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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D. C. 20549
                            ------------------------
 
                                   FORM 10-K
                            ------------------------
(MARK ONE)
 
           [X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934.
            FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998. (FEE REQUIRED)
 
        [ ]   TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                          SECURITIES EXCHANGE ACT OF 1934.
            FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
 
                          COMMISSION FILE NO. 0-27186
 
                           RAYTEL MEDICAL CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
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<S>                                            <C>
                  DELAWARE                                      94-2787342
        (STATE OR OTHER JURISDICTION                           (IRS EMPLOYER
      OF INCORPORATION OR ORGANIZATION)                     IDENTIFICATION NO.)
 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
 
     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 registrant's Common Stock held by
non-affiliates as of November 30, 1998 was $43,361,405 based on the closing sale
price of the Common Stock, as reported on the Nasdaq National Market System on
that day.
 
     The number of shares of the registrant's Common Stock outstanding on
November 30, 1998 was 8,672,281.
                      DOCUMENTS INCORPORATED BY REFERENCE
 
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                          DOCUMENT                            WHERE INCORPORATED
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<S>                                                           <C>
Annual Report to Stockholders for
fiscal year ended September 30, 1998........................        Part II
Proxy Statement for the Annual Meeting
to be held on February 25, 1999.............................       Part III
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                                    PART I.
 
     This report includes a number of forward-looking statements which reflect
the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed in "Item 17. Management's Discussion
and Analysis of Financial Conditions and Results of Operations -- Business
Environment and Future Financial Results" and elsewhere in this report, that
could cause actual results to differ materially from historical results or those
anticipated. In this report, the words "anticipates," "believes," "expects,"
"intends," "future," "goals" and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
 
ITEM 1. BUSINESS
 
     Raytel Medical Corporation is a provider of healthcare services, focusing
on the needs of patients with cardiovascular disease ("CVD"). The Company
believes, based on its industry experience, that it is the leading provider of
remote cardiac monitoring and testing services utilizing transtelephonic
monitoring technology in the United States. The Company's goal is to integrate
all of its cardiovascular services in order to become a nationwide provider of
cardiac health care services. Raytel intends to accomplish this by complementing
its existing nationwide cardiac telephonic testing services with a nationwide
network of fixed site cardiac diagnostic and therapeutic service facilities
including cardiac catheterization laboratories, heart centers and affiliated
cardiology and cardiovascular physician groups. Raytel intends to develop its
heart centers in affiliation with cardiology physician groups and hospitals
delivering high quality patient care. Raytel believes its planned heart centers
will address the cost containment pressures currently shaping the healthcare
industry.
 
     Raytel currently manages two hospital-based heart centers, one of which is
in Southern California and the second of which is in Southeast Texas. The
Company also owns and operates seven freestanding cardiovascular diagnostic
facilities and two hospital-based cardiac catheterization laboratories, and
manages three physician practices. In addition, the Company provides outpatient
diagnostic imaging services through operating and investment interests in seven
freestanding imaging centers, and manages a diagnostic imaging provider network
that operates in eight mid-Atlantic states.
 
     Raytel was incorporated in California in October 1981 under the name Ratel
Labs, Inc. and changed its name to Raytel Medical Imaging, Inc. in 1983 and to
Raytel Systems Corporation in 1985. In August 1987, the Company was
reincorporated in Delaware under the name Raytel Systems Corporation. Following
the organization of its majority-owned subsidiary Raytel Corporation in 1990,
the Company changed its name to Raytel Holding Corporation. In October 1992, the
Company changed its name to Raytel Medical Corporation. Unless the context
otherwise requires, "Raytel" or the "Company" as used herein refers to Raytel
Medical Corporation, a Delaware corporation, and its consolidated subsidiaries.
The Company's executive offices are located at 2755 Campus Drive, Suite 200, San
Mateo, California 94403, and its telephone number is (650) 349-0800.
 
RECENT CORPORATE DEVELOPMENTS
 
     During the fiscal year ended September 30, 1998, the Company expanded its
CVD healthcare service operations and its physician practice management business
through several strategic developments.
 
  The Baptist Hospital of Southeast Texas
 
     In October 1997, the Company entered into an agreement with The Baptist
Hospital of Southeast Texas. Pursuant to this agreement, the Company undertook
the management of the existing cardiac catheterization facility located at the
hospital and the development of a portion of the hospital as the Raytel Heart
Center at Baptist Hospital, which began operations in September 1998.
 
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  Acquisition of C.M. Cardiac Monitoring, Inc.
 
     In June 1998, the Company acquired all of the assets of C.M. Cardiac
Monitoring, Inc. ("CMI"). CMI provides transtelephonic pacemaker and arrhythmia
testing services.
 
  Granada Hills Community Hospital
 
     In September 1998, the Company entered into a revised management consulting
agreement with Granada Hills Community Hospital under which the Company will
manage the heart program at the hospital, including the existing cardiac
catheterization facility located at the hospital.
 
  Development Agreements with St. Jude Medical, Inc.
 
     In June 1997, the Company entered into a licensing and joint development
agreement with Pacesetter, a wholly owned subsidiary of St. Jude Medical, Inc.
("St. Jude") for the development of a monitoring device for its new pacemaker
product. In November 1998, the Company entered into an exclusive agreement with
Ventritex, Inc., a wholly owned subsidiary of St. Jude to complete the
development of the Housecall(TM) dedicated transtelephonic system for monitoring
Ventritex's implantable cardioverter defibrillators ("ICDs") and to monitor all
of Ventritex's existing Housecall(TM) ICD patients.
 
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 1995 data, the
American Heart Association (the "AHA") estimates that approximately 58.2 million
people in the United States suffer from one or more forms of CVD. According to
the 1995 estimates, CVD claimed approximately 960,000 lives in 1995,
representing 41.5% of all deaths, and of that total, coronary heart disease
(heart attack) caused approximately 481,000 deaths in the United States during
1995 -- the single leading cause of death in the U.S. Due to the aging of the
United States population, the Company believes that the need for medical
services to diagnose and treat CVD will continue to increase significantly in
the future.
 
BUSINESS STRATEGY
 
     Raytel's objective is to be a vertically integrated provider of CVD
services through a network of therapeutic and diagnostic facilities,
complimented by its cardiac transtelephonic monitoring and testing services. The
Company is pursuing this objective through the following strategies:
 
     Focus on Establishment of Heart Centers. Raytel is establishing heart
centers designed to coordinate or provide quality, integrated CVD services on a
cost-effective basis. The Company believes that these heart centers will offer
substantial benefits over the traditional healthcare delivery system to all of
the constituencies involved in CVD care. Patients will benefit from the
convenience of dealing with a single entity administering their CVD management
needs and providing many services at a single location. Referring physicians
will benefit from simplified referral patterns and more consistent patient
treatment. Cardiologists and other professionals affiliated with the centers
will benefit from local access to a wider range of complementary specialists and
diagnostic equipment as well as management, marketing and administrative
resources. The Company believes that its heart centers will be able to offer
more integrated services at a lower cost than traditional providers, thus
addressing the cost containment objectives of managed care plans and other
third-party payors. All of these constituencies will benefit from improved
accountability.
 
     Leverage Expertise and Existing Businesses. Raytel has significant
experience in providing diagnostic and monitoring services to CVD patients and
in acquiring and operating geographically dispersed healthcare service
businesses. The Company believes that the expertise it has acquired through the
management and
 
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operation of these businesses has been and will continue to be a benefit to
Raytel as it moves forward with the development of heart centers.
 
     Develop Affiliations with Providers. Raytel develops its heart centers on a
regional basis, in cooperation with cardiology groups and hospitals with a
reputation for the delivery of high quality services among referring primary
care physicians and the general population in the communities that they serve.
As part of its strategy to create a flexible format for its heart centers, the
Company establishes relationships with cardiovascular and thoracic surgeons and
other specialists who perform invasive therapeutic procedures not offered at the
heart center in order to create consistent referral patterns and assure the
seamless delivery of quality service throughout the continuum of cardiac care.
 
     Expand Managed Care Relationships. The Company believes that interaction
with managed care organizations will become an increasingly important element in
the provision of cardiac care, including care for Medicare patients, and that
third-party payors will increasingly prefer to contract with providers offering
a wide range of cardiovascular services provided on a multistate or regional
basis. Raytel actively markets its existing healthcare services to managed care
plans and provides value added services, such as specialty clinics including
lipid management, chest pain clinics and congestive heart failure clinics, to
such organizations. The Company utilizes its experience in working with managed
care plans to market the services of its heart centers to such organizations.
 
     Expand the Company's Telemedical Business. The Company believes that the
establishment of heart centers will enhance its ability to market its cardiac
monitoring and testing services.
 
     Pursue Strategic Acquisitions. Raytel has built its existing organization
largely through a series of acquisitions. The Company believes that it is often
more cost-effective to acquire and reconfigure an existing business than to
establish a new business. The Company believes that its experience in
identifying, structuring and completing acquisitions of healthcare service
organizations and effectively integrating these organizations will enable it to
take advantage of future acquisition opportunities that arise as a result of the
trends toward consolidation of healthcare service providers. Raytel intends to
explore opportunities to establish heart centers and expand its other cardiac
businesses through additional strategic acquisitions, including the acquisition
of the assets of physician practices.
 
RAYTEL CARDIOVASCULAR FACILITIES
 
     One of the elements of Raytel's strategy is the development and operation
of heart centers that will coordinate or provide integrated CVD services to
patients, including management of the patient's diagnostic, therapeutic and
follow-up needs. The Company anticipates that each heart center will include one
or more of the following capabilities: a cardiac catheterization laboratory,
specialized diagnostic equipment, examination and consultation rooms, an
operating room, cardiac care units or intensive care units, patient beds and
monitoring equipment. Personnel at the heart center will perform diagnostic
services, coordinate therapeutic care with affiliated physicians and/or
hospitals, conduct post-therapeutic follow-up programs and enroll patients in
cardiac monitoring and testing programs.
 
     The Company currently operates two catheterization laboratories within
licensed acute care hospitals, has completed the construction of a diagnostic
catheterization laboratory in Fremont, California, which is awaiting licensing
by the California Department of Health Services (See Item 3. Legal Proceedings),
and operates eight additional freestanding diagnostic cardiovascular facilities,
one of which is associated with a multi-specialty medical practice in Florida.
Four of the seven cardiovascular diagnostic facilities are located in Texas, two
are located in Louisiana and one is located in Maryland. A cardiovascular
diagnostic facility located in Maryland and formerly operated by CVI was closed
and ceased operations in March 1998.
 
     In September 1998, the Company entered into a revised 10-year management
consulting agreement with Granada Hills Community Hospital ("GHCH") in Southern
California under which it is managing an on-site heart center. In October 1997,
the Company entered into a 10-year agreement with The Baptist Hospital of
Southeast Texas in Beaumont, Texas. Pursuant to this agreement, the Company
developed and manages a
 
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fully integrated heart center with a cardiac catheterization laboratory. In
addition, Raytel is evaluating opportunities for the development and acquisition
of additional heart centers.
 
  The Raytel Heart Center Approach
 
     The Company plans to organize an integrated delivery system for
cardiovascular services in each region in which it develops a heart center.
Raytel heart centers will be designed and developed on a region-by-region basis
to maximize the available resources and address the specific needs of each
community served. The structure of the heart centers will be flexible to permit
the Company to proactively respond to the restructuring of the healthcare system
as it occurs. The Company prefers to develop its heart centers in conjunction
with academic medical centers, established hospitals and cardiology specialists.
In certain cases, the Company may coordinate its integrated delivery system by
acquiring the assets of cardiology practices and negotiating long-term
agreements to provide management services to such practices. The cardiovascular
facilities are usually located on hospital premises or in freestanding
facilities in close proximity to the hospitals. The cardiovascular facilities
will be designed to enable affiliated cardiologists and cardiovascular surgeons
to perform a comprehensive range of diagnostic procedures on site. Therapeutic
procedures will generally be performed by physicians either at the affiliated
hospital or the heart center. Post-therapeutic monitoring and follow-up programs
will be offered through the Company's cardiac monitoring services and through
on-site programs to be developed by the Company in conjunction with its
physician and hospital affiliates.
 
     The Company believes that the heart centers and the related integrated
delivery systems will be well positioned in their local markets to capture
patients enrolled in HMOs and other managed care programs, as well as patient
referrals from local primary care physicians and the heart centers' affiliated
hospitals.
 
  Cardiovascular Diagnostic Facilities
 
     The Company operates four hospital-based cardiac catheterization
laboratories and eight free-standing cardiovascular diagnostic facilities (the
"Cardiovascular Diagnostic Facilities"). Cardiac catheterization utilizes
catheters and sophisticated diagnostic instruments to evaluate the functioning
of the heart and the coronary arteries. A narrow, flexible tube, or catheter, is
inserted through a main artery in the leg or arm and 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, Louisiana,
Florida and California. At each Cardiovascular Diagnostic Facility, the Company
provides the facilities, equipment, supplies and support personnel necessary for
the cardiologist to perform interventional cardiac imaging and peripheral
therapeutic procedures. In three of the Cardiovascular Diagnostic Facilities,
the Company also provides nuclear cardiology diagnostic services. Seven of the
Cardiovascular Diagnostic Facilities are owned by limited partnerships, and the
Company, through a separate wholly-owned subsidiary for each limited
partnership, serves as the corporate general partner which acts as the
day-to-day manager of each facility. The Company owns a majority interest in six
of the facilities and owns 100% of the Florida facility. The limited
partnerships have a term of 20 years or more in all but one facility and that
one expires on December 31, 2001.
 
     Two of the hospital-based Cardiovascular Diagnostic Facilities are located
in Texas. Each is operated under contracts with the respective hospitals under
which Raytel provides equipment, technical staff and certain management and
administrative services. The hospitals provide space for the facility within the
hospital, all supplies, and credentialing of physicians. The Company receives a
fee from the hospital on a per procedure basis, with a guaranteed minimum
monthly payment. One contract expires in January 1999, and the other contract
expires in February 2000. In addition to diagnostic catheterization procedures,
one of these facilities currently performs pacemaker installations, peripheral
vascular angioplasty and peripheral stent installations. There can be no
assurance that the Company will be successful in negotiating extensions of the
terms of the contracts.
 
     Physicians practicing at the Cardiovascular Diagnostic Facilities are not
obligated to refer patients to or practice at these facilities and in many cases
also practice at nearby hospitals.
 
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  Northern California Heart Center
 
     In January 1996, the Company initiated the development of a diagnostic
cardiac catheterization facility (the "Northern California Heart Center") in
Fremont, California. In November 1996, the Company completed the construction of
the facility. In September 1997, the regional office of Licensing and
Certification of the California Department of Health Services denied the request
for a license to operate the facility. The Company has filed an administrative
appeal of the decision by the regional office and the status of the appeal is
still pending. In addition, the Company filed a Petition for Writ of Mandate
requesting that the Superior Court of California order the Department of Health
Services to issue the appropriate license. The Superior Court denied the
Company's request for a Writ of Mandate and returned the matter to the
administrative appeals office of the Department of Health Services. In December
1997, the Company filed an appeal of the Department's decision denying the
application for the appropriate license to operate the facility. In July 1998,
the Company and the Department presented the case to an administrative law
judge. Final briefs were submitted during November 1998 and a final decision of
the administrative law judge is expected in early 1999. (See Item 3. Legal
Proceedings) There can be no assurance that the Company will be able to obtain
such licensure or any additional licenses that may be required to expand the
services offered at the facility.
 
  Raytel Heart Center at Granada Hills Community Hospital
 
     In September 1998, the Company entered into a revised agreement with GHCH,
in the San Fernando Valley north of Los Angeles, pursuant to which Raytel
manages an integrated heart center located on the premises of the hospital.
Granada Hills Community Hospital is a general acute care hospital. The
hospital's heart program includes cardiac catheterization procedures, stress
testing, ultrasound and other diagnostic services, cardiovascular and
cardiothoracic surgical procedures and cardiac rehabilitation programs.
 
     Under the revised agreement, the Company is responsible for supervising and
coordinating all day-to-day operations of the heart center, including
administrative support and on-site management. The Company is also primarily
responsible for marketing and public relations activities and assists the
hospital in the negotiation and administration of contracts with managed care
organizations and other third-party payors and in its compliance with Medicare
coverage and accreditation requirements and governmental licensing and
certification matters. All medical services at the facility are the
responsibility of the hospital and its medical staff. In December 1997, the
Company filed a demand for arbitration pursuant to the terms of the original
agreement with GHCH requesting that an independent arbitrator order GHCH to
comply with the provisions of the agreement (See Item 3. Legal Proceedings). In
connection with the execution of the revised agreement, the Company and the
hospital resolved the arbitration claims and counter-claims, and withdrew their
respective demands for arbitration.
 
     Through an affiliated medical group, the Company and GHCH entered into an
exclusive agreement for Raytel to be the exclusive provider of cardiac surgery
services at the hospital and to manage the hospital's cardiovascular surgery
program. The Company has entered into an agreement with a leading cardiothoracic
surgeon to provide the cardiac surgery services at the hospital. The initial
term of the agreement coincides with the term of the management consulting
agreement with the hospital to manage the heart program. The affiliated medical
group is owned by F. David Rollo, M.D., who serves as the Company's Executive
Medical Director. The Company, through a subsidiary, provides management
services to the medical group.
 
  Raytel Heart Center at The Baptist Hospital of Southeast Texas
 
     In October 1997, the Company entered into an agreement with The Baptist
Hospital of Southeast Texas in Beaumont, Texas. Pursuant to the agreement,
Raytel developed certain facilities and manages an integrated heart center
located on the premises of the hospital. The Baptist Hospital is a general acute
care hospital. The hospital's heart program includes cardiac catheterization
procedures, stress testing, ultrasound and other diagnostic services,
cardiovascular and cardiothoracic surgical procedures and cardiac rehabilitation
programs. The heart center is presently being operated on an interim basis while
the parties assess the impact of proposed
 
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regulations published by the Health Care Financing Administration and a revenue
ruling published by the Internal Revenue Service on certain economic and legal
provisions contained in the agreement.
 
RAYTEL PHYSICIAN PRACTICE MANAGEMENT
 
     The Company expanded its physician practice management business during
fiscal 1997 through its acquisitions of certain non-medical assets of cardiology
practices in Beaumont, Texas, and Granada Hills, California. Through its
acquisition of CVI in August 1997, the Company acquired a 20-physician multi-
specialty medical group, which focuses on cardiology, located in Port St. Lucie,
Florida.
 
RAYTEL CARDIAC MONITORING AND TESTING SERVICES
 
     The Company is the largest provider of cardiac monitoring and testing
services in the United States utilizing transtelephonic pacemaker monitoring
("TTM"), cardiac event detection ("CEDS") and Holter monitoring technologies.
The Company believes that its TTM-based services are the most cost-effective
means of testing the performance of implanted cardiac pacemakers and detecting
symptoms of transient arrhythmias.
 
  Pacemaker Monitoring
 
     The Company believes, based on its industry experience, that it is the
largest provider of transtelephonic pacemaker monitoring services in the United
States, currently serving over 80,000 patients with implanted pacemaker systems.
 
     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 the Company's three technical operations centers,
where the signal is converted and displayed on a computer screen or strip chart
recorder.
 
     The Company's pacemaker monitoring services are prescribed by the patient's
physician. After receipt of a prescription and enrollment by the Company, the
patient is sent a transmitter and trained to use the device over the telephone
by one of the Company's technologists. Unlike most physician-operated monitoring
services, the Company's monitoring services are provided 24 hours a day, seven
days a week in order to accommodate unscheduled calls from patients experiencing
problems.
 
     Each patient is tested on a schedule recommended by his or her prescribing
physician with such prescription updated annually. The Company generates most of
its pacemaker monitoring revenues from reimbursement by Medicare and payors of
supplemental Medicare benefits. Patients are typically tested between three and
twelve times per year. The Company is reimbursed for pacemaker monitoring
services on a per-call basis. Routine pacemaker testing is performed in
accordance with a prearranged, computer generated schedule. A trained
technologist telephones the patient and requests that the patient initiate
transmission of ECG data which is received by recorders in one of the Company's
technical operations centers. Once a continuous graph displaying the rhythm of
the heart and the pacemaker is generated, this data is interpreted by the
technologist to determine the status of the implanted pacemaker and its
relationship to the patient's
 
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cardiac rhythm. If problems with the pacemaker system are noted or a serious
abnormality is detected, including an abnormality in the heart's own rhythm (an
arrhythmia), the patient's physician is notified immediately by telephone. After
each test, the results are promptly reviewed by a supervising technologist and a
cardiologist and a written report is mailed to the patient's physician.
 
  Cardiac Event Detection Service
 
     The Company operates the Cardiac Event Detection Service ("CEDS"), which
tests and documents transtelephonically an ambulatory patient's cardiac rhythm
irregularities while the patient is experiencing symptoms. CEDS testing aids in
the diagnosis of transient cardiac arrhythmias, including atrial and ventricular
abnormalities, such as tachycardia, which causes the heart to beat at an
abnormally rapid and potentially life threatening rate. During its fiscal year
ended September 30, 1998, Raytel tested over 37,000 patients for potential
transient arrhythmic events. The Company believes, based on its industry
experience, that it is the largest provider of these services in the United
States.
 
     Upon enrollment in its CEDS program, the Company provides the patient with
a cardiac event recorder for a testing period lasting up to 30 days. Upon
experiencing symptoms, the patient activates the event recorder to capture one
or more ECGs which the patient will later transmit to one of the Company's two
CEDS technical operations centers for analysis. Skilled technologists, under the
supervision of cardiac care nurses and cardiologists, make preliminary
evaluations of these transmissions for cardiac irregularities. Unlike similar
services offered by individuals or small clinics, the Company's centers are
staffed 24 hours a day, seven days a week to respond to a patient's needs on a
timely basis. Emergency medical response is initiated for CEDS patients when
necessary. Regardless of the number of calls placed, payors reimburse the
Company on a 30-day program basis for its CEDS service.
 
  Holter Monitoring Services
 
     The Company believes, based on its industry experience, that it is the
largest provider of Holter monitoring services in the United States, currently
serving over 51,000 patients annually. The Company processed approximately
70,000 Holter monitoring tapes during fiscal 1998. 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.
 
  Implantable Cardioverter Defibrillators
 
     Pursuant to an exclusive agreement signed in November 1998 with St. Jude
Medical, the Company will complete the development of the Housecall(TM)
dedicated transtelephonic system for monitoring Ventritex implantable
cardioverter defibrillators ("ICDs"). These ICDs are designed and manufactured
by St. Jude Medical's California-based Cardiac Rhythm Management Division. 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. Currently, patients with ICDs must 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 number of times
the ICD was activated is also monitored. The Housecall(TM) system will reduce
the frequency of physician office visits by extending the transtelephonic
monitoring procedures presently used for pacemakers to ICDs. The new system will
enable trained technicians to interrogate the device's memory and transmit both
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.
 
  Training and Quality Assurance
 
     All of the Company's pacemaker monitoring technologists undergo a formal
six-week training program that includes basic cardiac physiology, the operation
of pacemaker devices, the interaction of pacemaker
 
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systems with the heart, and the administration and interpretation of ECG tests.
As technologists become more experienced, they are trained to monitor
increasingly complex pacemaker systems. Technologists administering the
Company's CEDS and Holter services undergo training in the interpretation of ECG
data to detect symptoms of cardiac arrhythmia.
 
     The Company maintains a rigorous quality assurance program. Board-certified
cardiologists direct the Company's technologists with special training in the
fields of cardiac pacing and electrophysiology. Each pacemaker-monitoring test
is separately reviewed by a supervising technologist and a cardiologist. CEDS
transmissions and Holter test results are evaluated by technologists under the
supervision of cardiac care nurses and cardiologists. In order to comply with
certain requirements of new federal regulations regarding independent diagnostic
testing facilities (See Government Regulation), 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.
 
DIAGNOSTIC IMAGING SERVICES
 
     The Company provides outpatient diagnostic imaging services through
operating and investment interests in seven freestanding imaging centers (the
"Imaging Centers"). The Company also operates the Raytel Imaging Network, a
specialized preferred provider network currently consisting of 475 independent
imaging centers located from Virginia to New York, including five centers owned
and managed by the Company.
 
     Diagnostic imaging technology consists of a number of medical diagnostic
modalities, many of which integrate computer hardware and software. These
modalities include magnetic resonance imaging (MRI), computed tomography ("CT"),
nuclear medicine, radiography/fluoroscopy ("R/F"), ultrasound, general x-ray and
mammography. These imaging modalities are generally non-invasive (with the
exception of the injection of contrast material in certain techniques and the
occasional use of sedating agents) and subject the patient either to sound waves
(ultrasound), X-rays (CT, R/F and X-ray mammography) or radio waves and magnetic
fields (MRI) to gather data that aid in medical diagnosis. These diagnostic
technologies enable physicians to view certain internal body anatomy and
pathology and in many instances provide early diagnostic capability and aid in
effective treatment planning without the need for more costly exploratory
surgery.
 
     The principal diagnostic imaging modality in use at the Imaging Centers is
MRI. MRI is used to provide high resolution images of the soft tissue of the
body. In the field of cardiology, MRI is used for the assessment of congenital
and anatomical cardiac defects. Other MRI techniques, such as MR angiography,
are also used in the assessment of peripheral vascular and other cardiovascular
diseases. The Imaging Centers also provide a wide range of imaging services for
the diagnosis of neurological disorders of the head, neck and spine, as well as
imaging of the musculoskeletal system and a variety of internal organs,
including the liver and prostate, and the female pelvis.
 
  Raytel Imaging Centers
 
     The Imaging Centers are located in four states. All of the Imaging Centers
offer MRI services, and four offer other imaging modalities. The Company owns
four of the Imaging Centers and holds its interests in the other three through
investments in limited partnerships (the "Ventures"), to which the Company
provides management services, including data processing, billing and collection,
accounting, marketing services and operational supervision. The Ventures have
terms that expire between 1999 and 2026.
 
  Raytel Imaging Network
 
     The trends toward cost containment and managed care have resulted in
changes in the patterns of patient referrals to diagnostic imaging facilities,
adversely affecting the profitability of independent imaging centers and
encouraging the formation of networks of independent centers. Many independent
operators of diagnostic imaging facilities lack the management and marketing
expertise and systems, as well as the experience in dealing with large managed
care organizations, that are necessary to effectively establish and operate such
networks. The Company's experience in dealing with a wide variety of managed
care organizations and its established, centralized marketing, scheduling,
billing and accounting systems provide the Company with the
 
                                        8
<PAGE>   10
 
capability to establish and operate networks of independent diagnostic imaging
centers. In addition, the Company's purchasing power allows it to provide
participating centers with supplies, such as contrast agents, film and other
medical and technical supplies, and with equipment maintenance and other
services at considerable cost savings.
 
     The Raytel Imaging Network (the "Network") is a dedicated network of
diagnostic imaging facilities established to provide services to patients
participating in healthcare benefit programs offered by municipal and state
employers, corporations that self-insure, third-party insurance carriers, union
health and welfare plans and managed care providers. Independent imaging centers
enter into fixed fee contractual relationships with the Network to provide
imaging services to patients referred by payors which have contracted with the
Network for services at a negotiated fee. The Network handles scheduling for
patients whose healthcare benefit programs participate in the Network and
guarantees these participating entities a fixed fee for all radiology procedures
performed in Network centers. The Network also offers centralized billing
services for those procedures, promptly reports the results of the studies to
the patient's referring physician and the outcomes of the studies to the
administrators responsible for the management of the patient's healthcare
program.
 
     The Network is a preferred provider organization with participating imaging
centers in the states of New Jersey, Pennsylvania, Delaware, Maryland, New York
and Virginia. The Network currently provides diagnostic imaging services under
referral arrangements with approximately 90 organizations administering
healthcare programs covering more than 600,000 individual participants.
 
SALES AND MARKETING
 
     The Company's marketing activities are directed at managed care
organizations, cardiologists and referring physicians. The Company maintains a
central managed care sales group that negotiates and manages contracts with
managed care organizations. The Company's marketing organization also supervises
the marketing of its TTM-based services to physicians nationwide and supports
the efforts of local centers to market their services to referring physicians in
the communities they serve.
 
  Raytel Cardiac Monitoring and Testing Services
 
     The Company markets its cardiac monitoring and testing services nationwide
by using regional sales managers coordinating the activities of approximately
400 sales representatives who are employees of the pacemaker equipment
manufacturers. The sales organization is supported by the Company's customer
service and telemarketing personnel. Raytel works closely with all major
pacemaker manufacturers and has agreements with certain manufacturers for the
distribution of the Company's services through the direct sales forces of the
manufacturers. The Company's sales force works closely with the approximately
12,000 physicians currently prescribing the Company's pacemaker monitoring
services.
 
     The Company differentiates its cardiac monitoring and testing services from
most of its competitors by providing its services 24 hours a day, seven days a
week. In addition, the Company offers technologists who specialize in monitoring
specific pacemaker models (the more complex the unit, the more expertise a
technologist is required to have), extensive quality control procedures,
computerized reports for complex pacemakers, detailed reporting procedures for
abnormal findings and an extensive database on pacemaker performance.
 
  Diagnostic Imaging Services
 
     The Company markets services of the Imaging Centers it manages through a
team approach tailored to the needs of each Imaging Center. The Company's
central sales organization coordinates the Imaging Center's marketing activities
with the Imaging Center's radiologists. The principal selling effort is directed
toward the local base of referring physicians. In support of the selling effort,
the Company provides marketing materials, including newsletters and brochures
and holds routine educational sessions for physicians. The Company also assists
the Imaging Center in addressing needs of managed care organizations by
negotiating
 
                                        9
<PAGE>   11
 
contracts with these organizations and working closely with insurance plan
administrators, HMO personnel, workers' compensation coordinators and hospital
administrators.
 
  Raytel Heart Centers and Cardiovascular Diagnostic Facilities
 
     The Company markets the services of its 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. The Company's central sales organization
supports the local selling effort with marketing materials and assistance in the
development of clinical outreach programs designed to make the capabilities of
the center available to underserved segments of the community. The center
manager coordinates local physician contacts with the Company's cardiac
monitoring and testing sales force to cross-sell the Company's transtelephonic
pacemaker monitoring, Holter monitoring and cardiac event detection services.
The Company's central sales group negotiates contacts with managed care
organizations. This group also assists the center manager in addressing the
needs of such organizations.
 
  Raytel Physician Practice Management Services
 
     The Company markets services of the physician practices it manages through
a team approach tailored to the needs of each physician practice, in the same
fashion used to market the services of the Imaging Centers and its heart centers
and Cardiovascular Diagnostic Facilities.
 
BILLING AND COLLECTION
 
     The Company's cardiac monitoring and testing operations generate a high
volume of relatively low-cost services delivered to patients living throughout
the United States. The Company derives substantially all of its transtelephonic
pacemaker monitoring, cardiac event detection services, and Holter monitoring
revenues from Medicare and other third-party payors and, in most cases, renders
bills to at least two payors for each procedure. In the year ended September 30,
1998 the Company generated more than one million bills to Medicare and other
third-party payors related to these businesses. Accordingly, the Company's
success in these businesses is substantially dependent upon the efficiency of
its billing and collection systems.
 
     All of the billing and collection functions for the Company's cardiac
testing operations are centralized at the Company's facilities in Connecticut.
The Company has specialized data management systems that it uses to obtain and
record primary and secondary insurance data at the time of patient enrollment
and to maintain and update that information. The Company's billing and
collection staff is specially trained in third-party coverage and reimbursement
procedures. The Company communicates continuously with carriers administering
Medicare and has established procedures that allow it to submit most primary
Medicare claims electronically, on a batch-billing basis. In addition, the
Company maintains a database on the billing procedures and requirements of more
than 1,500 insurance carriers, which enables it to efficiently process claims to
primary, secondary and tertiary private insurers. Computerized billing and
collection reports allow the Company's personnel to continually monitor open
accounts.
 
     Due to the complexity of the billing and collection process, the Company,
like many other healthcare service providers, experiences normal payment cycles
that are considerably longer than those customary in many other industries. The
Company typically experiences billing cycles of 60 to 240 days from the billing
date, depending on the type and number of third-party payors, although billing
cycles can be even longer in certain situations. Based upon its experience, the
Company believes that its specialized data processing system and its extensive
background in processing high volume, third-party claims serve to minimize
collection cycles and the incidence of rejected claims due to incomplete or
inaccurate information.
 
     The Company bills and collects for the Imaging Centers, physician
practices, heart centers and other cardiac facilities that it manages.
 
                                       10
<PAGE>   12
 
THIRD-PARTY REIMBURSEMENT
 
     The Company derives substantially all of its revenues from Medicare, HMOs
and commercial insurers and other third-party payors. Both government and
private payment sources have instituted cost containment measures designed to
limit payments made to healthcare providers, by reducing reimbursement rates,
limiting services covered, increasing utilization review of services,
negotiating prospective or discounted contract pricing, adopting capitation
strategies and seeking competitive bids. There can be no assurance that such
measures will not adversely affect the amounts or types of services that may be
reimbursable to the Company in the future, or that the future reimbursement for
any service offered by the Company will be sufficient to cover the costs and
overhead allocated to such service by the Company, either of which could have a
material adverse effect on the Company's operating results. The Company cannot
predict with any certainty whether or when additional changes in Medicare,
Medicaid or other third-party reimbursement rates or policies will be
implemented. However, such future changes could have a material adverse effect
on the Company's business, financial condition or operating results.
 
     Reimbursement rates vary depending on the type of third-party payors.
Changes in the composition of third-party payors from higher reimbursement rate
payors to lower reimbursement rate payors could have an adverse effect on the
Company's operating results. In addition, the Company anticipates that it may
increasingly offer its services to third party payors on a capitated or other
risk-sharing basis. To the extent that patients or enrollees covered by a
risk-sharing contract require more frequent or extensive services than is
anticipated by the Company, the revenue derived from such contract may be
insufficient to cover the costs of the services provided. Insufficient revenue
under capitated or other risk-sharing contracts could have a material adverse
effect on the Company's business, financial condition or operating results.
 
GOVERNMENT REGULATION
 
     The healthcare industry is highly regulated, and there can be no assurance
that the regulatory environment in which the Company operates will not change
significantly and adversely in the future. In general, the scrutiny of methods
and levels of payment of healthcare providers and companies is increasing.
 
     On August 5, 1997, President Clinton signed the Balanced Budget Act of 1997
("BBA") into law. Two of the areas affected most profoundly by this law are (1)
fraud and abuse, and (2) the effort of the federal government to use its
purchasing power to expand health care options for Medicare beneficiaries while
using pressure from increased competition to control costs. The fraud and abuse
provisions build on many of the provisions that were enacted by the Health
Insurance Portability and Accountability Act of 1996 ("HIPAA"). In addition to
the specific changes, the fraud and abuse provisions of the BBA signify an
apparent shift to the Office of the Inspector General of the Department of
Health and Human Services (the "OIG") of not only enforcement power, but
policy-making authority as well. In addition, the BBA broadened the authority
for the HCFA to enter into contracts for providing managed care to Medicare
beneficiaries by expanding the type of managed care options available to
Medicare beneficiaries.
 
     On October 31, 1997, the Secretary of the Department of Health and Human
Services ("HHS") published final regulations implementing a number of changes
proposed in June 1997. One of the changes replaced the independent physiological
laboratory ("IPL") with the creation of the independent diagnostic testing
facility (the "IDTF"). An IDTF is a diagnostic facility, distinct from a
physician's office or hospital, which does not directly use test results to
treat patients. The facility exists to perform diagnostic testing procedures.
The Company's cardiac monitoring and testing services currently operate as an
IPL. The original implementation date was postponed until March 1999, and the
Company is in the process of replacing all of its designations as an IPL with
the new designation as an IDTF, as required by the new regulations.
 
     The Company believes that healthcare legislation, regulations and
interpretations will continue to change and, as a result, routinely monitors
developments in healthcare law. The Company expects to modify its agreements and
operations from time to time as the business and regulatory environment changes.
While the Company believes it will be able to structure all of its agreements
and operations in accordance with applicable law, the lack of definitive
interpretations of many statutory and regulatory provisions means that there can
be
 
                                       11
<PAGE>   13
 
no assurance that the Company's arrangements are in compliance with such
provisions or will not be successfully challenged.
 
  Government Reimbursement Programs
 
     The federal government maintains the Medicare health insurance program for
the aged. Individual states have programs for medical assistance to the indigent
known generally as Medicaid, which are partially financed by the federal
government. Federal Medicaid funds are currently conditioned on state compliance
with federal requirements. A significant portion of the Company's revenues is
received under Medicare and other government programs. Both the Medicare and
Medicaid programs are subject to statutory and regulatory changes, retroactive
and prospective rate adjustments, administrative rulings, interpretations of
policy, intermediary determinations, and government funding restrictions, all of
which may materially increase or decrease the rate of program payments to
healthcare facilities and other healthcare suppliers and practitioners.
 
     The Company's existing cardiac monitoring and testing services derive a
substantial portion of its revenue from the Medicare program. The Company's
heart centers, diagnostic imaging, and Cardiovascular Diagnostic Facilities also
derive a substantial portion of their revenue from payments made under the
Medicare program, and the Company anticipates that future facilities and
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.
The Company expects that delays in the certification process may occur and may
increase with the funding limitations being imposed on certifying authorities.
Combined with the billing and collection cycle for Medicare reimbursement that
all healthcare facilities experience, these delays could result in a three to
six month working capital deficiency during the start-up phase for newly
developed cardiac centers. These working capital deficiencies will have to be
funded by the Company through working capital advances to the facilities using
funds provided by operating or financing activities.
 
  The Stark Law and Medicare Fraud and Abuse Laws
 
     The Company is subject to a variety of laws and regulations governing the
referral of patients to facilities with whom the referring physician has a
financial relationship.
 
     Subject to certain exceptions, physicians who have a financial relationship
with an entity providing healthcare services are prohibited by federal law (the
"Stark 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 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.
 
     On January 9, 1998, the Health Care Financing Administration ("HCFA")
published proposed rules implementing the Stark Law. The regulations have been
published in proposed form and HCFA has solicited comments on the proposed
regulations. The proposed regulations do not have the force of law, but they do
provide information regarding the views of enforcement agencies, such as the
Office of Inspector General.
 
     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
 
                                       12
<PAGE>   14
 
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." Two years later, in
1995, HCFA issued regulations, but these applied only to the original 1989 Stark
Law. The recently promulgated regulations apply to the Stark II Law.
 
     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, the regulations 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 the 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 the Company has an ownership interest
and, absent the availability of an exception under such laws, could prohibit
physicians with ownership interests in the Company from referring any patients
to such facilities.
 
     The Company is also subject to the illegal remuneration provisions of the
federal Social Security Act and similar state laws ("Fraud and Abuse Laws")
which collectively impose civil and criminal sanctions on persons who solicit,
offer, receive or pay any remuneration, directly or indirectly, for referring a
patient for treatment that is paid for in whole or in part by Medicare, Medicaid
or similar state or private programs. The courts and the 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 the Company and its affiliated entities conduct and will conduct their
business, from time to time certain of their practices may be subject to
challenge under these laws. In October 1995, Congress passed a bill that would
extend the prohibitions of the Fraud and Abuse Laws to all third-party payors,
governmental and private. In the HIPAA and BBA, Congress expanded the government
fraud and abuse controls in a number of ways and added a provision for obtaining
advisory opinions from the OIG regarding physician self-referral compliance with
the Stark Law.
 
     The Company has attempted to structure its business relations to comply
with the Stark Legislation, the Fraud and Abuse Laws and all other applicable
healthcare laws and regulations. However, there can be no assurance that such
laws will be interpreted in a manner consistent with the Company's practices. In
addition, state legislatures and other governmental entities are considering
additional measures restricting or regulating referrals, and there can be no
assurance that new laws or regulations will not be enacted which will require
restructuring of the Company's operations or otherwise have a material adverse
effect on the Company's business, financial condition or operating results.
 
  Certificates of Need and Other Licensing Requirements
 
     Certain states in which the Company operates or may operate in the future
prohibit the establishment, expansion or modification of certain healthcare
facilities and the services provided at such facilities, including heart
centers, catheterization laboratories and diagnostic imaging centers, without
first obtaining a certificate
 
                                       13
<PAGE>   15
 
of need ("CON") or comparable license from the appropriate state regulatory
agency. In addition to any CON or comparable licensing requirements that may
apply, heart centers, catheterization laboratories and diagnostic imaging
centers developed or operated by the Company may also be required to comply with
other licensing requirements, which vary from state to state. Obtaining CON
approval or comparable licensing is typically an expensive and lengthy process
and may involve adversarial proceedings initiated by competing facilities or
taxpayer groups. The existence of these laws or future legislation changing
these laws may make it more difficult or prohibitive for the Company 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.
 
     Under current California regulations, the performance of cardiac
catheterization procedures is generally restricted to licensed general acute
care hospitals. In 1996, the Company applied for a license for its freestanding
cardiac catheterization laboratory in Fremont, California under a pilot program.
Although this pilot program was repealed in 1993, the Company believes that it
meets all of the requirements for the granting of a license, because the entity
holding the permit for such a facility was in active status as of December 31,
1993. In September 1997, the regional office of the California Department of
Health Services notified the Company by letter dated September 8, 1997 that its
application for the license was denied. In December 1997, the Company filed an
appeal of the Department's decision and filed a Petition for Writ of Mandate
requesting that the Superior Court of California order the Department of Health
Services to issue the appropriate license. The Superior Court denied the
Company's request for a Writ of Mandate and returned the matter to the
administrative appeals office of the Department of Health Services. In July
1998, the Company and the Department presented the case to an administrative law
judge. Final briefs were submitted in November 1998 and a final decision of the
administrative law judge is expected in early 1999. There can be no assurance
that the court will enter the order requested by the Company or that the Company
will be successful in its appeal of the decision denying the application. If the
Company cannot obtain such license, it is uncertain under current California
regulations whether the Company could otherwise separately obtain a license to
operate a free standing catheterization laboratory.
 
     The Company 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 the Company operates or may operate in
the future prohibit non-physician entities from practicing medicine, exercising
control over physicians or engaging in certain practices such as fee-splitting
with physicians. Although the Company has structured its affiliations with
physician groups so that the physicians maintain exclusive authority regarding
the delivery of medical care, there can be no assurance that these laws will be
interpreted in a manner consistent with the Company's practices or that other
laws or regulations will not be enacted in the future that could have a material
adverse effect on the Company's business. If a corporate practice of medicine
law is interpreted in a manner that is inconsistent with the Company's
practices, the Company would be required to restructure or terminate its
relationship with the applicable physician group to bring its activities into
compliance with such law. The termination of, or failure of the Company to
successfully restructure, any such relationship could result in fines or a loss
of revenue that could have a material adverse effect on the Company's business,
financial condition or operating results.
 
MEDICAL MALPRACTICE INSURANCE
 
     In general, the Company does not, itself, engage in the practice of
medicine and requires physicians performing medical services at its facilities
to maintain medical malpractice insurance. In the case of HIPSL, a wholly owned
subsidiary, the Company employs approximately 20 physicians, who are performing
medical services as members of a multi-specialty medical group. The other
licensed professionals in this practice, such as registered nurses, nurse
practitioners and technicians, perform their professional duties under the
direct
 
                                       14
<PAGE>   16
 
supervision of the physicians. With the exception of the physician employees of
HIPSL, the Company's employees do not practice medicine. However, certain of its
employees are or will be involved in the delivery of healthcare services to the
public under the supervision of physicians. To protect the Company from medical
malpractice claims, including claims associated with its employees' activities,
the Company, or the Ventures for which the Company serves as general partner,
maintains professional liability and general liability insurance on a "claims
made" basis in amounts deemed appropriate by management based upon the nature
and risks of the Company's business. Such policies provide malpractice coverage
in the amount of $1 million per occurrence with an aggregate limit of $3
million. Insurance coverage under such policies is contingent upon a policy
being in effect when a claim is made, regardless of when the events which caused
the claim occurred. The cost and availability of such coverage has varied widely
in recent years. While the Company believes its insurance policies are adequate
in amount and coverage for its current operations, there can be no assurance
that the coverage maintained by the Company is sufficient to cover all future
claims. In addition, there can be no assurance that the Company will be able to
obtain such insurance on commercially reasonable terms in the future.
 
COMPETITION
 
     The healthcare service businesses in which the Company is currently engaged
are highly competitive. The restructuring of the healthcare system is leading to
rapid consolidation of the existing highly fragmented healthcare delivery system
into larger and more organized groups and networks of healthcare providers. The
Company expects competition to increase as a result of this consolidation and
ongoing cost containment pressures among other factors. In executing its
business strategy, the Company competes with management services organizations,
for-profit and nonprofit hospitals, HMOs and other competitors that are seeking
to form strategic alliances with physicians or provide management services to
physicians or to diagnostic and therapeutic facilities owned by such physicians.
In operating its heart centers, the Company encounters competition from
physician groups, general acute care hospitals and freestanding and
hospital-based cardiac care facilities located in the same markets.
 
     The Company's cardiac monitoring and testing programs compete with a number
of smaller, regional commercial entities as well as hospitals, clinics and
physicians who generally provide these services as an adjunct to their primary
practice. Principal competitive factors are the availability and quality of
service. The Company believes that it competes favorably with most of its
smaller competitors based on its 24-hour a day, seven-day a week service,
specialized technical staff and sophisticated billing and collection system.
Certain of its competitors, including local physicians and hospitals, may have
certain competitive advantages over the Company based upon their direct
relationships with patients.
 
     Cardiac catheterization and other cardiac diagnostic and therapeutic
procedures, as well as diagnostic imaging procedures, are performed in
hospitals, private physicians' offices, clinics operated by group practices of
physicians and independent catheterization facilities. Although the Company and
its affiliates operate in locations throughout the United States, competition
focuses on physician referrals at the local market level. Principal competitors
in each of the Company's markets are hospital and physician affiliated
facilities, some of which may have greater financial and other resources than
the Company, more experience and greater name recognition than the local
managers and physicians associated with the Company's Imaging Centers,
Cardiovascular Diagnostic Facilities and Catheterization Laboratories, or better
ties to the local medical community. Successful competition for referrals is a
result of many factors, including quality and timeliness of test results, type
and quality of equipment, facility location, convenience of scheduling and,
increasingly, relationships with managed care programs. Other independent
companies (including some which have substantially greater financial and
operating resources than the Company) are in the business of establishing
facilities similar to the facilities in which the Company has or may obtain
interests and providing management services to such facilities.
 
EMPLOYEES
 
     As of November 30, 1998, the Company employed approximately 849 full time
equivalent employees. None of the Company's employees are covered by collective
bargaining contracts.
 
                                       15
<PAGE>   17
 
ITEM 2. PROPERTIES
 
     The principal operations of the Company and its subsidiaries are conducted
at facilities located in Windsor, Connecticut; New York, New York; Haddonfield,
New Jersey; San Mateo, California; and Port St. Lucie, Florida. The Windsor
facility, consisting of approximately 33,000 square feet, is occupied under a
lease expiring in July 1999. In August 1997, the Windsor facility was expanded
by the addition of approximately 8,500 square feet in an adjoining building that
is occupied under a lease expiring in November 2002. The New York facility,
consisting of approximately 23,300 square feet, is occupied under a lease
expiring in September 2001. The Haddonfield facility, consisting of
approximately 11,000 square feet, is occupied under a lease expiring in June
1999. The San Mateo facility, consisting of approximately 2,400 square feet, is
occupied under a lease expiring in May 2003. The Port St. Lucie facility,
consisting of approximately 28,680 square feet, is occupied under a lease
expiring in December 2002. In addition, through seven of its consolidated
Imaging Centers, the Company leases a total of approximately 31,000 square feet
in facilities located in New York, New Jersey, California and Pennsylvania.
Through its acquisition of CVI in August 1997, the Company acquired eight
Cardiovascular Diagnostic Facilities in Texas, Louisiana, Maryland and Florida.
The joint ventures that operate the Cardiovascular Diagnostic Facilities lease a
total of approximately 89,000 square feet in these facilities. The Company
generally considers its properties to be in good condition and suitable for the
Company's anticipated needs.
 
ITEM 3. LEGAL PROCEEDINGS
 
     In September 1997, the California Department of Health Services denied the
Company's application for a license to operate a freestanding diagnostic
catheterization facility in Fremont, California. The Company filed an
administrative appeal requesting that the Department of Health Services
reconsider the denial of the application by the regional office of Licensing and
Certification. In addition, in November 1997, the Company filed a Petition for
Writ of Mandate requesting that the Superior Court of the State of California
for the County of Sacramento order the Department of Health Services to issue
the appropriate license, or in the alternative, to find that the Department of
Health Services lacks jurisdiction to regulate the operation of the diagnostic
catheterization facility. The Court denied the Company's Petition for a Writ of
Mandate and remanded the case the administrative law office of the Department of
Health Services. In July 1998, the Company and the Department presented their
case to an administrative law judge. Final briefs were filed in November 1998
and the judge is expected to enter her decision in early 1999.
 
     In December 1997, the Company filed a demand for binding arbitration
pursuant to the terms of its 10-year agreement with GHCH requesting that an
independent arbitrator order GHCH to comply with the provisions of the
agreement. In response, the hospital filed its own claim for arbitration. In
connection with the execution of a revised management services agreement in
September 1998, the parties resolved their dispute and withdrew their respective
demands for arbitration.
 
     Raytel and its subsidiaries are parties to other litigation and claims
arising out of its ongoing business operations. The Company believes that none
of these matters, either individually or in the aggregate, are likely to have a
material adverse effect on the Company's business, financial condition or
operating results.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
 
                                       16
<PAGE>   18
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The information required by this item is incorporated by reference to
information set forth under the heading "Stock Data Nasdaq Symbol: RTEL" on page
30 of the Company's 1998 Annual Report to Stockholders.
 
ITEM 6. SELECTED FINANCIAL DATA
 
     The information required by this item is incorporated by reference to the
information set forth under the heading "Five Year Financial Summary" on page 5
of the Company's 1998 Annual Report to Stockholders.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
     The information required by this item is incorporated by reference to
information set forth under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations" on pages 6 to 12 of the Company's
1998 Annual Report to Stockholders.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     The Company does not hold any marketable equity securities, foreign
currencies, or derivative financial instruments in its investment portfolio. At
the end of the fiscal year 1998, the Company did not hold any investments that
are subject to interest rate risk, except for approximately $1,610,000 in
investment grade commercial paper with maturities of less than 60 days. These
securities, like all fixed income instruments, are subject to interest rate risk
and will fall in value if market interest rates increase. However, because
commercial paper has such short maturities, the Company has the ability to hold
its fixed income investments until maturity. Therefore, the Company would not
expect to recognize an adverse impact in income or cash flows if there were an
increase or decrease in interest rates. The Company has not issued any debt
securities other than promissory notes with fixed interest rates in connection
with certain acquisitions, and therefore does not have any interest rate risk
with respect to this type of financing activity.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The information required by this item is incorporated by reference to the
financial statements and supplementary data on pages 13 to 28 of the Company's
1998 Annual Report to Stockholders.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
 
     Not Applicable.
 
                                       17
<PAGE>   19
 
                                    PART III
 
     Certain information required by Part III is omitted from this report in
that the Company intends to file its definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this report, and certain information therein is
incorporated herein by reference.
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     The information required by this Item is incorporated by reference to
information set forth in the Proxy Statement under the heading "Proposal No.
1 -- Election of Directors -- Executive Officers and Directors."
 
     The information required by this Item with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to information set forth in the Proxy Statement under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance."
 
ITEM 11. EXECUTIVE COMPENSATION
 
     The information required by this Item is incorporated by reference to
information set forth in the Proxy Statement under the heading "Executive
Compensation and Other Matters."
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information required by this Item is incorporated by reference to
information set forth in the Proxy Statement under the heading "Security
Ownership of Certain Beneficial Owners and Management."
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information required by this Item is incorporated by reference to
information set forth in the Proxy Statement under the heading "Certain
Transactions."
 
                                       18
<PAGE>   20
 
                                    PART IV
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 
(a) 1. FINANCIAL STATEMENTS:
 
       Report of Independent Public Accountants
 
       Consolidated Statements of Operations for the Years Ended September 30,
       1998, 1997 and 1996
 
       Consolidated Balance Sheets as of September 30, 1998 and 1997
 
       Consolidated Statements of Changes in Stockholders' Equity for the Years
       Ended September 30, 1998, 1997 and 1996
 
       Consolidated Statements of Cash Flows for the Years Ended September 30,
       1998, 1997 and 1996
 
       Notes to Consolidated Financial Statements
 
       Supplementary Data: Quarterly Financial Data (unaudited)
 
     2. FINANCIAL STATEMENT SCHEDULES:
 
        Report of Independent Public Accountants
 
        Schedule II -- Valuation and Qualifying Accounts
 
     3. EXHIBITS:
 
        The exhibits which are filed with this Form 10-K, or incorporated herein
        by reference, are set forth in the Exhibit Index, which immediately
        precedes the exhibits to this Report.
 
(b)REPORTS ON FORM 8-K DURING THE QUARTER ENDED SEPTEMBER 30, 1998
 
   The Company filed no report on Form 8-K during the quarter ended September
   30, 1998.
 
                                       19
<PAGE>   21
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                          RAYTEL MEDICAL CORPORATION
 
Dated: December 28, 1998                  By:     /s/ RICHARD F. BADER
                                            ------------------------------------
                                                      Richard F. Bader
                                            Chairman and Chief Executive Officer
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities indicated on
the dates indicated.
 
<TABLE>
<CAPTION>
                      SIGNATURE                                   TITLE                    DATE
                      ---------                                   -----                    ----
<C>                                                    <S>                           <C>
 
                /s/ RICHARD F. BADER                   Chairman of the Board and     December 28, 1998
-----------------------------------------------------  Chief Executive Officer
                 (Richard F. Bader)                    (Principal Executive
                                                       Officer)
 
                  /s/ ALLAN ZINBERG                    President, Chief Operating    December 28, 1998
-----------------------------------------------------  Officer and Director
                   (Allan Zinberg)
 
              /s/ E. PAYSON SMITH, JR.                 Senior Vice President and     December 28, 1998
-----------------------------------------------------  Chief Financial Officer
               (E. Payson Smith, Jr.)                  (Principal Financial and
                                                       Accounting Officer)
 
               /s/ DAVID E. WERTHEIMER                 Senior Vice President,        December 28, 1998
-----------------------------------------------------  Development, and Director
                (David E. Wertheimer)
 
             /s/ JOSEPH T. SEBASTIANELLI               Director                      December 28, 1998
-----------------------------------------------------
              (Joseph T. Sebastianelli)
 
                                                       Director                      December 28, 1998
-----------------------------------------------------
                  (Gene I. Miller)
 
                /s/ THOMAS J. FOGARTY                  Director                      December 28, 1998
-----------------------------------------------------
                 (Thomas J. Fogarty)
</TABLE>
 
                                       20
<PAGE>   22
 
              REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
 
To the Board of Directors and Stockholders of
Raytel Medical Corporation:
 
     We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Raytel Medical Corporation and
Subsidiaries included in this Form 10-K, and have issued our report thereon
dated November 12, 1998. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The accompanying
schedule is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission rules and is
not part of the basic financial statements. The information reflected on the
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial data, and in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
 
                                          /s/ ARTHUR ANDERSEN LLP
                                          --------------------------------------
                                          Arthur Andersen LLP
 
Hartford, Connecticut
November 12, 1998
 
                                       21
<PAGE>   23
 
                                                                     SCHEDULE II
 
                  RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
 
                       VALUATION AND QUALIFYING ACCOUNTS
              FOR THE YEARS ENDED SEPTEMBER 30,1998, 1997 AND 1996
 
<TABLE>
<CAPTION>
                              BALANCE AT    CHARGED TO
                              BEGINNING      COST AND                                  BALANCE AT
                               OF YEAR       EXPENSES      OTHER(1)     DEDUCTIONS     END OF YEAR
                              ----------    ----------    ----------    -----------    -----------
<S>                           <C>           <C>           <C>           <C>            <C>
DESCRIPTION
September 30, 1998
  Allowance for doubtful
     accounts...............  $6,189,000    $5,767,000                  $(4,863,000)   $7,093,000
September 30, 1997
  Allowance for doubtful
     accounts...............  $5,855,000    $5,387,000    $1,946,000    $(6,999,000)   $6,189,000
September 30, 1996
  Allowance for doubtful
     Accounts...............  $7,709,000    $5,352,000                  $(7,206,000)   $5,855,000
</TABLE>
 
---------------
(1) The majority represents a reserve acquired in connection with the purchase
    of CVI on August 15, 1997.
 
                                       22
<PAGE>   24
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                           EXHIBIT TITLE
 -------                          -------------
<C>        <S>
  2.1(1)   Stock Purchase Agreement, dated as of August 11, 1997, by
           and among Raytel Medical Corporation, Cardiovascular
           Ventures, Inc. ("CVI") and the stockholders of CVI, together
           with the form of the Escrow Agreement attached thereto as
           Exhibit B and the form of the Contingent Promissory Note
           attached thereto as Exhibit M.
  3.1(2)   Restated Certificate of Incorporation of the Registrant.
  3.2(3)   Bylaws of the Registrant, as amended.
  4.1(3)   Rights Agreement dated as of August 14, 1998 between the
           Registrant and BankBoston N.A., as Rights Agent
*10.1(4)   1983 Incentive Stock Option Plan, as amended.
*10.2(4)   1990 Stock Option Plan, as amended.
*10.3(4)   1995 Outside Directors Stock Option Plan.
*10.5(4)   Executive Deferred Compensation Plan.
*10.7(4)   Form of Indemnity Agreement for officers and directors.
*10.8(4)   Employment Agreement dated September 28, 1995 between the
           Registrant and Richard F. Bader.
*10.9(4)   Employment Agreement dated September 28, 1995 between the
           Registrant and Allan Zinberg.
*10.10(4)  Employment Agreement dated September 28, 1995 between the
           Registrant and E. Payson Smith, Jr.
 10.22(4)  Lease Agreement dated March 6, 1992 between the Registrant
           and Peninsula Office Park, as amended.
 10.23(4)  Lease dated August 27, 1993 between the Registrant and USGC
           Joint Venture.
 10.24(4)  Agreement of Lease dated July 22, 1983 between the
           Registrant and C.E. Towers Co., as amended, with Lease
           Assignment and Assumption Agreement dated February 26, 1993
           between the Registrant and Medtronic, Inc. and Consent of
           C.E. Towers Co. dated February 12, 1993.
 10.25(4)  Letter of Intent dated May 31, 1995 between the Registrant
           and Stanford Health Services and related letter dated June
           12, 1995 from Bruce A. Reitz, M.D.
+10.26(4)  American Diagnostics and Management, Inc. Diagnostic
           Catheterization Services Agreement dated September 2, 1992
           between American Diagnostics And Management, Inc. ("ADAM")
           and Southmore Medical Center, as assumed from ADAM by
           Registrant.
+10.27(4)  American Diagnostics And Management, Inc. Diagnostic
           Catheterization Services Agreement dated June 10, 1993
           between ADAM and Southmore Medical Center, as assumed from
           ADAM by Registrant.
 10.28(4)  Joint Venture Agreement dated March 3, 1988 between Medical
           Imaging Partners, L.P. and California Medical Imaging
           Services, Inc., as amended, and related agreements.
 10.29(4)  Joint Venture Agreement dated November 25, 1987 between
           Medical Imaging Partners, L.P. and Mastercare Diagnostic
           Limited Partners, as amended, and related agreements.
 10.30(4)  MRI Diagnostic Partners I, L.P. 1986 Limited Partnership
           Agreement dated December 31, 1986, and related agreements
           and MRI Building Partners, L.P. 1986 Agreement of Limited
           Partnership dated December 31, 1986.
+10.34(5)  Cardiac Catheterization Facility and Administrative Services
           Agreement dated January 10, 1996 between the Company and
           Stanford Health Services.
+10.35(6)  Letter Agreement dated January 9, 1996 between the Company
           and International Philanthropic Hospital Foundation, doing
           business as Granada Hills Community Hospital.
</TABLE>
<PAGE>   25
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                           EXHIBIT TITLE
 -------                          -------------
<C>        <S>
+10.36(7)  Cardiac Catheterization Facility and Administrative Services
           Agreement dated January 10, 1996 between the Company and
           Stanford Health Services.
+10.38(9)  Master Transaction Agreement, dated as of August 21, 1996,
           but effective as of September 18, 1996, between and among
           Raytel Medical Corporation, Raytel Texas Physician Services,
           Inc., Raytel Southeast Management, L.P., Southeast Texas
           Cardiology Associates, P.A., Southeast Texas Cardiology
           Associates II, P.A., Rodolfo P. Sotolongo, M.D., Wayne S.
           Margolis, M.D., Michael L. Smith, M.D., and Miguel
           Castellanos, M.D. Reference is made to Exhibit 2.1.
+10.39(10) Agreement for the Purchase and Sale of Assets, dated as of
           August 21, 1996, but effective as of September 18, 1996,
           between and among Raytel Medical Corporation, Raytel Texas
           Physician Services, Inc., Raytel Southeast Management, L.P.,
           Southeast Texas Cardiology Associates, P.A., Southeast Texas
           Cardiology Associates II, P.A., Rodolfo P. Sotolongo, M.D.,
           Wayne S. Margolis, M.D., and Michael L. Smith, M.D.
           Reference is made to Exhibit 2.2.
+10.40(11) Management Services Agreement, dated and effective as of
           September 18, 1996, between Cardiology Management
           Partnership, a Texas general partnership, and Southeast
           Texas Cardiology Associates II, P.A., as assigned to Raytel
           Southeast Management, L.P. Reference is made to Exhibit 2.3.
*10.41(12) Employee Stock Purchase Plan dated May 8, 1996
 10.42(12) Amended and Restated Credit Agreement and form of Promissory
           Note dated August 14, 1996 among the Registrant, Bank of
           Boston Connecticut and Banque Paribas, and Bank of Boston
           Connecticut, as agent.
 10.43(12) Promissory Note in the amount of $15,000,000 between the
           Registrant and Bank of Boston Connecticut dated September 2,
           1996.
 10.44(12) Promissory Note in the amount of $10,000,000 between the
           Registrant and Banque Paribas dated September 2, 1996.
 10.45(13) 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(13) Second Amendment to Amended and Restated Credit Agreement,
           dated September 26, 1997 among the Registrant, Bank of
           Boston Connecticut and Banque Paribas, and Bank of Boston
           Connecticut, as agent.
 10.47(13) Promissory Note in the amount of $27,000,000 between the
           Registrant and Bank of Boston Connecticut dated September
           26, 1997.
 10.48(13) Promissory Note in the amount of $18,000,000 between the
           Registrant and Banque Paribas dated September 26, 1997.
 10.49(14) Stock Purchase Agreement, dated as of August 11, 1997, by
           and among Raytel Medical Corporation, Cardiovascular
           Ventures, Inc. and the stockholders of CVI, together with
           the form of the Escrow Agreement attached thereto as Exhibit
           B and the form of the Contingent Promissory Note attached
           thereto as Exhibit M.
 10.50(13) Noncompetition Agreement, dated as of August 15, 1997, by
           and between David E. Wertheimer and Raytel Medical
           Corporation
*10.51(13) Employment Agreement, dated as of January 1, 1996, by and
           between David E. Wertheimer, M.D., and Heart Institute of
           Port St. Lucie, Inc., an indirect wholly-owned subsidiary of
           Registrant as a result of the CVI acquisition.
*10.52(15) Employment Agreement dated as of March 1, 1998, by and
           between Swapan Sen and Raytel Medical Corporation.
</TABLE>
<PAGE>   26
 
<TABLE>
<CAPTION>
 EXHIBIT
 NUMBER                           EXHIBIT TITLE
 -------                          -------------
<C>        <S>
*10.53(16) Employment Agreement dated as of March 1, 1998, by and
           between F. David Rollo, M.D., Ph.D., and Raytel Medical
           Corporation.
*10.54(17) Employment Agreement dated as of March 1, 1998, by and
           between Michael O. Kokesh and Raytel Medical Corporation.
 10.55     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.
 10.56     Succession Agreement, dated July 1, 1998, by and among David
           E. Wertheimer, M.D., Advanced Magnetic Resonance Imaging,
           P.C., Raytel Medical Corporation and Raytel Imaging
           Holdings, Inc. as General Partner for Forest Hills Imaging
           Venture.
 10.57     Succession Agreement, dated February 3, 1998, by and among
           F. David Rollo, M.D., Raytel Medical Group, Inc., P.C.,
           Raytel Medical Corporation and Raytel California Physician
           Services, Inc.
 13.1      Portions of Annual Report to Stockholders incorporated by
           reference in this Report on Form 10-K.
 21.1      List of subsidiaries of the Registrant.
 23.1      Consent of Arthur Andersen LLP.
 27        Financial Data Schedule
</TABLE>
 
---------------
  *  Constitutes a management contract or compensatory plan required to be filed
     pursuant to Item 14(c) of Form 10-K.
 
  +  Confidential treatment has been granted as to a portion of this Exhibit.
 
 (1) Incorporated by reference to identically numbered exhibits to the
     Registrant's Form 10-Q Report for the quarter ended December 31, 1995 (the
     "December 1995 Form 10-Q").
 
 (2) Incorporated by reference to Exhibit 7 to the Registrant's Form 8-K Report
     filed on October 23, 1998 (the "October 1998 Form 8-K").
 
 (3) Incorporated by reference to Exhibit 1 to the October 1998 Form 8-K.
 
 (4) 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").
 
 (5) Incorporated by reference to Exhibit 10.1 to the December 1995 Form 10-Q.
 
 (6) Incorporated by reference to Exhibit 10.2 to the December 1995 Form 10-Q.
 
 (7) Incorporated by reference to Exhibit 10.1 to the Registrant's Form 10-Q
     Report for the quarter ended June 30, 1996 (the "June 1996 Form 10-Q").
 
 (8) Incorporated by reference to Exhibit 10.2 to the June 1996 Form 10-Q.
 
 (9) Incorporated by reference to Exhibit 2.1 to the Registrant's Form 8-K
     Report filed on October 3, 1996 (the "October 1996 Form 8-K").
 
(10) Incorporated by reference to Exhibit 2.2 to the October 1996 Form 8-K.
 
(11) Incorporated by reference to Exhibit 2.3 to the October 1996 Form 8-K.
 
(12) Incorporated by reference to identically numbered exhibits to the
     Registrant's Form 10-K Report for the year ended September 30, 1996.
 
(13) Incorporated by reference to identically numbered exhibits to the
     Registrant's Form 10-K Report for the year ended September 30, 1997.
<PAGE>   27
 
(14) Incorporated by reference to Exhibit 2.1 to the August 1997 Form 8-K.
 
(15) Incorporated by reference to Exhibit 2.1 to the March 1998 Form 10-Q.
 
(16) Incorporated by reference to Exhibit 2.1 to the March 1998 Form 10-Q.
 
(17) Incorporated by reference to Exhibit 2.1 to the March 1998 Form 10-Q.