<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, 1998; 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, 1998
      -----                          ---------------------------------------
<S>                                  <C>      
   COMMON STOCK
($.001 PAR VALUE)                                  8,910,605
</TABLE>



<PAGE>   2



                   RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES

                                      INDEX
<TABLE>
<CAPTION>

                                                                            PAGE
                                                                            ----

                          PART I. FINANCIAL INFORMATION

<S>                                                                         <C>
Item 1.   Financial Statements

        Condensed Consolidated Balance Sheets as of
           March 31, 1998 and September 30, 1997...............................3

        Condensed Consolidated Statements of Operations
           for the three months and the six months ended 
           March 31, 1998 and 1997 ............................................4

        Condensed Consolidated Statements of Cash Flows
           for the six months ended March 31, 1998 and 1997....................5


Item 2.  Management's Discussion and Analysis of Financial
           Condition and Results of Operations.................................7

                           PART II. OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders .................12

Item 6.  Exhibits and Reports on Form 8-K.....................................12

SIGNATURE.....................................................................14
</TABLE>


                                       2
<PAGE>   3



                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                   RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                      MARCH 31, 1998 AND SEPTEMBER 30, 1997
                                 (000'S OMITTED)

                                     ASSETS
<TABLE>
<CAPTION>


                                                          MARCH 31,       SEPTEMBER 30,
                                                            1998              1997
                                                          ---------         ---------
                                                         (UNAUDITED)
<S>                                                       <C>               <C>      
Current assets:
  Cash and cash equivalents                               $   7,860         $   7,873
  Receivables, net                                           35,265            30,345
  Prepaid expenses and other                                  3,951             3,970
                                                          ---------         ---------
        Total current assets                                 47,076            42,188

Property and equipment, less accumulated
  depreciation and amortization                              19,901            19,712
Intangible assets, less accumulated
  amortization                                               56,319            57,486
Other                                                            39                35
                                                          ---------         ---------
        Total assets                                      $ 123,335         $ 119,421
                                                          =========         =========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current portion of long-term debt and
   capital lease obligations                              $   2,061         $   1,893
  Accounts payable                                            3,554             5,110
  Accrued liabilities                                         9,774            10,794
                                                          ---------         ---------
        Total current liabilities                            15,389            17,797

Long-term debt and capital lease obligations, net
    of current portion                                       38,292            34,461
Deferred liabilities                                          1,366             1,163
Minority interest in consolidated entities                    3,753             4,101
                                                          ---------         ---------
        Total liabilities                                    58,800            57,522
                                                          ---------         ---------

Stockholders' equity:
  Common stock                                                    9                 9
  Additional paid-in capital                                 61,492            61,261
  Common stock to be issued                                     916               943
  Retained earnings                                           4,017             1,097
                                                          ---------         ---------
                                                             66,434            63,310
  Less treasury stock, at cost                               (1,899)           (1,411)
                                                          ---------         ---------
        Total stockholders' equity                           64,535            61,899
                                                          ---------         ---------
        Total liabilities and stockholders' equity        $ 123,335         $ 119,421
                                                          =========         =========
</TABLE>


                                       3
<PAGE>   4




                   RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
        FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1998 AND 1997
                                   (UNAUDITED)
                    (000'S OMITTED, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                            THREE MONTHS ENDED MARCH 31,      SIX MONTHS ENDED MARCH 31,
                                               1998             1997            1998              1997
                                             --------         --------         --------         --------
<S>                                          <C>              <C>              <C>              <C>     
Revenues:
  Pacing, CEDS and Holter                    $ 11,610         $ 11,802         $ 22,962         $ 23,971
  Diagnostic imaging service                    5,053            4,309            9,344            8,833
  Heart center, practice management
      and other                                10,488            4,325           20,709            8,284
                                             --------         --------         --------         --------
        Total revenues                         27,151           20,436           53,015           41,088
                                             --------         --------         --------         --------

Costs and expenses:
  Operating costs                              12,471            8,127           24,819           16,364
  Selling, general and administrative           8,882            7,439           17,116           15,107
  Depreciation and amortization                 2,171            1,462            4,324            2,943
                                             --------         --------         --------         --------
        Total costs and expenses               23,524           17,028           46,259           34,414
                                             --------         --------         --------         --------

  Operating income                              3,627            3,408            6,756            6,674

Interest expense                                  780              104            1,509              252
Other expense (income)                           (128)          (2,591)            (198)          (2,676)
Minority interest                                 318               78              578              180
                                             --------         --------         --------         --------
  Income before income taxes                    2,657            5,817            4,867            8,918

Provision for income taxes                      1,063            2,327            1,947            3,567
                                             --------         --------         --------         --------
  Net income                                 $  1,594         $  3,490         $  2,920         $  5,351
                                             ========         ========         ========         ========

Net income per share:
  Basic                                      $    .18         $    .41         $    .33         $    .64
                                             ========         ========         ========         ========
  Diluted                                    $    .17         $    .39         $    .31         $    .60
                                             ========         ========         ========         ========

Weighted average shares:
  Basic                                         8,919            8,411            8,919            8,370
                                             ========         ========         ========         ========
  Diluted                                       9,401            8,933            9,470            8,945
                                             ========         ========         ========         ========
</TABLE>


                                       4
<PAGE>   5




                   RAYTEL MEDICAL CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997
                                   (UNAUDITED)
                                 (000'S OMITTED)

<TABLE>
<CAPTION>

                                                                             MARCH 31,
                                                                     -----------------------
                                                                       1998           1997
                                                                     -------         -------
<S>                                                                  <C>             <C>    
Cash flows from operating activities:
  Net income                                                         $ 2,920         $ 5,351
    Adjustments to reconcile net income to net cash provided
      by operating activities:
     Depreciation and amortization                                     4,324           2,943
     Minority interest                                                   578             180
     Other, net                                                          187            (531)
     Changes in operating accounts:
       Receivables, net                                               (4,920)         (2,780)
       Prepaid expenses and other                                         19            (699)
       Accounts payable                                               (1,556)           (476)
       Accrued liabilities and other                                  (1,120)            456
                                                                     -------         -------
          Net cash provided by operating activities                      432           4,444
                                                                     -------         -------

Cash flows from investing activities:
  Capital expenditures                                                (3,077)         (1,890)
  Purchase of physician practice                                          --            (427)
  Other, net                                                            (265)            579
                                                                     -------         -------
          Net cash used in investing activities                       (3,342)         (1,738)
                                                                     -------         -------

Cash flows from financing activities:
  Repurchase of company stock                                           (488)           (469)
  Income distributions to noncontrolling investors                      (865)           (614)
  Proceeds from (paydown) of line of credit                            4,830          (1,671)
  Principal repayments of debt                                          (841)         (1,226)
  Other, net                                                             261             322
                                                                     -------         -------
          Net cash provided by (used in) financing activities          2,897          (3,658)
                                                                     -------         -------
Net decrease in cash and cash equivalents                                (13)           (952)
Cash and cash equivalents at beginning of period                       7,873           5,737
                                                                     -------         -------
Cash and cash equivalents at end of period                           $ 7,860         $ 4,785
                                                                     =======         =======
</TABLE>

                                       5

<PAGE>   6



    The accompanying unaudited condensed consolidated financial statements of
Raytel Medical Corporation (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 generally accepted accounting principles for complete
financial statements. 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, 1998 are not necessarily indicative
of results that may be expected for the year ending September 30, 1998. 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, 1997.

    The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share. The adoption of this accounting standard
did not effect previously reported earnings per share.

    For the three months and six months ended March 31, 1998 and 1997, basic and
diluted earnings per share are calculated as follows:
<TABLE>
<CAPTION>

                                          FOR THE THREE MONTHS           FOR THE SIX MONTHS
                                             ENDED MARCH 31,                ENDED MARCH 31,
                                          ---------------------        --------------------
                                            1998          1997          1998          1997
                                           ------        ------        ------        ------
<S>                                        <C>           <C>           <C>           <C>   
(000's omitted, except per share amounts)

BASIC EARNINGS PER SHARE:

Net income                                 $1,594        $3,490        $2,920        $5,351
                                           ======        ======        ======        ======
Weighted average shares outstanding         8,919         8,411         8,919         8,370
                                           ======        ======        ======        ======
Per share                                  $  .18        $  .41        $  .33        $  .64
                                           ======        ======        ======        ======

DILUTED EARNINGS PER SHARE:

Net income                                 $1,594        $3,490        $2,920        $5,351
                                           ======        ======        ======        ======
Weighted average shares outstanding         8,919         8,411         8,919         8,370
Shares to be issued                           132           136           132           134
Options                                       310           286           363           342
Warrants                                       40           100            56            99
                                           ------        ------        ------        ------
                                            9,401         8,933         9,470         8,945
                                           ======        ======        ======        ======
Per share                                  $  .17        $  .39        $  .31        $  .60
                                           ======        ======        ======        ======
</TABLE>

    Certain options to purchase shares of common stock were outstanding during
the three months and six months ended March 31, 1998 and 1997, but were not
included in the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common shares
for the period.

    The options outstanding and their exercise prices are as follows:
<TABLE>
<CAPTION>

                                   FOR THE THREE MONTHS              FOR THE SIX MONTHS
                                      ENDED MARCH 31,                  ENDED MARCH 31,
                                -----------------------           ------------------------
                                  1998           1997               1998             1997
                                 ------         ------             ------           -----
<S>                             <C>            <C>                <C>               <C>    
Options outstanding             109,725        557,162            55,313            553,644
Range of exercise prices   $10.50 - $13.50  $11.25 - $13.50   $10.50 - $13.50    $11.25 - $13.50
</TABLE>


                                       6
<PAGE>   7



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 the majority of its revenues from the provision of
transtelephonic monitoring services for cardiac pacemaker patients ("Pacing"),
cardiac event detection services ("CEDS") and Holter, diagnostic imaging
services and cardiac catheterization procedures.

     Following the Company's initial public offering in December 1995, the
Company has entered into a series of transactions which have expanded its heart
center and physician practice management businesses. As a result, revenue is
also being provided from: Raytel Heart Center at Granada Hills ("RHCGH")
beginning on February 1, 1996; the management of Southeast Texas Cardiology
Associates II P.A. ("SETCA") beginning on September 18, 1996; the management of
Comprehensive Cardiology Consultants, a Medical Group, Inc. ("CCMG") beginning
on November 1, 1996; and Cardiovascular Ventures, Inc. ("CVI") beginning on
August 15, 1997, which included the multi-specialty medical practice, Heart and
Family Health Institute ("HFHI").

     The Company's investments in two ventures ("Ventures") that operated four
of the consolidated diagnostic imaging centers terminated during fiscal 1997.
Revenues contributed by these ventures were $245,000 and $1,038,000 for the
three months and six months ended March 31, 1997, respectively.

     Under certain practice management contracts, revenues are recognized
pursuant to long-term arrangements with physician groups under which the Company
provides the physician group with a full range of services, including, but not
limited to, office space, specialized clinical and procedural facilities,
medical equipment, data processing and medical record keeping, billing and
collection procedures and services, non-physician licensed personnel, such as
nurses and technicians, as well as office staff and administrative personnel. In
the case of SETCA and CCMG, the Company's practice management revenues are
derived from the physician groups' revenues, generally as a purchased service,
except for certain physician compensation and employment benefits, which are
paid by the physician group on a priority basis. Under the above management
services arrangements, the Company's practice management revenues represent
approximately 52.0% and 62.0% of the revenues of the physician groups for the
three months ended March 31, 1998 and 1997, respectively and approximately 53.6%
and 56.1% for the six months ended March 31, 1998 and 1997, respectively. For
HFHI, the Company recognizes 100% of all medical revenue as the physicians are
employees of the Company.

     On August 15, 1997, the Company acquired the stock of CVI, of New Orleans,
Louisiana. CVI manages, owns and operates cardiovascular diagnostic facilities
in Texas, Louisiana, Maryland and Florida and owns and manages a physician
clinic in Florida. Total consideration for the transaction consisted of cash and
transaction costs of approximately $16,980,000 and 500,000 shares of Raytel
Common Stock. The contingent promissory notes in the aggregate principal amount
of $820,000 were cancelled in accordance with the terms of the agreement.

     On October 9, 1997, the Company announced it had entered into an agreement
with The Baptist Hospital of Southeast Texas to develop a Raytel Heart Center at
the hospital. Under the agreement, Raytel will manage the heart center, which
will provide a range of cardiovascular services, including diagnostic,
therapeutic and patient wellness programs. Among other duties, Raytel will be
responsible for the day-to-day operations of the heart center, including
administrative support, information systems management and public relations
activities. The Company expects to begin operations at Baptist Hospital during
its third quarter of fiscal 1998.


                                       7

<PAGE>   8

     In September 1996, the Company received a favorable administrative decision
related to a billing dispute with a New York Medicare carrier whereby it was
entitled to receive approximately $4.0 million. The time period for the
Healthcare Finance Administration ("HCFA") and the Social Security
Administration to file an appeal expired on February 10, 1997. After accounting
for administrative costs and reimbursements due to Medtronic under the terms of
the acquisition of CardioCare and a separate provision against the value of a
non-operating asset, the Company recognized other income of $2,510,000 pretax in
its second fiscal quarter ending March 31, 1997, with a positive after tax
effect of $1,506,000 or $.17 per share (the "Decision").

RESULTS OF OPERATIONS

     Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997.

     The operations of CVI are included in the Company's Condensed Consolidated
Statements of Operations since August 15, 1997, the effective date of the
Company's acquisition of CVI. Accordingly, such results are included in the
three month period ended March 31, 1998, but are not included in the three month
period ended March 31, 1997.

     Revenues. Pacing, CEDS and Holter revenues decreased by $192,000, or 1.6%,
from $11,802,000 for the three months ended March 31, 1997 to $11,610,000 for
the three months ended March 31, 1998, due primarily to a slight decrease in
CEDS revenue partially offset by a slight increase in Pacing revenue. Diagnostic
imaging service revenues increased by $744,000, or 17.3%, from $4,309,000 for
the three months ended March 31, 1997 to $5,053,000 for the three months ended
March 31, 1998, due primarily to increases in revenues at certain centers due to
an increase in volume, partially offset by decreased revenues due to the
termination of a venture on June 30, 1997. Heart Center, practice management and
other revenues increased by $6,163,000, or 142.5%, from $4,325,000 for the three
months ended March 31, 1997 to $10,488,000 for the three months ended March 31,
1998 due primarily to the inclusion of revenues from CVI.

     As a result of the foregoing factors, total revenues increased by
$6,715,000, or 32.9%, from $20,436,000 for the three months ended March 31, 1997
to $27,151,000 for the three months ended March 31, 1998.

     Operating Expenses. Operating costs and selling, general and administrative
expenses increased by $5,787,000, or 37.2%, from $15,566,000 for the three
months ended March 31, 1997 to $21,353,000 for the three months ended March 31,
1998 due primarily to the inclusion of costs and expenses from CVI. Operating
costs and selling, general and administrative expenses as a percentage of total
revenues increased from 76.2% for the three months ended March 31, 1997 to 78.6%
for the three months ended March 31, 1998. At RHCGH, operating expenses were
slightly in excess of revenues for the three month periods ended March 31, 1998
and 1997.

     Depreciation and Amortization. Depreciation and amortization expense
increased by $709,000, from $1,462,000 for the three months ended March 31, 1997
to $2,171,000 for the three months ended March 31, 1998, due primarily to the
inclusion of CVI, and increased as a percentage of revenues from 7.2% for the
three months ended March 31, 1997 to 8.0% for the three months ended March 31,
1998.

     Operating Income. As a result of the foregoing factors, operating income
increased by $219,000, or 6.4%, from $3,408,000 for the three months ended March
31, 1997 to $3,627,000 for the three months ended March 31, 1998.

     Interest Expense. Interest expense increased by $676,000, or 650.0%, from
$104,000 for the three months ended March 31, 1997 to $780,000 for the three
months ended March 31, 1998 due primarily to an increase in debt due to the CVI
acquisition.

     Other expense (income). Other income decreased by $2,463,000, from
$2,591,000 for the three months ended March 31, 1997 to $128,000 for the three
months ended March 31, 1998 due primarily to the Decision.


                                       8

<PAGE>   9

     Minority interest. Minority interest increased by $240,000, or 307.7%, from
$78,000 for the three months ended March 31, 1997 to $318,000 for the three
months ended March 31, 1998 due primarily to the inclusion of CVI.

     Income Taxes. The provision for income taxes decreased by $1,264,000, or
54.3%, from $2,327,000 for the three months ended March 31, 1997 to $1,063,000
for the three months ended March 31, 1998 as a result of decreased taxable
income.

     Net Income. As a result of the foregoing factors, net income decreased by
$1,896,000, or 54.3%, from $3,490,000 for the three months ended March 31, 1997
to $1,594,000 for the three months ended March 31, 1998.

     Six Months Ended March 31, 1998 Compared to Six Months Ended March 31,
1997.

     The operations of CVI are included in the Company's Condensed Consolidated
Statements of Operations since August 15, 1997, the effective date of the
Company's acquisition of CVI. Accordingly, such results are included in the six
month period ended March 31, 1998, but are not included in the six month period
ended March 31, 1997. The results of operations from the management service
agreement with CCMG are included in the Company's Condensed Consolidated
Statements of Operations since November 1, 1996, the effective date of the
agreement. Accordingly, such results are included in the six month period ended
March 31, 1998, but are only included for five months of the six month period
ended March 31, 1997.

     Revenues. Pacing, CEDS and Holter revenues decreased by $1,009,000, or
4.2%, from $23,971,000 for the six months ended March 31, 1997 to $22,962,000
for the six months ended March 31, 1998, due primarily to lower reimbursement
rates for Pacing during the October 1 to December 31, 1997 time period and from
CEDS due to a combination of competitive pressures and lower reimbursement
rates. Diagnostic imaging service revenues increased by $511,000, or 5.8%, from
$8,833,000 for the six months ended March 31, 1997 to $9,344,000 for the six
months ended March 31, 1998, due primarily to increases in revenues at certain
centers due to an increase in volume, partially offset by decreased revenues due
to the termination of two Ventures in fiscal 1997. Heart Center, practice
management and other revenues increased by $12,425,000, or 150.0%, from
$8,284,000 for the six months ended March 31, 1997 to $20,709,000 for the six
months ended March 31, 1998 due primarily to the inclusion of revenues from CVI.

     As a result of the foregoing factors, total revenues increased by
$11,927,000, or 29.0%, from $41,088,000 for the six months ended March 31, 1997
to $53,015,000 for the six months ended March 31, 1998.

     Operating Expenses. Operating costs and selling, general and administrative
expenses increased by $10,464,000, or 33.2%, from $31,471,000 for the six months
ended March 31, 1997 to $41,935,000 for the six months ended March 31, 1998, due
primarily to inclusion of costs and expenses from CVI. Operating costs and
selling, general and administrative expenses as a percentage of total revenues
increased from 76.6% for the six months ended March 31, 1997 to 79.1% for the
six months ended March 31, 1998. At RHCGH, operating expenses were slightly in
excess of revenues for the six month periods ended March 31, 1998 and 1997.

     Depreciation and Amortization. Depreciation and amortization expense
increased by $1,381,000, from $2,943,000 for the six months ended March 31, 1997
to $4,324,000 for the six months ended March 31, 1998, due primarily to the
inclusion of CVI, and increased as a percentage of revenues from 7.2% for the
six months ended March 31, 1997 to 8.2% for the six months ended March 31, 1998.

     Operating Income. As a result of the foregoing factors, operating income
increased by $82,000, or 1.2%, from $6,674,000 for the six months ended March
31, 1997 to $6,756,000 for the six months ended March 31, 1998.

     Interest Expense. Interest expense increased by $1,257,000, or 498.8%, from
$252,000 for the six months ended March 31, 1997 to $1,509,000 for the six
months ended March 31, 1998 due primarily to an increase in debt due to the CVI
acquisition.


                                       9

<PAGE>   10

     Other expense (income). Other income decreased by $2,478,000 from
$2,676,000 for the six months ended March 31, 1997 to $198,000 for the six
months ended March 31, 1998 due primarily to the Decision.

     Minority interest. Minority interest increased by $398,000, or 221.1%, from
$180,000 for the six months ended March 31, 1997 to $578,000 for the six months
ended March 31, 1998 due primarily to the inclusion of CVI.

     Income Taxes. The provision for income taxes decreased by $1,620,000, or
45.4%, from $3,567,000 for the six months ended March 31, 1997 to $1,947,000 for
the six months ended March 31, 1998 as a result of decreased taxable income.

     Net Income. As a result of the foregoing factors, net income decreased by
$2,431,000, or 45.4%, from $5,351,000 for the six months ended March 31, 1997 to
$2,920,000 for the six months ended March 31, 1998.

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, 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. Although the Company's total revenues
have increased in each of the last three fiscal years, revenue of the Company's
Pacing operations during that period has been negatively impacted by Medicare
reimbursement rate reductions in certain geographic areas. Additional
reimbursement rate reductions applicable to the Company's Pacing procedures
became effective on January 1, 1996 and January 1, 1997. These reductions had a
negative effect on the Company's operating results for fiscal 1997 and the first
quarter of fiscal 1998. The Company's Pacing operations have been favorably
impacted since January 1, 1998 due to an increase in Medicare reimbursement
rates effective on that date. 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.

     A key element of the Company's long-range strategy is the development and
operation of integrated heart centers and the acquisition of cardiac healthcare
providers specializing in cardiology related services and the assets of
physician practices and other businesses related to its current operations. The
success of the Company's existing and future heart centers and physician
practices will depend upon several factors, including the Company's ability to:
obtain and operate in compliance with appropriate licenses; control costs and
realize operating efficiencies; educate patients, referring physicians and
third-party payors about the benefits of such heart centers; and provide
cost-effective services that meet or exceed existing standards of care.

     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 


                                       10

<PAGE>   11

integrated successfully and profitably into the Company's operations, that
suitable acquisition or investment opportunities will be identified, or that any
such transactions can be consummated.

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

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

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

LIQUIDITY AND CAPITAL RESOURCES

     The Company's liquidity was materially improved as a result of the
completion of the initial public offering of its Common Stock in December 1995
and its receipt of $20,400,000 in net proceeds therefrom. The Company acquired
certain assets and assumed certain liabilities of CDS in June 1996 for cash in
the amount of $14,254,000, SETCA in September 1996 for cash in the amount of
$4,010,000 and CCMG in November 1996 for cash in the amount of $427,000 and
acquired the stock of CVI in August 1997 for cash and transaction costs in the
amount of $16,980,000. At March 31, 1998, the Company had working capital of
$31,687,000, compared to $24,391,000 at September 30, 1997. At March 31, 1998,
the Company had cash and temporary cash investments of $7,860,000. At March 31,
1998, $30,791,000 was outstanding under the Company's line of credit.

     The Company batch-bills Medicare insurance carriers for most cardiac
testing services performed during the first five 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 and the collection of these
receivables primarily during the subsequent fourth fiscal quarter.

     The Company has 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 expires in August 1999 at which time any outstanding balance
will be converted to a five-year term loan.

     The Company's long-term capital requirements will depend on numerous
factors, including the rate at which the Company develops and opens new heart
centers or acquires existing heart centers, physician practices or 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
1998.


                                       11
<PAGE>   12


                           PART II. OTHER INFORMATION



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

      a. The Company's annual meeting of stockholders was held on March 5, 1998.

      b. The following persons nominated by management were elected to serve as
         directors:
<TABLE>
<CAPTION>

                                                               Shares
                                                      ------------------------
               Name                                       For         Withheld
               ----                                       ---         --------
<S>                                                   <C>              <C>   
          Gene I. Miller                              6,889,286        21,361
          Albert J. Henry                             6,889,286        21,361
          David Wertheimer, M.D.                      6,889,286        21,361
</TABLE>

     The following directors remained in office; Richard F. Bader, F. David
     Rollo, M.D., Thomas J. Fogarty, M.D, and Allan Zinberg.

     Subsequently, on March 20, 1998, Albert J. Henry submitted his resignation
     to devote more time to his venture capital fund and other businesses. There
     was no disagreement between the Company and the director on any matter
     relating to the Company's operations, policies or practices. No replacement
     had been named as of the date of this filing.

c.   The following additional matters voted upon at the meeting and the results
     of the voting were as follows:

     1.  To ratify the appointment of Arthur Andersen LLP as the
         independent accountants of the Company for the fiscal year ending
         September 30, 1998.
<TABLE>
<CAPTION>

                                         Shares
                           ----------------------------------
                              For        Against      Abstain
                            -------      -------      -------
<S>                                      <C>         <C> 
                           6,890,358      1,779       18,510
</TABLE>


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

a.  EXHIBITS:

    The following exhibits are filed as a part of this Report:
<TABLE>
<CAPTION>

            Exhibit
            Number                                   Title
            ------                                   -----

<S>                                   <C>
             10.53                    Employment Agreement dated as of March 1,
                                      1998 between Swapan Sen and the Registrant

             10.54                    Employment Agreement dated as of March 1,
                                      1998 between F. David Rollo, M.D. and the
                                      Registrant
</TABLE>


                                       12
<PAGE>   13
<TABLE>

<S>                                   <C>
             10.55                    Employment Agreement dated as of March 1,
                                      1998 between Michael O. Kokesh and the
                                      Registrant

               27                     Financial data schedule
</TABLE>


b. REPORTS ON FORM 8-K:

   The Company filed no reports on Form 8-K during the quarter ended
   March 31, 1998.


                                       13
<PAGE>   14



                                    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 11, 1998                         By:  /s/ E. Payson Smith, Jr.
                                                --------------------------------
                                                E. Payson Smith, Jr.
                                                Senior Vice President and
                                                Chief Financial Officer
                                                (duly authorized officer and
                                                principal financial officer)


                                       14

<PAGE>   15
                                 EXHIBIT INDEX
<TABLE>
<CAPTION>

            Exhibit
            Number                                   Title
            ------                                   -----

<S>                                   <C>
             10.53                    Employment Agreement dated as of March 1,
                                      1998 between Swapan Sen and the Registrant

             10.54                    Employment Agreement dated as of March 1,
                                      1998 between F. David Rollo, M.D. and the
                                      Registrant

             10.55                    Employment Agreement dated as of March 1,
                                      1998 between Michael O. Kokesh and the
                                      Registrant

               27                     Financial data schedule
</TABLE>