UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549    FORM 10-K/A   Amendment No. 2 (Mark One)  x
     Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended June 30, 2009.ORo
     Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from __________ to __________.
  Commission File No. 0-50914    BIOTEL INC. (Exact name of registrant as specified in its Charter)  Minnesota
     41-1427114(State or other jurisdiction of
incorporation or organization)
     (I.R.S. Employer
Identification No.)1285 Corporate Center Drive, Suite 150, Eagan, MN
     55121(Address of principal executive offices)
     (Zip Code)
  Issuers Telephone Number, Including Area Code:  (651) 286-8620  Securities registered under  Section 12(b) of the Exchange Act:  None  Securities registered pursuant to Section 12(g) of the Exchange Act:  Common Stock, par value $0.01 per share    Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   YesoNox  Indicate by check mark if the registrant is required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.   YesxNoo  Indicate by check mark if the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.    YesxNoo  Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein and will not be contained, to the best
 of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.o  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.  (Check one)  Large accelerated filero
     Accelerated fileroNon-accelerated filero
     Smaller reporting companyx
  Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YesoNox  Issuers revenues for fiscal year ended June 30, 2009, were $12,639,636.  The aggregate market value of voting and non-voting common equity held by non-affiliates of registrant as of September 17, 2009, was approximately $6,052,347.  The number of shares outstanding of the registrants common stock, par value $0.01 per share, as of September 17, 2009 was 2,763,827.  DOCUMENTS INCORPORATED BY REFERENCE  The definitive proxy statement for the 2009 Annual Meeting of Shareholders to be filed within 120 days of the end of the fiscal year is incorporated by reference into Part III of this annual report.  Transitional Small Business Disclosure Format (check one).    YesoNox


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BIOTEL INC. AND SUBSIDIARIES  CONTENTS  PageEXPLANATORY NOTESIGNATURESBIOTEL INC. AND SUBSIDIARIES FINANCIAL STATEMENTS FOR YEARS ENDED JUNE 30, 2009 AND 2008EXHIBITS


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EXPLANATORY NOTE  This Amendment No. 2 amends Biotel Inc.’s (the “Company”) Annual Report on Form 10-K, as amended, for the year ended June 30, 2009, which was filed with the Securities and Exchange Commission on September 28, 2009 (the “Original Filing”) and amended on February 8, 2010.  The Company is filing this Amendment No. 2 for the sole purpose of providing Exhibits 31.1, 31.2 and 32.1 which were inadvertently omitted from Amendment No. 1.  Amendment No. 1 was filed on February 8, 2010, for the sole purpose of providing a revised Report of Independent Registered Public Accounting Firm, which includes the conformed signature of the Company’s independent registered public accounting firm.  The conformed signature was not included in the Original Filing due to a clerical error.  Amendment No. 2 does not include the entire Form 10-K.  Except as described above, this Amendment No. 2 does not amend any other information set forth in the Original Filing and in Amendment No. 1, and the Company has not updated disclosures included therein to reflect any events that occurred subsequent to September 28, 2009.


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SIGNATURES  In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this amendment to the report to be signed on its behalf by the undersigned, thereunto duly authorized.  Biotel Inc.Date:  March 5, 2010
     By
     /s/ B. Steven SpringroseB. Steven Springrose, President 
and Chief Executive Officer
  In accordance with the Exchange Act, this amendment to the report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.  /s/ B. Steven Springrose
     
     March 5, 2010B. Steven Springrose 
(President, Chief Executive Officer 
and a Director)/s/ Judy E. Naus
     
     March 5, 2010Judy E. Naus
(Chief Financial Officer 
and Chief Accounting Officer)/s/ C. Roger Jones*
     
     March 5, 2010C. Roger Jones
(Director)/s/ Stanley N. Bormann*
     
     March 5, 2010Stanley N. Bormann
(Director)/s/ L. John Ankney*
     
     March 5, 2010L. John Ankney 
(Director)/s/ David A. Heiden*
     
     March 5, 2010David A. Heiden
(Director)/s/ Spencer M. Vawter*
     
     March 5, 2010Spencer M. Vawter
(Director)__________
/s/ Judy E. Naus* By Judy E. Naus, Attorney-in-fact


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BIOTEL INC. AND SUBSIDIARIES FINANCIAL STATEMENTS  FOR THE YEARS ENDED JUNE 30, 2009 AND 2008    CONTENTS   PAGEREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     F-3FINANCIAL STATEMENTSConsolidated balance sheets
     F-4Consolidated statements of income
     F-5Consolidated statements of cash flows
     F-6Consolidated statements of stockholders’ equity
     F-7NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
     F-8 – F-18


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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   Board of Directors and Stockholders Biotel Inc. and Subsidiaries Eagan, Minnesota  We have audited the accompanying consolidated balance sheets ofBiotel Inc. and Subsidiaries(the Company) as of June 30, 2009 and 2008, and the related consolidated statements of income, stockholders equity and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Companys management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.  We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.  In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Biotel Inc. and Subsidiaries as of June 30, 2009 and 2008, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.  We were not engaged to examine managements assessment of the effectiveness of the Companys internal control over financial reporting as of June 30, 2009 included in the accompanying Managements Report on Internal Controls Over Financial Reporting and, accordingly, we do not express an opinion thereon.  /s/ Elliott Davis LLC  September 28, 2009 Columbia, South Carolina  F-3


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BIOTEL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



June 30,2009
     
     2008ASSETSCURRENT ASSETSCash and cash equivalents
     
     $
     1,160,409
     
     $
     945,121Trade accounts receivable, net of allowance for doubtful accounts of $48,965 and $55,440 at June 30, 2009 and 2008, respectively
     
     
     2,202,378
     
     
     1,766,512Prepaid income taxes
     
     
     
     
     
     39,310Inventories, net
     
     
     1,878,397
     
     
     1,428,163Deferred tax asset
     
     
     250,674
     
     
     244,018Prepaid expenses
     
     
     120,098
     
     
     109,903Total Current Assets
     
     
     5,611,956
     
     
     4,533,027PROPERTY & EQUIPMENT, Net
     
     
     1,081,314
     
     
     1,092,710OTHER ASSETSGoodwill
     
     
     695,551
     
     
     695,551Other assets
     
     
     13,820
     
     
     13,820Total Other Assets
     
     
     709,371
     
     
     709,371$
     7,402,641
     
     $
     6,335,108LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESRevolving line of credit
     
     $
     
     
     $
     187,146Trade accounts payable
     
     
     557,094
     
     
     651,635Accrued payroll and related liabilities
     
     
     277,803
     
     
     237,503Deferred service contract revenue
     
     
     93,855
     
     
     133,359Other accrued expenses
     
     
     283,502
     
     
     198,540Income taxes payable
     
     
     202,265
     
     
     Total Current Liabilities
     
     
     1,414,519
     
     
     1,408,183LONG-TERM LIABILITIESDeferred taxes payable
     
     
     329,183
     
     
     224,967COMMITMENTS AND CONTINGENCIES (See Notes 7 and 8)Total Liabilities
     
     
     1,743,702
     
     
     1,633,150STOCKHOLDERS EQUITYPreferred stock, $.01 stated value; 2,000,000 shares authorized; no shares issued
     
     
     
     
     
     Common stock, $.01 stated value; 10,000,000 shares authorized; 2,763,827 shares issued
     
     
     27,638
     
     
     27,638Additional paid-in capital
     
     
     2,158,638
     
     
     2,145,594Retained earnings
     
     
     3,472,663
     
     
     2,528,726Total Stockholders Equity
     
     
     5,658,939
     
     
     4,701,958$
     7,402,641
     
     $
     6,335,108


See notes to consolidated financial statements which are an integral part of these statements.

F-4






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BIOTEL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME



For the years ended
June 30,2009
     
     2008SALES AND SERVICES
     
     $
     12,639,636
     
     $
     11,495,326COST OF SALES AND SERVICES
     
     
     7,114,810
     
     
     6,396,033GROSS PROFIT
     
     
     5,524,826
     
     
     5,099,293OPERATING EXPENSESSelling and administrative
     
     
     2,585,932
     
     
     2,425,094Research and development
     
     
     1,601,525
     
     
     1,674,380Total operating expenses
     
     
     4,187,457
     
     
     4,099,474INCOME FROM OPERATIONS
     
     
     1,337,369
     
     
     999,819OTHER INCOME (EXPENSE)Interest income
     
     
     7,298
     
     
     11,173Interest expense
     
     
     (590
     )
     
     (704
     )Miscellaneous
     
     
     12,471
     
     
     12,425Total other income
     
     
     19,179
     
     
     22,894NET INCOME BEFORE PROVISION FOR INCOME TAXES
     
     
     1,356,548
     
     
     1,022,713PROVISION FOR INCOME TAXES
     
     
     412,611
     
     
     356,574NET INCOME
     
     $
     943,937
     
     $
     666,139INCOME PER SHAREBASIC
     
     $
     0.34
     
     $
     0.25DILUTED
     
     $
     0.33
     
     $
     0.23


See notes to consolidated financial statements which are an integral part of these statements.

F-5






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BIOTEL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



For the years ended
June 30,2009
     
     2008OPERATING ACTIVITIESNet income
     
     $
     943,937
     
     $
     666,139Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation and amortization
     
     
     389,198
     
     
     324,511Stock-based compensation
     
     
     13,044
     
     
     49,569Deferred income tax
     
     
     97,560
     
     
     181,291Increase (decrease) in allowance for doubtful accounts
     
     
     (6,475
     )
     
     19,733Decrease in inventory valuation allowance
     
     
     (43,453
     )
     
     (188,973
     )Loss (gain) on disposal of property and equipment
     
     
     529
     
     
     (10,137
     )Changes in deferred and accrued amountsTrade accounts receivable
     
     
     (429,391
     )
     
     180,170Prepaid income taxes
     
     
     39,310
     
     
     (39,310
     )Prepaid expenses
     
     
     (10,195
     )
     
     74,246Inventories
     
     
     (406,781
     )
     
     (116,931
     )Other assets
     
     
     
     
     
     (1,420
     )Trade accounts payable
     
     
     (94,541
     )
     
     (26,459
     )Accrued payroll and related liabilities
     
     
     40,300
     
     
     (6,263
     )Other accrued expenses
     
     
     84,962
     
     
     (78,948
     )Deferred service contract revenue
     
     
     (39,504
     )
     
     (44,610
     )Income taxes payable
     
     
     202,265
     
     
     (83,940
     )Net cash provided by operating activities
     
     
     780,765
     
     
     898,668INVESTING ACTIVITIESPurchases of property and equipment
     
     
     (379,945
     )
     
     (716,387
     )Proceeds from sale of property and equipment
     
     
     1,614
     
     
     13,630Net cash used for investing activities
     
     
     (378,331
     )
     
     (702,757
     )FINANCING ACTIVITIESProceeds from issuance of common stock
     
     
     
     
     
     53,750Net change on line of credit
     
     
     (187,146
     )
     
     187,146Net cash provided by (used for) financing activities
     
     
     (187,146
     )
     
     240,896Net increase in cash and cash equivalents
     
     
     215,288
     
     
     436,807CASH AND CASH EQUIVALENTS AS OF JUNE 30, 2008 and 2007
     
     
     945,121
     
     
     508,314CASH AND CASH EQUIVALENTS AS OF JUNE 30, 2009 and 2008
     
     $
     1,160,409
     
     $
     945,121CASH PAID FORInterest
     
     $
     621
     
     $
     675Income Taxes
     
     $
     73,475
     
     $
     263,740


See notes to consolidated financial statements which are an integral part of these statements.

F-6






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BIOTEL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

For the years ended June 30, 2009 and 2008



Additional
Paid-In
Capital
     
     Retained
Earnings
     
     TotalCommon StockAmount
     
     SharesBalance, June 30, 2007
     
     $
     26,738
     
     
     2,673,827
     
     $
     2,043,175
     
     $
     1,862,587
     
     $
     3,932,500Exercise of stock options
     
     
     900
     
     
     90,000
     
     
     52,850
     
     
     
     
     
     53,750Stock-based compensation
     
     
     
     
     
     
     
     
     49,569
     
     
     
     
     
     49,569Net income
     
     
     
     
     
     
     
     
     
     
     
     666,139
     
     
     666,139Balance, June 30, 2008
     
     
     27,638
     
     
     2,763,827
     
     
     2,145,594
     
     
     2,528,726
     
     
     4,701,958Stock-based compensation
     
     
     
     
     
     
     
     
     13,044
     
     
     
     
     
     13,044Net income
     
     
     
     
     
     
     
     
     
     
     
     943,937
     
     
     943,937Balance, June 30, 2009
     
     $
     27,638
     
     
     2,763,827
     
     $
     2,158,638
     
     $
     3,472,663
     
     $
     5,658,939


See notes to consolidated financial statements which are an integral part of these statements.

F-7






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BIOTEL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  NATURE OF BUSINESS AND CORPORATE ORGANIZATION

Biotel Inc. (Parent Company) and Subsidiaries (the Company) includes the wholly owned subsidiaries of Braemar, Inc. and Agility Centralized Research Services, Inc. Braemar, Inc. designs, manufactures and services diagnostic cardiology devices including 24- and 48-hour Holter recorders and 30-day cardiac ECG event recorders. Braemar also manufactures and services biological fluid and tissue management systems. Braemar, Inc. primarily sells to original equipment manufacturing (OEM) customers who use the Companys products as components in their medical product lines. Braemar, Inc., through its acquisition of Advanced Biosensor Inc., integrates diagnostic Holter software with Braemar recorders and other cardiopulmonary diagnostic equipment and sells to end-users in hospitals and clinics. Agility Centralized Research Services, Inc., which was acquired by Biotel Inc. on July 1, 2004, provides 24-hour/day 7-day/week electrocardiogram (ECG) data and management services to the medical device and pharmaceutical industries, contract research and academic research organizations worldwide for cardiac safety and therapeutic evaluation purposes within clinical trials.

The Companys sales are both national and international.

NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidationThe consolidated financial statements include the accounts of Biotel Inc. and its wholly owned subsidiaries (collectively, the Company). Significant intercompany accounts and transactions are eliminated in consolidation.Management estimatesManagement uses estimates and assumptions in preparing consolidated financial statements. Those estimates and assumptions may affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities, and reported revenues and expenses. Significant estimates used in preparing these consolidated financial statements include those assumed in computing the allowance for doubtful receivable accounts, inventory valuation allowances, warranty reserves and deferred income tax valuation allowances. Actual results could differ from those estimates.Concentrations of credit riskAt times the Company maintains bank deposits in excess of the federally insured limit. Management monitors the soundness of these financial institutions and feels the Companys risk is negligible.The Company sells its products to customers on credit in the ordinary course of business. A customers credit history is reviewed and must meet certain standards before credit is extended. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.Advertising and marketingThe Company follows the policy of charging the costs of advertising, except for costs associated with direct response advertising, to operating expenses as incurred. Advertising expenses totaled approximately $11,000 in each of the years ended June 30, 2009 and 2008.




F-8






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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

InventoriesInventories are valued at the lower of cost (using the average and first-in first-out cost methods) or market. Company management periodically reviews inventory for specific future usage, and estimates of impairment of individual inventory items are recorded as a reserve to reduce inventories to the lower of cost or market.Property and equipmentProperty, equipment and leasehold improvements are recorded at cost. Depreciation is calculated using the straight-line methods over estimated useful lives of three to five years for equipment, seven years for furniture and fixtures and two to five years for leasehold improvements, which represents the terms of the related leases. Maintenance and repairs which do not improve or extend the useful lives of assets are charged to expense as incurred.GoodwillThe Company accounts for the purchase price in excess of tangible assets (Goodwill) in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. The goodwill arose from the acquisition of Braemar, Inc. Goodwill is deemed to have an indefinite useful life and is subject to impairment tests performed at least annually. During 2009 and 2008, such tests of goodwill determined the recorded goodwill had not been impaired.Service contractsAmounts billed to customers for service contracts are recognized as income over the term of the agreements, and the associated costs are recognized as incurred. At June 30, 2009 and 2008, current liabilities include service contract revenue deferrals of approximately $94,000 and $133,000, respectively.Warranty reserveThe Company offers warranties of up to two years to its customers depending on the specific product sold. The Company’s warranties require it to repair or replace defective products during the warranty period at no cost to the customer. The Company records a liability for estimated costs that may be incurred under its warranties based on recorded sales. Although historical warranty costs have been within expectations, there can be no assurance that future warranty costs will not exceed historical amounts. The Company periodically assesses the adequacy of its recorded liability and adjusts the balance as necessary. At June 30, 2009 and 2008, the warranty reserve totaled $186,424 and $87,512, respectively, and this amount is included in Other Accrued Expenses. The following is a reconciliation of the aggregate warranty liability as of June 30, 2009 and 2008:




2009
     
     2008Balance, beginning of year
     
     $
     87,512
     
     $
     75,906Claims paid
     
     
     (94,343
     )
     
     (98,299
     )Additional warranties issued and revisions in estimates of previously issued warranties
     
     
     193,255
     
     
     109,905Balance, end of year
     
     $
     186,424
     
     $
     87,512




F-9






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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Revenue recognitionRevenues from medical equipment and software sales are recognized at date of shipment when title passes to the customer. There are no customer acceptance provisions, and the right to return exists only in cases of damaged product or non-compliance with customer specifications. Revenues for services provided by the Company are recognized as these services are provided.The Company’s revenue recognition complies with the accounting and disclosure requirements of Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 101.Net income per common shareNet income per common share amounts are calculated under the provisions of SFAS No. 128,Earnings per Share.SFAS No. 128 requires the Company to report both basic net income per share, which is based on the weighted-average number of common shares outstanding, and diluted net income per share, which is based on the weighted-average number of common shares outstanding plus all potential dilutive shares outstanding. Potential dilutive shares consist of the stock options outstanding.Stock options plansOn July 1, 2006, the Company adopted the fair value recognition provision of Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting Standards No. 123(R),Accounting for Stock-Based Compensation,to account for compensation costs under its stock option plan. The Company previously utilized the intrinsic value method under Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees (as amended)(“APB 25”). Under the intrinsic value method prescribed by APB 25, no compensation costs were recognized for the Company’s stock options because the option exercise price in its plan equals the market price on the date of grant. Prior to July 1, 2006, the Company only disclosed the pro forma effects on net income and earnings per share as if the fair value recognition provisions of SFAS 123(R) had been utilized.In adopting SFAS No 123(R), the Company elected to use the modified prospective method to account for the transition from the intrinsic value method to the fair value recognition method. Under the modified prospective method, compensation cost is recognized from the adoption date forward for all new stock options granted and for any outstanding unvested awards as if the fair value method had been applied to those awards as of the date of grant.Under SFAS No. 123, the fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. For the options issued, the following significant assumptions were used: risk-free interest rates based on date of issuance of 1.55% to 4.41%, no expected dividends, a volatility factor of 20.62 to 229.35, an expected life of the options of 5-10 years (amortized over the vesting period) and expected vesting of the options at 100%.The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models do not necessarily provide a reliable single measure of the fair value of Biotel Inc.’s options.Research and DevelopmentResearch and development costs are charged to operations as incurred. These costs are for proprietary research and development activities that are expected to contribute to the future profitability of the Company.




F-10






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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued

Income taxesIncome taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes relate primarily to differences between financial and income tax reporting for the basis of inventory, accounts receivable, property and equipment and accrued liabilities. The deferred tax accounts represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled. Deferred taxes may also be recognized for operating losses that are available to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount management expects is more likely than not to be realized.In 2006, the FASB issued Interpretation No. 48 (“FIN 48”),Accounting for Uncertainty in Income Taxes—an Interpretation of SFAS No. 109. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109,Accounting for Income Taxes.FIN 48 also prescribes a recognition threshold and measurement of a tax position taken or expected to be taken in an enterprise’s tax return. FIN 48 was effective for fiscal years beginning after December 15, 2006. Accordingly, the Company adopted FIN 48 effective July 1, 2007. The adoption of FIN 48 did not have any impact on the Company’s consolidated financial position.Cash and cash equivalentsThe Company considers all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents.Recently issued accounting standardsThe following recently issued accounting pronouncements may affect future financial reporting of Biotel Inc.:In June 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162,” (“SFAS 168”). SFAS 168 establishes the FASB Accounting Standards Codification (“Codification”) as the source of authoritative generally accepted accounting principles (“GAAP”) for nongovernmental entities. The Codification does not change GAAP. Instead, it takes the thousands of individual pronouncements that currently comprise GAAP and reorganizes them into approximately 90 accounting Topics, and displays all Topics using a consistent structure. Contents in each Topic are further organized first by Subtopic, then Section and finally Paragraph. The Paragraph level is the only level that contains substantive content. Citing particular content in the Codification involves specifying the unique numeric path to the content through the Topic, Subtopic, Section and Paragraph structure. FASB suggests that all citations begin with “FASB ASC,” where ASC stands for Accounting Standards Codification. SFAS 168, (FASB ASC 105-10-05, 10, 15, 65, 70) is effective for interim and annual periods ending after September 15, 2009.SFAS 167 (not yet reflected in FASB ASC), “Amendments to FASB Interpretation No. 46(R),” (“SFAS 167”) was issued in June 2009. The standard amends FIN 46(R) to require a company to analyze whether its interest in a variable interest entity (“VIE”) gives it a controlling financial interest. A company must assess whether it has an implicit financial responsibility to ensure that the VIE operates as designed when determining whether it has the power to direct the activities of the VIE that significantly impact its economic performance. Ongoing reassessments of whether a company is the primary beneficiary are also required by the standard. SFAS 167 amends the criteria to qualify as a primary beneficiary as well as how to determine the existence of a VIE. The standard also eliminates certain exceptions that were available under FIN 46(R). SFAS 167 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. Comparative disclosures will be required for periods after the effective date. The Company does not believe the adoption of SFAS 167 will have a material impact on its financial position, results of operations or cash flows.




F-11






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Recently issued accounting standards (continued)SFAS 165 (FASB ASC 855-10-05, 15, 25, 45, 50, 55), “Subsequent Events,” (“SFAS 165”) was issued in May 2009 and provides guidance on when a subsequent event should be recognized in the financial statements. Subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet should be recognized at the balance sheet date. Subsequent events that provide evidence about conditions that arose after the balance sheet date but before financial statements are issued, or are available to be issued, are not required to be recognized. The date through which subsequent events have been evaluated must be disclosed as well as whether it is the date the financial statements were issued or the date the financial statements were available to be issued. For non-recognized subsequent events which should be disclosed to keep the financial statements from being misleading, the nature of the event and an estimate of its financial effect, or a statement that such an estimate cannot be made, should be disclosed. The standard is effective for interim or annual periods ending after June 15, 2009 (see Note 15).Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.


NOTE 3 – INVENTORIES

As of June 30, 2009 and 2008, inventories consist of the following:

2009
     
     2008Raw materials and supplies
     
     $
     1,782,903
     
     $
     1,374,588Finished goods
     
     
     235,534
     
     
     229,169Evaluation units and replacements
     
     
     4,507
     
     
     12,4062,022,944
     
     
     1,616,163Valuation allowance
     
     
     (144,547
     )
     
     (188,000
     )$
     1,878,397
     
     $
     1,428,163


NOTE 4 – PROPERTY AND EQUIPMENT

As of June 30, 2009 and 2008, property and equipment consist of the following:

2009
     
     2008Machinery and equipment
     
     $
     3,402,351
     
     $
     3,030,258Furniture and fixtures
     
     
     34,791
     
     
     34,791Leasehold improvements
     
     
     47,857
     
     
     47,8573,484,999
     
     
     3,112,906Accumulated depreciation
     
     
     (2,403,685
     )
     
     (2,020,196
     )$
     1,081,314
     
     $
     1,092,710


Depreciation expense for the years ended June 30, 2009 and 2008 totaled $389,198 and $324,511, respectively.

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NOTE 5 – REVOLVING LINE OF CREDIT

The Company has a $1,500,000 credit line with a bank. The line bears interest at the bank’s prime rate (3.25% at June 30, 2009) plus .25% and expires on February 5, 2010. There was no outstanding balance on this line of credit as of June 30, 2009. The outstanding credit line balance as of June 30, 2008 was $187,146.

NOTE 6 – RELATED PARTY TRANSACTIONS

Braemar, Inc. leased land and building in King, North Carolina, from King Investment Partners, a partnership which is partially owned by Company stockholders, under a lease agreement which expired June 30, 2008. Braemar, Inc. vacated the property on June 30, 2008, and no rent expense to the affiliated partnership was incurred for the year ended June 30, 2009. Total rent expense to the affiliated partnership was $50,400 for the year ended June 30, 2008.

NOTE 7 – LEASE OBLIGATIONS

Biotel and its subsidiaries are parties to operating leases at the following locations:

Braemar, Inc. leases its facility in Columbia, South Carolina, under a 24-month lease agreement which will expire April 30, 2011.

Braemar, Inc. leases its Minnesota facility under a 66-month lease agreement which will expire August 31, 2011.

Braemar, Inc. leases its facility in Winston-Salem, North Carolina, under a three-year lease agreement which will expire on June 30, 2011.

Agility Centralized Research Services, Inc. leases its facility in Bannockburn, Illinois, on a month-to-month basis.

Future minimum lease payments due under these non-cancelable operating leases as of June 30, 2009 are as follows:

2010
     
     $
     169,9802011
     
     
     167,8042012
     
     
     18,902$
     356,686


The leases for office and manufacturing space include costs allocated by the lessor for property taxes, insurance and maintenance. Total rent expense for leased space was $248,786 and $277,401 for the years ended June 30, 2009 and 2008, respectively.

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NOTE 8 – COMMITMENTS AND CONTINGENCIES

Carolina Medical, Inc., a subsidiary of the Company that was dissolved in November, 2006, was the subject of environmental oversight by the North Carolina Division of Environmental and Natural Resources (DENR) in Surry County, North Carolina, involving alleged ground water contamination coming from property that had been previously owned/or leased by Carolina Medical, Inc. In June, 2006, Carolina Medical entered into a Termination of Lease, Release, Hold Harmless and Indemnification Agreement with the landlord, King Investment Partners, related to any environmental matters or potential environmental matters at the King Investment Partners’ property located in King, North Carolina. In the Agreement, King Investment Partners acknowledged full and complete satisfaction of any and all past, present or future claims and causes of action, including any environmental claims related to the property, and agreed to indemnify the Company for any environmental claims related to the property. In order to protect the Company from any claim with respect to the property that may exceed the landlord’s ability to indemnify the Company, Biotel has obtained a binder for insurance to cover any liability for environmental claims that the Company may have relating to the property up to a maximum of $10 million during the ten-year period ending in 2019. The annual cost of the insurance is $16,000.

Biotel Inc. maintains product liability insurance covering its subsidiaries. There are no known product liability claims, and management presently believes that there is no material risk of loss from product liability claims.

NOTE 9 – SIGNIFICANT CUSTOMER CONCENTRATIONS

Credit sales are made to the Company’s customers in the ordinary course of business. Generally, these sales are unsecured. The Company had three major customers which accounted for approximately 58% and 39% of the Company’s consolidated revenues in the years ended June 30, 2009 and 2008, respectively.

Accounts receivable due from these customers at June 30, 2009 and 2008 totaled approximately $1,441,000 and $806,000, respectively.

NOTE 10 – STOCK OPTIONS

Biotel Inc. adopted an incentive compensation plan for board designated personnel on November 15, 2001, by amending the “Biosensor Corporation 1999 Incentive Compensation Plan.” Under this plan, the number of common shares subject to outstanding awards shall not exceed the greater of 650,000 shares or 15% of the aggregate number of common shares outstanding. Options to purchase shares of the Company’s common stock are granted at a price not less than 100% of the fair market value of the common stock, as determined by the Board of Directors using the best available market data, on the date the options are granted. As of June 30, 2009 and 2008, Biotel Inc. had 211,000 options outstanding. Currently, option prices range from $.375 to $2.05 per share with a weighted average remaining contract life of 3.85 years. During the year ended June 30, 2009, no options were exercised. During the year ended June 30, 2008, 90,000 options were exercised. Option vesting and expiration is determined by the Board of Directors at the time they are awarded. No options may be awarded with an expiration greater than 10 years. The compensation cost charged against income for this plan was $13,044 and $49,569 for the years ended June 30, 2009 and 2008, respectively.

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NOTE 10 – STOCK OPTIONS (continued)

A summary of the activity under the Company’s plan is as follows:

Outstanding
     
     ExercisableNumber
of Shares
     
     Weighted
Average
Exercise
Price
     
     Number
of Shares
     
     Weighted
Average
Exercise
PriceBalance at June 30, 2007
     
     
     301,000
     
     $
     1.2600
     
     
     254,500
     
     $
     1.2230Exercised
     
     
     (90,000
     )
     
     0.5972Balance at June 30, 2008
     
     
     211,000
     
     $
     1.3635
     
     
     203,500
     
     $
     1.5214Granted
     
     
     145,000
     
     
     2.0472Expired
     
     
     (25,000
     )
     
     1.8200Cancelled
     
     
     (120,000
     )
     
     2.0000Balance at June 30, 2009
     
     
     211,000
     
     $
     1.6391
     
     
     198,500
     
     $
     1.6171


NOTE 11 – INCOME TAXES

The components of the provision for income taxes are as follows for the years ended June 30, 2009 and 2008:

2009
     
     2008Current provision for taxes
     
     $
     315,051
     
     $
     175,283Change in deferred tax asset
     
     
     97,560
     
     
     195,350Decrease in valuation allowance
     
     
     —
     
     
     (14,059
     )Total provision
     
     $
     412,611
     
     $
     356,574


A reconciliation of income tax at the statutory rate to the Company’s effective rate is as follows:

2009
     
     2008Computed at the federal statutory rate
     
     
     34.0
     %
     
     34.0
     %State income taxes
     
     
     3.3
     %
     
     3.3
     %Manufacturer’s deduction
     
     
     -2.1
     %
     
     —Decrease in valuation allowance
     
     
     —
     
     
     -1.4
     %Other
     
     
     -4.8
     %
     
     —30.4
     %
     
     35.9
     %




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NOTE 11 – INCOME TAXES (Continued)

The tax effects of temporary differences that give rise to significant portions of the deferred tax accounts as of June 30, 2009 and 2008 are presented below:

2009
     
     2008Deferred tax assets applicable to:Allowance for doubtful accounts
     
     $
     19,100
     
     $
     21,600Inventory reserves
     
     
     56,400
     
     
     73,300Warranty reserves
     
     
     72,700
     
     
     34,100Accruals
     
     
     63,100
     
     
     56,400Depreciation
     
     
     (249,400
     )
     
     (161,545
     )Goodwill
     
     
     (221,400
     )
     
     (190,048
     )Net operating loss carryforwards
     
     
     232,000
     
     
     231,150Other
     
     
     76,407
     
     
     81,51048,907
     
     
     146,467Less valuation allowance
     
     
     127,416
     
     
     127,416Deferred tax asset (liability)
     
     $
     (78,509
     )
     $
     19,051


The deferred tax amounts presented above have been classified on the accompanying balance sheets as of June 30, 2009 and 2008 as follows:

2009
     
     2008Current asset
     
     $
     250,674
     
     $
     244,018Long-term liability
     
     
     (329,183
     )
     
     (224,967
     )$
     (78,509
     )
     $
     19,051


Valuation allowances are established when necessary to reduce deferred tax assets to the amount management expects is more likely than not to be realized. This determination is made annually by management based on the anticipated level of taxable income in future years. During the years ended June 30, 2009 and 2008, management recorded a valuation allowance of $127,416 for the deferred tax asset that was more likely than not to be realized in future periods. The valuation allowance at June 30, 2009 and 2008, related to a portion of the federal and state net operating loss carryforwards from which the Company was not expecting to realize the benefit due to various federal and state limitations.

At June 30, 2009, the Company had federal net operating loss carryforwards totaling $421,622, which expire on various dates through 2017. The Company also had state net operating loss carryforwards totaling $1,353,000, which expire on various dates through 2025.

NOTE 12 – NET INCOME PER SHARE OF COMMON STOCK

The weighted average number of shares used in the computation of basic and diluted net income per common share as of June 30, 2009, was 2,763,827 and 2,854,822, respectively. The weighted average number of shares used in the computation of basic and diluted net income per common share as of June 30, 2008, was 2,695,712 and 2,856,267, respectively.

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NOTE 13 – EMPLOYEE BENEFITS PLANS

Biotel Inc. has a 401(k) plan covering substantially all of its employees. Company contributions for the fiscal years ended June 30, 2009 and 2008, totaled $71,047 and $52,757, respectively.

NOTE 14 – OPERATIONS AND INDUSTRY SEGMENTS

The Company reports on two segments of business: OEM Medical Equipment Sales and Service and Direct Medical Equipment Sales and Service. The industry segment information corresponds with the Company’s different customer and product types and therefore complies with the requirements of SFAS No. 131,Disclosures about Segments of an Enterprise and Related Information.

In calculating segment information, certain corporate operating expenses incurred for the benefit of all segments are included on an allocated basis. The corporate profit amount includes non-allocable general corporate expenses, interest expense and other income.

2009OEM Medical
Sales & Service
     
     Direct Medical
Sales & Service
     
     Corporate
     
     TotalsDomestic revenues
     
     $
     10,579,765
     
     $
     585,381
     
     $
     —
     
     $
     11,165,146International revenues
     
     
     1,380,139
     
     
     94,351
     
     
     —
     
     
     1,474,490Revenues from external customers
     
     
     11,959,904
     
     
     679,732
     
     
     —
     
     
     12,639,636Intersegment revenues
     
     
     27,734
     
     
     (27,734
     )
     
     —
     
     
     —Interest expense
     
     
     —
     
     
     —
     
     
     590
     
     
     590Income tax expense
     
     
     544,605
     
     
     71,902
     
     
     (203,896
     )
     
     412,611Depreciation
     
     
     360,908
     
     
     5,404
     
     
     22,886
     
     
     389,198Segment profit
     
     
     832,112
     
     
     102,506
     
     
     9,319
     
     
     943,937Goodwill
     
     
     695,551
     
     
     —
     
     
     —
     
     
     695,551Total segment assets
     
     
     5,844,166
     
     
     64,680
     
     
     1,493,795
     
     
     7,402,641Purchase of property and equipment
     
     
     374,811
     
     
     —
     
     
     5,134
     
     
     379,9452008OEM Medical
Sales & Service
     
     Direct Medical
Sales & Service
     
     Corporate
     
     TotalsDomestic revenues
     
     $
     9,034,705
     
     $
     664,646
     
     $
     —
     
     $
     9,699,351International revenues
     
     
     1,546,297
     
     
     249,678
     
     
     —
     
     
     1,795,975Revenues from external customers
     
     
     10,581,002
     
     
     914,324
     
     
     —
     
     
     11,495,326Intersegment revenues
     
     
     148,575
     
     
     (148,575
     )
     
     —
     
     
     —Interest expense
     
     
     —
     
     
     —
     
     
     704
     
     
     704Income tax expense
     
     
     258,733
     
     
     80,842
     
     
     16,999
     
     
     356,574Depreciation
     
     
     295,647
     
     
     7,753
     
     
     21,111
     
     
     324,511Segment profit
     
     
     412,883
     
     
     159,791
     
     
     93,465
     
     
     666,139Goodwill
     
     
     695,551
     
     
     —
     
     
     —
     
     
     695,551Total segment assets
     
     
     4,846,254
     
     
     167,649
     
     
     1,321,205
     
     
     6,335,108Purchase of property and equipment
     
     
     706,503
     
     
     —
     
     
     9,884
     
     
     716,387




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NOTE 15  SUBSEQUENT EVENTS

On April 2, 2009, Biotel Inc. entered into a Merger Agreement with CardioNet, Inc., pursuant to which CardioNet, Inc. was to acquire Biotel Inc.s outstanding securities for $4.82 per share. In a letter dated July 14, 2009, CardioNet, Inc., advised Biotel Inc. that it was terminating the Merger Agreement due to Biotel Inc.s breach of a covenant to withdraw and terminate a business relationship with another company. On July 15, 2009, CardioNet, Inc. notified Biotel Inc. that Biotel Inc. owed CardioNet, Inc. $1.4 million for a termination fee and expenses as a result of CardioNets termination of the Merger Agreement. Biotel Inc. believes CardioNet, Inc.s termination of the Merger Agreement is without merit. On July 16, 2009, Biotel Inc. commenced a lawsuit in Hennepin County District Court, State of Minnesota, claiming CardioNet, Inc. breached and improperly terminated the Merger Agreement. Biotel Inc. is seeking specific performance and damages. On August 3, 2009, the case was removed to the United States District Court, District of Minnesota. On September 4, 2009, CardioNet, Inc. submitted an answer and counterclaim denying Biotel Inc.s claims and asserting a counterclaim for the $1.4 million CardioNet, Inc. claims it is owed as a result of its termination of the Merger Agreement.

These financial statements have not been updated for subsequent events occurring after September 28, 2009, which is the date these financial statements were available to be issued.



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