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

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FORM 10-K



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(Mark One)


|   |                                                                                                                                                    
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|x  | Annual report pursuant to Section 13 or
 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended June
 30, 2009.                    
|  
|OR
|  
|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.                                           
|(Exact name of registrant as specified in its Charter)

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

Issuers Telephone
Number, Including Area Code: (651) 286-8620

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered pursuant to Section 12(g) of the
Exchange Act:
Common Stock, par value $0.01 per share



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Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.YesoNox

Indicate
by check mark if the registrant is required to file reports pursuant to Section
13 or 15(d) of the Exchange Act.     YesxNoo

Indicate
by check mark if the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
     Yes xNoo

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405) is not contained herein and will not be contained,
to the best of registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act. (Check one)

| |                           |                            
| | ------------------------- | ---------------------------
| | Large accelerated filer o | Accelerated filer o        
| |                           |                            
| | Non-accelerated filer o   | Smaller reporting company x

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

Issuers
revenues for fiscal year ended June 30, 2009 were $12,639,636.

The
aggregate market value of voting and non-voting common equity held by
non-affiliates of registrant as of September 17, 2009 was approximately
$6,052,347.

The
number of shares outstanding of the registrants common stock, par value $0.01
per share, as of September 17, 2009 was 2,763,827.

DOCUMENTS
INCORPORATED BY REFERENCE

The
definitive proxy statement for the 2009 Annual Meeting of Shareholders to be
filed within 120 days of the end of the fiscal year is incorporated by
reference into Part III of this annual report.

Transitional Small Business Disclosure Format (check
one).      Yes oNox







PART I

|        |                         
|------- | ------------------------
|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. Effective September 19,
 2008, Advanced Biosensor was merged into Braemar, Inc. This facility sells
 maintenance services, Holter recorders, Holter diagnostic software and Holter
 supplies to medical clinics and hospitals and their patients.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | Agility
 Centralized Research Services, Inc. is a Minnesota corporation with
 operations in Bannockburn, Illinois. Agility provides 24-hour/7-day
 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.

2

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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.

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 companies 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 companies. 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 Companies

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.

3

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Sales to Medical Companies (Continued)

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 and ISO 13485:2003 standards.

Until
July 1, 2006, the Companys King, North Carolina facility operated as Carolina
Medical. Effective July 1, 2006, Braemar, Inc. acquired some of 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 a portion of the development and
manufacturing operations were consolidated into 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
95% of Biotels revenues for fiscal 2009 were derived from sales to OEM
manufacturers. Foreign sales, primarily to Europe, accounted for about 12% of
our revenues during the year ended June 30, 2009.

Sales to Medical Companies

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.

4

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Significant
Customers

The
Company had three major customers which accounted for approximately 58% and 39%
of the Companys consolidated revenues in the years ended June 30, 2009 and
2008, respectively. One of the three customers is CardioNet, Inc., against whom
the Company commenced litigation on July 16, 2009, claiming that it had
breached a merger agreement with the Company, and another is a customer with
whom the Company did not renew a distribution agreement that expired on May 16,
2009, due to the terms of the merger agreement. (See Factors That May Affect
Future Results  Potential loss of business due to termination notices sent in
accordance with requirements of terminated merger agreement, and Item 3.
Legal Proceedings.) As a result, the Company expects total revenues from the
sale of products to these three customers to be less in fiscal 2010 than they
were in fiscal 2009.

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.

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.

5

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Research
and Development

Our
aggregate research and development expenses during the fiscal years ended June
30, 2009 and 2008 amounted to approximately $1.6 million and $1.7 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 September 25, 2009, we had 51 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           | 34                         |  |                                  | 2
|Sales and
 Marketing        | 4                          |  |                                  | 0
|General and
 Administrative | 10                         |  |                                  | 1
|Total                       | 48                         |  |                                  | 3

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

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.

Carolina Medical, Inc., a subsidiary of the Company that was dissolved in
November, 2006 (Carolina Medical), was the subject of an
environmental oversight by the North Carolina Division of Environmental and
Natural Resources (the DENR) involving alleged ground water
contamination on property that had been owned/leased by Carolina Medical for
activities that occurred on the property prior to the Companys ownership
of Carolina Medical. In June 2006, the owner/landlord of the property, a
partnership in which one of the partners is a Biotel director and former
shareholder and officer of Carolina Medical, and Carolina Medical entered into
an agreement for the early termination of the lease of the property. In the
agreement, the landlord indemnified the Company for any losses it may incur in
connection with environmental claims related to the property. The DENR has
notified the Company that it considers the landlord to be the responsible
party for the property. In order to protect the Company from any claim with
respect to the property that may exceed the landlords ability to indemnify
the Company, Biotel has obtained a binder for insurance to cover any liability
for environmental claims that the Company may have relating to the property up
to a maximum of $10 million during the ten-year period ending in 2019. The
annual cost of the insurance is $16,000.

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.

6

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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, 2009 and 2008, our provision for warranty
services was $186,424 and $87,512, 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. The reserve for warranty expense was increased
during fiscal 2009 due to the introduction of new products, which generally
require a temporarily higher level of warranty service. Our determination of
the appropriate level of warranty accrual is subjective and based on estimates,
and actual experience 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.

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 and ISO 13485 certified.

7

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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  |  | 60 |     | Chief
 Executive Officer of Biotel; Chief Executive Officer of Agility Centralized
 Research Services
|                       |  |    |     |                                                                                                      
|Harold A.
 Strandquist |  | 60 |     | Executive
 Vice President of Biotel, Sales, Marketing and Business Development                       
|                       |  |    |     |                                                                                                      
|Judy E. Naus           |  | 64 |     | 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. Strandquist was
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.

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.

8

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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.

Potential loss of business due to termination
notices
sent in accordance with requirements of terminated merger agreement.
On April 2, 2009, the Company entered into a Merger Agreement (the Merger
Agreement) with CardioNet, Inc. (CardioNet) pursuant to which CardioNet was
to acquire our outstanding securities. In a letter dated July 14, 2009,
CardioNet advised us that CardioNet was terminating the Merger Agreement. On July
16, 2009, we commenced a lawsuit claiming CardioNet breached and improperly
terminated the Merger Agreement. (See Item 3. Legal Proceedings.) In
accordance with the terms and conditions of the Merger Agreement, we terminated
and did not renew several business relationships we had at the time the Merger
Agreement was signed. Biotel believes its business has been negatively affected
by the Merger Agreement and the actions we were required to take in accordance
with the terms of the agreement. The Companys business prospects,
profitability and cash flow may be materially and adversely affected as a
result of the Merger Agreement.

Three customers generated a significant portion of
our
revenues.
Three major customers accounted for 58% and 39% of our consolidated revenues in
the fiscal years ended June 30, 2009 and 2008, respectively. CardioNet, Inc.,
against whom we commenced a lawsuit, was one of these customers, and another
was a company with whom we did not renew a distribution agreement because of
the Merger Agreement described above. As a result of the Merger Agreement, we
expect our total sales to these three customers in 2010 will be less than in
2009. The loss of or reduction in demand for our products from major customers
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.

9

---



Factors That May Affect Future Results
(Continued)

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.

Failure to protect our intellectual property and
know-how or our infringement of the intellectualproperty of others could have a material adverse
effect on our business. 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. 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.

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.

10

---



Factors That May Affect Future Results
(Continued)

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.

Our business could be materially adversely impacted
by
risks inherent in international markets.
During the 12 months ended June 30, 2009 and 2008, approximately 12.0% and
16.0%, 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.

11

---



Factors That May Affect Future Results
(Continued)

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 exist 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, the market for our common stock generally has
been very limited and there can be no assurance that there will be an active
market for our common stock. 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.

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.

12

---



|        |                         
|------- | ------------------------
|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.
 300 Jonestown Road, #6
 Winston-Salem, NC 27104                                      |  | Engineering                                 |  | 1,420                 |  | Lease
 expires June 30, 2011                                         
|                                                                                                     |  |                                             |  |                       |  |                                                                      
|Braemar,
 Inc.
 400 Arbor Lake Drive, 
 Suite B450
 Columbia, SC 29223                               |  | Administration                              |  | 2,903                 |  | Lease
 expires April 30, 2011                                        
|                                                                                                     |  |                                             |  |                       |  |                                                                      
|Agility
 Centralized Research 
 Services, Inc.
 2275 Half Day Road
 Suite 133
 Bannockburn, IL 60015 |  | Service
 operations                         |  | 1,225                 |  | Lease
 expired January 31, 2009; space leased on month-to-month basis

|        |                   
|------- | ------------------
|Item 3. | LEGAL PROCEEDINGS.

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

|        |                                                     
|------- | ----------------------------------------------------
|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|        |                                                     
|        | Not
 applicable.                                    

13

---



PART II

|        |                                                                                                  
|------- | -------------------------------------------------------------------------------------------------
|Item 5. | MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND 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, 2009 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
 2008  2009 |  |   | Low  |  | High |     
|September 30                |  | $ | 2.55 |  | $    | 3.35 | 
|December 31                 |  | $ | 2.00 |  | $    | 3.00 | 
|March 31                    |  | $ | 1.52 |  | $    | 1.94 | 
|June 30                     |  | $ | 4.40 |  | $    | 4.81 | 
|                            |  |   |      |  |      |      | 
|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 | 

As
of June 30, 2009, 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 year ended June 30, 2009.

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, 2009, 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.

14

---



|                                                              |  |                                                                                                   |         |                                                                                   |   |                                                                                                                                                       |  |  |         | 
|------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- | ------- | --------------------------------------------------------------------------------- | - | ----------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | ------- | 
|                                                              |  | 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 |                                                                                   | $ | 1.6391                                                                                                                                                |  |  | 439,000 | 
|Equity compensation plans
 not approved by securities holders |  |                                                                                                   |        |                                                                                   |   |                                                                                                                                                      |  |  |        | 
|                                                             
|Total                                                         |  |                                                                                                   | 211,000 |                                                                                   | $ | 1.6391                                                                                                                                                |  |  | 439,000 | 

|        |                         
|------- | ------------------------
|Item 6. | SELECTED
 FINANCIAL DATA

Not applicable.

|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 7. | 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.

15

---



Critical Accounting Policies (Continued)

Inventories
are valued at lower of cost (using the average and first-in first-out cost
methods) or market. A valuation allowance is maintained to provide changes in
inventory valuation due to fluctuations in market requirements and product
revisions.

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 2009 and 2008, we performed the required impairment tests of
goodwill and determined our recorded goodwill had not been impaired.

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.

16

---



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, and tissue extraction components; 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.

On
April 2, 2009, the Company entered into a Merger Agreement with CardioNet, Inc.
pursuant to which CardioNet was to acquire all of the Companys outstanding
securities. In a letter dated July 14, 2009, CardioNet notified the Company
that CardioNet was terminating the Merger Agreement due to the Companys breach
of a covenant requiring the Company to terminate a business relationship with
another company. On July 16, 2009, the Company commenced a lawsuit claiming
CardioNet breached and improperly terminated the Merger Agreement. (See Item 3.
Legal Proceedings.) In accordance with the terms and conditions of the Merger
Agreement, we terminated and did not renew a number of business relationships.
We believe that our business has been adversely affected by the Merger
Agreement and the actions we were required to take pursuant to the agreement
and that this could have a material and adverse effect on our profitability and
financial condition.

Results of Operations

Biotels
net revenues for the year ended June 30, 2009, were $12,640,000, 10.0% above
net revenues of $11,495,000 for the year ended June 30, 2008. Revenue increased
in fiscal year 2009 as a result of strong sales of medical devices. As a result
of a terminated Merger Agreement as described above, we expect that revenues
from a number of significant customers could be less in 2010 than in 2009.

Gross
profit margin increased to $5,525,000 (43.7%) for fiscal year 2009, compared to
$5,099,000 (44.4%) in fiscal year 2008. Cost of sales and service increased to
$7,115,000 (56.3%) for fiscal year 2009, compared to $6,396,000 (55.6%) for
fiscal year 2008. The increase in cost of sales and service was primarily the
result of the increase in sales. The gross profit margin percentage decreased
as a result of product mix and increase in allocation of costs to product
support. Gross margins vary from year to year dependent on model mix and
subsidiary contributions. Biotel manages its operations to promote favorable
gross margins and profitability. If revenues in fiscal year 2010 are diminished, gross
margins on equipment sales may diminish somewhat as a
result of semi-fixed levels of manufacturing overhead.

Selling,
general and administrative expenses increased to $2,586,000 (20.5% of sales)
for the year ended June 30, 2009, compared to $2,425,000 (21.0% of sales) for
the year ended June 30, 2008. 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.

17

---



Results of Operations (continued)

Research
and development expenditures for fiscal year 2009 were $1,602,000, a decrease
of 4.3% compared to $1,674,000 in fiscal year 2008. The decrease resulted
primarily because of the heavy development activities funded in fiscal 2008
related to a new Holter product line and ER9 Wireless technology platform and
product line. Expenditures for MCT wireless product development activity in
fiscal year 2009 benefited from the ER9 Wireless technology platform developed
in the prior year. Additionally, a portion of engineering expenses in fiscal
2009 were allocated to product support. Biotel expects a similar level of
expenditures for research and development in fiscal year 2010.

Interest
expense decreased to $590 for the year ended June 30, 2009, compared to
interest expense of $700 for the year ended June 30, 2008. During the years
ended June 30, 2009 and 2008, interest expense was incurred only when the bank
credit line was accessed.

Net
earnings for the year ended June 30, 2009 and 2008, were $944,000 (7.5% of
revenue) and $666,000 (5.8% of revenue), 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 $4,197,000 at June 30, 2009, compared to $3,125,000 at
June 30, 2008. The increase in working capital was primarily a result of the
continued strong performance of the Company.

Cash
and cash equivalents were $1,160,000 at June 30, 2009, compared to $945,000 at
June 30, 2008. 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 3.97 to one at
June 30, 2009, compared to 3.22 to one at June 30, 2008.

Accounts
receivable increased to $2,202,000 at June 30, 2009, versus $1,767,000 at June
30, 2008. The increase in accounts receivable was related to strong sales. 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 2009, $380,000 was used for capital expenditures, compared with
$716,000 in fiscal year 2008. Biotel invested in new Holter and Wireless Event
Recorder platforms in fiscal year 2008, causing a significant increase in
capital investment in that year. Levels of capital investment are expected to
vary from year to year.

Inventory
increased to $1,878,000 for the year ended June 30, 2009, compared to
$1,428,000 for the year ended June 30, 2008. 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.

Current
liabilities increased slightly to $1,415,000 at June 30, 2009, compared to
$1,408,000 on June 30, 2008. The increase resulted from changes in accruals for
income taxes and other expenses, partially offset by decrease in the line of
credit and deferred revenue.

As
of June 30, 2009 and 2008, Biotel had long term liabilities of $329,000 and
$225,000, respectively, relating to the Companys deferred income tax
liability.

18

---



Liquidity and Capital Resources (continued)

Stockholders
equity increased to $5,659,000 at June 30, 2009, from $4,702,000 at June 30,
2008. The increase in stockholders equity was principally a result of the
increase in retained earnings.

Management
believes that present cash balances and internally generated funds should
provide sufficient working capital to meet present and projected needs for the
coming 12 months. As described above, Biotel believes that its business has
been adversely affected by the Merger Agreement and the actions the Company
took in accordance with the terms and conditions of the Merger Agreement and
that this could have a material adverse effect on Biotels financial condition.
There is no assurance that Biotel will be successful in obtaining additional
working capital if more is required.

19

---



|        |                      
|------- | ---------------------
|Item 8. | FINANCIAL
 STATEMENTS

See
Financial Statements beginning on page F-1.

|        |                                                                                       
|------- | --------------------------------------------------------------------------------------
|Item 9. | CHANGES IN
 AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Not applicable.

|             |                          
|------------ | -------------------------
|Item
 9A(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, 2009 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, 2009. 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,
2009, 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.

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
 9B. | OTHER INFORMATION.

Not
applicable.

20

---



PART III

|                                                                                                                                                 |                                                                                                  
|------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------
|Item 10.                                                                                                                                         | DIRECTORS,
 EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.                                         
|                                                                                                                                                 |                                                                                                  
|Incorporated
 by reference from Biotels definitive proxy statement to be filed for the 2009
 Annual Meeting of Shareholders.                   
|                                                                                                                                                 |                                                                                                  
|Item 11.                                                                                                                                         | EXECUTIVE
 COMPENSATION.                                                                         
|                                                                                                                                                 |                                                                                                  
|Incorporated
 by reference from Biotels definitive proxy statement to be filed for the
 2009 Annual Meeting of Shareholders.                   
|                                                                                                                                                 |                                                                                                  
|Item 12.                                                                                                                                         | 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
 2009 Annual Meeting of Shareholders.                   
|                                                                                                                                                 |                                                                                                  
|Item 13.                                                                                                                                         | CERTAIN
 RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDENDENCE.                            
|                                                                                                                                                 |                                                                                                  
|Incorporated by reference
 from Biotels definitive proxy statement to be filed for the 2009 Annual
 Meeting of Shareholders.                   
|                                                                                                                                                 |                                                                                                  
|Item 14.                                                                                                                                         | PRINCIPAL
 ACCOUNTANT FEES AND SERVICES.                                                         
|                                                                                                                                                 |                                                                                                  
|Incorporated
 by reference from Biotels definitive proxy statement to be filed for the
 2009 Annual Meeting of Shareholders.                   
|                                                                                                                                                
|PART IV                                                                                                                                         
|                                                                                                                                                
|Item 15.                                                                                                                                         | 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-K.

21

---



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 28, 2009 | 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 thing 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 28, 2009
|B. Steven Springrose                 |  |                   
|(President, Chief Executive
 Officer |  |                   
|and a Director)                      |  |                   
|                                     |  |                   
|/s/ Judy E. Naus                     |  | September 28, 2009
|Judy E. Naus                         |  |                   
|(Chief Financial Officer             |  |                   
|and Chief Accounting
 Officer)       |  |                   
|                                     |  |                   
|/s/ C. Roger Jones                   |  | September 28, 2009
|C. Roger Jones                       |  |                   
|(Director)                           |  |                   
|                                     |  |                   
|/s/ Stanley N. Bormann               |  | September 28, 2009
|Stanley N. Bormann                   |  |                   
|(Director)                           |  |                   
|                                     |  |                   
|/s/ L. John Ankney                   |  | September 28, 2009
|L. John Ankney                       |  |                   
|(Director)                           |  |                   
|                                     |  |                   
|/s/ David A. Heiden                  |  | September 28, 2009
|David A. Heiden                      |  |                   
|(Director)                           |  |                   
|                                     |  |                   
|/s/ Spencer M. Vawter                |  | September 28, 2009
|Spencer M. Vawter                    |  |                   
|(Director)                           |  |                   

22

---



Exhibits:

|                |  |                                                                                                          |                                                                                                                                          
|--------------- |  | -------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
 Number |  |                                                                                                          | 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.*******                                         
|10.9            |  |                                                                                                          | Office Lease dated March
 25, 2009 between Biotel Inc. and Fontaine Business Park, LLC *                                                 
|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, Commission 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.                   
|*******         |  | Previously filed with Form
 10-KSB on September 29, 2008, Commission File No. 0-50914.                  

23

---



BIOTEL INC. AND SUBSIDIARIESREPORT ON CONSOLIDATEDFINANCIAL STATEMENTS
FOR THE YEARS ENDEDJUNE 30, 2009 AND 2008

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
 statements 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
Stockholders Biotel Inc. and
SubsidiariesEagan, Minnesota

We
have audited the accompanying consolidated balance sheets of Biotel Inc. and Subsidiaries
(the Company) as of June 30, 2009 and 2008, and the related consolidated
statements of income, stockholders equity and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Biotel Inc. and
Subsidiaries as of June 30, 2009 and 2008, and the results of their operations
and their cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.

We were
not engaged to examine managements assessment of the effectiveness of the Companys internal control over financial
reporting as of June 30, 2009 included in the accompanying Managements Report on Internal Controls Over Financial Reporting
and, accordingly, we do not express an opinion thereon.

September 28, 2009
Columbia, South Carolina

F-3

---



|                             
|-----------------------------
|BIOTEL INC. AND
 SUBSIDIARIES
|CONSOLIDATED
 BALANCE SHEETS 

|                                                                                                                                   |  |          |           |      |   |           | 
|---------------------------------------------------------------------------------------------------------------------------------- |  | -------- | --------- | ---- | - | --------- | 
|                                                                                                                                   |  | June 30, |          
|                                                                                                                                   |  | 2009     |           | 2008 |  
|                                                                                                                                   |  |          |           |      |   |           | 
|ASSETS                                                                                                                            
|                                                                                                                                  
|CURRENT ASSETS                                                                                                                     |  |          |           |      |   |           | 
|Cash and cash equivalents                                                                                                          |  | $        | 1,160,409 |      | $ | 945,121   | 
|Trade accounts receivable, net of allowance
 for doubtful accounts of $48,965 and $55,440 at June 30, 2009 and 2008,
 respectively |  |          | 2,202,378 |      |   | 1,766,512 | 
|Prepaid income taxes                                                                                                               |  |          |          |      |   | 39,310    | 
|Inventories, net                                                                                                                   |  |          | 1,878,397 |      |   | 1,428,163 | 
|Deferred tax asset                                                                                                                 |  |          | 250,674   |      |   | 244,018   | 
|Prepaid expenses                                                                                                                   |  |          | 120,098   |      |   | 109,903   | 
|                                                                                                                                   |  |          |           |      |   |           | 
|Total Current Assets                                                                                                               |  |          | 5,611,956 |      |   | 4,533,027 | 
|                                                                                                                                   |  |          |           |      |   |           | 
|PROPERTY & EQUIPMENT, Net                                                                                                          |  |          | 1,081,314 |      |   | 1,092,710 | 
|                                                                                                                                   |  |          |           |      |   |           | 
|OTHER ASSETS                                                                                                                       |  |          |           |      |   |           | 
|Goodwill                                                                                                                           |  |          | 695,551   |      |   | 695,551   | 
|Other assets                                                                                                                       |  |          | 13,820    |      |   | 13,820    | 
|                                                                                                                                   |  |          |           |      |   |           | 
|Total Other Assets                                                                                                                 |  |          | 709,371   |      |   | 709,371   | 
|                                                                                                                                   |  |          |           |      |   |           | 
|                                                                                                                                   |  | $        | 7,402,641 |      | $ | 6,335,108 | 
|                                                                                                                                   |  |          |           |      |   |           | 
|LIABILITIES AND STOCKHOLDERS
EQUITY                                                                                              
|                                                                                                                                   |  |          |           |      |   |           | 
|CURRENT LIABILITIES                                                                                                                |  |          |           |      |   |           | 
|Revolving line of credit                                                                                                           |  | $        |          |      | $ | 187,146   | 
|Trade accounts payable                                                                                                             |  |          | 557,094   |      |   | 651,635   | 
|Accrued payroll and related liabilities                                                                                            |  |          | 277,803   |      |   | 237,503   | 
|Deferred service contract revenue                                                                                                  |  |          | 93,855    |      |   | 133,359   | 
|Other accrued expenses                                                                                                             |  |          | 283,502   |      |   | 198,540   | 
|Income taxes payable                                                                                                               |  |          | 202,265   |      |   |          | 
|                                                                                                                                   |  |          |           |      |   |           | 
|Total Current Liabilities                                                                                                          |  |          | 1,414,519 |      |   | 1,408,183 | 
|                                                                                                                                   |  |          |           |      |   |           | 
|LONG-TERM LIABILITIES                                                                                                              |  |          |           |      |   |           | 
|Deferred taxes payable                                                                                                             |  |          | 329,183   |      |   | 224,967   | 
|                                                                                                                                   |  |          |           |      |   |           | 
|COMMITMENTS AND CONTINGENCIES (See Notes 7
 and 8)                                                                                 |  |          |           |      |   |           | 
|                                                                                                                                   |  |          |           |      |   |           | 
|Total Liabilities                                                                                                                  |  |          | 1,743,702 |      |   | 1,633,150 | 
|                                                                                                                                   |  |          |           |      |   |           | 
|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 shares issued                                            |  |          | 27,638    |      |   | 27,638    | 
|Additional paid-in capital                                                                                                         |  |          | 2,158,638 |      |   | 2,145,594 | 
|Retained earnings                                                                                                                  |  |          | 3,472,663 |      |   | 2,528,726 | 
|                                                                                                                                   |  |          |           |      |   |           | 
|Total Stockholders Equity                                                                                                         |  |          | 5,658,939 |      |   | 4,701,958 | 
|                                                                                                                                   |  |          |           |      |   |           | 
|                                                                                                                                   |  | $        | 7,402,641 |      | $ | 6,335,108 | 

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

F-4

---



|                                  
|----------------------------------
|BIOTEL INC. AND
 SUBSIDIARIES     
|CONSOLIDATED
 STATEMENTS OF INCOME

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

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

F-5

---



|                                     
|-------------------------------------
|BIOTEL INC. AND SUBSIDIARIES         
|CONSOLIDATED STATEMENTS OF CASH FLOWS

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

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

F-6

---



|                                                
|------------------------------------------------
|BIOTEL INC. AND SUBSIDIARIES                    
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS
 EQUITY
|For the years ended June 30, 2009 and
 2008     

|                          |  |              |        |                          |  |                  |  |       |           |  |   |           |  |   |           | 
|------------------------- |  | ------------ | ------ | ------------------------ |  | ---------------- |  | ----- | --------- |  | - | --------- |  | - | --------- | 
|                          |  |              |        | AdditionalPaid-InCapital |  | RetainedEarnings |  | Total |          
|                          |  | Common Stock |        |                          |  |                 
|                          |  | Amount       |        | Shares                   |  |                  |  |      
|                          |  |              |        |                          |  |                  |  |       |           |  |  
|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 | 
|                          |  |              |        |                          |  |                  |  |       |           |  |   |           |  |   |           | 
|Stock-based compensation  |  |              |       |                          |  |                 |  |       | 13,044    |  |   |          |  |   | 13,044    | 
|                          |  |              |        |                          |  |                  |  |       |           |  |   |           |  |   |           | 
|Net income                |  |              |       |                          |  |                 |  |       |          |  |   | 943,937   |  |   | 943,937   | 
|                          |  |              |        |                          |  |                  |  |       |           |  |   |           |  |   |           | 
|Balance, June 30, 2009    |  | $            | 27,638 |                          |  | 2,763,827        |  | $     | 2,158,638 |  | $ | 3,472,663 |  | $ | 5,658,939 | 

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

F-7

---



BIOTEL INC. AND
SUBSIDIARIES 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1  NATURE OF
BUSINESS AND CORPORATE ORGANIZATION

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

The
Companys sales are both national and international.

NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

| |                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Principles of 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. Advertising expenses totaled approximately $11,000 in
 each of the years ended June 30, 2009 and 2008.                                                                                                                                                                                                                                                                                                                            

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 (Goodwill) in accordance with Statement of Financial Accounting Standards (SFAS)
 No. 142, Goodwill and Other Intangible
 Assets. The goodwill arose from the acquisition of Braemar, Inc.
 Goodwill is deemed to have an indefinite useful life and is subject to
 impairment tests performed at least annually. During 2009 and 2008, such
 tests of goodwill determined the recorded goodwill had not been impaired.                                                                                                                                                                                                                                                                                                                                                                                                              
| |                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Service 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, 2009 and 2008, current liabilities
 include service contract revenue deferrals of approximately $94,000 and
 $133,000, 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, 2009 and 2008, the warranty reserve totaled
 $186,424 and $87,512, respectively, and this amount is included in Other
 Accrued Expenses. The following is a reconciliation of the aggregate warranty
 liability as of June 30, 2009 and 2008:

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

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. Potential
dilutive shares consist of the stock options 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 significant assumptions were used: risk-free
 interest rates based on date of issuance of 1.55% to 4.41%, no expected
 dividends, a volatility factor of 20.62 to 229.35, an expected life of the
 options of 5-10 years (amortized over the vesting period) and expected
 vesting of the options at 100%.                                                                                                                                                                                                                                                                                                                                                                                                              
| |                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |                             | The Black-Scholes option valuation model was developed for use in
 estimating the fair value of traded options that have no vesting restrictions
 and are fully transferable. In addition, option valuation models require the
 input of highly subjective assumptions including the expected stock price
 volatility. Because the Companys employee stock options have characteristics
 significantly different from those of traded options, and because changes in
 the subjective input assumptions can materially affect the fair value
 estimate, in managements opinion the existing models do not necessarily
 provide a reliable single measure of the fair value of Biotel Inc.s options.                                                                                                                                                                                                  
| |                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | Research and 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

F-10

---



NOTE 2  SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES, Continued

| |                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | ------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 was effective for
fiscal years beginning after December 15, 2006. Accordingly, the Company
adopted FIN 48 effective July 1, 2007. The adoption of FIN 48 did not have
any impact on the Companys consolidated financial position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Cash and cash equivalents           
| |                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                      | The Company considers all highly liquid short-term investments
 purchased with an original maturity of three months or less to be cash
 equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | Recently issued accounting standards
| |                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                      | The following recently issued accounting pronouncements may affect
 future financial reporting of Biotel Inc.:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                      | In June 2009, the Financial Accounting Standards Board (FASB)
 issued Statement of Financial Accounting Standards (SFAS) No. 168, The
 FASB Accounting Standards Codification and the Hierarchy of Generally
 Accepted Accounting Principles - a replacement of FASB Statement No. 162,
 (SFAS 168). SFAS 168 establishes the FASB Accounting Standards Codification
 (Codification) as the source of authoritative generally accepted accounting
 principles (GAAP) for nongovernmental entities. The Codification does not
 change GAAP. Instead, it takes the thousands of individual pronouncements
 that currently comprise GAAP and reorganizes them into approximately 90
 accounting Topics, and displays all Topics using a consistent structure.
 Contents in each Topic are further organized first by Subtopic, then Section
 and finally Paragraph. The Paragraph level is the only level that contains
 substantive content. Citing particular content in the Codification involves
 specifying the unique numeric path to the content through the Topic,
 Subtopic, Section and Paragraph structure. FASB suggests that all citations
 begin with FASB ASC, where ASC stands for Accounting Standards
 Codification. SFAS 168, (FASB ASC 105-10-05, 10, 15, 65, 70) is effective for
 interim and annual periods ending after September 15, 2009.                                                   
| |                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                      | SFAS 167 (not yet reflected in FASB ASC), Amendments to FASB
 Interpretation No. 46(R), (SFAS 167) was issued in June 2009. The standard
 amends FIN 46(R) to require a company to analyze whether its interest in a
 variable interest entity (VIE) gives it a controlling financial interest. A
 company must assess whether it has an implicit financial responsibility to
 ensure that the VIE operates as designed when determining whether it has the
 power to direct the activities of the VIE that significantly impact its
 economic performance. Ongoing reassessments of whether a company is the
 primary beneficiary are also required by the standard. SFAS 167 amends the
 criteria to qualify as a primary beneficiary as well as how to determine the
 existence of a VIE. The standard also eliminates certain exceptions that were
 available under FIN 46(R). SFAS 167 is effective as of the beginning of each
 reporting entitys first annual reporting period that begins after November
 15, 2009, for interim periods within that first annual reporting period, and
 for interim and annual reporting periods thereafter. Earlier application is
 prohibited. Comparative disclosures will be required for periods after the
 effective date. The Company does not believe the adoption of SFAS 167 will have a material impact on its financial
position, results of operations or cash flows.

F-11

---



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

NOTE 3  INVENTORIES

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

|                                   |  |      |           |      |   |           |  
|---------------------------------- |  | ---- | --------- | ---- | - | --------- | -
|                                   |  | 2009 |           | 2008 |  
|                                  
|Raw
 materials and supplies        |  | $    | 1,782,903 |      | $ | 1,374,588 |  
|Finished
 goods                    |  |      | 235,534   |      |   | 229,169   |  
|Evaluation
 units and replacements |  |      | 4,507     |      |   | 12,406    |  
|                                  
|                                   |  |      | 2,022,944 |      |   | 1,616,163 |  
|Valuation
 allowance               |  |      | (144,547  | )    |   | (188,000  | )
|                                   |  |      |           |      |   |           |  
|                                   |  | $    | 1,878,397 |      | $ | 1,428,163 |  

NOTE 4  PROPERTY
AND EQUIPMENT

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

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

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

F-12

---



NOTE 5  REVOLVING
LINE OF CREDIT

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

NOTE 6  RELATED PARTY
TRANSACTIONS

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

NOTE 7  LEASE
OBLIGATIONS

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

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

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

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

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

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

|     |  |   |         | 
|---- |  | - | ------- | 
|2010 |  | $ | 169,980 | 
|2011 |  |   | 167,804 | 
|2012 |  |   | 18,902  | 
|    
|     |  | $ | 356,686 | 

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

F-13

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NOTE 8  COMMITMENTS
AND CONTINGENCIES

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

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

NOTE 9  SIGNIFICANT
CUSTOMER CONCENTRATIONS

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

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

NOTE 10  STOCK
OPTIONS

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

F-14

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NOTE 10  STOCK OPTIONS (continued)

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, 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 | 
|                         |  |                   |          |                                    |   |                   |  |                                    |         |  |   |        | 
|Granted                  |  |                   | 145,000  |                                    |   | 2.0472            |  |                                    |         |  |   |        | 
|Expired                  |  |                   | (25,000  | )                                  |   | 1.8200            |  |                                    |         |  |   |        | 
|Cancelled                |  |                   | (120,000 | )                                  |   | 2.0000            |  |                                    |         |  |   |        | 
|                         |  |                   |          |                                    |   |                   |  |                                    |         |  |   |        | 
|Balance at June 30, 2009 |  |                   | 211,000  |                                    | $ | 1.6391            |  |                                    | 198,500 |  | $ | 1.6171 | 

NOTE 11  INCOME TAXES

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

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

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

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

F-15

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NOTE 11  INCOME TAXES (Continued)

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

|                                    |  |      |          |      |   |          |  
|----------------------------------- |  | ---- | -------- | ---- | - | -------- | -
|                                    |  | 2009 |          | 2008 |  
|                                    |  |      |          |      |  
|Deferred tax
 assets applicable to: |  |      |          |      |   |          |  
|Allowance for doubtful accounts     |  | $    | 19,100   |      | $ | 21,600   |  
|Inventory reserves                  |  |      | 56,400   |      |   | 73,300   |  
|Warranty reserves                   |  |      | 72,700   |      |   | 34,100   |  
|Accruals                            |  |      | 63,100   |      |   | 56,400   |  
|Depreciation                        |  |      | (249,400 | )    |   | (161,545 | )
|Goodwill                            |  |      | (221,400 | )    |   | (190,048 | )
|Net operating loss carryforwards    |  |      | 232,000  |      |   | 231,150  |  
|Other                               |  |      | 76,407   |      |   | 81,510   |  
|                                    |  |      |          |      |   |          |  
|                                    |  |      | 48,907   |      |   | 146,467  |  
|Less valuation allowance            |  |      | 127,416  |      |   | 127,416  |  
|                                    |  |      |          |      |   |          |  
|Deferred tax asset (liability)      |  | $    | (78,509  | )    | $ | 19,051   |  

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

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

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

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

NOTE 12  NET INCOME
PER SHARE OF COMMON STOCK

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

F-16

---



NOTE 13  EMPLOYEE BENEFITS PLANS

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

NOTE 14  OPERATIONS
AND INDUSTRY SEGMENTS

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

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

|                                   |  |                              |            |                                 |   |           |   |        |           |   |   |            | 
|---------------------------------- |  | ---------------------------- | ---------- | ------------------------------- | - | --------- | - | ------ | --------- | - | - | ---------- | 
|                                   |  | 2009                         |           
|                                   |  | OEM Medical
 Sales & Service |            | Direct Medical
 Sales & Service |   | Corporate |   | Totals |          
|                                   |  |                              |            |                                 |   |           |   |        |           |   |   |            | 
|Domestic revenues                  |  | $                            | 10,579,765 |                                 | $ | 585,381   |   | $      |          |   | $ | 11,165,146 | 
|International revenues             |  |                              | 1,380,139  |                                 |   | 94,351    |   |        |          |   |   | 1,474,490  | 
|Revenues from external customers   |  |                              | 11,959,904 |                                 |   | 679,732   |   |        |          |   |   | 12,639,636 | 
|Intersegment revenues              |  |                              | 27,734     |                                 |   | (27,734   | ) |        |          |   |   |           | 
|Interest expense                   |  |                              |           |                                 |   |          |   |        | 590       |   |   | 590        | 
|Income tax expense                 |  |                              | 544,605    |                                 |   | 71,902    |   |        | (203,896  | ) |   | 412,611    | 
|Depreciation                       |  |                              | 360,908    |                                 |   | 5,404     |   |        | 22,886    |   |   | 389,198    | 
|Segment profit                     |  |                              | 832,112    |                                 |   | 102,506   |   |        | 9,319     |   |   | 943,937    | 
|Goodwill                           |  |                              | 695,551    |                                 |   |          |   |        |          |   |   | 695,551    | 
|Total segment assets               |  |                              | 5,844,166  |                                 |   | 64,680    |   |        | 1,493,795 |   |   | 7,402,641  | 
|Purchase of property and equipment |  |                              | 374,811    |                                 |   |          |   |        | 5,134     |   |   | 379,945    | 
|                                   |  |                              |            |                                 |   |           |   |        |           |   |   |            | 
|                                   |  | 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    | 

F-17

---



NOTE 15  SUBSEQUENT
EVENTS

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

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

F-18

---