intend to explore
opportunities to expand our cardiac businesses through additional strategic
acquisitions.

RAYTEL CARDIAC INFORMATION SERVICES

     Raytel is the largest provider of cardiac monitoring and testing services
in the United States utilizing transtelephonic pacemaker monitoring, or "TTM,"
cardiac event detection, and Holter monitoring technologies. We believe that our
TTM-based services are the most cost-effective means of testing the performance
of implanted cardiac pacemakers and detecting symptoms of transient arrhythmias.

                                        3
<PAGE>

  PACEMAKER MONITORING

     We believe, based on our industry experience, that we are the largest
provider of transtelephonic pacemaker monitoring services in the United States,
currently serving over 80,000 patients with implanted pacemaker systems.

     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
generator which includes the device and a battery and the leads from the device
to the patient's heart.

     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 Raytel's three technical operations centers, where the
signal is converted and displayed on a computer screen or strip chart recorder.

     Raytel's pacemaker monitoring services are prescribed by the patient's
physician. After receipt of a prescription and enrollment by Raytel, the patient
is sent a transmitter and trained to use the device over the telephone by one of
our technologists. Unlike most physician-operated monitoring services, our
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. Raytel generates most of its
pacemaker monitoring revenues from reimbursement by Medicare and payors of
supplemental Medicare benefits. Patients are typically tested between three and
twelve times per year. We are 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 our 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

     Raytel operates the Cardiac Event Detection Service, or "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 the fiscal year
ended September 30, 2001, we tested approximately 34,000 patients for potential
transient arrhythmic events.

     Upon enrollment in our CEDS program, we provide 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 our 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

                                        4
<PAGE>

individuals or small clinics, our 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 Raytel on a 30-day program basis for its CEDS
service.

  HOLTER MONITORING SERVICES

     We believe, based on our industry experience, that we are the largest
provider of Holter monitoring services in the United States. 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. Raytel processed approximately 48,000 Holter
monitoring tapes during fiscal 2001.

  IMPLANTABLE CARDIOVERTER DEFIBRILLATORS

     In November 1999, Raytel and St. Jude Medical, Inc. announced the launch of
the Housecall transtelephonic monitoring system, the first commercially
available system capable of downloading a complete set of diagnostic data from
an implantable cardioverter-defibrillator, or ICD, over the telephone. ICDs are
pacemaker-like devices that can sense ventricular tachyarrhythmias
(life-threatening fast heart rates) and automatically deliver an electrical
shock to restore a normal rhythm. The number of times the ICD was activated is
also monitored. Previously, patients with ICDs were required to return to the
physician's office on a routine basis in order to have the ICD's battery tested
and for an examination of the ICD system integrity. The Housecall system will
reduce the frequency of physician office visits by extending the transtelephonic
monitoring procedures presently used for pacemakers to ICDS. The new system
enables trained technicians to interrogate the device's memory and transmit
stored data as well as real-time clinical and technical information on the
patient's cardiac activity and ICD status. The test results are interpreted by
trained technicians and a comprehensive report is communicated to the patient's
physician for clinical evaluation. Under an exclusive agreement with St. Jude
Medical, Raytel manufactures the initial version of the Housecall transmitters
and receiving units and monitors St. Jude ICD patients using Housecall.

  TRAINING AND QUALITY ASSURANCE

     All of our 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 our CEDS and Holter services undergo training in the
interpretation of ECG data to detect symptoms of cardiac arrhythmia.

     We maintain a rigorous quality assurance program. Board-certified
cardiologists direct our technologists who have 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. The State of Connecticut
has approved Raytel's training program for college credit toward a bachelor of
science degree within the Connecticut state university system.

RAYTEL CARDIOVASCULAR FACILITIES

     Raytel currently operates four freestanding cardiovascular diagnostic
facilities. Two of our cardiovascular diagnostic facilities are located in Texas
and two are located in Louisiana. Raytel also provides consulting services to a
hospital relating to its on-site heart center and leases cardiac catheterization
equipment and related leasehold improvements to the hospital.

                                        5
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  CARDIOVASCULAR DIAGNOSTIC FACILITIES

     Raytel operates four freestanding cardiovascular diagnostic facilities
which perform cardiac catheterization and related services (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 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 are located in Texas and
Louisiana. At each Cardiovascular Diagnostic Facility, we provide the
facilities, equipment, supplies and support personnel necessary for the
cardiologist to perform interventional cardiac imaging and peripheral
therapeutic procedures. All of the Cardiovascular Diagnostic Facilities are
owned by limited partnerships. Raytel, through a separate wholly-owned
subsidiary for each limited partnership, serves as the corporate general partner
which acts as the day-to-day manager of each facility. Raytel owns a majority
interest in two of the facilities. Raytel also owns and operates two nuclear
cardiology diagnostic facilities, formerly operated in conjunction with
Cardiovascular Diagnostic Facilities.

     Physicians practicing at the Cardiovascular Diagnostic Facilities are not
obligated to refer patients to or practice at these facilities and also practice
at nearby hospitals.

  RAYTEL HEART CENTER AT GRANADA HILLS COMMUNITY HOSPITAL

     In March 1999, Raytel and Granada Hills Community Hospital, or GHCH,
terminated the management consulting agreement which they had entered into in
September 1998, as the result of an advisory opinion from the Regional Office of
the Health Care Finance Agency which raised issues regarding the hospital's
eligibility to continue to participate in the Medicare program. Effective with
the termination of the management consulting agreement, the Company entered into
a revised five-year consulting services agreement with GHCH, pursuant to which
we provide consulting services to the hospital with regard to the operations of
its integrated heart center. GHCH is a general acute care hospital located in
the San Fernando Valley area of Los Angeles. 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. Under the consulting services agreement, we
provide specified consulting services to GHCH, including quality management and
assurance, technology assessment and management, strategic planning and other
services. We also lease cardiac catheterization equipment and related leasehold
improvements to the hospital. All medical services at the facility are the
responsibility of the hospital and its medical staff.

     Through an affiliated medical group, Raytel and GHCH entered into an
exclusive agreement for Raytel to act as the exclusive provider of cardiac
surgery services at the hospital and to manage the hospital's cardiovascular
surgery program. We have entered into an agreement with a leading cardiothoracic
surgeon to provide the cardiac surgery services at the hospital. The initial
term of the agreement coincides with the term of the consulting agreement with
the hospital. Raytel, through a subsidiary, provides management services to the
medical group.

RAYTEL DIAGNOSTIC IMAGING SERVICES

     Raytel provides outpatient diagnostic imaging services through operating
and investment interests in nine freestanding imaging centers (the "Imaging
Centers") and two ancillary facilities associated with two of the Imaging
Centers. Raytel also operates the Raytel Imaging Network, a specialized
preferred provider network currently consisting of 700 independent imaging
centers located from Virginia to New York, including seven centers owned and
managed by Raytel.

     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, or MRI, computed tomography, or
CT, nuclear medicine, radiography/fluoroscopy, or R/F, ultrasound, general x-ray

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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. Raytel owns four of
the Imaging Centers and holds its interests in the other three through
investments in limited partnerships (the "Ventures"), to which we provide
management services, including data processing, billing and collection,
accounting, marketing services and operational supervision. The Ventures have
terms that expire between 2008 and 2025.

  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. Our experience in dealing with a wide variety of managed care
organizations and our established, centralized marketing, scheduling, billing
and accounting systems provide us with the capability to establish and operate
networks of independent diagnostic imaging centers. In addition, Raytel's
purchasing power allows us 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 135 organizations administering
healthcare programs covering more than 700,000 individual participants.

                                        7
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SALES AND MARKETING

     Our marketing activities are directed at managed care organizations,
cardiologists and referring physicians. We maintain a central managed care sales
group that negotiates and manages contracts with managed care organizations. Our
marketing organization also supervises the marketing of our 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 INFORMATION SERVICES

     We market our cardiac monitoring and testing services nationwide by using
regional sales managers coordinating the activities of approximately 400 sales
representatives who are employees of the pacemaker equipment manufacturers or
part-time employees of Raytel. Our sales organization is supported by our
customer service and telemarketing personnel. We work closely with all major
pacemaker manufacturers and have agreements with certain manufacturers for the
distribution of Raytel's services through the direct sales forces of the
manufacturers. Our sales force works closely with the approximately 10,000
physicians currently prescribing Raytel's pacemaker monitoring services.

     Raytel 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, we offer 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.

  RAYTEL DIAGNOSTIC IMAGING SERVICES

     We market the services of the Imaging Centers we manage through a team
approach tailored to the needs of each Imaging Center. Our 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, Raytel
provides marketing materials, including newsletters and brochures and holds
routine educational sessions for physicians. Raytel 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 CARDIOVASCULAR DIAGNOSTIC FACILITIES

     We market the services of our Cardiovascular Diagnostic Facilities 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. Raytel'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 our cardiac monitoring and testing
sales force to cross-sell our transtelephonic pacemaker monitoring, Holter
monitoring and cardiac event detection services. We negotiate contacts with
managed care organizations centrally from our Connecticut facility. This central
sales group also assists the center manager in addressing the needs of such
organizations.

BILLING AND COLLECTION

     Our cardiac monitoring and testing operations generate a high volume of
relatively low-cost services delivered to patients living throughout the United
States. Raytel 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 for its
pacemaker monitoring services to at least two payors for each procedure. In the
year ended September 30, 2001, we generated more than 780,000 bills to

                                        8
<PAGE>

Medicare and other third-party payors related to these businesses. Accordingly,
our success in these businesses is substantially dependent upon the efficiency
of our billing and collection systems.

     All of the billing and collection functions for Raytel's cardiac testing
operations are centralized at our facilities in Connecticut. We have specialized
data management systems that we use to obtain and record primary and secondary
insurance data at the time of patient enrollment and to maintain and update that
information. Our billing and collection staff is specially trained in
third-party coverage and reimbursement procedures. We communicate continuously
with carriers administering Medicare and have established procedures that allow
us to submit most primary Medicare claims electronically, on a batch-billing
basis. In addition, we maintain 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 our personnel to continually
monitor open accounts.

     Due to the complexity of the billing and collection process, Raytel, like
many other healthcare service providers, experiences normal payment cycles that
are considerably longer than those customary in many other industries. We
typically experience 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 our experience, we believe
that our specialized data processing system used in billing for our pacemaker
monitoring services and our 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. In 1998, we
converted our billing processing for CEDS and Holter monitoring services to a
system based on commercially available software. This system has not performed
to our expectations, and we are in the process of converting this segment of our
billing operations back to our internally-developed system.

     Raytel also bills and collects for the Imaging Centers, the Cardiovascular
Diagnostic Facilities, and the other facilities that it manages.

THIRD-PARTY REIMBURSEMENT

     Raytel 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 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 Raytel in the future, or that the
future reimbursement for any service offered by Raytel will be sufficient to
cover the costs and overhead allocated to such service, either of which could
have a material adverse effect on our operating results. We 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 our business.

     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
Raytel's operating results. In addition, Raytel 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 Raytel, 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 our business.

GOVERNMENT REGULATION

     The healthcare industry is highly regulated, and there can be no assurance
that the regulatory environment in which Raytel 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.

                                        9
<PAGE>

     On August 5, 1997, President Clinton signed the Balanced Budget Act of
1997, or the "BBA", into law. Two of the areas affected most profoundly by this
law were (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, or "HIPPA".
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, or the "OIG," of not only enforcement
power, but policy-making authority as well. In addition, the BBA broadened the
authority for the HCFA to enter into contracts for providing managed care to
Medicare beneficiaries by expanding the type of managed care options available
to Medicare beneficiaries.

     Raytel believes that healthcare legislation, regulations and
interpretations will continue to change and, as a result, routinely monitors
developments in healthcare law. We expect to modify our agreements and
operations from time to time as the business and regulatory environment changes.
While we believe we will be able to structure our 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
Raytel'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 Raytel'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.

     Raytel's existing cardiac monitoring and testing services, diagnostic
imaging services and Cardiovascular Diagnostic Facilities derive a substantial
portion of their revenue from payments made under the Medicare program, and we
anticipate that any future facilities or services 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. We expect 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 facilities. These
working capital deficiencies will have to be funded by Raytel through working
capital advances to the facilities using funds provided by operating or
financing activities.

  THE STARK LAW AND MEDICARE FRAUD AND ABUSE LAWS

     Raytel 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,
often referred to as the "Stark Law," from referring or admitting patients to
that entity for the provision of certain designated services reimbursable under
Medicare or 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

                                        10
<PAGE>

designated services furnished pursuant to a prohibited referral. Possible
sanctions for violations of the Stark Law include civil monetary penalties,
exclusion from the Medicare and Medicaid programs and forfeiture of amounts
collected in violation of such prohibition. The Stark Law 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.

     The Stark Law was originally enacted in December 1989, and prohibited a
physician (or an immediate family member of a physician) with a financial
relationship with a clinical laboratory from making a referral to the clinical
laboratory for the furnishing of clinical laboratory services for which payment
otherwise would be made by the Medicare program. In 1993, the Stark Law was
amended to expand the referral prohibition to apply to certain "designated
health services." The 1993 amendments are commonly referred to as "Stark II."

     Generally, the Stark Law prohibits physicians from referring Medicare
patients to facilities for "designated health services" if the physician (or
immediate family member of the physician) has a financial arrangement with the
entity, unless the arrangement fits within an exception. The definition of
designated health services specifically includes radiology services, including
MRI, CT, ultrasound and nuclear medicine. However, regulations adopted to
implement the Stark Law specifically exclude "invasive" radiology, which
includes cardiac catheterization, PTCA and similar imaging modalities used to
guide a needle, probe or catheter accurately. Thus, the Stark Law does not
prohibit physician ownership of an entity or facility which provides "invasive"
radiology, such as cardiac catheterization services provided at Raytel's
Cardiovascular Diagnostic Facilities.

     In addition to the limitations of the Stark Law, 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 Raytel has an ownership interest and,
absent the availability of an exception under such laws, could prohibit
physicians with ownership interests in Raytel from referring any patients to
such facilities.

     We are also subject to the illegal remuneration provisions of the federal
Social Security Act and similar state laws, often referred to as "Fraud and
Abuse Laws," which 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 OIG 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 Raytel 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.

     We have attempted to structure our 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 our practices. 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 Raytel's
operations or otherwise have a material adverse effect on our business,
financial condition or operating results.

                                        11
<PAGE>

  CERTIFICATES OF NEED AND OTHER LICENSING REQUIREMENTS

     Certain states in which we operate 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, or "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 diagnostic imaging centers developed or operated by Raytel 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 or
future legislation changing these laws may make it more difficult or prohibitive
for Raytel to develop heart centers, catheterization laboratories or other
diagnostic facilities, maintain existing facilities or expand the services
provided at such facilities or its other diagnostic imaging facilities.

     Raytel from time to time is required to upgrade or modify its facilities in
order to maintain its licenses. In many states, a facility, such as a
free-standing heart center, must be completed before a license will be issued
allowing the facility to operate, and even once the facility is built there can
be no assurances that a license or certification for operations will be issued
by the appropriate government agency.

  RESTRICTIONS ON CORPORATE PRACTICE OF MEDICINE

     The laws of certain states in which we operate 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 we have structured our 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 our practices or that other laws or regulations will not
be enacted in the future that could have a material adverse effect on our
business. If a corporate practice of medicine law is interpreted in a manner
that is inconsistent with our practices, we 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
Raytel to successfully restructure, any such relationship could result in fines
or a loss of revenue that could have a material adverse effect on our business,
financial condition or operating results.

MEDICAL MALPRACTICE INSURANCE

     In general, Raytel does not, itself, engage in the practice of medicine and
requires physicians performing medical services at its facilities to maintain
medical malpractice insurance. Raytel's employees do not practice medicine.
However, certain of our employees are involved in the delivery of healthcare
services to the public under the supervision of physicians. To protect Raytel
from medical malpractice claims, including claims associated with our employees'
activities, Raytel, or the Ventures for which Raytel serves as general partner,
maintain professional liability and general liability insurance on a "claims
made" basis in amounts deemed appropriate by management based upon the nature
and risks of Raytel'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 we believe our insurance policies are adequate in amount and
coverage for our current operations, there can be no assurance that the coverage
maintained by Raytel is sufficient to cover all future claims. In addition,
there can be no assurance that we will be able to obtain such insurance on
commercially reasonable terms in the future.

COMPETITION

     The healthcare service businesses in which Raytel is currently engaged are
highly competitive. The restructuring of the healthcare system is leading to
rapid consolidation of the existing highly fragmented

                                        12
<PAGE>

healthcare delivery system into larger and more organized groups and networks of
healthcare providers. We expect competition to increase as a result of this
consolidation and ongoing cost containment pressures among other factors. In
executing Raytel's business strategy, we compete 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.

     Raytel'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. We believe that we compete favorably with most of our smaller
competitors based on our 24-hour a day, seven-day a week service, specialized
technical staff and sophisticated billing and collection system. Certain of our
competitors, including local physicians and hospitals, may have certain
competitive advantages over Raytel based upon their direct relationships with
referring physicians.

     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 Raytel 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 our markets are hospital and physician affiliated facilities, some of
which may have greater financial and other resources than Raytel, more
experience and greater name recognition than the local managers and physicians
associated with our Imaging Centers and Cardiovascular Diagnostic Facilities, 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. Other independent
companies (including some which have substantially greater financial and
operating resources than Raytel) are in the business of establishing facilities
similar to the facilities in which we have or may obtain interests and providing
management services to such facilities.

EMPLOYEES

     As of November 30, 2001, Raytel employed approximately 600 full time
equivalent employees. None of our employees are covered by collective bargaining
contracts.

ITEM 2.  PROPERTIES

     The principal operations of Raytel and its subsidiaries are conducted at
facilities located in Windsor, Connecticut; New York, New York; Haddonfield, New
Jersey; and San Mateo, California. The Windsor facility, consisting of
approximately 45,000 square feet, is occupied under a lease expiring in July
2004. The New York facility, consisting of approximately 23,300 square feet, is
occupied under a lease expiring in September 2004. The Haddonfield facility,
consisting of approximately 10,000 square feet, is occupied under a lease
expiring in June 2002. The San Mateo facility, consisting of approximately 2,400
square feet, is occupied under a lease expiring in May 2003. In addition,
through eight of its consolidated Imaging Centers, Raytel leases a total of
approximately 36,000 square feet in facilities located in New York, New Jersey,
California and Pennsylvania. Through its acquisition of CVI in August 1997,
Raytel acquired Cardiovascular Diagnostic Facilities in Texas and Louisiana. The
Ventures that operate the Cardiovascular Diagnostic Facilities lease a total of
approximately 50,000 square feet in these facilities. We generally consider our
properties to be in good condition and suitable for our anticipated needs.

ITEM 3.  LEGAL PROCEEDINGS

     Raytel's wholly-owned subsidiary, Raytel Cardiac Services, or "RCS", was
the subject of a grand jury investigation begun in June 2000 and conducted under
the direction of the United States Attorney for the District of Connecticut and
the Office of the Inspector General of the U.S. Department of Health and Human
Services, or the "OIG." The investigation involved allegations of improper
practices in RCS' transtelephonic

                                        13
<PAGE>

pacemaker monitoring operations and its billing practices related to
Medicare-covered services. The investigation did not involve Raytel's other
healthcare services, such as RCS' cardiac event detection services or Raytel's
diagnostic imaging services or other cardiac-related businesses.

     In connection with the investigation, Raytel has reviewed its compliance
with Medicare billing and record-keeping requirements on a patient-by-patient
basis. Pending such review, Raytel held Medicare reimbursement checks received
subsequent to June 23, 2000 in payment of invoices for pacemaker monitoring
services and established a special account for funds inadvertently deposited
with respect to such services. In addition, Raytel suspended billing for such
services. Most of the checks have been deposited, most of the cash has been
released from the special account, and new billings for services performed has
commenced, as most of the affected patients' records have been reviewed and
found to be in compliance with applicable Medicare requirements. The total
amount of such uncashed checks and funds remaining in such special account was
approximately $400,000 as of September 30, 2001.

     In June 2001, RCS reached an agreement with the federal government to
resolve the issues which were the subject of the investigation. In accordance
with that agreement, RCS plead guilty in U.S. District Court in Hartford,
Connecticut to a charge of obstructing a criminal investigation arising out of
activities related to the initial stage of the investigation in June 2000. In
addition, in September 2001, RCS entered into a settlement agreement with the
government to resolve related civil claims. Under the criminal and civil
settlement, RCS agreed to pay a total of $11,500,000, plus interest at the rate
of 7% per annum, to the government over a five-year period, and Raytel
guaranteed RCS' payment obligations. As of September 30, 2001, $1,500,000 had
been paid to the government. In connection with the settlement, RCS entered into
a corporate integrity agreement under which it agreed that its ongoing
operations would conform to specific guidelines. RCS' guilty plea did not
constitute the type of conviction that would adversely affect its participation
in the Medicare program or other federal healthcare programs.

     In connection with the OIG investigation and its resolution, RCS incurred
substantial legal fees and other expenses. Raytel has accrued a reserve of
$4,600,000 to cover the estimated amount of these expenses. Expenses in excess
of this reserve, if any, will adversely affect operating results in future
periods. The investigation, the related internal review and settlement
negotiations with the government also diverted the efforts and attention of
Raytel and RCS management and a number of RCS' administrative personnel. The
impact of this diversion reduced the efficiency of RCS' pacemaker monitoring
operations during the second half of fiscal 2000 and throughout fiscal 2001.
Although the investigation has been concluded, implementation of the corporate
integrity agreement continues to require the time and attention of RCS
management and administrative personnel. In addition, RCS' guilty plea entered
into under its agreement with the government constituted a default under
Raytel's bank credit facility. In November 2001, Raytel entered into a new
revolving credit arrangement and repaid indebtedness under its bank facility.
However, RCS' guilty plea could adversely affect Raytel's ability to obtain debt
or equity financing in the future.

     Raytel and its subsidiaries are parties to other litigation and claims
arising out of its ongoing business operations. We believe that none of these
matters, either individually or in the aggregate, are likely to have a material
adverse effect on our 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 Raytel's fiscal year ended September 30, 2001.

                                        14
<PAGE>

                                    PART II

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

     Since our initial public offering in December 1995, our common stock has
traded in the Nasdaq Stock Market under the symbol "RTEL." Until February 26,
2001, our common stock traded on the Nasdaq National Market, and since that date
it has traded on the Nasdaq SmallCap Market. The following table sets forth the
range of high and low sales prices of our common stock (adjusted to reflect the
one-for-three reverse stock split effected on May 9, 2001), as reported by
Nasdaq, for the periods indicated:

<Table>
<Caption>
                                                     FISCAL YEAR ENDED SEPTEMBER 30,
                                                   -----------------------------------
                                                        2001               2000
                                                   ---------------   -----------------
                                                    HIGH     LOW      HIGH       LOW
                                                   ------   ------   -------   -------
<S>                                                <C>      <C>      <C>       <C>
First quarter....................................  $5.063   $1.313   $12.751   $18.157
Second quarter...................................  $3.375   $1.219   $12.376   $ 8.251
Third quarter....................................  $2.250   $1.100   $11.064   $ 4.875
Fourth quarter...................................  $8.750   $2.000   $ 5.438   $  .656
</Table>

     As of September 30, 2001, there were 349 holders of record of our common
stock.

     Raytel has never paid cash dividends on its capital stock. It is the
present policy of Raytel to retain earnings to finance the development of its
business and, therefore, we do not anticipate paying cash dividends in the
foreseeable future.

                                        15
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

     The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
notes thereto included elsewhere in this report.

<Table>
<Caption>
                                                              FISCAL YEAR ENDED SEPTEMBER 30,
                                                    ----------------------------------------------------
                                                      2001       2000       1999       1998       1997
                                                    --------   --------   --------   --------   --------
                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                 <C>        <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENTS OF OPERATION DATA:
Revenues:
  Cardiac information services....................  $ 37,776   $ 40,782   $ 44,731   $ 46,171   $ 47,227
  Diagnostic imaging services.....................    25,694     22,652     20,143     19,977     17,610
  Heart facilities and other......................     7,798      8,887     15,047     21,246     12,156
                                                    --------   --------   --------   --------   --------
Total revenues....................................    71,268     72,321     79,921     87,394     76,993
                                                    --------   --------   --------   --------   --------
Provision for OIG investigation expenses..........     2,600      2,000         --         --         --
Settlement with federal government................    11,500         --         --         --         --
Operating costs and selling, general and
  administrative expenses.........................    62,898     61,612     64,383     69,077     59,206
Depreciation and amortization.....................     6,485      6,582      6,808      6,653      5,751
                                                    --------   --------   --------   --------   --------
Operating income (loss)...........................   (12,215)     2,127      8,730     11,664     12,036
Interest expense..................................     1,774      1,960      2,303      2,666        340
Other expense (income), net.......................      (600)      (941)    (1,099)      (783)    (3,077)
Minority interest.................................       565        602      1,000      1,273        485
                                                    --------   --------   --------   --------   --------
Income (loss) from continuing operations before
  income taxes (benefit) and extraordinary item...   (13,954)       506      6,526      8,508     14,288
Provision for income taxes (benefit)..............      (635)       173      2,543      3,304      5,715
                                                    --------   --------   --------   --------   --------
Income (loss) from continuing operations before
  extraordinary item..............................   (13,319)       333      3,983      5,204      8,573
Discontinued operations:
  Income (loss) from discontinued operations, net
     of tax (benefit).............................      (192)       830      1,371        889        812
  Loss on disposal of discontinued operations, net
     of tax benefit...............................   (19,353)    (4,965)        --         --         --
Extraordinary item, net of tax benefit............        --         --         --         --       (721)
                                                    --------   --------   --------   --------   --------
Net income (loss).................................  $(32,864)  $ (3,802)  $  5,354   $  6,093   $  8,664
                                                    ========   ========   ========   ========   ========
Basic income (loss) per share:
  Income (loss) from continuing operations........  $  (4.57)  $    .11   $   1.37   $   1.76   $   3.04
  Income (loss) from discontinued operations......     (6.70)     (1.41)       .47        .30        .29
  Loss from extraordinary item....................        --         --         --         --       (.26)
                                                    --------   --------   --------   --------   --------
     Total........................................  $ (11.27)  $  (1.30)  $   1.84   $   2.06   $   3.07
                                                    ========   ========   ========   ========   ========
Diluted income (loss) per share:
  Income (loss) from contributing operations......  $  (4.57)  $    .11   $   1.32   $   1.68   $   2.85
  Income (loss) from discontinued operations......     (6.70)     (1.41)       .46        .29        .27
  Loss from extraordinary item....................        --         --         --         --       (.24)
                                                    --------   --------   --------   --------   --------
     Total........................................  $ (11.27)  $  (1.30)  $   1.78   $   1.97   $   2.88
                                                    ========   ========   ========   ========   ========
Weighted average shares outstanding:
  Basic...........................................     2,917      2,915      2,904      2,960      2,819
                                                    ========   ========   ========   ========   ========
  Diluted.........................................     2,917      2,915      3,013      3,098      3,013
                                                    ========   ========   ========   ========   ========
CONSOLIDATED BALANCE SHEET DATA:
Total assets......................................  $ 73,229   $109,597   $117,783   $122,186   $119,421
Long-term debt and capital lease obligations(1)...    25,004     25,197     29,370     36,997     36,354
Total stockholders' equity........................    34,931     67,862     72,029     66,491     61,899
</Table>

---------------

(1) Includes current portion of long-term debt and capital lease obligations.

                                        16
<PAGE>

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

     This discussion and analysis includes a number of forward-looking
statements which reflect Raytel'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 under "Business
Environment and Future Results" and elsewhere in this discussion, that could
cause actual results to differ materially from historical results or those
anticipated. In this discussion, the words "anticipates," "believes," "expects,"
"intends," "future" 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.

OVERVIEW

     The Company generates its revenues from cardiac information services (which
include telephonic monitoring services for cardiac pacemaker patients
("Pacing"), cardiac event detection services ("CEDS") and Holter monitoring),
from diagnostic imaging services and from facilities providing diagnostic,
therapeutic and patient management services primarily associated with
cardiovascular disease.

     Since 1995, the Company has entered into a series of transactions which
have expanded its heart center and physician practice management businesses. As
a result, revenue has also been provided from: the Raytel Heart Center at
Granada Hills ("RHCGH") beginning on February 1, 1996; the management of
Southeast Texas Cardiology Associates II, L.L.P. ("SETCA") beginning on
September 18, 1996 and ending on May 31, 2000; the management of Comprehensive
Cardiology Consultants, a Medical Group, Inc. ("CCMG") beginning on November 1,
1996 and ending on May 31, 2000; and Cardiovascular Ventures, Inc. ("CVI")
beginning on August 15, 1997, which included the multi-specialty clinic, Heart
and Family Health Institute ("HFHI") and six cardiovascular diagnostic
facilities. HFHI was sold effective January 1, 2001.

     On August 15, 1997, the Company acquired all of the outstanding capital
stock of CVI, of New Orleans, Louisiana. CVI managed, owned, and operated
cardiovascular diagnostic facilities in Texas, Louisiana and Florida and also
owned and managed HFHI in Florida. Total original consideration for the
transaction consisted of cash and transaction costs of approximately $16,980,000
and 166,666 shares of Raytel's common stock. During fiscal 1998, there were
additional transaction costs of approximately $280,000 and an additional 15,556
shares of the Company's Common Stock has been or will be issued. Contingent
promissory notes in the aggregate principal amount of $820,000 delivered as part
of the consideration were cancelled in accordance with the terms of the
agreement.

     Effective March 27, 1999, the Company entered into a revised agreement with
RHCGH. The new agreement results in significantly lower revenues and expenses
than revenues and expenses recognized under the previous agreements.

     In November 1999, the Company filed a demand for arbitration against CCMG
with JAMS/Endispute, Inc. The Company provided management services to CCMG
pursuant to a long-term management services agreement entered into between the
parties in November 1996. The demand for arbitration asserted that Raytel was
entitled to rescission, restitution and/or damages as a result of CCMG's
material breaches of the management services agreement. The arbitration was
settled in fiscal 2001 with no material adverse effect to the Company.

     In order to settle a dispute and avoid protracted litigation, initiated by
SETCA, effective May 31, 2000, the Company's Board of Directors approved
management's plan to sell SETCA. Effective May 31, 2000, the Company sold
substantially all of the assets of Raytel Nuclear Imaging-Orange, L.P. and the
common stock of Raytel Texas Physicians Services, Inc. in exchange for the
cancellation of promissory notes in the aggregate amount of approximately
$2,300,000 payable by the Company to the physicians and the physicians'
agreement to cancel existing rights to receive 40,689 shares of Raytel's common
stock. Accordingly, the Company reported the results of operations of those
discontinued entities and the loss on disposal as discontinued operations. The
loss on disposal of $4,965,000, recorded at June 30, 2000, is net of an
estimated tax benefit of approximately $3,367,000.

                                        17
<PAGE>

     From June 2000 through June 2001, Raytel was the subject of a grand jury
investigation of allegations concerning certain business practices of the
trans-telephonic cardiac pacemaker monitoring business conducted by Raytel
Cardiac Services, Inc., a wholly-owned subsidiary of the Company ("RCS"). The
investigation did not involve Raytel's other healthcare services, such as RCS'
cardiac event detection services or Raytel's diagnostic imaging services or
other cardiac-related businesses.

     In connection with the investigation, Raytel has reviewed its compliance
with Medicare billing and record-keeping requirements on a patient-by-patient
basis. Pending such review, Raytel held Medicare reimbursement checks received
subsequent to June 23, 2000 in payment of invoices for pacemaker monitoring
services and established a special account for funds inadvertently deposited
with respect to such services received since the date the investigation began.
In addition, Raytel suspended billing for such services. Most of the checks have
been deposited, most of the cash has been released from the special account, and
new billings for services performed has commenced as most of the affected
patients' records have been reviewed and found to be in compliance with
applicable Medicare requirements. The total amount of such uncashed checks and
funds deposited in such special account was approximately $400,000 as of
September 30, 2001. Since Raytel recognizes revenue when patient services are
provided, neither the special account arrangement nor the deferred billing has
had a direct impact on Raytel's operating results. If the Company's review
discloses any patient billings that have not been fully compliant with Medicare
requirements, any resulting billing adjustments or reversals will be charged
against operating results in that current period. In addition, the Company has
incurred substantial legal fees and other expenses in connection with the
investigation and has accrued a reserve of $4,600,000 to cover the estimated
amounts of these expenses. Additional expenses, if any, will adversely affect
operating results in future periods. As of September 30, 2001, the Company had
incurred legal fees and other expenses of approximately $3,945,000 related to
the investigation. The remaining balance is included in "accrued other
liabilities" on the Company's balance sheet. These expenses include legal fees
incurred by certain employees in connection with the on-going investigation
which were reimbursed by the Company in accordance with the requirements of
Delaware Law and the Company's By-Laws.

     In June 2001, RCS reached an agreement with the federal government to
resolve the issues that were the subject of the investigation. In accordance
with that agreement, on June 25, 2001, RCS plead guilty in U.S. District Court
in Hartford, Connecticut to a charge of obstructing a criminal investigation
arising out of the initial investigation in June 2000. In addition, in September
2001, the Company and RCS entered into an agreement with the government to
resolve related civil claims. Under the criminal and civil settlements, RCS
agreed to pay a total of $11,500,000 to the government over a five year period,
with interest of 7% per annum on the unpaid balance, and Raytel guaranteed RCS
payment obligations. RCS also entered into a corporate integrity agreement under
which it agreed that its ongoing operations would conform to specified
guidelines. As of September 30, 2001, $1,500,000 had been paid to the
government, and the next payment of $2,000,000 is due in June 2002. RCS' guilty
plea did not constitute the type of conviction that would adversely affect its
participation in the Medicare program or other federal healthcare programs.

     The investigation, the related internal compliance review, and settlement
negotiations with the government diverted the efforts and attention of a number
of Raytel's management and administrative personnel. The impact of this
diversion reduced the efficiency of RCS' pacemaker monitoring operations during
the last week of the quarter ended June 30, 2000 and adversely affected both
revenues and operating expenses for that period as well as the quarter ended
September 30, 2000, and throughout the fiscal year ended September 30, 2001.
Although the investigation has been concluded, implementation of the corporate
integrity agreement continues to require the time and attention of Raytel and
RCS management and a number of RCS' administrative personnel. In addition, RCS'
guilty plea entered into under its agreement with the government constituted a
default under Raytel's bank credit facility. In November 2001, Raytel entered
into a new revolving line of credit arrangement and repaid indebtedness under
its bank facility. However, RCS' guilty plea could adversely affect Raytel's
ability to obtain debt or equity financing in the future.

     In March 2001, effective January 1, 2001, the Company completed the sale of
its wholly-owned subsidiary, HFHI, to a new company organized by physicians
practicing at HFHI, including David Wertheimer, M.D., who had served as
President of the subsidiary as well as an officer of Raytel and a

                                        18
<PAGE>

member of Raytel's Board of Directors. Raytel received a cash purchase price of
$8,311,000, net of transaction expenses, in exchange for all of the common stock
of HFHI. Approximately $1,234,000 of the proceeds was used to pre-pay leases for
equipment used at the HFHI facility, $5,100,000 was used to reduce the
indebtedness under the Company's bank credit facility and the balance was used
for working capital purposes. The Company reported the results of operations of
HFHI and the loss on disposal as discontinued operations for all applicable
periods presented. The loss on disposal of $19,353,000 represents a one-time
non-cash charge, consisting primarily of the write-off of intangible assets. Due
to the uncertainty of the ultimate tax benefit to be realized as a result of the
loss, the Company has not provided for any tax benefit that may result from this
transaction.

     On May 9, 2001, the Board of Directors effected a one-for-three reverse
split of the Company's common stock. The accompanying consolidated financial
statements reflect such reverse stock split for all periods presented.

RESULTS OF OPERATIONS

     The following table sets forth, for the periods indicated, certain data
derived from the Consolidated Statements of Operations as a percentage of total
revenues:

<Table>
<Caption>
                                                                FISCAL YEAR ENDED
                                                                  SEPTEMBER 30,
                                                              ---------------------
                                                              2001    2000    1999
                                                              -----   -----   -----
<S>                                                           <C>     <C>     <C>
Total revenues..............................................  100.0%  100.0%  100.0%
Operating costs and selling, general and administrative
  expenses..................................................   88.3    85.2    80.6
OIG investigation expenses and settlement...................   19.8     2.8      --
Depreciation and amortization...............................    9.1     9.1     8.5
                                                              -----   -----   -----
Operating income (loss).....................................  (17.2)    2.9    10.9
Interest expense and other expense (income).................    1.6     1.4     1.5
Minority interest...........................................     .8      .8     1.2
                                                              -----   -----   -----
Income (loss) from continuing operations before income taxes
  (benefit).................................................  (19.6)     .7     8.2
Provision for income taxes (benefit)........................    (.9)     .2     3.2
                                                              -----   -----   -----
Income (loss) from continuing operations....................  (18.7)     .5     5.0
Discontinued operations.....................................  (27.4)   (5.7)    1.7
                                                              -----   -----   -----
Net income (loss)...........................................  (46.1)%  (5.2)%   6.7%
                                                              =====   =====   =====
</Table>

  FISCAL YEAR ENDED SEPTEMBER 30, 2001 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
  30, 2000

     Revenues.  For the fiscal year ended September 30, 2001, total revenues
were $71,268,000 compared to $72,321,000 for fiscal 2000, representing a
decrease of $1,053,000, or 1.5%.

     Cardiac information services revenues were $37,776,000 in fiscal 2001,
compared to $40,782,000 in fiscal 2000, a decrease of $3,006,000, or 7.4%. The
decrease in revenues for cardiac information services was due primarily to lower
revenues from Pacing as a result of lower test volumes and lower average selling
prices. Diagnostic imaging services revenues were $25,694,000 in fiscal 2001,
compared to $22,652,000 in fiscal 2000, an increase of $3,042,000, or 13.4%, due
primarily to increases in revenue at certain centers and the imaging network
resulting from increases in patient volumes. Heart facilities and other revenues
were $7,798,000 in fiscal 2001, compared to $8,887,000 in fiscal 2000, a
decrease of $1,089,000, or 12.3%, due primarily to lower revenues at certain
cardiovascular diagnostic facilities as a result of restructuring the operating
agreements for these facilities to conform to new regulations and the
termination of an agreement with Baptist Hospital of Beaumont, Texas.

     Operating Expenses.  Operating costs and selling, general and
administrative expenses increased by $1,286,000, or 2.1% (excluding the
provision for OIG investigation expenses and the settlement with the

                                        19
<PAGE>

federal government), from $61,612,000 in fiscal 2000 to $62,898,000 in fiscal
2001 due primarily to higher expenses at diagnostic imaging services partially
offset by decreases in costs and expenses at cardiac information services and
heart facilities and other. Operating costs and selling, general and
administrative expenses (excluding the provision for OIG investigation expenses
and the settlement with the federal government) as a percentage of total
revenues increased from 85.2% in fiscal 2000 to 88.3% in fiscal 2001.

     Provision for OIG Investigation Expenses.  The Company provided $2,600,000
and 2,000,000 for expected expenses associated with the OIG investigation for
the fiscal years ended September 30, 2001 and 2000, respectively.

     Settlement with Federal Government.  The Company recorded a one-time charge
of $11,500,000 in June 2001 related to the settlement of criminal and civil
proceedings entered into between its subsidiary, Raytel Cardiac Services, and
the federal government.

     Depreciation and Amortization.  Depreciation and amortization expense
decreased by $97,000, or 1.5%, from $6,582,000 in fiscal 2000 to $6,485,000 in
fiscal 2001 but remained at 9.1% as a percentage of total revenues for both
fiscal 2000 and 2001.

     Operating Income (Loss).  As a result of the foregoing factors, the Company
had operating income of $2,127,000 in fiscal 2000 compared to an operating loss
of $12,215,000 in fiscal 2001.

     Interest Expense.  Interest expense decreased by $186,000, or 9.5%, from
$1,960,000 in fiscal 2000 to $1,774,000 in fiscal 2001 due primarily to a
decrease in the average amount of debt outstanding and, to a lesser extent, a
decline in interest rates.

     Other Expense (Income).  Other income decreased by $341,000 from $941,000
for fiscal 2000 to $600,000 for fiscal 2001 due primarily to a series of
insignificant items.

     Minority Interest.  Minority interest decreased by $37,000 from $602,000 in
fiscal 2000 to $565,000 in fiscal 2001 due primarily to decreased income in
certain cardiovascular diagnostic facilities.

     Income Taxes (Benefit).  The provision for income taxes decreased by
$808,000 from income taxes of $173,000 in fiscal 2000 to an income tax benefit
of $635,000 in fiscal 2001 as a result of decreased taxable income.

     Income (Loss) from Continuing Operations.  As a result of the foregoing
factors, the Company recorded income from continuing operations of $333,000 in
fiscal 2000 compared to a loss from continuing operations of $13,319,000 in
fiscal 2001.

     Discontinued Operations.  Income from operations of a discontinued segment
decreased by $1,022,000 from income of $830,000 in fiscal 2000 to a loss of
$192,000 in fiscal 2001, net of tax. The loss on disposal of a discontinued
segment increased from $4,965,000 (net of an estimated tax benefit of
$3,367,000) to $19,353,000. Due to the uncertainty of the ultimate tax benefit
to be realized as a result of the $19,353,000 loss, the Company has not provided
for any tax benefit that may result from the HFHI transaction.

     Net Loss.  As a result of the foregoing factors, the Company incurred a net
loss of $32,864,000 in fiscal 2001 compared to $3,802,000 in fiscal 2000.

  FISCAL YEAR ENDED SEPTEMBER 30, 2000 COMPARED TO FISCAL YEAR ENDED SEPTEMBER
  30, 1999

     Revenues.  For the fiscal year ended September 30, 2000, total revenues
were $72,321,000 compared to $79,921,000 for fiscal year 1999, representing a
decrease of $7,600,000, or 9.5%.

     Cardiac information services revenues were $40,782,000 in fiscal 2000,
compared to $44,731,000 in fiscal 1999, a decrease of $3,949,000, or 8.8%. The
decrease in revenues for cardiac information services was due primarily to lower
revenues from Pacing and CEDS as a result of lower test volumes. Diagnostic
imaging services revenue was $22,652,000 in fiscal 2000, compared to $20,143,000
in fiscal 1999, an increase of $2,509,000, or 12.5%, due primarily to increases
in revenue at certain centers and the imaging network due to an increase in
patient volumes. Heart facilities and other revenues were $8,887,000 in fiscal
2000, compared to

                                        20
<PAGE>

$15,047,000 in fiscal 1999, a decrease of $6,160,000, or 40.9%, due primarily to
lower revenue at RHCGH due to the amended agreement and, to a lesser extent,
lower revenue at certain cardiovascular diagnostic facilities.

     Operating Expenses.  Operating costs and selling, general and
administrative expenses decreased by $2,771,000, or 4.3% (excluding the
provision for OIG investigation expenses), from $64,383,000 in fiscal 1999 to
$61,612,000 in fiscal 2000 due primarily to lower expenses at RHCGH due to the
amended agreement, partially offset by increases in costs and expenses in
diagnostic imaging services and cardiac information services. Operating costs
and selling, general and administrative expenses (excluding the provision for
OIG investigation expenses) as a percentage of total revenues increased from
80.6% in fiscal 1999 to 85.2% in fiscal 2000.

     Provision for OIG Investigation Expenses.  The Company provided $2,000,000
for expected expenses associated with the OIG investigation in fiscal 2000.

     Depreciation and Amortization.  Depreciation and amortization expense
decreased by $226,000, or 3.3%, from $6,808,000 in fiscal 1999 to $6,582,000 in
fiscal 2000 and increased as a percentage of revenues from 8.5% in fiscal 1999
to 9.1% in fiscal 2000.

     Operating Income.  As a result of the foregoing factors, operating income
decreased by $6,603,000, or 75.6%, from $8,730,000 in fiscal 1999 to $2,127,000
in fiscal 2000.

     Interest Expense.  Interest expense decreased by $343,000, or 14.9%, from
$2,303,000 in fiscal 1999 to $1,960,000 in fiscal 2000 due primarily to a
decrease in the average amount of debt outstanding.

     Other Expense (Income).  Other income decreased by $158,000 from $1,099,000
for fiscal 1999 to $941,000 for fiscal 2000 due primarily to a series of
insignificant items.

     Minority Interest.  Minority interest decreased by $398,000 from $1,000,000
in fiscal 1999 to $602,000 in fiscal 2000 due primarily to decreased income in
certain cardiovascular diagnostic facilities.

     Income Taxes.  The provision for income taxes decreased by $2,370,000, or
93.2%, from $2,543,000 in fiscal 1999 to $173,000 in fiscal 2000 as a result of
decreased taxable income.

     Income from Continuing Operations.  As a result of the foregoing factors,
income from continuing operations decreased by $3,650,000, or 91.6%, from
$3,983,000 in fiscal 1999 to $333,000 in fiscal 2000.

     Discontinued Operations.  Income from operations of a discontinued segment
decreased by $541,000 from $1,371,000 in fiscal 1999 to $830,000 in fiscal 2000,
net of tax. The loss on disposal of the discontinued segment of $4,965,000 is
net of an estimated tax benefit of $3,367,000.

     Net Income (Loss).  As a result of the foregoing factors, the Company
incurred a net loss of $3,802,000 in fiscal 2000 versus net income of $5,354,000
in fiscal 1999.

BUSINESS ENVIRONMENT AND FUTURE RESULTS

     The Company's future operating results may be affected by various trends in
the healthcare industry as well as by a variety of other factors, some of which
are beyond the Company's control.

     The healthcare industry is undergoing significant change as third-party
payors attempt to control the cost, utilization and delivery of healthcare
services. Substantially all of the Company's revenues are derived from Medicare,
HMOs, 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 and seeking competitive
bids. Revenue from the Company's Pacing operations during the last three fiscal
years has been negatively impacted by Medicare reimbursement rate reductions.
Reimbursement rate reductions applicable to the Company's Pacing procedures
became effective on January 1, 1999 and had a negative effect on Pacing revenue
for calendar year 1999. There was a slight increase in Medicare reimbursement
rates effective January 1, 2000 and again effective January 1, 2001; however, a
decrease is expected effective January 1, 2002. The Company cannot predict with
any certainty

                                        21
<PAGE>

whether or when additional reductions or changes in Medicare or other
third-party reimbursement rates or policies will be implemented. There can be no
assurance that future changes, if any, will not adversely affect the amounts or
types of services that may be reimbursed to the Company, or that future
reimbursement of any service offered by the Company will be sufficient to cover
the costs and overhead allocated to such service.

     From time to time, Congress considers legislation to reduce Medicare and
Medicaid expenditures. Future legislation of this type could have a material
adverse effect on the Company's business, financial condition and operating
results. Governmental agencies promulgate regulations which mandate changes in
the method of delivering services which could have a material adverse effect on
the Company's business.

     An element of the Company's strategy is to expand, in part, through
acquisitions and investments in complementary healthcare businesses. The
implementation of this strategy may place significant strain on the Company's
administrative, operational and financial resources and increase demands on its
systems and controls. There can be no assurances that businesses acquired by the
Company, in the future, will be integrated successfully and profitably into the
Company's operations, that suitable acquisitions or investment opportunities
will be identified, or that any such transactions can be consummated.

     Providers of healthcare services are subject to numerous federal, state and
local laws and regulations that govern various aspects of their business. There
can be no assurance that the Company will be able to obtain regulatory approvals
that may be required to expand its services or that new laws or regulations will
not be enacted or adopted that will have a material adverse effect on the
Company's business, financial condition or operating results.

     The healthcare businesses in which the Company is engaged are highly
competitive. The Company expects competition to increase as a result of ongoing
consolidations and cost-containment pressures, among other factors.

     The trading price of the Company's Common Stock could be subject to wide
fluctuations in response to quarterly variations in the Company's operating
results, shortfalls in such operating results from levels forecasted by
securities analysts and other events or factors. In addition, the stock market
has, from time to time, experienced extreme price and volume fluctuations that
have particularly affected the market prices of companies in the healthcare
service industries and that have often been unrelated to the operating
performance of the affected companies. Announcements of changes in reimbursement
policies of third-party payors, legislative or regulatory developments, economic
news and other external factors may have a significant impact on the market
price of healthcare stocks.

LIQUIDITY AND CAPITAL RESOURCES

     At September 30, 2001, the Company had working capital of $12,942,000,
compared to $32,387,000 at September 30, 2000. At September 30, 2001, the
Company had cash and temporary cash investments of $6,495,000.

     In connection with the settlement of the OIG investigation, the Company
made payments of $1,500,000 through September 30, 2001.

     The Company batch-bills Medicare insurance carriers for most cardiac
testing services performed during the first few months of each calendar year.
This practice results in a temporary build-up of accounts receivable during the
Company's second and third fiscal quarters, with the collection of these
receivables occurring primarily during the subsequent fourth fiscal quarter.

     On December 15, 2000, the Company's line of credit agreement with two banks
was amended to reduce the line of credit to $20,000,000 and to revise certain
financial and other covenants and terms. The interest rate was changed to be
based on LIBOR plus 275 basis points, or the bank's prime rate plus 50 basis
points, at the option of the Company, and the date for repayment was extended to
October 1, 2001. A new non-financial covenant was added under which any civil
financial settlement in excess of $1,000,000 or any criminal charges relating to
the ongoing OIG investigation would constitute an event of default. On March 16,
2001, the line of credit was further reduced to $14,900,000 in connection with
the sale of the Company's HFHI subsidiary.

                                        22
<PAGE>

Consistent with the terms of the December 2000 amendment to the line of credit
agreement, the line of credit was further reduced by $2,500,000 on June 30, 2001
to $12,400,000.

     At September 30, 2001, there was approximately $12,300,000 outstanding
under the line of credit. The line matured on October 1, 2001 and, therefore,
indebtedness outstanding under the line as of September 30, 2001 was classified
as a current liability on the Company's balance sheet. In addition, at that
date, the Company was in default of certain of its covenants under the credit
agreement (including the new covenants relating to the disposition of the OIG
investigation).

     In November 2001, the Company entered into a new two-year revolving credit
facility with Healthcare Business Credit Corporation under which it may borrow
up to $15,000,000. Loans under the facility will bear interest at prime plus 1%
per annum and will be secured by accounts receivable, inventories, capital
equipment and other assets of Raytel and certain of its subsidiaries and
affiliated entities. Raytel used the proceeds of the new facility to repay
outstanding indebtedness of approximately $12,300,000 under the bank credit line
that matured on October 1, 2001.

     The Company's long-term capital requirements will depend on numerous
factors, including the rate at which the Company develops new products and
services and acquires other businesses, if any. The Company's ability to meet
its working capital and capital expenditure needs for the next twelve months is
dependent upon its ability to achieve profitability. The Company may require
additional capital if, for example, it were to experience operating losses or if
it were to pursue one or more business acquisitions. The Company cannot be
certain that additional financing will be available when required, or at all.
RCS' guilty plea pursuant to the settlement agreement entered into with the
federal government in September 2001 could adversely affect Raytel's ability to
obtain debt or equity financing in the future.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     Raytel does not hold any marketable equity securities, foreign currencies,
or derivative financial instruments in its investment portfolio. The Company is
exposed to market risk from interest rate fluctuations because it uses variable
rate debt to finance working capital requirements. The Company does not believe
that there is any material market risk exposure with respect to other financial
instruments that would require further disclosure under this item.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See the Index to Financial Statements on page F-1.

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

     Not Applicable.

                                    PART III

     Certain information required by Part III is omitted from this report in
that Raytel 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."

                                        23
<PAGE>

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
Relationships and Related Transactions."

                                    PART IV

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

(a) 1. FINANCIAL STATEMENTS:

     Report of Independent Public Accountants

     Consolidated Balance Sheets as of September 30, 2001 and 2000

     Consolidated Statements of Operations for the Years Ended September 30,
     2001, 2000 and 1999

     Consolidated Statements of Changes in Stockholders' Equity for the Years
     Ended September 30, 2001, 2000 and 1999

     Consolidated Statements of Cash Flows for the Years Ended September 30,
     2001, 2000 and 1999

     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 report, or incorporated herein by
reference, are set forth in the Exhibit Index, which immediately follows the
financial statements.

(b) REPORTS ON FORM 8-K DURING THE QUARTER ENDED SEPTEMBER 30, 2001

     None.

                                        24
<PAGE>

                                   SIGNATURES

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

<Table>
<S>                                            <C>
Dated: December 28, 2001                       RAYTEL MEDICAL CORPORATION

                                                          By: /s/ RICHARD F. BADER
                                               ----------------------------------------------
                                                              Richard F. Bader
                                                   Chairman of the Board of Directors and
                                                          Chief Executive Officer
</Table>

     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>                                             <C>                               <S>




            /s/ RICHARD F. BADER                   Chairman of the Board of       December 28, 2001
  -----------------------------------------      Directors and Chief Executive
             (Richard F. Bader)                  Officer (Principal Executive
                                                           Officer)




           /s/ JOHN F. LAWLER, JR.                 Vice President and Chief       December 28, 2001
  -----------------------------------------      Financial Officer (Principal
            (John F. Lawler, Jr.)                  Financial and Accounting
                                                           Officer)




             /s/ GENE I. MILLER                            Director               December 28, 2001
  -----------------------------------------
              (Gene I. Miller)




              /s/ ALLAN ZINBERG                            Director               December 28, 2001
  -----------------------------------------
               (Allan Zinberg)
</Table>

                                        25
<PAGE>

                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

                         INDEX TO FINANCIAL STATEMENTS

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
  CONSOLIDATED FINANCIAL STATEMENTS
  Report of Independent Accountants.........................  F-2
  Consolidated Balance Sheets...............................  F-3
  Consolidated Statements of Operations.....................  F-4
  Consolidated Statements of Changes in Stockholders'
     Equity.................................................  F-5
  Consolidated Statement of Cash Flows......................  F-6
  Notes to Consolidated Financial Statements................  F-7
Supplemental Data: Selected Quarterly Financial
  Information...............................................  F-20
Supplemental Data: Percentage of Consolidated Revenue by
  Segment...................................................  F-21
Report of Independent Accountants on Schedule II to the
  Consolidated Financial Statements.........................  F-22
Schedule II to the Consolidated Financial Statements:
  Valuation and Qualifying Accounts.........................  F-23
</Table>

                                       F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of Raytel Medical Corporation:

     We have audited the accompanying consolidated balance sheets of Raytel
Medical Corporation and Subsidiaries as of September 30, 2001 and 2000 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three year period ended September
30, 2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Raytel Medical Corporation and Subsidiaries as of September 30, 2001 and 2000,
and the consolidated results of their operations and their cash flows for each
of the years in the three year period ended September 30, 2001 in conformity
with accounting principles generally accepted in the United States.

                                          ARTHUR ANDERSEN LLP

Hartford, Connecticut
November 29, 2001

                                       F-2
<PAGE>

                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                          SEPTEMBER 30, 2001 AND 2000

<Table>
<Caption>
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
                                                                (000'S OMITTED)
<S>                                                           <C>        <C>
                                     ASSETS
Current assets:
  Cash and cash equivalents.................................  $  6,095   $  7,201
  Cash held for special purpose.............................       400      1,580
                                                              --------   --------
       Total cash...........................................     6,495      8,781
  Receivables, net..........................................    31,404     36,840
  Prepaid expenses and other................................     2,485      2,597
                                                              --------   --------
       Total current assets.................................    40,384     48,218
Property and equipment, less accumulated depreciation and
  amortization..............................................    14,187     19,651
Intangible assets, less accumulated amortization............    18,590     41,672
Other assets................................................        68         56
                                                              --------   --------
       Total assets.........................................  $ 73,229   $109,597
                                                              ========   ========

                      LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt and capital lease
     obligations............................................  $ 15,151   $  1,067
  Accounts payable..........................................     4,757      5,258
  Accrued compensation and benefits.........................     2,636      3,177
  Accrued other liabilities.................................     4,898      6,329
                                                              --------   --------
       Total current liabilities............................    27,442     15,831
Long-term debt and capital lease obligations, net of current
  portion...................................................     9,853     24,130
Minority interest in consolidated entities..................     1,003      1,774
                                                              --------   --------
       Total liabilities....................................    38,298     41,735
                                                              --------   --------
Commitments and contingencies (Notes 9, 11 and 13)
Stockholders' equity:
  Common stock..............................................         3          3
  Additional paid-in capital................................    62,672     62,670
  Common stock to be issued.................................        --         69
  Retained earnings (accumulated deficit)...................   (24,122)     8,742
                                                              --------   --------
                                                                38,553     71,484
  Less treasury stock, at cost..............................    (3,622)    (3,622)
                                                              --------   --------
       Total stockholders' equity...........................    34,931     67,862
                                                              --------   --------
       Total liabilities and stockholders' equity...........  $ 73,229   $109,597
                                                              ========   ========
</Table>

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

                                       F-3
<PAGE>

                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
             FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999

<Table>
<Caption>
                                                                     SEPTEMBER 30,
                                                              ----------------------------
                                                                2001      2000      1999
                                                              --------   -------   -------
                                                                 (000'S OMITTED, EXCEPT
                                                                   PER SHARE AMOUNTS)
<S>                                                           <C>        <C>       <C>
Revenues:
  Cardiac information services..............................  $ 37,776   $40,782   $44,731
  Diagnostic imaging services...............................    25,694    22,652    20,143
  Heart facilities and other................................     7,798     8,887    15,047
                                                              --------   -------   -------
     Total revenues.........................................    71,268    72,321    79,921
                                                              --------   -------   -------
Costs and expenses:
  Provision for OIG investigation expenses..................     2,600     2,000        --
  Settlement with federal government........................    11,500        --        --
  Operating costs...........................................    33,598    30,829    33,702
  Selling, general and administrative.......................    29,300    30,783    30,681
  Depreciation and amortization.............................     6,485     6,582     6,808
                                                              --------   -------   -------
     Total costs and expenses...............................    83,483    70,194    71,191
                                                              --------   -------   -------
Operating income (loss).....................................   (12,215)    2,127     8,730
Interest expense............................................     1,774     1,960     2,303
Other expense (income), net.................................      (600)     (941)   (1,099)
Minority interest...........................................       565       602     1,000
                                                              --------   -------   -------
Income (loss) from continuing operations before income taxes
  (benefit).................................................   (13,954)      506     6,526
Provision for income taxes (benefit)........................      (635)      173     2,543
                                                              --------   -------   -------
Income (loss) from continuing operations....................   (13,319)    3,983     3,983
Discontinued operations:
  Income (loss) from discontinued operations, net of tax....      (192)      830     1,371
  Loss on disposal of discontinued operations, net of tax
     benefit................................................   (19,353)   (4,965)       --
                                                              --------   -------   -------
Net income (loss)...........................................  $(32,864)  $(3,802)  $ 5,354
                                                              ========   =======   =======
Basic income (loss) per share:
  Income (loss) from continuing operations..................  $  (4.57)  $   .11   $  1.37
  Income (loss) from discontinued operations................     (6.70)    (1.41)      .47
                                                              --------   -------   -------
     Total..................................................  $ (11.27)  $ (1.30)  $  1.84
                                                              ========   =======   =======
Diluted income (loss) per share:
  Income (loss) from continuing operations..................  $  (4.57)  $   .11   $  1.32
  Income (loss) from discontinued operations................     (6.70)    (1.41)      .46
                                                              --------   -------   -------
     Total..................................................  $ (11.27)  $ (1.30)  $  1.78
                                                              ========   =======   =======
Weighted average shares outstanding:
  Basic.....................................................     2,917     2,915     2,904
                                                              ========   =======   =======
  Diluted...................................................     2,917     2,915     3,013
                                                              ========   =======   =======
</Table>

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

                                       F-4
<PAGE>

                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
             FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999

<Table>
<Caption>
                                                                               RETAINED
                                  COMMON STOCK      ADDITIONAL    COMMON       EARNINGS                    TOTAL
                               ------------------    PAID-IN     STOCK TO    (ACCUMULATED   TREASURY   STOCKHOLDERS'
                                SHARES     AMOUNT    CAPITAL     BE ISSUED     DEFICIT)      STOCK        EQUITY
                               ---------   ------   ----------   ---------   ------------   --------   -------------
                                                          (000'S OMITTED, EXCEPT SHARES)
<S>                            <C>         <C>      <C>          <C>         <C>            <C>        <C>
Balance at September 30,
  1998.......................  2,887,833     $3      $61,796      $1,124       $  7,190     $(3,622)     $ 66,491
Net income...................         --     --           --          --          5,354          --         5,354
Options exercised............     19,735     --          120          --             --          --           120
Stock compensation grant.....      2,449     --           37          --             --          --            37
Employee stock purchase......      2,325     --           27          --             --          --            27
Value of 2,701 shares
  issued.....................      2,701     --           79         (79)            --          --            --
                               ---------     --      -------      ------       --------     -------      --------
Balance at September 30,
  1999.......................  2,915,043      3       62,059       1,045         12,544      (3,622)       72,029
Net loss.....................         --     --           --          --         (3,802)         --        (3,802)
Employee stock purchase......      1,767     --           11          --             --          --            11
Cancellation of 45,787 shares
  to be issued...............         --     --          600        (976)            --          --          (376)
                               ---------     --      -------      ------       --------     -------      --------
Balance at September 30,
  2000.......................  2,916,810      3       62,670          69          8,742      (3,622)       67,862
Net loss.....................         --     --           --          --        (32,864)         --       (32,864)
Employee stock purchase......      2,208     --            2          --             --          --             2
Cancellation of 2,222 shares
  to be issued...............         --     --           --         (69)            --          --           (69)
                               ---------     --      -------      ------       --------     -------      --------
Balance at September 30,
  2001.......................  2,919,018     $3      $62,672      $    0       $(24,122)    $(3,622)     $ 34,931
                               =========     ==      =======      ======       ========     =======      ========
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-5
<PAGE>

                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999

<Table>
<Caption>
                                                                     SEPTEMBER 30,
                                                              ----------------------------
                                                                2001      2000      1999
                                                              --------   -------   -------
                                                                    (000'S OMITTED)
<S>                                                           <C>        <C>       <C>
Cash flows from operating activities:
  Net income (loss).........................................  $(32,864)  $(3,802)  $ 5,354
  Adjustments to reconcile net income (loss) to net cash
     provided by operating activities:
     Depreciation and amortization..........................     6,485     6,582     6,808
     Minority interest......................................       565       602     1,000
     Payout of deferred compensation........................        --        --    (1,245)
     Settlement with federal government, net of payments....    10,000        --        --
     Net loss on disposal of discontinued operations........    19,353     4,965        --
     Other, net.............................................       385     1,832     1,745
     Changes in operating accounts:
       Receivables, net.....................................     1,983    (7,042)      646
       Prepaid expenses and other...........................      (278)      474       853
       Accounts payable.....................................      (501)    1,556      (856)
       Accrued liabilities..................................    (1,845)    4,783       411
                                                              --------   -------   -------
       Net cash provided by operating activities............     3,283     9,950    14,716
                                                              --------   -------   -------
Cash flows from investing activities:
  Capital expenditures......................................    (3,280)   (5,297)   (7,773)
  Proceeds from disposal of discontinued operations.........     8,876        --        --
  Other, net................................................       212       661       (36)
                                                              --------   -------   -------
       Net cash provided by (used in) investing
          activities........................................     5,808    (4,636)   (7,809)
                                                              --------   -------   -------
Cash flows from financing activities:
  Proceeds from (pay-down of) line of credit................    (7,971)    1,211    (9,178)
  Income distributions to limited partners..................    (1,347)   (1,774)   (1,594)
  Proceeds from (principal repayments of) debt..............    (2,073)   (2,020)    2,325
  Other, net................................................        14       (60)      187
                                                              --------   -------   -------
       Net cash used in financing activities................   (11,377)   (2,643)   (8,260)
                                                              --------   -------   -------
Net increase (decrease) in cash and cash equivalents........    (2,286)    2,671    (1,353)
Cash at beginning of year...................................     8,781     6,110     7,463
                                                              --------   -------   -------
Cash at end of year.........................................  $  6,495   $ 8,781   $ 6,110
                                                              ========   =======   =======
Supplemental disclosure of cash flow information:
  Interest paid.............................................  $  1,760   $ 2,036   $ 2,680
                                                              ========   =======   =======
  Income taxes paid, net of refunds received................  $ (1,960)  $ 1,073   $ 2,309
                                                              ========   =======   =======
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-6
<PAGE>

                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.  ORGANIZATION AND DESCRIPTION OF THE COMPANY:

     Since 1990, Raytel Medical Corporation ("Raytel" or the "Company") or its
predecessor companies, have been in the medical service business. The Company
provides a range of services, focusing on the needs of patients with
cardiovascular disease and is the leading provider in the United States of
remote cardiac monitoring, testing and information services utilizing telephonic
and Internet communication technology. Since 1990, the Company has acquired and
disposed of various medical services businesses and entered into agreements with
various medical service providers. Significant transactions occurring during the
past five fiscal years are described below:

          (a) An agreement, with Granada Hills Community Hospital, became
     effective February 1, 1996 and provided for the creation of the Company's
     first integrated heart center, the Raytel Heart Center at Granada Hills
     ("RHCGH"). Under the agreement, which was amended in September 1998, the
     Company was responsible for the day-to-day operations of RHCGH, including
     administrative support and other non-medical aspects of the program.
     Effective March 27, 1999, the Company entered into a revised agreement with
     RHCGH, which resulted in significantly lower revenues and expenses than
     those recognized under the previous agreements.

          (b) Effective June 11, 1996, the Company acquired certain assets and
     assumed certain liabilities of Cardio Data Services, Inc. ("CDS"). CDS
     provides clinical transtelephonic pacemaker monitoring, cardiac event
     detection and Holter monitoring services. The purchase price of the
     transaction was $14,254,000 of which $13,985,000 was allocated to the
     acquisition of intangible assets, the majority of which is being amortized
     over 25 years.

          (c) On September 18, 1996, the Company acquired all of the non-medical
     assets of Southeast Texas Cardiology Associates, P.A. ("SETCA") and entered
     into a long-term management service agreement whereby the Company managed
     the non-medical aspects of the practice. The Company assumed responsibility
     for providing office space as well as billing and collection activities and
     other management services.

          Total consideration for the transaction was cash and transaction costs
     of $4,010,000, promissory notes of $2,289,000 and 40,689 shares of the
     Company's Common Stock to be delivered at future dates, valued at $852,000.
     The shares of Common Stock were valued at a discount from the then current
     trading price after considering all relevant factors, including, but not
     limited to, normal discounts for marketability due to the time delay in
     delivery of the shares. The recorded amounts for the aggregate number of
     shares of Common Stock to be delivered were discounted 40% from comparable
     cash sales of Common Stock. The scheduled issuance of the shares of Common
     Stock that the Company was committed to deliver was 28,483 in 2000 and
     12,206 in 2001 (See (f) below).

          (d) On October 18, 1996, the Company entered into a long-term
     management service agreement whereby the Company managed the non-medical
     aspects of Comprehensive Cardiology Consultants, a Medical Group, Inc.
     ("CCMG"), a physician practice.

          Total consideration for the transaction was cash of $427,000,
     promissory notes of $620,000 and 4,792 shares of the Company's Common Stock
     to be delivered at future dates, valued, as described above, at $91,000.

          In November 1999, the Company filed a demand for arbitration against
     CCMG with JAMS/ Endispute, Inc. The demand for arbitration asserts that
     Raytel is entitled to rescission, restitution and/or damages as a result of
     CCMG's material breaches of the management services agreement. The
     arbitration was settled in fiscal 2001 with no material adverse effect to
     the Company.

          (e) On August 15, 1997, the Company acquired all of the outstanding
     capital stock of Cardiovascular Ventures, Inc. ("CVI"). CVI manages, owns
     and operates several cardiovascular diagnostic facilities
                                       F-7
<PAGE>
                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     in Texas, Louisiana and owned and managed a cardiovascular diagnostic
     facility and a multi-specialty clinic in Florida ("HFHI") (See (g) below).

          Total original consideration for the transaction was cash and
     transaction costs of approximately $16,980,000, 166,666 shares of the
     Company's Common Stock and contingent promissory notes in the aggregate
     principal amount of $820,000. During fiscal 1998 there were additional
     transaction costs of approximately $280,000 and an additional 15,556 shares
     of the Company's Common Stock was to be issued. Also, the $820,000 of
     contingent promissory notes were cancelled in accordance with the terms of
     the agreement.

          (f) In order to settle a dispute and avoid protracted litigation,
     initiated by SETCA, effective May 31, 2000, the Company's Board of
     Directors approved management's plan to sell SETCA. Effective May 31, 2000,
     the Company sold substantially all of the assets of Raytel Nuclear
     Imaging-Orange, L.P. and the Common Stock of Raytel Texas Physicians
     Services, Inc. in exchange for the cancellation of promissory notes in the
     aggregate principal amount of approximately $2,300,000 payable by the
     Company to the physicians and the physicians' agreement to cancel rights to
     receive 40,689 shares of Raytel's Common Stock. The loss on the disposal of
     $4,965,000, recorded June 30, 2000, was net of an estimated $3,367,000 tax
     benefit.

          Accordingly, the results of the operations of these entities have been
     accounted for as discontinued operations and the related operating results
     have been reported separately from the Company's continuing operations for
     all periods presented. Prior year operating results have been restated.

          Revenues applicable to the above discontinued segments for the years
     ended September 30, 2001, 2000 and 1999 were $0, $2,432,000 and $5,522,000,
     respectively.

          (g) In March 2001, effective January 1, 2001, the Company completed
     the sale of its wholly-owned subsidiary, HFHI, to a new company organized
     by physicians practicing at HFHI, including David Wertheimer, M.D., who had
     served as President of the subsidiary as well as an officer of Raytel and a
     member of Raytel's Board of Directors. Raytel received a cash purchase
     price of $8,311,000, net of transaction expenses, for all of the common
     stock of the subsidiary. Approximately $1,234,000 of the proceeds were used
     to pre-pay leases for equipment used at the HFHI facility, $5,100,000 was
     used to reduce the indebtedness under the Company's bank credit facility
     and the balance was used for working capital purposes. The Company reported
     the results of operations of HFHI and the loss on disposal as discontinued
     operations for all applicable periods presented. Prior year operating
     results have been restated. The loss on disposal of $19,353,000 represents
     a one-time non-cash charge, consisting primarily of the write-off of
     intangible assets. Due to the uncertainty of the ultimate tax benefit to be
     realized as a result of the loss, the Company has not provided for any tax
     benefit that may result from this transaction.

          Revenues applicable to this discontinued segment for the years ended
     September 30, 2001, 2000 and 1999 were $3,948,000, $17,629,000 and
     $15,951,000, respectively.

          (h) The Company's acquisitions have been accounted for as purchases in
     accordance with accounting principles generally accepted in the United
     States. Accordingly, acquired assets and assumed liabilities were recorded
     at their estimated fair values at the acquisition date. In certain
     acquisitions, there was an excess of the purchase price over the fair value
     of the net tangible assets acquired which was allocated to identifiable
     intangible assets and goodwill (See Note 5).

NOTE 2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

     (a) Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries.

                                       F-8
<PAGE>
                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     At September 30, 2001, the Company owned seven imaging centers and held
interests in two others through investments in various joint ventures and
limited partnerships (the "Ventures"). All Ventures are consolidated for
financial reporting purposes, as the Company owns more than 50% of each of the
Ventures and/or controls their assets and operations.

     At September 30, 2001, the Company held interests in four cardiovascular
diagnostic facilities, through investments in various limited partnerships (the
"Partnerships") and wholly-owned two others. All Partnerships are consolidated
for financial reporting purposes, as the Company owns more than 50% of each of
the Partnerships and/or controls their assets and operations as the Company is
the general partner for the four facilities and, as such, makes strategic
operating decisions for the partnerships.

     Minority interests in consolidated entities represent the investment of
third-parties in certain consolidated Ventures and Partnerships.

     All significant intercompany accounts and transactions are eliminated in
consolidation.

     (b) Revenue Recognition -- Net patient and service revenues are recognized
at established rates when the services are provided. Contractual allowances are
calculated for services provided at less than the established rates as approved
by Medicare or other third-party payors and are recorded as deductions from
revenue. Consolidated diagnostic imaging revenues principally represent fees for
services provided to patients net of physician fees, contractual allowances and
certain expenses.

     (c) Cash Equivalents -- For purposes of reporting cash flows, the Company
considers temporary investments with original maturities of three months or less
to be cash equivalents. The temporary investments are stated at cost, which
approximates market.

     (d) Property and Equipment -- Property and equipment are stated at cost.
Depreciation is provided on the straight-line method over the estimated useful
lives of the assets which range from three to ten years. Capital leases are
recorded at the present value of the future minimum lease payments. Capital
leases are amortized over the terms of the related lease on a straight-line
basis.

     (e) Intangible Assets -- Intangible assets principally consist of physician
referrals and patient lists, non-compete covenants, capitalized debt issuance
expense and goodwill.

     Amortization of capitalized debt issuance expense and goodwill is provided
on a straight-line basis. Amortization of physician referrals and patient lists
is provided based upon the ratio of expected annual revenues to expected total
revenues to be generated over the estimated life of the asset. The amortization
periods of the intangibles range from two to twenty-five years, with physician
referrals and patient lists being amortized over fifteen years and goodwill
being amortized over ten to twenty-five years.

     (f) Income Taxes -- The Company and its subsidiaries file consolidated
federal and state income tax returns. The Company accounts for income taxes in
accordance with the Statement of Financial Accounting Standards ("SFAS") No.
109, Accounting for Income Taxes.

     (g) Use of Estimates -- The preparation of the Company's financial
statements in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and the related disclosures.
Actual results could differ from those estimates.

     (h) New Accounting Standards -- The Financial Accounting Standards Board
("FASB") issued SFAS No. 141, Business Combinations, and SFAS No. 142, Goodwill
and Other Intangible Assets, in July 2001 (effective for the Company's fiscal
2003). Statement No. 141 will not have an effect on the Company's results and
the Company is currently assessing what effect, if any, Statement No. 142 will
have on its results.

                                       F-9
<PAGE>
                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     (i) Fair Value of Financial Instruments -- The carrying amounts of all
financial instruments approximate fair value.

     (j) Long-Lived Assets -- The Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In those circumstances, the
Company estimates the net undiscounted future cash flows expected to result from
the use of the asset and its eventual disposition. If the undiscounted expected
cash flows are lower than the carrying amount of the asset, an impairment loss
would be recorded.

NOTE 3.  RECEIVABLES:

     Receivables consist of the following (in thousands):

<Table>
<Caption>
                                                                SEPTEMBER 30,
                                                              -----------------
                                                               2001      2000
                                                              -------   -------
<S>                                                           <C>       <C>
Patient and service receivables.............................  $33,966   $39,059
Less allowance for doubtful accounts........................   (4,400)   (6,690)
                                                              -------   -------
                                                               29,566    32,369
Tax refund and other receivables............................    1,838     4,471
                                                              -------   -------
  Total.....................................................  $31,404   $36,840
                                                              =======   =======
</Table>

NOTE 4.  PROPERTY AND EQUIPMENT:

     Property and equipment consist of the following (in thousands):

<Table>
<Caption>
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Equipment, furniture and fixtures...........................  $ 36,305   $ 39,225
Leasehold improvements......................................     7,538      9,315
                                                              --------   --------
                                                                43,843     48,540
Less accumulated depreciation and amortization..............   (29,656)   (28,889)
                                                              --------   --------
                                                              $ 14,187   $ 19,651
                                                              ========   ========
</Table>

     Depreciation expense was $4,790,000, $4,768,000 and $4,701,000 for the
years ended September 30, 2001, 2000 and 1999 respectively.

NOTE 5.  INTANGIBLE ASSETS:

     Intangible assets consist of the following (in thousands):

<Table>
<Caption>
                                                                 SEPTEMBER 30,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Goodwill....................................................  $ 27,294   $ 48,458
Physician referrals and patient lists.......................    11,056     11,037
Other.......................................................     4,703      4,993
                                                              --------   --------
                                                                43,053     64,488
Less accumulated amortization...............................   (24,463)   (22,816)
                                                              --------   --------
                                                              $ 18,590   $ 41,672
                                                              ========   ========
</Table>

     Amortization expense related to intangible assets totaled $1,695,000,
$1,814,000 and $2,107,000 for the years ended September 30, 2001, 2000 and 1999;
respectively.

                                       F-10
<PAGE>
                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 6.  NOTES PAYABLE, LONG-TERM DEBT AND CAPITAL LEASES:

     Notes payable, long-term debt and capital leases consist of the following
(in thousands):

<Table>
<Caption>
                                                                SEPTEMBER 30,
                                                              ------------------
                                                                2001      2000
                                                              --------   -------
<S>                                                           <C>        <C>
Line of credit(a)...........................................  $ 12,287   $20,258
Settlement with federal government(b).......................    10,000        --
Other(c)....................................................     2,717     4,939
                                                              --------   -------
                                                                25,004    25,197
Less current maturities.....................................   (15,151)   (1,067)
                                                              --------   -------
                                                              $  9,853   $24,130
                                                              ========   =======
</Table>

---------------

(a)  In August 1996, the Company entered into an agreement with two banks
     providing for a line of credit for $25,000,000. This agreement was amended
     in September 1997 to expand the line of credit to $45,000,000 and was
     further amended in July 1998 and July 1999 to revise certain terms and
     covenants.

     The Company's access to the line of credit was subject to the maintenance
     of certain financial covenants related to the Company's level of
     indebtedness and cash flow. The interest rate was based upon LIBOR plus 175
     to 225 basis points, depending on the maintenance of a certain defined
     ratio, or the bank's prime rate plus 0 to 50 basis points, at the option of
     the Company. Borrowings under the line were collateralized by substantially
     all of the assets of the Company and its subsidiaries.

     On December 15, 2000, the agreement was amended to reduce the line of
     credit to $20,000,000 and to revise certain financial and other covenants
     and terms. The interest rate was changed to be based on LIBOR plus 275
     basis points, or the bank's prime rate plus 50 basis points, at the option
     of the Company and the due date was extended to October 1, 2001. A new
     non-financial covenant was added under which any civil financial settlement
     in excess of $1,000,000 or any criminal charges relating to the ongoing OIG
     investigation would constitute an event of default.

     At September 30, 2001, there was approximately $12,300,000 outstanding
     under the line of credit. The line matured on October 1, 2001 and,
     therefore, was classified as a current liability on the Company's
     consolidated balance sheet.

     In November 2001, the Company entered into a new two year revolving credit
     facility with Healthcare Business Credit Corporation under which it may
     borrow up to $15,000,000. The interest rate is prime plus 1% per annum.
     Loans under the facility will be secured by accounts receivable,
     inventories, capital equipment and other assets of Raytel and certain of
     its subsidiaries and affiliated entities. Raytel used the proceeds of the
     facility to repay outstanding indebtedness of approximately $12,300,000
     under the previous line of credit. The Company's access to the line of
     credit is subject to the maintenance of certain financial and other
     covenants.

(b)  Represents amount due under a settlement with the Federal Government (See
     Note 13).

(c)  Other debt includes nonrecourse notes and capital lease obligations with
     varying maturities at interest rates ranging from 7.25% to 11.71% per
     annum. The majority of these notes and leases are collateralized by the
     equipment purchased.

     Notes payable, long-term debt and capital lease obligations maturing within
     each of the five years subsequent to September 30, 2001 are as follows:
     2002 -- $15,151,000; 2003 -- $2,901,000; 2004 -- $2,740,000;
     2005 -- $2,206,000 and 2006 -- $2,006,000.

                                       F-11
<PAGE>
                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7.  PREFERRED STOCK AND COMMON STOCK:

     The Company has 2,000,000 shares of undesignated Preferred Stock authorized
for issuance. The Company's Board of Directors has the authority to issue such
Preferred Stock in one or more series and to establish the terms of each series
which may be greater than the rights of the Common Stock. As of September 30,
2001, no such shares had been issued.

     In August 1998, the Board of Directors adopted a Stockholder Rights Plan
(the "Rights Plan"). Under the Rights Plan, each outstanding share of Raytel
Common Stock held of record at the close of business on September 2, 1998
received one right to purchase one one-hundredth of a share of a new series of
Preferred Stock for $30.00 per right when someone acquires 15 percent or more of
Raytel's Common Stock or announces a tender offer which could result in such
person owning 15 percent or more of the Common Stock. The rights expire on
August 13, 2008.

     On May 9, 2001, the Company effected a one-for-three reverse split of the
Company's Common Stock. The accompanying consolidated financial statements
reflect such reverse stock split for all periods presented.

     There are 20,000,000 shares of Common Stock, $.001 par value, authorized.

NOTE 8.  STOCK OPTIONS AND WARRANTS:

  WARRANTS

     Upon completion of the Company's initial public offering (the "Offering")
in December 1995, in accordance with the terms of a 1993 acquisition, the
Company issued the seller warrants to purchase 77,066 shares of Common Stock at
an exercise price of $25.20 per share. These warrants expired in December 2000,
five years from the effective date of the Offering.

  STOCK OPTION PLANS

     The Company has options outstanding under the 1983 Incentive Stock Option
Plan as Amended (the "1983 Option Plan") and the 1990 Stock Option Plan (the
"1990 Option Plan"). Generally, the 1983 Option Plan and the 1990 Option Plan
(together the "Plans") have similar terms. Terms for the option grants under the
Plans, including exercise price, are set by the Board of Directors. The exercise
price for incentive stock options must be at not less than the fair market value
of the underlying stock at the date of grant. The exercise price for
nonqualified options must be at not less than 85% of fair market value. Options
granted under the Plans have a term of five to ten years from the date of grant.
Vesting occurs ratably over a period ranging from two to four years beginning
with the effective date of grant. In the event of a change in control, as
defined, all options granted become exercisable.

     The Company's Outside Directors Stock Option Plan (the "Directors Plan")
was approved by the stockholders in fiscal 1995. The Directors Plan provides for
the grant of 2,000 nonstatutory stock options to nonemployee directors of the
Company on the date on which the optionee first becomes a director of the
Company. Thereafter, the annual grant could be a maximum of 2,000 shares, as
defined. Total vesting occurs, based on a formula, no sooner than three years
nor longer than five years. The exercise price per share of all options granted
under the Directors Plan shall be equal to the fair market value of a share of
the Company's Common Stock on the date of grant.

     In October 1995, SFAS No. 123, Accounting for Stock-Based Compensation
("SFAS 123"), was issued. SFAS 123 requires the measurement of the fair value of
stock options or warrants to be included in the statements of operations or
disclosed in the notes to financial statements. The Company has determined that
it will retain its existing method of accounting for stock options and has
elected the pro forma footnote disclosure included in the tables below.
Accordingly, SFAS 123 has no effect on the Company's consolidated financial
position or results of operations.

                                       F-12
<PAGE>
                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company has computed the pro forma disclosures required under SFAS 123
for options granted in fiscal 2001, 2000 and 1999 using the Black-Scholes option
pricing model prescribed by SFAS 123. The weighted average assumptions used are
as follows:

<Table>
<Caption>
                                                             SEPTEMBER 30,
                                               ------------------------------------------
                                                   2001           2000           1999
                                               ------------   ------------   ------------
<S>                                            <C>            <C>            <C>
Risk free interest rate......................  4.10% - 5.75%  6.09% - 6.40%  4.10% - 5.03%
Expected dividend yield......................          None           None           None
Expected lives...............................       3 years        3 years        3 years
Expected volatility..........................          84.9%          84.8%          67.9%
</Table>

     Had compensation cost for the Company's stock option plans been determined
based on the fair value at the grant dates of awards under these plans
consistent with the method of SFAS 123, the Company's net income (loss) and net
income (loss) per common share would have decreased to the pro forma amounts
indicated below (in thousands, except per share amounts):

<Table>
<Caption>
                                                          FOR THE YEAR ENDED SEPTEMBER 30,
                                                          ---------------------------------
                                                             2001        2000        1999
                                                          ----------   ---------   --------
<S>                                                       <C>          <C>         <C>
Net income (loss):
  As reported...........................................   $(32,864)    $(3,802)    $5,354
  Pro forma.............................................    (33,065)     (4,193)     5,188
Net income (loss) per common share -- basic:
  As reported...........................................     (11.27)      (1.30)      1.84
  Pro forma.............................................     (11.34)      (1.44)      1.79
Net income (loss) per common share -- diluted:
  As reported...........................................     (11.27)      (1.30)      1.78
  Pro forma.............................................     (11.34)      (1.44)      1.72
</Table>

     A summary of the status of the Company's three stock option plans at
September 30, 2001, 2000 and 1999 and changes during the years then ended is
presented in the tables below:

<Table>
<Caption>
                                                             SEPTEMBER 30,
                                     -------------------------------------------------------------
                                            2001                 2000                 1999
                                     ------------------   ------------------   -------------------
                                               WEIGHTED             WEIGHTED              WEIGHTED
                                               AVERAGE              AVERAGE               AVERAGE
                                               EXERCISE             EXERCISE              EXERCISE
                                     SHARES     PRICE     SHARES     PRICE      SHARES     PRICE
                                     -------   --------   -------   --------   --------   --------
<S>                                  <C>       <C>        <C>       <C>        <C>        <C>
Outstanding, beginning of year.....  436,553    $9.78     323,679    $12.00     352,469    $20.46
Granted............................   67,500     3.66     195,667      6.90     222,817     11.07
Exercised..........................       --       --          --        --     (19,735)     6.06
Expired............................  (35,047)   10.67     (82,793)    11.55    (231,872)    24.48
                                     -------              -------              --------
Outstanding, end of year...........  469,006     8.94     436,553      9.78     323,679     12.00
                                     =======              =======              ========
Exercisable, end of year...........  289,135    10.27     207,172     11.34     148,733     11.82
                                     =======              =======              ========
Weighted average fair value of
  options granted..................              8.52                  6.63                  6.63
</Table>

                                       F-13
<PAGE>
                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                  OPTIONS OUTSTANDING        OPTIONS EXERCISABLE
                                               --------------------------   ----------------------
                                                  WEIGHTED       WEIGHTED     NUMBER      WEIGHTED
                                                   AVERAGE       AVERAGE    EXERCISABLE   AVERAGE
OPTIONS OUTSTANDING SUMMARY    OUTSTANDING        REMAINING      EXERCISE      AS OF      EXERCISE
  RANGE OF EXERCISE PRICES      AT 9/30/01     LIFE (IN YEARS)    PRICE       9/30/01      PRICE
---------------------------   --------------   ---------------   --------   -----------   --------
<S>                           <C>              <C>               <C>        <C>           <C>
     $2.625 - $35.625.......     494,056            7.12          $8.94       289,135      10.27
</Table>

     At September 30, 2001, there were 157,666 shares available for future
option grants.

NOTE 9.  LEASE COMMITMENTS:

     The Company leases its facilities and office space under various
noncancelable agreements which expire at various dates through 2008. The Company
also leases various equipment under noncancelable leases. All of the above are
treated as operating leases.

     At September 30, 2001, the future minimum rental payments for each fiscal
year thereafter under all noncancelable operating leases are as follows (in
thousands):

<Table>
<Caption>
                     FISCAL YEAR ENDING
                       SEPTEMBER 30:
                     ------------------
<S>                                                            <C>
     2002...................................................   $4,181
     2003...................................................    3,827
     2004...................................................    3,358
     2005...................................................    2,159
     2006...................................................    2,115
     Thereafter.............................................      745
</Table>

NOTE 10.  INCOME TAXES:

     The provision for income taxes consists of the following (in thousands):

<Table>
<Caption>
                                                           FOR THE YEAR ENDED SEPTEMBER 30,
                                                           --------------------------------
                                                             2001        2000        1999
                                                           ---------   ---------   --------
<S>                                                        <C>         <C>         <C>
Current:
  Federal................................................   $(1,128)    $(2,559)    $2,366
  State..................................................       493        (205)     1,053
                                                            -------     -------     ------
          Total tax (benefit)............................      (635)     (2,764)     3,419
Less (tax) plus benefit from discontinued operations.....        --       2,937       (876)
                                                            -------     -------     ------
Provision for income taxes (benefit) from continuing
  operations.............................................   $  (635)    $   173     $2,543
                                                            =======     =======     ======
</Table>

     At September 30, 2001 and 2000, the Company had $6,413,000 and $2,411,000,
respectively, of deferred tax assets. The Company has recorded a 100% valuation
allowance against these amounts.

                                       F-14
<PAGE>
                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The tax effect of the primary temporary differences giving rise to the
Company's deferred tax assets and liabilities at September 30, 2001 and 2000 are
as follows (in thousands):

<Table>
<Caption>
                                                   CURRENT ASSET     LONG-TERM ASSET
                                                    (LIABILITY)        (LIABILITY)
                                                  ---------------   -----------------
                                                   2001     2000     2001      2000
                                                  -------   -----   -------   -------
<S>                                               <C>       <C>     <C>       <C>
OIG settlement..................................  $    --   $  --   $ 2,356   $    --
Depreciation and amortization...................       --     151     1,139     2,085
Net operating loss and tax credits..............       --      --       395        --
Reserves for accounts receivable................    1,402      54        --        --
Other, net......................................    1,121     (36)       --       157
                                                  -------   -----   -------   -------
                                                    2,523     169     3,890     2,242
Valuation allowance.............................   (2,523)   (169)   (3,890)   (2,242)
                                                  -------   -----   -------   -------
Total deferred income taxes.....................  $    --   $  --   $    --   $    --
                                                  =======   =====   =======   =======
</Table>

     Reconciliation of the federal statutory rate from continuing operations to
the Company's effective tax rate is as follows (dollars in thousands):

<Table>
<Caption>
                                                      FOR THE YEAR ENDED SEPTEMBER 30,
                                             --------------------------------------------------
                                                  2001               2000             1999
                                             ---------------    --------------    -------------
                                             AMOUNT    RATE     AMOUNT   RATE     AMOUNT   RATE
                                             -------   -----    ------   -----    ------   ----
<S>                                          <C>       <C>      <C>      <C>      <C>      <C>
Federal income tax (benefit) at the
  statutory rate...........................  $(4,744)  (34.0)%  $ 172     34.0%   $2,219   34.0%
State income taxes, net of federal
  benefit..................................      325     2.3     (135)   (26.7)%     695   10.7
OIG settlement.............................    1,700    12.2       --       --        --     --
Valuation allowance........................    1,862    13.3       --       --        --     --
Other......................................      222     1.6      136     26.9      (371)  (5.7)
                                             -------   -----    -----    -----    ------   ----
          Total............................  $  (635)   (4.6)%  $ 173    (34.2)%  $2,543   39.0%
                                             =======   =====    =====    =====    ======   ====
</Table>

     At September 30, 2001, the Company had federal tax loss carryforwards of
$195,000, state carryforwards of $3,253,000 and AMT credit carryforwards of
$158,000.

NOTE 11.  EMPLOYEE BENEFIT PLANS:

     The Raytel Medical Corporation Pension Plan (the "Pension Plan") is a
defined contribution benefit plan which covers substantially all employees.
Contributions to the Pension Plan are based upon a percentage of an employee's
covered compensation, as defined. Total expense under the Pension Plan amounted
to $628,000, $619,000 and $599,000 for the years ended September 30, 2001, 2000
and 1999; respectively.

     The Company maintains a tax-qualified Retirement Savings Plan (the "401(k)
Plan") which covers substantially all employees. Eligible employees may make
salary deferral (before tax) contributions up to a specified maximum. The
Company makes a matching contribution of 25% of the amount deferred. Total
expense under the 401(k) Plan amounted to $182,000, $188,000 and $183,000 for
the years ended September 30, 2001, 2000 and 1999; respectively.

NOTE 12.  PRINCIPAL CUSTOMERS:

     All services performed by the Company are performed in the United States.
No one customer accounted for more than 10% of the Company's total net patient
and service revenues. However, certain sources of

                                       F-15
<PAGE>
                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

payment for the services, such as Medicare, HMOs, commercial insurers and other
third party payors, do or could account for more than 10% of payments received.

NOTE 13.  CONTINGENCIES:

     From June 2000 through June 2001, Raytel was the subject of a grand jury
investigation of unspecified allegations concerning certain business practices
of the trans-telephonic cardiac pacemaker monitoring business conducted by
Raytel Cardiac Services, Inc., a wholly-owned subsidiary of the Company ("RCS").
The investigation did not involve Raytel's other healthcare services, such as
RCS' cardiac event detection services or Raytel's diagnostic imaging services or
other cardiac-related businesses.

     In connection with the investigation, Raytel has reviewed its compliance
with Medicare billing and record-keeping requirements on a patient-by-patient
basis. Pending such review, Raytel held Medicare reimbursement checks received
subsequent to June 23, 2000 in payment of invoices for pacemaker monitoring
services and established a special account for funds inadvertently deposited
with respect to such services received since the date the investigation began.
In addition, Raytel suspended billing for such services. Most of the checks have
been deposited, most of the cash has been released from the special account, and
new billings for services performed has commenced as most of the affected
patients' records have been reviewed and found to be in compliance with
applicable Medicare requirements. The total amount of such uncashed checks and
funds deposited in such special account was approximately $400,000 as of
September 30, 2001. Since Raytel recognizes revenue when patient services are
provided, neither the special account arrangement nor the deferred billing has
had a direct impact on Raytel's operating results. If the Company's review
discloses any patient billings that have not been fully compliant with Medicare
requirements, any resulting billing adjustments or reversals will be charged
against operating results in that current period. In addition, the Company has
incurred substantial legal fees and other expenses in connection with the
investigation and has accrued a reserve of $4,600,000 to cover the estimated
amounts of these expenses. Additional expenses, if any, will adversely affect
operating results in future periods. As of September 30, 2001, the Company had
incurred legal fees and other expenses of approximately $3,945,000 related to
the investigation. The remaining balance is included in "accrued other
liabilities" on the Company's balance sheet. These expenses include legal fees
incurred by certain employees in connection with the on-going investigation
which were reimbursed by the Company in accordance with the requirements of
Delaware Law and the Company's By-Laws.

     In June 2001, RCS reached an agreement with the federal government to
resolve the issues that were the subject of the investigation. In accordance
with that agreement, on June 25, 2001 RCS plead guilty in U.S. District Court in
Hartford, Connecticut to a charge of obstructing a criminal investigation
arising out of the initial investigation in June 2000. In addition, in September
2001, the Company and RCS entered into an agreement with the government to
resolve related civil claims. Under the criminal and civil settlements, RCS
agreed to pay a total of $11,500,000 to the government over a five year period,
with interest of 7% per annum on the unpaid balance, and Raytel guaranteed RCS'
payment obligations. RCS also entered into a corporate integrity agreement under
which it agreed that its ongoing operations would conform to specified
guidelines. As of September 30, 2001, $1,500,000 had been paid to the
government, and the next payment of $2,000,000 is due in June 2002. RCS' guilty
plea did not constitute the type of conviction that would adversely affect its
participation in the Medicare program or other federal healthcare programs.

     The investigation, the related internal compliance review and the
settlement negotiations with the government diverted the efforts and attention
of a number of Raytel's management and administrative personnel. The impact of
this diversion reduced the efficiency of RCS' pacemaker monitoring operations
during the last week of the quarter ended June 30, 2000 and adversely affected
both revenues and operating expenses for that period as well as the quarter
ended September 30, 2000, and throughout the fiscal year ended September 30,
2001. Although the investigation has been concluded, implementation of the
corporate integrity agreement continues to require the time and attention of
Raytel and RCS management and a number

                                       F-16
<PAGE>
                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of RCS' administrative personnel. In addition, RCS' guilty plea entered into
under its agreement with the government constituted a default under Raytel's
bank credit facility. In November 2001, Raytel entered into a new revolving line
of credit arrangement and repaid indebtedness under its bank facility. However,
RCS' guilty plea could adversely affect Raytel's ability to obtain debt or
equity financing in the future.

     The Company is from time to time a party to various other claims and
disputes associated with various aspects of its ongoing business operations. In
management's opinion, none of these other claims or disputes are expected,
either individually or in the aggregate, to have a material adverse effect on
the Company's financial position or results of operations.

NOTE 14.  NET INCOME (LOSS) PER SHARE:

     Those shares under commitments to be issued at specified future dates are
considered as outstanding for per share calculations.

     For the years ended September 30, 2001, 2000 and 1999, the shares used in
calculating diluted earnings per share were determined as follows (in
thousands):

<Table>
<Caption>
                                                          FOR THE YEAR ENDED SEPTEMBER 30,
                                                          ---------------------------------
                                                           2001         2000         1999
                                                          -------      -------      -------
<S>                                                       <C>          <C>          <C>
Weighted average shares outstanding.....................   2,917        2,915        2,904
Shares to be issued.....................................        (a)          (a)        49
Options.................................................        (a)          (a)        60
Warrants................................................        (a)          (a)        --
                                                           -----        -----        -----
                                                           2,917        2,915        3,013
                                                           =====        =====        =====
</Table>

---------------

(a) Due to the loss for the period shown, dilutives are not included in the
    calculation.

     Certain options and warrants to purchase shares of common stock were
outstanding during the years ended September 30, 2001, 2000 and 1999, but were
not included in the computation of diluted earnings per share because their
exercise prices were greater than the average market price of the common shares
for the period. The options and warrants outstanding and their exercise prices
are as follows:

<Table>
<Caption>
                                                FOR THE YEAR ENDED SEPTEMBER 30,
                                       --------------------------------------------------
                                            2001              2000             1999
                                       ---------------   --------------   ---------------
<S>                                    <C>               <C>              <C>
Options and warrants outstanding.....          446,624          388,802           208,920
Range of exercise prices.............  $ 2.63 - $35.63   $4.26 - $40.50   $10.89 - $40.50
</Table>

NOTE 15.  SEGMENT INFORMATION:

     The Company's reportable segments are strategic business units that offer
different services. The Company has three reportable segments: Cardiac
Information Services ("Information"), Diagnostic Imaging Services ("Imaging")
and Heart Facilities and Other ("Facilities"). The Information segment provides
remote cardiac monitoring and testing services utilizing telephonic and Internet
communication technology. The Imaging segment operates a network of imaging
centers throughout the United States. The Facilities segment provides
diagnostic, therapeutic and patient management services primarily associated
with cardiovascular disease.

     The accounting policies of the segments are the same as those described in
the summary of significant accounting policies except that the Company does not
allocate all interest expense, taxes or corporate overhead to the individual
segments. The Company evaluates performance based on profit or loss from
operations before income taxes and unallocated amounts. The totals per the
schedules below will not and

                                       F-17
<PAGE>
                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

should not agree to the consolidated totals. The difference is due to corporate
overhead and other unallocated amounts which are reflected in the reconciliation
to consolidated earnings before income taxes and discontinued operations (in
thousands):

<Table>
<Caption>
                                                       INFORMATION   IMAGING   FACILITIES    TOTAL
                                                       -----------   -------   ----------   -------
<S>                                                    <C>           <C>       <C>          <C>
For the year ended September 30, 2001:
  Total revenues.....................................   $ 37,776     $25,694    $ 7,798     $71,268
  Total operating expenses...........................     48,318      19,349      5,306      72,973
                                                        --------     -------    -------     -------
  Segment contribution (loss)........................    (10,542)      6,345      2,492      (1,705)
  Depreciation and amortization......................      3,451       1,628      1,017       6,096
  Interest expense...................................         --         192        118         310
  Minority interest/other expense (income)...........       (136)       (254)       220        (170)
                                                        --------     -------    -------     -------
  Segment profit (loss)..............................   $(13,857)    $ 4,779    $ 1,137     $(7,941)
                                                        ========     =======    =======     =======
  Segment assets.....................................   $ 41,460     $14,475    $10,812     $66,747
                                                        ========     =======    =======     =======
  Capital expenditures...............................   $  2,854     $   197    $    98     $ 3,149
                                                        ========     =======    =======     =======
For the year ended September 30, 2000:
  Total revenues.....................................   $ 40,782     $22,652    $ 8,887     $72,321
  Total operating expenses...........................     36,839      16,889      5,916      59,644
                                                        --------     -------    -------     -------
  Segment contribution...............................      3,943       5,763      2,971      12,677
  Depreciation and amortization......................      3,070       1,683      1,496       6,249
  Interest expense...................................         --         273        224         497
  Minority interest/other expense (income)...........       (233)        (44)        41        (236)
                                                        --------     -------    -------     -------
  Segment profit.....................................   $  1,106     $ 3,851    $ 1,210     $ 6,167
                                                        ========     =======    =======     =======
  Segment assets.....................................   $ 43,713     $14,674    $34,577     $92,964
                                                        ========     =======    =======     =======
  Capital expenditures...............................   $  3,468     $   734    $   514     $ 4,716
                                                        ========     =======    =======     =======
For the year ended September 30, 1999:
  Total revenues.....................................   $ 44,731     $20,143    $15,047     $79,921
  Total operating expenses...........................     33,859      14,719     11,702      60,280
                                                        --------     -------    -------     -------
  Segment contribution...............................     10,872       5,424      3,345      19,641
  Depreciation and amortization......................      2,889       1,910      1,769       6,568
  Interest expense...................................         --         149        347         496
  Minority interest/other expense (income)...........       (231)       (346)       568          (9)
                                                        --------     -------    -------     -------
  Segment profit.....................................   $  8,214     $ 3,711    $   661     $12,586
                                                        ========     =======    =======     =======
  Segment assets.....................................   $ 37,416     $16,819    $40,377     $94,612
                                                        ========     =======    =======     =======
  Capital expenditures...............................   $  2,611     $ 2,901    $    28     $ 5,540
                                                        ========     =======    =======     =======
</Table>

                                       F-18
<PAGE>
                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                              FOR THE YEAR ENDED SEPTEMBER 30,
                                                              ---------------------------------
                                                                 2001        2000       1999
                                                              ----------   --------   ---------
<S>                                                           <C>          <C>        <C>
Segment profit (loss).......................................   $ (7,941)    $6,167     $12,586
Unallocated amounts:
  Corporate general and administrative......................      4,025      3,968       4,103
  Corporate depreciation and amortization...................        389        333         240
  Corporate interest expense................................      1,464      1,463       1,807
  Corporate other expense (income)..........................        135       (103)        (90)
                                                               --------     ------     -------
  Income (loss) from continuing operations before income
     taxes..................................................   $(13,954)    $  506     $ 6,526
                                                               ========     ======     =======
</Table>

NOTE 16.  SUBSEQUENT EVENT:

     In October 2001, the Company received notice from an investor group (of
which the Chief Executive Officer of the Company is a member) that the investor
group is evaluating the feasibility of entering into discussions regarding the
possible acquisition of Raytel. The Board of Directors of the Company has
appointed a Special Committee of the Board of Directors, and the Special
Committee has engaged financial advisors and counsel to assist it in evaluating
any proposals that might be received. The Special Committee has also received
expressions of interest from other unaffiliated parties. At the present time
there are no agreements between any party and the Company with regard to any
acquisition transaction.

                                       F-19
<PAGE>

                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

           SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)

<Table>
<Caption>
                                                        FISCAL YEAR ENDED SEPTEMBER 30, 2001
                                                 ---------------------------------------------------
                                                 DECEMBER 31,   MARCH 31,   JUNE 30,   SEPTEMBER 30,
                                                 ------------   ---------   --------   -------------
                                                      (000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
<S>                                              <C>            <C>         <C>        <C>
Net revenues...................................    $17,248      $ 18,146    $ 18,261      $17,613
                                                   =======      ========    ========      =======
Income (loss) from continuing operations before
  income taxes (benefit).......................    $   246      $ (1,724)   $(11,238)     $(1,238)
Provision for income taxes (benefit)...........         95          (671)     (1,124)       1,065
                                                   -------      --------    --------      -------
Income (loss) from continuing operations.......        151        (1,053)    (10,114)      (2,303)
Income (loss) from discontinued operations.....       (141)      (19,404)         --           --
                                                   -------      --------    --------      -------
Net income (loss)..............................    $    10      $(20,457)   $(10,114)     $(2,303)
                                                   =======      ========    ========      =======
Net income (loss) per share(1):
  Basic........................................    $   .00      $  (7.01)   $  (3.47)     $  (.79)
                                                   =======      ========    ========      =======
  Diluted......................................    $   .00      $  (7.01)   $  (3.47)     $  (.79)
                                                   =======      ========    ========      =======
</Table>

<Table>
<Caption>
                                                         FISCAL YEAR ENDED SEPTEMBER 30, 2000
                                                  ---------------------------------------------------
                                                  DECEMBER 31,   MARCH 31,   JUNE 30,   SEPTEMBER 30,
                                                  ------------   ---------   --------   -------------
<S>                                               <C>            <C>         <C>        <C>
Net revenues....................................    $18,042       $18,462    $18,350       $17,467
                                                    =======       =======    =======       =======
Income (loss) from continuing operations before
  income taxes (benefit)........................    $   865       $   602    $(1,486)      $   525
Provision for income taxes (benefit)............        337           235       (579)          180
                                                    -------       -------    -------       -------
Income (loss) from continuing operations........        528           367       (907)          345
Income (loss) from discontinued operations......        372           513     (4,881)         (139)
                                                    -------       -------    -------       -------
Net income (loss)...............................    $   900       $   880    $(5,788)      $   206
                                                    =======       =======    =======       =======
Net income (loss) per share(1):
  Basic.........................................    $   .31       $   .30    $ (1.98)      $   .07
                                                    =======       =======    =======       =======
  Diluted.......................................    $   .30       $   .30    $ (1.98)      $   .07
                                                    =======       =======    =======       =======
</Table>

---------------

(1) Quarterly per share earnings do not necessarily equal the total per share
    earnings reported for the year as a result of the dilutive effect of common
    stock equivalents on the calculation of per share earnings.

                                       F-20
<PAGE>

                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

           PERCENTAGE OF CONSOLIDATED REVENUES BY SEGMENT (UNAUDITED)

<Table>
<Caption>
                                                              FISCAL YEAR ENDED
                                                                SEPTEMBER 30,
                                                              ------------------
                                                              2001   2000   1999
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
Cardiac information services................................   53%    57%    56%
Diagnostic imaging services.................................   36%    31%    25%
Heart facilities and other..................................   11%    12%    19%
                                                              ---    ---    ---
  Total.....................................................  100%   100%   100%
                                                              ===    ===    ===
</Table>

                                       F-21
<PAGE>

            REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE II

To the Board of Directors and Stockholders of Raytel Medical Corporation:

     We have audited, in accordance with auditing standards generally accepted
in the United States, the consolidated financial statements of Raytel Medical
Corporation and Subsidiaries included in this Form 10-K, and have issued our
report thereon dated November 29, 2001. Our audits were made for the purpose of
forming an opinion on the basic consolidated 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's rules and is not part of the basic consolidated financial
statements. The information reflected on the schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.

                                          /s/ ARTHUR ANDERSEN LLP

Hartford, Connecticut
November 29, 2001

                                       F-22
<PAGE>

                                                                     SCHEDULE II

                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

                       VALUATION AND QUALIFYING ACCOUNTS
             FOR THE YEARS ENDED SEPTEMBER 30, 2001, 2000 AND 1999

<Table>
<Caption>
                                              BALANCE AT   CHARGED TO
                                              BEGINNING     COST AND                   BALANCE AT
                DESCRIPTION                    OF YEAR     EXPENSES(1)   DEDUCTIONS    END OF YEAR
                -----------                   ----------   -----------   -----------   -----------
<S>                                           <C>          <C>           <C>           <C>
September 30, 2001
  Allowance for doubtful accounts...........  $6,690,000   $4,361,000    $(6,651,000)  $4,400,000
September 30, 2000
  Allowance for doubtful accounts...........  $5,664,000   $6,012,000    $(4,986,000)  $6,690,000
September 30, 1999
  Allowance for doubtful accounts...........  $7,093,000   $6,467,000    $(7,896,000)  $5,664,000
</Table>

---------------

(1) The decrease in fiscal 2001 is due primarily to the sale of HFHI.

                                       F-23
<PAGE>

                               INDEX TO EXHIBITS

<Table>
<Caption>
 EXHIBIT
 NUMBER                            EXHIBIT TITLE
---------                          -------------
<C>         <S>
  3.1(1)    Restated Certificate of Incorporation of the Registrant.
  3.2(2)    Bylaws of the Registrant, as amended.
  3.3(3)    Certificate of Amendment of Certificate of Incorporation.
  4.1(4)    Rights Agreement dated as of August 14, 1998 between the
            Registrant and BankBoston N.A., as Rights Agent.
*10.1(5)    1983 Incentive Stock Option Plan, as amended.
*10.2(5)    1990 Stock Option Plan, as amended.
*10.3(5)    1995 Outside Directors Stock Option Plan.
*10.7(5)    Form of Indemnity Agreement for officers and directors.
*10.8(5)    Employment Agreement dated September 28, 1995 between the
            Registrant and Richard F. Bader.
*10.9(5)    Employment Agreement dated September 28, 1995 between the
            Registrant and Allan Zinberg.
 10.22(5)   Lease Agreement dated March 6, 1992 between the Registrant
            and Peninsula Office Park, as amended.
 10.24(5)   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.
 10.28(5)   Joint Venture Agreement dated March 3, 1998 between Medical
            Imaging Partners, L.P. and California Medical Imaging
            Services, Inc., as amended, and related agreements.
 10.30(5)   MRI Diagnostic Partners I, L.P. 1986 Limited Partnership
            Agreement dated December 31, 1986, and related agreement and
            MRI Building Partners, L.P. 1986 Agreement of Limited
            Partnership dated December 31, 1986.
*10.41(6)   Employee Stock Purchase Plan dated May 8, 1996.
 10.42(6)   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.
 10.45(7)   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(7)   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.
 10.50(7)   Noncompetition Agreement, dated as of August 15, 1997, by
            and between David E. Wertheimer and Raytel Medical
            Corporation.
*10.52(8)   Employment Agreement dated as of March 1, 1998, by and
            between Swapan Sen and Raytel Medical Corporation.
 10.55(9)   Third Amendment to Amended and Restated Credit Agreement
            dated July 24, 1998 among the Registrant, Bank of Boston
            Connecticut and Banque Paribas, and BankBoston, as agent.
 10.58(10)  Fourth Amendment to Amended and Restated Credit Agreement,
            dated July 24, 1998 among the Registrant, Bank of Boston
            Connecticut and Banque Paribas, and BankBoston, as agent.
 10.59(10)  Commercial Office Lease dated July 19, 1999 between
            Registrant and USGC Joint Venture.
*10.60(10)  Key Management Retention Agreement dated as of September 1,
            1999, by and between Swapan Sen and Raytel Medical
            Corporation.
*10.62(10)  Key Management Retention Agreement dated as of September 1,
            1999, by and between John F. Lawler, Jr. and Raytel Medical
            Corporation.
</Table>

                                       F-24
<PAGE>

<Table>
<Caption>
 EXHIBIT
 NUMBER                            EXHIBIT TITLE
---------                          -------------
<C>         <S>
*10.63(11)  Employment Agreement dated as of August 4, 1999, by and
            between Allan Zinberg and Raytel Medical Corporation.
*10.64(11)  Consulting Agreement dated as of January 1, 2000 by and
            between Allan Zinberg and Raytel Medical Corporation.
 10.65(12)  Stock Purchase Agreement dated as of May 31, 2000 between
            and among RTPS Acquisition Company, LLC, Raytel Medical
            Corporation, Raytel Texas Physician Services, Inc.
 10.66(13)  Master Termination Agreement entered into as of May 31, 2000
            and effective as of November 10, 1999 between and among
            Southeast Texas Cardiology Associates, P.A., Southeast Texas
            Cardiology Associates II, P.A., Southeast Texas Cardiology
            Associates II, LLP, Rodolfo P. Sotolongo, M.D., Wayne S.
            Margolis, M.D., and Michael L. Smith, M.D., Raytel Southeast
            Management, L.P., Raytel Texas Physician Services, Inc.,
            Raytel Management Holdings, Inc. and Raytel Medical
            Corporation.
 10.67(14)  Fifth Amendment and Waiver to Amended and Restated Credit
            Agreement, dated December 15, 2000 among the Registrant,
            Fleet National Bank and BNP Paribas.
 10.68(15)  Stock Purchase Agreement dated as of March 9, 2001 and
            effective as of January 1, 2001, among Heart Institute
            Acquisition Corporation, Raytel Medical Corporation,
            Cardiovascular Ventures, Inc., and The Heart Institute of
            Port S. Lucie, Inc.
 10.69(3)   Plea Agreement dated June 25, 2001, resolving the U.S.
            Government's criminal investigation of the Registrant.
 21.1       List of subsidiaries of the Registrant.
 23.1       Consent of Arthur Andersen LLP.
</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 10-Q Report for the quarter ended December 31, 1995.

 (2) Incorporated by reference to Exhibit 4 to the Registrant's Form 8-K Report
     filed on October 23, 1998 (the "October 1998 Form 8-K").

 (3) Incorporated by reference to the identically numbered exhibit to the
     Registrant's Form 10-Q Report for the quarter ended June 30, 2001.

 (4) Incorporated by reference to Exhibit 1 to the October 1998 Form 8-K.

 (5) Incorporated by reference to the identically numbered exhibit to the
     Registrant's Registration Statement on Form S-1, No. 33-97860, which became
     effective on November 30, 1995 (the "1995 Registration Statement").

 (6) Incorporated by reference to identically numbered exhibits to the
     Registrant's Form 10-K Report for the year ended September 30, 1996.

 (7) Incorporated by reference to identically numbered exhibits to the
     Registrant's Form 10-K Report for the year ended September 30, 1997.

 (8) Incorporated by reference to Exhibit 2.1 to the March 1998 Form 10-Q.

 (9) Incorporated by reference to identically numbered exhibits to the
     Registrant's Form 10-K Report for the year ended September 30, 1998.

(10) Incorporated by reference to identically numbered exhibits to the
     Registrant's Form 10-K Report for the year ended September 30, 1999.

(11) Incorporated by reference to the identically numbered exhibits to the
     Registrant's Form 10-Q Report for the quarter ended December 31, 1999.

                                       F-25
<PAGE>

(12) Incorporated by reference to Exhibit 10.59 to the Registrant's Form 10-Q
     Report for the quarter ended June 30, 2000 (the "June 2000 10-Q").

(13) Incorporated by reference to Exhibit 10.60 to the June 2000 10-Q.

(14) Incorporated by reference to the identically numbered exhibit to the
     Registrant's Form 10-Q Report for the quarter ended December 31, 2000.

(15) Incorporated by reference to the identically numbered exhibit to the
     Registrant's Form 10-Q Report for the quarter ended March 31, 2001.

                                       F-26