<PAGE>   1
                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q


(Mark One)

[X]      Quarterly report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934. For the quarterly period ended March 31, 2001; or

[ ]      Transition report pursuant to Section 13 or 15(d) of the Securities
         Exchange Act of 1934. For the transition period from _____________ to
         _____________.

                         Commission File Number: 0-27186
                                                 -------

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

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

            2755 CAMPUS DRIVE, SUITE 200, SAN MATEO, CALIFORNIA 94403
               (Address of principal executive offices) (Zip code)

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


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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.

<TABLE>
<CAPTION>
           CLASS                       SHARES OUTSTANDING AS OF APRIL 30, 2001
           -----                       ---------------------------------------
<S>                                    <C>
        COMMON STOCK                                 8,753,792
     ($.001 PAR VALUE)
</TABLE>

<PAGE>   2

                   RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

                                      INDEX


<TABLE>
<CAPTION>
                                                                               PAGE
                                                                               ----
<S>     <C>                                                                    <C>
                          PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

        Condensed Consolidated Balance Sheets as of
            March 31, 2001 and September 30, 2000................................3

        Condensed Consolidated Statements of Operations
           for the three months and the six months ended March 31, 2001 and
           2000..................................................................4

        Condensed Consolidated Statements of Cash Flows
           for the six months ended March 31, 2001 and 2000......................5

        Notes to Condensed Consolidated Financial Statements ....................6


Item 2. Management's Discussion and Analysis of Financial
                 Condition and Results of Operations.............................8


Item 3. Quantitative and Qualitative Disclosures about Market Risks.............15


                           PART II. OTHER INFORMATION


Item 1. Legal Proceedings.......................................................16

Item 3. Defaults Upon Senior Securities.........................................17

Item 6. Exhibits and Reports on Form 8-K........................................17

SIGNATURE.......................................................................18
</TABLE>



                                       2
<PAGE>   3

                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                   RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      MARCH 31, 2001 AND SEPTEMBER 30, 2000
                                 (000'S OMITTED)

                                     ASSETS


<TABLE>
<CAPTION>
                                                        MARCH 31,      SEPTEMBER 30,
                                                          2001              2000
                                                       -----------     -------------
                                                       (UNAUDITED)
<S>                                                     <C>             <C>
Current assets:
  Cash and cash equivalents                             $   5,506       $   7,201
  Cash held in escrow                                         764           1,580
  Receivables, net                                         33,934          36,840
  Prepaid expenses and other                                2,501           2,597
                                                        ---------       ---------
        Total current assets                               42,705          48,218

Property and equipment, less accumulated
  depreciation and amortization                            15,905          19,651
Intangible assets, less accumulated
  amortization                                             19,422          41,672
Other                                                          67              56
                                                        ---------       ---------
        Total assets                                    $  78,099       $ 109,597
                                                        =========       =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current portion of long-term debt and
      capital lease obligations                         $  13,648       $   1,067
  Accounts payable                                          5,062           5,258
  Accrued compensation and benefits                         2,078           3,177
  Accrued liabilities                                       6,465           6,329
                                                        ---------       ---------
        Total current liabilities                          27,253          15,831

Long-term debt and capital lease obligations,
     net of current portion                                 2,294          24,130
Minority interest in consolidated entities                  1,205           1,774
                                                        ---------       ---------
        Total liabilities                                  30,752          41,735
                                                        ---------       ---------

Stockholders' equity:
  Common stock                                                  9               9
  Additional paid-in capital                               62,665          62,664
  Common stock to be issued                                    --              69
  Retained earnings (deficit)                             (11,705)          8,742
                                                        ---------       ---------
                                                           50,969          71,484

  Less treasury stock, at cost                             (3,622)         (3,622)
                                                        ---------       ---------
        Total stockholders' equity                         47,347          67,862
                                                        ---------       ---------
        Total liabilities and stockholders' equity      $  78,099       $ 109,597
                                                        =========       =========
</TABLE>



                                       3
<PAGE>   4
'
                   RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
        FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 2001 AND 2000
                                   (UNAUDITED)
                    (000'S OMITTED, EXCEPT PER SHARE AMOUNTS)


<TABLE>
<CAPTION>
                                                         THREE MONTHS ENDED             SIX MONTHS ENDED
                                                              MARCH 31,                     MARCH 31,
                                                      ------------------------       -----------------------
                                                         2001           2000           2001           2000
                                                       --------       --------       --------       --------
<S>                                                    <C>            <C>            <C>            <C>
Revenues:
  Cardiac information services                         $  9,668       $ 10,564       $ 19,219       $ 21,005
  Diagnostic imaging services                             6,494          5,521         12,492         10,853
  Heart facilities and other                              1,984          2,377          3,683          4,646
                                                       --------       --------       --------       --------
            Total revenues                               18,146         18,462         35,394         36,504
                                                       --------       --------       --------       --------
Costs and expenses:
  Provision for OIG investigation expenses                2,000             --          2,000             --
  Operating costs                                         8,329          7,752         16,106         15,120
  Selling, general and administrative                     7,549          7,870         14,704         15,751
  Depreciation and amortization                           1,650          1,660          3,325          3,288
                                                       --------       --------       --------       --------
            Total costs and expenses                     19,528         17,282         36,135         34,159
                                                       --------       --------       --------       --------

Operating income (loss)                                  (1,382)         1,180           (741)         2,345

Interest expense                                            471            473          1,031            945
Other expense (income)                                     (263)          (167)          (481)          (483)
Minority interest                                           134            272            187            416
                                                       --------       --------       --------       --------
Income (loss) from continuing operations
  before income taxes (benefit)                          (1,724)           602         (1,478)         1,467
Provision for income taxes (benefit)                       (671)           235           (576)           572
                                                       --------       --------       --------       --------
Income (loss) from continuing operations                 (1,053)           367           (902)           895

Discontinued operations:
      Income (loss) from discontinued operations,
        net of tax (benefit)                                (51)           513           (192)           885
      Loss on disposal of discontinued operations       (19,353)            --        (19,353)            --
                                                       --------       --------       --------       --------
Net income (loss)                                      $(20,457)      $    880       $(20,447)      $  1,780
                                                       ========       ========       ========       ========
Basic income (loss) per share:
      Income (loss) from continuing operations         $   (.12)      $    .04       $   (.10)      $    .10
      Income (loss) from discontinued operations          (2.22)           .06          (2.24)           .10
                                                       --------       --------       --------       --------
            Total                                      $  (2.34)      $    .10       $  (2.34)      $    .20
                                                       ========       ========       ========       ========
Diluted income (loss) per share:
      Income (loss) from continuing operations         $   (.12)      $    .04       $   (.10)      $    .10
      Income (loss) from discontinued operations          (2.22)           .06          (2.24)           .10
                                                       --------       --------       --------       --------
            Total                                      $  (2.34)      $    .10       $  (2.34)      $    .20
                                                       ========       ========       ========       ========
Weighted average shares outstanding:
      Basic                                               8,752          8,746          8,751          8,746
                                                       ========       ========       ========       ========
      Diluted                                             8,752          8,939          8,751          8,939
                                                       ========       ========       ========       ========
</TABLE>



                                       4
<PAGE>   5

                   RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE SIX MONTHS ENDED MARCH 31, 2001 AND 2000
                                   (UNAUDITED)
                                 (000'S OMITTED)


<TABLE>
<CAPTION>
                                                                                MARCH 31,
                                                                         -----------------------
                                                                           2001           2000
                                                                         --------       --------
<S>                                                                      <C>            <C>
Cash flows from operating activities:
  Net income (loss)                                                      $(20,447)      $  1,780
    Adjustments to reconcile net income (loss) to net cash provided
      by (used in) operating activities:
       Depreciation and amortization                                        3,325          3,288
       Minority interest                                                      187            416
       Loss on disposal of discontinued operations                         19,353             --
       Other, net                                                             400          1,080
     Changes in operating accounts:
       Receivables, net                                                      (547)        (1,334)
       Prepaid expenses and other                                            (294)          (344)
       Accounts payable                                                      (196)           609
       Accrued liabilities and other                                       (1,803)           816
                                                                         --------       --------
          Net cash provided by (used in) operating activities                 (22)         6,311
                                                                         --------       --------
Cash flows from investing activities:
  Capital expenditures                                                     (1,512)        (2,373)
  Proceeds from disposal of discontinued operations                         8,876             --
  Other, net                                                                    9             76
                                                                         --------       --------
          Net cash provided by (used in) investing activities               7,373         (2,297)
                                                                         --------       --------
Cash flows from financing activities:
  Income distributions to noncontrolling investors                           (778)        (1,121)
  Paydown of line of credit                                                (7,441)        (1,895)
  Principal repayments of debt, net of proceeds                            (1,673)          (841)
  Other, net                                                                   30            (60)
                                                                         --------       --------
          Net cash used in financing activities                            (9,862)        (3,917)
                                                                         --------       --------
Net increase (decrease) in cash and cash equivalents                       (2,511)            97
Cash and cash equivalents at beginning of period                            8,781          6,110
                                                                         --------       --------
Cash and cash equivalents at end of period                               $  6,270       $  6,207
                                                                         ========       ========
</TABLE>



                                       5
<PAGE>   6

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX
MONTHS ENDED MARCH 31, 2001 AND 2000 (UNAUDITED).


1.   PRESENTATION OF UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL
     STATEMENTS

          Information in the accompanying interim condensed consolidated
financials statements and notes to the financial statements of Raytel Medical
Corporation ("Raytel" or the "Company") as of March 31, 2001 and for the three
month and six month periods ended March 31, 2001 and 2000 is unaudited. The
accompanying unaudited condensed consolidated financial statements of the
Company have been prepared in accordance with the instructions to Form 10-Q and
do not include all of the information and notes required by accounting
principles generally accepted in the United States. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. Operating results for the three months and six months ended March
31, 2001 are not necessarily indicative of results that may be expected for the
year ending September 30, 2001. For further information, refer to the
consolidated financial statements and notes included in the Company's Annual
Report on Form 10-K for the year ended September 30, 2000.

2.   OFFICE OF THE INSPECTOR GENERAL INVESTIGATION

        Raytel is currently the subject of a grand jury investigation of
unspecified allegations concerning certain business practices of its
trans-telephonic cardiac pacemaker monitoring business. In connection with the
investigation, Raytel has reviewed its compliance with Medicare billing and
record-keeping requirements on a patient-by-patient basis. Pending such
confirmation, Raytel held Medicare reimbursement checks received since 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
received since the date of the investigation. In addition, Raytel suspended
billing for such services. Most of the checks have been deposited, most of the
cash has been released from escrow, and new billings for services performed has
commenced as most of the affected patients' records have been reviewed and found
to be in compliance with applicable Medicare requirements. The total amount of
such uncashed checks and escrowed funds was approximately $764,000 as of March
31, 2001. Since Raytel recognizes revenue when patient services are provided,
neither the escrow arrangement nor the deferred billing has had a direct impact
on Raytel's operating results. If the Company's review discloses any patient
billings that have not been fully compliant with Medicare requirements, any
resulting billing adjustments or reversals will be charged against operating
results in that current period. In addition, the Company has incurred, and
expects to continue to incur, substantial legal fees and other expenses in
connection with the investigation and has accrued a reserve of $4,000,000 to
cover the estimated amounts of these expenses. Additional expenses, if any, will
adversely affect operating results in future periods, regardless of the eventual
outcome of the investigation. As of March 31, 2001, the Company had incurred
legal fees and other expenses of approximately $2,895,000 related to the
investigation. At this time, the Company cannot determine the additional
financial impact of this investigation. The investigation, and the related
internal compliance review, also have diverted, and are expected to continue to
divert, the efforts and attention of a number of Raytel's management and
administrative personnel. The impact of this diversion reduced the efficiency of
Raytel's pacemaker monitoring operations during the last week of the quarter
ended June 30, 2000 and adversely affected both revenues and operating expenses
for that period as well as the quarters ended September 30, 2000, December 31,
2000 and March 31, 2001. Raytel expects that, while the impact of the
investigation on the Company's operations in future periods will be less
significant as the investigation proceeds, it may require significant time of
certain key employees, and it will continue to adversely affect operating
results in future periods.

3.   LINE OF CREDIT

     The Company had a revolving line of credit with two banks in the amount of
$45,000,000 to fund working capital needs, future acquisitions, equipment
purchases and other business needs. Amounts outstanding under the line of credit
bear interest based on a defined formula and are subject to certain covenants.
The line of credit was originally scheduled to expire in August 2001 at which
time any outstanding balance would be due and payable.



                                       6
<PAGE>   7

     On December 15, 2000, the line of credit agreement was amended to reduce
the line of credit to $20,000,000 and to revise certain financial and other
covenants and terms. The interest rate was changed to be based on LIBOR plus 275
basis points, or the bank's prime rate plus 50 basis points, at the option of
the Company and the due date was extended to October 1, 2001. A new
non-financial covenant was added which states that any civil financial
settlement in excess of $1,000,000 and/or criminal charges relating to the
ongoing OIG investigation would constitute an event of default. The Company is
currently in default of certain of its new financial covenants in connection
with its line of credit. The Company has requested a waiver from the banks. If
the banks do not grant the waiver, the banks have the right to terminate the
credit facility and demand payment in full of the outstanding balance. See "Part
II, Item 3. -- Defaults Upon Senior Securities."

     On March 16, 2001, the line of credit was further reduced to $14,900,000 in
connection with the sale of Heart and Family Health Institute of Port St. Lucie,
Inc. ("HFHI").

4.  DISCONTINUED OPERATIONS

     In March 2001, effective January 1, 2001, the Company completed the sale of
its wholly-owned subsidiary, HFHI, to a new company organized by physicians
practicing at the clinic. The Company received $8,876,000 in cash (prior to
estimated transaction costs of $565,000) in this transaction. The Company has
reported a $19,353,000 loss on the transaction related primarily to the
write-off of unamortized intangible assets. Due to the uncertainty of the
ultimate tax benefit to be realized as a result of the loss, the Company has not
provided for any tax benefit that may result from this transaction.

     As a result, the Company reported the results of HFHI and the loss on
disposal as a discontinued operation and the related operating results have been
reported separately from continuing operations for all periods presented. The
related net assets of HFHI are immaterial to the financial statements and are
included in the accompanying balance sheet.

     Revenues applicable to HFHI during the three months ended March 31, 2001
and 2000 were $0 and $4,988,000, respectively, and during the six months ended
March 31, 2001 and 2000 were $3,948,000 and $9,577,000, respectively. Income
(loss) from discontinued operations is net of taxes (benefit) of $(33,000),
$317,000, $(123,000) and $536,000 for the three months ended March 31, 2001 and
2000 and the six months ended March 31, 2001 and 2000, respectively.

5.  INCOME (LOSS) PER SHARE


    For the three months and the six months ended March 31, 2001 and 2000, basic
and diluted earnings per share are calculated as follows:

<TABLE>
<CAPTION>
                                                      THREE MONTHS                  SIX MONTHS
                                                     ENDED MARCH 31,              ENDED MARCH 31,
                                                -----------------------      -----------------------
                                                  2001           2000          2001           2000
                                                --------       --------      --------       --------
(000's omitted, except per share amounts)
<S>                                             <C>            <C>           <C>            <C>

BASIC INCOME (LOSS) PER SHARE:

Income (loss) from continuing operations        $   (.12)      $    .04      $   (.10)      $    .10
Income (loss) from discontinued operations         (2.22)           .06         (2.24)           .10
                                                --------       --------      --------       --------
            Total                               $  (2.34)      $    .10      $  (2.34)      $    .20
                                                ========       ========      ========       ========
Weighted average shares outstanding                8,752          8,746         8,751          8,746
                                                ========       ========      ========       ========

DILUTED INCOME (LOSS) PER SHARE:

Income (loss) from continuing operations        $   (.12)      $    .04      $   (.10)      $    .10
Income (loss) from discontinued operations         (2.22)           .06         (2.24)           .10
                                                --------       --------      --------       --------
            Total                               $  (2.34)      $    .10      $  (2.34)      $    .20
                                                ========       ========      ========       ========
</TABLE>



                                       7
<PAGE>   8

<TABLE>
<S>                                             <C>            <C>           <C>            <C>
Weighted average shares outstanding                8,752          8,746         8,751          8,746
Shares to be issued                                  (a)            137           (a)            140
Options                                              (a)             56           (a)             53
                                                --------       --------      --------       --------
                                                   8,752          8,939         8,751          8,939
                                                ========       ========      ========       ========
</TABLE>

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

    Certain options and warrants to purchase shares of common stock were
outstanding during the three months and the six months ended March 31, 2001 and
2000, but were not included in the computation of diluted earnings per share
because their exercise prices were greater than the average market price of the
common shares for the period. The options and warrants (all warrants expired in
December 2000) outstanding and their exercise prices are as follows:

<TABLE>
<CAPTION>
                                                THREE MONTHS                           SIX MONTHS
                                               ENDED MARCH 31,                       ENDED MARCH 31,
                                      --------------------------------      --------------------------------
                                          2001               2000               2001               2000
                                      -------------      -------------      -------------      -------------
<S>                                   <C>                <C>                <C>                <C>
Options and warrants outstanding        1,397,909            966,305          1,352,378            980,874
Range of exercise prices              $.875-$11.875      $3.563-$13.50      $.875-$11.875      $3.563-$13.50
</TABLE>


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     This discussion and analysis includes a number of forward-looking
statements which reflect 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 under "Business
Environment and Future Results" and elsewhere in this Item, that could cause
actual results to differ materially from historical results or those
anticipated. In this Item, the words "anticipates," "believes," "expects,"
"intends," "future" and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof.

OVERVIEW

     The Company generates its revenues from: cardiac information services,
which includes telephonic monitoring services for cardiac pacemaker patients
("Pacing"), cardiac event detection services ("CEDS") and Holter monitoring;
diagnostic imaging services; and heart facilities.

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

     On August 15, 1997, the Company acquired all of the outstanding capital
stock of CVI, of New Orleans, Louisiana. CVI manages, owns, and operates
cardiovascular diagnostic facilities in Texas and Louisiana and owned and
managed a cardiovascular diagnostic facility and a physician clinic in Florida.
Total original consideration for the transaction consisted of cash and
transaction costs of approximately $16,980,000 and 500,000 shares of Raytel
Common Stock. During fiscal 1998, there were additional transaction costs of
approximately $280,000 and an additional 46,668 shares of the Company's Common
Stock has been or were to be issued.



                                       8
<PAGE>   9

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

     In November 1999, the Company filed a demand for arbitration against CCMG
with JAMS/Endispute, Inc. The Company provided management services to CCMG
pursuant to a long-term management services agreement entered into between the
parties in November 1996. The demand for arbitration asserts that Raytel is
entitled to rescission, restitution and/or damages as a result of CCMG's
material breaches of the management services agreement. The Company does not
expect that an adverse opinion in the arbitration will have a material adverse
effect on the financial condition of the Company.

      In order to settle a dispute and avoid protracted litigation, initiated by
SETCA, effective May 31, 2000, the Company's Board of Directors approved
management's plan to sell SETCA. As a result of the discontinuance of the
management of CCMG and the sale of SETCA, the Company discontinued the Practice
Management Division. Effective May 31, 2000, the Company sold substantially all
of the assets of Raytel Nuclear Imaging-Orange, L.P. and the Common Stock of
Raytel Texas Physicians Services, Inc. in exchange for promissory notes in the
aggregate amount of approximately $2,300,000 and the physicians' agreement to
cancel existing rights to receive 122,068 shares of Raytel's Common Stock.
Accordingly, the Company reported the results of operations of the Practice
Management Division and the loss on disposal as discontinued operations. The
loss on disposal of $4,965,000, recorded at June 30, 2000, was net of an
estimated tax benefit of approximately $3,367,000.

      Raytel is currently the subject of a grand jury investigation of
unspecified allegations concerning certain business practices of its
trans-telephonic cardiac pacemaker monitoring business. In connection with the
investigation, Raytel has reviewed its compliance with Medicare billing and
record-keeping requirements on a patient-by-patient basis. Pending such
confirmation, Raytel held Medicare reimbursement checks received since 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
received since the date of the investigation. In addition, Raytel suspended
billing for such services. Most of the checks have been deposited, most of the
cash has been released from escrow, and new billings for services performed has
commenced as most of the affected patients' records have been reviewed and found
to be in compliance with applicable Medicare requirements. The total amount of
such uncashed checks and escrowed funds was approximately $764,000 as of March
31, 2001. Since Raytel recognizes revenue when patient services are provided,
neither the escrow arrangement nor the deferred billing has had a direct impact
on Raytel's operating results. If the Company's review discloses any patient
billings that have not been fully compliant with Medicare requirements, any
resulting billing adjustments or reversals will be charged against operating
results in that current period. In addition, the Company has incurred, and
expects to continue to incur, substantial legal fees and other expenses in
connection with the investigation and has accrued a reserve of $4,000,000 to
cover the estimated amounts of these expenses. Additional expenses will
adversely affect operating results in future periods, regardless of the eventual
outcome of the investigation. As of March 31, 2001, the Company had incurred
legal fees and other expenses of approximately $2,895,000 related to the
investigation. At this time, the Company cannot determine the additional
financial impact of this investigation. The investigation, and the related
internal compliance review, also have diverted, and are expected to continue to
divert, the efforts and attention of a number of Raytel's management and
administrative personnel. The impact of this diversion reduced the efficiency of
Raytel's pacemaker monitoring operations during the last week of the quarter
ended June 30, 2000 and adversely affected both revenues and operating expenses
for that period as well as the quarters ended September 30, 2000, December 31,
2000 and March 31, 2001. Raytel expects that, while the impact of the
investigation on the Company's operations in future periods will be less
significant as the investigation proceeds, it may require significant time of
certain key employees and it will continue to adversely affect operating results
in future periods.

In March 2001, effective January 1, 2001, the Company completed the sale of its
wholly-owned subsidiary, HFHI, to a new company organized by physicians
practicing at the clinic, including David Wertheimer, M.D., who had served as
President of the subsidiary as well as a former officer of Raytel and a member
of Raytel's Board of Directors. Raytel received a cash purchase price of
$8,311,000, net of transaction expenses, for all of the Common Stock of the
subsidiary.

Approximately $1,234,000 of the proceeds were used to pre-pay leases for
equipment used at the HFHI facility, $5,100,000 was used to reduce the
indebtedness under the Company's bank credit facility and the balance was used
for working capital purposes. The Company reported the results of operations of
HFHI and the loss on disposal as discontinued operations. Accordingly, prior
year operating results have been restated from the operating results previously
reported. The loss on disposal of $19,353,000 represents a



                                       9
<PAGE>   10

one-time non-cash charge, consisting primarily of the write-off of intangible
assets. Due to the uncertainty of the ultimate tax benefit to be realized as a
result of the loss, the Company has not provided for any tax benefit that may
result from this transaction.


RESULTS OF OPERATIONS

     Three Months Ended March 31, 2001 Compared to Three Months Ended March 31,
2000

     Revenues. For the three months ended March 31, 2001, total revenues were
$18,146,000 compared to $18,462,000 for the three months ended March 31, 2000,
representing a decrease of $316,000, or 1.7%.

     Cardiac information services revenues were $9,668,000 for the three months
March 31, 2001, compared to $10,564,000 for the three months ended March 31,
2000, a decrease of $896,000, or 8.5%. The decrease in revenues for cardiac
information services was due primarily to lower revenues from Pacing as a result
of lower test volumes and lower average selling prices. Diagnostic imaging
services revenue was $6,494,000 for the three months ended March 31, 2001
compared to $5,521,000 for the three months ended March 31, 2000, an increase of
$973,000, or 17.6%, due primarily to increases in revenue at certain centers and
the imaging network due to an increase in patient volumes. Heart facilities and
other revenues were $1,984,000 for the three months ended March 31, 2001,
compared to $2,377,000 for the three months ended March 31, 2000, a decrease of
$393,000, or 16.5%, due primarily to lower revenue at certain cardiovascular
diagnostic facilities.

     Provision for OIG Investigation Expenses. The Company has provided an
additional $2,000,000 for expected expenses associated with the OIG
investigation.

     Operating Expenses. Operating costs and selling, general and administrative
expenses increased by $256,000, or 1.6% (excluding the provision for OIG
investigation expenses), from $15,622,000 for the three months ended March 31,
2000 to $15,878,000 for the three months ended March 31, 2001, due primarily to
increases in costs and expenses at diagnostic imaging services, partially offset
by decreased costs at cardiac information services and at heart facilities and
other. Operating costs and selling, general and administrative expenses as a
percentage of total revenues increased by 2.9%, from 84.6% for the three months
ended March 31, 2000 to 87.5% for the three months ended March 31, 2001
primarily due to lower revenue.

     Depreciation and Amortization. Depreciation and amortization expense
decreased by $10,000, from $1,660,000 for the three months ended March 31, 2000
to $1,650,000 for the three months ended March 31, 2001 and increased as a
percentage of revenues from 9.0% for the three months ended March 31, 2000 to
9.1% for the three months ended March 31, 2001 primarily as a result of lower
revenues.

     Operating Income (Loss). As a result of the foregoing factors, operating
income decreased by $2,562,000 from $1,180,000 for the three months ended March
31, 2000 to an operating loss of $1,382,000 for the three months ended March 31,
2001.

     Interest Expense. Interest expense decreased by $2,000, or 0.4%, from
$473,000 for the three months ended March 31, 2000 to $471,000 for the three
months ended March 31, 2001.

     Other Expense (Income). Other income increased by $96,000 from $167,000 for
the three months ended March 31, 2000 to $263,000 for the three months ended
March 31, 2001.

     Minority Interest. Minority interest decreased by $138,000, or 50.7%, from
$272,000 for the three months ended March 31, 2000 to $134,000 for the three
months ended March 31, 2001 due primarily to decreased income in certain
cardiovascular diagnostic facilities.

     Income Taxes (Benefit). The provision for income taxes (benefit) decreased
by $906,000 from $235,000 for the three months ended March 31, 2000 to a tax
benefit of $671,000 for the three months ended March 31, 2001 as a result of
decreased taxable income.

      Income (Loss) From Continuing Operations. Income (loss) from continuing
operations decreased by $1,420,000 from $367,000 for the three months ended
March 31, 2000 to a loss from continuing operations of $1,053,000 for the three
months ended March 31, 2001.



                                       10
<PAGE>   11

     Discontinued Operations. Income from discontinued operations, net of tax
was $513,000 for the three months ended March 31, 2000 compared to a loss from
discontinued operations of $51,000 for the three months ended March 31, 2001.
The loss on disposal of the HFHI business was approximately $19,353,000. Due to
the uncertainty of the ultimate tax benefit to be realized as a result of the
loss, the Company has not provided for any tax benefit that may result from this
transaction.

     Net Income (Loss). As a result of the foregoing factors, net income
decreased by $21,337,000 from net income of $880,000 for the three months ended
March 31, 2000 to a net loss of $20,457,000 for the three months ended March 31,
2001.

     Six Months Ended March 31, 2001 Compared to Six Months Ended March 31,
2000.

     Revenues. For the six months ended March 31, 2001, total revenues were
$35,394,000 compared to $36,504,000 for the six months ended March 31, 2000,
representing a decrease of $1,110,000, or 3.0%.

     Cardiac information services revenues were $19,219,000 for the six months
ended March 31, 2001, compared to $21,005,000 for the six months ended March 31,
2000, a decrease of $1,786,000, or 8.5%. The decrease in revenues for cardiac
information services was due primarily to lower revenues from Pacing as a result
of lower test volumes and lower average selling prices. Diagnostic imaging
services revenue was $12,492,000 for the six months ended March 31, 2001,
compared to $10,853,000 for the six months ended March 31, 2000, an increase of
$1,639,000, or 15.1%, due primarily to increases in revenue at certain centers
and the imaging network due to an increase in patient volumes. Heart facilities
and other revenues were $3,683,000 for the six months ended March 31, 2001,
compared to $4,646,000 for the six months ended March 31, 2000, a decrease of
$963,000, or 20.7%, due primarily to lower revenue at certain cardiovascular
diagnostic facilities and the termination of the agreement with Baptist.

     Provision for OIG Investigation Expenses. The Company has provided an
additional $2,000,000 for expected expenses associated with the OIG
investigation.

     Operating Expenses. Operating costs and selling, general and administrative
expenses decreased by $61,000, or 0.2% (excluding the provision for OIG
investigation expenses), from $30,871,000 for the six months ended March 31,
2000 to $30,810,000 for the six months ended March 31, 2001, due primarily to
lower expenses at heart facilities and other and cardiac information services,
partially offset by increases in costs and expenses in diagnostic imaging
services. Operating costs and selling, general and administrative expenses as a
percentage of total revenues increased from 84.6% for the six months ended March
31, 2000 to 87.0% for the six months ended March 31, 2001, primarily as a result
of lower revenues.

     Depreciation and Amortization. Depreciation and amortization expense
increased by $37,000, from $3,288,000 for the six months ended March 31, 2000 to
$3,325,000 for the six months ended March 31, 2001, and increased as a
percentage of revenues from 9.0% for the six months ended March 31, 2000 to 9.4%
for the six months ended March 31, 2001.

     Operating Income (Loss). As a result of the foregoing factors, operating
income decreased by $3,086,000, or 131.6%, from $2,345,000 for the six months
ended March 31, 2000 to an operating loss of $741,000 for the six months ended
March 31, 2001.

     Interest Expense. Interest expense increased by $86,000, or 9.1%, from
$945,000 for the six months ended March 31, 2000 to $1,031,000 for the six
months ended March 31, 2001 due primarily to an increase in the average interest
rate.

     Other Expense (Income). Other income decreased by $2,000 from $483,000 for
the six months ended March 31, 2000 to $481,000 for the six months ended March
31, 2001.

     Minority Interest. Minority interest decreased by $229,000, or 55.0%, from
$416,000 for the six months ended March 31, 2000 to $187,000 for the six months
ended March 31, 2001 due primarily to decreased incomes in certain
cardiovascular diagnostic facilities.



                                       11
<PAGE>   12

     Income Taxes (Benefit). The provision for income taxes (benefit) decreased
by $1,148,000, or 200.7%, from $572,000 for the six months ended March 31, 2000
to a tax benefit of $576,000 for the six months ended March 31, 2001 as a result
of decreased taxable income.

     Income (Loss) From Continuing Operations. Income (loss) from continuing
operations decreased by $1,797,000 from income of $895,000 for the six months
ended March 31, 2000 to a loss from continuing operations of $902,000 for the
six months ended March 31, 2001.

     Discontinued Operations. Income from discontinued operations, net of tax,
was $885,000 for the six months ended March 31, 2000 compared to a loss from
discontinued operations of $192,000 for the six months ended March 31, 2001. The
loss on disposal of the HFHI business was approximately $19,353,000. Due to the
uncertainty of the ultimate tax benefit to be realized as a result of the loss,
the Company has not provided for any tax benefit that may result from this
transaction.

     Net Income (Loss). As a result of the foregoing factors, net income (loss)
decreased by $22,227,000 from net income of $1,780,000 for the six months ended
March 31, 2000 to a net loss of $20,447,000 for the six months ended March 31,
2001.


SEGMENT INFORMATION

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

     The accounting policies of the segments are the same as those described in
the summary of significant accounting policies (see Note 2 to the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended September 30, 2000) except that the Company does not allocate all
interest expense, taxes or corporate overhead to the individual segments. The
Company evaluates performance based on profit or loss from operations before
income taxes and unallocated amounts. The totals per the schedules below will
not and should not agree to the consolidated totals. The difference is due to
corporate overhead and other unallocated amounts which are reflected in the
reconciliation to consolidated earnings from continuing operations before income
taxes (in thousands):


<TABLE>
<CAPTION>
                                              INFORMATION         IMAGING       FACILITIES      TOTAL
                                              -----------         -------       ----------     --------
<S>                                           <C>                 <C>           <C>            <C>
For the three months ended March 31, 2001:
  Net revenue                                   $  9,668          $  6,494       $  1,984      $ 18,146
  Total operating expenses                        10,647             4,855          1,349        16,851
                                                --------          --------       --------      --------
  Segment contribution                              (979)            1,639            635         1,295

  Depreciation and amortization                      865               405            279         1,549
  Interest expense                                    --                67             31            98
  Minority interest/other expense (income)            (5)              (40)            41            (4)
                                                --------          --------       --------      --------
  Segment profit (loss)                         $ (1,839)(a)      $  1,207       $    284      $   (348)
                                                ========          ========       ========      ========
  Segment assets                                $ 42,362          $ 14,989       $ 12,213      $ 69,564
                                                ========          ========       ========      ========
  Capital expenditures                          $    556          $     56       $     --      $    612
                                                ========          ========       ========      ========
</TABLE>
----------
(a) Includes a $2,000,000 provision for OIG investigation expenses.


                                       12
<PAGE>   13

<TABLE>
<CAPTION>
                                              INFORMATION         IMAGING       FACILITIES      TOTAL
                                              -----------         -------       ----------     --------
<S>                                           <C>                 <C>           <C>            <C>
For the three months ended March 31, 2000:
  Net revenue                                   $ 10,564          $  5,521       $  2,377      $ 18,462
  Total operating expenses                         8,876             4,198          1,496        14,570
                                                --------          --------       --------      --------
  Segment contribution                             1,688             1,323            881         3,892

  Depreciation and amortization                      766               415            393         1,574
  Interest expense                                    --                69             63           132
  Minority interest/other expense (income)            (3)              (54)           182           125
                                                --------          --------       --------      --------
  Segment profit                                $    925          $    893       $    243      $  2,061
                                                ========          ========       ========      ========
  Segment assets                                $ 40,092          $ 15,036       $ 35,734      $ 90,862
                                                ========          ========       ========      ========
  Capital expenditures                          $  1,043          $    290       $     13      $  1,346
                                                ========          ========       ========      ========
</TABLE>

<TABLE>
<CAPTION>
                                              INFORMATION         IMAGING       FACILITIES      TOTAL
                                              -----------         -------       ----------     --------
<S>                                           <C>                 <C>           <C>            <C>
For the six months ended March 31, 2001:
  Net revenue                                   $ 19,219          $ 12,492       $  3,683      $ 35,394
  Total operating expenses                        19,060             9,254          2,588        30,902
                                                --------          --------       --------      --------
  Segment contribution                               159             3,238          1,095         4,492

  Depreciation and amortization                    1,714               833            576         3,123
  Interest expense                                    --               128             62           190
  Minority interest/other expense (income)             1               (39)            21           (17)
                                                --------          --------       --------      --------
  Segment profit (loss)                         $ (1,556)(a)      $  2,316       $    436      $  1,196
                                                ========          ========       ========      ========
  Segment assets                                $ 42,362          $ 14,989       $ 12,213      $ 69,564
                                                ========          ========       ========      ========
  Capital expenditures                          $  1,299          $    101       $     80      $  1,480
                                                ========          ========       ========      ========
</TABLE>
--------------
  (a)  Includes a $2,000,000 provision for OIG investigation expenses.
<TABLE>
<CAPTION>
                                              INFORMATION         IMAGING       FACILITIES      TOTAL
                                              -----------         -------       ----------     --------
<S>                                           <C>                 <C>           <C>            <C>
For the six months ended March 31, 2000:
  Net revenue                                   $ 21,005          $ 10,853       $  4,646      $ 36,504
  Total operating expenses                        17,592             8,110          3,111        28,813
                                                --------          --------       --------      --------
  Segment contribution                             3,413             2,743          1,535         7,691

  Depreciation and amortization                    1,502               833            785         3,120
  Interest expense                                    --               141            119           260
  Minority interest/other expense (income)           (15)              (80)            71           (24)
                                                --------          --------       --------      --------
  Segment profit                                $  1,926          $  1,849       $    560      $  4,335
                                                ========          ========       ========      ========
  Segment assets                                $ 40,092          $ 15,036       $ 35,734      $ 90,862
                                                ========          ========       ========      ========
  Capital expenditures                          $  1,698          $    555       $     30      $  2,283
                                                ========          ========       ========      ========
</TABLE>





                                       13
<PAGE>   14

<TABLE>
<CAPTION>
                                                  THREE MONTHS ENDED             SIX MONTHS ENDED
                                                       MARCH 31,                     MARCH 31,
                                                -----------------------       -----------------------
                                                  2001           2000           2001           2000
                                                --------       --------       --------       --------
<S>                                             <C>            <C>            <C>            <C>
Segment profit (loss)                           $   (348)      $  2,061       $  1,196       $  4,335
Unallocated amounts:
   Corporate general and administrative            1,027          1,052          1,908          2,058
   Corporate depreciation and amortization           101             86            202            168
   Corporate interest expense                        373            341            841            685
   Corporate other expense (income)                 (125)           (20)          (277)           (43)
                                                --------       --------       --------       --------
Income (loss) from continuing operations
     before income taxes                        $ (1,724)      $    602       $ (1,478)      $  1,467
                                                ========       ========       ========       ========
</TABLE>

BUSINESS ENVIRONMENT AND FUTURE RESULTS

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

     The healthcare industry is undergoing significant change as third-party
payors attempt to control the cost, utilization and delivery of healthcare
services. Substantially all of the Company's revenues are derived from Medicare,
HMOs, commercial insurers and other third-party payors. Both government and
private payment sources have instituted cost containment measures designed to
limit payments made to healthcare providers by reducing reimbursement rates,
limiting services covered, increasing utilization review of services,
negotiating prospective or discounted contract pricing, adopting capitation
strategies and seeking competitive bids. The Company's Pacing revenue has been
favorably impacted for the period January 1, 1998 to December 31, 1998 due to an
increase in Medicare reimbursement rates effective on January 1, 1998. However,
a slight decrease in these rates became effective on January 1, 1999, thereby
having a negative effect on Pacing revenue for calendar 1999. There was a slight
increase in Medicare reimbursement rates effective January 1, 2000 and again
effective January 1, 2001. The Company cannot predict with any certainty whether
or when additional reductions or changes in Medicare or other third-party
reimbursement rates or policies will be implemented. There can be no assurance
that future changes, if any, will not adversely affect the amounts or types of
services that may be reimbursed to the Company, or that future reimbursement of
any service offered by the Company will be sufficient to cover the costs and
overhead allocated to such service.

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

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

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

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



                                       14
<PAGE>   15

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


LIQUIDITY AND CAPITAL RESOURCES

     At March 31, 2001 the Company had working capital of $28,269,000 (excluding
$12,817,000, the outstanding amount under the Company's line of credit),
compared to $32,387,000 at September 30, 2000. At March 31, 2001, the Company
had cash and temporary cash investments of $6,270,000.

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

     The Company had a revolving line of credit with two banks in the amount of
$45,000,000 to fund working capital needs, future acquisitions, equipment
purchases and other business needs. Amounts outstanding under the line of credit
bear interest based on a defined formula and are subject to certain covenants.
The line of credit was originally scheduled to expire in August 2001 at which
time any outstanding balance would be due and payable.

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

     The Company is currently in default of certain of its new financial
covenants in connection with its line of credit. The Company has requested a
waiver from the banks. If the banks do not grant the waiver, the banks have the
right to demand payment in full of the outstanding balance. See "Part II, Item
3. -- Defaults Upon Senior Securities."

     The Company's long-term capital requirements will depend on numerous
factors, including the rate at which the Company develops new products and
services and acquires other businesses, if any. The Company believes that its
cash and cash equivalent balances, together with amounts available from bank
borrowings and cash generated by its operating activities, will be adequate to
meet the Company's anticipated needs for working capital and capital
expenditures through fiscal 2001.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     The Company is exposed to market risk from interest rate fluctuations
because it uses variable rate debt to finance working capital requirements. The
Company does not believe that there is any material market risk exposure with
respect to other financial instruments.



                                       15
<PAGE>   16

                           PART II. OTHER INFORMATION


ITEM 1.  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 (the "OIG"). 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 documents and testimony before the grand jury.

     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 patients' 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
$764,000 as of March 31, 2001.

     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 preliminary stage
of the investigation and the limited information currently available to Raytel,
Raytel 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 $4,000,000 to cover the estimated amount of these
expenses. Expenses in excess to the 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. Raytel is currently engaged in discussions with
representatives of the government regarding a possible resolution of the matter.
However, we cannot currently determine the likelihood of such a resolution. A
significant fine, the revocation of RCS' Medicare participation or civil
liability under the False Claims Act would significantly harm Raytel's business.



                                       16
<PAGE>   17

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


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     The Company is currently in default of certain of its financial covenants
in connection with its $14,900,000 revolving line of credit with two banks.
These covenants require the Company to maintain certain financial ratios. The
Company has requested a waiver from the banks. If the banks do not grant the
waiver, the banks have the right to terminate the credit facility and demand
payment in full of the outstanding balance. The amount outstanding under the
credit line as of March 31, 2001 was $12,817,000.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

      a.  EXHIBITS:

          The following exhibit is filed as a part of this Report:

<TABLE>
<CAPTION>
                  Exhibit
                  Number                         Title
                  -------                        -----
                  <S>                   <C>
                   10.68                Stock Purchase Agreement dated as of
                                        March 9, 2001 and effective as of
                                        January 1, 2001, among Heart Institute
                                        Acquisition Corporation, Raytel Medical
                                        Corporation, Cardiovascular Ventures,
                                        Inc., and The Heart Institute of Port
                                        St. Lucie, Inc.
</TABLE>

      b.   REPORTS ON FORM 8-K:

           On March 9, 2001, the Company filed a report on Form 8-K announcing
           that the Company had completed the sale of its wholly-owned
           subsidiary, The Heart Institute of Port St. Lucie, Inc., to a new
           company organized by physicians practicing at the clinic, including
           David Wertheimer, M.D., who had served as President of the subsidiary
           as well as an officer of the Company and a member of the Company's
           Board of Directors.



                                       17
<PAGE>   18

                                    SIGNATURE


        Pursuant to the requirements 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:  May 14, 2001                    By: /s/ John F. Lawler, Jr.
                                            ------------------------------------
                                                John F. Lawler, Jr.
                                                Vice President and
                                                Chief Financial Officer
                                                (duly authorized officer and
                                                principal financial officer)



                                       18
<PAGE>   19

                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
Exhibit
Number                         Title
-------                        -----
<S>                   <C>
 10.68                Stock Purchase Agreement dated as of March 9, 2001 and
                      effective as of January 1, 2001, among Heart Institute
                      Acquisition Corporation, Raytel Medical Corporation,
                      Cardiovascular Ventures, Inc., and The Heart Institute of
                      Port St. Lucie, Inc.
</TABLE>