Table of Contents

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|                                   |           | 
|---------------------------------- | --------- | 
|UNITED
STATES                     
|SECURITIES
AND EXCHANGE COMMISSION
|WASHINGTON, D.C. 20549            
|                                   |           | 
|                                   |           | 
|                                   |           | 
|                                   | FORM 10-Q | 
|                                   |           | 
|                                   |           | 

|  |                                                                                         
|- | ----------------------------------------------------------------------------------------
|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 
|  |                                                                                         
|  | For the period ended September 30, 2010.                                                
|  |                                                                                         
|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

|                                                       |  | 
|------------------------------------------------------ |  | 
|                                                       |  | 
|                                                      
|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)        
|                                                             |  | 
|                                                             |  | 

|                                                                                                                                                                                                                                                                                                                                                        
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 oAccelerated filero 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 November 12, 2010, was 2,783,827.

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

|        |                |                                                                                                  |  |            
|------- | -------------- | ------------------------------------------------------------------------------------------------ |  | -----------
|PART I  |                |                                                                                                  |  | Page Number
|        |                |                                                                                                  |  |            
|        | Item 1:        | Financial
Information                                                                            |  | 2          
|        |                |                                                                                                  |  |            
|        |                | Consolidated Balance Sheets  September 30,
2010 and June 30, 2010.                              |  | 2          
|        |                | Consolidated Statements of Income  Three
Months ended September 30, 2010 and 2009               |  | 3          
|        |                | Consolidated Statements of Cash Flows 
Three Months ended September 30, 2010 and 2009           |  | 4          
|        |                | Consolidated Statements of Stockholders
Equity  Three Months ended September 30, 2010 and 2009 |  | 5          
|        |                | Notes to Consolidated Financial Statements
(Unaudited)                                           |  | 6          
|        |                |                                                                                                  |  |            
|        | Item 2:        | Managements Discussion and Analysis of
Financial Condition and Results of Operations            |  | 12         
|        |                |                                                                                                  |  |            
|        | Item 3:        | Qualitative and Quantitative Disclosure
about Market Risk                                        |  | 15         
|        |                |                                                                                                  |  |            
|        | Item 4:        | Controls and Procedures                                                                          |  | 15         
|        |                |                                                                                                  |  |            
|PART II |                |                                                                                                  |  |            
|       
|        | Item 1 and 1A: | Not applicable                                                                                   |  | 15         
|        | Item 2:        | Not applicable                                                                                   |  | 15         
|        | Item 3 and 4:  | Not applicable                                                                                   |  | 16         
|        | Item 5:        | Not applicable                                                                                   |  | 16         
|        | Item 6:        | Exhibits                                                                                         |  | 16         
|        |                |                                                                                                  |  |            
|        | Signatures     |                                                                                                  |  | 17         

i

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Table of Contents

Part I

Item 1: Financial Information

BIOTEL INC.CONSOLIDATED BALANCE SHEETS

|                                                                                                                               |  |                             |           |               |   |           | 
|------------------------------------------------------------------------------------------------------------------------------ |  | --------------------------- | --------- | ------------- | - | --------- | 
|                                                                                                                               |  | September 30,2010
Unaudited |           | June 30,2010* |  
|ASSETS                                                                                                                        
|CURRENT ASSETS                                                                                                                 |  |                             |           |               |   |           | 
|Cash and cash equivalents                                                                                                      |  | $                           | 1,811,705 |               | $ | 1,576,651 | 
|Trade accounts receivable, net of allowance for
doubtful accounts of $40,690 at September 30 and June 30, 2010                 |  |                             | 1,994,516 |               |   | 2,066,917 | 
|Income taxes receivable                                                                                                        |  |                             | 78,104    |               |   | 80,501    | 
|Inventories, net                                                                                                               |  |                             | 1,379,709 |               |   | 1,311,933 | 
|Deferred tax asset                                                                                                             |  |                             | 316,221   |               |   | 316,221   | 
|Prepaid expenses                                                                                                               |  |                             | 267,883   |               |   | 247,597   | 
|                                                                                                                               |  |                             |           |               |   |           | 
|Total Current Assets                                                                                                           |  |                             | 5,848,138 |               |   | 5,599,820 | 
|                                                                                                                               |  |                             |           |               |   |           | 
|PROPERTY & EQUIPMENT, Net                                                                                                      |  |                             | 954,509   |               |   | 985,030   | 
|                                                                                                                               |  |                             |           |               |   |           | 
|OTHER ASSETS                                                                                                                   |  |                             |           |               |   |           | 
|Goodwill                                                                                                                       |  |                             | 695,551   |               |   | 695,551   | 
|Other assets                                                                                                                   |  |                             | 12,400    |               |   | 13,820    | 
|                                                                                                                               |  |                             |           |               |   |           | 
|Total Other Assets                                                                                                             |  |                             | 707,951   |               |   | 709,371   | 
|                                                                                                                               |  |                             |           |               |   |           | 
|                                                                                                                               |  | $                           | 7,510,598 |               | $ | 7,294,221 | 
|                                                                                                                               |  |                             |           |               |   |           | 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                          
|CURRENT LIABILITIES                                                                                                            |  |                             |           |               |   |           | 
|Trade accounts payable                                                                                                         |  | $                           | 809,845   |               | $ | 773,646   | 
|Accrued payroll and related liabilities                                                                                        |  |                             | 196,521   |               |   | 246,576   | 
|Deferred service contract revenue                                                                                              |  |                             | 63,330    |               |   | 72,941    | 
|Unearned revenue                                                                                                               |  |                             | 58,100    |               |   | 149,200   | 
|Other accrued expenses                                                                                                         |  |                             | 326,779   |               |   | 322,987   | 
|Income taxes payable                                                                                                           |  |                             | 106,065   |               |   |          | 
|                                                                                                                               |  |                             |           |               |   |           | 
|Total Current Liabilities                                                                                                      |  |                             | 1,560,640 |               |   | 1,565,350 | 
|                                                                                                                               |  |                             |           |               |   |           | 
|LONG-TERM LIABILITIES                                                                                                          |  |                             |           |               |   |           | 
|Deferred tax liability                                                                                                         |  |                             | 343,232   |               |   | 343,232   | 
|                                                                                                                               |  |                             |           |               |   |           | 
|COMMITMENTS AND CONTINGENCIES (See Note 9)                                                                                     |  |                             |           |               |   |           | 
|                                                                                                                               |  |                             |           |               |   |           | 
|Total Liabilities                                                                                                              |  |                             | 1,903,872 |               |   | 1,908,582 | 
|                                                                                                                               |  |                             |           |               |   |           | 
|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; 2,783,827 shares issued at September 30, 2010 and June 30, 2010 |  |                             | 27,838    |               |   | 27,838    | 
|Additional paid-in capital                                                                                                     |  |                             | 2,168,535 |               |   | 2,168,015 | 
|Retained earnings                                                                                                              |  |                             | 3,410,353 |               |   | 3,189,786 | 
|                                                                                                                               |  |                             |           |               |   |           | 
|Total Stockholders Equity                                                                                                     |  |                             | 5,606,726 |               |   | 5,385,639 | 
|                                                                                                                               |  |                             |           |               |   |           | 
|                                                                                                                               |  | $                           | 7,510,598 |               | $ | 7,294,221 | 

*Derived
from the 10K for the year ended June 30, 2010.

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

2

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Table of Contents

BIOTEL INC.
CONSOLIDATED STATEMENTS OF INCOME
Unaudited



|                                             |  |                                          |           |      |   |           |  
|-------------------------------------------- |  | ---------------------------------------- | --------- | ---- | - | --------- | -
|                                             |  | For the three months ended
September 30, |          
|                                             |  | 2010                                     |           | 2009 |  
|                                            
|SALES AND SERVICES                           |  | $                                        | 3,123,814 |      | $ | 3,263,307 |  
|                                             |  |                                          |           |      |   |           |  
|COST OF SALES AND SERVICES                   |  |                                          | 1,789,124 |      |   | 1,966,770 |  
|                                             |  |                                          |           |      |   |           |  
|GROSS PROFIT                                 |  |                                          | 1,334,690 |      |   | 1,296,537 |  
|                                             |  |                                          |           |      |   |           |  
|OPERATING EXPENSES                           |  |                                          |           |      |   |           |  
|Selling and administrative                   |  |                                          | 702,749   |      |   | 666,365   |  
|Research and development                     |  |                                          | 302,353   |      |   | 406,869   |  
|                                             |  |                                          |           |      |   |           |  
|Total operating expenses                     |  |                                          | 1,005,102 |      |   | 1,073,234 |  
|                                             |  |                                          |           |      |   |           |  
|INCOME FROM OPERATIONS                       |  |                                          | 329,588   |      |   | 223,303   |  
|                                             |  |                                          |           |      |   |           |  
|OTHER INCOME (EXPENSE)                       |  |                                          |           |      |   |           |  
|Interest income                              |  |                                          | 1,434     |      |   | 1,424     |  
|Miscellaneous                                |  |                                          | (1,157    | )    |   | (14,250   | )
|                                             |  |                                          |           |      |   |           |  
|Total other income (expense)                 |  |                                          | 277       |      |   | (12,826   | )
|                                             |  |                                          |           |      |   |           |  
|NET INCOME BEFORE PROVISION FOR INCOME TAXES |  |                                          | 329,865   |      |   | 210,477   |  
|                                             |  |                                          |           |      |   |           |  
|PROVISION FOR INCOME TAXES                   |  |                                          | 109,298   |      |   | 82,322    |  
|                                             |  |                                          |           |      |   |           |  
|NET INCOME                                   |  | $                                        | 220,567   |      | $ | 128,155   |  
|                                             |  |                                          |           |      |   |           |  
|INCOME PER SHARE                             |  |                                          |           |      |   |           |  
|BASIC                                        |  | $                                        | 0.08      |      | $ | 0.05      |  
|DILUTED                                      |  | $                                        | 0.08      |      | $ | 0.04      |  

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

3

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Table of Contents

BIOTEL INC.CONSOLIDATED STATEMENTS OF CASH FLOWSUnaudited

|                                                                                 |  |                                          |           |      |   |           |  
|-------------------------------------------------------------------------------- |  | ---------------------------------------- | --------- | ---- | - | --------- | -
|                                                                                 |  | For the three months ended
September 30, |          
|                                                                                 |  | 2010                                     |           | 2009 |  
|OPERATING ACTIVITIES                                                             |  |                                          |           |      |   |           |  
|Net income                                                                       |  | $                                        | 220,567   |      | $ | 128,155   |  
|Adjustments to reconcile net income to net
cash provided by operating activities |  |                                          |           |      |   |           |  
|Depreciation                                                                     |  |                                          | 102,525   |      |   | 93,911    |  
|Stock-based compensation                                                         |  |                                          | 520       |      |   | 519       |  
|Deferred income taxes                                                            |  |                                          |          |      |   | (308      | )
|Decrease in refundable income taxes                                              |  |                                          | 2,397     |      |   |          |  
|Decrease in allowance for doubtful accounts                                      |  |                                          |          |      |   | 9,924     |  
|Increase (decrease) in inventory valuation
allowance                             |  |                                          | 22,307    |      |   | (750      | )
|Loss on disposal of property and equipment                                       |  |                                          | 1,157     |      |   |          |  
|Changes in deferred and accrued amounts                                          |  |                                          |           |      |   |           |  
|Trade accounts receivable                                                        |  |                                          | 72,401    |      |   | 365,870   |  
|Prepaid expenses                                                                 |  |                                          | (20,286   | )    |   | (210,693  | )
|Inventories                                                                      |  |                                          | (90,083   | )    |   | 308,857   |  
|Other assets                                                                     |  |                                          | 1,420     |      |   |          |  
|Trade accounts payable                                                           |  |                                          | 36,199    |      |   | 47,769    |  
|Accrued payroll and related liabilities                                          |  |                                          | (50,055   | )    |   | (59,665   | )
|Other accrued expenses                                                           |  |                                          | 3,792     |      |   | (23,770   | )
|Unearned revenue                                                                 |  |                                          | (91,100   | )    |   |          |  
|Deferred service contract revenue                                                |  |                                          | (9,611    | )    |   | (11,159   | )
|Income taxes payable                                                             |  |                                          | 106,065   |      |   | (197,178  | )
|                                                                                 |  |                                          |           |      |   |           |  
|Net cash provided by operating activities                                        |  |                                          | 308,215   |      |   | 451,482   |  
|                                                                                 |  |                                          |           |      |   |           |  
|INVESTING ACTIVITIES                                                             |  |                                          |           |      |   |           |  
|Purchases of property and equipment                                              |  |                                          | (75,511   | )    |   | (60,036   | )
|Proceeds from sale of property and
equipment                                     |  |                                          | 2,350     |      |   | 750       |  
|                                                                                
|Net cash used for investing activities                                           |  |                                          | (73,161   | )    |   | (59,286   | )
|                                                                                 |  |                                          |           |      |   |           |  
|Net increase in cash and cash equivalents                                        |  |                                          | 235,054   |      |   | 392,196   |  
|                                                                                 |  |                                          |           |      |   |           |  
|CASH AND CASH EQUIVALENTS AS OF JUNE 30,
2010 and 2009                           |  |                                          | 1,576,651 |      |   | 1,160,409 |  
|                                                                                 |  |                                          |           |      |   |           |  
|CASH AND CASH EQUIVALENTS AS OF SEPTEMBER
30, 2010 and 2009                      |  | $                                        | 1,811,705 |      | $ | 1,552,605 |  
|                                                                                 |  |                                          |           |      |   |           |  
|CASH PAID FOR                                                                    |  |                                          |           |      |   |           |  
|Interest                                                                         |  | $                                        |          |      | $ |          |  
|Income Taxes                                                                     |  | $                                        |          |      | $ | 279,500   |  

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

4

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Table of Contents

BIOTEL INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITYFor the three months
ended September 30, 2010 and 2009

|                            |  |              |        |                          |  |                  |  |       |           |  |   |           |  |   |           | 
|--------------------------- |  | ------------ | ------ | ------------------------ |  | ---------------- |  | ----- | --------- |  | - | --------- |  | - | --------- | 
|                            |  | Common Stock |        | AdditionalPaid-InCapital |  | RetainedEarnings |  |       |           | 
|                            |  | Amount       |        | Shares                   |  |                  |  | Total |          
|                            |  |              |        |                          |  |                  |  |       |           |  |   |           |  |   |           | 
|Balance,
June 30, 2009      |  | $            | 27,638 |                          |  | 2,763,827        |  | $     | 2,158,638 |  | $ | 3,472,663 |  | $ | 5,658,939 | 
|                            |  |              |        |                          |  |                  |  |       |           |  |   |           |  |   |           | 
|Stock-based compensation    |  |              |       |                          |  |                 |  |       | 519       |  |   |          |  |   | 519       | 
|                            |  |              |        |                          |  |                  |  |       |           |  |   |           |  |   |           | 
|Net income                  |  |              |       |                          |  |                 |  |       |          |  |   | 128,155   |  |   | 128,155   | 
|                            |  |              |        |                          |  |                  |  |       |           |  |   |           |  |   |           | 
|Balance,
September 30, 2009 |  | $            | 27,638 |                          |  | 2,763,827        |  | $     | 2,159,157 |  | $ | 3,600,818 |  | $ | 5,787,613 | 
|                            |  |              |        |                          |  |                  |  |       |           |  |   |           |  |   |           | 
|Balance,
June 30, 2010      |  | $            | 27,838 |                          |  | 2,783,827        |  | $     | 2,168,015 |  | $ | 3,189,786 |  | $ | 5,385,639 | 
|                            |  |              |        |                          |  |                  |  |       |           |  |   |           |  |   |           | 
|Stock-based compensation    |  |              |       |                          |  |                 |  |       | 520       |  |   |          |  |   | 520       | 
|                            |  |              |        |                          |  |                  |  |       |           |  |   |           |  |   |           | 
|Net income                  |  |              |       |                          |  |                 |  |       |          |  |   | 220,567   |  |   | 220,567   | 
|                            |  |              |        |                          |  |                  |  |       |           |  |   |           |  |   |           | 
|Balance,
September 30, 2010 |  | $            | 27,838 |                          |  | 2,783,827        |  | $     | 2,168,535 |  | $ | 3,410,353 |  | $ | 5,606,726 | 

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

5

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Table of Contents

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-K for the fiscal year
ended June 30, 2010, filed by Biotel Inc. (the Company) on September 28,
2010.

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.

Recently Issued Accounting Standards

In
June 2009, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 168, The FASB Accounting Standards Codification TM
and the Hierarchy of Generally Accepted Accounting Principles  a replacement
of FASB Statement No. 162, (SFAS 168). SFAS 168 establishes the FASB Accounting Standards Codification TM(Codification) as the source of authoritative generally accepted
accounting principles (GAAP) for nongovernmental entities. The Codification
does not change GAAP. Instead, it takes the thousands of individual
pronouncements that currently comprise GAAP and reorganizes them into
approximately 90 accounting Topics, and displays all Topics using a consistent
structure. Contents in each Topic are further organized first by Subtopic, then
Section and finally Paragraph. The Paragraph level is the only level that
contains substantive content. Citing particular content in the Codification
involves specifying the unique numeric path to the content through the Topic,
Subtopic, Section and Paragraph structure. FASB suggests that all citations
begin with FASB ASC, where ASC stands for Accounting
Standards Codification. Changes to the ASC subsequent to June 30,
2009 are referred to as Accounting Standards Updates (ASU). In conjunction
with the issuance of SFAS 168, the FASB also issued its first Accounting
Standards Update No. 2009-1, Topic 105Generally Accepted Accounting
Principles (ASU 2009-1) which includes SFAS 168 in its entirety as a
transition to the ASC. ASU 2009-1 is effective for interim and annual periods
ending after September 15, 2009. These changes will not have an impact on the
Companys financial position or results of operations but will change the
referencing system for accounting standards.

6

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Table of Contents

NOTE 2  INVENTORIES

As
of September 30, 2010 and June 30, 2010, inventories consist of the following:

|                                  |  |                    |           |               |   |           |  
|--------------------------------- |  | ------------------ | --------- | ------------- | - | --------- | -
|                                  |  | September 30,
2010 |           | June 30,
2010 |  
|                                 
|Raw materials and supplies        |  | $                  | 1,441,336 |               | $ | 1,308,624 |  
|Finished goods                    |  |                    | 188,630   |               |   | 231,339   |  
|Evaluation units and
replacements |  |                    | 8,693     |               |   | 8,612     |  
|                                  |  |                    |           |               |   |           |  
|                                  |  |                    | 1,638,659 |               |   | 1,548,575 |  
|Valuation allowance               |  |                    | (258,950  | )             |   | (236,642  | )
|                                  |  |                    |           |               |   |           |  
|                                  |  | $                  | 1,379,709 |               | $ | 1,311,933 |  

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 September 30, 2010 and June
30, 2010, the warranty reserve totaled $236,225 and $234,430, respectively.
Warranty reserve is included in Other Accrued Expenses. The following is a
reconciliation of the aggregate reserve for warranty liability as of September
30, 2010 and 2009.

|                                                                                        |  |                    |         |                    |   |         |  
|--------------------------------------------------------------------------------------- |  | ------------------ | ------- | ------------------ | - | ------- | -
|                                                                                        |  | September 30,
2010 |         | September 30,
2009 |  
|Beginning of Period, June 30, 2010 and 2009                                             |  | $                  | 234,430 |                    | $ | 186,424 |  
|                                                                                        |  |                    |         |                    |   |         |  
|Claims Paid                                                                             |  |                    | (68,868 | )                  |   | (20,956 | )
|Additional warranties issued and revisions in estimates of previously
issued warranties |  |                    | 70,663  |                    |   | 21,984  |  
|                                                                                        |  |                    |         |                    |   |         |  
|End of Period, September 30, 2010 and 2009                                              |  | $                  | 236,225 |                    | $ | 187,452 |  

NOTE 4  STOCK-BASED COMPENSATION

The
Company accounts for compensation cost under its stock option plan in
accordance with the Financial Accounting Standards Board Accounting Standards
Codification (FASB ASC).

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, 2010 and 2009, Biotel Inc. had 141,000
and 211,000 outstanding options, respectively. Currently, option prices range
from $.625 to $2.05 per share with a weighted average remaining contract life
of 2.91 years. During the three months ended September 30, 2010 and 2009, 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.

7

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Table of Contents

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

|                              |  |                  |         |                                 |   |                  |  |                                 |         |  |   |        | 
|----------------------------- |  | ---------------- | ------- | ------------------------------- | - | ---------------- |  | ------------------------------- | ------- |  | - | ------ | 
|                              |  | Outstanding      |         | Exercisable                     |  
|                              |  | Number
of Shares |         | Weighted
Average
Exercise
Price |   | Number
of Shares |  | Weighted
Average
Exercise
Price |        
|                             
|Balance at June 30, 2009      |  |                  | 211,000 |                                 | $ | 1.6391           |  |                                 | 198,500 |  | $ | 1.6171 | 
|                              |  |                  |         |                                 |   |                  |  |                                 |         |  |   |        | 
|Balance at September 30,
2009 |  |                  | 211,000 |                                 | $ | 1.6391           |  |                                 | 201,000 |  | $ | 1.6206 | 
|                              |  |                  |         |                                 |   |                  |  |                                 |         |  |   |        | 
|Balance at June 30, 2010      |  |                  | 141,000 |                                 | $ | 1.6793           |  |                                 | 133,500 |  | $ | 1.6537 | 
|                              |  |                  |         |                                 |   |                  |  |                                 |         |  |   |        | 
|Balance at September 30,
2010 |  |                  | 141,000 |                                 | $ | 1.6793           |  |                                 | 133,500 |  | $ | 1.6537 | 

The
total intrinsic value of options outstanding and exercisable at September 30,
2010 was $0.

NOTE 5  INCOME TAXES

The
components of the provision for income taxes are as follows for the three
months ended September 30, 2010 and 2009:

|                            |  |      |         |      |   |        | 
|--------------------------- |  | ---- | ------- | ---- | - | ------ | 
|                            |  | 2010 |         | 2009 |  
|                            |  |      |         |      |   |        | 
|Current provision for
taxes |  | $    | 109,298 |      | $ | 82,322 | 

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

|                                       |  |      |      |      |  |      |  
|-------------------------------------- |  | ---- | ---- | ---- |  | ---- | -
|                                       |  | 2010 |      | 2009 | 
|                                       |  |      |      |      | 
|Computed at the federal
statutory rate |  |      | 34.0 | %    |  | 34.0 | %
|State income taxes                     |  |      | 3.3  | %    |  | 3.3  | %
|Other                                  |  |      | (4.2 | %)   |  | 1.8  | %
|                                      
|                                       |  |      | 33.1 | %    |  | 39.1 | %

NOTE 6  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, 2010 were
2,783,827 and 2,745,447, respectively, and for the three months ended September
30, 2009 were 2,763,827 and 2,865,726, respectively.

8

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NOTE 7  REVOLVING LINE OF CREDIT

The
Company has a $1,500,000 credit line with a bank. The line bears interest at
the banks prime rate (3.25% at September 30, 2010) plus .25%. The line of
credit was renewed on February 5, 2010 and will expire on February 5, 2011.
There was no outstanding balance on this line of credit as of September 30,
2010 and 2009.

NOTE 8  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 FASB ASC 280-10.

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, 2010 |          
|                                   |  | OEM Medical
Sales & Services          |           | Direct Medical
Equipment Sales |   | Corporate |  | Totals |          
|                                   |  |                                       |           |                                |   |           |  |        |           |   |   |           | 
|Domestic revenues                  |  | $                                     | 2,749,115 |                                | $ | 112,051   |  | $      |          |   | $ | 2,861,166 | 
|International revenues             |  |                                       | 248,041   |                                |   | 14,607    |  |        |          |   |   | 262,648   | 
|Revenues from external
customers   |  |                                       | 2,997,156 |                                |   | 126,658   |  |        |          |   |   | 3,123,814 | 
|Income tax provision               |  |                                       | 81,476    |                                |   | 1,936     |  |        | 25,886    |   |   | 109,298   | 
|Depreciation and
amortization      |  |                                       | 101,225   |                                |   |          |  |        | 1,300     |   |   | 102,525   | 
|Segment profit                     |  |                                       | 167,538   |                                |   | 2,779     |  |        | 50,250    |   |   | 220,567   | 
|Goodwill                           |  |                                       | 695,551   |                                |   |          |  |        |          |   |   | 695,551   | 
|Total segment assets               |  |                                       | 5,007,884 |                                |   | 73,877    |  |        | 2,428,837 |   |   | 7,510,598 | 
|Purchase of property and
equipment |  |                                       | 75,511    |                                |   |          |  |        |          |   |   | 75,511    | 
|                                   |  |                                       |           |                                |   |           |  |        |           |   |   |           | 
|                                   |  | Three months ended September 30, 2009 |          
|                                   |  | OEM Medical
Sales & Services          |           | Direct Medical
Equipment Sales |   | Corporate |  | Totals |          
|                                   |  |                                       |           |                                |   |           |  |        |           |   |   |           | 
|Domestic revenues                  |  | $                                     | 2,951,176 |                                | $ | 106,975   |  | $      |          |   | $ | 3,058,151 | 
|International revenues             |  |                                       | 177,937   |                                |   | 27,219    |  |        |          |   |   | 205,156   | 
|Revenues from external
customers   |  |                                       | 3,129,113 |                                |   | 134,194   |  |        |          |   |   | 3,263,307 | 
|Income tax provision
(credit)      |  |                                       | 116,616   |                                |   | 7,961     |  |        | (42,255   | ) |   | 82,322    | 
|Depreciation and
amortization      |  |                                       | 88,990    |                                |   |          |  |        | 4,921     |   |   | 93,911    | 
|Segment profit (loss)              |  |                                       | 196,800   |                                |   | 13,381    |  |        | (82,026   | ) |   | 128,155   | 
|Goodwill                           |  |                                       | 695,551   |                                |   |          |  |        |          |   |   | 695,551   | 
|Total segment assets               |  |                                       | 5,176,267 |                                |   | 57,088    |  |        | 2,053,957 |   |   | 7,287,312 | 
|Purchase of property and
equipment |  |                                       | 59,186    |                                |   |          |  |        | 850       |   |   | 60,036    | 

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NOTE 9  COMMITMENTS AND CONTINGENCIES

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

On
April 2, 2009, the Company entered into a Merger Agreement (the Merger
Agreement) with CardioNet, Inc. (CardioNet) pursuant to which CardioNet was
to acquire the Companys outstanding securities for $4.82 per share
(approximately $14 million in cash). In a letter dated July 14, 2009, CardioNet
advised the Company that it was terminating the Merger Agreement due to the
Companys breach of a covenant to withdraw and terminate a business
relationship with ScottCare Corporation (ScottCare). On July 15, 2009,
CardioNet notified the Company that the Company owed CardioNet $1.4 million for
a termination fee and expenses as a result of CardioNets termination of the
Merger Agreement. The Company believes CardioNets termination of the Merger
Agreement was without merit. On July 16, 2009, the Company commenced a lawsuit
in Hennepin County District Court, State of Minnesota, claiming CardioNet
breached and improperly terminated the Merger Agreement. The Company is seeking
specific performance and damages. On August 3, 2009, the case was removed to
the United States District Court, District of Minnesota. On September 4, 2009,
CardioNet submitted an answer and counterclaim denying the Companys claims and
asserting a counterclaim for the $1.4 million CardioNet claims it is owed as a
result of its termination of the Merger Agreement. On February 1, 2010,
CardioNet filed its Amended Answer And Counterclaims, asserting additional
defenses and counterclaims against the Company. On May 28, 2010, following the
completion of discovery, the Company moved for partial summary judgment
dismissing CardioNets counterclaims and certain defenses, and that motion
remains pending with the court. On November 5, 2010, CardioNet and the Company
entered into a second Merger Agreement (the 2010 Merger Agreement) and a
Settlement Agreement and Release (the Settlement Agreement). The 2010 Merger
Agreement provides for the acquisition of the Company by CardioNet by the
purchase of the Companys outstanding shares of common stock for a total of $11
million adjusted up or down based on the Companys working capital just prior
to the closing of the transaction. The 2010 Merger Agreement is subject to the
approval of the Companys shareholders and other customary closing conditions.
The Settlement Agreement provides that upon closing of the 2010 Merger
Agreement the lawsuit between the parties will be settled and each party
released from all claims the other has against it with respect to the Merger
Agreement signed in 2009. The lawsuit has been stayed pending completion of the
2010 Merger Agreement.

On
September 25, 2009, LifeWatch Services, Inc., and Card Guard Scientific Survival,
Ltd., the licensee and owner, respectively, of U.S. Patent Nos. 7,542,878 B2
(the 878 Patent) and 5,730,143 (the 143 Patent) commenced an action LifeWatch Patent Matter against
Braemar, Inc. (Braemar), and one of its customers, eCardio Diagnostics, LLC
(eCardio), in Federal District Court for the Northern District of Illinois,
File No. 09-CV-6001, alleging that Braemar and eCardio had infringed the 878
and 143 Patents. The Supply Agreement between Braemar and eCardio provides
that Braemar will hold eCardio harmless from any liability it incurs in
connection with a claim that Braemars products violate the intellectual
property rights or infringe upon any patent of a third party. Braemar and
eCardio have denied the allegations, and Braemar is defending the suit on
behalf of both itself and eCardio. Since the action was commenced, the
Plaintiffs have dismissed their claims relating to alleged infringement of the
878 Patent and have continued to pursue their claims relating to the alleged infringement
of the 143 Patent.

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

NOTE 10  SUBSEQUENT EVENTS

On
November 5, 2010, the Company and CardioNet, Inc. entered into a Merger
Agreement pursuant to which CardioNet is to acquire the Companys outstanding
shares of common stock for $11 million, or approximately $3.84 per share,
before adjustment up or down based on the Companys working capital just prior
to the close of the merger. In connection with the 2010 Merger Agreement, the
Company and CardioNet entered into a Settlement Agreement and Release to settle
and dismiss the outstanding lawsuit between the parties, which will be
effective upon the close of the merger. The merger is subject to approval of
the Companys shareholders and other customary closing conditions.

These
financial statements have not been updated for subsequent events occurring
after November 15, 2010, which is the date these financial statements were
available to be issued.

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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.

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 deemed to have an indefinite useful life and is not amortized but is subject
to impairment tests performed at least annually. During fiscal 2010 and 2009,
Biotel performed the required impairment tests of goodwill and determined the
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.

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.

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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.

Biotel
has released its Fusion product line for clinical use and is monitoring system
performance under beta evaluation. Procedures performed using Fusion devices
are eligible for reimbursement under MCT procedure codes. Recently, there have
been published reports that CMS (Medicare) will expand MCT coverage nationwide
effective January 1, 2011. Up until the present, CMS reimbursement has been
available in a more limited way, substantially used by ECG scanning services
operating within four Eastern states and the District of Columbia. Biotel
believes that CMS nationwide coverage will increase the adoption of MCT
procedure codes by private insurers, open markets for regional ECG scanning
services and increase the potential for installation of MCT equipment in the
nations hospitals and clinics. Biotel believes that some hospitals and clinics
may prefer to purchase Fusion systems and arrange service support for MCT
patients rather than outsource their MCT procedures.

Results of Operations

Three Months ended September 30, 2010

Biotels
net revenues for the three months ended September 30, 2010, were $3,124,000,
4.3% less than net revenues of $3,263,000 for the three months ended September
30, 2009. Biotels Braemar subsidiary has continued to make sales of its ER9W
wireless event recorders but at a lower level than in the comparable quarter of
fiscal year 2010. The initial stocking purchases of ER9W by a major customer
have fluctuated from quarter to quarter as wireless products are rolled out to
meet market demand. Such deliveries of ER9W are expected to continue through
fiscal year 2011. Wireless devices may be expected to have a service life of
three to five years before obsolescence. After initial stocking of wireless
products, Biotel expects replacement sales levels from the customers
for those products. Agility has been increasing its ECG clinical research
services as a result of new contracts, partially offsetting the decline in
revenues from ER9W products.

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Gross
profit was $1,335,000 for the quarter ended September 30, 2010, 2.9% favorable
to gross profit of $1,297,000 for the first quarter of fiscal year 2010. Gross
profit increased as a result of product mix and cost control actions. Gross
profit margin improved to 42.7% for the three months ended September 30, 2010
compared to 39.7% for the three months ended September 30, 2009, primarily as a
result of a reduction in workforce necessitated by the decline in revenue as a
result of CardioNets termination of a merger agreement (see Part I. Item 1.
Note 9 of Notes to Consolidated Financial Statements). Cost of sales and
service decreased to $1,789,000 (57.3% of sales) for the three months ended
September 30, 2010, compared to $1,967,000 (60.3% of sales) for the first
quarter of fiscal year 2010. The decrease in cost of sales and service was a
result of the lower sales volume and cost control efforts in the first quarter
of fiscal 2011. Cost of sales and service as a percentage of revenue decreased,
primarily due to product mix and cost control efforts.

Selling,
general and administrative expenses of $703,000 (22.5% of sales) for the three
months ended September 30, 2010 increased from $666,000 (20.4% of sales) for
the three months ended September 30, 2009. Selling, general and administrative
expenses were higher in the first quarter of fiscal 2011 primarily because of
legal expense incurred as a result of activities surrounding the merger
agreement between Biotel and CardioNet, Inc. signed on April 2, 2009, and
subsequently terminated by CardioNet. Selling expenses include salaries,
commissions, benefits, travel expenses and other selling expenses.

Research
and development expenditures for the first quarter of fiscal year 2011 were
$302,000, a decrease of 25.7% compared to $407,000 in the first quarter of
fiscal year 2010. The decrease in research and development expenses resulted
primarily because heavy development activities related to a new Holter product
line and ER9 Wireless technology platform and product line were funded in
previous fiscal years. Expenditures for MCT wireless product development
activity benefited from the ER9 Wireless technology platform developed in
previous fiscal years. MCT 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 2010 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 periods ended September 30, 2010
and September 30, 2009.

Net
earnings of $221,000 were posted for the first quarter of fiscal year 2011,
versus net income of $128,000 in the first quarter of fiscal year 2010. The
increase in net income was primarily the result of the strong gross margin and
the decrease in research and development expenditures during the first three
months of fiscal 2011.

Off-Balance Sheet Arrangements

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

Liquidity and Capital Resources

Working
capital increased to $4,287,000 at September 30, 2010, compared to $4,034,000
at June 30, 2010. The increase in working capital is largely the result of
Biotels strong cash position at the end of the first quarter of fiscal 2011.

Cash
and cash equivalents were $1,812,000 at September 30, 2010, compared to
$1,577,000 at June 30, 2010. The ratio of current assets to current liabilities
(current ratio) was 3.75 to one at September 30, 2010 and 3.58 to one at June
30, 2010.

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Accounts
receivable decreased to $1,995,000 at September 30, 2010, versus $2,067,000 at
June 30, 2010, as a result of lower revenues in the first three months of
fiscal 2011. 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 first three months of fiscal year 2011, $76,000 was used for capital
expenditures, compared with $60,000 in the first three months of fiscal year
2010. 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 $1,380,000 as of September 30, 2010, versus $1,312,000 as of June
30, 2010. The level of inventory increased in response to customer orders to be
shipped in the second quarter of fiscal 2011. Biotels subsidiaries manage
inventories to provide safety stock and product flow for customers while
controlling the amount of inventory.

Current
liabilities decreased slightly to $1,561,000 at September 30, 2010, compared to
$1,565,000 on June 30, 2010.

Biotel
has long term liabilities consisting of deferred taxes payable totaling
$343,000. Biotel has no long term debt.

As
of September 30, 2010, stockholders equity had increased to $5,607,000 from
$5,386,000 at June 30, 2010. The increase in stockholders equity was primarily
due to the Companys profitability in the first three months of fiscal 2011.

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 September 30, 2010, 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 three months of fiscal 2011 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.

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Item 3. Defaults Upon Senior
Securities.Not
applicable.

Item 4. Reserved.

Item 5. Other Information.Not applicable.

Item 6. Exhibits

| |                      |                                                                                                                
| | -------------------- | ---------------------------------------------------------------------------------------------------------------
| | Listing of Exhibits:
| |                      |                                                                                                                
| | 10.1                 | Merger
Agreement, dated as of November 5, 2010, among Biotel Inc., Garden Merger
Sub, Inc. and CardioNet, Inc.*
| | 10.2                 | Settlement
Agreement, dated as of November 5, 2010, between Biotel Inc. and CardioNet,
Inc.*                   
| | 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.                                                                                    

| |                                                                                                                                                        | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------ | 
| |                                                                                                                                                        | 
|
| | *
Incorporated herein by reference to the Companys Current Report on Form 8-K
filed with the Securities and Exchange Commission on November 11, 2010.

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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 15, 2010 | By:         | /s/ B. Steven Springrose                   | 
|                        |             | Its: Chief Executive
Officer and President | 
|                        |             |                                            | 
|                        |             |                                            | 
|Date: November 15, 2010 | By:         | /s/ Judy E. Naus                           | 
|                        |             | Its: Chief Financial
Officer               | 

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