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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, 2000

[  ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
     Exchange Act of 1934

                           Commission File No. 0-27186

                           RAYTEL MEDICAL CORPORATION
             (Exact name of Registrant as specified in its charter)

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<S>                                                      <C>
           DELAWARE                                          94-2787342
(State or other jurisdiction of                            (I.R.S. Employer
incorporation of organization)                            Identification No.)

                2755 CAMPUS DRIVE, SUITE 200, SAN MATEO, CA 94403
(Address of principal executive offices)                     (Zip Code)
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                                 (650) 349-0800
               Registrant's telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

                         COMMON STOCK, $0.001 PAR VALUE
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X]  No [ ]

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

The aggregate market value of the voting stock of the Registrant held by
non-affiliates of the Registrant, based on the closing price of the Registrant's
Common Stock as quoted on the Nasdaq National Market on November 30, 2000, was
$4,993,590. Shares of Common Stock held by each officer and director and by each
person who owns 5% or more of the outstanding Common Stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.

The number of shares of the Registrant's Common Stock outstanding as of November
30, 2000, was 8,751,550.

                       DOCUMENTS INCORPORATED BY REFERENCE

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               DOCUMENT                                               WHERE INCORPORATED
<S>                                                                        <C>
Annual Report to Stockholders for fiscal year ended
September 30, 2000                                                         Part II
Proxy Statement for the annual meeting to be held on April
25, 2001                                                                   Part III
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                                     PART I

        This report includes a number of forward-looking statements which
reflect Raytel's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed in "Item 17. Management's Discussion
and Analysis of Financial Conditions and Results of Operations - Business
Environment and Future Financial Results" and elsewhere in this report, that
could cause actual results to differ materially from historical results or those
anticipated. In this report, the words "anticipates," "believes," "expects,"
"intends," "future," "goals" and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.

ITEM 1. BUSINESS

        Raytel Medical Corporation is a provider of healthcare services,
focusing on the needs of patients with cardiovascular disease, or CVD. We
believe, based on our industry experience, that we are the leading provider of
remote cardiac monitoring and testing services utilizing transtelephonic
monitoring technology in the United States.

        Raytel also owns and operates seven freestanding cardiovascular
diagnostic facilities, two freestanding facilities that provide nuclear
cardiology diagnostic services and a multi-specialty medical clinic which
focuses on cardiology. In addition, we provide outpatient diagnostic imaging
services, through operating and investment interests in eight freestanding
imaging centers, and manage 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. In August 1987, we were reincorporated in Delaware under the
name Raytel Systems Corporation. In October 1992, we changed our name to Raytel
Medical Corporation. Unless the context otherwise requires, "Raytel" as used
herein refers to Raytel Medical Corporation, a Delaware corporation, and its
consolidated subsidiaries. Raytel's executive offices are located at 2755 Campus
Drive, Suite 200, San Mateo, California 94403, and its telephone number is (650)
349-0800.

RECENT CORPORATE DEVELOPMENTS

        CONSIDERATION OF STRATEGIC ALTERNATIVES

        In September 1999, we announced that are had retained U.S. Bancorp Piper
Jaffray as our financial advisor to assist us in considering a range of
strategic alternatives for maximizing shareholder value. These alternatives
included possible strategic alliances, acquisitions or mergers, the sale of all
or some of our businesses, or the continued operation of the businesses as an
independent company. In August 2000, we terminated our financial advisory
relationship with U.S. Bancorp Piper Jaffray.

        DISPOSITION OF PRACTICE MANAGEMENT DIVISION

        In May 2000, in order to settle a dispute and avoid protracted
litigation, Raytel's Board of Directors approved management's plan to dispose of
one of our divisions which was engaged in the management of the physician
practices of Southeast Texas Cardiology Associates, P.A., or "SETCA." In May
2000, we sold substantially all of the assets of a limited partnership and the
stock of a subsidiary, which effectively terminated our management of SETCA. As
compensation for these assets, promissory notes payable by Raytel to the
physicians of the practice managed by Raytel, in the aggregate amount of
$2,300,000, were cancelled and rights to receive an aggregate of 122,068 shares
of Raytel common stock held by the physicians were terminated. We reported a
$4,965,000 loss on the transaction (net of a $3,367,000 tax benefit) related to
the write-off of unamortized intangible assets created at the inception of the
management agreements, accounts receivable and other assets less the amount of
the cancelled promissory notes and the value of the stock rights terminated. The
results of the practice management division have been accounted for as a
discontinued operation. In addition, Raytel has discontinued its management of
the physician practice of Comprehensive Cardiology Consultants, a Medical Group,
Inc.

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        TERMINATION OF RELATIONSHIP WITH THE BAPTIST HOSPITAL OF SOUTHEAST TEXAS

        In February 2000, Raytel's relationship with The Baptist Hospital of
Southeast Texas, under which Raytel provided management services to the
hospital, was terminated.

        ESTABLISHMENT OF NEW IMAGING CENTER

        In March 2000, we established a new diagnostic imaging center in
Collegeville, Pennsylvania and transferred a portion of the operations of our
Morristown, Pennsylvania facility to the new center.

        ICD MANUFACTURING AND MONITORING AGREEMENT WITH ST. JUDE MEDICAL, INC.

        In November 1999, Raytel and St. Jude Medical, Inc. announced the launch
of the Housecall(TM) transtelephonic monitoring system, the first commercially
available system capable of downloading a complete set of diagnostic data from
an implantable cardioverter-defibrillator, or ICD, over the telephone. Raytel
manufactures the Housecall transmitters and receiving units under an exclusive
agreement with St. Jude Medical and monitors St. Jude ICD patients using
Housecall.

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

        Raytel is the subject of a grand jury investigation instituted in June
2000, and conducted under the direction of the United States Attorney for the
District of Connecticut and the Office of the Inspector General of the U.S.
Department of Health and Human Services. See "Item 3. Legal Proceedings."

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 1999 data, the
American Heart Association estimates that approximately 60.8 million people in
the United States suffer from one or more forms of CVD. According to the AHA's
estimates, CVD claimed approximately 950,000 lives in 1998, representing 40.6%
of all deaths. According to the AHA, the risk of developing coronary heart
disease after the age of 40 is 49% for men and 32% for women. Due to the aging
of the United States population, Raytel believes that the need for medical
services to diagnose and treat CVD will continue to increase significantly in
the future.

BUSINESS STRATEGY

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

        Expand Raytel's Telemedical Business. We intend to utilize our
technology and expertise to address additional transtelephonic applications in
the treatment and management of cardiac patients and thereby widen the range of
services that it offers. We believe that the focus on new technologies and
service opportunities, such as the development of the Housecall system for
downloading diagnostic data from an implantable cardioverter-defibrillator over
the telephone, will enhance our ability to market its cardiac monitoring and
testing services.

        Develop Affiliations with Providers. We intend to expand our telemedical
business in cooperation with cardiology groups and hospitals with a reputation
for the delivery of high quality services among referring primary care
physicians and the general population in the communities that they serve.

        Expand Managed Care Relationships. We believe that interaction with
managed care organizations will become an increasingly important element in the
provision of cardiac care, including care for Medicare patients, and

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that third-party payors will increasingly prefer to contract with providers
offering a wide range of cardiovascular services provided on a multi-state or
regional basis. We actively market our existing healthcare services to managed
care plans and provides value added services.

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

RAYTEL CARDIAC INFORMATION SERVICES

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

        PACEMAKER MONITORING

        We believe, based on our industry experience, that we are the largest
provider of transtelephonic pacemaker monitoring services in the United States,
currently serving over 82,000 patients with implanted pacemaker systems.

        Pacemaker systems are designed to assist the human heart in maintaining
an adequate pumping rate. A pacemaker is an electronic device that is implanted
in the patient and is designed to monitor and, if necessary, to stimulate the
patient's heartbeat. As it senses the heart's failure to respond to normal
physiologic signals, the pacemaker emits electrical pulses directly into the
atrium and/or the ventricle of the heart, causing the heart muscle to contract
and pump blood through the patient's body. A pacemaker system consists of the
generator which includes the device and a battery and the leads from the device
to the patient's heart.

        The purpose of pacemaker monitoring is to enable the patient to maintain
a normal lifestyle without the fear of an unexpected system failure. Pacemaker
monitoring can detect failures in the pacemaker system as well as changes in the
patient's heart rhythms that can cause the system to become ineffective. In
TTM-based pacemaker monitoring, the pacemaker system and its interaction with
the patient's heart is tested by conducting periodic, prescheduled ECG
examinations. The patient is provided with a battery-powered ECG transmitter
which detects the heart's impulses from the surface of the skin, converts these
impulses into an acoustic signal and transmits the signal over ordinary
telephone lines to one of Raytel's three technical operations centers, where the
signal is converted and displayed on a computer screen or strip chart recorder.

        Raytel's pacemaker monitoring services are prescribed by the patient's
physician. After receipt of a prescription and enrollment by Raytel, the patient
is sent a transmitter and trained to use the device over the telephone by one of
our technologists. Unlike most physician-operated monitoring services, our
monitoring services are provided 24 hours a day, seven days a week in order to
accommodate unscheduled calls from patients experiencing problems.

        Each patient is tested on a schedule recommended by his or her
prescribing physician with such prescription updated annually. Raytel generates
most of its pacemaker monitoring revenues from reimbursement by Medicare and
payors of supplemental Medicare benefits. Patients are typically tested between
three and twelve times per year. We are reimbursed for pacemaker monitoring
services on a per-call basis. Routine pacemaker testing is performed in
accordance with a prearranged, computer generated schedule. A trained
technologist telephones the patient and requests that the patient initiate
transmission of ECG data which is received by recorders in one of our technical
operations centers. Once a continuous graph displaying the rhythm of the heart
and the pacemaker is generated, this data is interpreted by the technologist to
determine the status of the implanted pacemaker and its relationship to the
patient's cardiac rhythm. If problems with the pacemaker system are noted or

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a serious abnormality is detected, including an abnormality in the heart's own
rhythm (an arrhythmia), the patient's physician is notified immediately by
telephone. After each test, the results are promptly reviewed by a supervising
technologist and a cardiologist and a written report is mailed to the patient's
physician.

        CARDIAC EVENT DETECTION SERVICE

        Raytel operates the Cardiac Event Detection Service, or "CEDS," which
tests and documents transtelephonically an ambulatory patient's cardiac rhythm
irregularities while the patient is experiencing symptoms. CEDS testing aids in
the diagnosis of transient cardiac arrhythmias, including atrial and ventricular
abnormalities, such as tachycardia, which causes the heart to beat at an
abnormally rapid and potentially life threatening rate. During its fiscal year
ended September 30, 2000, we tested approximately 30,000 patients for potential
transient arrhythmic events.

        Upon enrollment in our CEDS program, we provide the patient with a
cardiac event recorder for a testing period lasting up to 30 days. Upon
experiencing symptoms, the patient activates the event recorder to capture one
or more ECGs which the patient will later transmit to one of our two CEDS
technical operations centers for analysis. Skilled technologists, under the
supervision of cardiac care nurses and cardiologists, make preliminary
evaluations of these transmissions for cardiac irregularities. Unlike similar
services offered by individuals or small clinics, our centers are staffed 24
hours a day, seven days a week to respond to a patient's needs on a timely
basis. Emergency medical response is initiated for CEDS patients when necessary.
Regardless of the number of calls placed, payors reimburse Raytel on a 30-day
program basis for its CEDS service.

        HOLTER MONITORING SERVICES

        We believe, based on our industry experience, that we are the largest
provider of Holter monitoring services in the United States, currently serving
over 51,000 patients annually. Raytel processed approximately 52,000 Holter
monitoring tapes during fiscal 2000. 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

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

        TRAINING AND QUALITY ASSURANCE

        All of our pacemaker monitoring technologists undergo a formal six-week
training program that includes basic cardiac physiology, the operation of
pacemaker devices, the interaction of pacemaker systems with the heart, and the
administration and interpretation of ECG tests. As technologists become more
experienced, they are trained

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to monitor increasingly complex pacemaker systems. Technologists administering
our CEDS and Holter services undergo training in the interpretation of ECG data
to detect symptoms of cardiac arrhythmia.

        We maintain a rigorous quality assurance program. Board-certified
cardiologists direct our technologists who have special training in the fields
of cardiac pacing and electrophysiology. Each pacemaker-monitoring test is
separately reviewed by a supervising technologist and a cardiologist. CEDS
transmissions and Holter test results are evaluated by technologists under the
supervision of cardiac care nurses and cardiologists. The State of Connecticut
has approved Raytel's training program for college credit toward a bachelor of
science degree within the Connecticut state university system.

RAYTEL CARDIOVASCULAR FACILITIES

        Raytel currently operates seven freestanding cardiac diagnostic
cardiovascular facilities, one of which is associated with a multi-specialty
medical practice in Florida which we own and manage. Four of our cardiovascular
diagnostic facilities are located in Texas and two are located in Louisiana.
Raytel also provides consulting services to a hospital relating to its on-site
heart center and leases cardiac catheterization equipment and related leasehold
improvements to the hospital.

        CARDIOVASCULAR DIAGNOSTIC FACILITIES

        Raytel operates seven freestanding cardiovascular diagnostic facilities
which perform cardiac catheterization and related services (the "Cardiovascular
Diagnostic Facilities"). Cardiac catheterization utilizes catheters and
sophisticated diagnostic instruments to evaluate the functioning of the heart
and the coronary arteries. A narrow, flexible tube, or catheter, is inserted
through a main artery in the leg or arm and guided into the patient's coronary
arteries, where a cardiologist can use the catheter to perform various tests to
diagnose the nature and extent of the patient's coronary artery disease.

        The Cardiovascular Diagnostic Facilities are located in Texas, Louisiana
and Florida. At each Cardiovascular Diagnostic Facility, we provide the
facilities, equipment, supplies and support personnel necessary for the
cardiologist to perform interventional cardiac imaging and peripheral
therapeutic procedures. Six of the Cardiovascular Diagnostic Facilities are
owned by limited partnerships. Raytel, through a separate wholly-owned
subsidiary for each limited partnership, serves as the corporate general partner
which acts as the day-to-day manager of each facility. Raytel owns a majority
interest in five of the facilities and owns 100% of the Florida facility. Raytel
also owns and operates two nuclear cardiology diagnostic facilities, formerly
operated in conjunction with Cardiovascular Diagnostic Facilities.

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

        RAYTEL HEART CENTER AT GRANADA HILLS COMMUNITY HOSPITAL

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


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

RAYTEL PHYSICIAN PRACTICE AND CLINIC MANAGEMENT

        In March 2000, Raytel disposed of its practice management division which
was engaged in the management of the physician practices of SETCA. See "Recent
Corporate Developments."

        Through its acquisition of CVI in August 1997, Raytel acquired a
20-physician multi-specialty medical clinic, which focuses on cardiology,
located in Port St. Lucie, Florida. We continue to mange the operations of this
clinic.

RAYTEL DIAGNOSTIC IMAGING SERVICES

        Raytel provides outpatient diagnostic imaging services through operating
and investment interests in seven freestanding imaging centers (the "Imaging
Centers"). Raytel 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 Raytel.

        Diagnostic imaging technology consists of a number of medical diagnostic
modalities, many of which integrate computer hardware and software. These
modalities include magnetic resonance imaging, or MRI, computed tomography, or
CT, nuclear medicine, radiography/fluoroscopy, or R/F, ultrasound, general x-ray
and mammography. These imaging modalities are generally non-invasive (with the
exception of the injection of contrast material in certain techniques and the
occasional use of sedating agents) and subject the patient either to sound waves
(ultrasound), X-rays (CT, R/F and X-ray mammography) or radio waves and magnetic
fields (MRI) to gather data that aid in medical diagnosis. These diagnostic
technologies enable physicians to view certain internal body anatomy and
pathology and in many instances provide early diagnostic capability and aid in
effective treatment planning without the need for more costly exploratory
surgery.

        The principal diagnostic imaging modality in use at the Imaging Centers
is MRI. MRI is used to provide high resolution images of the soft tissue of the
body. In the field of cardiology, MRI is used for the assessment of congenital
and anatomical cardiac defects. Other MRI techniques, such as MR angiography,
are also used in the assessment of peripheral vascular and other cardiovascular
diseases. The Imaging Centers also provide a wide range of imaging services for
the diagnosis of neurological disorders of the head, neck and spine, as well as
imaging of the musculoskeletal system and a variety of internal organs,
including the liver and prostate, and the female pelvis.

        RAYTEL IMAGING CENTERS

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

        RAYTEL IMAGING NETWORK

        The trends toward cost containment and managed care have resulted in
changes in the patterns of patient referrals to diagnostic imaging facilities,
adversely affecting the profitability of independent imaging centers and
encouraging the formation of networks of independent centers. Many independent
operators of diagnostic imaging facilities lack the management and marketing
expertise and systems, as well as the experience in dealing with large managed
care organizations, that are necessary to effectively establish and operate such
networks. Our experience

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in dealing with a wide variety of managed care organizations and its
established, centralized marketing, scheduling, billing and accounting systems
provide us with the capability to establish and operate networks of independent
diagnostic imaging centers. In addition, Raytel's purchasing power allows us to
provide participating centers with supplies, such as contrast agents, film and
other medical and technical supplies, and with equipment maintenance and other
services at considerable cost savings.

        The Raytel Imaging Network (the "Network") is a dedicated network of
diagnostic imaging facilities established to provide services to patients
participating in healthcare benefit programs offered by municipal and state
employers, corporations that self-insure, third-party insurance carriers, union
health and welfare plans and managed care providers. Independent imaging centers
enter into fixed fee contractual relationships with the Network to provide
imaging services to patients referred by payors which have contracted with the
Network for services at a negotiated fee. The Network handles scheduling for
patients whose healthcare benefit programs participate in the Network and
guarantees these participating entities a fixed fee for all radiology procedures
performed in Network centers. The Network also offers centralized billing
services for those procedures, promptly reports the results of the studies to
the patient's referring physician and the outcomes of the studies to the
administrators responsible for the management of the patient's healthcare
program.

        The Network is a preferred provider organization with participating
imaging centers in the states of New Jersey, Pennsylvania, Delaware, Maryland,
New York and Virginia. The Network currently provides diagnostic imaging
services under referral arrangements with approximately 150 organizations
administering healthcare programs covering more than 700,000 individual
participants.

SALES AND MARKETING

        Our marketing activities are directed at managed care organizations,
cardiologists and referring physicians. We maintain a central managed care sales
group that negotiates and manages contracts with managed care organizations. Our
marketing organization also supervises the marketing of our TTM-based services
to physicians nationwide and supports the efforts of local centers to market
their services to referring physicians in the communities they serve.

        RAYTEL CARDIAC INFORMATION SERVICES

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

        Raytel differentiates its cardiac monitoring and testing services from
most of its competitors by providing its services 24 hours a day, seven days a
week. In addition, we offer technologists who specialize in monitoring specific
pacemaker models (the more complex the unit, the more expertise a technologist
is required to have), extensive quality control procedures, computerized reports
for complex pacemakers, detailed reporting procedures for abnormal findings and
an extensive database on pacemaker performance.

        RAYTEL DIAGNOSTIC IMAGING SERVICES

        We market the services of the Imaging Centers we manage through a team
approach tailored to the needs of each Imaging Center. Our central sales
organization coordinates the Imaging Center's marketing activities with the
Imaging Center's radiologists. The principal selling effort is directed toward
the local base of referring physicians. In support of the selling effort, Raytel
provides marketing materials, including newsletters and brochures and holds
routine educational sessions for physicians. Raytel also assists the Imaging
Center in addressing needs of managed care organizations by negotiating
contracts with these organizations and working closely with insurance plan
administrators, HMO personnel, workers' compensation coordinators and hospital
administrators.


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        RAYTEL CARDIOVASCULAR DIAGNOSTIC FACILITIES

        We market the services of our Cardiovascular Diagnostic Facilities using
the basic approach employed with the Imaging Centers. Each facility undertakes
marketing activities specifically structured for its local or regional market.
The manager of each facility initiates and maintains contact with local
referring physicians. Raytel's central sales organization supports the local
selling effort with marketing materials and assistance in the development of
clinical outreach programs designed to make the capabilities of the center
available to underserved segments of the community. The center manager
coordinates local physician contacts with our cardiac monitoring and testing
sales force to cross-sell our transtelephonic pacemaker monitoring, Holter
monitoring and cardiac event detection services. We negotiate contacts with
managed care organizations centrally from our Connecticut facility. This central
sales group also assists the center manager in addressing the needs of such
organizations.

BILLING AND COLLECTION

        Our cardiac monitoring and testing operations generate a high volume of
relatively low-cost services delivered to patients living throughout the United
States. Raytel derives substantially all of its transtelephonic pacemaker
monitoring, cardiac event detection services and Holter monitoring revenues from
Medicare and other third-party payors and, in most cases, renders bills for its
pacemaker monitoring services to at least two payors for each procedure. In the
year ended September 30, 2000, we generated more than 780,000 bills to Medicare
and other third-party payors related to these businesses. Accordingly, our
success in these businesses is substantially dependent upon the efficiency of
our billing and collection systems.

        All of the billing and collection functions for Raytel's cardiac testing
operations are centralized at our facilities in Connecticut. We have specialized
data management systems that we use to obtain and record primary and secondary
insurance data at the time of patient enrollment and to maintain and update that
information. Our billing and collection staff is specially trained in
third-party coverage and reimbursement procedures. We communicate continuously
with carriers administering Medicare and have established procedures that allow
us to submit most primary Medicare claims electronically, on a batch-billing
basis. In addition, we maintain a database on the billing procedures and
requirements of more than 1,500 insurance carriers, which enables it to
efficiently process claims to primary, secondary and tertiary private insurers.
Computerized billing and collection reports allow our personnel to continually
monitor open accounts.

        Due to the complexity of the billing and collection process, Raytel,
like many other healthcare service providers, experiences normal payment cycles
that are considerably longer than those customary in many other industries. We
typically experience billing cycles of 60 to 240 days from the billing date,
depending on the type and number of third-party payors, although billing cycles
can be even longer in certain situations. Based upon our experience, we believe
that our specialized data processing system used in billing for our pacemaker
monitoring services and our extensive background in processing high volume,
third-party claims serve to minimize collection cycles and the incidence of
rejected claims due to incomplete or inaccurate information. In 1998, we
converted our billing processing for CEDS and Holter monitoring services to a
system based on commercially available software. This system has not performed
to our expectations, and we are considering converting this segment of our
billing operations back to our internally-developed system.

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

THIRD-PARTY REIMBURSEMENT

        Raytel derives substantially all of its revenues from Medicare, HMOs and
commercial insurers and other third-party payors. Both government and private
payment sources have instituted cost containment measures designed to limit
payments made to healthcare providers, by reducing reimbursement rates, limiting
services covered, increasing utilization review of services, negotiating
prospective or discounted contract pricing, 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
Raytel in the future, or that the future reimbursement for any service offered
by Raytel will be sufficient to cover the costs and overhead allocated to such
service, either of which could have a material adverse effect on our operating
results. We cannot predict with any


                                       9
<PAGE>   10

certainty whether or when additional changes in Medicare, Medicaid or other
third-party reimbursement rates or policies will be implemented. However, such
future changes could have a material adverse effect on our business.

        Reimbursement rates vary depending on the type of third-party payors.
Changes in the composition of third-party payors from higher reimbursement rate
payors to lower reimbursement rate payors could have an adverse effect on
Raytel's operating results. In addition, Raytel anticipates that it may
increasingly offer its services to third party payors on a capitated or other
risk-sharing basis. To the extent that patients or enrollees covered by a
risk-sharing contract require more frequent or extensive services than is
anticipated by Raytel, the revenue derived from such contract may be
insufficient to cover the costs of the services provided. Insufficient revenue
under capitated or other risk-sharing contracts could have a material adverse
effect on our business.

GOVERNMENT REGULATION

        The healthcare industry is highly regulated, and there can be no
assurance that the regulatory environment in which Raytel operates will not
change significantly and adversely in the future. In general, the scrutiny of
methods and levels of payment of healthcare providers and companies is
increasing.

        On August 5, 1997, President Clinton signed the Balanced Budget Act of
1997, or the BBA, into law. Two of the areas affected most profoundly by this
law were (1) fraud and abuse, and (2) the effort of the federal government to
use its purchasing power to expand health care options for Medicare
beneficiaries while using pressure from increased competition to control costs.
The fraud and abuse provisions build on many of the provisions that were enacted
by the Health Insurance Portability and Accountability Act of 1996. In addition
to the specific changes, the fraud and abuse provisions of the BBA signify an
apparent shift to the Office of the Inspector General of the Department of
Health and Human Services, or the "OIG," of not only enforcement power, but
policy-making authority as well. In addition, the BBA broadened the authority
for the HCFA to enter into contracts for providing managed care to Medicare
beneficiaries by expanding the type of managed care options available to
Medicare beneficiaries.

        On October 31, 1997, the Secretary of Health and Human Services
published final regulations implementing a number of changes proposed in June
1997. One of the changes replaced the independent physiological laboratory, or
IPL, with the creation of the independent diagnostic testing facility, or 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. Our pacemaker testing
and cardiac monitoring services currently operate as an IPL. The original
implementation date was postponed until March 1999, and we are 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.

        Raytel believes that healthcare legislation, regulations and
interpretations will continue to change and, as a result, routinely monitors
developments in healthcare law. We expect to modify our agreements and
operations from time to time as the business and regulatory environment changes.
While we believe we will be able to structure our agreements and operations in
accordance with applicable law, the lack of definitive interpretations of many
statutory and regulatory provisions means that there can be no assurance that
Raytel's arrangements are in compliance with such provisions or will not be
successfully challenged.

        GOVERNMENT REIMBURSEMENT PROGRAMS

        The federal government maintains the Medicare health insurance program
for the aged. Individual states have programs for medical assistance to the
indigent known generally as Medicaid, which are partially financed by the
federal government. Federal Medicaid funds are currently conditioned on state
compliance with federal requirements. A significant portion of Raytel's revenues
is received under Medicare and other government programs. Both the Medicare and
Medicaid programs are subject to statutory and regulatory changes, retroactive
and prospective rate adjustments, administrative rulings, interpretations of
policy, intermediary determinations, and government funding restrictions, all of
which may materially increase or decrease the rate of program payments to
healthcare facilities and other healthcare suppliers and practitioners.

                                       10
<PAGE>   11


        Raytel's existing cardiac monitoring and testing services derive a
substantial portion of their revenue from the Medicare program. Raytel's,
diagnostic imaging services and Cardiovascular Diagnostic Facilities also derive
a substantial portion of their revenue from payments made under the Medicare
program, and we anticipate 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. We
expect that delays in the certification process may occur and may increase with
the funding limitations being imposed on certifying authorities. Combined with
the billing and collection cycle for Medicare reimbursement that all healthcare
facilities experience, these delays could result in a three to six month working
capital deficiency during the start-up phase for newly developed facilities.
These working capital deficiencies will have to be funded by Raytel through
working capital advances to the facilities using funds provided by operating or
financing activities.

        THE STARK LAW AND MEDICARE FRAUD AND ABUSE LAWS

        Raytel is subject to a variety of laws and regulations governing the
referral of patients to facilities with whom the referring physician has a
financial relationship.

        Subject to certain exceptions, physicians who have a financial
relationship with an entity providing healthcare services are prohibited by
federal, often referred to as the "Stark Law", from referring or admitting
patients to that entity for the provision of certain designated services
reimbursable under Medicare or Medicaid, as well as certain other federally
assisted state healthcare programs. The entity providing healthcare services is
also prohibited from presenting, or causing to be presented, a claim or bill for
the 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, or 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
OIG.

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

                                       11
<PAGE>   12


of an exception under such laws, could prohibit physicians with ownership
interests in the Company from referring any patients to such facilities.

        We are also subject to the illegal remuneration provisions of the
federal Social Security Act and similar state laws, often referred to as "Fraud
and Abuse Laws," which impose civil and criminal sanctions on persons who
solicit, offer, receive or pay any remuneration, directly or indirectly, for
referring a patient for treatment that is paid for in whole or in part by
Medicare, Medicaid or similar state or private programs. The courts and the OIG
have stated that the Fraud and Abuse Laws are violated where even one purpose,
as opposed to a primary or sole purpose, of the arrangement is to induce
referrals. Violations of the Fraud and Abuse Laws are punishable by criminal or
civil penalties, which may include exclusion or suspension of the provider from
future participation in the Medicare, Medicaid and similar state and federal
programs, as well as substantial fines. The federal government has published
exemptions, or "safe harbors," for business transactions that will be deemed not
to violate the federal Fraud and Abuse Laws. Although satisfaction of the
requirements of these safe harbors provides protection from criminal prosecution
or penalties under the federal anti-kickback legislation, failure to meet the
safe harbors does not necessarily mean a transaction violates the statutory
prohibitions. Due to the breadth of the statutory provisions of the Fraud and
Abuse Laws and the absence of definitive regulations or court decisions
addressing the type of arrangements by which Raytel and its affiliated entities
conduct and will conduct their business, from time to time certain of their
practices may be subject to challenge under these laws. 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.

        We have attempted to structure our business relations to comply with the
Stark Legislation, the Fraud and Abuse Laws and all other applicable healthcare
laws and regulations. However, there can be no assurance that such laws will be
interpreted in a manner consistent with our practices. In addition, state
legislatures and other governmental entities are considering additional measures
restricting or regulating referrals, and there can be no assurance that new laws
or regulations will not be enacted which will require restructuring of Raytel's
operations or otherwise have a material adverse effect on our business,
financial condition or operating results.

        CERTIFICATES OF NEED AND OTHER LICENSING REQUIREMENTS

        Certain states in which we operate or may operate in the future prohibit
the establishment, expansion or modification of certain healthcare facilities
and the services provided at such facilities, including heart centers,
catheterization laboratories and diagnostic imaging centers, without first
obtaining a certificate of need, or "CON," or comparable license from the
appropriate state regulatory agency. In addition to any CON or comparable
licensing requirements that may apply, heart centers, catheterization
laboratories and diagnostic imaging centers developed or operated by Raytel may
also be required to comply with other licensing requirements, which vary from
state to state. Obtaining CON approval or comparable licensing is typically an
expensive and lengthy process and may involve adversarial proceedings initiated
by competing facilities or taxpayer groups. The existence of these laws or
future legislation changing these laws may make it more difficult or prohibitive
for Raytel to develop heart centers, catheterization laboratories or other
diagnostic facilities, maintain existing facilities or expand the services
provided at such facilities or its other diagnostic imaging facilities.

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

        RESTRICTIONS ON CORPORATE PRACTICE OF MEDICINE

        The laws of certain states in which we operate or may operate in the
future prohibit non-physician entities from practicing medicine, exercising
control over physicians or engaging in certain practices such as fee-splitting
with physicians. Although we have structured our affiliations with physician
groups so that the physicians maintain exclusive authority regarding the
delivery of medical care, there can be no assurance that these laws will be
interpreted in a manner consistent with our practices or that other laws or
regulations will not be enacted in the

                                       12
<PAGE>   13


future that could have a material adverse effect on our business. If a corporate
practice of medicine law is interpreted in a manner that is inconsistent with
our practices, we would be required to restructure or terminate its relationship
with the applicable physician group to bring its activities into compliance with
such law. The termination of, or failure of Raytel to successfully restructure,
any such relationship could result in fines or a loss of revenue that could have
a material adverse effect on our business, financial condition or operating
results.

MEDICAL MALPRACTICE INSURANCE

        In general, Raytel does not, itself, engage in the practice of medicine
and requires physicians performing medical services at its facilities to
maintain medical malpractice insurance. In connection with the operation of its
clinic at Port St. Lucie, Florida, a wholly-owned subsidiary of Raytel employs
approximately 20 physicians, who perform medical services as members of a
multi-specialty medical group. The other licensed professionals in this
practice, such as registered nurses, nurse practitioners and technicians,
perform their professional duties under the direct supervision of the
physicians. With the exception of the physician employees of the Florida clinic,
Raytel's employees do not practice medicine. However, certain of its employees
are involved in the delivery of healthcare services to the public under the
supervision of physicians. To protect Raytel from medical malpractice claims,
including claims associated with its employees' activities, Raytel, or the
Ventures for which Raytel serves as general partner, maintain professional
liability and general liability insurance on a "claims made" basis in amounts
deemed appropriate by management based upon the nature and risks of Raytel's
business. Such policies provide malpractice coverage in the amount of $1 million
per occurrence with an aggregate limit of $3 million. Insurance coverage under
such policies is contingent upon a policy being in effect when a claim is made,
regardless of when the events which caused the claim occurred. The cost and
availability of such coverage has varied widely in recent years. While we
believe our insurance policies are adequate in amount and coverage for its
current operations, there can be no assurance that the coverage maintained by
Raytel is sufficient to cover all future claims. In addition, there can be no
assurance that we will be able to obtain such insurance on commercially
reasonable terms in the future.

COMPETITION

        The healthcare service businesses in which Raytel is currently engaged
are highly competitive. The restructuring of the healthcare system is leading to
rapid consolidation of the existing highly fragmented healthcare delivery system
into larger and more organized groups and networks of healthcare providers. We
expect competition to increase as a result of this consolidation and ongoing
cost containment pressures among other factors. In executing its business
strategy, we compete with management services organizations, for-profit and
nonprofit hospitals, HMOs and other competitors that are seeking to form
strategic alliances with physicians or provide management services to physicians
or to diagnostic and therapeutic facilities owned by such physicians.

        Raytel's cardiac monitoring and testing programs compete with a number
of smaller, regional commercial entities as well as hospitals, clinics and
physicians who generally provide these services as an adjunct to their primary
practice. Principal competitive factors are the availability and quality of
service. We believe that we compete favorably with most of our smaller
competitors based on our 24-hour a day, seven-day a week service, specialized
technical staff and sophisticated billing and collection system. Certain of our
competitors, including local physicians and hospitals, may have certain
competitive advantages over Raytel based upon their direct relationships with
referring physicians.

        Cardiac catheterization and other cardiac diagnostic and therapeutic
procedures, as well as diagnostic imaging procedures, are performed in
hospitals, private physicians' offices, clinics operated by group practices of
physicians and independent catheterization facilities. Although Raytel and its
affiliates operate in locations throughout the United States, competition
focuses on physician referrals at the local market level. Principal competitors
in each of our markets are hospital and physician affiliated facilities, some of
which may have greater financial and other resources than Raytel, more
experience and greater name recognition than the local managers and physicians
associated with our Imaging Centers and Cardiovascular Diagnostic Facilities, or
better ties to the local medical community. Successful competition for referrals
is a result of many factors, including quality and timeliness of test results,
type and quality of equipment, facility location, convenience of scheduling and,
increasingly, relationships with managed care programs. Other independent
companies (including some which have substantially greater financial and
operating resources than Raytel) are in the business of establishing facilities


                                       13
<PAGE>   14


similar to the facilities in which we have or may obtain interests and providing
management services to such facilities.

EMPLOYEES

        As of November 30, 2000, Raytel employed approximately 736 full time
equivalent employees. None of our employees are covered by collective bargaining
contracts.

ITEM 2. PROPERTIES

        The principal operations of Raytel and its subsidiaries are conducted at
facilities located in Windsor, Connecticut; New York, New York; Haddonfield, New
Jersey; San Mateo, California; and Port St. Lucie, Florida. The Windsor
facility, consisting of approximately 45,000 square feet, is occupied under a
lease expiring in July 2004. The New York facility, consisting of approximately
23,300 square feet, is occupied under a lease expiring in September 2001. The
Haddonfield facility, consisting of approximately 10,000 square feet, is
occupied under a lease expiring in June 2002. The San Mateo facility, consisting
of approximately 2,400 square feet, is occupied under a lease expiring in May
2003. The Port St. Lucie facility, consisting of approximately 25,400 square
feet, is occupied under a lease expiring in December 2002. In addition, through
seven of its consolidated Imaging Centers, Raytel 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,
Raytel acquired Cardiovascular Diagnostic Facilities in Texas, Louisiana,
Maryland and Florida. The Ventures that operate the Cardiovascular Diagnostic
Facilities lease a total of approximately 84,000 square feet in these
facilities. We generally consider our properties to be in good condition and
suitable for its anticipated needs.

ITEM 3. LEGAL PROCEEDINGS

        Raytel Cardiac Services, Inc., or "RCS," a wholly-owned subsidiary of
Raytel, is currently the subject of a grand jury investigation being conducted
under the direction of the United States Attorney for the District of
Connecticut and the Office of the Inspector General of the U.S. Department of
Human Services. On June 23, 2000, the OIG and other federal agents executed a
search warrant for information concerning unspecified allegations of impropriety
in RCS' business practices related to Medicare-covered services. Subsequently,
subpoenas have been served on RCS for the production of additional documents,
and several RCS employees and contractors have been subpoenaed to provide
testimony before the grand jury.

        Neither Raytel nor RCS has been informed of any specific charges or
allegations against RCS or its employees. However, based on the actions of the
U.S. Attorney and the OIG to date, Raytel believes that the investigation is
focused on certain business practices of RCS' cardiac pacemaker monitoring
business. RCS is continuing to perform pacemaker monitoring services for its
patients and intends to maintain the quality of its service and patient care
during the course of the investigation. To date, the investigation has not
involved Raytel's other healthcare related services, such as RCS' cardiac event
detection services, or Raytel's diagnostic imaging services or other cardiac
related businesses.

        Raytel is cooperating with the investigation and is currently engaged in
the identification and production of documents in response to the subpoenas. In
connection with the investigation, Raytel is confirming its compliance with
Medicare billing and record-keeping requirements on a patient-by-patient basis.
Pending such confirmation, Raytel held Medicare reimbursement checks received
subsequent to June 23, 2000 in payment of invoices for pacemaker monitoring
services and established an escrow account for funds inadvertently deposited
with respect to such services. In addition, Raytel suspended billing for such
services. The checks are being deposited, the cash released from escrow, and
additional bills sent, only after the affected patient's records have been
reviewed and found to be in compliance with applicable Medicare requirements.
The total amount of such uncashed checks and escrowed funds was approximately
$1,588,000 as of September 30, 2000. Subsequent to September 30, 2000,
substantially all such amounts have been released.

        Raytel has internal procedures in place designed to assure compliance by
Raytel and its subsidiaries with applicable laws and governmental regulations,
including Medicare reimbursement laws. However, because of the


                                       14
<PAGE>   15


preliminary stage of the investigation and the limited information currently
available to Raytel, we cannot predict the outcome of the investigation with any
certainty. The investigation is complex and document-intensive and is likely to
extend over a protracted period of time. RCS has incurred, and expects to
continue to incur, substantial legal fees and other expenses in connection with
the investigation and has accrued a reserve of $2,000,000 to cover the estimated
amount of these expenses. Expenses in excess of the $2,000,000 reserve, if any,
will adversely affect operating results in future periods, regardless of the
eventual outcome of the investigation. The investigation, and the related
internal review, also has diverted, and is expected to continue to divert, the
efforts and attention of a number of RCS' management and administrative
personnel. As a result, the investigation, regardless of its eventual outcome,
has been, and will likely continue to be, costly and time-consuming. Should the
outcome of the investigation ultimately result in RCS being charged with and
convicted of violations of federal criminal statutes, RCS could be required to
pay substantial fines and its right to participate in federal health care
programs, including Medicare, could be revoked. Conviction under certain
statutes could result in mandatory exclusion from participation in federal
health care programs. In addition, such criminal charges would constitute a
default under Raytel's bank credit agreement. It is also possible that federal
authorities could assert civil claims against RCS under the Federal False Claim
Act, which allows the government to recover treble damages plus penalties of
$5,000 to $10,000 per claim. We cannot currently determine the likelihood of any
such claims or the eventual outcome. A significant fine, the revocation of RCS'
Medicare participation or civil liability under the False Claims Act would
significantly harm Raytel's business.

        Raytel and its subsidiaries are parties to other litigation and claims
arising out of its ongoing business operations. We believe that none of these
matters, either individually or in the aggregate, are likely to have a material
adverse effect on our business, financial condition or operating results.

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

        No matter was submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.


                                       15

<PAGE>   16

                                     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 Raytel's 2000 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 Raytel's 2000 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 Raytel's 2000
Annual Report to Stockholders.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

        Raytel does not hold any marketable equity securities, foreign
currencies, or derivative financial instruments in its investment portfolio. As
of September 30, 2000, Raytel did not hold any investments that are subject to
interest rate risk, except for approximately $1,753,000 in investment grade
commercial paper with maturities of less than 150 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, Raytel has the ability to hold its fixed income
investments until maturity. Therefore, Raytel would not expect to recognize an
adverse impact in income or cash flows if there were an increase or decrease in
interest rates. Raytel 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 29 of our 2000
Annual Report to Stockholders.

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

        Not Applicable.


                                       16
<PAGE>   17

                                  PART III

        Certain information required by Part III is omitted from this report in
that Raytel intends to file its definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this report, and certain information therein is
incorporated herein by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The information required by this Item is incorporated by reference to
information set forth in the Proxy Statement under the heading "Proposal No. 1 -
Election of Directors - Executive Officers and Directors."

        The information required by this Item with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to information set forth in the Proxy Statement under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance."

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."


                                       17
<PAGE>   18


                                     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,
        2000, 1999 and 1998

        Consolidated Balance Sheets as of September 30, 2000 and 1999

        Consolidated Statements of Changes in Stockholders' Equity for the Years
        Ended September 30, 2000, 1999 and 1998

        Consolidated Statements of Cash Flows for the Years Ended September 30,
        2000, 1999 and 1998

        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, 2000

        The Company filed one report on Form 8-K during the quarter ended
        September 30, 2000. The report was filed on July 25, 2000 and reported
        under Item 5 a transaction that effectively terminated the management
        services agreement between the Company and Southeast Texas Cardiology
        Associates.

                                       18
<PAGE>   19
                                 SIGNATURES

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

Dated:   December 29, 2000            RAYTEL MEDICAL CORPORATION

                                      By: /s/ Richard F. Bader
                                          --------------------------------------
                                          Richard F. Bader
                                          Chairman of the Board of Directors 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
<S>                                      <C>                                                    <C>
/s/ Richard F. Bader                     Chairman of the Board of Directors and Chief           December 29, 2000
------------------------------------     Executive Officer (Principal Executive Officer)
          (Richard F. Bader)

/s/ John F. Lawler, Jr.                  Vice President, Chief Financial Officer and            December 29, 2000
------------------------------------     Corporate Controller (Principal Financial and
         (John F. Lawler, Jr.)           Accounting Officer)


                                         Senior Vice President and Director                     December 29, 2000
------------------------------------
      (David E. Wertheimer, M.D.)

/s/ Thomas J. Fogarty, M.D.              Director                                               December 29, 2000
------------------------------------
       (Thomas J. Fogarty, M.D.)

/s/ Mary M. Lampe                        Director                                               December 29, 2000
------------------------------------
            (Mary M. Lampe)

                                         Director                                               December 29, 2000
------------------------------------
           (Gene I. Miller)

/s/ Allan Zinberg                        Director                                               December 29, 2000
------------------------------------
            (Allan Zinberg)
</TABLE>


                                       19
<PAGE>   20
              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
10, 2000 (except with respect to the matter discussed in Note 6 of the
consolidated financial statements, as to which the date is December 15, 2000).
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying schedule is
the responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission rules and is not part of
the basic consolidated financial statements. The information reflected on the
schedule has been subjected to the auditing procedures applied in the audits of
the basic consolidated financial statements and, in our opinion, fairly states
in all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

                                       ARTHUR ANDERSEN LLP

                                       /s/ ARTHUR ANDERSEN LLP

Hartford, Connecticut
November 10, 2000

<PAGE>   21

                                                                     SCHEDULE II

                   RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

                               FOR THE YEARS ENDED

                        SEPTEMBER 30, 2000, 1999 AND 1998

                        VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                                       Balance at     Charged to
                                                       Beginning       Cost and                      Balance at
                                                        of Year        Expenses      Deductions     End of Year
                                                        -------        --------      ----------     -----------

Description
<S>                                                   <C>            <C>            <C>              <C>
September 30, 2000                                    $5,664,000     $6,012,000     $(4,986,000)     $6,690,000
       Allowance for doubtful accounts
September 30, 1999                                    $7,093,000     $6,467,000     $(7,896,000)     $5,664,000
       Allowance for doubtful accounts
September 30, 1998                                    $6,189,000     $5,767,000     $(4,863,000)     $7,093,000
       Allowance for doubtful accounts
</TABLE>
<PAGE>   22

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             EXHIBIT TITLE

<S>               <C>
  3.1(1)          Restated Certificate of Incorporation of the Registrant.

  3.2(2)          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.

*10.7(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.

 10.22(4)         Lease Agreement dated March 6, 1992 between the Registrant and
                  Peninsula Office Park, as amended.

 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.

 10.28(4)         Joint Venture Agreement dated March 3, 1998 between Medical
                  Imaging Partners, L.P. and California Medical Imaging Services,
                  Inc., as amended, and related agreements.

 10.30(4)         MRI Diagnostic Partners I, L.P. 1986 Limited Partnership
                  Agreement dated December 31, 1986, and related agreement and MRI
                  Building Partners, L.P. 1986 Agreement of Limited Partnership
                  dated December 31, 1986.

+10.38(5)         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.

+10.40(6)         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.

*10.41(7)         Employee Stock Purchase Plan dated May 8, 1996

 10.42(7)         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.
</TABLE>

                                       20
<PAGE>   23

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             EXHIBIT TITLE

<S>               <C>
 10.43(7)         Promissory Note in the amount of $15,000,000 between the
                  Registrant and Bank of Boston Connecticut dated September 2,
                  1996.

 10.44(7)         Promissory Note in the amount of $10,000,000 between the
                  Registrant and Banque Paribas dated September 2, 1996

 10.45(8)         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(8)         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(8)         Promissory Note in the amount of $27,000,000 between the
                  Registrant and Bank of Boston Connecticut dated September 26,
                  1997.

 10.48(8)         Promissory Note in the amount of $18,000,000 between the
                  Registrant and Banque Paribas dated September 26, 1997. 10.50(8)
                  Noncompetition Agreement, dated as of August 15, 1997, by and
                  between David E. Wertheimer and Raytel Medical Corporation

*10.51(8)         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(9)         Employment Agreement dated as of March 1, 1998, by and
                  between Swapan Sen and Raytel Medical Corporation.

*10.53(9)         Employment Agreement dated as of March 1, 1998, by and between
                  F. David Rollo, M.D., Ph.D., and Raytel Medical Corporation.

*10.54(9)         Employment Agreement dated as of March 1, 1998, by and
                  between Michael O. Kokesh and Raytel Medical Corporation.

10.55(10)         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(10)        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(10)        Succession Agreement, dated February 3, 1997, by and among F.
                  David Rollo, M.D., Raytel Medical Group, Inc., P.C., Raytel
                  Medical Corporation and Raytel California Physician Services,
                  Inc.

 10.58(11)        Fourth Amendment to Amended and Restated Credit Agreement,
                  dated July 24, 1998 among the Registrant, Bank of Boston
                  Connecticut and Banque Paribas, and BankBoston, as agent.

 10.59(11)        Commercial Office Lease dated July 19, 1999 between Registrant
                  and USGC Joint Venture.

*10.60(11)        Key Management Retention Agreement dated as of September 1,
                  1999, by and between Swapan Sen and Raytel Medical Corporation.
</TABLE>

                                       21
<PAGE>   24
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                             EXHIBIT TITLE

<S>               <C>

*10.61(11)        Key Management Retention Agreement dated as of September 1,
                  1999, by and between David E. Wertheimer, M.D. and Raytel
                  Medical Corporation.

*10.62(11)        Key Management Retention Agreement dated as of September 1,
                  1999, by and between John F. Lawler, Jr. and Raytel Medical
                  Corporation.

*10.63(12)        Employment Agreement dated as of August 4, 1999, by and between
                  Allan Zinberg and Raytel Medical Corporation

*10.64(12)        Consulting Agreement dated as of January 1, 2000 by and between
                  Allan Zinberg and Raytel Medical Corporation

 10.65(13)        Stock Purchase Agreement dated as of May 31, 2000 between and
                  among RTPS Acquisition Company, LLC, Raytel Medical
                  Corporation, Raytel Texas Physician Services, Inc.

 10.66(14)        Master Termination Agreement entered into as of May 31, 2000 and
                  effective as of November 10, 1999 between and among Southeast
                  Texas Cardiology Associates, P.A., Southeast Texas Cardiology
                  Associates II, P.A., Southeast Texas Cardiology Associates II,
                  LLP, Rodolfo P. Sotolongo, M.D., Wayne S. Margolis, M.D., and
                  Michael L. Smith, M.D., Raytel Southeast Management, L.P.,
                  Raytel Texas Physician Services, Inc., Raytel Management
                  Holdings, Inc. and Raytel Medical Corporation.

 13.1             2000 Annual Report to Stockholders, portions of which are
                  incorporated by reference in this Report on Form 10-K.

 21.1             List of subsidiaries of the Registrant.

 23.1             Consent of Arthur Andersen LLP.

 27               Financial Data Schedule
</TABLE>
-------------

*       Constitutes a management contract or compensatory plan required to be
        filed pursuant to Item 14(c) of Form 10-K.

+       Confidential treatment has been granted as to a portion of this Exhibit.

(1)     Incorporated by reference to identically numbered exhibit to the
        Registrant's Form 10-Q Report for the quarter ended December 31, 1995.

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

(3)     Incorporated by reference to 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 2.1 to the Registrant's Form 8-K
        Report filed on October 3, 1996 (the "October 1996 Form 8-K").

(6)     Incorporated by reference to Exhibit 2.3 to the October 1996 Form 8-K.

(7)     Incorporated by reference to identically numbered exhibits to the
        Registrant's Form 10-K Report


                                       22

<PAGE>   25
        for the year ended September 30, 1996.

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

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

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

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

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

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

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


                                       23