Table of Contents





UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C.
20549

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FORM 10-Q

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|  |                                                                                          
|- | -----------------------------------------------------------------------------------------
|x | QUARTERLY
 REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|  |                                                                                          
|  | For the period ended March 31, 2009                                                      
|  |                                                                                          
|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 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 of
 incorporation or organization) |  | (I.R.S.
 Employer
 Identification 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.


Yes
x          No
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 check mark whether the registrant is a shell company (as defined in Rule
12b2 of the Exchange Act).


Yes o          No
x


The
number of shares of registrants common stock, par value $0.01 per share,
outstanding as of as of May 5, 2009, was 2,763,827.





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| |                    | 
| | ------------------ | 
| | BIOTEL INC.
 INDEX | 

|               |  |                                                                                        |  |             | 
|-------------- |  | -------------------------------------------------------------------------------------- |  | ----------- | 
|               |  |                                                                                        |  | Page Number | 
|PART I         |  |                                                                                        |  |             | 
|               |  |                                                                                        |  |             | 
|Item 1:        |  | Financial Information                                                                  |  | 3           | 
|               |  |                                                                                        |  |             | 
|               |  | Consolidated Balance Sheets  March 31,
 2009 and June 30, 2008                        |  | 3           | 
|               |  | Consolidated Statements of Income  Three
 Months ended March 31, 2009 and 2008        |  | 4           | 
|               |  | Consolidated Statements of Income  Nine
 Months ended March 31, 2009 and 2008         |  | 5           | 
|               |  | Consolidated Statements of Cash Flows                                                  |  | 6           | 
|               |  | Consolidated Statements of Stockholders
 Equity                                       |  | 7           | 
|               |  | Notes to Consolidated Financial Statements
 (Unaudited)                                |  | 8           | 
|               |  |                                                                                        |  |             | 
|Item 2:        |  | Managements Discussion and Analysis of
 Financial Condition and Results of Operations |  | 13          | 
|               |  |                                                                                        |  |             | 
|Item 3:        |  | Qualitative and Quantitative Disclosure
 about Market Risk                             |  | 17          | 
|               |  |                                                                                        |  |             | 
|Item 4:        |  | Controls and Procedures                                                                |  | 17          | 
|               |  |                                                                                        |  |             | 
|PART II        |  |                                                                                        |  |             | 
|               |  |                                                                                        |  |             | 
|Item 1Item
4: |  | Not applicable                                                                         |  | 17          | 
|Item 5:        |  | Other Information                                                                      |  | 17          | 
|Item 6:        |  | Exhibits                                                                               |  | 17          | 
|               |  |                                                                                        |  |             | 
|Signatures     |  | 18                                                                                     | 

i

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Table of Contents

Part I

Item
1: Financial Information

BIOTEL INC. AND
SUBSIDIARIESCONSOLIDATED BALANCE SHEETS

|                                                                                                                                             |  |                        |           |                 |   |           | 
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | --------- | --------------- | - | --------- | 
|                                                                                                                                             |  | March 31,2009Unaudited |           | June 30,2008
 * |  
|ASSETS                                                                                                                                       |  |                        |           |                 |   |           | 
|CURRENT
 ASSETS                                                                                                                              |  |                        |           |                 |   |           | 
|Cash and cash equivalents                                                                                                                    |  | $                      | 1,044,356 |                 | $ | 945,121   | 
|Trade accounts receivable, net of allowance for
doubtful
 accounts of $49,518 and $55,440 at March 31, 2009 and June 30, 2008,
 respectively |  |                        | 1,951,321 |                 |   | 1,766,512 | 
|Prepaid income taxes                                                                                                                         |  |                        |          |                 |   | 39,310    | 
|Inventories, net                                                                                                                             |  |                        | 1,936,715 |                 |   | 1,428,163 | 
|Deferred tax asset                                                                                                                           |  |                        | 244,018   |                 |   | 244,018   | 
|Prepaid expenses                                                                                                                             |  |                        | 133,767   |                 |   | 109,903   | 
|                                                                                                                                             |  |                        |           |                 |   |           | 
|Total Current Assets                                                                                                                         |  |                        | 5,310,177 |                 |   | 4,533,027 | 
|                                                                                                                                             |  |                        |           |                 |   |           | 
|PROPERTY
 & EQUIPMENT, Net                                                                                                                   |  |                        | 1,102,256 |                 |   | 1,092,710 | 
|                                                                                                                                             |  |                        |           |                 |   |           | 
|OTHER
 ASSETS                                                                                                                                |  |                        |           |                 |   |           | 
|Goodwill                                                                                                                                     |  |                        | 695,551   |                 |   | 695,551   | 
|Other assets                                                                                                                                 |  |                        | 13,820    |                 |   | 13,820    | 
|                                                                                                                                             |  |                        |           |                 |   |           | 
|Total Other Assets                                                                                                                           |  |                        | 709,371   |                 |   | 709,371   | 
|                                                                                                                                             |  |                        |           |                 |   |           | 
|                                                                                                                                             |  | $                      | 7,121,804 |                 | $ | 6,335,108 | 
|                                                                                                                                             |  |                        |           |                 |   |           | 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                         |  |                        |           |                 |   |           | 
|CURRENT
 LIABILITIES                                                                                                                         |  |                        |           |                 |   |           | 
|Revolving line of credit                                                                                                                     |  | $                      |          |                 | $ | 187,146   | 
|Trade accounts payable                                                                                                                       |  |                        | 539,522   |                 |   | 651,635   | 
|Accrued payroll and related
liabilities                                                                                                      |  |                        | 224,196   |                 |   | 237,503   | 
|Deferred service contract revenue                                                                                                            |  |                        | 83,518    |                 |   | 133,359   | 
|Other accrued expenses                                                                                                                       |  |                        | 190,195   |                 |   | 198,540   | 
|Income taxes payable                                                                                                                         |  |                        | 375,032   |                 |   |          | 
|                                                                                                                                             |  |                        |           |                 |   |           | 
|Total Current Liabilities                                                                                                                    |  |                        | 1,412,463 |                 |   | 1,408,183 | 
|                                                                                                                                             |  |                        |           |                 |   |           | 
|LONG-TERM
 LIABILITIES                                                                                                                       |  |                        |           |                 |   |           | 
|Deferred taxes payable                                                                                                                       |  |                        | 224,967   |                 |   | 224,967   | 
|                                                                                                                                             |  |                        |           |                 |   |           | 
|COMMITMENTS
 AND CONTINGENCIES (See Note 7)                                                                                                  |  |                        |          |                 |   |          | 
|                                                                                                                                             |  |                        |           |                 |   |           | 
|Total Liabilities                                                                                                                            |  |                        | 1,637,430 |                 |   | 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                                                                                                                   |  |                        | 2,158,118 |                 |   | 2,145,594 | 
|Retained earnings                                                                                                                            |  |                        | 3,298,618 |                 |   | 2,528,726 | 
|                                                                                                                                             |  |                        |           |                 |   |           | 
|Total Stockholders Equity                                                                                                                   |  |                        | 5,484,374 |                 |   | 4,701,958 | 
|                                                                                                                                             |  |                        |           |                 |   |           | 
|                                                                                                                                             |  | $                      | 7,121,804 |                 | $ | 6,335,108 | 

* Derived from the 10KSB for the year ended June 30, 2008.

3

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BIOTEL INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME
Unaudited

|                                            |  |                                       |           |      |   |           |  
|------------------------------------------- |  | ------------------------------------- | --------- | ---- | - | --------- | -
|                                            |  | For the three months ended
 March 31, |          
|                                            |  | 2009                                  |           | 2008 |  
|                                            |  |                                       |           |      |   |           |  
|SALES AND SERVICES                          |  | $                                     | 3,120,784 |      | $ | 2,698,940 |  
|                                            |  |                                       |           |      |   |           |  
|COST OF SALES AND SERVICES                  |  |                                       | 1,802,861 |      |   | 1,461,676 |  
|                                            |  |                                       |           |      |   |           |  
|GROSS PROFIT                                |  |                                       | 1,317,923 |      |   | 1,237,264 |  
|                                            |  |                                       |           |      |   |           |  
|OPERATING EXPENSES                          |  |                                       |           |      |   |           |  
|Selling and administrative                  |  |                                       | 630,878   |      |   | 619,791   |  
|Research and development                    |  |                                       | 435,775   |      |   | 465,083   |  
|                                            |  |                                       |           |      |   |           |  
|Total operating expenses                    |  |                                       | 1,066,653 |      |   | 1,084,874 |  
|                                            |  |                                       |           |      |   |           |  
|INCOME FROM OPERATIONS                      |  |                                       | 251,270   |      |   | 152,390   |  
|                                            |  |                                       |           |      |   |           |  
|OTHER INCOME (EXPENSE)                      |  |                                       |           |      |   |           |  
|Interest income                             |  |                                       | 1,396     |      |   | 1,515     |  
|Interest expense                            |  |                                       |          |      |   | (261      | )
|Miscellaneous                               |  |                                       | (529      | )    |   | 4,984     |  
|                                            |  |                                       |           |      |   |           |  
|Total other income (expense)                |  |                                       | 867       |      |   | 6,238     |  
|                                            |  |                                       |           |      |   |           |  
|NET INCOME BEFOREPROVISION FOR INCOME TAXES |  |                                       | 252,137   |      |   | 158,628   |  
|                                            |  |                                       |           |      |   |           |  
|PROVISION FOR INCOME TAXES                  |  |                                       | 99,311    |      |   | 59,138    |  
|                                            |  |                                       |           |      |   |           |  
|NET INCOME                                  |  | $                                     | 152,826   |      | $ | 99,490    |  
|                                            |  |                                       |           |      |   |           |  
|INCOME PER SHARE                            |  |                                       |           |      |   |           |  
|BASIC                                       |  | $                                     | 0.06      |      | $ | 0.04      |  
|DILUTED                                     |  | $                                     | 0.05      |      | $ | 0.03      |  

4

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BIOTEL INC. AND SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME
Unaudited

|                                            |  |                                      |           |      |   |           |  
|------------------------------------------- |  | ------------------------------------ | --------- | ---- | - | --------- | -
|                                            |  | For the nine months ended
 March 31, |          
|                                            |  | 2009                                 |           | 2008 |  
|                                            |  |                                      |           |      |   |           |  
|SALES AND SERVICES                          |  | $                                    | 9,474,912 |      | $ | 8,308,788 |  
|                                            |  |                                      |           |      |   |           |  
|COST OF SALES AND SERVICES                  |  |                                      | 5,244,416 |      |   | 4,538,851 |  
|                                            |  |                                      |           |      |   |           |  
|GROSS PROFIT                                |  |                                      | 4,230,496 |      |   | 3,769,937 |  
|                                            |  |                                      |           |      |   |           |  
|OPERATING EXPENSES                          |  |                                      |           |      |   |           |  
|Selling and administrative                  |  |                                      | 1,813,262 |      |   | 1,822,427 |  
|Research and development                    |  |                                      | 1,213,916 |      |   | 1,218,092 |  
|                                            |  |                                      |           |      |   |           |  
|Total operating expenses                    |  |                                      | 3,027,178 |      |   | 3,040,519 |  
|                                            |  |                                      |           |      |   |           |  
|INCOME FROM OPERATIONS                      |  |                                      | 1,203,318 |      |   | 729,418   |  
|                                            |  |                                      |           |      |   |           |  
|OTHER INCOME (EXPENSE)                      |  |                                      |           |      |   |           |  
|Interest income                             |  |                                      | 5,892     |      |   | 9,980     |  
|Interest expense                            |  |                                      | (590      | )    |   | (546      | )
|Miscellaneous                               |  |                                      | 12,471    |      |   | 6,872     |  
|                                            |  |                                      |           |      |   |           |  
|Total other income (expense)                |  |                                      | 17,773    |      |   | 16,306    |  
|                                            |  |                                      |           |      |   |           |  
|NET INCOME BEFOREPROVISION FOR INCOME TAXES |  |                                      | 1,221,091 |      |   | 745,724   |  
|                                            |  |                                      |           |      |   |           |  
|PROVISION FOR INCOME TAXES                  |  |                                      | 451,199   |      |   | 270,328   |  
|                                            |  |                                      |           |      |   |           |  
|NET INCOME                                  |  | $                                    | 769,892   |      | $ | 475,396   |  
|                                            |  |                                      |           |      |   |           |  
|INCOME PER SHARE                            |  |                                      |           |      |   |           |  
|BASIC                                       |  | $                                    | 0.28      |      | $ | 0.18      |  
|DILUTED                                     |  | $                                    | 0.27      |      | $ | 0.17      |  

5

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BIOTEL INC. AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


Unaudited


|                                                                                  |  |                                      |           |      |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------------------------ | --------- | ---- | - | -------- | -
|                                                                                  |  | For the nine months ended
 March 31, |          
|                                                                                  |  | 2009                                 |           | 2008 |  
|                                                                                  |  |                                      |           |      |   |          |  
|OPERATING ACTIVITIES                                                              |  |                                      |           |      |   |          |  
|Net income                                                                        |  | $                                    | 769,892   |      | $ | 475,396  |  
|Adjustments to reconcile net income to net
 cash provided by operating activities |  |                                      |           |      |   |          |  
|Depreciation and amortization                                                     |  |                                      | 267,790   |      |   | 207,581  |  
|Stock-based compensation                                                          |  |                                      | 12,524    |      |   | 37,177   |  
|Deferred income tax                                                               |  |                                      |          |      |   | 62,000   |  
|Increase (decrease) in allowance for
 doubtful accounts                           |  |                                      | (5,922    | )    |   | 9,070    |  
|Increase (decrease) in inventory valuation
 allowance                             |  |                                      | (2,761    | )    |   | (158,493 | )
|Loss (gain) on disposal of fixed
assets                                           |  |                                      | 529       |      |   | (4,984   | )
|Changes in deferred and accrued
amounts                                           |  |                                      |           |      |   |          |  
|Trade accounts receivable                                                         |  |                                      | (178,887  | )    |   | 5,029    |  
|Prepaid expenses                                                                  |  |                                      | 15,446    |      |   | 56,178   |  
|Inventories                                                                       |  |                                      | (505,791  | )    |   | (408,108 | )
|Trade accounts payable                                                            |  |                                      | (112,113  | )    |   | 58,137   |  
|Accrued payroll and related
liabilities                                           |  |                                      | (13,307   | )    |   | (1,317   | )
|Other accrued expenses                                                            |  |                                      | (8,345    | )    |   | (54,913  | )
|Deferred service contract revenue                                                 |  |                                      | (49,841   | )    |   | (62,692  | )
|Income taxes payable                                                              |  |                                      | 375,032   |      |   | 3,910    |  
|                                                                                  |  |                                      |           |      |   |          |  
|Net cash provided by operating
activities                                         |  |                                      | 564,246   |      |   | 223,971  |  
|                                                                                  |  |                                      |           |      |   |          |  
|INVESTING ACTIVITIES                                                              |  |                                      |           |      |   |          |  
|Purchases of property and equipment                                               |  |                                      | (279,479  | )    |   | (541,534 | )
|Proceeds from sale of property and
 equipment                                     |  |                                      | 1,614     |      |   | 8,250    |  
|                                                                                  |  |                                      |           |      |   |          |  
|Net cash used for investing
activities                                            |  |                                      | (277,865  | )    |   | (533,284 | )
|                                                                                  |  |                                      |           |      |   |          |  
|FINANCING ACTIVITIES                                                              |  |                                      |           |      |   |          |  
|Net change on line of credit                                                      |  |                                      | (187,146  | )    |   |         |  
|                                                                                  |  |                                      |           |      |   |          |  
|Net cash used for financing
activities                                            |  |                                      | (187,146  | )    |   |         |  
|                                                                                  |  |                                      |           |      |   |          |  
|Net change in cash and cash
equivalents                                           |  |                                      | 99,235    |      |   | (309,313 | )
|                                                                                  |  |                                      |           |      |   |          |  
|CASH AND CASH EQUIVALENTS AS OF JUNE 30,
 2008 and 2007                           |  |                                      | 945,121   |      |   | 508,314  |  
|                                                                                  |  |                                      |           |      |   |          |  
|CASH AND CASH EQUIVALENTS AS OF MARCH 31,
 2009 and 2008                          |  | $                                    | 1,044,356 |      | $ | 199,001  |  
|                                                                                  |  |                                      |           |      |   |          |  
|CASH PAID FOR                                                                     |  |                                      |           |      |   |          |  
|Interest Expense                                                                  |  | $                                    | 621       |      | $ | 491      |  
|Income Taxes                                                                      |  | $                                    | 36,832    |      | $ | 184,730  |  

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BIOTEL INC. AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
For the nine months ended March 31, 2009 and 2008

|                         |  |              |        |                              |  |                    |  |   |           |  |   |           |  |   |           | 
|------------------------ |  | ------------ | ------ | ---------------------------- |  | ------------------ |  | - | --------- |  | - | --------- |  | - | --------- | 
|                         |  | Common Stock |        | Additional
 Paid-In
 Capital |  | Retained
 Earnings |  |   |           | 
|                         |  | Amount       |        | Shares                       |  | Total              | 
|                         |  |              |        |                              |  |                    |  |   |           |  |   |           |  |   |           | 
|Balance,
 June 30, 2007  |  | $            | 26,738 |                              |  | 2,673,827          |  | $ | 2,043,175 |  | $ | 1,862,587 |  | $ | 3,932,500 | 
|                         |  |              |        |                              |  |                    |  |   |           |  |   |           |  |   |           | 
|Stock-based compensation |  |              |       |                              |  |                   |  |   | 37,177    |  |   |          |  |   | 37,177    | 
|                         |  |              |        |                              |  |                    |  |   |           |  |   |           |  |   |           | 
|Net income               |  |              |       |                              |  |                   |  |   |          |  |   | 475,396   |  |   | 475,396   | 
|                         |  |              |        |                              |  |                    |  |   |           |  |   |           |  |   |           | 
|Balance,
 March 31, 2008 |  | $            | 26,738 |                              |  | 2,673,827          |  | $ | 2,080,352 |  | $ | 2,337,983 |  | $ | 4,445,073 | 
|                         |  |              |        |                              |  |                    |  |   |           |  |   |           |  |   |           | 
|                         |  |              |        |                              |  |                    |  |   |           |  |   |           |  |   |           | 
|Balance,
 June 30, 2008  |  | $            | 27,638 |                              |  | 2,763,827          |  | $ | 2,145,594 |  | $ | 2,528,726 |  | $ | 4,701,958 | 
|                         |  |              |        |                              |  |                    |  |   |           |  |   |           |  |   |           | 
|Stock-based compensation |  |              |       |                              |  |                   |  |   | 12,524    |  |   |          |  |   | 12,524    | 
|                         |  |              |        |                              |  |                    |  |   |           |  |   |           |  |   |           | 
|Net income               |  |              |       |                              |  |                   |  |   |          |  |   | 769,892   |  |   | 769,892   | 
|                         |  |              |        |                              |  |                    |  |   |           |  |   |           |  |   |           | 
|Balance,
 March 31, 2009 |  | $            | 27,638 |                              |  | 2,763,827          |  | $ | 2,158,118 |  | $ | 3,298,618 |  | $ | 5,484,374 | 

7

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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, 2008, filed by Biotel Inc. (the Company)
on September 29, 2008.

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 March 31, 2009 and June 30, 2008, inventories consist of the following:

|                                   |  |                 |           |                |   |           |  
|---------------------------------- |  | --------------- | --------- | -------------- | - | --------- | -
|                                   |  | March 31,
 2009 |           | June 30,
 2008 |  
|                                   |  |                 |           |                |   |           |  
|Raw
 materials and supplies        |  | $               | 1,912,339 |                | $ | 1,374,588 |  
|Work in
 process                   |  |                 | 1,089     |                |   |          |  
|Finished
 goods                    |  |                 | 201,539   |                |   | 229,169   |  
|Evaluation
 units and replacements |  |                 | 6,987     |                |   | 12,406    |  
|                                   |  |                 |           |                |   |           |  
|                                   |  |                 | 2,121,954 |                |   | 1,616,163 |  
|Valuation
 allowance               |  |                 | (185,239  | )              |   | (188,000  | )
|                                   |  |                 |           |                |   |           |  
|                                   |  | $               | 1,936,715 |                | $ | 1,428,163 |  

NOTE 3  WARRANTY RESERVE

Biotel
provides warranties against defects in materials and workmanship in our
products. Warranty periods for our products range from 90 days to two years.
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
March 31, 2009 and June 30, 2008, the warranty reserve totaled $100,243 and
$87,512, respectively. At March 31, 2008 and June 30, 2007, the warranty
reserve totaled $92,493 and $75,906, respectively. Warranty reserve is included in Other Accrued
Expenses. The following is a reconciliation of the aggregate reserve for
warranty liability as of March 31, 2009 and 2008.

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|                                                                                         |  |                 |         |                 |   |         |  
|---------------------------------------------------------------------------------------- |  | --------------- | ------- | --------------- | - | ------- | -
|                                                                                         |  | March 31,
 2009 |         | March 31,
 2008 |  
|                                                                                         |  |                 |         |                 |   |         |  
|Beginning of Period, June 30, 2008 and
2007                                              |  | $               | 87,512  |                 | $ | 75,906  |  
|                                                                                         |  |                 |         |                 |   |         |  
|Claims Paid                                                                              |  |                 | (58,911 | )               |   | (80,507 | )
|Additional warranties issued and revisions
 in estimates of previously issued warranties |  |                 | 71,642  |                 |   | 97,094  |  
|                                                                                         |  |                 |         |                 |   |         |  
|End of Period, March 31, 2009 and 2008                                                   |  | $               | 100,243 |                 | $ | 92,493  |  

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 March 31, 2009 and 2008, Biotel Inc. had 211,000 and
301,000 outstanding options, respectively. Currently, option prices range from
$.375 to $2.05 per share with a weighted average remaining contract life of
4.10 years. During the three months ended March 31, 2009 and 2008, no options
were exercised. During the nine months ended March 31, 2009 and 2008, no
options were exercised. 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:

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|                           |  |                  |          |                                 |             |        |                  |  |                                 |         |  |   |        | 
|-------------------------- |  | ---------------- | -------- | ------------------------------- | ----------- | ------ | ---------------- |  | ------------------------------- | ------- |  | - | ------ | 
|                           |  | Outstanding      |          |                                 | Exercisable |       
|                           |  | Number
of Shares |          | Weighted
Average
Exercise
Price |             |        | Number
of Shares |  | Weighted
Average
Exercise
Price |        
|                           |  |                  |          |                                 |             |        |                  |  |                                 |         |  |   |        | 
|Balance at
 June 30, 2007  |  |                  | 301,000  |                                 | $           | 1.2899 |                  |  |                                 | 254,500 |  | $ | 1.2583 | 
|                           |  |                  |          |                                 |             |        |                  |  |                                 |         |  |   |        | 
|Balance at
 March 31, 2008 |  |                  | 301,000  |                                 | $           | 1.2899 |                  |  |                                 | 293,500 |  | $ | 1.2773 | 
|                           |  |                  |          |                                 |             |        |                  |  |                                 |         |  |   |        | 
|Balance at
 June 30, 2008  |  |                  | 211,000  |                                 | $           | 1.5853 |                  |  |                                 | 203,500 |  | $ | 1.5780 | 
|                           |  |                  |          |                                 |             |        |                  |  |                                 |         |  |   |        | 
|Cancelled                  |  |                  | (120,000 | )                               | $           | 2.0000 |                  |  |                                 |         |  |   |        | 
|Granted                    |  |                  | 145,000  |                                 | $           | 2.0472 |                  |  |                                 |         |  |   |        | 
|Expired                    |  |                  | (25,000  | )                               | $           | 1.8200 |                  |  |                                 |         |  |   |        | 
|                           |  |                  |          |                                 |             |        |                  |  |                                 |         |  |   |        | 
|Balance at
 March 31, 2009 |  |                  | 211,000  |                                 | $           | 1.6391 |                  |  |                                 | 198,500 |  | $ | 1.6171 | 

The total
intrinsic value of options exercised during the three and nine months ended
March 31, 2009 was $0. The total intrinsic value of options outstanding and
exercisable at March 31, 2009 was $29,730 and $32,336, respectively, which was
calculated using the closing stock price as of March 31, 2009 less the exercise
price of in-the-money options.

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 March 31, 2009 were
2,763,827 and 2,788,708, respectively, and for the three months ended March 31,
2008 were 2,673,827 and 2,854,994, respectively. The weighted average number of
shares used in the computation of basic and diluted income per common share for
the nine months ended March 31, 2009 were 2,763,827 and 2,826,804,
respectively, and for the nine months ended March 31, 2008 were 2,673,827 and
2,857,172, respectively.

NOTE 6  OPERATIONS
AND INDUSTRY SEGMENTS

The Company
reports on two segments of business: OEM Medical Sales & Service 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.

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|                                   |  |                                   |           |                                 |   |           |  |        |           |   |   |           | 
|---------------------------------- |  | --------------------------------- | --------- | ------------------------------- | - | --------- |  | ------ | --------- | - | - | --------- | 
|                                   |  | Three months ended March 31, 2009 |          
|                                   |  | OEM Medical
 Sales & Services     |           | Direct Medical
 Equipment Sales |   | Corporate |  | Totals |          
|                                   |  |                                   |           |                                 |   |           |  |        |           |   |   |           | 
|Domestic revenues                  |  | $                                 | 2,646,916 |                                 | $ | 125,148   |  | $      |          |   | $ | 2,772,064 | 
|International revenues             |  |                                   | 325,130   |                                 |   | 23,590    |  |        |          |   |   | 348,720   | 
|Revenues from external customers   |  |                                   | 2,972,046 |                                 |   | 148,738   |  |        |          |   |   | 3,120,784 | 
|Income tax expense                 |  |                                   | 98,938    |                                 |   | 16,368    |  |        | (15,995   | ) |   | 99,311    | 
|Depreciation and amortization      |  |                                   | 86,033    |                                 |   | 1,410     |  |        | 5,787     |   |   | 93,230    | 
|Segment profit                     |  |                                   | 175,456   |                                 |   | 8,421     |  |        | (31,051   | ) |   | 152,826   | 
|Goodwill                           |  |                                   | 695,551   |                                 |   |          |  |        |          |   |   | 695,551   | 
|Total segment assets               |  |                                   | 5,642,874 |                                 |   | 76,008    |  |        | 1,402,922 |   |   | 7,121,804 | 
|Purchase of property and equipment |  |                                   | 92,680    |                                 |   |          |  |        |          |   |   | 92,680    | 

|                                   |  |                                   |           |                                 |   |           |   |        |         |  |   |           | 
|---------------------------------- |  | --------------------------------- | --------- | ------------------------------- | - | --------- | - | ------ | ------- |  | - | --------- | 
|                                   |  | Three months ended March 31, 2008 |          
|                                   |  | OEM Medical
 Sales & Services     |           | Direct Medical
 Equipment Sales |   | Corporate |   | Totals |        
|                                   |  |                                   |           |                                 |   |           |   |        |         |  |   |           | 
|Domestic revenues                  |  | $                                 | 2,063,581 |                                 | $ | 146,121   |   | $      |        |  | $ | 2,209,702 | 
|International revenues             |  |                                   | 450,824   |                                 |   | 38,414    |   |        |        |  |   | 489,238   | 
|Revenues from external customers   |  |                                   | 2,514,405 |                                 |   | 184,535   |   |        |        |  |   | 2,698,940 | 
|Intersegment revenues              |  |                                   | 9,502     |                                 |   | (9,502    | ) |        |        |  |   |          | 
|Interest expense                   |  |                                   |          |                                 |   |          |   |        | 261     |  |   | 261       | 
|Income tax expense                 |  |                                   | 41,805    |                                 |   | 13,029    |   |        | 4,304   |  |   | 59,138    | 
|Depreciation and amortization      |  |                                   | 69,750    |                                 |   | 2,063     |   |        | 5,382   |  |   | 77,195    | 
|Segment profit                     |  |                                   | 65,839    |                                 |   | 25,298    |   |        | 8,353   |  |   | 99,490    | 
|Goodwill                           |  |                                   | 695,551   |                                 |   |          |   |        |        |  |   | 695,551   | 
|Total segment assets               |  |                                   | 5,299,621 |                                 |   | 108,753   |   |        | 441,080 |  |   | 5,849,454 | 
|Purchase of property and equipment |  |                                   | 290,234   |                                 |   |          |   |        | 1,340   |  |   | 291,574   | 

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|                                    |  |                                  |           |                                 |   |           |   |        |           |   |   |           | 
|----------------------------------- |  | -------------------------------- | --------- | ------------------------------- | - | --------- | - | ------ | --------- | - | - | --------- | 
|                                    |  | Nine Months ended March 31, 2009 |          
|                                    |  | OEM Medical
 Sales & Services    |           | Direct Medical
 Equipment Sales |   | Corporate |   | Totals |          
|                                   
|Domestic
 revenues                  |  | $                                | 7,866,143 |                                 | $ | 441,787   |   | $      |          |   | $ | 8,307,930 | 
|International
 revenues             |  |                                  | 1,102,884 |                                 |   | 64,098    |   |        |           |   |   | 1,166,982 | 
|Revenues
 from external customers   |  |                                  | 8,969,027 |                                 |   | 505,885   |   |        |           |   |   | 9,474,912 | 
|Intersegment
 revenues              |  |                                  | 27,734    |                                 |   | (27,734   | ) |        |           |   |   |          | 
|Interest
 expense                   |  |                                  |          |                                 |   |          |   |        | 590       |   |   | 590       | 
|Income tax
 expense                 |  |                                  | 413,516   |                                 |   | 51,870    |   |        | (14,187   | ) |   | 451,199   | 
|Depreciation
 and amortization      |  |                                  | 245,602   |                                 |   | 4,934     |   |        | 17,254    |   |   | 267,790   | 
|Segment
 profit                     |  |                                  | 728,249   |                                 |   | 69,183    |   |        | (27,540   | ) |   | 769,892   | 
|Goodwill                            |  |                                  | 695,551   |                                 |   |          |   |        |          |   |   | 695,551   | 
|Total
 segment assets               |  |                                  | 5,642,874 |                                 |   | 76,008    |   |        | 1,402,922 |   |   | 7,121,804 | 
|Purchase of
 property and equipment |  |                                  | 274,346   |                                 |   |           |   |        | 5,133     |   |   | 279,479   | 
|                                    |  |                                  |           |                                 |   |           |   |        |           |   |   |           | 
|                                    |  | Nine Months ended March 31, 2008 |          
|                                    |  | OEM Medical
 Sales & Services    |           | Direct Medical
 Equipment Sales |   | Corporate |   | Totals |          
|                                   
|Domestic
 revenues                  |  | $                                | 6,595,161 |                                 | $ | 477,149   |   | $      |          |   | $ | 7,072,310 | 
|International
 revenues             |  |                                  | 1,084,641 |                                 |   | 151,837   |   |        |          |   |   | 1,236,478 | 
|Revenues
 from external customers   |  |                                  | 7,679,802 |                                 |   | 628,986   |   |        |          |   |   | 8,308,788 | 
|Intersegment
 revenues              |  |                                  | 75,907    |                                 |   | (75,907   | ) |        |           |   |   |          | 
|Interest
 expense                   |  |                                  |          |                                 |   |          |   |        | 546       |   |   | 546       | 
|Income tax
 expense                 |  |                                  | 184,388   |                                 |   | 52,984    |   |        | 32,956    |   |   | 270,328   | 
|Depreciation
 and amortization      |  |                                  | 185,260   |                                 |   | 6,190     |   |        | 16,131    |   |   | 207,581   | 
|Segment
 profit                     |  |                                  | 308,683   |                                 |   | 102,739   |   |        | 63,974    |   |   | 475,396   | 
|Goodwill                            |  |                                  | 695,551   |                                 |   |          |   |        |          |   |   | 695,551   | 
|Total
 segment assets               |  |                                  | 5,299,621 |                                 |   | 108,753   |   |        | 441,080   |   |   | 5,849,454 | 
|Purchase of
 property and equipment |  |                                  | 531,650   |                                 |   |          |   |        | 9,884     |   |   | 541,534   | 

NOTE 7  SUBSEQUENT
EVENTS

On April 2, 2009, Biotel entered into a definitive merger agreement
with CardioNet, Inc. Under the terms of the merger agreement, CardioNet is to acquire
all of the outstanding shares of Biotel common stock at a price of $4.82 per
share in cash. The transaction is subject to approval by Biotels shareholders
and other customary closing conditions.

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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-Q
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 include the accounts of Biotel Inc.
and its wholly-owned subsidiaries, Braemar, 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 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.

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 2008 and 2007, Biotel performed the
required impairment tests of goodwill and determined our recorded goodwill had
not been impaired.

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.

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

Biotel
subsidiary, Braemar, Inc., through its Columbia, South Carolina facility which
was formerly Advanced Biosensor, 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 March 31, 2009

Biotels
net revenues for the three months ended March 31, 2009, were $3,121,000, 15.6%
more than net revenues of $2,699,000 for the three months ended March 31, 2008.
This increase was the result of continued strong sales of medical devices and
research services during the third quarter of fiscal 2009. Medical device sales
included shipments of the Braemar DL900 advanced Holter monitor and Braemar
ER920W wireless event recorder which were introduced in the second half of
fiscal 2008. Sales of the Braemar ER920W wireless arrhythmia monitor continued
to be strong in the third quarter as a major customer continued to order
significant quantities of this product. Sales of wireless products in the
fourth quarter are expected to diminish as a result of the proposed acquisition
of the Company by CardioNet, Inc. as described in Biotels Current Report on
Form 8-K filed with the Securities and Exchange Commission on April 3, 2009.

14

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Gross
profit was $1,318,000 for the quarter ended March 31, 2009, 6.5% greater than
the gross profit of $1,237,000 for the third quarter of fiscal year 2008. Gross
profit increased as a result of the increase in revenue for the third quarter
of fiscal 2009. Gross profit margin declined to 42.2% for the three months
ended March 31, 2009 compared to 45.8% for the three months ended March 31,
2008. Cost of sales and service increased to $1,803,000 (57.8% of sales) for
the three months ended March 31, 2009, compared to $1,462,000 (54.2% of sales)
for the third quarter of fiscal year 2008. The increase in cost of sales and service
was a result of the increase in sales for the third quarter of fiscal 2009.
Cost of sales and service as a percentage of revenue increased, primarily due
to product mix.

Selling,
general and administrative expenses of $631,000 (20.2% of sales) for the three
months ended March 31, 2009 increased from $620,000 (23.0% of sales) for the
three months ended March 31, 2008. Selling, general and administrative expenses
were higher in the third quarter of fiscal 2009 as a result of legal expense incurred
as a result of activities surrounding the merger agreement signed on April 1,
2009. The decrease in selling, general and administrative expenses as a
percentage of revenue was primarily due to the increase in revenue in the third
quarter of fiscal 2009 versus the third quarter of fiscal 2008. Selling
expenses include salaries, commissions, benefits, travel expenses and other
selling expenses.

Research
and development expenditures for the third quarter of fiscal year 2009 were
$436,000, a decrease of 6.3% compared to $465,000 in the third quarter of
fiscal year 2008. Research and development expenses in the third quarter of
fiscal year 2009 included expenditures for development of new wireless products
addressing MCOT patient procedures. MCOT procedures allow patients to be
remotely monitored with alarms for up to 30 days, carry higher reimbursement in
the United States and are believed to provide a higher diagnostic yield than
traditional telephone event monitoring approaches. Biotel expects research and
development investment in fiscal 2009 to be comparable to prior year levels as
the Company addresses developing markets in Holter, event recording and
wireless arrhythmia management.

No interest
expense was incurred in the three-month period ended March 31, 2009, compared
to interest expense of $261 for the three months ended March 31, 2008.

Net
earnings of $153,000 were posted for the third quarter of fiscal year 2009,
versus net earnings of $99,000 in the third quarter of fiscal year 2008. The
increase in net earnings was primarily the result of the increase in sales
during the third quarter of fiscal year 2009.

Nine Months ended March 31, 2009

Biotels
net revenues for the nine months ended March 31, 2009, were $9,475,000, 14.0%
more than net revenues of $8,309,000 for the nine months ended March 31, 2008.
This increase was the result of strong sales of medical devices and research
services during the first nine months of fiscal 2009. Medical device sales included
shipments of the Braemar DL900 advanced Holter monitor and Braemar ER920W
wireless event recorder which were introduced in the second half of fiscal
2008. Sales of the Braemar ER920W wireless arrhythmia monitor were strong in
the first half of fiscal year 2009 as a major customer ordered significant
quantities of this product.

Gross
profit was $4,230,000 for the nine months ended March 31, 2009, 12.2% greater
than the gross profit of $3,770,000 for the first nine months of fiscal year
2008. Gross profit increased as a result of the increase in revenue for the
first three quarters of fiscal 2009. Gross profit margin decreased to 44.6% for
the nine months ended March 31, 2009, compared to 45.4% for the nine months
ended March 31, 2008. Cost of sales and service increased to $5,244,000 (55.4%
of sales) for the nine months ended March 31, 2009, compared to $4,539,000
(54.6% of sales) for the first nine months of fiscal year 2008. The increase in
cost of sales and service was a result of the increase in sales for the first
nine months of fiscal 2009.

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Selling,
general and administrative expenses of $1,813,000 (19.1% of sales) for the nine
months ended March 31, 2009 decreased from $1,822,000 (21.9% of sales) for the
nine months ended March 31, 2008. Selling, general and administrative expenses
were lower in the first nine months of fiscal 2009 as a result of the termination of certain expenses at Braemars North Carolina facility
prior to closing that facility on June 30, 2008. The decrease in selling,
general and administrative expenses as a percentage of revenue was primarily
due to the increase in revenue in fiscal 2009 versus fiscal 2008. Selling
expenses include salaries, commissions, benefits, travel expenses and other
selling expenses.

Research
and development expenditures for the first nine months of fiscal year 2009 were
$1,214,000, a slight decrease compared to $1,218,000 in the first nine months
of fiscal year 2008. Biotel expects research and development expense in fiscal
2009 to be comparable to prior year levels as the Company addresses developing
markets in Holter, event recording and wireless arrhythmia management.

Interest
expense of $590 was posted for the nine-month period ended March 31, 2009, compared
to interest expense of $546 for the nine months ended March 31, 2008.

Net
earnings of $770,000 were posted for the first nine months of fiscal year 2009,
versus net earnings of $475,000 in the first nine months of fiscal year 2008.
The increase in net earnings was primarily the result of the increase in sales
during fiscal year 2009.

Off-Balance Sheet Arrangements

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

Liquidity and Capital Resources

Working
capital increased to $3,898,000 at March 31, 2009, compared to $3,125,000 at
June 30, 2008. The increase in working capital is largely the result of the
Companys continued profitability.

Cash and
cash equivalents were $1,044,000 at March 31, 2009, compared to $945,000 at
June 30, 2008. The ratio of current assets to current liabilities (current
ratio) was 3.76 to one at March 31, 2009 and 3.22 to one at June 30, 2008.

Accounts
receivable increased to $1,951,000 at March 31, 2009, versus $1,767,000 at June
30, 2008, as a result of strong sales in the month of March, 2009. 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.

During the
third quarter of fiscal year 2009, $93,000 was used for capital expenditures,
compared with $292,000 in the third quarter of fiscal year 2008. 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 $1,937,000 as of March 31, 2009 versus $1,428,000 as of June 30,
2008. This increase is due to purchase of materials for projected sales and new
products to be released within the next several months. 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 $1,412,000 at March 31, 2009, compared to
$1,408,000 on June 30, 2008. Decreases in the revolving line of credit balance,
deferred revenue and other accruals were offset by the accrual for income taxes
payable.

Biotel has
long term liabilities consisting of deferred taxes payable totaling $225,000.
Biotel has no long term debt.

As of March
31, 2009, stockholders equity had increased to $5,484,000 from $4,702,000 at
June 30, 2008. The increase in stockholders equity was a result of the
Companys continued profitability.

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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.
There is no assurance that Biotel will be successful in obtaining additional
working capital if more is required.

Item
3: Qualitative and Quantitative Disclosure about Market Risk

Not
applicable.

Item
4: Controls and Procedures

(a)      As
of March 31, 2009, 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 nine months of
fiscal 2009 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 1A. Risk
Factors.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.On April 2, 2009, Biotel entered
into a merger agreement with CardioNet, Inc., pursuant to which CardioNet is to
acquire all of Biotels outstanding shares of common stock for $4.82 per share.
The transaction is subject to shareholder approval and other customary closing
conditions. Reference is made to Biotels Current Report on Form 8-K filed with
the Securities and Exchange Commission on April 3, 2009, for additional
information regarding the transaction.

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: May
 15, 2009 | By:                                         | /s/ B.
 Steven Springrose | 
|                    | Its:
 Chief Executive Officer and President
|                    |                                             |                           | 
|Date: May
 15, 2009 | By:                                         | /s/ Judy E.
 Naus         | 
|                    | Its:
 Chief Financial Officer              

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