UNITED STATES
SECURITIES AND EXCHANGE COMMISSION  Washington, D.C. 20549


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|FORM 10-KSB
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|(Mark One)
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|x          | Annual report pursuant to Section 13 or 15(d) of the
 Securities Exchange Act of 1934 for the fiscal year ended June 30, 2008.                     
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|           | OR                                                                                                                                                 
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|o          | 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

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BIOTEL INC.(Name of Small business Issuer in its Charter)

|                                                                                             |                                                
|-------------------------------------------------------------------------------------------- | -----------------------------------------------
|Minnesota(State or other jurisdiction of
 incorporation or organization)                     | 41-1427114(I.R.S. Employer
 Identification No.)
|                                                                                             |                                                
|1285
 Corporate Center Drive, Suite 150, Eagan, MN
 (Address of principal executive offices) | 55121
 (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

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Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act o

Check
whether the issuer: (1) 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.    Yes x


No o


Check
if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. o

Indicate
by a check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o Nox

Issuers
revenues for fiscal year ended June 30, 2008 were $11,495,326.

The
aggregate market value of voting and non-voting common equity held by
non-affiliates of registrant as of September 9, 2008 was approximately
$6,542,537.

The
number of shares outstanding of the registrants common stock, par value $0.01
per share, as of September 9, 2008 was 2,763,827.

DOCUMENTS
INCORPORATED BY REFERENCE

The
definitive proxy statement for the 2008 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). Yes o No
x





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PART
I

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|------- | ------------------------
|Item 1. | DESCRIPTION OF BUSINESS.

General

Biotel
Inc. is a Minnesota corporation that was incorporated in 1982. From 1982 to
1998, Biotel developed and marketed digital Holter recorders and software.
Since 1998 we have conducted business as a non-operating holding company
through wholly owned subsidiaries. The businesses of our subsidiaries consist
of developing, manufacturing, testing and marketing medical devices and related
software as described below:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Braemar, Inc. is a North Carolina corporation based
 in Eagan, Minnesota. Braemar designs, manufactures and services non-invasive
 medical and other specialized monitoring products and ultrasound products for
 original equipment manufacturers (OEMs). Braemar was incorporated in 1997
 and became a wholly owned subsidiary of Biotel in 1998 through a series of
 merger and acquisition transactions.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Until July 1, 2006, the Companys King, North
 Carolina facility operated as Carolina Medical, Inc., a Minnesota
 corporation. Carolina Medical was incorporated in 1959 and became a wholly
 owned subsidiary of Biotel in 1998 through a series of merger transactions.
 This business designed, manufactured and serviced biological fluid and tissue
 management systems. Effective July 1, 2006, the assets of Carolina Medical
 were acquired by our subsidiary, Braemar, Inc.; and Carolina Medical, Inc.
 was dissolved on November 8, 2006. Engineering and manufacturing operations
 continued at the King, North Carolina facility through June 30, 2008.
 Effective July 1, 2008, engineering and manufacturing operations were
 consolidated into Braemars Eagan, Minnesota facility other than the
 retention of one engineer in Winston-Salem, North Carolina.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Until September 19, 2008, the Companys Columbia,
 South Carolina facility operated as Advanced Biosensor Inc., a Delaware
 corporation. This facility sells maintenance services, Holter recorders,
 Holter diagnostic software and Holter supplies to medical clinics and
 hospitals and their patients. Effective September 19, 2008, Advanced
 Biosensor was merged into Braemar, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Agility Centralized Research Services, Inc. is a
 Minnesota corporation. Agility provides 7-day/24-hour 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. Biotel purchased the assets comprising Agilitys business in July,
 2004.                                                                                                                                                                                                                                                                                                                                                                                                                              

When
we use the terms Biotel, we, us, our or similar words, unless the
context otherwise requires, we are referring to Biotel and its subsidiaries.
Biotels principal executive offices are located at 1285 Corporate Center Drive,
Suite 150, Eagan, Minnesota 55121, and its telephone number is (651) 286-8620.
Biotels Internet website address is www.biotelinc.com.

Investment
Considerations

Investors
should consider all of the information contained in this report including the
factors discussed under Item 1  Description of Business  Factors That May
Affect Future Results, Item 6  Managements Discussion and Analysis of
Financial Condition and Results of Operations, and Item 7  Financial
Statements, before making an investment decision with regard to our securities.

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Some
of the statements made in this report in the sections listed above and
elsewhere in this report constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. These
statements are subject to the safe harbor provisions of the reform act.
Forward-looking statements may be identified by the use of the terminology such
as may, will, expect, anticipate, intend, believe, estimate, should or continue
or the negatives of these terms or other variations on these words or
comparable terminology. To the extent that this report contains forward-looking statements
regarding the financial condition, operating results, business prospects or any
other aspect of our business, you should be aware that our actual financial
condition, operating results and business performance may differ materially
from that projected or estimated by us in the forward-looking statements. We
have attempted to identify, in context, some of the factors that we currently
believe may cause actual future experience and results to differ from their
current expectations. These differences may be caused by a variety of factors
including, but not limited to, adverse economic conditions, intense competition,
entry of new competitors, inability to obtain sufficient financing to support
our operations, progress in research and development activities, variations in
costs that are beyond our control, adverse federal, state and local government
regulation, unexpected costs, lower sales and net income (or higher net losses)
than forecasted, price increases for equipment, inability to raise prices,
failure to obtain new customers, the possible fluctuation and volatility of our
operating results and financial condition, inability to carry out marketing and
sales plans, loss of key executives and other specific risks that may be
alluded to in this report.

Products and Services

Biotels
development, manufacturing and marketing of medical devices falls into two business
segments  sales and service to medical corporations and sales and service to
clinics and hospitals. Our wholly owned subsidiaries, Braemar and Agility,
design, manufacture, test and sell medical devices and services primarily to
medical corporations. Braemar, through its Columbia, South Carolina facility
previously operated as Advanced Biosensor sells products and services to
clinics and hospitals. Approximately 15% of our revenue is derived from
servicing and repairing products, including providing spare parts.

Sales to Medical
Corporations

Braemar,
Inc.: Braemar develops and manufactures specialty type
medical devices marketed through OEM channels. Braemars primary product line
consists of Holter and event recorders, which allow physicians to monitor and
analyze a patients heart activity over a continuous period without the need
for hospitalization. A Holter recorder is a portable, battery-powered
diagnostic device that monitors heart functions, including electrocardiogram
readings, over a continuous time period (typically 24 to 48 hours). Data is
downloaded for analysis via a USB link or over the Internet. This product is
named after its inventor.

Braemar
produces both analog and digital Holter recorders, as well as tape playback
systems for analog devices. Although Holter recorders were originally developed
as analog devices incorporating a cassette tape to store data, the Holter
recorder and cardiac event recorder industry has transitioned to the use of
digital devices, with analog devices used essentially for service or
replacements. Braemar also manufactures digital cardiac event recorder
products, which record heart functions over a month or longer time period in
order to record infrequent events such as arrhythmia. Instead of providing
continuous monitoring, specific events trigger the device to record heart
functions. Data is downloaded for analysis in a manner similar to that for
Holter recorders.

Braemars
devices are used as components in the product lines of its customers and
typically are manufactured to customer specifications and carry the customers
private labels. In addition to competition from OEM suppliers, Braemars
customers and prospective customers may elect to manufacture their own devices
as an alternative to purchasing the products from Braemar (or other OEM
suppliers). Braemar attempts to differentiate itself from its competitors, as
well as dissuade its customers from producing the devices themselves, by
stressing a combination of quality, cost effectiveness, and its ability to
develop products quickly. Braemar sees continued future growth in digital
battery powered cardiac devices, such as Holter recorders and cardiac event
recorders, including opportunities to integrate wireless technology for
recording, storing and sharing data.

Braemar
is a registered device manufacturer with the United States Food and Drug
Administration (FDA) and is required to meet the agencys Quality System
Regulation. Braemars Eagan, Minnesota manufacturing facility is certified to
and meets ISO 9001:2000, ISO 13485:2003 and EN46001 standards.

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Until
July 1, 2006, the Companys King, North Carolina facility operated as Carolina
Medical. Effective July 1, 2006, Braemar, Inc. acquired the assets of Carolina
Medical, and Carolina Medical, Inc. was dissolved on November 8, 2006. Braemar developed, manufactured and
serviced OEM components for biological fluid and tissue management at the King,
North Carolina facility until the facility was closed on June 30, 2008 and
development and manufacturing operations were consolidated at Braemars Eagan,
Minnesota facility.

Agility
Centralized Research Services, Inc.: Agility contracts
with medical device and pharmaceutical companies, contract research and
academic research organizations worldwide to provide 24-hour/day 7-day/week
electrocardiogram (ECG) data and management services for cardiac safety and
therapeutic evaluation purposes within clinical trials. Agility is based in
Bannockburn, Illinois.

Sales to Clinics and
Hospitals

Braemar,
Inc.: Braemar, through its Columbia, South Carolina
facility formerly operated as Advanced Biosensor, distributes PC-based
diagnostic monitoring products marketed to clinics and hospitals. This facility
sells maintenance services, Holter recorders, Holter diagnostic software and
Holter supplies to medical clinics and hospitals and their patients..

Marketing and Sales

Approximately
80% of Biotels revenues for fiscal 2008 were derived from sales to OEM
manufacturers. Foreign sales, primarily to Europe, accounted for about 16% of
our revenues during the year ended June 30, 2008.

Sales to Medical
Corporations

Braemar
manufactures products for use in OEM-manufactured medical devices. OEM sales
traditionally result in lower selling expenses due to fewer customers and fewer
sales-related employees and independent representatives. However, gross margins
are lower for OEM sales and the customer base is highly concentrated.

Agility
markets its products to pharmaceutical companies, medical device manufacturers,
and contract research and academic research organizations.

Sales to Clinics and
Hospitals

Braemar,
Inc., through its Columbia, South Carolina facility, formerly Advanced
Biosensor, markets its products to clinic and hospital end-users. It relies
primarily on telemarketing and leads generated from existing customers.

Significant Customers

The
Company had three major customers which accounted for approximately 39% and 45%
of the Companys consolidated revenues in the years ended June 30, 2008 and
2007, respectively.

Backlog

Our
product lines have no significant order backlog because we follow the industry
practice of stocking finished goods to meet customer demand on a just-in-time
basis. We believe that the ability to fill orders in a timely fashion is a
competitive factor in the markets in which we operate.

Competition

The
medical device market is highly competitive. We are subject to competition on
the basis of price, delivery time, customer service and our ability to meet
specialty needs. There are a number of firms that provide certain products and
services similar to those provided by Biotel and vary from small operations
offering a certain similar subset of our products or services to large
integrated product and service companies. Each of our businesses competes with
at least one major competitor, and these competitors vary according to specific
products within a business. Due to the diversity of our product lines as
a whole, no single competitor competes with us across the entire spectrum of
our product lines.

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Braemar
faces competition in its Holter recorder business from small private companies
that produce OEM Holter recorders such as Datrix Corporation. In Braemars
event recorder business, it faces competition including Instromedix, Inc., a
division of Card Guard Technologies, Inc. In its component business for flow
transport, flow measurement and ultrasound medical devices it faces competition
from other companies, such as HEI, Inc. and Plexus Corp., each of which
manufacture devices for medical companies. Agilitys primary competitors
include eResearch Technology, Inc. and Biomedical Systems.

In
most cases, our competitors are larger companies that undertake a greater
diversity of product lines and services and have substantially more resources
than we do. These larger companies produce a wide variety of contract research,
testing, engineering and manufacturing services, whether related to diagnostic
and clinical testing, OEM equipment, or both. There are also a significant
number of small and mid-size companies that generally compete in segments of
the diagnostic and clinical testing industry or as OEM equipment vendors. As a
result, contract research, testing, engineering and manufacturing in the
diagnostic, clinical testing and OEM manufacturing industries is fragmented and
segmented.

In
addition to actual competitors, Biotel faces possible competition from its OEM
customers, who could change their outsourcing strategy and elect to produce or
undertake internally the product development, testing, and manufacturing
services provided by Biotel.

We
believe we enjoy strong customer relations resulting from our long
participation in the industry, emphasis on customer service, commitment to
quality control and reliability.

Research and Development

Our
aggregate research and development expenses during the fiscal years ended June
30, 2008 and 2007 amounted to approximately $1.7 million and $1.5 million,
respectively. We continually seek to develop new technologies that will offer
accelerated and improved research, development, testing, and manufacturing
operations options to our medical device and pharmaceutical company customers.
In addition to internally developing new technologies, we may, when
appropriate, pursue alliances and acquire technologies and products that we
believe to be commercially viable and complementary to the core technologies of
our operating companies.

Employees

As
of August 31, 2008, we had 49 employees. No employees are represented by labor
organizations, and there are no collective bargaining agreements. We consider
relations with our employees to be good. Set forth below is a chart of our
employment by business segment:

|                           |  |                            |  |                                 |   |  | 
|-------------------------- |  | -------------------------- |  | ------------------------------- | - |  | 
|                           |  | Sales to Medical Companies |  | Sales to Clinics 
And Hospitals |  
|                           |  |                            |  |                                 |  
|Manufacturing/R&D          |  | 32                         |  |                                 | 2 |  | 
|Sales and Marketing        |  | 4                          |  |                                 | 0 |  | 
|General and Administrative |  | 10                         |  |                                 | 1 |  | 
|                           |  |                            |  |                                 |   |  | 
|Total                      |  | 46                         |  |                                 | 3 |  | 
|                           |  |                            |  |                                 |   |  | 

As
the holding company for the subsidiaries, Biotel has a full-time Chief
Executive Officer and a Chief Financial Officer who also serves as the Chief
Financial Officer and Vice President of Braemar. These two positions are
included in the table above.

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Environmental Matters

Our
manufacturing operations are subject to federal, state and local environmental
laws and regulations relating to, among other things, the storage, handling,
disposal, emission, transportation and discharge of hazardous substances,
materials and waste products. We do not believe that compliance with
environmental laws and regulations will have a material effect on the level of
our capital expenditures or our business, financial condition, liquidity or
results of operations. However, violation of, or non-compliance with, these
laws, regulations or permit requirements, even if inadvertent, could result in
an adverse impact on our operations, business, financial condition, liquidity
or results of operations.

Manufacturing

Most
of the materials and components we use are available from a number of different
suppliers. We generally maintain multiple sources for most items, but some
components are single sourced. We are dependent upon our suppliers for timely
delivery of quality components. To date, we have not experienced significant
delays in the delivery of components. We do maintain designs, drawings, molds,
tools, safety stock, alternate vendors, and other techniques to eliminate or
mitigate the effects of the loss of a single source vendor.

Most
products are built in response to specific customer purchase orders, while
others are fabricated as standard products. The manufacturing process consists
primarily of assembly and testing of custom and commercially available
components from outside sources.

Product Warranties and Service

We
provide warranties against defects in materials and workmanship in our
products. Warranty periods for our products range from 90 days to two years. At
the time a sale is recorded, we establish a provision for estimated expenses of
providing service under these warranties. Non-warranty service is billed to the
customer as performed. As of June 30, 2008 and 2007, our provision for warranty
services was $87,512 and$75,906, respectively. The assumptions we
use to estimate warranty accruals are evaluated periodically in light of actual
experience and managements estimates of future claims, and, when appropriate,
the accruals are adjusted. Our determination of the appropriate level of
warranty accrual is subjective and based on estimates and actual experience
that can be different than our expectations

Government and Other Regulation

Biotels
manufacturing subsidiary, Braemar, is registered with the United States Food
and Drug Administration (the FDA). The Medical Device Amendments of 1976 to
the Food, Drug and Cosmetic Act (the Act) and regulations issued or proposed
thereunder, including the Safe Medical Devices Act of 1990, provide for
regulation by the FDA of the marketing, design, manufacturing, labeling,
packaging and distribution of medical devices. These regulations apply to many
of the products that are outsourced to us for manufacture.

The
Act and the regulations include requirements that manufacturers of medical
products and devices register with and furnish lists of products and devices
manufactured by them to the FDA. Prior to marketing a medical product or
device, the FDA requires the company selling the product or device to obtain
FDA clearance. Tests to be performed for approval range from bench-test data
and engineering analysis to potentially expensive and time-consuming clinical
trials. The types of tasks for a particular product submission are indicated by
the classification of the device and previous approvals for similar devices.
Braemar is registered with the FDA.

Braemars
procedures and records are also subject to ongoing review by the FDA from time
to time, pursuant to the FDAs Quality System Regulation (QSR). The QSR for
medical devices sets forth standards for the design and manufacturing processes
that require Braemar to maintain certain records and provides for unscheduled
inspection of its facilities.

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There
are also certain requirements of other federal laws and of state, local and
foreign governments, which may apply to the manufacture and marketing of our
OEM and other products and services. In addition, European Community
regulations also apply to products that are offered in European markets.
Biotels OEM products are marketed in European markets
and are subject to these regulations, and Biotel or its customers are required
to complete testing programs prior to selling medical devices in the European
Community. Biotel development and manufacturing divisions conduct planned
periodic quality assessment in conjunction with European Community medical
device regulations and are regularly inspected by authorized bodies. Biotel
companies have met or exceeded the necessary quality system programs to permit
distribution in the European Community, whether for its products or certain of
its customers products.

The
ISO 9000 series of quality management and quality assurance standards has been
adopted by over 90 countries. ISO standards require that a quality system be
used to guide work to assure quality and to produce quality products and
services. ISO 9001, the most comprehensive of the standards, covers 20
elements. These elements include management responsibility, design control,
training, process control and servicing. ISO 9001 is the quality system
standard used by companies providing design, development, manufacturing,
installation and servicing. Biotels quality systems are ISO 9001, ISO 13485
and EN 46001 certified.

Intellectual
Property

We
try to protect our proprietary technology and know-how through established
security practices and confidentiality, non-competition and invention
assignment agreements with certain of our employees. We also rely on
non-disclosure agreements with certain suppliers and customers. There can be no
assurance that these agreements or procedures will provide meaningful
protection for our trade secrets in the event of unauthorized use or disclosure
of such information.

Management

Executive
officers of Biotel are as follows:

|                       |  |     |  |                                                                                                      |  | 
|---------------------- |  | --- |  | ---------------------------------------------------------------------------------------------------- |  | 
|Name                   |  | Age |  | Position                                                                                             | 
|                       |  |     |  |                                                                                                      |  | 
|                      
|B. Steven
 Springrose  |  | 59  |  | Chief
 Executive Officer of Biotel; Chief Executive Officer of Agility Centralized Research Services
|                      
|Harold A.
 Strandquist |  | 59  |  | Executive
 Vice President of Biotel, Sales, Marketing and Business Development                      
|                      
|Judy E. Naus           |  | 63  |  | Chief
 Financial Officer of Biotel; Vice President and Chief Financial Officer of
 Braemar          

B.
Steven Springrose has served as Biotels President
and Chief Executive Officer since July 2003, as Secretary since 1982, and as a
director since 1982. Mr. Springrose also serves as Agilitys Chief Executive Officer. Mr. Springrose was employed
in a management position with Biotel from 1982 through 1998 and in a management
position with Braemar, Inc. from January 1999 to November 1999. Mr. Springrose
served as an independent contractor with pacemaker sales from 2000 to 2003. Mr.
Springrose earned his bachelor of science degree from the University of Minnesota
and a master of science degree from Washington University in St. Louis,
Missouri, in biomedical engineering. He also earned an MBA from the University
of St. Thomas, and holds three patents.

Harold
A. Strandquistwas named Biotels Executive Vice
President for Sales, Marketing and Business Development, effective September 1,
2008. He has served as the President of Braemar Corporation since November
2002. He began working for Braemar in February 2002. Mr. Strandquist was
Central Regional Sales Director for Ela Medical, Inc., Division of Sanofi
Diagnostics Pasteur SA (of France), a pacemaker and ICD manufacturer, for
approximately four years before coming to Braemar. Previously he had worked as
Director of Sales and Marketing for Angeion Corporation, and joined Ela
Medical, Inc. when it acquired Angeion in 1998. He also worked for Medtronic
Inc. in various sales and marketing positions. Mr. Strandquist holds a bachelor
of science degree with dual majors in chemistry and economics, as well as an
MBA in management. In addition, he has Heart Rhythm Society (f/k/a North
American Society for Pacing and Electrophysiology) certification in
electro-physiology.

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Judy
E. Naus has served as the Chief Financial Officer
of Biotel since November 2003. She also serves as the Chief Financial Officer
and Vice President of Braemar, a position she has held since 1997. Ms. Naus
holds a bachelor of arts degree in business administration/accounting from
Augsburg College in Minneapolis, Minnesota and has been employed with Braemar
since 1977.

Factors That May Affect Future Results

Factors
that may affect our future results include, but are not limited to, the
following items as well as the information in Item 6  Managements Discussion
and Analysis of Financial Condition and Results of Operations.

The
following risk factors should be considered carefully in addition to the other
information contained in this report. This report contains forward-looking
statements that involve risks and uncertainties. Our actual results could
differ materially from those contained in the forward-looking statements.
Factors that may cause these differences include those discussed below as well
as those discussed elsewhere in this report.

Three
customers generated a significant portion of our revenues.
Three major customers accounted for 39% and 45% of our consolidated revenues in
the fiscal years ended June 30, 2008 and 2007, respectively, and these
customers will likely account for a significant percentage of our revenues
during fiscal 2009. Because these customers are not required to purchase any
minimum amount of products from us, or any products at all, there is no
assurance that we will be able to retain these major customers or continue to maintain
the levels of sales to them. The loss of or reduction in demand for our
products from a major customer could have a material adverse effect on
operating results and cash flow from operations.

We
may be unable to raise additional capital to meet capital expenditure needs if
our operations do not generate sufficient funds to do so.
Our business is expected to have continuing capital expenditure needs. While we
anticipate that our operations will generate sufficient funds to meet our
capital expenditure needs for the foreseeable future, our ability to gain
access to additional capital, if needed, cannot be assured, particularly in
view of competitive factors and industry conditions. Competitive factors and
industry conditions include quality, price, technological capability,
proprietary rights, and the ability to develop and market products and
processes. Any additional capital raised through the sale of equity may dilute
the ownership percentage of holders of our common stock.

Our
inability to compete with other manufacturers in the medical device industry
could harm our business. The market for medical
devices is highly competitive. Each of our subsidiary businesses compete with
at least one major competitor. In addition, our OEM customers represent
potential competition, in that one or more may decide not to outsource the
design and manufacture of some or all components used in their products. We are
subject to competition in many markets on the basis of price, delivery time,
customer service and our ability to meet specialty needs. Some of our
competitors are significantly larger and have greater resources, financial and
other, than we do. There can be no assurance that we will be able to compete
successfully with our existing competitors or with new competitors. Failure to
compete successfully could have a material adverse effect on our business.

If
we fail to achieve and maintain the high manufacturing standards that our
products and services require, our business could suffer.
Our products and services require precise, high quality manufacturing. Our
failure to achieve and maintain these high manufacturing standards, including
the incidence of manufacturing errors, design defects or component failures,
could result in patient injury or death, product recalls or withdrawals, delays
or failures in product testing or delivery, cost overruns or other problems
that could seriously hurt our business.

If
we are unable to retain senior management, our business operations could be
adversely affected. Our success and future
prospects depend on the continued contributions of our senior management. There
can be no assurances that we would be able to find qualified replacements for
these individuals if their services were no longer available. The loss of
services of one or more members of our senior management team could have a
material adverse effect on our business.

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Failure
to protect our trade secrets, copyrights and other intellectual property and
know-how could put us at a competitive disadvantage. Our intellectual
property rights are and will continue to be a critical component of our
success. A substantial portion of our intellectual property rights relating to
our current products and those under development is in the form of trade
secrets, rather than patents. In order to preserve certain proprietary
information as trade secrets, we are required to restrict disclosure of
information intended to constitute trade secrets to third parties. We protect
our trade secrets and proprietary knowledge in part through confidentiality
agreements with certain of our employees, consultants and other parties.
Certain of our consultants and third parties with whom we have business
relationships may also provide services to other parties in the medical device
industry, including companies, universities and research organizations that are
developing competing products. In addition, some of our former employees may
seek employment with, and become employed by, our competitors. We do not have
confidentiality agreements with all of our employees, consultants and
third-parties, and cannot assure that the confidentiality agreements that are
in place with our employees, consultants and third parties will not be
breached, that we will have adequate remedies for a breach, or that our trade
secrets will not become known to or be independently developed by our
competitors. Although we are not currently aware of any parties currently
intending to pursue any infringement claims against us, the loss of trade
secret protection for technologies or know-how could adversely affect our
business prospects.

Companies
in the medical device industry typically obtain patents and frequently engage
in substantial intellectual property litigation. Our products and technologies
could infringe on the rights of others. If a third party successfully asserts a
claim for infringement against us, we may be liable for substantial damages, be
unable to sell products using that technology, or have to seek a license or
redesign the related product. These alternatives may be uneconomical or
impossible. Patent litigation could be costly, result in product development
delays and divert the efforts and attention of management from our business. We
do not have any pending infringement claims against us, nor are we aware that
any parties intend to pursue any infringement claims in the future.

Product
liability claims could damage our reputation and hurt our financial results.
The use of medical products, even after regulatory approval, poses an inherent
risk of product liability claims. We maintain limited product liability
insurance coverage of $1,000,000 per occurrence and $2,000,000 of general
aggregate liability, subject to deductibles and exclusions. Although we believe
our present insurance coverage is adequate, we cannot be sure that product
liability insurance will be available in the future or will be available on
acceptable terms or at reasonable costs, or that such insurance will provide us
with adequate coverage against potential liabilities. Claims against us,
regardless of their merit or potential outcome, may also hurt our ability to
obtain physician endorsement of our products or expand our business. If we have
to pay product liability claims in excess of our insurance coverage, our
financial condition could be adversely affected.

Our
Agility subsidiary faces the risk of becoming involved in litigation as a
result of injury or death to a clinical test subject.
Agility provides ECG data collection and management services in connection with
testing pharmaceutical and medical device products. A portion of the services
Agility provides to the manufacturers involves monitoring ECG results of test
patients. Agility does not provide diagnostic or other healthcare services to
the patient. Although Agility does not have a contractual relationship with the
test subjects and has taken steps to limit its liability in the case of patient
injury or death, Agility could be named as a defendant in resulting litigation
due to its role in the clinical testing. Agility is not a defendant in any
litigation and is not aware of any circumstances under which it could be named
as a defendant in a lawsuit in the future. Involvement in litigation would
likely be costly and time consuming to management, regardless of whether
Agility ultimately prevailed in the litigation.

If
our suppliers cannot provide the components we require, our ability to
manufacture our products could be harmed. We rely
on third party suppliers to provide us with certain components used in our
products. These and other supply factors could make it more difficult for us to
effectively and efficiently manufacture our products and could adversely impact
our results of operations. Relying on third party suppliers makes us vulnerable
to component part failures and to interruptions in supply, either of which
could impair our ability to ship our products to our customers on a timely
basis. Using third party vendors makes it difficult and sometimes impossible
for us to test fully certain components, such as components on circuit boards,
maintain quality control, manage inventory and production schedules and control
production costs. Vendor lead times to supply us with ordered components vary significantly.
We cannot be sure that our suppliers will furnish us with required components
when we need them. Although some suppliers may be the only source for a
customized component, which makes us vulnerable to
cost increases and supply interruptions, We maintain designs, drawings, molds,
tools, safety stock, alternate vendors, and other techniques to eliminate or
mitigate the effects of the loss of a single source vendor. As a result, we do
not believe the loss of any vendor of single source components would have a
material effect on our business. For example, if a supplier does not
satisfactorily provide a customized product, we believe we have the ability to
find a replacement supplier by retrieving the molds and providing them to a
replacement supplier. If we are unable to retrieve the molds or they are
destroyed, the molds can be reproduced.

9

---



Our
business could be materially adversely impacted by risks inherent in
international markets. During the 12 months ended
June 30, 2008 and 2007, approximately 16.0% and 9.0%, respectively, of our
revenues were generated by customers outside the United States. Approximately
90% of these customers are located in Europe. We expect that customers outside
the United States will continue to account for a comparable portion of Biotels
revenue in the future. Our international sales subject us to inherent risks
related to changes in the economic, political, legal and business environments
in the foreign countries in which we do business. Although Europe has
historically been stable, we may still be subject to the following general
risks relating to international sales:

| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | Fluctuations
 in currency exchange rates.                                           
| |  | Regulatory,
 product approval and reimbursement requirements.                       
| |  | Tariffs and
 other trade barriers.                                                  
| |  | Greater
 difficulty in accounts receivable collection and longer collection periods.
| |  | Difficulties
 and costs of managing foreign distributors.                           
| |  | Reduced
 protection for intellectual property rights in some countries.             
| |  | Burdens of
 complying with a wide variety of foreign laws.                          
| |  | The impact
 of recessions in foreign economies.                                     
| |  | Political
 and economic instability.                                                

If we fail to
successfully market and sell our products in international markets, our
business, financial condition, results of operations and cash flows could be
negatively affected.

Our
common stock is subject to the SECs penny stock rules, which makes our shares
more difficult to sell. The SEC rules regarding penny stocks may have the effect of
reducing trading activity in our common stock and making it more difficult for
investors to sell. Under these rules, broker-dealers who recommend such
securities to persons other than institutional accredited investors must:

| |   |                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Make a
 special written suitability determination for the purchaser.                                                                                                                                                        
| |  | Receive the
 purchasers written agreement to a transaction prior to sale.                                                                                                                                                  
| |  | Provide the
 purchaser with risk disclosure documents which identify certain risks
 associated with investing in penny stocks and which describe the market for
 these penny stocks as well as a purchasers legal remedies.
| |  | Obtain a
 signed and dated acknowledgment from the purchaser demonstrating that the
 purchaser has actually received the required risk disclosure document before
 a transaction in a penny stock can be completed.         
| |  | Give bid and
 offer quotations and broker and salesperson compensation information to the
 customer orally or in writing before or with the confirmation.                                                                   

These rules
may make it more difficult for broker-dealers to effectuate customer
transactions and trading activity in our securities, resulting in a lower
trading volume of our common stock and lower trading prices.

An
active trading market may not develop for our common stock, and we cannot
assure the market price for our common stock if a market does develop.
Our common stock is quoted on the OTC Bulletin Board. However, there can be no
assurance that an active market for our common stock will develop, or if any
such market does develop, that it will continue. To the extent that brokerage firms act as market makers for our
securities, they may be a dominating influence in any market that might
develop, and the degree of participation by these firms may significantly
affect the price and liquidity of our common stock. These firms may discontinue
their market making activities at any time. The prices at which our common
stock are traded in the market will be determined by these firms and by
the purchasers and sellers of our securities, but the prices may not necessarily
relate to our assets, book value, results of operations or other established
and quantifiable criteria of value. Securities quoted on the OTC Bulletin Board
are often thinly traded, highly volatile and not followed by analysts.
Consequently, investors may have difficulty reselling our common stock.

10

---



Our
policy to forego paying dividends for the foreseeable future may hurt our stock
price. We do not anticipate paying any dividends
on our common stock for the foreseeable future, which may make our common stock
an unattractive investment. Some institutional investors may only invest in
dividend-paying equity securities or may operate under other restrictions that
may prohibit or limit their ability to invest in our common stock.

Undesignated
shares in our articles of incorporation could prevent or delay a change in
control of us or otherwise negatively affect shareholders.Our articles of incorporation
currently authorize the board of directors, without shareholder approval, to
issue up to 12,000,000 shares of capital stock, of which up to 2,000,000 shares
are designated as preferred stock and up to 10,000,000 shares are designated as
common stock. We currently have 2,763,827 common shares outstanding. The board
of directors may issue up to 2,000,000 preferred shares in one or more classes
or series and with those provisions as it determines, without shareholder
approval. The holders of our common stock do not have any preemptive rights.
The issuance of stock with rights and preferences determined by the board of
directors could make it more difficult for a third party to acquire us, dilute
the stock ownership or adversely effect the rights of holders of our common
stock, including voting rights.

|        |                         
|------- | ------------------------
|Item 2. | DESCRIPTION OF PROPERTY.

We
conduct our principal operations at leased facilities described below. We
believe that our existing facilities are suitable for their use and will be
adequate to meet our needs for the foreseeable future. We also believe that any
additional space needed in the future will be available at commercially
reasonable rates.

|                                                                                                              |  |                                                |  |                       |  |                                 
|------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------- |  | --------------------- |  | --------------------------------
|Entity Name; Location                                                                                         |  | Use                                            |  | Square 
 Feet
 Leased |  | Term of Lease                   
|                                                                                                              |  |                                                |  |                       |  |                                 
|Braemar,
 Inc. 
 1285 Corporate Center Drive, 
 Suite 150 
 Eagan, MN 55121                                   |  | Production, 
 engineering and 
 administration |  | 17,314                |  | Lease
 expires August 31, 2011. 
|                                                                                                             
|Braemar,
 Inc. 
 157 Industrial Drive 
 King, NC 27021                                                        |  | Production, 
 engineering and 
 administration |  | 13,440                |  | Lease
 expired June 30, 2008.   
|                                                                                                             
|Braemar,
 Inc. 
 300 Jonestown Road, #6 
 Winston-Salem, NC 27104                                             |  | Engineering                                    |  | 1,420                 |  | Lease
 expires June 30, 2011    
|                                                                                                             
|Braemar,
 Inc. (formerly 
 Advanced Biosensor Inc.) 
 400 Arbor Lake Drive, 
 Suite B450 
 Columbia, SC 29223 |  | Administration                                 |  | 2,903                 |  | Lease
 expires April 30, 2009.  
|                                                                                                             
|Agility
 Centralized Research 
 Services, Inc. 
 2275 Half Day Road 
 Suite 133 
 Bannockburn, IL 60015       |  | Service
 operations                            |  | 1,225                 |  | Lease
 expires January 31, 2009.

11

---



|                 |                                                      
|---------------- | -----------------------------------------------------
|Item 3.          | LEGAL PROCEEDINGS.                                   
|                 |                                                      
|Not
 Applicable.
|                 |                                                      
|Item 4.          | SUBMISSION OF MATTERS TO A VOTE OF SECURITY
 HOLDERS.
|                 |                                                      
|Not
 applicable.

PART
II

|        |                                                                                                                 
|------- | ----------------------------------------------------------------------------------------------------------------
|Item 5. | MARKET FOR COMMON EQUITY, RELATED
 STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.

Our
common stock is traded on the Over the Counter Bulletin Board under the symbol
BTEL.OB. The reported high and low bid prices for the fiscal quarters for the
past two fiscal years ending June 30, 2008 are set forth in the table below, as
reported by MarketWatch.com. These quotations represent prices between dealers
and do not include retail markup, markdown or commission and may not represent
actual transactions.

|                           |  |   |      |  |      |      |  | 
|-------------------------- |  | - | ---- |  | ---- | ---- |  | 
|Quarter Ended
 2007  2008 |  |   | Low  |  | High |     
|                           |  |   |      |  |      |     
|September 30               |  | $ | 3.20 |  | $    | 4.25 | 
|December 31                |  | $ | 2.70 |  | $    | 3.79 | 
|March 31                   |  | $ | 2.76 |  | $    | 3.60 | 
|June 30                    |  | $ | 2.70 |  | $    | 3.30 | 
|                           |  |   |      |  |      |      |  | 
|Quarter Ended
 2006  2007 |  |   | Low  |  | High |     
|                           |  |   |      |  |      |     
|September 30               |  | $ | 1.60 |  | $    | 2.50 | 
|December 31                |  | $ | 1.60 |  | $    | 2.25 | 
|March 31                   |  | $ | 1.70 |  | $    | 2.13 | 
|June 30                    |  | $ | 3.00 |  | $    | 5.25 | 

As
of June 30, 2008, we had approximately 400 shareholders of record of our common
stock. We have not paid any cash or other dividends during our last two fiscal
years, and we currently have no intention to pay dividends. The payment of
dividends, if any, in the future, rests within the discretion of our board of
directors and will depend, among other things, upon our earnings, our capital
requirements and our financial condition, as well as other relevant facts.

Unregistered
Sales of Equity Securities and Use of Proceeds. Biotel did not issue any shares of capital
stock during the quarter ended June 30, 2008.

Securities
Authorized for Issuance Under Equity Compensation Plans. The following table sets forth certain
information about Biotel common stock that may be issued upon exercise of
options as of June 30, 2008, under the Biotel 2001 Incentive Compensation Plan,
which is Biotels only equity compensation plan. The board of directors grants
qualified and non-qualified stock options to purchase shares of Biotel common
stock to all eligible participants, which includes officers, directors and
employees. Option prices of grants are not less than the fair market value of
Biotel common stock at grant dates.

12

---



|                                                              |  |  |                                                                                               |  |   |                                                                              |  |  |                                                                                                                                               | 
|------------------------------------------------------------- |  |  | --------------------------------------------------------------------------------------------- |  | - | ---------------------------------------------------------------------------- |  |  | --------------------------------------------------------------------------------------------------------------------------------------------- | 
|                                                              |  |  | Number of
 securities to be issued upon exercise of outstanding options, warrants and
 rights |  |   | Weighted
 average exercise price of outstanding options, warrants and rights |  |  | Number of
 securities remaining available for future issuance under equity compensation
 plans (excluding securities reflected in column (a)) | 
|                                                              |  |  |                                                                                               |  |   |                                                                              |  |  |                                                                                                                                               | 
|                                                              |  |  | (a)                                                                                           |  |   | (b)                                                                          |  |  | (c)                                                                                                                                           | 
|Equity compensation plans approved by
 security holders       |  |  | 211,000                                                                                       |  | $ | 1.3635                                                                       |  |  | 439,000                                                                                                                                       | 
|Equity compensation plans not approved by
 securities holders |  |  |                                                                                              |  |   |                                                                             |  |  |                                                                                                                                              | 
|                                                              |  |  |                                                                                               |  |   |                                                                              |  |  |                                                                                                                                               | 
|                                                             
|Total                                                         |  |  | 211,000                                                                                       |  | $ | 1.3635                                                                       |  |  | 439,000                                                                                                                                       | 
|                                                              |  |  |                                                                                               |  |   |                                                                              |  |  |                                                                                                                                               | 

|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 6. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
 RESULTS OF OPERATIONS

Critical Accounting Policies

The
consolidated financial statements of Biotel include the accounts of Biotel Inc.
and its wholly-owned subsidiaries. Significant intercompany accounts and
transactions are eliminated in consolidation.

Management
uses estimates and assumptions in preparing financial statements, including
those assumed in computing the allowance for doubtful receivable accounts,
inventory valuation allowances and warranty reserves and deferred income tax
valuation allowances. Those estimates and assumptions may affect the reported
amounts of assets and liabilities, disclosures of contingent assets and
liabilities, and reported revenues and expenses. Actual results may vary from
these estimates.

At
times Biotel maintains bank deposits in excess of federally insured limits.
Management monitors the soundness of these financial institutions and believes
Biotels risk is negligible.

Biotel
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. Biotel establishes an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical
trends and other information.

Biotel
follows the policy of charging the costs of advertising, except for costs
associated with direct response advertising, to operating expenses as incurred.
The costs of direct response advertising are capitalized and amortized over the
period during which future benefits are expected to be received.

Inventories
are valued at lower of cost (using the average and first-in first-out cost
methods) or market.

Property,
equipment and leasehold improvements are recorded at cost. Depreciation is
calculated using the straight-line method 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
original leases.

SFAS
No. 142, Goodwill and Other Intangible
Assets. Goodwill is deemed to have an indefinite useful life and is
not amortized but is subject to impairment tests performed at least annually.
During fiscal 2008 and 2007, we performed the required impairment tests of
goodwill and determined our recorded goodwill had not been impaired.

13

---



Amounts
billed to customers for service contracts are recognized as income over the
term of the agreements, and the associated costs are recognized as incurred.

We
routinely warrant our recorders against defects in material and workmanship for
one year. Supplies, accessories and repairs typically carry no warranty to
90-days warranty, depending on the item. An accrual is provided for estimated
future claims. Such accruals are based on historical experience and
managements estimate of the level of future claims.

Revenues
from product sales are recognized at date of shipment.

Research
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.

Income
taxes are provided for the tax effects of transactions reported in the
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 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 expected to be realized.

We
consider all highly liquid short term investments purchased with an original
maturity of three months or less to be cash equivalents.

Overview

Biotel
has been implementing a strategy to expand its base of operations among medical
companies who seek to outsource strategic items provided by various Biotel
companies. From our operating subsidiaries located within the United States, we
supply an array of products and services to provide for the research,
development, testing, and manufacturing needs of our customers.

Biotel
subsidiaries, Braemar, Inc. and Agility Centralized Research Services, Inc.,
sell medical devices, technology and research services to medical companies.
They design, manufacture, and test 24- and 48-hour Holter recorders, 30-day ECG
event recorders, tissue extraction components, and flow control devices;
provide 24/7 clinical ECG research services and internet technologies; complete
FDA, CE, and other regulatory testing; and develop, test, and manufacture other
custom medical devices. These subsidiaries form a base of products and services
which we believe are attractive to medical device and pharmaceutical companies,
allowing accelerated and improved research, development, testing, and
manufacturing operations for our customers.

Biotel
subsidiary, Braemar, Inc., through its Columbia, South Carolina facility which
was formerly Advanced Biosensor Inc., sells maintenance services, Holter
recorders and event recorders manufactured by Braemar, diagnostic Holter
software provided by others and Holter supplies to hospitals and clinics.

These
subsidiaries have experienced improvements in their business activity as a
result of marketing efforts to acquire new customers and to expand
relationships among current customers.

Results of Operations

Biotels
net revenues for the year ended June 30, 2008, were $11,495,000, 2.3% above net
revenues of $11,233,000 for the year ended June 30, 2007. Revenue increased in
fiscal year 2008 as a result of growth in service revenues from the Agility
subsidiary. In the fiscal years ended June 30, 2008 and 2007, 39% and 45%
respectively, of Biotels revenues were derived from three customers. The loss
of one or more of these customers would have an immediate significant adverse
effect on our financial results.

14

---



Gross
profit margin increased to $5,099,000 (44.4%) for fiscal year 2008, compared to
$4,782,000 (40.5%) in fiscal year 2007. Cost of sales and service decreased to
$6,396,000 for fiscal year 2008, compared to $6,451,000 for fiscal year 2007.
The decrease in cost of sales and service was primarily the result of product
mix and cost control efforts. Gross profit margin increased as a result of
product mix and cost control efforts, as well as increased sales of higher
margin services at our clinical research service operation. Gross margins vary
from year to year dependent on model mix and subsidiary contributions. Biotel
does not project a substantial change to its gross margin in fiscal year 2009.

Selling,
general and administrative expenses increased to $2,425,000 (21.0% of sales)
for the year ended June 30, 2008, compared to $2,363,000 (21.0% of sales) for
the year ended June 30, 2007. This increase is primarily the result of selling
expenses associated with increased sales activity and administrative expenses
associated with general corporate legal fees. Selling expenses include
salaries, commissions, benefits, travel expenses and other selling expenses.

Research
and development expenditures for fiscal year 2008 were $1,674,000, an increase
of 14.3% compared to $1,464,000 in fiscal year 2007. The increase was primarily
the result of extensive research and development efforts in fiscal year 2008
related to new Holter and event recorder products. Biotel expects a similar
level of expenditures for research and development in fiscal year 2009.

Interest
expense decreased to $700 for the year ended June 30, 2008, compared to
interest expense of $32,000 for the year ended June 30, 2007. Interest expense
decreased corresponding to the reduction in long term debt.

Net
earnings for the year ended June 30, 2008 and 2007, were $666,000 and $520,000,
respectively. Net earnings improved as a result of increased revenues and cost
control efforts.

Off-Balance Sheet Arrangements

Biotel
does not have any off-balance sheet financing arrangements.

Liquidity and Capital Resources

Working
capital increased to $3,125,000 at June 30, 2008, compared to $2,634,000 at
June 30, 2007. The increase in working capital was primarily a result of a
strong cash position at June 30, 2008.

Cash
and cash equivalents were $945,000 at June 30, 2008, compared to $508,000 at
June 30, 2007. The increase in cash was influenced by many factors, primarily
operating activities and improvements in cost structures. The ratio of current
assets to current liabilities (current ratio) increased to 3.22 to one at
June 30, 2008, compared to 2.80 to one at June 30, 2007.

Accounts
receivable decreased to $1,767,000 at June 30, 2008, versus $1,966,000 at June
30, 2007. The decrease in accounts receivable was related to strong collections
and improved payment cycles of major customers. To the extent that credit terms
are extended to customers, Biotels cash position is diminished and debt may be
required to supplement cash flows. Accordingly, Biotel attempts to make timely
collections from its customers in accordance with credit terms, extend credit
only to credit worthy customers with a strong payment history, and to keep
credit terms as short as is practicable.

In
fiscal year 2008, $716,000 was used for capital expenditures, compared with
$356,000 in fiscal year 2007. Biotel has invested in new Holter and Wireless Event
Recorder platforms in fiscal year 2008, causing a significant increase in
capital investment. Levels of capital investment are expected to vary from year
to year.

Inventory
increased to $1,428,000 for the year ended June 30, 2008, compared to
$1,122,000 for the year ended June 30, 2007. This increase is a result of
materials purchased to support increased sales levels and new product introductions. Biotels subsidiaries
manage inventories to provide safety stock and product flow for customers while
controlling the amount of inventory.

15

---



Current
liabilities decreased to $1,408,000 at June 30, 2008, compared to $1,461,000 on
June 30, 2007. Decreases in accounts payable and accruals were partially offset
by the increase in the revolving line of credit as of June 30, 2008.

As
of June 30, 2008 and 2007, Biotel had long term liabilities of $225,000 and
$114,000, respectively, relating to the Companys deferred income tax
liability.

Stockholders
equity increased to $4,702,000 at June 30, 2008, from $3,933,000 at June 30,
2007. The increase in stockholders equity was principally a
result of the increase in retained earnings.

Management
believes that present cash balances, internally generated funds and its credit
line should provide sufficient working capital to meet present and projected
needs for the coming 12months, including principal payments
required under present debt instruments. There is no assurance that Biotel will
be successful in obtaining additional working capital if more is required.

|        |                      
|------- | ---------------------
|Item 7. | FINANCIAL STATEMENTS.

See
Financial Statements beginning on page F-1.

|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 8. | CHANGES IN AND DISAGREEMENTS WITH
 ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not
applicable.

|            |                         
|----------- | ------------------------
|Item 8A(T). | CONTROLS AND PROCEDURES.

Disclosure Controls
and Procedures

Under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, we conducted an evaluation
of our disclosure controls and procedures, as such term is defined under Rules
13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934,
as amended (the Exchange Act), as of the end of the period covered by this
report. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures are
effective.

There
have been no changes (including corrective actions with regard to significant
deficiencies or material weaknesses) in our internal control over financial
reporting during the fiscal year ended June 30, 2008 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.

Managements Annual
Report on Internal Control over Financial Reporting

Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act). Our management assessed the effectiveness of our
internal control over financial reporting as of June 30, 2008. In making this
assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework. Our management has concluded that, as of June 30, 2008, our internal
control over financial reporting is effective based on these criteria. This
annual report does not include an attestation report of the Companys
registered public accounting firm regarding internal control over financial
reporting. Managements report was not subject to attestation by the Companys
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only managements
report in this annual report.

16

---



Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our internal control over financial reporting will prevent
all errors and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Further, the design of a control
system must reflect the fact that there are resource constraints, and the
benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within this Company have been detected. Biotels internal controls over
financial reporting, however, are designed to provide reasonable assurance that
the objectives of internal control over financial reporting are met.

|         |                   
|-------- | ------------------
|Item 8B. | OTHER INFORMATION.

Not
applicable.

PART
III

|        |                                                     
|------- | ----------------------------------------------------
|Item 9. | DIRECTORS AND EXECUTIVE OFFICERS OF THE
 REGISTRANT.

Incorporated
by reference from Biotels definitive proxy statement to be filed for the 2008
Annual Meeting of Shareholders.

|         |                        
|-------- | -----------------------
|Item 10. | EXECUTIVE COMPENSATION.

Incorporated
by reference from Biotels definitive proxy statement to be filed for the 2008
Annual Meeting of Shareholders.

|         |                                                                                                 
|-------- | ------------------------------------------------------------------------------------------------
|Item 11. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
 OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Incorporated
by reference from Biotels definitive proxy statement to be filed for the 2008
Annual Meeting of Shareholders.

|         |                                                 
|-------- | ------------------------------------------------
|Item 12. | CERTAIN RELATIONSHIPS AND RELATED
 TRANSACTIONS.

Incorporated
by reference from Biotels definitive proxy statement to be filed for the 2008
Annual Meeting of Shareholders.

|         |          
|-------- | ---------
|Item 13. | EXHIBITS.

For
a list of Exhibits filed as a part of this report, see Exhibit Index page
following the signature page to this annual report on Form 10-KSB.

|         |                                        
|-------- | ---------------------------------------
|Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Incorporated
by reference from Biotels definitive proxy statement to be filed for the 2008
Annual Meeting of Shareholders.

17

---



SIGNATURES

In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

|                          |             |                                                               
|------------------------- | ----------- | --------------------------------------------------------------
|                          | Biotel Inc.
|                          |             |                                                               
|Date:
 September 29, 2008 | By          | /s/ B.
 Steven Springrose                                     
|                          |             |                                                               
|                          |             | B. Steven
 Springrose, President 
 and Chief Executive Officer

Know
all persons by these presents, that each person whose signature appears below
hereby constitutes and appoints B. Steven Springrose and Judy E. Naus, and each
of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him or her and in his or her name,
place, and stead, in any and all capacities, to sign any and all amendments to
this report and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full powers
and authority to do and perform each and every act and things requisite or
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or their, his or her
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.

In
accordance with the Exchange Act, this 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                                                     |  | September
 29, 2008
|                                                                              |  |                    
|B. Steven
 Springrose 
 (President, Chief Executive Officer 
 and a Director) |  |                    
|                                                                              |  |                    
|/s/ Judy E.
 Naus                                                             |  | September
 29, 2008
|                                                                              |  |                    
|Judy E. Naus
 
 (Chief Financial Officer 
 and Chief Accounting Officer)      |  |                    
|                                                                              |  |                    
|/s/ C. Roger
 Jones                                                           |  | September
 29, 2008
|                                                                              |  |                    
|C. Roger
 Jones 
 (Director)                                                  |  |                    
|                                                                              |  |                    
|/s/ Stanley
 N. Bormann                                                       |  | September
 29, 2008
|                                                                              |  |                    
|Stanley N.
 Bormann 
 (Director)                                              |  |                    
|                                                                              |  |                    
|/s/ L. John
 Ankney                                                           |  | September
 29, 2008
|                                                                              |  |                    
|L. John
 Ankney 
 (Director)                                                  |  |                    
|                                                                              |  |                    
|/s/ David A.
 Heiden                                                          |  | September
 29, 2008
|                                                                              |  |                    
|David A.
 Heiden 
 (Director)                                                 |  |                    
|                                                                              |  |                    
|/s/ Spencer
 M. Vawter                                                        |  | September
 29, 2008
|                                                                              |  |                    
|Spencer M.
 Vawter 
 (Director)                                               |  |                    

18

---



Exhibits:

|              |                                                                                                                                          
|------------- | -----------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber | Description of Document                                                                                                                  
|              |                                                                                                                                          
|             
|3.1           | Amended and
 Restated Articles of Incorporation of Biotel Inc.**                                                                         
|3.2           | Bylaws of
 Biotel Inc. **                                                                                                                
|4.1           | Specimen
 Common Stock Certificate. **                                                                                                   
|10.1          | Lease
 Agreement dated March 1, 2006 between Braemar, Inc. and DB Quad Prairie
 Business Center, Inc. ****                               
|10.2          | Commercial
 Lease Agreement dated June 30, 2006 between Braemar, Inc. and King Investment
 Partners. *****                               
|10.3          | Lease
 Agreement dated October 1, 2005 between Advanced Biosensor, Inc. and AP
 Southeast Portfolio Partners, L.P., as amended. ****     
|10.4          | Office Lease
 dated December 28, 2006 between Agility Centralized Research Services, Inc.
 and Bannockburn Executive Plaza, L.L.C. ******
|10.5          | Asset
 Purchase Agreement among Biotel Inc., ACRS Acquisition Company, Daniel Pawlik
 and Agility Centralized Research Services, LLC. ** 
|10.6          | OEM Purchase
 Agreement by and between Philips Medical Systems and Braemar, Inc. dated
 September 1, 2003.**                             
|10.7          | Termination
 of Lease, Release, Hold Harmless and Indemnification Agreement dated June 30,
 2006. *****                                  
|10.8          | Office Lease
 dated April 15, 2008 between Braemar, Inc. and Jonestown Properties, L.L.C.*                                               
|11.1          | Statement
 regarding computation of per share earnings. ***                                                                              
|21.1          | Subsidiaries
 of Biotel Inc. *                                                                                                           
|24.1          | Power of
 Attorney (included in signature page) *                                                                                        
|31.1          | Certification
 of Chief Executive Officer.*                                                                                              
|31.2          | Certification
 of Chief Financial Officer.*                                                                                              
|32.1          | Certification
 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
 Sarbanes-Oxley Act of 2002.*               
|*             | Filed
 herewith.                                                                                                                         
|**            | Previously
 filed with Form 10-SB on October 14, 2004, Commission File No. 0-50914.                                                      
|***           | Previously
 filed with Amendment No. 2 to Form 10-SB on December 27, 2004, Commission
 File No. 0-50914.                                 
|****          | Previously
 filed with Form 10-QSB on February 14, 2006, Commissions File No. 0-50914.                                                   
|*****         | Previously
 filed with Form 10-KSB on September 28,2006, Commission File No. 0-50914.                                                    
|******        | Previously
 filed with Form 10-QSB on December 31, 2006, Commission File No. 0-50914.                                                    

19

---



BIOTEL INC. AND SUBSIDIARIES
REPORT ON CONSOLIDATED
FINANCIAL STATEMENTS

FOR THE YEARS ENDED
JUNE 30, 2008 AND 2007

F-1

---



BIOTEL INC. AND SUBSIDIARIES

CONTENTS

|                                                         |  |           
|-------------------------------------------------------- |  | ----------
|                                                         |  | PAGE      
|                                                         |  |           
|                                                         |  |           
|REPORT
 OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |  | F-3       
|                                                         |  |           
|FINANCIAL
 STATEMENTS                                    |  |           
|Consolidated
 balance sheets                             |  | F-4       
|Consolidated
 statements of income                       |  | F-5       
|Consolidated
 statements of cash flows                   |  | F-6       
|Consolidated
 statement of stockholders equity          |  | F-7       
|                                                         |  |           
|NOTES
 TO CONSOLIDATED FINANCIAL STATEMENTS              |  | F-8  F-18

F-2

---



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

Board
of Directors and StockholdersBiotel Inc. and SubsidiariesEagan, Minnesota

We
have audited the accompanying consolidated balance sheets of Biotel Inc. and Subsidiaries
(the Company) as of June 30, 2008 and 2007, 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, 2008 and 2007, 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.

September
29, 2008
Columbia, South Carolina

F-3

---



BIOTEL INC. AND
SUBSIDIARIESCONSOLIDATED BALANCE SHEETS

|                                                                                                                                               |  |          |           |      |   |           | 
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | --------- | ---- | - | --------- | 
|                                                                                                                                               |  | June 30, |          
|                                                                                                                                               |  |          |          
|                                                                                                                                               |  | 2008     |           | 2007 |  
|                                                                                                                                               |  |          |           |      |  
|                                                                                                                                               |  |          |           |      |  
|ASSETS                                                                                                                                        
|                                                                                                                                               |  |          |           |      |   |           | 
|CURRENT ASSETS                                                                                                                                 |  |          |           |      |   |           | 
|Cash and cash equivalents                                                                                                                      |  | $        | 945,121   |      | $ | 508,314   | 
|Trade accounts receivable, net of allowance
 for doubtful accounts of $55,440 and $35,707 at June 30, 2008 and June 30,
 2007, respectively    |  |          | 1,766,512 |      |   | 1,966,415 | 
|Prepaid income taxes                                                                                                                           |  |          | 39,310    |      |   |          | 
|Inventories, net                                                                                                                               |  |          | 1,428,163 |      |   | 1,122,259 | 
|Deferred tax assets                                                                                                                            |  |          | 244,018   |      |   | 314,164   | 
|Prepaid expenses                                                                                                                               |  |          | 109,903   |      |   | 184,149   | 
|                                                                                                                                               |  |          |           |      |   |           | 
|                                                                                                                                               |  |          |           |      |   |           | 
|Total Current Assets                                                                                                                           |  |          | 4,533,027 |      |   | 4,095,301 | 
|                                                                                                                                               |  |          |           |      |   |           | 
|                                                                                                                                               |  |          |           |      |   |           | 
|PROPERTY & EQUIPMENT, Net                                                                                                                      |  |          | 1,092,710 |      |   | 704,327   | 
|                                                                                                                                               |  |          |           |      |   |           | 
|                                                                                                                                               |  |          |           |      |   |           | 
|OTHER ASSETS                                                                                                                                   |  |          |           |      |   |           | 
|Goodwill                                                                                                                                       |  |          | 695,551   |      |   | 695,551   | 
|Other                                                                                                                                          |  |          | 13,820    |      |   | 12,400    | 
|                                                                                                                                               |  |          |           |      |   |           | 
|                                                                                                                                               |  |          |           |      |   |           | 
|Total Other Assets                                                                                                                             |  |          | 709,371   |      |   | 707,951   | 
|                                                                                                                                               |  |          |           |      |   |           | 
|                                                                                                                                               |  |          |           |      |   |           | 
|                                                                                                                                               |  | $        | 6,335,108 |      | $ | 5,507,579 | 
|                                                                                                                                               |  |          |           |      |   |           | 
|                                                                                                                                               |  |          |           |      |   |           | 
|LIABILITIES AND
 STOCKHOLDERS EQUITY                                                                                                         
|                                                                                                                                               |  |          |           |      |   |           | 
|CURRENT LIABILITIES                                                                                                                            |  |          |           |      |   |           | 
|Revolving line of credit                                                                                                                       |  | $        | 187,146   |      | $ |          | 
|Trade accounts payable                                                                                                                         |  |          | 651,635   |      |   | 678,094   | 
|Accrued payroll and related liabilities                                                                                                        |  |          | 237,503   |      |   | 243,766   | 
|Deferred service contract revenue                                                                                                              |  |          | 133,359   |      |   | 177,969   | 
|Other accrued expenses                                                                                                                         |  |          | 198,540   |      |   | 277,488   | 
|Income taxes payable                                                                                                                           |  |          |          |      |   | 83,940    | 
|                                                                                                                                               |  |          |           |      |   |           | 
|                                                                                                                                               |  |          |           |      |   |           | 
|Total Current Liabilities                                                                                                                      |  |          | 1,408,183 |      |   | 1,461,257 | 
|                                                                                                                                               |  |          |           |      |   |           | 
|LONG-TERM LIABILITIES                                                                                                                          |  |          |           |      |   |           | 
|Deferred taxes payable                                                                                                                         |  |          | 224,967   |      |   | 113,822   | 
|                                                                                                                                               |  |          |           |      |   |           | 
|                                                                                                                                               |  |          |           |      |   |           | 
|COMMITMENTS AND CONTINGENCIES (See Notes 7
 and 8)                                                                                             |  |          |           |      |   |           | 
|                                                                                                                                               |  |          |           |      |   |           | 
|Total Liabilities                                                                                                                              |  |          | 1,633,150 |      |   | 1,575,079 | 
|                                                                                                                                               |  |          |           |      |   |           | 
|                                                                                                                                               |  |          |           |      |   |           | 
|STOCKHOLDERS EQUITY:                                                                                                                          |  |          |           |      |   |           | 
|Preferred 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 and 2,673,827 shares issued at June 30, 2008 and
 2007, respectively |  |          | 27,638    |      |   | 26,738    | 
|Additional paid-in capital                                                                                                                     |  |          | 2,145,594 |      |   | 2,043,175 | 
|Retained earnings                                                                                                                              |  |          | 2,528,726 |      |   | 1,862,587 | 
|                                                                                                                                               |  |          |           |      |   |           | 
|                                                                                                                                               |  |          |           |      |   |           | 
|Total Stockholders Equity                                                                                                                     |  |          | 4,701,958 |      |   | 3,932,500 | 
|                                                                                                                                               |  |          |           |      |   |           | 
|                                                                                                                                               |  |          |           |      |   |           | 
|                                                                                                                                               |  | $        | 6,335,108 |      | $ | 5,507,579 | 
|                                                                                                                                               |  |          |           |      |   |           | 

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

F-4

---



BIOTEL INC. AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME

|                                                                                |  |                               |            |      |   |            |  
|------------------------------------------------------------------------------- |  | ----------------------------- | ---------- | ---- | - | ---------- | -
|                                                                                |  | For the years ended
 June 30, |           
|                                                                                |  |                               |           
|                                                                                |  | 2008                          |            | 2007 |  
|                                                                                |  |                               |            |      |  
|                                                                                |  |                               |            |      |  
|SALES AND
 SERVICES                                                             |  | $                             | 11,495,326 |      | $ | 11,233,397 |  
|                                                                                |  |                               |            |      |   |            |  
|COST OF
 SALES AND SERVICES                                                     |  |                               | 6,396,033  |      |   | 6,451,223  |  
|                                                                                |  |                               |            |      |   |            |  
|                                                                                |  |                               |            |      |   |            |  
|GROSS PROFIT                                                                    |  |                               | 5,099,293  |      |   | 4,782,174  |  
|                                                                                |  |                               |            |      |   |            |  
|                                                                                |  |                               |            |      |   |            |  
|OPERATING
 EXPENSES                                                             |  |                               |            |      |   |            |  
|Selling and administrative                                                      |  |                               | 2,425,094  |      |   | 2,362,948  |  
|Research and development                                                        |  |                               | 1,674,380  |      |   | 1,463,814  |  
|                                                                                |  |                               |            |      |   |            |  
|                                                                                |  |                               |            |      |   |            |  
|Total operating expenses                                                        |  |                               | 4,099,474  |      |   | 3,826,762  |  
|                                                                                |  |                               |            |      |   |            |  
|                                                                                |  |                               |            |      |   |            |  
|INCOME FROM
 OPERATIONS                                                         |  |                               | 999,819    |      |   | 955,412    |  
|                                                                                |  |                               |            |      |   |            |  
|                                                                                |  |                               |            |      |   |            |  
|OTHER INCOME
 (EXPENSE)                                                         |  |                               |            |      |   |            |  
|Interest Income                                                                 |  |                               | 11,173     |      |   | 6,384      |  
|Interest Expense                                                                |  |                               | (704       | )    |   | (32,088    | )
|Miscellaneous                                                                   |  |                               | 12,425     |      |   | (10,563    | )
|                                                                                |  |                               |            |      |   |            |  
|                                                                                |  |                               |            |      |   |            |  
|Total other income (expense)                                                    |  |                               | 22,894     |      |   | (36,267    | )
|                                                                                |  |                               |            |      |   |            |  
|                                                                                |  |                               |            |      |   |            |  
|NET INCOME BEFORE PROVISION FOR INCOME TAXES                                    |  |                               | 1,022,713  |      |   | 919,145    |  
|                                                                                |  |                               |            |      |   |            |  
|PROVISION
 FOR INCOME TAXES                                                     |  |                               | 356,574    |      |   | 399,412    |  
|                                                                                |  |                               |            |      |   |            |  
|                                                                                |  |                               |            |      |   |            |  
|NET INCOME                                                                      |  | $                             | 666,139    |      | $ | 519,733    |  
|                                                                                |  |                               |            |      |   |            |  
|                                                                                |  |                               |            |      |   |            |  
|NET INCOME
 PER COMMON SHARE                                                    |  |                               |            |      |   |            |  
|BASIC                                                                           |  | $                             | 0.25       |      | $ | 0.20       |  
|                                                                                |  |                               |            |      |   |            |  
|DILUTED                                                                         |  | $                             | 0.23       |      | $ | 0.19       |  
|                                                                                |  |                               |            |      |   |            |  
|                                                                                |  |                               |            |      |   |            |  
|WEIGHTED AVERAGE NUMBER OF SHARES USED TO
 COMPUTE NET INCOME PER COMMON SHARE: |  |                               |            |      |   |            |  
|BASIC                                                                           |  |                               | 2,695,712  |      |   | 2,657,783  |  
|                                                                                |  |                               |            |      |   |            |  
|DILUTED                                                                         |  |                               | 2,856,267  |      |   | 2,798,591  |  
|                                                                                |  |                               |            |      |   |            |  

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

F-5

---



BIOTEL INC. AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                  |  |                               |          |      |   |           |  
|--------------------------------------------------------------------------------- |  | ----------------------------- | -------- | ---- | - | --------- | -
|                                                                                  |  | For the years ended
 June 30, |         
|                                                                                  |  |                               |         
|                                                                                  |  | 2008                          |          | 2007 |  
|                                                                                  |  |                               |          |      |  
|                                                                                 
|OPERATING ACTIVITIES                                                              |  |                               |          |      |   |           |  
|Net income                                                                        |  | $                             | 666,139  |      | $ | 519,733   |  
|Adjustments to reconcile net income to net
 cash provided by operating activities |  |                               |          |      |   |           |  
|Depreciation                                                                      |  |                               | 324,511  |      |   | 330,073   |  
|Stock-based compensation                                                          |  |                               | 49,569   |      |   | 87,091    |  
|Deferred income tax                                                               |  |                               | 181,291  |      |   | 89,752    |  
|Increase (decrease) in allowance for
 doubtful accounts                           |  |                               | 19,733   |      |   | (14,327   | )
|Decrease in inventory valuation allowance                                         |  |                               | (188,973 | )    |   | (136,238  | )
|Loss (gain) on disposal of fixed assets                                           |  |                               | (10,137  | )    |   | 9,897     |  
|Changes in deferred and accrued amounts                                           |  |                               |          |      |   |           |  
|Trade accounts receivable                                                         |  |                               | 180,170  |      |   | 250,529   |  
|Prepaid income taxes                                                              |  |                               | (39,310  | )    |   |          |  
|Prepaid expenses                                                                  |  |                               | 74,246   |      |   | (96,542   | )
|Inventories                                                                       |  |                               | (116,931 | )    |   | 155,268   |  
|Other assets                                                                      |  |                               | (1,420   | )    |   | 7,708     |  
|Trade accounts payable                                                            |  |                               | (26,459  | )    |   | 193,489   |  
|Accrued payroll and related liabilities                                           |  |                               | (6,263   | )    |   | 29,018    |  
|Other accrued expenses                                                            |  |                               | (78,948  | )    |   | (41,546   | )
|Deferred service contract revenue                                                 |  |                               | (44,610  | )    |   | 9,499     |  
|Income taxes payable                                                              |  |                               | (83,940  | )    |   | 7,395     |  
|                                                                                  |  |                               |          |      |   |           |  
|                                                                                  |  |                               |          |      |   |           |  
|Net cash provided by operating activities                                         |  |                               | 898,668  |      |   | 1,400,799 |  
|                                                                                  |  |                               |          |      |   |           |  
|                                                                                  |  |                               |          |      |   |           |  
|INVESTING ACTIVITIES                                                              |  |                               |          |      |   |           |  
|Purchases of property and equipment                                               |  |                               | (716,387 | )    |   | (355,729  | )
|Proceeds from sale of property and
 equipment                                     |  |                               | 13,630   |      |   | 17,300    |  
|                                                                                  |  |                               |          |      |   |           |  
|                                                                                  |  |                               |          |      |   |           |  
|Net cash used for investing activities                                            |  |                               | (702,757 | )    |   | (338,429  | )
|                                                                                  |  |                               |          |      |   |           |  
|                                                                                  |  |                               |          |      |   |           |  
|FINANCING ACTIVITIES                                                              |  |                               |          |      |   |           |  
|Proceeds from issuance of common stock                                            |  |                               | 53,750   |      |   | 15,000    |  
|Net change on line of credit                                                      |  |                               | 187,146  |      |   | (110,000  | )
|Payments of long term debt                                                        |  |                               |         |      |   | (510,242  | )
|                                                                                  |  |                               |          |      |   |           |  
|                                                                                  |  |                               |          |      |   |           |  
|Net cash provided by (used for) financing
activities                              |  |                               | 240,896  |      |   | (605,242  | )
|                                                                                  |  |                               |          |      |   |           |  
|                                                                                  |  |                               |          |      |   |           |  
|Net increase in cash and cash equivalents                                         |  |                               | 436,807  |      |   | 457,128   |  
|                                                                                  |  |                               |          |      |   |           |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF
 YEAR                                     |  |                               | 508,314  |      |   | 51,186    |  
|                                                                                  |  |                               |          |      |   |           |  
|                                                                                  |  |                               |          |      |   |           |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                                            |  | $                             | 945,121  |      | $ | 508,314   |  
|                                                                                  |  |                               |          |      |   |           |  
|                                                                                  |  |                               |          |      |   |           |  
|CASH PAID FOR                                                                     |  |                               |          |      |   |           |  
|Interest                                                                          |  | $                             | 675      |      | $ | 32,088    |  
|                                                                                  |  |                               |          |      |   |           |  
|Income taxes                                                                      |  | $                             | 263,740  |      | $ | 299,749   |  
|                                                                                  |  |                               |          |      |   |           |  
|                                                                                  |  |                               |          |      |   |           |  

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

F-6

---



BIOTEL INC. AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the years ended June 30, 2008 and 2007

|                          |  |              |        |                              |  |                    |  |       |           |  |   |           |  |   |           | 
|------------------------- |  | ------------ | ------ | ---------------------------- |  | ------------------ |  | ----- | --------- |  | - | --------- |  | - | --------- | 
|                          |  | Common Stock |        | Additional
 Paid-In
 Capital |  | Retained
 Earnings |  |       |           | 
|                          |  |              |        |                              |  |                    |  |      
|                          |  | Amount       |        | Shares                       |  |                    |  | Total |          
|                          |  |              |        |                              |  |                    |  |       |           |  |  
|                         
|Balance,
 June 30, 2006   |  | $            | 26,498 |                              |  | 2,649,827          |  | $     | 1,941,324 |  | $ | 1,342,854 |  | $ | 3,310,676 | 
|                          |  |              |        |                              |  |                    |  |       |           |  |   |           |  |   |           | 
|Exercise of stock options |  |              | 240    |                              |  | 24,000             |  |       | 14,760    |  |   |          |  |   | 15,000    | 
|                          |  |              |        |                              |  |                    |  |       |           |  |   |           |  |   |           | 
|Stock-based compensation  |  |              |       |                              |  |                   |  |       | 87,091    |  |   |          |  |   | 87,091    | 
|                          |  |              |        |                              |  |                    |  |       |           |  |   |           |  |   |           | 
|Net income                |  |              |       |                              |  |                   |  |       |          |  |   | 519,733   |  |   | 519,733   | 
|                          |  |              |        |                              |  |                    |  |       |           |  |   |           |  |   |           | 
|                          |  |              |        |                              |  |                    |  |       |           |  |   |           |  |   |           | 
|Balance,
 June 30, 2007   |  |              | 26,738 |                              |  | 2,673,827          |  |       | 2,043,175 |  |   | 1,862,587 |  |   | 3,932,500 | 
|                          |  |              |        |                              |  |                    |  |       |           |  |   |           |  |   |           | 
|Exercise of stock options |  |              | 900    |                              |  | 90,000             |  |       | 52,850    |  |   |          |  |   | 53,750    | 
|                          |  |              |        |                              |  |                    |  |       |           |  |   |           |  |   |           | 
|Stock-based compensation  |  |              |       |                              |  |                   |  |       | 49,569    |  |   |          |  |   | 49,569    | 
|                          |  |              |        |                              |  |                    |  |       |           |  |   |           |  |   |           | 
|Net income                |  |              |       |                              |  |                   |  |       |          |  |   | 666,139   |  |   | 666,139   | 
|                          |  |              |        |                              |  |                    |  |       |           |  |   |           |  |   |           | 
|                          |  |              |        |                              |  |                    |  |       |           |  |   |           |  |   |           | 
|Balance,
 June 30, 2008   |  | $            | 27,638 |                              |  | 2,763,827          |  | $     | 2,145,594 |  | $ | 2,528,726 |  | $ | 4,701,958 | 
|                          |  |              |        |                              |  |                    |  |       |           |  |   |           |  |   |           | 

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

F-7

---



BIOTEL INC. AND SUBSIDIARIESNOTES 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., Advanced Biosensor 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, through its acquisition of
Carolina Medical, 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 (See Note 15). 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 consolidation  
| |                              
| |                               | The
 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 estimates         
| |                              
| |                               | Management
 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 risk
| |                              
| |                               | At 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 marketing    
| |                              
| |                               | The Company
 follows the policy of charging the costs of advertising, except for costs
 associated with direct response advertising, to operating expenses as
 incurred. During the years ending June 30, 2008 and 2007, advertising
 expenses totaled approximately $6,000 and $11,000, respectively.                                                                                                                                                                                                                                                                                                     

F-8

---



NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES, Continued

| |                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Inventories           
| |                       
| |                        | Inventories
 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 equipment
| |                       
| |                        | Property,
 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.                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Goodwill              
| |                       
| |                        | The Company
accounts for the purchase price in excess of tangible assets 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 2008 and 2007, such test
of goodwill determined the recorded goodwill had not been impaired.                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Service contracts     
| |                       
| |                        | Amounts
 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, 2008 and 2007, current liabilities include service contract
 revenue deferrals of approximately $133,000 and $178,000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Warranty reserve      
| |                       
| |                        | The 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, 2008 and 2007, the warranty reserve totaled
 $87,512 and $75,906, respectively, and this amount is included in Other
 Accrued Expenses. The following is a reconciliation of the aggregate warranty
 liability as of June 30, 2008 and 2007:

|                                                                                         |  |      |         |      |   |         |  
|---------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|                                                                                         |  | 2008 |         | 2007 |  
|                                                                                         |  |      |         |      |  
|Balance, beginning of year                                                               |  | $    | 75,906  |      | $ | 97,471  |  
|Claims paid                                                                              |  |      | (98,299 | )    |   | (52,787 | )
|Additional warranties issued and revisions
 in estimates of previously issued warranties |  |      | 109,905 |      |   | 31,222  |  
|                                                                                         |  |      |         |      |   |         |  
|                                                                                         |  |      |         |      |   |         |  
|Balance, end of year                                                                     |  | $    | 87,512  |      | $ | 75,906  |  
|                                                                                         |  |      |         |      |   |         |  

F-9

---



NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES, Continued

| |                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Revenue recognition        
| |                            
| |                             | Revenues
 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 share
| |                            
| |                             | Net 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | Stock options plans        
| |                            
| |                             | On 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 weighted average assumptions were used: risk-free interest
 rates based on date of issuance of 3.72% to 4.32%, no expected dividends, a
 volatility factor of 74.79 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%.                                                                                                                                                                                                                                                                                                                                                                                             

F-10

---



NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES, Continued

| |                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                      | 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 Development            
| |                                     
| |                                      | Research 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Income taxes                        
| |                                     
| |                                      | Income 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 is 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 equivalents           
| |                                     
| |                                      | The Company considers
 all highly liquid short-term investments purchased with an original maturity
 of three months or less to be cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Financial Statement Reclassification
| |                                     
| |                                      | Certain
 reclassifications have been made to the 2007 deferred tax asset and deferred
 tax liability amounts in order to conform to the current year presentation.
 These reclassifications had no effect on previously reported results of
 operations or equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | Recently issued accounting standards
| |                                     
| |                                      | The
 following is a summary of recent authoritative pronouncements that affect
 accounting, reporting and disclosure of financial information by the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                      | In September
2006, the FASB issued Statement of Financial Accounting Standards No. 157,
Fair Value Measurements. SFAS No. 157 provides enhanced guidance for using
fair value to measure assets and liabilities. The standard also requires
expanded disclosures about the extent to which companies measure assets and
liabilities at fair value, the information used to measure fair value and the
effect of fair value measurements on earnings. SFAS No. 157 is effective for
financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. The Company does not
expect the adoption of Statement No. 157 to materially impact the Companys
consolidated financial statements.                                                                                                    

F-11

---



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In September
2006, the FASB ratified the consensus reached related to EITF No. 06-5,
Accounting for Purchases of Life InsuranceDetermining the Amount That Could
Be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting
for Purchases of Life Insurance. EITF No. 06-5 states that a policyholder
should consider any additional amounts included in the contractual terms of
the insurance policy, other than the cash surrender value, in determining the
amount that could be realized under the insurance contract. EITF No. 06-5
also states that a policyholder should determine the amount that could be
realized under the life insurance contract assuming the surrender of an
individual-life by individual-life policy (or certificate by certificate in a
group policy). EITF No. 06-5 is effective for fiscal years beginning after
December 15, 2007. Although the Company does not believe the adoption of EITF
No. 06-5 will have a material impact on the Companys consolidated financial
statements, management is currently analyzing the impact of adoption.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | In February
2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial LiabilitiesIncluding an amendment to SFAS No. 115. This
statement permits, but does not require, entities to measure many financial
instruments at fair value. The objective is to provide entities with an
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex
hedge accounting provisions. Entities electing this option will apply it when
the entity first recognizes an eligible instrument and will report unrealized
gains and losses on such instruments in current earnings. This statement 1)
applies to all entities, 2) specifies certain election dates, 3) can be
applied on an instrument-by-instrument basis with some exceptions, 4) is
irrevocable and 5) applies only to entire instruments. One exception is
demand deposit liabilities which are explicitly excluded as qualifying for
fair value. With respect to SFAS No. 115, available for sale and held to
maturity securities at the effective date are eligible for the fair value
option at that date. If the fair value option is elected for those securities
at the effective date, cumulative unrealized gains and losses at that date
shall be included in the cumulative-effect adjustment and thereafter such
securities will be accounted for as trading securities. SFAS No. 159 is
effective for the Company on January 1, 2008. The Company did not early adopt
SFAS No. 159 and believes that it is unlikely that it will expand its use of
fair value accounting upon the January 1, 2008, effective date.
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | In December
2007, the FASB issued SFAS No. 141(R), Business Combinations, (SFAS 141(R))
which replaces SFAS 141. SFAS 141(R) establishes principles and requirements
for how an acquirer in a business combination recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities
assumed and any controlling interest; recognizes and measures goodwill
acquired in the business combination or a gain from a bargain purchase; and
determines what information to disclose to enable users of the financial
statements to evaluate the nature and financial effects of the business
combination. SFAS 141(R) is effective for acquisitions by the Company taking
place on or after January 1, 2009. Early adoption is prohibited. Accordingly,
a calendar year-end company is required to record and disclose business
combinations following existing accounting guidance until January 1, 2009.
The Company will assess the impact of SFAS 141(R) if and when a future
acquisition occurs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | In April
2008, the FASB issued FASB Staff Position No. 142-3, Determination of the
Useful Life of Intangible Assets, (FSP 142-3). This FSP amends the factors
that should be considered in developing renewal or extension assumptions used
to determine the useful life of a recognized intangible asset under SFAS No.
142, Goodwill and Other Intangible Assets. The intent of this FSP is to
improve the consistency between the useful life of a recognized intangible
asset under SFAS No. 142 and the period of expected cash flows used to
measure the fair value of the asset under SFAS No. 141(R), Business
Combinations, and other U.S. generally accepted accounting principles. This
FSP is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years, and
early adoption is prohibited. Accordingly, this FSP is effective for the
Company on January 1, 2009. The Company does not believe the adoption of FSP
142-3 will have a material impact on its financial position, results of
operations or cash flow.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F-12

---



| |                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Other
 accounting standards that have been issued or proposed by the PCAOB or other
 standards-setting bodies that do not require adoption until a future date are
 not expected to have a material impact on the consolidated financial
 statements upon adoption.

NOTE 3  INVENTORIES

| |                                                                      | 
| | -------------------------------------------------------------------- | 
| | As of June
 30, 2008 and 2007, inventories consist of the following:

|                                   |  |      |           |      |   |           |  
|---------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                   |  | 2008 |           | 2007 |  
|                                   |  |      |           |      |  
|                                  
|Raw
 materials and supplies        |  | $    | 1,374,588 |      | $ | 1,154,869 |  
|Finished
 goods                    |  |      | 229,169   |      |   | 337,216   |  
|Evaluation
 units and replacements |  |      | 12,406    |      |   | 7,147     |  
|                                   |  |      |           |      |   |           |  
|                                   |  |      |           |      |   |           |  
|                                   |  |      | 1,616,163 |      |   | 1,499,232 |  
|Valuation
 allowance               |  |      | (188,000  | )    |   | (376,973  | )
|                                   |  |      |           |      |   |           |  
|                                   |  |      |           |      |   |           |  
|                                   |  | $    | 1,428,163 |      | $ | 1,122,259 |  
|                                   |  |      |           |      |   |           |  

NOTE 4  PROPERTY
AND EQUIPMENT

| |                                                                                 | 
| | ------------------------------------------------------------------------------- | 
| | As of June
 30, 2008 and 2007, property and equipment consist of the following:

|                          |  |      |            |      |   |            |  
|------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                          |  | 2008 |            | 2007 |  
|                          |  |      |            |      |  
|                         
|Machinery
 and equipment  |  | $    | 3,030,258  |      | $ | 2,956,662  |  
|Furniture
 and fixtures   |  |      | 34,791     |      |   | 34,791     |  
|Leasehold
 improvements   |  |      | 47,857     |      |   | 54,237     |  
|                          |  |      |            |      |   |            |  
|                          |  |      |            |      |   |            |  
|                          |  |      | 3,112,906  |      |   | 3,045,690  |  
|Accumulated
 depreciation |  |      | (2,020,196 | )    |   | (2,341,363 | )
|                          |  |      |            |      |   |            |  
|                          |  |      |            |      |   |            |  
|                          |  | $    | 1,092,710  |      | $ | 704,327    |  
|                          |  |      |            |      |   |            |  

| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | Depreciation
 expense for the years ended June 30, 2008 and 2007 totaled $324,511 and
 $330,073, respectively.

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 (5.00% at June 30, 2008) plus .25% and expires on
February 5, 2009. The outstanding credit line balance as of June 30, 2008 was
$187,146. There was no outstanding balance on this line of credit as of June
30, 2007.

NOTE 6  RELATED
PARTY TRANSACTIONS

Interest
expense for related party obligations for the year ended June 30, 2007 was
$1,272. This related party obligation was paid in full on October 31, 2006.

Braemar,
Inc. leased its 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. Total rent expense to the
affiliated partnership was $50,400 for each of the years ended June 30, 2008
and 2007, respectively. (See Note 7.)

F-13

---



NOTE 7  LEASE
OBLIGATIONS

Braemar,
Inc. leases its facility in Columbia, South Carolina, under a 42-month lease
agreement which will expire April 30, 2009.

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

Braemar,
Inc. also leased its facility in King, North Carolina, under a two-year lease
agreement which expired on June 30, 2008.

Effective
July 1, 2008, 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 under a two-year lease
agreement which will expire January 31, 2009.

Future
minimum lease payments due under these non-cancelable operating leases as of
June 30, 2008 are as follows:

|     |  |   |         | 
|---- |  | - | ------- | 
|2009 |  |   | 172,533 | 
|2010 |  |   | 126,408 | 
|2011 |  |   | 129,874 | 
|2012 |  |   | 18,902  | 
|2013 |  |   |        | 
|     |  |   |         | 
|    
|     |  | $ | 447,717 | 
|     |  |   |         | 

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 $277,401 and $262,660 for the years ended June 30, 2008 and 2007,
respectively.

NOTE 8  COMMITMENTS
AND CONTINGENCIES

Carolina
Medical, Inc. has been subject to 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 acknowledges 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. In
connection with the Agreement, Carolina Medical paid King Investment Partners
$45,000. Carolina Medical, Inc., a Minnesota corporation, was dissolved in
November, 2006.

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.

F-14

---



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 39% and 45% of the Companys consolidated
revenues in the years ended June 30, 2008 and 2007, respectively.

Accounts
receivable due from these customers at June 30, 2008 and 2007 totaled
approximately $806,000 and $1,021,000, 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, 2008 and 2007, Biotel Inc. had 211,000 and 301,000 outstanding
options, respectively. Currently, option prices range from $.375 to $2.00 per
share with a weighted average remaining contract life of 1.84 years. During the
year ended June 30, 2008, 90,000 options were exercised, and during the year
ended June 30, 2007, 24,000 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 $49,569 and
$87,091 for the years ending June 30, 2008 and 2007, respectively.

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

|                         |  |                   |         |                                    |   |                   |  |                                    |         |  |   |        | 
|------------------------ |  | ----------------- | ------- | ---------------------------------- | - | ----------------- |  | ---------------------------------- | ------- |  | - | ------ | 
|                         |  | Outstanding       |         | Exercisable                        |  
|                         |  |                   |         |                                    |  
|                         |  | Number
 of Shares |         | Weighted
 Average
 Exercise
 Price |   | Number
 of Shares |  | Weighted
 Average
 Exercise
 Price |        
|                         |  |                   |         |                                    |   |                   |  |                                    |        
|                        
|Balance at June 30, 2006 |  |                   | 328,000 |                                    | $ | 1.1898            |  |                                    | 230,000 |  | $ | 1.0510 | 
|                         |  |                   |         |                                    |   |                   |  |                                    |         |  |   |        | 
|                         |  |                   |         |                                    |   |                   |  |                                    |         |  |   |        | 
|Granted                  |  |                   | 10,000  |                                    |   | 1.9000            |  |                                    |         |  |   |        | 
|Exercised                |  |                   | (24,000 | )                                  |   | 0.6250            |  |                                    |         |  |   |        | 
|Expired                  |  |                   | (13,000 | )                                  |   | 1.1500            |  |                                    |         |  |   |        | 
|                         |  |                   |         |                                    |   |                   |  |                                    |         |  |   |        | 
|Balance at June 30, 2007 |  |                   | 301,000 |                                    | $ | 1.2600            |  |                                    | 254,500 |  | $ | 1.2230 | 
|                         |  |                   |         |                                    |   |                   |  |                                    |         |  |   |        | 
|                         |  |                   |         |                                    |   |                   |  |                                    |         |  |   |        | 
|Exercised                |  |                   | (90,000 | )                                  |   | 0.5972            |  |                                    |         |  |   |        | 
|                         |  |                   |         |                                    |   |                   |  |                                    |         |  |   |        | 
|Balance at June 30, 2008 |  |                   | 211,000 |                                    | $ | 1.3635            |  |                                    | 203,500 |  | $ | 1.5214 | 
|                         |  |                   |         |                                    |   |                   |  |                                    |         |  |   |        | 

F-15

---



NOTE 11  INCOME
TAXES

The
components of the provision for income taxes are as follows for the years ended
June 30, 2008 and 2007:

|                                 |  |      |         |      |   |         |  
|-------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|                                 |  | 2008 |         | 2007 |  
|                                 |  |      |         |      |  
|                                 |  |      |         |      |  
|Current provision for taxes      |  | $    | 175,283 |      | $ | 309,660 |  
|Change in net deferred tax asset |  |      | 195,350 |      |   | 146,277 |  
|Decrease in valuation allowance  |  |      | (14,059 | )    |   | (56,525 | )
|                                 |  |      |         |      |   |         |  
|                                
|Total provision                  |  | $    | 356,574 |      | $ | 399,412 |  
|                                 |  |      |         |      |   |         |  

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

|                                                                               |  |      |      |      |  |      |  
|------------------------------------------------------------------------------ |  | ---- | ---- | ---- |  | ---- | -
|                                                                               |  | 2008 |      | 2007 | 
|                                                                               |  |      |      |      | 
|                                                                               |  |      |      |      | 
|Computed at the federal statutory rate                                         |  |      | 34.0 | %    |  | 34.0 | %
|State income taxes                                                             |  |      | 3.3  | %    |  | 3.3  | %
|Reduction in state net operating losses
due
 to changes in Corporate structure |  |      |     |      |  | 6.1  | %
|Decrease in valuation
allowance                                                |  |      | -1.4 | %    |  | -6.1 | %
|Other                                                                          |  |      |     |      |  | 6.2  | %
|                                                                               |  |      |      |      |  |      |  
|                                                                               |  |      |      |      |  |      |  
|                                                                               |  |      | 35.9 | %    |  | 43.5 | %
|                                                                               |  |      |      |      |  |      |  

The
tax effects of temporary differences that give rise to significant portions of
the deferred tax accounts as of June 30, 2008 and 2007 are presented below:

|                                   |  |      |          |      |   |         |  
|---------------------------------- |  | ---- | -------- | ---- | - | ------- | -
|                                   |  | 2008 |          | 2007 |  
|                                   |  |      |          |      |  
|                                  
|Deferred tax assets applicable to: |  |      |          |      |   |         |  
|Allowance for doubtful
accounts    |  | $    | 21,600   |      | $ | 13,900  |  
|Inventory reserves                 |  |      | 73,300   |      |   | 147,000 |  
|Warranty reserves                  |  |      | 34,100   |      |   | 29,600  |  
|Accruals                           |  |      | 56,400   |      |   | 48,401  |  
|Depreciation                       |  |      | (161,545 | )    |   | (47,855 | )
|Goodwill                           |  |      | (190,048 | )    |   | (74,119 | )
|Net operating loss
carryforwards   |  |      | 231,150  |      |   | 211,800 |  
|Other                              |  |      | 81,510   |      |   | 13,090  |  
|                                   |  |      |          |      |   |         |  
|                                   |  |      |          |      |   |         |  
|                                   |  |      | 146,467  |      |   | 341,817 |  
|Less valuation allowance           |  |      | 127,416  |      |   | 141,475 |  
|                                   |  |      |          |      |   |         |  
|Deferred tax asset                 |  | $    | 19,051   |      | $ | 200,342 |  
|                                   |  |      |          |      |   |         |  

F-16

---



NOTE 11  INCOME
TAXES (Continued)

The
deferred tax amounts presented above have been classified on the accompanying
balance sheets as of June 30, 2008 and 2007 as follows:

|                     |  |      |          |      |   |          |  
|-------------------- |  | ---- | -------- | ---- | - | -------- | -
|                     |  | 2008 |          | 2007 |  
|                     |  |      |          |      |  
|Current
 asset       |  | $    | 244,018  |      | $ | 314,164  |  
|Long-term
 liability |  |      | (224,967 | )    |   | (113,822 | )
|                     |  |      |          |      |   |          |  
|                     |  | $    | 19,051   |      | $ | 200,342  |  
|                     |  |      |          |      |   |          |  

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, 2008 and 2007,
management concluded that the deferred tax asset of $19,051 and $200,342,
respectively, was more likely than not to be realized in future periods. The
valuation allowance at June 30, 2008 and 2007, 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, 2008, the Company had federal net operating loss carryforwards
totaling $443,467, which expire on various dates through 2017. The Company also
had state net operating loss carryforwards totaling $1,164,000, 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, 2008, was 2,695,712 and 2,856,267,
respectively. The weighted average number of shares used in the computation of
basic and diluted net income per common share as of June 30, 2007, was
2,657,783 and 2,798,591, respectively.

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, 2008 and 2007, totaled
$52,757 and $59,917, 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.

F-17

---



NOTE 14  OPERATIONS
AND INDUSTRY SEGMENTS, Continued

|                                   |  |                              |            |                                 |   |           |   |        |           |   |   |            | 
|---------------------------------- |  | ---------------------------- | ---------- | ------------------------------- | - | --------- | - | ------ | --------- | - | - | ---------- | 
|                                   |  | 2008                         |           
|                                   |  |                              |           
|                                   |  | OEM Medical
 Sales & Service |            | Direct Medical
 Sales & Service |   | Corporate |   | Totals |          
|                                   |  |                              |            |                                 |   |           |   |        |          
|                                  
|Domestic revenues                  |  | $                            | 9,034,705  |                                 | $ | 664,646   |   | $      |          |   | $ | 9,699,351  | 
|International revenues             |  |                              | 1,546,297  |                                 |   | 249,678   |   |        |          |   |   | 1,795,975  | 
|                                   |  |                              |            |                                 |   |           |   |        |           |   |   |            | 
|Revenues from external customers   |  |                              | 10,581,002 |                                 |   | 914,324   |   |        |          |   |   | 11,495,326 | 
|Intersegment revenues              |  |                              | 148,575    |                                 |   | (148,575  | ) |        |          |   |   |           | 
|Interest expense                   |  |                              |           |                                 |   |          |   |        | 704       |   |   | 704        | 
|Income tax expense                 |  |                              | 258,733    |                                 |   | 80,842    |   |        | 16,999    |   |   | 356,574    | 
|Depreciation                       |  |                              | 295,647    |                                 |   | 7,753     |   |        | 21,111    |   |   | 324,511    | 
|Segment profit                     |  |                              | 412,883    |                                 |   | 159,791   |   |        | 93,465    |   |   | 666,139    | 
|Goodwill                           |  |                              | 695,551    |                                 |   |          |   |        |          |   |   | 695,551    | 
|Total segment assets               |  |                              | 4,846,254  |                                 |   | 167,649   |   |        | 1,321,205 |   |   | 6,335,108  | 
|Purchase of property and equipment |  |                              | 706,503    |                                 |   |          |   |        | 9,884     |   |   | 716,387    | 
|                                   |  |                              |            |                                 |   |           |   |        |           |   |   |            | 
|                                   |  | 2007                         |           
|                                   |  |                              |           
|                                   |  | OEM Medical
 Sales & Service |            | Direct Medical
 Sales & Service |   | Corporate |   | Totals |          
|                                   |  |                              |            |                                 |   |           |   |        |          
|                                  
|Domestic revenues                  |  | $                            | 9,506,665  |                                 | $ | 711,375   |   | $      |          |   | $ | 10,218,040 | 
|International revenues             |  |                              | 848,941    |                                 |   | 166,416   |   |        |          |   |   | 1,015,357  | 
|                                   |  |                              |            |                                 |   |           |   |        |           |   |   |            | 
|Revenues from external customers   |  |                              | 10,355,606 |                                 |   | 877,791   |   |        |          |   |   | 11,233,397 | 
|Intersegment revenues              |  |                              | 178,114    |                                 |   | (178,114  | ) |        |          |   |   |           | 
|Interest expense                   |  |                              | 1,272      |                                 |   |           |   |        | 30,816    |   |   | 32,088     | 
|Income tax expense                 |  |                              | 330,639    |                                 |   | 68,087    |   |        | 686       |   |   | 399,412    | 
|Depreciation                       |  |                              | 300,228    |                                 |   | 8,934     |   |        | 20,911    |   |   | 330,073    | 
|Segment profit                     |  |                              | 417,937    |                                 |   | 107,350   |   |        | (5,554    | ) |   | 519,733    | 
|Goodwill                           |  |                              | 695,551    |                                 |   |          |   |        |          |   |   | 695,551    | 
|Total segment assets               |  |                              | 4,402,420  |                                 |   | 162,556   |   |        | 942,603   |   |   | 5,507,579  | 
|Purchase of property and equipment |  |                              | 354,227    |                                 |   |          |   |        | 1,502     |   |   | 355,729    | 

NOTE 15  SUBSEQUENT
EVENTS

Effective
September 19, 2008, the Companys Braemar, Inc. subsidiary acquired the assets
of Advanced Biosensor Inc. Braemar continues distribution operations at the
Columbia, South Carolina facility previously operated by Advanced Biosensor.

F-18

---