U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549



                                  FORM 10 - KSB

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   For the Fiscal Year Ended August 31, 2001.

                         Commission file number 0-10783

                             BSD MEDICAL CORPORATION

              DELAWARE                                      75-1590407
      -----------------------                           ----------------------
      (State of Incorporation)                            (IRS Employer
                                                        Identification Number)


       2188 West 2200 South
       Salt Lake City, Utah                                      84119
 ---------------------------------------                       --------
 (Address of principal executive offices)                     (Zip Code)

Registrant's telephone number, including area code:  (801) 972-5555


Securities registered pursuant to Section 12(b) of the Act:   None

Securities registered pursuant to Section 12(g) of the Act:

    Title of Each Class                Name of Each Exchange on Which Registered
    -------------------                -----------------------------------------
 Common Stock, $.01 Par Value                      Over-the-Counter

         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 [ ]

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-B is not contained  herein,  and will not be contained,
to the best of  Registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB. [X]

         Issuer's revenues for its most recent fiscal year: $2,224,379

         The  approximate  aggregate  market  value  of  Common  Stock  held  by
non-affiliates,  computed by reference to the price at which the stock was sold,
or the average bid and asked prices of such stock,  as of August 31,  2001,  was
$6,786,694.

         As of August 31,  2001,  there were  17,578,288  shares of Common Stock
with $0.01 par value outstanding.

         Documents Incorporated by Reference: None

         Transitional Small Business Disclosure Format: Yes [ ] No [X]

BSD Medical Corporation 2001 10-KSB

<PAGE>

                                     PART I


ITEM 1.  BUSINESS

OVERVIEW
--------

         BSD Medical  Corporation  develops,  manufactures and markets technical
microwave  systems used in the treatment of cancer,  the second leading cause of
death in the  developed  world.  BSD is also a major  shareholder  in TherMatrx,
Inc., a company  concentrating on the treatment of benign prostatic  hyperplasia
(BPH),  a major  health  condition  affecting  half of men  over  age 50.  These
therapies  elevate the  temperature of tumors or other targeted  tissue areas to
conditions  classified  as  either  hyperthermia  or  thermal  therapy,  through
precisely delivered microwave energy.

         Microwave  hyperthermia is a non-ionizing,  non-toxic form of radiation
at  microwave   frequencies   used   principally  in  the  treatment  of  cancer
(hyperthermic  oncology).  The National Cancer Institute defines hyperthermia as
"a   procedure  in  which  body  tissue  [the  tumor]  is  exposed  to  elevated
temperatures" (high fever range). Microwave thermal therapy falls under the same
classification, but operates at temperatures above the hyperthermia range (above
45 Degrees C as defined by the World Health Organization).

         Current  Company  Milestones.  Since 1997 BSD Medical has been  heavily
committed to the regulatory and technical support of TherMatrx,  Inc., a company
in which BSD has major  holdings,  to obtain FDA approval  for the  treatment of
BPH, a urological  condition  resulting from  enlargement of the prostate as men
age.  This  FDA  approval  was  obtained  in July of  2001,  and  TherMatrx  has
aggressively entered into marketing via its new approval.

         BSD Medical's underlying strategy in cancer therapy has been to deliver
FDA approved  hyperthermia  systems  capable of treating  cancer anywhere in the
body.  Over several years BSD has been  developing four new products now nearing
release  that are  projected  to be  marketed  under an  existing  FDA  approval
obtained by BSD Medical.  These new products will provide  treatment for cancers
that  can  be  addressed  through  superficial,  interstitial  or  intercavitary
approaches.  As with other BSD products,  they will be manufactured in BSD's FDA
compliant and ISO-9000 certified manufacturing facility.

         BSD Medical is also nearing  completion of a major development  project
that has occupied  approximately a decade and a half of multi-national  research
conducted at notable  cancer  research  centers in the United States and Europe.
This effort was funded by the National  Institutes of Health and funding arms of
European  governments.  The purpose of this collaborative  effort was to perfect
the high technology  required to deliver deep non-invasive  hyperthermia for the
treatment of cancer,  and to  demonstrate  its  effective  use through  clinical
trials.  The  BSD-2000  by BSD Medical  Corp.  has  subsequently  emerged as the
world's leading system for deep hyperthermia  therapy.  This system is supported
by sophisticated  treatment planning software. MRI treatment monitoring has also
been developed  through the integration of the BSD-2000 with magnetic  resonance
systems, allowing treatment progress to be tracked through MR images.

         FDA Approvals. BSD Medical has obtained FDA approval to market products
for the treatment of cancers accessible near the surface of the body, or through
intercavitary or interstitial  access. This approval does not limit treatment to
specific cancer types or sites.  New products to be marketed under this approval
are in development.

         A Phase  III  clinical  trial has been  concluded  and is the basis for
which BSD Medical is seeking an FDA  approval  for its  advanced  annular  array
system, the BSD-2000, used for treating cancers deep in the body.

         BSD Medical was  significantly  instrumental  in obtaining FDA approval
(granted  July 2001) to begin  marketing of products for the treatment of BPH by
TherMatrx, Inc., a company in which BSD Medical has major holdings.

                                       2
<PAGE>

         Patents and Licenses. BSD Medical has 9 U.S. patents, 3 foreign patents
and 5 patent  licenses  covering  its current  applications  and  products.  New
technologies are also under development that may qualify for patent protection.

         Four  additional  BSD  patents  that apply to the  treatment  of BPH, a
urological  disease,  have been assigned to TherMatrx,  Inc., a company in which
BSD has major holdings. BSD Medical's prior licensee, Urologix, Inc. (NAS:ULGX),
which has marketed under authorization of license to these patents, subsequently
became a licensee to TherMatrx.

         Background  to  Hyperthermic  Oncology.  Despite the massive  attention
given to cancer  prevention and treatment,  the American Cancer Society projects
that  1,268,000  new cancer cases will be diagnosed  and that 553,400  Americans
will die from cancer during 2001. Exceeded only by heart disease, cancer remains
the  second  leading  cause of death in the  United  States  and the rest of the
developed  world.   The  primary  cancer  therapies   currently  used  (ionizing
radiation,  chemotherapy  and  surgery)  are still  grossly  inadequate,  and an
enormous  need for better  treatment  is  obvious.  Hyperthermia  is an emerging
cancer  therapy that both kills cancer cells directly and has been shown to be a
potent  additive  treatment used in making the major existing  cancer  therapies
substantially  more effective.  Research is also demonstrating that hyperthermia
has the potential to become a powerful compliment for some of the most promising
new cancer therapies under development.

         Cancerous tumors are uncontrolled growths of mutated cells that require
more  energy to survive  than do cells of normal  tissue.  As cancer  cells grow
rapidly, they tend to outstrip their blood supply, leaving them blood and oxygen
starved.  Oxygen  starved  cancer  cells are  resistant  to  ionizing  radiation
treatments,  which  create  oxygen  radicals  to attack  tumor  cell DNA.  Blood
depletion also makes cancer resistant to chemotherapy,  where blood transport is
required to deliver the drug. Hyperthermia applied to a tumor draws blood to the
cancer as the body's  natural  response to the stimulus of heat.  Many  clinical
trials  have  shown  strong  improvements  in the  results  from  both  ionizing
radiation and chemotherapy  when  hyperthermia is added to the treatment.  While
sensitizing   tumors  for  more  effective   treatment  from  radiation   and/or
chemotherapy, hyperthermia also destroys cancer cells directly through damage to
the plasma membrane,  the  cytoskeleton and the cell nucleus,  and by disrupting
the stability of cellular  proteins.  Tumors with poor blood supply systems lack
the natural cooling capacity provided by efficient blood flow in normal tissues,
making  them  selectively  susceptible  to  the  cancer-destructive  effects  of
hyperthermia therapy.

         Hyperthermia  has  other  therapeutic  uses.  It can be used to  shrink
tumors prior to surgery,  potentially  making resection easier or even possible.
Research has shown hyperthermia to be an activator for gene therapies,  speeding
gene production  (heat mediated gene therapy).  Hyperthermia may play a key role
in the  development of new anti-tumor  vaccines that are based on the production
of heat shock  proteins.  Research has shown  hyperthermia to be an angiogenesis
inhibitor, preventing cancer from inducing growth of new blood vessels to expand
its blood supply.  Hyperthermia  could also become a companion therapy for other
angiogenesis inhibitors, used in the final destruction of depleted cancer cells.
Hyperthermia  has been shown to improve the  patient'  quality of life.  Even in
situations  where  there  is no hope  for  survival,  hyperthermia  may  provide
benefits through alleviation of such effects as bleeding, pain and infection.

         Statement on the Current  Progress of Hyperthermic  Oncology.  On April
21,  2001 as the  opening  address of the annual  meeting of the North  American
Hyperthermic Society (sponsored by the Radiologial Society of North America), P.
K. Sneed,  M. D. (Univ.  of  California  San  Francisco)  offered the  following
summary of completed Phase III randomized clinical trials involving  combination
ionizing  radiation (RT) plus hyperthermia  therapy (HT) vs. ionizing  radiation
treatments  alone: "for melanoma (2-year local control 28% for RT vs. 46% for RT
+ HT), recurrent breast cancer (complete response rate 38% for RT vs. 60% for RT
+ HT),  glioblastoma  (2-year  survival  15% for RT vs.  31%  for RT + HT),  and
advanced  cervical  cancer  (complete  response rate 57% for RT vs. 83% for RT +
HT)."

         BSD Cancer Treatment Systems. BSD Medical Corporation has developed the
technology   required   to   approach   hyperthermia   therapy   through   three

                                       3
<PAGE>

techniques--superficial  hyperthermia,  interstitial/intercavitary  hyperthermia
and deep hyperthermia.  These three methods allow cancer to be treated virtually
anywhere in the body.

         Superficial  hyperthermia  systems  are  used to  non-invasively  treat
tumors  within  a few  centimeters  of the  surface  of  the  body,  typical  in
conditions of melanoma and recurrent breast cancer.  Intersitial hyperthermia is
primarily  used to treat tumors in  combination  with popular  interstitial  and
intercavitary ionizing radiation therapy  (brachytherapy),  using tiny microwave
antennae  inserted  through the same catheters  required to deliver  radioactive
seeds.  This  technique  can be  employed in treating  prostate  cancer,  breast
cancer,  head  and  neck  cancer  and a  variety  of other  cancer  sites.  Deep
hyperthermia  is used to  non-invasively  treat  tumors  deep  within  the body,
including many problematic cancer sites located in the pelvis, abdomen and chest
areas.

         Development of the BSD-2000 has been a substantial effort involving the
cooperative  work of such American  research  institutions  as Duke  University,
Northwestern University, University of Southern California, Stanford University,
University of Utah and University of Washington St. Louis. Contributing European
research  institutions  included Daniel den Hoed Cancer Center of the Academisch
Ziekenhuis  (Rotterdam,  Netherlands),  Haukeland  University  Hospital (Bergen,
Norway),  Dusseldorf  University  Medical School,  Tubingen  University  Medical
School, Essen University Hospital, Charite Medical School of Humboldt University
(Berlin),  Luebeck University  Medical School,  Munich University Medical School
Grosshadern,  Interne Klinik Argirov of the Munich  Comprehensive  Cancer Center
(all of Germany),  University of Verona Medical Center (Italy),  Graz University
Medical School (Austria) and Kantonsspital Aarau (Switzerland).

         Through research funded by the National Cancer Institute and supportive
efforts by other  research  institutions,  BSD  Medical has been able to further
enhance the BSD-2000.  The BSD-2000-3D adds  three-dimensional  steering of deep
focused  energy,  delivering  even more precise heating to the tumor. As part of
the  international  collaborative  research  efforts,   sophisticated  treatment
planning software for the BSD-2000-3D has also been developed.

         Both the BSD-2000 and BSD-2000-3D administer  non-invasive treatment to
deep tumors.  As a further  objective,  MRI treatment  monitoring  has also been
added.  The  BSD-2000-3D/MR  provides  magnetic  resonance  imaging  (MRI) as an
interface with the BSD-2000-3D.  The development of MRI treatment monitoring has
been a long-awaited  breakthrough in hyperthermic oncology. Among many benefits,
MRI  treatment  monitoring  opens the way for the  application  of MRI monitored
hyperthermia  for better  treatment of new cancer sites,  including lung cancer,
the number one cancer killer.

         Benign Prostatic Hyperplasia (BPH). BPH is a benign condition resulting
when the prostate enlarges as men age. Approximately 50% of men in their 50s and
more  than  75% for men over 80  suffer  from  symptoms  of BPH.  Worldwide,  an
estimated $10 billion is spent annually for the treatment of BPH.

         The prostate is a walnut-size  gland  surrounding the male urethra (the
channel that carries  urine).  As the prostate grows, it can create a variety of
troubling symptoms that impact quality of life,  including  frequent  urination,
urgency and painful urination.  Serious  consequences can result from failure to
treat BPH,  including complete  obstruction (acute retention of urine),  urinary
infections, loss of bladder functions and kidney failure.

         To avoid dilution of its efforts in cancer therapy, BSD Medical elected
to enter the BPH market  through the  founding of a new company,  TherMatrx.  On
November 24, 1997, BSD entered into an agreement with Oracle Strategic  Partners
and Charles Manker to form TherMatrx,  Inc., a jointly-owned  company focused on
minimally  invasive  treatment  of benign  prostatic  hyperplasia,  a urological
disease.  TherMatrx  (with  heavy  participation  by BSD  employees)  has  since
conducted  Phase  III  randomized,   multi-center   clinical  trials   involving
approximately  200  patients,  and obtained FDA approval to begin  marketing its
products  in  July  of  2001.  The  trials   demonstrated   highly   significant
improvements in patient symptoms with minimal side effects and excellent patient
tolerance. TherMatrx has aggressively entered into marketing. TherMatrx offers a
non-surgical,  catheter-based  therapy  that has been  shown  to  provide  safe,
effective  relief from BPH symptoms.  The treatment can be performed in a clinic
or physician's  office. The company believes the results are clinically superior
to  medication.  The therapy also avoids the side effects and  complications  of
surgery.

                                       4
<PAGE>

         Company History. BSD was the first Company to obtain PreMarket approval
(PMA)  from the Food and Drug  Administration  (FDA) for a  hyperthermia  cancer
therapy system and the first Company to obtain  Investigational Device Exemption
(IDE)  approval  from the FDA for  thermotherapy  systems for the  treatment  of
Benign Prostatic Hyperplasia (BPH).

         BSD Medical Corporation was incorporated under the laws of the State of
Utah on March 17, 1978.  On July 31, 1986,  pursuant to a Plan and  Agreement of
Merger dated July 11, 1986, BSD Medical  Corporation  was merged into a Delaware
corporation, changing BSD Medical Corporation's state of incorporation from Utah
to Delaware.  The Delaware  Corporation  was the  surviving  company.  The total
number of shares of all  classes of stock which BSD  Medical  Corporation  shall
have the authority to issue is  30,000,000,  of which  10,000,000  shares are of
$1.00 par value per share and are of a class  designated  Preferred Stock and of
which  20,000,000  shares  are of $.01 par  value  per  share and are of a class
designated Common Stock. There are currently no preferred shares outstanding.

SALES AND MARKETING
-------------------

         BSD has been  selling  its cancer  hyperthermia  systems  primarily  to
research sites for use in clinical  trials,  but the company is now entering the
commercial  phase of sales and  marketing.  In the U.S.,  BSD Medical  sells its
equipment directly using its own sales and marketing staff.  International sales
are made through  distributing  companies located in various foreign  countries.
Prices  for  BSD  hyperthermia  systems  range  from  approximately  $35,000  to
$850,000.

         BSD's marketing  includes  articles  published in scientific  journals,
news articles,  the company's web site and materials posted on many other sites,
television  news,  participation  at trade shows and symposia,  participation in
medical  associations,  product brochures,  patient  brochures,  newsletters and
other promotional materials.  BSD co-sponsors an annual international BSD Users'
Conference.

         For the year  ended  August  31,  2001,  two  customers  accounted  for
approximately 60% and 15%, respectively,  of BSD's net sales. Medizintechnik,  a
company  controlled by a shareholder of BSD, purchased 60% of sales. The loss of
a  significant  customer  could  have a  material  detrimental  impact  on BSD's
operations.

REIMBURSEMENT
-------------

         In the United States, BSD Medical's products are purchased primarily by
medical  institutions,  which  then bill  various  third-party  payers,  such as
Medicare,  Medicaid, other government programs, and private insurance plans, for
the  health  care  services  provided  to their  patients,  or by  managed  care
organizations,  which directly pay for services provided to their patients.  The
Center for Medicare and Medicaid Services (CMS) has established 23 billing codes
that can be used as applicable for or in combination with hyperthermia  therapy,
depending on the  circumstances  of the  treatment.  Appropriate  codes apply to
billing  for  superficial,  interstitial  or  deep  hyperthermia,  when  used in
combination with ionizing  radiation therapy or chemotherapy.  Billing codes are
available for both the hospital and the oncologist.

         In November 1995, HCFA (now CMS) authorized Medicare  reimbursement for
all  investigational  therapies  and devices for which  underlying  questions of
safety  and  effectiveness  of that  device  type have been  resolved,  based on
categorization  by  FDA.  All  of  BSD's  investigational  (IDE)  equipment  and
protocols  have  been  placed  in this  category  by the  FDA,  and  thus may be
reimbursed by Medicare.

         For treatments by TherMatrx systems, effective January 1, 2002, CMS has
increased  the  billing  rate  for  a  thermotherapy  treatment  performed  in a
urologist's  office  from  approximately  $1,942 to $2,647,  and for a treatment
performed  in a  hospital  from  approximately  $2,700 to  approximately  $3,531
(actual rates will differ depending on the wage factor of each area).

         Medical  reimbursement rates are unpredictable,  and BSD cannot project
the extent to which its  business  may be  affected  by future  legislative  and
regulatory  developments.  There can be no  assurance  that  future  health care

                                       5
<PAGE>

legislation  or  regulation  will not have a  material  adverse  effect on BSD's
business,  financial condition and results of operations, or that reimbursement,
existing or in the future, will be adequate for all customers.

COMPETITION
-----------

         Competition in the medical products  industry is intense.  BSD believes
that established  product lines,  FDA approvals,  know-how and reputation in the
industry are key competitive  factors.  BSD's therapies are generally considered
complementary to, rather than competitive with other cancer  therapies,  such as
ionizing  radiation  and  chemotherapy.  However,  some  companies  could become
competitors (in that they are also engaged in cancer treatment businesses) which
have significantly  greater  resources.  Several companies have received IDEs in
the United  States for certain  experimental  hyperthermia  systems  designed to
treat  both  malignant  and  benign  diseases.  In  addition  to BSD,  two other
companies  have  received FDA  Pre-Market  Approval for the  commercial  sale of
certain  hyperthermia  equipment  for  the  treatment  of  cancer  in the  U.S.:
Labthermics and Celsion Corporation (AMX:CLN, formerly Cheung Labs).

         BSD participates in the BPH market as an investor in TherMatrx, Inc. In
the BPH market,  competitive  companies offering products similar to TherMatrx's
products  include  Urologix and Dornier  (which have PMA approval from the FDA),
VidaMed and ArgoMed,  Inc. (which have 510(k) marketing clearance from the FDA),
and other foreign manufacturers.  In addition to thermotherapy equipment made by
competitors,  there are other competitive  treatments for BPH that are currently
being developed, clinically investigated and/or actively marketed.

PRODUCT SERVICE
---------------

         BSD Medical provides a 12-month warranty following  installation on all
cancer treatment systems and a 90-day limited warranty on individual components.
BSD's  employees  install  and  service  the  hyperthermia  systems  it sells to
domestic  customers.  In  addition,  company  personnel or  consultants  perform
technical and clinical training.  Subsequent to the applicable  warranty period,
BSD offers full or limited service contracts to its domestic customers.

         Generally,  BSD's  distributors  install  and service  systems  sold to
foreign  customers and are responsible for managing their own warranty  programs
for their  customers,  including labor and travel  expenses.  BSD provides parts
repair/replacement  warranties  for 12 months  for  systems  and for 90 days for
individual  components.  Spare parts are generally purchased by the distributors
and stored at the distributors'  maintenance  facilities to allow prompt repair.
Distributor service personnel are usually trained at customer sites and at BSD's
facilities in Salt Lake City.

PRODUCTION
----------

         BSD Medical  produces and tests its products at its  facilities in Salt
Lake City,  Utah.  This  manufacturing  facility is FDA  compliant  and ISO 9000
certified.  Some  purchased  components  are  modified  by the  supplier  or are
customized to BSD's specifications. Key factors in the manufacturing process are
assembly and testing. Certain components and processes used in the manufacturing
of BSD's products are currently provided or performed by single-source  vendors.
Supply  interruption  or yield problems from these vendors would have a material
adverse effect on BSD's ability to  manufacture  its products until a new source
of supply was qualified and, as a result,  could have a material  adverse effect
on BSD's business, financial condition and results of operations.

RESEARCH AND DEVELOPMENT
------------------------

         During the fiscal years ended August 31, 2001, and August 31, 2000, BSD
Medical  expended   $590,433  and  $586,420   respectively,   for  research  and

                                       6
<PAGE>

development,  representing  26.5%  and  33.9% of total  revenues.  Research  and
Development  expenditures  increased  in 2001 due to costs  associated  with the
development of the BSD-2000-3D/MR  system, four new systems used for superficial
and interstitial cancer treatment and to support development of new products not
announced.

         BSD has developed the  BSD-2000-3D - a new  generation of deep regional
hyperthermia equipment funded in part by Phase I and II grants received from the
National  Cancer  Institute  (Grant No.  CA61515).  The  BSD-2000-3D  can now be
modified for integration with a magnetic  resonance imaging system,  and becomes
the BSD-2000-3D/MR  system. The BSD-2000-3D System integrates  three-dimensional
(3D),  "steerable",  focused deep regional hyperthermia with 3D patient specific
treatment planning.  This system is targeted for the treatment of large and deep
tumors; i.e., recurrent breast,  sarcoma,  lung,  colorectal,  liver,  cervical,
bladder,  stomach, and prostate.  The first BSD-2000-3D/MR  system was installed
and tested at a leading German oncological  research institution - the Clinic of
Medical   Oncology   of  the   Klinikum   Gro(beta)hadern   Medical   School  of
Ludwigs-Maximilians-Universitat  Munchen,  Munich,  Germany.  The Medical School
received funding from the Stiftung Deutsche  Krebshilfe e. V. (German Cancer Aid
Foundation) for the system order. A second  BSD-2000-3D/MR has subsequently been
installed at the Department of Radiology of Charite University Medical School of
Humboldt University University in Berlin, Germany. The BSD-2000-3D/MR System was
designed  to  provide  simultaneous  heating  and  non-invasive  measurement  of
treatment  parameters;  such as tumor temperature,  tumor response,  tissue heat
damage, tissue blood-flow,  tissue pathology,  and other chemical and biological
changes in the tissue.  MR treatment  monitoring  has the  potential to optimize
tumor heating and thus tumor destruction.

         Technological  changes play an important part in the advancement of the
industry. BSD Medical intends to continue to devote substantial sums to research
and development.  Research and development  efforts inherently involve risks and
uncertainties  that  could  aversely  affect  BSD's  projections,   outlook  and
operating results.

PATENTS, INTELLECTUAL PROPERTY, LICENSING, AND ROYALTY AGREEMENTS
-----------------------------------------------------------------

         Because of the substantial  length of time and expense  associated with
bringing  new  products  through  development  and  regulatory  approval  to the
marketplace,  the medical  device  industry  places  considerable  importance on
obtaining patent and trade secret protection for new technologies,  products and
processes.  BSD's policy is to file patent  applications to protect  significant
technology,  inventions and product improvements. BSD currently has 9 patents in
the United States and 3 patents  outside the United  States.  [Four patents were
assigned  to  TherMatrx,  for which BSD  maintained  a  license,  and one patent
license was obtained by BSD Medical from  University of California San Francisco
(UCSF).] A European patent for the BSD-2000-3D system has been issued. There can
be no assurance that the patents presently issued,  will be of significant value
to BSD or will be held valid upon judicial review. Successful litigation against
these patents by a competitor  could have a material  adverse  effect upon BSD's
business,  financial  condition and results of operations.  BSD Medical believes
that it possesses significant  proprietary know-how in its hardware and software
capabilities.  However,  there can be no assurance that others will not develop,
acquire or patent technologies  similar to those of BSD or that secrecy will not
be breached.

         In July  1979,  BSD  Medical  Corporation  entered  into  an  exclusive
worldwide  license for a unique  temperature  probe (Bowman Probe).  The license
will remain in effect as long as the technology  does not become  publicly known
as a result of actions taken by the licensor.  BSD pays royalties based upon its
sales of the Bowman  Probe.  The  license  agreement  was amended and renewed in
August 2000 and is currently in effect.

         BSD has  acquired  from UCSF the  exclusive  patent  license  for small
microwave  antennae that can be inserted into  cancerous  tumors to destroy them
from the inside. The innovative microwave antenna design enables the therapeutic
heating  length to be tailored to match the tumor size.  Clinical  studies  have
shown a survival  improvement  when using this  technology in  combination  with
radiation brachytherapy. This technology has been shown to be effective for many
cancerous tumors, including brain tumors.

                                       7
<PAGE>

         There  has been  substantial  litigation  regarding  patent  and  other
intellectual  property rights in the medical device  industry.  In the past, BSD
Medical  has  filed  lawsuits  for  patent  infringement  against  three  of its
competitors and subsequently settled all three of those lawsuits.

         From  time to  time,  BSD  Medical  has had  and may  continue  to have
discussions   with  other  companies,   universities  and  private   individuals
concerning the possible granting of licenses covering technology and/or patents.
There can be no assurance that such  discussions  will result in any agreements.
In the past, BSD has granted non-exclusive  practice licenses for a few selected
patents to three companies. One of these companies is no longer in business.

GOVERNMENT REGULATION
---------------------

         The  medical  devices  that have been and are  being  developed  by BSD
Medical  are  subject  to  extensive   and  rigorous   regulation   by  numerous
governmental  authorities,  principally  by the  United  States  Food  and  Drug
Administration  (FDA).  Pursuant to the Federal Food, Drug and Cosmetic Act (the
FD&C Act), as amended,  the FDA regulates and must approve the clinical testing,
manufacture,  labeling,  distribution,  and promotion of medical  devices in the
United States.  In addition,  various  foreign  countries in which BSD Medical's
products are or may be sold, have regulatory requirements.

         Sales  into the  European  Union (EU) are now  governed  by the need to
obtain ISO  certification  and a CE Mark and the  requirement to comply with all
applicable  directives.  In June 1998,  the  Medical  Devices  Directives  (MDD)
requirements  went into  effect  for the EU.  Following  June  1998,  no medical
products  could be  marketed  in  Europe  without  obtaining  a CE Mark and thus
demonstrating  compliance  to MDD  requirements.  BSD Medical has  obtained  ISO
certification of its quality,  development,  and manufacturing processes and has
successfully  completed the CE Mark testing and Annex II audit, which allows BSD
to affix the CE Mark  label on the  BSD-2000-3D  system and  deliver  systems to
Europe.  However,  BSD must  maintain  compliance  with all  current  and future
directives and  requirements  to maintain ISO  certification  and to continue to
affix the CE Mark,  and  there can be no  assurance  that BSD will  continue  to
maintain compliance. If BSD is unable to maintain these approvals, it could have
a significant material effect on BSD's future financial condition.

         The majority of BSD  Medical's  past and present  hyperthermia  systems
have required,  (and future  systems,  if any, would likely continue to require)
Pre-Market  Approval  from  the FDA  instead  of the  simpler  510(k)  marketing
approval.  Pre-Market  Approval  requires  clinical testing to assure safety and
effectiveness  prior to  marketing  and  distribution  of medical  devices.  BSD
Medical  intends  to  continue  to  make  improvements  in and  to its  existing
products.  Significant  product changes must be submitted to the FDA under IDEs,
510(k) PreMarket notifications or PMA supplements.

         All medical devices must be manufactured in accordance with regulations
specified in the FDA Quality  System  Regulation  (QSR) and in the ISO and other
applicable regulations. In complying with these regulations,  manufacturers must
continue  to  expend  time,  money and  effort  in the areas of design  control,
production,  and quality control to ensure full  compliance.  The Medical Device
Reporting regulation requires that BSD Medical provide information to the FDA on
death or serious  injuries  alleged to have been  associated with the use of its
products, as well as information on product malfunctions that would likely cause
or contribute to a death or serious  injury if the  malfunctions  were to recur.
The MDD  vigilance  system  regulations  require  that  BSD  Medical's  European
Representative  provide  information  to the  Competent  Authority  on  death or
serious  injuries  alleged to have been associated with the use of its products,
as well as  information  on  product  malfunctions  that would  likely  cause or
contribute to a death or serious injury if the malfunctions were to recur.

         International  sales of unapproved  medical  devices are subject to FDA
export requirements,  unless these products have been previously approved by one
of the  countries  specified  by the FDA.  Failure  to  comply  with  regulatory
requirements  could have a material  adverse  effect on BSD Medical's  business,
financial condition and results of operations.  Although BSD believes that it is
in  material   compliance  with  all  applicable   manufacturing  and  marketing
regulations of the FDA and other regulatory  bodies with respect to its existing

                                       8
<PAGE>

products,  a determination that BSD is in material violation of such regulations
could lead to the  imposition  of penalties,  including  fines,  recall  orders,
product  seizures,  and criminal  sanctions.  In addition,  current  regulations
depend heavily on administrative  interpretation,  and there can be no assurance
that future  interpretations  made by the FDA or other regulatory  bodies,  with
possible retroactive effect, will not adversely affect BSD.

         International   sales  are  subject  to  the   regulatory   and  safety
requirements  of the  country  into  which  the  sale  occurs.  There  can be no
assurance that all of the necessary  approvals will be granted on a timely basis
or at all.  Delays in receipt of or failure to receive such approvals could have
a  material  adverse  effect  on  BSD's  financial   condition  and  results  of
operations.

         The Federal  Communications  Commission (FCC) regulates the frequencies
of  microwave  and  radiofrequency  emissions  from  medical  and other types of
equipment   to   prevent   interference   with   commercial   and   governmental
communications  networks. BSD's fixed frequency systems and applicators emit 915
MHz for U.S. and some  European  installations  and 433.92 MHz for some European
installations,   which  is  approved  by  the  FCC  for  medical   applications.
Accordingly, these systems do not require shielding to prevent interference with
communications.  The  company's  BSD-2000 deep  hyperthermia  variable-frequency
generators  and  applicators  require  electromagnetic   shielding.   Ultrasound
hyperthermia  systems can be operated without  shielding because the applicators
emit acoustic rather than electromagnetic energy.

PRODUCT LIABILITY EXPOSURE
--------------------------

         The  manufacturing and marketing of medical devices involve an inherent
risk of product  liability.  Because BSD  Medical's  products are intended to be
used in hospitals on patients who may be  physiologically  unstable and severely
ill, BSD Medical is exposed to potential product  liability claims.  BSD Medical
Corporation presently carries product liability insurance. However, there can be
no assurance that the product liability insurance will provide adequate coverage
against  potential  claims that might be made against BSD. No product  liability
claims are presently  pending  against BSD;  however,  there can be no assurance
that product liability claims will not be filed in the future.

EMPLOYEES
---------

         As of August 31, 2001,  BSD Medical had 27  employees;  23 of them were
full  time  employees.  None of  BSD's  employees  is  covered  by a  collective
bargaining  agreement.  BSD  considers  its  relations  with its employees to be
satisfactory.  BSD  is  dependent  upon a  limited  number  of  key  management,
manufacturing, and technical personnel. BSD's future success will depend in part
upon its ability to retain these highly qualified employees.


ITEM 2.  PROPERTIES

         The  office,   production  and  research   facilities  of  BSD  Medical
Corporation are located in Salt Lake City,  Utah. The complete  headquarters and
production  facility occupies  approximately  20,000 square feet. BSD leases the
building for an annual rental  expense of  approximately  $78,000 (see Note 4 to
Financial Statements).  BSD has an option to purchase the building. The building
lease is accounted for as an operating lease for financial  statement  purposes.
The  building is currently in good  condition;  is adequate for BSD's needs;  is
suitable for all Company functions;  and provides room for future expansion. BSD
believes that it carries adequate insurance on the property.


ITEM 3.  LEGAL PROCEEDINGS

None.


                                       9
<PAGE>

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.


                                       10
<PAGE>

                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         BSD  Medical  Corporation's  Common  Stock  trades  publicly on the OTC
Bulletin Board under the symbol "BSDM".  The following table sets forth the high
and  low bid  transactions,  as  provided  by the OTC  Bulletin  Board,  for the
quarters in fiscal year 2000 and 2001. The amounts reflect  inter-dealer prices,
without retail  mark-up,  markdown or commission,  and may not represent  actual
transactions.


                                                        Bid
                                             ---------------------------
        Quarter Ended:                            High          Low
        ----------------------------------------------------------------

        November 30, 1999.................         .88          .25
        February 28, 2000.................        5.19         1.03
        May 31, 2000......................        3.81         1.13
        August 31, 2000...................        2.31          .88


        November 30, 2000.................         .91          .78
        February 29, 2001.................        1.25         1.19
        May 31, 2001......................         .90          .90
        August 31, 2001...................         .80          .80



         As of August 31, 2001 there were approximately 591 holders of record of
the Common Stock.  BSD has not paid any cash dividends on its Common Stock since
its inception  and has no intention of declaring  any Common Stock  dividends in
the foreseeable future.

ITEM 6.  MANAGEMENT DISCUSSION AND  ANALYSIS OF FINANCIAL  CONDITION AND RESULTS
         OF OPERATIONS

RESULTS OF OPERATIONS
---------------------

         The  balance  sheet  as of  August  31,  2001,  and the  statements  of
operations,  statements of cash flow and statements of stockholders'  equity for
the years ending August 31, 2001, and 2000, and the independent  auditors report
thereon, are included elsewhere in this report. The following selected financial
information  should be read in  conjunction  with the financial  statements  and
notes thereto included elsewhere in this report.

         FISCAL YEAR ENDED AUGUST 31,  2001.  Revenues for the year ended August
31,  2001,  totaled  $2,224,379,  as compared to  $1,730,393  for the year ended
August 31,  2000,  an  increase  of  $493,986,  or 28.55%,  primarily  due to an
increase of European sales to related parties, U.S. sales and increased sales to
BSD's unconsolidated subsidiary.

         Product sales  increased to $2,196,269 in 2001 from $1,535,600 in 2000,
an  increase of  $660,669,  or 43.02%.  Sales  remained  principally  limited to
research  centers,  awaiting  new  product  commercialization.  Gross  profit on
product  sales was  $1,206,450  in 2001 as compared to $604,228 for fiscal 2000,
due to above mentioned  increase in sales.  Selling,  General and Administrative
Expenses  for 2001  totaled  $877,810,  as compared  to  $1,147,868  in 2000,  a
decrease of  $270,058,  or 23.53%,  primarily  due to lower  administrative  and
regulatory payroll costs,  special promotion costs and less compensation expense
associated with amortization of options and stock awards.

                                       11
<PAGE>

         Research and Development Expenses for 2001 totaled $590,433 as compared
to $586,420 in 2000,  an increase of $4,013 or .68%,  due to  development  costs
associated with the  BSD-2000-3D/MR  system and with four new  configurations of
the  BSD-500  system,  combined  with costs to support  completion  of other new
products under development

         There  was no  Interest  Expense  in 2001 as  compared  to $654 in 2000
because the Company had no interest bearing debt.

         During fiscal 2001, BSD  experienced a Net Loss of $214,360 as compared
to a Net Loss in fiscal 2000 of  $888,947.  The fiscal  2001 loss was  primarily
associated   with   expenses   designated  to  prepare  new  product  lines  for
commercialization.

         RISKS ASSOCIATED WITH  INTERNATIONAL  OPERATIONS.  International  sales
accounted for 61.23% and 69.6% of BSD  Medical's  total product sales during the
fiscal  years ended  August 31, 2001,  and August 31,  2000,  respectively.  BSD
expects  that  international  sales will  continue to  represent  a  significant
portion of its total sales. BSD has  successfully  completed the CE Mark testing
and  Annex  II  audit,  which  allows  BSD to  affix  the CE Mark  label  on the
BSD-2000-3D  system and deliver  systems to Europe.  However,  an  inability  to
maintain the necessary  approvals  could have adverse effects on future sales of
products to EC countries (see Government Regulation,  page 7). BSD is subject to
risks  generally  associated  with  international   operations,   including  the
establishment  by foreign  regulatory  agencies of product  standards  different
from,  and in some  cases  more  stringent  than,  those in the  United  States.
Although BSD's sales are denominated in U.S. dollars, its international business
may be affected by changes in demand  resulting  from  fluctuations  in currency
exchange  rates.  BSD's  international  sales may also be adversely  affected by
tariff  regulations  and export  license  requirements.  Possible  governmental,
legislative  and  political  actions  that may be taken by the United  States to
reduce the balance of  payments  deficit  may result in  retaliatory  actions by
foreign governments. Such actions could have adverse effects upon sales of BSD's
products in certain foreign  markets.  In addition,  the laws of certain foreign
countries do not protect BSD's  intellectual  property rights to the same extent
as do the laws of the United States.

         FLUCTUATIONS  IN OPERATING  RESULTS.  BSD Medical's sales and operating
results historically have varied (and will likely continue to vary) greatly on a
quarter-to-quarter   and  year-to-year   basis  due  to  risks  associated  with
international  operations;  budgeting  considerations  of BSD's  customers;  the
nature of the medical capital equipment market;  the inability of BSD to predict
the timing of various approvals required from the Food and Drug  Administration,
the European Union countries,  and other governmental  agencies;  the relatively
large per unit sales prices of BSD's products;  the typical  fluctuations in the
mix of orders for different systems and system configurations;  the limited unit
sales  volumes;  BSD's  limited  cash  resources;  changes in Medicare and other
third-party  reimbursement policies;  competition;  and other factors. For these
and other reasons,  the results of operations for a particular fiscal period may
not be indicative of results for any other period.

         LIQUIDITY AND CAPITAL  RESOURCES.  Total assets increased to $2,161,079
in 2001, an increase of $6,666,  as compared to 2000. The increase was primarily
due to a  decrease  in cash and  inventory  offset by an  increase  in  accounts
receivable.  Cash  decreased  to  $408,030,  as  compared  to  $731,494 in 2000,
primarily as a result of using cash for operating expenses.  Accounts receivable
increased to  $736,701,  an increase of $388,368,  or 89.69%,  primarily  due to
higher sales volume in the fourth quarter to related parties.  Total inventories
decreased to $727,635,  a decrease of $177,467,  or 19.61%.  Current liabilities
increased to  $968,872,  an increase of $120,420,  or 14.19%,  primarily  due to
increases in accounts payable,  accrued expenses and current portion of deferred
revenue.

MANAGEMENT DISCUSSION AND CURRENT STATUS OF FINANCIAL CONDITION.
----------------------------------------------------------------

         Management  believes that the current projected sales and cash position
will be sufficient to meet BSD Medical's  operating  cash  requirements  through
fiscal  year  2002.  Management  further  believes  that the  primary  financial
opportunities for BSD are in  commercialization  of new generation  products and
commercialization of TherMatrx products,  as described in Part I General.  BSD's
ability to be profitable will depend on achieving regulatory approval of certain
new products,  the completion of development  for others,  and in the successful

                                       12
<PAGE>

commercialization  of  these  products  in  the  marketplace.  There  can  be no
assurance that  commercialization  of these new products will be successful,  or
that profitability will be achieved.

         On November 14, 1997,  BSD signed an  agreement  with Oracle  Strategic
Partners  (OSP) to form  TherMatrx,  Inc., a  jointly-owned  company  which will
initially focus on minimally invasive treatments of benign urological  diseases,
specifically  Benign  Prostatic  Hyperplasia  (BPH). BSD participates in the BPH
market  through  TherMatrx.  TherMatrx  has  subsequently  completed  Phase III,
multi-center,  randomized  clinical  trials and  obtained  FDA approval to begin
marketing its products in July of 2001.

         FORWARD  OUTLOOK AND RISKS.  From time to time, BSD Medical may publish
forward-looking  statements  relating to such matters as  anticipated  financial
performance,  business  prospects,   technological  development,  new  products,
research and development  activities and similar matters. The Private Securities
Litigation  Reform  Act of  1995  provides  a safe  harbor  for  forward-looking
statements.  To comply with the terms of the safe harbor, BSD Medical notes that
a variety of factors could cause BSD's actual  results and  experience to differ
materially from the anticipated  results or other expectations  expressed in any
of BSD's forward-looking statements.

         This  form  10-KSB  contains  and  incorporates  by  reference  certain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange  Act with  respect to results of  operations
and  businesses  of BSD. All  statements,  other than  statements  of historical
facts,  included in this Form 10-KSB,  including those regarding  market trends,
BSD's financial  position,  business  strategy,  projected  costs, and plans and
objectives of management for future operations, are forward-looking  statements.
These  forward-looking  statements  are  based  on BSD's  current  expectations.
Although BSD believes that the  expectations  reflected in such  forward-looking
statements are reasonable, there can be no assurance that such expectations will
prove to be correct.

ITEM 7.  FINANCIAL STATEMENTS

         Pursuant to Rule 12b-23,  the financial  statements  set forth on pages
F-1 through F-18 attached hereto are incorporated by reference.

ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

     None.

                                       13
<PAGE>
                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

         Information   regarding   directors  of  BSD  Medical  Corporation  are
contained under Election of Directors in the registrant's  2001 Proxy,  which is
incorporated herein by reference.  The current  directorship  positions resulted
from  vacancies and were filled by a majority of the  directors  then in office,
and the  directors so chosen hold office until their  successors  have been duly
elected and  qualified.  BSD does not  presently  have a  nominating  committee.
Executive  officers of BSD are  appointed by the Board of Directors and serve at
the discretion of the Board.  There are no family  relationships  between any of
the directors or executive  officers of BSD and none of these  individuals  have
been involved in any reportable legal proceedings.

         The  following  table sets forth  certain  information  concerning  the
directors and executive officers of BSD Medical Corporation.
<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------
                                                                                                        Initial Date as
         Name                       Age                Position                                       Officer or Director
--------------------------------------------------------------------------------------------------------------------------

<S>                                  <C>      <C>                                                          <C>
Paul F. Turner, MSEE*                54       Chairman of the Board, Senior Vice President, and            1986
                                               Chief Technology Officer

Hyrum A. Mead, MBA*                  54       President and Member of the Board of Directors               1999

Gerhard W. Sennewald, Ph.D.          65       Member of the Board of Directors                             1994

J. Gordon Short, M.D.                70       Member of the Board of Directors                             1994

Michael Nobel, Ph.D.                 61       Member of the Board of Directors                             1997

Dixie Toolson Sells                  51       Vice President of Regulatory Affairs and Corporate           1987
                                               Secretary

Ray Lauritzen                        51       Vice President of Field Service                              1988

--------------------------------------------------------------------------------------------------------------------------
</TABLE>

     *Executive officers of BSD Medical Corporation.

         Paul F.  Turner,  MSEE,  joined BSD Medical  Corporation  in 1978 after
seven years as a respected  developer  of microwave  communications  systems for
Sperry Univac (now L3  Communications).  His experience  with advanced  military
defense   communication   systems  prepared  him  to  lead  the  development  of

                                       14
<PAGE>

sophisticated  phased array microwave  technology at BSD Medical. Mr. Turner has
led the  design  of  microwave  treatment  systems  for  tumors,  including  the
development  of external  phased  array  antenna  technology  to focus  radiated
microwave energy deep into the central area of the body to treat deep tumors. He
has also integrated this novel technology with Magnetic  Resonance Imaging (MRI)
to non-invasively monitor treatments within the patient's body.

         Hyrum A. Mead, MBA, was appointed President and elected to the Board of
Directors in 1999.  Previously he served five years as Vice  President  Business
Development   at   ZERO    Enclosures,    a   leading    manufacturer   in   the
telecommunications,  computer and aerospace  enclosures industry and seven years
as President of Electro  Controls,  a manufacturer of computer  controlled power
systems.  Mr. Mead began his career in  marketing  with IBM where he worked with
the introduction of many new products.

         Dr.  Gerhard  Sennewald  was  appointed  to BSD's Board of Directors in
December 1994. He has been a key BSD European representative and distributor for
15  years.   Dr.   Sennewald  is  President  and  Chief  Executive   Officer  of
Medizin-Technik GmbH of Munich, Germany.

         Dr. J.  Gordon  Short was  appointed  to BSD's  Board of  Directors  in
December  1994 after  extensive  participation  in the initial  development  and
market  establishment of the Company's  products as Medical Director for BSD, as
well as previous  service on the Company's  Medical Advisory Board. Dr. Short is
Chairman of Brevis  Corporation,  a medical products company that specializes in
consumable specialty supplies.

         Dr.  Michael  Nobel was  appointed to the Board of Directors on January
13, 1998.  Dr.  Nobel is Chairman of the Board of the Nobel Family  Society that
provides  Nobel Prizes,  including the Nobel Peace Prize.  He is Chairman of the
American  Non-Violence Project Inc., and has served as a consultant to Unesco in
Paris and the United  Nations  Social  Affairs  Division  in Geneva.  Dr.  Nobel
participated in the introduction of magnetic  resonance imaging as European Vice
President  for  Fonar  Corp.  He is the CEO of the  MRAB  Group  which  provides
diagnostic  imaging  services.  Dr.  Nobel  serves  as a  director  for  several
companies in addition to his seat at BSD Medical Corporation.

         Dixie  Toolson  Sells served as  Administrative  Director  from 1978 to
1984; as Director of Regulatory Affairs from 1984 to September 1987; and as Vice
President of Regulatory Affairs from September 1987, to October 1993. In October
1993, Ms. Sells resigned as Vice President of Regulatory Affairs, and she served
as Director of  Regulatory  Affairs  from  October  1993 to  December  1994.  In
December  1994,  Ms. Sells was  re-appointed  as Vice  President  of  Regulatory
Affairs and was appointed as Corporate Secretary by the Board of Directors.  Ms.
Sells also  serves on the Board of  Directors  of the  Intermountain  Biomedical
Association.

         Ray Lauritzen served as Field Service Manager from 1982 to January 1988
and as Vice President of Field Service Operations since January 1988.

         Pursuant to Section 16(a) of the  Securities  Act of 1934,  BSD Medical
Corporation's  directors,  executive officers, and any persons holding more than
10 percent of BSD's  stock,  are  required  to report  their  ownership  and any
changes in beneficial  ownership of the Company's  stock to the  Securities  and
Exchange Commission.  To the Company's knowledge,  based solely on review of the
copies of such reports  furnished  to BSD, all of such persons  subject to these
reporting  requirements  filed the  required  reports with respect to BSD's most
recent fiscal year.


ITEM 10.  EXECUTIVE COMPENSATION

         The  following  tables  set forth  certain  information  regarding  all
compensation earned during the last three fiscal years and fiscal year-end stock
option  values for the person  acting in a similar  capacity to chief  executive
officer of BSD  Medical  in the fiscal  year  ended  August 31,  2001.  No stock
options were granted to or exercised by the  President  during fiscal year 2001.
No other  executive  officers of BSD  Medical  received  compensation  exceeding
$100,000.

                                       15
<PAGE>
<TABLE>
<CAPTION>


                                               SUMMARY COMPENSATION TABLE

                                          Annual Compensation          Long Term Compensation Awards
                                 --------------------------------------------------------------------

                                                      Other Annual    Restricted                   All Other
  Name and            Fiscal    Salary                  Compen-      Stock Awards                   Compen-
  Position             Year      ($)      Bonus ($)    sation ($)       ($)         Options(#)      sation($)
==============================================================================================================

<S>                   <C>      <C>          <C>          <C>            <C>         <C>               <C>
Hyrum A. Mead,        2001     $125,000     $400         -0-            -0-           -0-             -0-
President (1)         2000     $125,000     $100         -0-            -0-         200,000           -0-
                      1999     $  5,689      -0-         -0-            -0-         200,000           -0-
--------------------------------------------------------------------------------------------------------------

Paul F. Turner,       2001     $145,000    $400          -0-            -0-           -0-             -0-
Sr. VP and Chief      2000     $143,757    $100          -0-            -0-           -0-             -0-
Technology Officer    1999     $140,000    $100          -0-            -0-           -0              -0-
--------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  Mr. Mead began employment with BSD as of August 10, 1999.

<TABLE>
<CAPTION>
                                  AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
                                         AND FISCAL YEAR-END OPTION/SAR VALUES

                                                    Number of Securities                Value of Unexercised
                       Shares                       Underlying Unexercised              In-the-Money Options
                      Acquired on      Value         Options at FY-end (#)                  at FY-end($)
  Name and             Exercise       Realized    --------------------------------------------------------------------
  Position               (#)           ($)        Exercisable      Unexercisable     Exercisable     Unexercisable
======================================================================================================================

<S>                        <C>           <C>         <C>               <C>             <C>              <C>
Hyrum A. Mead,             0             0           120,000           280,000         $ 96,000         $224,000
President
----------------------------------------------------------------------------------------------------------------------
Paul F. Turner,            0             0           180,953             0             $144,762             0
Sr. VP and Chief
Technology Officer
----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)      Paul Turner has received  options from TherMatrx to purchase  shares of
         its common  stock.  The options  were issued at  estimated  fair market
         value. The options granted total less than 1% of the outstanding shares
         of common stock in TherMatrx.

COMPENSATION OF DIRECTORS
-------------------------

         The 1998 Director  Stock Plan provides for annual  compensation  in the
amount of $12,000 for each non-employee director - $4,000 to be paid in cash and
the balance of the retainer to be paid in the form of  restricted  shares of BSD
Common  Stock.  In  addition  to the  annual  compensation  to  directors,  each

                                       16
<PAGE>

Non-Employee  Director  shall  receive  an  annual  option  to  purchase  25,000
restricted  shares of BSD Common  Stock at a  purchase  price of 85% of the Fair
Market  Value at the date the Option is granted.  The options  vest over 5 years
and  expire in 10 years.  On  September  1,  2000,  Michael  Nobel,  Gerhard  W.
Sennewald,  and J. Gordon  Short were each  awarded  25,000  options to purchase
BSD's restricted common stock at $1.11 per share. These directors were also paid
$2,000 and awarded 3,053 shares of  restricted  common stock based on service to
BSD for the prior six  months.  On March 1,  2001,  Michael  Nobel,  Gerhard  W.
Sennewald,  and J. Gordon  Short were paid $2,000 and  awarded  4,082  shares of
restricted  common  stock based on service to BSD for the prior six  months.  On
September 1, 2001 these  directors were awarded 25,000 options to purchase BSD's
restricted  common stock at $.66 per share. They were also paid $2,000 and 5,128
shares of  restricted  common  stock  based on  service to BSD for the prior six
months.

EMPLOYMENT CONTRACTS
--------------------

         BSD Medical  Corporation has an employment contract with the President,
Mr. Mead, that was signed August 10, 1999. This agreement provides that Mr. Mead
shall receive a base salary of $125,000, which shall be reviewed annually by the
Board of Directors.  Additionally, in the case of non-voluntary termination, Mr.
Mead shall receive all compensation  for a period of six months,  which includes
an extension of all benefits and  perquisites.  The six month severance shall be
salary at the highest  rate paid to Mr. Mead prior to such  termination  and the
total amount of bonuses  paid or payable  during the  preceding  12 months.  The
agreement also requires BSD Medical to vest any options  granted to Mr. Mead for
the  purchase  of BSD  Medical's  stock  with a 90 day period to  exercise  such
options.  Mr. Mead's agreement includes a period of non-competition for one year
following termination of employment.

         BSD Medical has an employment  contract with the Senior Vice  President
and Chief Technology Officer,  Mr. Turner that was signed November 2, 1988. This
agreement  provides  that Mr.  Turner's  salary will be based upon a  reasonable
mutual agreement.  Additionally,  in the case of non-voluntary termination,  Mr.
Turner will  receive  severance  pay for a one-year  period,  which  includes an
extension of all employee rights,  privileges,  and benefits,  including medical
insurance.  The one-year severance pay will be an average of Mr. Turner's salary
for the immediate  twelve-month period prior to termination.  The agreement also
requires BSD Medical to pay Mr. Turner any accrued  unused  vacation at the time
of  termination.  BSD is  also  obligated  to pay  Mr.  Turner  $1,000  (or  the
equivalent  value in stock options) for newly issued patents (this  compensation
is halved if multiple inventors are involved). Mr. Turner's agreement includes a
period of non-competition for one year following termination of employment. This
non-competition  agreement may be extended by BSD for up to an  additional  four
years  by  written  notification  and  continuing  severance  payments  for  the
additional   years  of  extension  (as  defined  for  the  first  year)  if  the
non-competition obligation is extended.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following  table sets forth certain  information  as of November 1,
2001, with respect to the beneficial  ownership of the outstanding  Common Stock
by (i) each person known to management of BSD Medical to own  beneficially  more
than 5% of the outstanding  Common Stock, (ii) all directors and named executive
officers of BSD Medical,  and (iii) all  executive  officers and  directors as a
group:

Name and Address of               Shares of Common Stock    Percentage of Common
Beneficial Owner                  Beneficially Owned (1)     Stock Ownership (2)
--------------------------------------------------------------------------------

Dr. Gerhard W. Sennewald                  6,741,604(3)               38.21%
   Via del Pantheon 45/7a
   I 00186 Roma, Italy


                                       17
<PAGE>

Paul F. Turner                            1,995,871(4)               11.24%
   4466 Sunset Circle
   Bountiful, UT  84010

John E. Langdon                           1,295,010(5)                7.37%
   2501 Parkview Drive, Suite 500
   Fort Worth, TX  76102

Hyrum A. Mead                               120,000(6)                   *
   202 Coventry Lane
   North Salt Lake, UT  84054

Michael Nobel                                87,723(7)                   *
   Magnetkameran MRAB
   Skeppsbron 28
   S-111 30 Stockholm, Sweden

J. Gordon Short, M.D.                       149,723(8)                   *
   c/o Brevis Corporation
   3310 South 2700 East
   Salt Lake City, UT  84109

All executive officers and directors      9,094,921(9)               50.42%
   as a group (5) persons)

*    Less than 1.0%.

(1)      Unless  otherwise noted and subject to community  property laws,  where
         applicable,  the persons  named in the table above  possess sole voting
         and   investment   power  with  respect  to  all  shares  shown  to  be
         beneficially owned by them.

(2)      Shares not outstanding but deemed  beneficially  owned by virtue of the
         right of a person or member of a group to acquire  them  within 60 days
         are treated as outstanding only when determining the amount and percent
         owned by such person or group.

(3)      Includes  65,000 shares  subject to options.  Does not include  500,000
         shares  held  by  Dr.  Sennewald's   spouse,  for  which  he  disclaims
         beneficial ownership.

(4)      Includes 180,953 shares subject to options.

(5)      Includes  351,862 shares owned directly by Mr.  Langdon.  The remaining
         shares are held in trusts for which Mr.  Langdon is  Trustee.  Does not
         include  50,000  shares  held by Mr.  Langdon's  spouse,  for  which he
         disclaims beneficial ownership.

(6)      All 120,000 shares are subject to options

(7)      Includes 30,000 shares subject to options.

(8)      Includes 65,000 shares subject to options.

(9)      Includes 460,953 shares subject to options.


                                       18
<PAGE>

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.


ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)   Exhibits

         The  following  exhibits are filed as part of this report or are hereby
incorporated by reference as indicated:

Exhibit
Number                     Description
-------                    -----------

3.1      Certificate of Incorporation.  Incorporated by reference to Exhibit 3.1
         of the BSD  Medical  Corporation  Registration  Statement  on Form S-1,
         filed October 16, 1986.

3.2      By-Laws.  Incorporated  by  reference to Exhibit 3.2 of the BSD Medical
         Corporation Registration Statement on Form S-1, filed October 16, 1986.

4.1      Specimen Common Stock Certificate. Incorporated by reference to Exhibit
         4 of the BSD Medical  Corporation  Registration  Statement on Form S-1,
         filed October 16, 1986.

10.1     Transfer of Trade Secrets  Agreement dated December 7, 1979,  among BSD
         Medical  Corporation,   Vitek,   Incorporated  and  Ronald  R.  Bowman.
         Incorporated   by   reference  to  Exhibit  10.6  of  the  BSD  Medical
         Corporation Registration Statement on Form S-1, filed October 16, 1986.

10.2     Volume  Purchase  Agreement  dated June 6, 1986,  between  BSD  Medical
         Corporation  and Luxtron  Corporation.  Incorporated  by  reference  to
         Exhibit 10.9 of the BSD Medical Corporation  Registration  Statement on
         Form S-1, filed October 16, 1986.

10.3     Second Addendum to Exclusive  Transfer of Trade Secrets Agreement dated
         April 2,  1987.  Incorporated  by  reference  to  Exhibit 10 of the BSD
         Medical Corporation Form 10-K, filed April 8, 1988.

10.4     License Agreement  between BSD Medical  Corporation and EDAP Technomed,
         Inc.,  dated July 3, 1996.  Incorporated  by reference to Exhibit 10 of
         Form 8-K, filed August 7, 1996.

10.5     Terms of Engagement between BSD Medical Corporation and Ambient Capital
         dated  November  26, 1996.  Incorporated  by reference to Exhibit 10 of
         Form 10-QSB filed February 27, 1997.

10.6     Stock  Purchase   Agreement  dated  October  31,  1997,  by  and  among
         TherMatrx,  Inc., BSD Medical  Corporation,  Oracle Strategic Partners,
         L.P.,  and Charles  Manker.  Incorporated  by  reference of Form 10-KSB
         filed December 10, 1998.

10.7     BSD Medical  Corporation  1998  Director  Stock Plan.  Incorporated  by
         reference  to Exhibit A of the BSD Medical  Corporation  Schedule  14A,
         filed July 27, 1998.

10.8     BSD Medical  Corporation  1998 Stock  Incentive  Plan.  Incorporated by
         reference  to Exhibit B of the BSD Medical  Corporation  Schedule  14B,
         filed July 27, 1998.

10.9     Consulting  agreement  between  de Jong &  Associates  and BSD  Medical
         Corporation dated July 1, 2000. Incorporated by reference to Exhibit 10
         on Form 8-K, filed July 19, 2000.

                                       19
<PAGE>

16       Letter on changes in certifying  accountant.  Incorporated by reference
         to  Exhibit  16 of  the  BSD  Medical  Corporation  Form  8-K/A,  filed
         September 23, 1997.

27       Financial Data Schedule.

99       The financial  statements for the fiscal year ended September 30, 2001,
         of  TherMatrx,  Inc., a significant  subsidiary  reported on the equity
         method, and the report of independent certified public accountants.

(b)      Reports on Form 8-K

      None


                                       20
<PAGE>

SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                                   BSD MEDICAL CORPORATION


Date: November 29, 2001                            By:   /s/Hyrum A. Mead
      -----------------                            -----------------------------
                                                   Hyrum A. Mead
                                                   President and Member of the
                                                   Board of Directors



         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
registrant and in the capacities and on the dates indicated.


Date: November 29, 2001                           By:   /s/Paul F. Turner
      -----------------                           ------------------------------
                                                  Paul F. Turner
                                                  Chairman of the Board, Chief
                                                  Technology Officer, and
                                                  Senior Vice President of
                                                  Research


Date: November 29, 2001                           By:   /s/Hyrum A. Mead
      -----------------                           ------------------------------
                                                  Hyrum A. Mead
                                                  President and Member of the
                                                  Board of Directors


Date: November 29, 2001                           By:/s/Dr. Gerhard W. Sennewald
      -----------------                           ------------------------------
                                                  Dr. Gerhard W. Sennewald
                                                  Member of the Board of
                                                  Directors


Date: November 29, 2001                           By:   /s/Dr. J. Gordon Short
      -----------------                           ------------------------------
                                                  Dr. J. Gordon Short
                                                  Member of the Board of
                                                  Directors


Date: November 30, 2001                           By:   /s/Dr. Michael Nobel
      -----------------                           ------------------------------
                                                  Dr. Michael Nobel
                                                  Member of the Board of
                                                  Directors



                                       21
<PAGE>
[GRAPHIC OMITTED]
BSD Medical Corporation
Financial Statements
August 31, 2001 and 2000


<PAGE>

                                                         BSD MEDICAL CORPORATION
                                                   Index to Financial Statements

--------------------------------------------------------------------------------

                                                                            Page
                                                                            ----

Independent Auditor's Report                                                 F-1


Balance Sheet                                                                F-2


Statement of Operations                                                      F-3


Statement of Stockholders' Equity                                            F-4


Statement of Cash Flows                                                      F-5


Notes to Financial Statements                                                F-6
<PAGE>


                                                    INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders
of BSD Medical Corporation


We have audited the balance sheet of BSD Medical Corporation (the Company) as of
August 31, 2001, and the related statements of operations, stockholders' equity,
and cash flows for the years  ended  August 31, 2001 and 2000.  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 audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  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  audits  provide  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 BSD Medical  Corporation as of
August 31,  2001,  and the  results of their  operations  and cash flows for the
years ended August 31, 2001 and 2000 in conformity  with  accounting  principles
generally accepted in the United States of America.







Salt Lake City, Utah
October 9, 2001

                                                                             F-1
<PAGE>
<TABLE>
<CAPTION>

                                                                      BSD MEDICAL CORPORATION
                                                                                Balance Sheet

                                                                              August 31, 2001
---------------------------------------------------------------------------------------------

              Assets
              ------
<S>                                                                        <C>
Current assets:
     Cash and cash equivalents                                             $          408,030
     Current portion of restricted certificate of deposit                              32,000
     Receivables, net                                                                  84,495
     Related party receivables                                                        652,206
     Inventories                                                                      727,635
     Prepaid expenses                                                                  19,437
     Deposits and other assets                                                         15,667
                                                                           ------------------

                  Total current assets                                              1,939,470

Long-term portion of restricted certificate of deposit                                 56,917
Property and equipment, net                                                           152,266
Patent, net of amortization of $1,502                                                  12,426
                                                                           ------------------

                                                                           $        2,161,079
                                                                           ------------------
---------------------------------------------------------------------------------------------

              Liabilities and Stockholders' Equity
              ------------------------------------

Current liabilities:
     Accounts payable                                                      $          113,742
     Accrued expenses                                                                 722,494
     Current portion of deferred revenue                                               71,220
     Current portion of deferred gain on sale - leaseback                              61,416
                                                                           ------------------

                  Total current liabilities                                           968,872
                                                                           ------------------

Deferred revenue                                                                      140,931
Deferred gain on sale - leaseback                                                      15,275
                                                                           ------------------

                  Total liabilities                                                 1,125,078
                                                                           ------------------

Commitments and contingencies                                                               -

Stockholders' equity:
     Common stock, $.01 par value; authorized 20,000,000
       shares; issued and outstanding 17,602,619 shares                               176,026
     Additional paid-in capital                                                    20,810,773
     Deferred compensation                                                            (25,097)
     Accumulated deficit                                                          (19,925,467)
     Treasury stock, at cost                                                             (234)
                                                                           ------------------

                  Total stockholders' equity                                        1,036,001
                                                                           ------------------

                                                                           $        2,161,079
                                                                           ------------------

---------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                                          F-2
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                                                 BSD MEDICAL CORPORATION
                                                                 Statement of Operations

                                                                  Years Ended August 31,
----------------------------------------------------------------------------------------

                                                           2001              2000
                                                     -----------------------------------
<S>                                                  <C>                 <C>
Revenues:
     Sales                                           $         529,546   $       577,003
     Sales to related parties                                1,666,723           958,597
     Grants and licenses                                        28,110           194,793
                                                     -----------------------------------

                                                             2,224,379         1,730,393
                                                     -----------------------------------

Costs and expenses:
     Cost of sales                                             167,306           546,753
     Cost of sales to related parties                          822,513           384,619
     Research and development                                  590,433           586,420
     Selling, general, and administrative                      877,810         1,147,868
                                                     -----------------------------------

                                                             2,458,062         2,665,660
                                                     -----------------------------------

                  Operating loss                              (233,683)         (935,267)

Other income (expense):
     Interest income                                            19,323            46,974
     Interest expense                                                -              (654)
                                                     -----------------------------------

                  Net loss                           $        (214,360)  $      (888,947)
                                                     -----------------------------------

Loss per common share - basic and diluted            $            (.01)  $          (.05)
                                                     -----------------------------------

Weighted average shares - basic and diluted                 17,545,000        17,047,000
                                                     -----------------------------------

----------------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                                     F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                                 BSD MEDICAL CORPORATION
                                                                       Statement of Stockholders' Equity

                                                                    Years Ended August 31, 2001 and 2000
--------------------------------------------------------------------------------------------------------



                              Common Stock        Additional    Deferred                  Treasury Stock
                         ----------------------    Paid-In       Compen-    Accumulated   --------------
                            Shares      Amount     Capital       sation       Deficit     Shares  Amount
                         -------------------------------------------------------------------------------
<S>                       <C>         <C>        <C>           <C>         <C>             <C>    <C>
Balance,
  September 1, 1999       16,693,975  $ 166,940  $ 20,688,109  $ (159,486) $ (18,822,160)  13,412 $ (234)

Common stock issued for:
  Cash                       244,912      2,449        23,748           -              -        -      -
  Stock options
    and warrants             509,044      5,090        (5,090)          -              -        -      -
  Services                    29,761        298        52,452           -              -        -      -
  Subscription receivable      2,000         20           480           -              -        -      -

Amortization of deferred
  compensation                     -          -             -     152,515              -        -      -

Deferred compensation              -          -         6,926      (6,926)             -        -      -

Contribution of
treasury shares                    -          -             -           -              -   10,919      -

Net loss                           -          -             -           -       (888,947)       -      -
                         -------------------------------------------------------------------------------

Balance,
  August 31, 2000         17,479,692    174,797    20,766,625     (13,897)   (19,711,107)  24,331   (234)

Common stock issued for:
  Cash                        63,765        638         5,739           -              -        -      -
  Services                    21,405        214        23,786           -              -        -      -
  Options                     37,757        377          (377)          -              -        -      -

Amortization of deferred
compensation                       -          -             -       3,800              -        -      -

Deferred compensation              -          -        15,000     (15,000)             -        -      -

Net loss                           -          -             -           -       (214,360)       -      -
                         -------------------------------------------------------------------------------

                          17,602,619  $ 176,026  $ 20,810,773  $  (25,097) $ (19,925,467)  24,331 $ (234)
                         -------------------------------------------------------------------------------

--------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                                                     F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                                       BSD MEDICAL CORPORATION
                                                                       Statement of Cash Flows

                                                                        Years Ended August 31,
----------------------------------------------------------------------------------------------


                                                                 2001              2000
                                                           -----------------------------------
<S>                                                        <C>                 <C>
Cash flows from operating activities:
     Net loss                                              $        (214,360   $      (888,947)
     Adjustments to reconcile net loss to net
       cash (used in) operating activities:
         Depreciation and amortization                                38,785            23,082
         Deferred gain on sale of building                           (61,416)          (61,416)
         Loss (gain) on disposal of
           property and equipment                                          -                25
         Amortization of deferred compensation                         3,800           152,515
         Stock compensation expense                                   24,000            52,750
         (Increase) decrease in:
              Restricted certificate of deposit                      (88,917)                -
              Receivables                                           (369,158)         (295,037)
              Inventories                                            177,467             3,139
              Prepaid expenses and other assets                       15,342            (8,898)
         Increase (decrease) in:
              Accounts payable                                        52,205            30,748
              Accrued expenses                                        29,933           135,089
              Deferred revenue                                       166,127           (65,018)
                                                           -----------------------------------

                  Net cash used in
                  operating activities                              (226,192)         (921,968)
                                                           -----------------------------------

Cash flows from investing activities:
     Purchase of property and equipment                             (103,649)          (21,914)
     Purchase of patent license                                            -           (13,928)
                                                           -----------------------------------

                  Net cash used in
                  investing activities                              (103,649)          (35,842)
                                                           -----------------------------------

Cash flows from financing activities:
     Payments on long-term debt                                            -           (25,922)
     Proceeds from issuance of common stock                            6,377            26,197
                                                           -----------------------------------

                  Net cash provided by
                  financing activities                                 6,377               275
                                                           -----------------------------------

Decrease in cash and cash equivalents                               (323,464)         (957,535)

Cash and cash equivalents, beginning of year                         731,494         1,689,029
                                                           -----------------------------------

Cash and cash equivalents, end of year                     $         408,030   $       731,494

                                                           -----------------------------------
----------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
                                                                                           F-5
</TABLE>
<PAGE>

                                                         BSD MEDICAL CORPORATION
                                                   Notes to Financial Statements

                                                        August 31, 2001 and 2000
--------------------------------------------------------------------------------

1.   Organization       Organization
     and                BSD  Medical   Corporation   (the   Company)   develops,
     Significant        produces,  markets,  and  services  systems used for the
     Accounting         treatment of cancer and other  diseases.  These  systems
     Policies           are sold worldwide.  In addition,  the Company currently
                        has  a  thirty  percent  interest  in  Thermatrx,   Inc.
                        (Thermatrx) a corporate joint venture that is engaged in
                        the manufacture and sale of medical equipment.

                        Cash and Cash Equivalents
                        Cash  and   cash   equivalents   consist   of  cash  and
                        investments  with original  maturities to the Company of
                        three months or less.

                        Inventories
                        Parts and supplies  inventories  are stated at the lower
                        of cost or market.  Cost is determined using the average
                        cost  method.  Work-in-process  and  finished  goods are
                        stated  at the  lower of the  accumulated  manufacturing
                        costs or market.

                        Property and Equipment
                        Property   and   equipment   are  stated  at  cost  less
                        accumulated depreciation.  Depreciation and amortization
                        is determined  using the  straight-line  method over the
                        estimated  useful lives of the assets.  Expenditures for
                        maintenance  and repairs are expensed  when incurred and
                        betterments are capitalized. Gains and losses on sale of
                        property and equipment are reflected in operations.

                        Investment in Joint Venture
                        The Company has a 30% ownership in another company.  The
                        investment  is  accounted  for on the  equity  method of
                        accounting.  In accordance  with APB 18, the Company has
                        discontinued  recognizing its percent share of recurring
                        losses as the investment has been eliminated as an asset
                        and the  Company  is not  obligated  for  any  liability
                        obligations of the joint venture.

                        Patents
                        Patents are carried at the cost and are being  amortized
                        over 17 years.

--------------------------------------------------------------------------------
                                                                             F-6
<PAGE>
                                                         BSD MEDICAL CORPORATION
                                                   Notes to Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------

1.   Organization       Restricted Cash
     and                The  Company  has  a  certificate  of  deposit  held  as
     Significant        collateral  by a bank for surety of a loan by a customer
     Accounting         to finance a sale of product to the  customer.  The cash
     Policies           is released from  restriction  as the customer pays down
     Continued          the loan.  The loan matures in 2003 and the  approximate
                        current  portion of the  certification  of deposit to be
                        released  is  $32,000  and  the  long-term   portion  is
                        $56,917.

                        Income Taxes
                        The Company  accounts  for income  taxes using the asset
                        and  liability  method.  Under the  asset and  liability
                        method,   deferred  tax  assets  and   liabilities   are
                        recognized for the future tax consequences  attributable
                        to differences  between the financial statement carrying
                        amounts of  existing  assets and  liabilities  and their
                        respective   tax   bases.   Deferred   tax   assets  and
                        liabilities   are  measured   using  enacted  tax  rates
                        expected  to apply to  taxable  income  in the  years in
                        which those  temporary  differences  are  expected to be
                        recovered or settled.  The effect on deferred tax assets
                        and  liabilities  of a change in tax rates is recognized
                        in income in the  period  that  includes  the  enactment
                        date.

                        Loss Per Common Share
                        The  computation of basic loss per common share is based
                        on the  weighted  average  number of shares  outstanding
                        during each year.

                        The computation of diluted  earnings per common share is
                        based  on  the   weighted   average   number  of  shares
                        outstanding  during  the  year,  plus the  common  stock
                        equivalents  that would arise from the exercise of stock
                        options and  warrants  outstanding,  using the  treasury
                        stock  method  and the  average  market  price per share
                        during  the  year.  Common  stock  equivalents  are  not
                        included in the diluted loss per share  calculation when
                        their  effect is  antidilutive.  Options and warrants to
                        purchase  1,393,567 and 1,417,332 shares of common stock
                        at prices  ranging  from  $.10 to $3.00  per share  were
                        outstanding  at August 31, 2001 and 2000,  respectively,
                        but were not included in the diluted earnings (loss) per
                        share  calculation  because  the effect  would have been
                        antidilutive.

--------------------------------------------------------------------------------
                                                                             F-7
<PAGE>

                                                         BSD MEDICAL CORPORATION
                                                   Notes to Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------

1.   Organization       Revenue Recognition
     and                Sales  for  products  are  recorded  when  products  are
     Significant        shipped.  Revenue from  long-term  service  contracts is
     Accounting         recognized on a straight-line basis over the term of the
     Policies           contract,  which  approximates  recognizing  it as it is
     Continued          earned.  Deferred  revenue includes amounts from service
                        contracts  as well as  revenue  from  sales of  products
                        which have not been shipped.

                        Research and Development Costs
                        Research and development costs are expensed as incurred.

                        Concentration of Credit Risk
                        Financial   instruments  that  potentially  subject  the
                        Company  to   concentration   of  credit  risk  consists
                        primarily of trade receivables.  In the normal course of
                        business,  the  Company  provides  credit  terms  to its
                        customers.  Accordingly,  the Company  performs  ongoing
                        credit   evaluations  of  its  customers  and  maintains
                        allowances  for possible  losses which,  when  realized,
                        have been within the range of management's expectations.

                        The Company has cash in bank and short-term  investments
                        that, at times, may exceed federally insured limits. The
                        Company has not experienced any losses in such accounts.
                        The   Company   believes   it  is  not  exposed  to  any
                        significant   credit   risk  on  cash   and   short-term
                        investments.

                        Use  of  Estimates  in  the   Preparation  of  Financial
                        Statements
                        The  preparation  of financial  statements in conformity
                        with generally accepted  accounting  principles requires
                        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  the  reported
                        amounts of revenues  and expenses  during the  reporting
                        period.   Actual   results   could   differ  from  those
                        estimates.

                        Reclassification
                        Certain  amounts  for the year  ended  August  31,  2000
                        financial  statements have been  reclassified to conform
                        with classifications adopted in the current year.

--------------------------------------------------------------------------------
                                                                             F-8
<PAGE>

                                                         BSD MEDICAL CORPORATION
                                                   Notes to Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------

2.   Detail of          Details of certain  balance sheet  accounts as of August
     Certain            31, 2001, are as follows:
     Balance
     Sheet              Receivables:
     Accounts             Trade receivables                $          62,910
                          Other receivables                           31,554
                          Less allowance for doubtful
                            accounts                                  (9,969)
                                                           -----------------

                                                           $          84,495
                                                           -----------------

                        Inventories:
                          Parts and supplies               $         469,835
                          Work-in-process                            257,800
                          Finished goods                                   -
                                                           -----------------

                                                           $         727,635
                                                           -----------------

                        Accrued expenses:
                          Customer deposits                $         319,648
                          Accrued loss in equity affiliate           136,467
                          Accrued vacation                           102,259
                          Accrued payroll and taxes                   93,726
                          Other accrued expenses                      70,394
                                                           -----------------

                                                           $         722,494
                                                           -----------------


3.   Property           Property and equipment consists of the following:
     and
     Equipment
                        Equipment                          $         597,499
                        Furniture and fixtures                       297,741
                                                           -----------------

                                                                     895,240

                        Less accumulated depreciation
                        and amortization                            (742,974)
                                                           -----------------

                                                           $         152,266
                                                           -----------------

--------------------------------------------------------------------------------
                                                                             F-9
<PAGE>

                                                         BSD MEDICAL CORPORATION
                                                   Notes to Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------

4.   Deferred           During  the year  ended  August 31,  1998,  the  Company
     Gain               entered  into  a   sale-leaseback   transaction  on  its
                        building.  The  sale-leaseback  resulted  in a  gain  of
                        $325,513 of which  $307,000  was  deferred  and is being
                        credited to income as rent expense  adjustments over the
                        term of the lease.  The lease requires  monthly payments
                        of $6,533 through November 2002.

                        Future  minimum  payments  at August  31,  2001,  are as
                        follows:

                        Years Ending August 31,                Amount
                        -----------------------           -----------------

                           2002                           $          78,396
                           2003                                      19,599
                                                          -----------------

                                                          $          97,995
                                                          -----------------

                        Annual  rent  expense  on this  operating  lease for the
                        years  ended  August  31,  2001 and  2000,  amounted  to
                        approximately $17,000, net of sale-leaseback gain.


5.   Long-Term          The Company has entered into certain  service  contracts
     Deferred           for  which  it has  received  payment  in  advance.  The
     Revenue            Company is recognizing  these service  revenues over the
                        life of the service agreements as follows:

                        Years Ending August 31,                 Amount
                        -----------------------           -----------------

                           2002                           $          71,220
                           2003                                      55,723
                           2004                                      40,900
                           2005                                      44,308
                                                          -----------------

                                                                    212,151

                           Less current portion                     (71,220)
                                                          -----------------

                           Long-term deferred revenue     $         140,931
                                                          -----------------

--------------------------------------------------------------------------------
                                                                            F-10
<PAGE>

                                                         BSD MEDICAL CORPORATION
                                                   Notes to Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------

6.   Income             The Income tax benefit  differs from the amount computed
     Taxes              at federal statutory rates as follows:

                                                    Years Ended
                                         ----------------------------------
                                               2001             2000
                                         ----------------------------------

Income tax benefit at statutory rate     $          73,000  $       457,000
Subsidiary loss                                          -         (155,000)
Other                                               (9,000)          (9,000)
Change in valuation allowance                      (64,000)        (293,000)
                                         ----------------------------------

                                         $               -  $             -
                                         ----------------------------------

                        Deferred tax assets  (liabilities)  are comprised of the
                        following:

Net operating loss carryforwards                          $       1,626,000
General business and AMT credit carryforwards                       178,000
Accrued expenses and deposits                                       152,000
Deferred revenue                                                     72,000
Inventory                                                             7,000
Allowance for bad debts and reserves                                  3,000
Depreciation                                                        (15,000)
Deferred compensation expense                                         1,000
Deferred gain                                                         5,000
                                                          -----------------

                                                                  2,029,000

Valuation allowance                                              (2,029,000)
                                                          -----------------

                                                          $               -
                                                          -----------------

--------------------------------------------------------------------------------
                                                                            F-11
<PAGE>

                                                         BSD MEDICAL CORPORATION
                                                   Notes to Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------

6.   Income             At August 31, 2001, the Company has net operating losses
     Taxes              (NOL) as follows:
     Continued
                        Expiration Date                           NOL
                        ---------------                   -----------------

                            2003                          $         339,000
                            2005                                  1,270,000
                            2007                                    190,000
                            2008                                     99,000
                            2009                                    671,000
                            2010                                    170,000
                            2012                                    838,000
                            2016                                    153,000
                            2018                                  1,052,000
                                                          -----------------

                                                          $       4,782,000
                                                          -----------------

                        At  August  31,  2001,  the  Company  has  Research  and
                        Experimentation   Tax  Credit  (RETC)  and   Alternative
                        Minimum Tax Credit (AMTC) as follows:

                        Expiration Date                RETC       AMTC
                                              ----------------------------------

                         2002                 $       8,000   $         -
                         2003                        41,000             -
                         2005                        72,000             -
                         No expiration date               -        57,000
                                              ----------------------------------

                                              $     121,000   $    57,000
                                              ----------------------------------

                        The Company has  experienced  a greater  than 50 percent
                        change of ownership.  Consequently, use of the Company's
                        carryovers against future taxable income in any one year
                        may  be  limited   and  those   carryovers   may  expire
                        unutilized due to  limitations  imposed by the change of
                        ownership rules.

--------------------------------------------------------------------------------
                                                                            F-12
<PAGE>

                                                         BSD MEDICAL CORPORATION
                                                   Notes to Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------

7.   Stock              Stock Options
     Options and        The Company's 1987 Employee Stock Option Plan authorizes
     Warrants           the  granting  of  incentive   options  to  certain  key
                        employees of the Company and nonqualified  stock options
                        to certain  key  employees,  nonemployee  directors,  or
                        individuals  who provide  services to the  Company.  The
                        Plan,  as amended,  provides for the granting of options
                        for an  aggregate  of 950,000  shares.  The options vest
                        according to a set schedule over a five-year  period and
                        expire  upon the  employee's  termination  or after  ten
                        years from the date of grant.

                        The Company's 1998 Employee Stock Option Plan authorizes
                        the granting of incentive  stock  options to certain key
                        employees and  nonemployees  who provide services to the
                        Company.  The Plan  provides for the granting of options
                        for an aggregate of 2,000,000  shares.  The options vest
                        subject to management's discretion.

                        The  Company's  1998 Director  Stock Plan  authorizes an
                        annual  compensation  of  $12,000  to  each  nonemployee
                        director.  The annual  compensation  may be satisfied by
                        issuing  common stock,  with the number of shares issued
                        calculated  by  dividing  the unpaid  compensation  by a
                        daily average of the preceding  twenty day closing price
                        of the Company's common stock. The Plan also grants each
                        nonemployee outside director 25,000 options each year at
                        an exercise price of 85% of the fair market value of the
                        common stock at the date the option is granted. The Plan
                        allows  for  an  aggregate  of  1,000,000  shares  to be
                        granted.  The options  vest  according to a set schedule
                        over a five-year  period and expire upon the  director's
                        termination,  or after ten years from the date of grant.
                        For certain  options issued under this plan, the Company
                        has recorded as deferred  compensation the excess of the
                        market  value of common  stock at the date of grant over
                        the exercise price.

--------------------------------------------------------------------------------
                                                                            F-13
<PAGE>

                                                         BSD MEDICAL CORPORATION
                                                   Notes to Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------



7.   Stock              A schedule of the options and warrants are as follows:
     Options and
     Warrants
     Continued                                          Price Per
                                          Options      Warrants      Share
                                       ---------------------------------------

                        Outstanding at
                         August 31, 1999   1,479,246     242,655  $ .10 to  .45
                           Granted           445,000      75,000    .39 to 3.00
                           Exercised        (596,978)   (181,991)   .10 to  .45
                           Canceled          (45,600)          -    .24 to  .45
                                       ---------------------------------------

                        Outstanding at
                         August 31, 2000   1,281,668     135,664    .10 to 3.00
                           Granted            82,000           -    .75 to 1.11
                           Exercised        (105,765)          -            .10
                                       ---------------------------------------

                        Outstanding at
                         August 31, 2001   1,257,903     135,664  $ .10 to 3.00
                                       ---------------------------------------

                        The Company has adopted the  disclosure-only  provisions
                        of Statement of Financial  Accounting  Standards  (SFAS)
                        No.  123,   Accounting  for  Stock-Based   Compensation.
                        Accordingly, no compensation cost has been recognized in
                        the financial statements for employees,  except when the
                        exercise price is below the market price of the stock on
                        the  date  of  grant.  Had  compensation  cost  for  the
                        Company's  stock option plans been  determined  based on
                        the fair  value at the grant date for awards in 2001 and
                        2000 consistent with the provisions of SFAS No. 123, the
                        Company's  approximate net loss and loss per share would
                        have been the pro forma amounts indicated below:

                                                             Years Ended
                                                              August 31,
                                                  ------------------------------
                                                       2001           2000
                                                  ------------------------------

                        Net loss - as reported    $ (214,360)  $    (889,000)
                        Net loss - pro forma      $ (386,993)  $    (976,000)
                        Loss per common share -
                           as reported            $     (.01)  $        (.05)
                        oss per common share -
                           pro forma              $     (.02)  $        (.06)
                                                  ------------------------------

--------------------------------------------------------------------------------
                                                                            F-14
<PAGE>
                                                         BSD MEDICAL CORPORATION
                                                   Notes to Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------

7.   Stock              The fair value of each option  grant is estimated in the
     Options and        date of grant  using the  Black-Scholes  option  pricing
     Warrants           model with the following assumptions:
     Continued
                                                         August 31,
                                            -----------------------------------
                                                   2000             1999
                                            -----------------------------------

Expected dividend yield                     $               -    $            -
Expected stock price volatility                           148%             202%
Risk-free interest rate                                   5.6%             5.5%
Expected life of options                               5 years          5 years
                                            -----------------------------------

                        The weighted  average fair value of options and warrants
                        granted  during  2001  and  2000  are  $1.43  and  $.68,
                        respectively.

                        The following table summarizes  information  about stock
                        options and warrants outstanding at August 31, 2001:

                                                        Options and Warrants
                 Options and Warrants Outstanding            Exercisable
              ------------------------------------------------------------------
                             Weighted
                              Average
                             Remaining    Weighted                   Weighted
   Range of                 Contractual    Average                   Average
   Exercise      Number        Life       Exercise      Number       Exercise
    Prices     Outstanding    (Years)       Price     Exercisable     Price
--------------------------------------------------------------------------------

$ .10 -  .24    538,367       4.00      $      .14      478,367          .12
  .37 - 1.11    730,200       8.19             .45      225,400          .47
 1.76 - 3.00    125,000       5.83            2.50           -            -
--------------------------------------------------------------------------------

$  10 - 3.00  1,393,567       6.35      $      .51      703,767    $     .24
--------------------------------------------------------------------------------

8.   Foreign            During the years  ended  August 31,  2001 and 2000,  the
     Customer           Company had sales to a European  entity  controlled by a
     and Major          significant  stockholder  and  member  of the  Board  of
     Customer           Directors of the Company of approximately $1,334,000 and
                        $884,000, respectively.

9.   Related Party      During the years  ended  August 31,  2001 and 2000,  the
     Transactions       Company had sales to a company  controlled by a director
                        and significant stockholder of approximately  $1,334,000
                        and $884,000, respectively.

--------------------------------------------------------------------------------
                                                                            F-15
<PAGE>
                                                         BSD MEDICAL CORPORATION
                                                   Notes to Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------

9.   Related Party      During the year  ended  August  31,  2001 and 2000,  the
     Transactions       Company  had sales to an  unconsolidated  subsidiary  of
     Continued          approximately $332,000 and $75,000, respectively.

                        At August 31, 2001 and 2000,  accrued expenses  includes
                        approximately $212,000 and $212,000,  respectively,  due
                        to an entity controlled by a significant stockholder and
                        member  of  the  Board  of   Directors.   These  amounts
                        represent  deposits to purchase product from the Company
                        and will be recognized  as revenue when all  performance
                        and delivery obligations have been met.

                        At August 31, 2001 and 2000 accounts receivable includes
                        approximately  $592,000 and $179,000,  respectively  due
                        from an entity  controlled by a significant  stockholder
                        and   member  of  the  Board  of   Directors.   Accounts
                        receivable  also  include  $61,000  and $0 due  from  an
                        unconsolidated  subsidiary  at August 31, 2001 and 2000,
                        respectively.


10.  Supplemental       Actual amounts paid for interest and income taxes are as
     Cash Flow          follows:
     Information
                                                          Years Ended
                                                           August 31,
                                             -----------------------------------
                                                    2001         2000
                                             -----------------------------------

                        Interest expense       $        -      $      654
                                             -----------------------------------

                        Income taxes           $        -      $        -
                                             -----------------------------------

--------------------------------------------------------------------------------
                                                                            F-16
<PAGE>

                                                         BSD MEDICAL CORPORATION
                                                   Notes to Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------

11.  Significant        Summarized  financial  information  for the  significant
     Unconsolidated     unconsolidated  affiliate of the  Company,  at September
     Affiliate          30, 2001 and 2000 (the affiliate's fiscal year runs from
                        October 1, through September 30) are as follows:

                                                             September 30,
                                                  ------------------------------
                                                       2001             2000
                                                  ------------------------------
                        Result for year:
                         Gross revenues            $    150,190   $           -
                         Gross profit                   101,426   $           -
                         Net loss                  $ (2,391,685)  $  (1,389,353)

                        Year-end financial
                         position:
                          Current assets           $  2,369,682   $   4,371,813
                          Non-current assets       $  2,633,600   $   2,702,345
                          Current liabilities      $    488,976   $     168,167
                          Non-current liabilities  $          -   $           -

12.  Commitments        The  Company  has  an  employment   agreement  with  the
     and                President of the Company.  The  agreement  provides that
     Contingencies      the  President's  salary will be based upon a reasonable
                        mutual   agreement.   Additionally,   in  the   case  of
                        nonvoluntary  termination,  the  acting  president  will
                        receive  severance  pay for a six  month  period,  which
                        includes   an   extension   of  all   employee   rights,
                        privileges,  and benefits,  including medical insurance.
                        The six month  severance  pay would be the salary at the
                        highest  rate  paid  to the  president  prior  to such a
                        nonvoluntary  termination.  The agreement  also requires
                        the Company to pay the acting  president for any accrued
                        unused vacation and bonuses.

                        The Company  has an  exclusive  worldwide  license for a
                        unique   temperature   probe.   The   license   has   no
                        determinable life. The Company pays royalties based upon
                        its sales of this probe.  Royalties accrued as of August
                        31, 2001 and 2000, are approximately $9,000 and $29,000,
                        respectively.  Royalty expense amounted to approximately
                        $9,000 and $7,000 for the years  ended  August 31,  2001
                        and 2000, respectively.

--------------------------------------------------------------------------------
                                                                            F-17
<PAGE>

                                                         BSD MEDICAL CORPORATION
                                                   Notes to Financial Statements
                                                                       Continued

--------------------------------------------------------------------------------

13.  Fair Value of      None of the Company's financial instruments are held for
     Financial          trading  purposes.  The Company  estimates that the fair
     Instruments        value of all  financial  instruments  at August 31, 2001
                        and 2000, does not differ  materially from the aggregate
                        carrying values of its financial instruments recorded in
                        the accompanying balance sheet. The estimated fair value
                        amounts  have  been  determined  by  the  Company  using
                        available market  information and appropriate  valuation
                        methodologies.  Considerable  judgement  is  necessarily
                        required  in  interpreting  market  data to develop  the
                        estimates of fair value, and, accordingly, the estimates
                        are not  necessarily  indicative of the amounts that the
                        Company could realize in a current market exchange.

14.  Recent             The Company has adopted  Staff  Accounting  Bulletin No.
     Accounting         101  (SAB  101"),   Revenue   Recognition  in  Financial
     Pronounce-         Statements,  which provides guidance on the recognition,
     ments              presentation,  and  disclosure  of revenue in  financial
                        statements  filed  with the SEC.  SAB 101  outlines  the
                        basic criteria that must be met to recognize revenue and
                        provides  guidance  for  disclosure  related  to revenue
                        recognition  policies.  The adoption of this standard in
                        fiscal  2001  did  not  result  in  any  changes  to the
                        Company's financial statements.

                        In June 2001, the Financial  Accounting  Standards Board
                        issued Statements of Financial  Accounting Standards No.
                        141 "Business  Combinations"  (SFAS No.  141)and No. 142
                        "Goodwill and Other  Intangibles"  (SFAS No. 142).  SFAS
                        No. 141 and No.  142 are  effective  for the  Company on
                        July 1, 2002.  SFAS No. 141  requires  that the purchase
                        method   of   accounting   be  used  for  all   business
                        combinations   initiated   after  June  30,  2001.   The
                        statement  also   establishes   specific   criteria  for
                        recognition  of  intangible   assets   separately   from
                        goodwill and requires  unallocated  negative goodwill to
                        be written off  immediately  as an  extraordinary  gain.
                        SFAS No. 142  primarily  addresses  the  accounting  for
                        goodwill  and  intangible  assets  subsequent  to  their
                        acquisition.  The  statement  requires that goodwill and
                        indefinite   lived   intangible   assets  no  longer  be
                        amortized   and  be  tested  for   impairment  at  least
                        annually.  The amortization  period of intangible assets
                        with  finite  lives  will no longer be  limited to forty
                        years. The Company is currently  assessing the impact of
                        these statements.

--------------------------------------------------------------------------------
                                                                            F-18