TherMatrx, Inc.
                         (A Development Stage Company)
                              Financial Statements
                               September 30, 1999
<PAGE>


                          INDEPENDENT AUDITORS' REPORT





To the Board of Directors
TherMatrx, Inc.
Bannockburn, Illinois  60015


We have audited the accompanying balance sheet of TherMatrx, Inc. (A Development
Stage  Company) as of September 30, 1999,  and the related  statements of income
and retained  earnings and cash flows for the year ended September 30, 1999, and
the period from  November 13, 1997 (Date of  Inception)  to September  30, 1999.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of TherMatrx,  Inc. (A Development
Stage  Company) as of September 30, 1999,  and the results of its operations and
its cash flows for the year then ended and the period  from  November  13, 1997
(date of  inception),  to  September  30, 1999,  in  conformity  with  generally
accepted accounting principles.





November 2, 1999
<PAGE>

                                TherMatrx, Inc.
                         (A Development Stage Company)
                                 Balance Sheet
                               September 30, 1999

                                     ASSETS

Current Assets
  Cash and Cash Equivalents                  $     494,984
  Investments                                    4,875,865
  Inventory                                         21,057
  Deposits and Prepaid Expenses                     40,502
                                             -------------
     Total Current Assets                                   $   5,432,408

Property and Equipment
  Furniture and Fixtures                            10,430
  Equipment                                         37,729
                                             -------------
                                                    48,159
  Less: Accumulated Depreciation                   (17,351)
                                             -------------
     Total Property and Equipment                                  30,808

Other Assets
  Patents                                        2,904,500
                                             -------------
     Total Other Assets                                         2,904,500
                                                            -------------

       Total Assets                                         $   8,367,716
                                                            =============

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
  Accounts Payable                           $      31,733
  Accrued Expenses                                  40,639
                                             -------------
     Total Current Liabilities                              $      72,372

Stockholders' Equity
  Common Stock, .001 Par Value
     (1,000,000 Shares Authorized; 54,000
     Shares issued and Outstanding)              4,000,000
  Preferred Stock, .01 Par Value
     (1,000,000 Shares Authorized; 103,500
     Shares issued and Outstanding)              6,500,000
  Retained Earnings
     (Deficit Accumulated During the
     Development Stage)                         (2,204,656)
                                             -------------
     Total Stockholders' Equity                                 8,295,344
                                                            -------------

          Total Liabilities and
          Stockholders' Equity                              $   8,367,716
                                                            =============


               The accompanying notes to the financial statements
                    are an integral part of this statement.

<PAGE>

                                TherMatrx, Inc.
                         (A Development Stage Company)
                   Statements of Income and Retained Earnings
               Year Ended September 30, 1999, and the Period from
          November 13, 1997 (Date of Inception) to September 30, 1999


<TABLE>
<CAPTION>



                                                                           November 13, 1997
                                                   Year Ended               (Inception) to
                                                September 30, 1999        September 30, 1999
                                                ------------------        ------------------

<S>                                             <C>                       <C>

Expenses

     Sales and Marketing                        $        79,943           $       110,556

     Administrative                                     831,350                 1,791,232

     Research and Development                           756,471                 1,477,503
                                                ---------------           ---------------

          Total Expenses                              1,667,764                 3,379,291
                                                ---------------           ---------------

Other Income (Expense)

     Settlement from Lawsuit                                                    1,230,000

     Interest Income                                    191,541  `                327,258

     Organization Costs                                                          (382,621)
                                                ---------------           ---------------

          Total Other Income (Expense)                  191,541                 1,174,635
                                                ---------------           ---------------

Net Loss                                             (1,476,223)               (2,204,656)

Retained Earnings, Beginning of Period                 (728,433)                      -0-
                                                ---------------           ---------------

Retained Earnings, End of Period                $    (2,204,656)          $    (2,204,656)
                                                ===============           ===============
</TABLE>


               The accompanying notes to the financial statements
                    are an integral part of this statement.

<PAGE>

                                TherMatrx, Inc.
                         (A Development Stage Company)
                            Statements of Cash Flows
               Year Ended September 30, 1999, and the Period from
          November 13, 1997 (Date of Inception) to September 30, 1999


<TABLE>
<CAPTION>



                                                                                      November 13, 1997
                                                              Year Ended               (Inception) to
                                                            September 30, 1999        September 30, 1999
                                                            ------------------        ------------------

<S>                                                         <C>                       <C>

Cash Flows From Operating Activities

     Net Loss                                               $     (1,476,223)         $     (2,204,656)
     Adjustments to reconcile net loss to
       net cash used by operating activities:
       Depreciation and Amortization                                 233,652                   442,851
       Decrease (increase) in operating assets:
          Inventory                                                   (5,978)                  (21,057)
          Other                                                       (6,373)                  (40,503)
       Increase (decrease) in operating liabilities:
          Accounts Payable                                           (33,134)                   31,733
          Accrued Liabilities                                         (4,319)                   40,640
                                                            ----------------          ----------------

     Total Adjustments                                               183,848                   453,664
                                                            ----------------          ----------------

     Net cash used by operating activities                        (1,292,375)               (1,750,992)
                                                            ----------------          ----------------

Cash Flows From Investing Activities

     Investments                                                  (4,875,865)               (4,875,865)
     Purchase of Property and Equipment                              (15,482)                  (48,159)
     Lawsuit Settlement Allocated to Patents                                                   670,000
                                                            ----------------          ----------------

     Net Cash Used by Investing Activities                        (4,891,347)               (4,254,024)
                                                            ----------------          ----------------

Cash Flows From Financing Activities

     Preferred Stock                                               3,250,000                 6,500,000
                                                            ----------------          ----------------

Increase (Decrease) in Cash and Cash Equivalents                  (2,933,722)                  494,984

Cash and Cash Equivalents at Beginning of Period                   3,428,706                      -0-
                                                            ----------------          ----------------

Cash and Cash Equivalents at End of Period                  $        494,984          $        494,984
                                                            ================          ================

Noncash Investing and Financing Transactions

     Common stock was acquired by the contribution of patents                         $      4,000,000
                                                                                      ================

</TABLE>

               The accompanying notes to the financial statements
                    are an integral part of this statement.
<PAGE>

                                TherMatrx, Inc.
                         (A Development Stage Company)
                         Notes to Financial Statements
             From Inception November 13, 1997 to September 30, 1999


NOTE 1 - ORGANIZATION AND OPERATION

TherMatrx,  Inc. (A Development Stage Company) (the Company) was incorporated in
the state of Delaware on November 13, 1997.  The Company is conducting  clinical
trials for a new medical  device to treat  Benign  Prostatic  Hyperplasia  (BPH)
which is a non-cancerous enlargement of the prostate gland.  The clinical trials
are being performed throughout the United States.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Method of Accounting
--------------------

The  Company  prepares  its  financial  statements  using the  accrual  basis of
accounting in accordance with generally accepted accounting principles.

Cash and Cash Equivalents
-------------------------

Cash and  cash  equivalents  include  all  monies  in banks  and  highly  liquid
investments with maturity dates of less than seventy-six days.

Inventory
---------

Inventories are stated at the lower of cost or market.  Cost is determined using
the specific identification method.

Property and Equipment
----------------------

Property and Equipment are carried at cost.  Depreciation  is provided using the
straight-line method at rates based on the following useful lives:

          Furniture and Fixtures        5 years
          Equipment                     3 years

Expenditures  for major renewals and betterments that extend the useful lives of
property and equipment are capitalized. Expenditures for maintenance and repairs
are charged to expense as incurred.

Use of Estimates
----------------

The process of preparing  financial  statements  in  conformity  with  generally
accepted  accounting  principles  required  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and reported  amounts of revenues  and expenses  during the reported
period. Actual results could differ from those estimates.

<PAGE>

                                TherMatrx, Inc.
                         (A Development Stage Company)
                         Notes to Financial Statements
             From Inception November 13, 1997 to September 30, 1999



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Income Taxes
------------

Incomes taxes are accounted for in accordance  with the  provisions of Statement
of Financial  Accounting Standards No. 109. The provision for income tax expense
or benefit is based on income or loss reported for financial  statement  purpose
adjusted for temporary and permanent  differences between reported financial and
taxable income or loss.

Patents
-------

Patents are amortized on the straight-line basis over fifteen years.

                    Costs                        $4,000,000
                    Proceeds from Lawsuit          (670,000)
                    Accumulated Amortization       (425,500)
                                                 ----------
                    Patents, net                 $2,904,500
                                                 ==========

NOTE 3 - COMMITMENTS

The  Company has a lease for it's office  space  which  expired on December  31,
1998.  The  Company  has an option to renew the lease for one year.  The minimum
monthly  rental is  $2,041.  In  December,  1998 the lease  was  extended  until
December 31, 1999. The minimum monthly rental is $2,041. In September,  1999 the
lease was extended until  December 31, 2000.  The minimum rental is $2,070.  The
Company is  responsible  for it's  proportional  share of real estate  taxes and
operating expenses of the building.

Future minimum rental payments:

                    Year ending
                   September 30,          Amount
                   ------------           ------

                      2000              $ 24,758
                      2001                 6,211
                                        --------
                                        $ 30,969
                                        ========

Rent  expense for the period ended  September  30, 1999 and 1998 was $25,107 and
$18,371, respectively.

The Company  subleased office space on a month-to-month  basis through November,
1998.  Rental income for the period ended September 30, 1999 and 1998 was $2,600
and $11,700, respectively.

The Company has a  consulting  agreement  with a doctor that expires in January,
2000. The minimum monthly payment is $4,125.

Future minimum payments:

                   Year ending
                   September 30,
                   ------------

                      2000              $ 16,500
                                        ========
<PAGE>


                                TherMatrx, Inc.
                         (A Development Stage Company)
                         Notes to Financial Statements
             From Inception November 13, 1997 to September 30, 1999



NOTE 4 - INVESTMENTS

Investments consist of time deposits worth $3,855,969 and a Treasury Note with a
value of $1,019,896.  The carrying value of these  investments  approximate fair
value because of the short term maturities of these financial instruments.

NOTE 5 - CONCENTRATION OF CREDIT RISK

The Company  maintains cash accounts in one financial  institution.  Balances in
these accounts exceed the federally insured limit of $100,000.

NOTE 6 - RELATED PARTY

The  Company  has  entered  into  a  consulting,  supply  and  non-compete,  non
disclosure  agreement with BSD Medical  Corporation  (BSD). BSD owns 100% of the
Company's common stock.

Consulting Agreement
--------------------

The Company will use the expertise, on an "as needed" basis, of employees of BSD
in the  development  and conducting  clinical  trials of a new medical device to
treat Benign Prostatic  Hyperplasia.  At September 30, 1999 and 1998 the Company
has paid approximately $179,000 and $197,000 for these services.

Supply Agreement
----------------

The Company has purchased,  from BSD, the demo medical devices to be used in the
clinical  trials.  The Company will also purchase  supplies used in the clinical
trials.  These supplies consist mainly of applicators and temperature probes. At
September  30,  1999 and 1998 the  Company  has paid  approximately  $92,000 and
$175,000 for these supplies.

Non-Compete, Non Disclosure Agreement
-------------------------------------

BSD has entered into an agreement with the Company not to engage in any business
or provide any services in the treatment of any benign conditions or diseases of
the prostate gland. BSD shall not disclose any "Confidential Information" of the
clinical trials or the medical device used in such treatments.

<PAGE>
                                TherMatrx, Inc.
                         (A Development Stage Company)
                         Notes to Financial Statements
             From Inception November 13, 1997 to September 30, 1999



NOTE 7 - CAPITALIZATION AND VALUATION OF INTANGIBLES

Capitalization
--------------

                             Date           # of Shares         Amount
                             ----           -----------         ------

Common Stock                11/13/97         54,000           $4,000,000

Preferred Stock             11/13/97         46,000           $3,250,000
                             4/20/99         57,500           $3,250,000

The initial capitalization of the Company included the issuance of 54,000 shares
of common stock and 46,000 shares of convertible preferred stock. The agreements
call  for  the  issuance  of  57,500  additional  shares  at  a  second  closing
("Milestone  Closing") when certain  conditions have been met. On April 20, 1999
the  "Milestone  Closing"  ocurred.  The  total  shares  to be issued on a fully
diluted basis is 180,000 after the second  closing.  This includes 22,500 shares
reserved for issuance under a Management Stock Option Plan.

Valuation of Intangibles
------------------------

In order to establish the value of the patents and patent rights contributed the
Company  compared  the  percentage  of the  shares  acquired  for cash  with the
percentage acquired for the rights to the patents. Based on the expectation that
the "Milestone Closing" would be achieved, it was determined that the intangible
assets  contributed  were worth  $4,000,000 (Note 2). This asset is shown in the
financial  statements  as  Patents  and it will be  amortized  over 15  years in
accordance with generally accepted accounting principles. The patents and patent
rights were contributed to the Company for common stock valued at $4,000,000.

NOTE 8 - DEVELOPMENT STAGE COMPANY

The  subject  clinical  trial will  investigate  the safety and  efficacy of the
TherMatrx  TMX2000  and its  clinical  utility in  treating  certain  aspects of
symptomatic Benign Prostatic  Hyperplasia.  The proposed investigation will be a
double  blinded  randomized  trial which will  include a sham group to study and
placebo effects and a treatment group which will receive Transurethral Microwave
Thermotherapy (Thermotherapy) as a targeted dose range.


<PAGE>
                                TherMatrx, Inc.
                         (A Development Stage Company)
                         Notes to Financial Statements
             From Inception November 13, 1997 to September 30, 1999


NOTE 8 - DEVELOPMENT STAGE COMPANY (CONTINUED)

Although the official Phase I/II Protocol has been approved by the U.S. Food and
Drug  Administration  (FDA), it is possible that modifications will be desirable
once a full-scale  patient  accrual is under way at all  investigational  sites.
When all of the  modifications  have been made and FDA approval has been granted
then the  Company can start to sell this  procedure  to treat  Benign  Prostatic
Hyperplasia.