Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-QSB

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xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934



For the period ended September 30, 2007



oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from _________ to _________



Commission File Number :  0-50914



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BIOTEL INC.

(Exact name of registrant as specified in its charter)



Minnesota
        41-1427114(State or other jurisdiction ofincorporation or organization)
        (I.R.S. EmployerIdentification No.)




1285 Corporate Center Drive, Suite 150

Eagan, MN  55121

(Address of principal executive offices, including zip code)



(651) 286-8620

(Registrants telephone number, including area code)



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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yesx
        Noo




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

Yeso
        Nox




The number of shares of registrants common stock, par value $0.01 per share, outstanding as of as of September 30, 2007, was 2,673,827.



Transitional Small Business Disclosure Format (check one):

Yeso
        Nox






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BIOTEL INC.

INDEX



PART I
        
        
        Page NumberItem 1:
        Financial Information
        1Consolidated Balance Sheets  September 30, 2007 and June 30, 2007
        1Consolidated Statements of Income  Three Months Ended September 30, 2007 and 2006
        2Consolidated Statements of Cash Flows  Three Months Ended September 30, 2007 and 2006
        3Consolidated Statements of Stockholders Equity  Three Months Ended September 30, 2007 and 2006
        4Notes to Consolidated Financial Statements (Unaudited)
        5Item 2:
        Managements Discussion and Analysis of Financial Condition and Results of Operations
        8Item 3/3A(T):
        Controls and Procedures
        12PART IIItem 1Item 5:
        Not applicable
        12Item 6:
        Exhibits
        12Signatures
        
        13






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Part I

Item 1:
        Financial Information




BIOTEL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS





September 30,2007Unaudited
        
        June 30,2007UnauditedASSETSCURRENT ASSETS:Cash and cash equivalents
        
        $
        138,851
        
        $
        508,314Trade accounts receivable, net of allowance for doubtful accounts of $37,072 and $35,707 at September 30, 2007 and June 30, 2007, respectively
        
        
        2,014,850
        
        
        1,966,415Inventories, net
        
        
        1,343,777
        
        
        1,122,259Deferred tax asset
        
        
        200,342
        
        
        200,342Prepaid expenses
        
        
        138,540
        
        
        184,149Total Current Assets
        
        
        3,836,360
        
        
        3,981,479PROPERTY, PLANT & EQUIPMENT, Net
        
        
        721,398
        
        
        704,327OTHER ASSETS:Goodwill
        
        
        695,551
        
        
        695,551Other assets
        
        
        12,400
        
        
        12,400Total Other Assets
        
        
        707,951
        
        
        707,951$
        5,265,709
        
        $
        5,393,757LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIES:Trade accounts payable
        
        $
        585,921
        
        $
        678,094Accrued payroll and related liabilities
        
        
        178,360
        
        
        243,766Deferred service contract revenue
        
        
        160,192
        
        
        177,969Other accrued expenses
        
        
        225,946
        
        
        277,488Accrued income taxes
        
        
        500
        
        
        83,940Total Current Liabilities
        
        
        1,150,919
        
        
        1,461,257COMMITMENTS AND CONTINGENCIES
        
        
        
        
        
        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; 2,673,827 shares issued
        
        
        26,738
        
        
        26,738Additional paid-in capital
        
        
        2,055,568
        
        
        2,043,175Retained earnings
        
        
        2,032,484
        
        
        1,862,587Total Stockholders Equity
        
        
        4,114,790
        
        
        3,932,500$
        5,265,709
        
        $
        5,393,757




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



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BIOTEL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Unaudited



For the three months endedSeptember 30,2007
        
        2006SALES AND SERVICES
        
        $
        2,750,779
        
        $
        2,423,567COST OF SALES AND SERVICES
        
        
        1,495,743
        
        
        1,436,778GROSS PROFIT
        
        
        1,255,036
        
        
        986,789OPERATING EXPENSESSelling and administrative
        
        
        584,381
        
        
        618,717Research and development
        
        
        409,256
        
        
        370,987Total operating expenses
        
        
        993,637
        
        
        989,704INCOME (LOSS) FROM OPERATIONS
        
        
        261,399
        
        
        (2,915
        )OTHER INCOME (EXPENSE)Interest income
        
        
        4,278
        
        
        463Interest expense
        
        
        (98
        )
        
        (11,557
        )Miscellaneous
        
        
        937
        
        
        891Total other income (expense)
        
        
        5,117
        
        
        (10,203
        )NET INCOME (LOSS) BEFORE PROVISION (CREDIT) FOR INCOME TAXES
        
        
        266,516
        
        
        (13,118
        )PROVISION (CREDIT) FOR INCOME TAXES
        
        
        96,619
        
        
        (2,276
        )NET INCOME (LOSS)
        
        $
        169,897
        
        $
        (10,842
        )INCOME PER SHAREBASIC
        
        $
        0.06
        
        $
        (
        )DILUTED
        
        $
        0.06
        
        $
        (
        )




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



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BIOTEL INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

Unaudited



For the three months endedSeptember 30,2007
        
        2006OPERATING ACTIVITIESNet income (loss)
        
        $
        169,897
        
        $
        (10,842
        )Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activitiesDepreciation and amortization
        
        
        63,590
        
        
        77,324Stock-based compensation
        
        
        12,393
        
        
        20,380Increase in allowance for doubtful accounts
        
        
        1,365
        
        
        2,890Increase (decrease) in inventory valuation allowance
        
        
        (9,403
        )
        
        9,549Loss on disposal of fixed assets
        
        
        
        
        
        290Changes in deferred and accrued amountsTrade accounts receivable
        
        
        (49,800
        )
        
        243,487Prepaid expenses
        
        
        45,609
        
        
        (102,522
        )Inventories
        
        
        (212,115
        )
        
        30,946Other assets
        
        
        
        
        
        (1,181
        )Trade accounts payable
        
        
        (92,173
        )
        
        59,083Accrued payroll and related liabilities
        
        
        (65,406
        )
        
        (42,302
        )Other accrued expenses
        
        
        (51,542
        )
        
        (33,052
        )Deferred service contract revenue
        
        
        (17,777
        )
        
        3,602Income taxes payable
        
        
        (83,440
        )
        
        (76,545
        )Net cash provided by (used for) operating activities
        
        
        (288,802
        )
        
        181,107INVESTING ACTIVITIESPurchases of property and equipment
        
        
        (80,661
        )
        
        (119,962
        )Net cash used for investing activities
        
        
        (80,661
        )
        
        (119,962
        )FINANCING ACTIVITIESNet change on line of credit
        
        
        
        
        
        51,636Payments of long-term debt
        
        
        
        
        
        (51,288
        )Net cash provided by financing activities
        
        
        
        
        
        348Net change in cash and cash equivalents
        
        
        (369,463
        )
        
        61,493CASH AND CASH EQUIVALENTS AS OF JUNE 30, 2007 and 2006
        
        
        508,314
        
        
        51,186CASH AND CASH EQUIVALENTS AS OF SEPTEMBER 30, 2007 and 2006
        
        $
        138,851
        
        $
        112,679CASH PAID FORInterest Expense
        
        $
        28
        
        $
        10,603Income Taxes
        
        $
        180,060
        
        $
        135,080




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



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BIOTEL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY

For the three months ended September 30, 2007 and 2006



Common Stock
        
        AdditionalPaid-In
        
        RetainedAmount
        
        Shares
        
        Capital
        
        Earnings
        
        TotalBalance, June 30, 2006
        
        $
        26,498
        
        2,649,827
        
        $
        1,941,324
        
        $
        1,342,854
        
        $
        3,310,676Stock-based compensation
        
        
        
        
        
        
        
        20,380
        
        
        
        
        
        20,380Net Loss
        
        
        
        
        
        
        
        
        
        
        (10,842
        )
        
        (10,842
        )Balance, September 30, 2006
        
        $
        26,498
        
        2,649,827
        
        $
        1,961,704
        
        $
        1,332,012
        
        $
        3,320,214Balance, June 30, 2007
        
        $
        26,738
        
        2,673,827
        
        $
        2,043,175
        
        $
        1,862,587
        
        $
        3,932,500Stock-based compensation
        
        
        
        
        
        
        
        12,393
        
        
        
        
        
        12,393Net Earnings
        
        
        
        
        
        
        
        
        
        
        169,897
        
        
        169,897Balance, September 30, 2007
        
        $
        26,738
        
        2,673,827
        
        $
        2,055,568
        
        $
        2,032,484
        
        $
        4,114,790




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



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BIOTEL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



NOTE 1  BASIS OF PRESENTATION



The unaudited interim consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Form 10-KSB for the fiscal year ended June 30, 2007, filed by Biotel Inc. (the Company) on September 28, 2007.



The information furnished reflects, in the opinion of the management of the Company, all adjustments necessary for a fair presentation of its financial results for the interim periods presented. Interim results are subject to year end adjustments and audit by independent certified public accountants.



NOTE 2  INVENTORIES



As of September 30, 2007 and June 30, 2007, inventories consist of the following:



September 30,2007
        
        June 30,2007Raw materials and supplies
        
        $
        1,346,607
        
        $
        1,154,869Finished goods
        
        
        358,100
        
        
        337,216Evaluation units and replacements
        
        
        6,640
        
        
        7,1471,711,347
        
        
        1,499,232Valuation allowance
        
        
        (367,570
        )
        
        (376,973
        )$
        1,343,777
        
        $
        1,122,259






NOTE 3  WARRANTY RESERVE



The Company offers warranties of up to a year 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 our expectations. The Company periodically assesses the adequacy of its recorded liability and adjusts the balance as necessary. At September 30, 2007 and June 30, 2007, the warranty reserve totaled $74,466 and $75,906, respectively. At September 30, 2006 and June 30, 2006, the warranty reserve totaled $84,786 and $97,471, respectively. Warranty reserve is included in Other Accrued Expenses. The
following is a reconciliation of the aggregate warranty liability as of September 30, 2007 and 2006.



September 30,2007
        
        September 30,2006Beginning of Period, June 30, 2007 and 2006
        
        $
        75,906
        
        $
        97,471Claims Paid
        
        
        (18,225
        )
        
        (8,246
        )Additional warranties issued and revisions in estimates of previously issued warranties
        
        
        16,785
        
        
        (4,439
        )End of Period, September 30, 2007 and 2006
        
        $
        74,466
        
        $
        84,786






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NOTE 4  STOCK-BASED COMPENSATION



On July 1, 2006, the Company adopted the fair value recognition provision of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) 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 No. 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.



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 September 30, 2007 and 2006, Biotel Inc. had 301,000 and333,000 outstanding options, respectively. Currently option prices range from $.375 to $2.00 per share with a weighted average remainingcontract life of 1.86 years. During the three months ended September 30, 2007, no options were exercised, and no options were exercised during the three months ended September 30, 2006. Option vesting and expiration is determined by the Board of Directors at the time the options are awarded. No
options may be awarded with an expiration greater than 10 years.



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



Outstanding
        
        ExercisableSharesAvailable
        
        Numberof Shares
        
        WeightedAverageExercisePrice
        
        Numberof Shares
        
        WeightedAverageExercisePriceBalance at June 30, 2006
        
        322,000
        
        328,000
        
        $
        1.1898
        
        230,000
        
        $
        1.0510Granted
        
        (10,000
        )
        10,000Expired
        
        5,000
        
        (5,000
        )Balance at September 30, 2006
        
        317,000
        
        333,000
        
        $
        1.1989
        
        281,000
        
        $
        1.1440Balance at June 30, 2007
        
        349,000
        
        301,000
        
        $
        1.2600
        
        254,500
        
        $
        1.2230Balance at September 30, 2007
        
        349,000
        
        301,000
        
        $
        1.2600
        
        254,500
        
        $
        1.2230




NOTE 5   EARNINGS PER SHARE OF COMMON STOCK



The weighted average number of shares used in the computation of basic and diluted income per common share for the three months ended September 30, 2007 was 2,673,827 and 2,862,613, respectively, and for the three months ended September 30, 2006 was 2,649,827 and 2,758,628, respectively.



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NOTE 6  OPERATIONS AND INDUSTRY SEGMENTS



The Company reports on two segments of business:  OEM Medical Equipment Sales and Direct Medical Equipment Sales. 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.

Three months ended September 30, 2007OEM MedicalSales & Services
        
        Direct MedicalEquipment Sales
        
        Corporate
        
        TotalsDomestic revenues
        
        $
        2,281,077
        
        $
        154,465
        
        $
        
        
        $
        2,435,542International revenues
        
        
        278,839
        
        
        36,398
        
        
        
        
        
        315,237Revenues from external customers
        
        
        2,559,916
        
        
        190,863
        
        
        
        
        
        2,750,779Intersegment revenues
        
        
        34,443
        
        
        (34,443
        )
        
        
        
        
        Interest expense
        
        
        
        
        
        
        
        
        98
        
        
        98Income tax expense
        
        
        62,411
        
        
        18,186
        
        
        16,022
        
        
        96,619Depreciation and amortization
        
        
        56,150
        
        
        2,063
        
        
        5,377
        
        
        63,590Segment profit
        
        
        103,535
        
        
        35,259
        
        
        31,103
        
        
        169,897Goodwill
        
        
        695,551
        
        
        
        
        
        
        
        
        695,551Total segment assets
        
        
        4,675,689
        
        
        147,282
        
        
        442,738
        
        
        5,265,709Purchase of property and equipment
        
        
        80,661
        
        
        
        
        
        
        
        
        80,661






Three months ended September 30, 2006OEM MedicalSales & Services
        
        Direct MedicalEquipment Sales
        
        Corporate
        
        TotalsDomestic revenues
        
        $
        2,045,449
        
        $
        214,694
        
        $
        
        
        $
        2,260,143International revenues
        
        
        150,608
        
        
        12,816
        
        
        
        
        
        163,424Revenues from external customers
        
        
        2,196,057
        
        
        227,510
        
        
        
        
        
        2,423,567Intersegment revenues
        
        
        37,696
        
        
        (37,696
        )
        
        
        
        
        Interest expense
        
        
        954
        
        
        
        
        
        10,603
        
        
        11,557Income tax expense
        
        
        (27,944
        )
        
        17,301
        
        
        8,367
        
        
        (2,276
        )Depreciation and amortization
        
        
        68,881
        
        
        2,427
        
        
        6,016
        
        
        77,324Segment profit
        
        
        (40,999
        )
        
        33,451
        
        
        (3,294
        )
        
        (10,842
        )Goodwill
        
        
        695,551
        
        
        
        
        
        
        
        
        695,551Total segment assets
        
        
        4,286,445
        
        
        220,856
        
        
        546,863
        
        
        5,054,164Purchase of property and equipment
        
        
        118,460
        
        
        
        
        
        1,502
        
        
        119,962




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Item 2:Managements Discussion and Analysis of Financial Condition and Results of Operations



Cautionary Statement



Statements included or incorporated by reference in this Quarterly Report on Form 10-QSB which are not historical in nature are identified as forward looking statements for the purposes of the safe harbor provided by Section 27A of the Securities Act of 1933, as amended. Biotel cautions readers that forward looking statements, including, without limitation, those relating to our future business prospects, revenues, working capital, liquidity, capital needs, interest costs and income, are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated in the forward looking statements. The risks and uncertainties include, but are not limited to, economic conditions, product demand and industry capacity, competitive products and pricing, manufacturing efficiencies, new product development and market acceptance, the regulatory
and trade environment and other risks indicated in filings with the Securities and Exchange Commission.



Critical Accounting Policies



The consolidated financial
statements of Biotel Inc. include the accounts of Biotel Inc. and its wholly-owned subsidiaries, Braemar, Inc., Advanced Biosensor Inc.
and Agility Centralized Research Services, Inc. (collectively, Biotel), which are all located in the United States.
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 charges the costs of advertising, except for costs associated with direct response advertising, to operating expenses as incurred. The costs of direct response advertising are capitalized and amortized over the period during which future benefits are expected to be received.



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



Property, equipment and leasehold improvements are recorded at cost. Depreciation is calculated using the straight-line or declining-balance methods over estimated useful lives of three to ten years for equipment, three to five years for automobiles and two to five years for leasehold improvements.



Goodwill is accounted for in accordance with 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 2007 and 2006, Biotel performed the required impairment tests of goodwill and determined our recorded goodwill had not been impaired.



Biotel warrants its products against defects in material and workmanship for 90 days for electromagnetic and ultrasound probes and one year for all other manufactured equipment. 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.



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Revenues from product sales are recognized at date of shipment.



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.



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 Companys 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.



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



Overview



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



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



Biotel business unit, Advanced Biosensor Inc., sells maintenance services, Holter recorders and event recorders manufactured by Braemar, diagnostic Holter software provided by others and Holter supplies to hospitals and clinics.



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



Results of Operations



Three Months ended September 30, 2007



Biotels net revenues for
the three months ended September 30, 2007, were $2,751,000, 13.5% above net revenues of $2,424,000 for the three months ended
September 30, 2006. This increase is a result of increased sales to medical corporations during the first quarter of fiscal 2008.
In the three months ended September 30, 2007, 41% of Biotels revenues were derived from three customers; and in the three
months ended September 30, 2006, 33% of Biotels revenues were derived from two customers. The loss of any of these customers
would have an immediate significant adverse effect on our financial results.



Gross profit margin was $1,255,000 for the quarter ended September 30, 2007, 27.2% greater than the gross profit margin of $987,000 for the first quarter of fiscal year 2007. Cost of sales and service increased to $1,496,000 (54.4% of sales) for the three months ended September 30, 2007, compared to $1,437,000 (59.3% of sales) for the first quarter of fiscal year 2007. Cost of sales and service increased in accordance with the increase in sales. Gross profit margin improved primarily as a result of changes in product mix. Model mix variations are a normal part of the purchase cycle of Biotel customers.



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Selling, general and administrative expenses decreased to $584,000 (21.2% of sales) for the three months ended September 30, 2007, compared to $619,000 (25.5% of sales) for the three months ended September 30, 2006. Selling, general and administrative expenses in the first quarter of fiscal 2007 included $80,000 of expenses to complete the purchase of Agility and eliminate remaining contingent obligations of up to $150,000. Selling, general and administrative expenses in the first three months of fiscal 2008 include increased personnel expenses with the addition of an Information Technology employee.



Research and development expenditures for the first quarter of fiscal year 2008 were $409,000, an increase of 10.3% compared to $371,000 in the first quarter of fiscal year 2007.  The increase was primarily the result of expenditures associated with development of new Holter, wireless, and event recorder products. Biotel received FDA 510(k) clearance to market its ER900 Wireless Event Recorder in October, 2007. The ER900 Wireless event recorder is a cardiac looping recorder and cellular transmitter, the first in a series of Braemar wireless products that transmit cardiac information through cellular networks without patient interaction. ER900 Wireless software programs are able to detect arrhythmias, whether asymptomatic or symptomatic, and automatically transmit relevant clinical information to the monitoring center for review and management. While patients with life threatening
arrhythmias should be managed in the hospital, patients with less severe problems benefit from the speed and simplicity of mobile cardiac assessment. Biotel plans increased investment in research and development during fiscal year 2008 as it addresses developing markets in Holter, event recording, and wireless arrhythmia management.



Interest expense decreased to $98 for the three-month period ended September 30, 2007, compared to interest expense of $12,000 for the three months ended September 30, 2006. Interest expense decreased as a result of the elimination of long term debt and minimal use of the line of credit.



Net earnings of $170,000 were posted for the first quarter of fiscal year 2008, versus a net loss of <$11,000> in the first quarter of fiscal year 2007. Net earnings for the first quarter of fiscal year 2008 improved as a result of increased sales, improved gross margin and a reduction in selling and administrative expenses.



Off-Balance Sheet Arrangements



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



Liquidity and Capital Resources



Working capital increased to $2,685,000 at September 30, 2007, compared to $2,520,000 at June 30, 2007. The increase in working capital is largely the result of the Companys continued profitability.



Cash and cash equivalents were $139,000 at September 30, 2007, compared to $508,000 at June 30, 2007. The decrease in cash was primarily the result of payments of estimated income taxes and other accrued liabilities in September, 2007. The ratio of current assets to current liabilities (current ratio) was 3.33 to one at September 30, 2007 and 2.72 to one at June 30, 2007.



Accounts receivable increased to $2,015,000 at September 30, 2007, versus $1,966,000 at June 30, 2007. The 2% increase in accounts receivable was related to slower than normal collections during the month of September. 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.



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During the first three months of fiscal year 2008, $81,000 was used for capital expenditures, compared with $120,000 in the first three months of fiscal year 2007. Biotel primarily invests in molds, tooling and fixtures for custom components used in its product lines. Levels of capital investment are expected to vary from year to year.



Inventory increased to $1,343,000 as of September 30, 2007 versus $1,122,000 as of June 30, 2007. This increase is primarily the result of purchases of materials for manufacture of new products to be released in the second quarter of fiscal 2008. Biotels subsidiaries manage inventories to provide safety stock and product flow for customers while controlling the amount of inventory.



Current liabilities decreased to $1,151,000 at September 30, 2007, compared to $1,461,000 on June 30, 2007. This decrease was primarily due to payment of estimated income taxes and payroll-related obligations during the first three months of fiscal 2008.



Biotel has no long term liabilities.



As of September 30, 2007,
stockholders equity had increased to $4,115,000 from $3,933,000 at June 30, 2007. The increase in stockholders equity
was a result of the increase in retained earnings.



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



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Items 3/3A(T):Controls and Procedures



(a)        As of September 30, 2007, an evaluation was performed by Biotels Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934). Based upon, and as  of the date of, that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the registrants disclosure controls and procedures were effective.



(b)Changes in internal controls. There were no changes in the first quarter of fiscal 2008 in Biotels internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses, and therefore there were no corrective actions taken.



Part II



Item 1.
        Legal Proceedings.Not applicable.




Item 2.
        Unregistered Sales of Equity Securities and Use of Proceeds.Not applicable.




Item 3.
        Defaults Upon Senior Securities.Not applicable.




Item 4.
        Submission of Matters to a Vote of Security Holders.Not applicable.




Item 5.
        Other Information.Not applicable.




Item 6.
        Exhibits




Listing of Exhibits:



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.




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Signatures



In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





Biotel Inc.Date:  November 14, 2007
        
        By:
        /s/ B. Steven SpringroseIts:  Chief Executive Officer and President




Date:  November 14, 2007
        
        By:
        /s/ Judy E. NausIts:  Chief Financial Officer








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