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, 1997.
                              
               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]

   State  issuer's  revenues for its most  recent  fiscal  year:
$1,319,698

  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 November 3, 1997, was $4,937,177.

  As of November 3, 1997, there were 16,176,980 shares of Common
Stock with $0.01 par value outstanding.

  Documents Incorporated by Reference:  None

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

<PAGE>
                           PART I

ITEM 1.  DESCRIPTION OF BUSINESS

GENERAL

   BSD  Medical  Corporation (the "Company") is engaged  in  the
design,  development, production, marketing,  and  servicing  of
heat  therapy  (hyperthermia/thermotherapy) equipment  for  both
cancerous  and  benign diseases.  Hyperthermia is  used  in  the
application,   monitoring   and   control   of   electromagnetic
(microwave or radiofrequency) or ultrasound generated  heat  for
the  treatment of malignant and benign diseases.  BSD  pioneered
the  commercial application of this technology in the radiation,
oncology,  and  urology fields and has 18 current  U.S.  patents
(which  cover  all of its current applications and  products  as
well as additional applications and devices).

  The Company was founded in 1978 by John E. Langdon as a result
of  research  which  demonstrated that high heat  could  destroy
cancer cells.  BSD continued this research and was successful in
pioneering,  developing, and commercializing this  break-through
cancer  treatment.  BSD pioneered the commercial field  of  heat
therapy  for  the  treatment of disease in  1978  and  the  non-
surgical  treatment  of benign diseases of  the  prostate  using
microwave  energy in 1986.  BSD was the first Company to  obtain
full   PreMarket  approvals  (PMA)  from  the  Food   and   Drug
Administration (FDA) for hyperthermia cancer therapy systems (in
1983)  and  the  first Company to obtain Investigational  Device
Exemption     (IDE)     approval    from     the     FDA     for
hyperthermia/thermotherapy systems for the treatment  of  Benign
Prostatic Hyperplasia (BPH).  BSD has developed second and third
generation equipment, and the Company's systems, depending  upon
configuration  and  options,  have  list  prices  ranging   from
approximately $53,500 to $850,000.

   The  Company 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, the  Company  was
merged into a Delaware corporation, changing the Company's state
of   incorporation   from  Utah  to  Delaware.    The   Delaware
corporation was the surviving company.  At the time of the  1986
merger, the total number of shares of all classes of stock which
the  Company shall have the authority to issue was increased  to
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.

BSD PRODUCTS/THERAPIES

  HYPERTHERMIA AS A CANCER TREATMENT.  There are more than eight
million  Americans alive today who have a history of cancer  and
over  83  million,  approximately four in  ten  Americans,  will
eventually  develop  cancer,  and the  incidence  of  cancer  is
expected to continue to grow.  Over 520,000 people will  die  of
cancer this year.  The Company's hyperthermia equipment is  used
both  in  an effort to cure cancer by destroying and eliminating
cancer  cells  and, where curing the cancer is not possible,  as
palliative treatment (the shrinking of tumors in order to reduce
the pain and other side effects of cancer).  The combination  of
differential heat sensitivity between cancerous and normal cells
and the inability of the cores of solid tumors to dissipate heat
as effectively as surrounding normal cells makes it possible, by
utilizing  the controlled application of high heat,  to  destroy
cancerous  tissues and cells without causing serious  damage  to
normal  tissues  and  cells.  Prospectively randomized  clinical
studies  using BSD's equipment have shown that the  addition  of
hyperthermia  to  other cancer therapies results  in:  increased
tumor  response;  lower  relapse  rate;  increased  disease-free
survival  time; and improved quality of life for the  patient  -
with  minimal increase in side effects.  The Company's equipment
is most effective in the treatment of solid localized tumors and
increases  long  term  control of these  tumors.   Inability  to
control  local tumors remains a significant obstacle to  a  cure
for  cancer, causes over one-third of all cancer deaths, results
in  severe symptoms which reduce quality of life, increase  cost
of care, and increases the risk of metastatic disease.

   The Company's hyperthermia equipment can be used alone but is
typically used in conjunction with other therapies and has  been
shown  to potentiate other cancer therapies, including radiation
therapy, chemotherapy and surgery.  Published, clinical  studies
using   the  Company's  systems  have  shown  that  hyperthermia
increases  the  efficacy  of radiation  and  chemotherapy  to  a
significant   degree   without   an   increase   in    toxicity.
Hyperthermia  delivery using the Company's  equipment  has  been
shown   to   provide  supra-additive  interactions   with   many
chemotherapeutic  drugs; to cause localized toxicity  of  heated
tumor  areas, while maintaining low levels of toxicity  to  non-
heated normal tissues; and to cause some chemotherapeutic agents
that   are  not  effective  at  normal  temperatures  to  become
effective  at  elevated temperatures.  The use  of  pre-surgical
hyperthermia delivered using BSD's equipment has been  shown  to
obviate  the  need for amputation of normal tissues  in  sarcoma
patients.   BSD's systems have also been used pre-surgically  to
reduce the size of the tumor prior to surgery and thus make  the
tumor more easily resectable (surgical removal) and increase the
chances  of obtaining clear surgical tumor margins, one  of  the
most significant prognostic factors in recurrence.

   In  the  past,  hyperthermia has been typically  used  almost
exclusively as a therapy for patients who have failed all  other
available   methods  of  treatment,  and  even   these   heavily
pretreated  patients have responded well to hyperthermia.   Some
patients  are  now  being treated earlier with  BSD's  equipment
using combination therapy which includes hyperthermia.

   HYPERTHERMIA/THERMOTHERAPY  AS  A  TREATMENT  FOR  PROSTATIC
CARCINOMA    AND    BENIGN   PROSTATIC    HYPERPLASIA    (BPH).
Intracavitary   heat  treatment  of  the  prostate   has   been
established  as  an  important  adjuvant  treatment  for   many
patients  with prostate carcinoma and is becoming an  important
nonsurgical  treatment  for  patients  with  benign   prostatic
hyperplasia (BPH).

    BSD  Medical  has  various  PMA  approved  control  systems,
applicators, catheters, and accessories which can  be  used  for
the  treatment of prostatic carcinoma.  The use of transurethral
microwave heating for treatment of prostatic carcinoma has  most
often utilized concomitant radiation therapy; however, published
studies  have  reported efficacy using heat alone  delivered  by
using  simultaneous transurethral and transrectal heating or  by
using ablative temperatures.

   In  1986,  BSD  developed and patented  technology  for  the
treatment  of  BPH.   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 urological diseases,
specifically BPH.  The BPH market is currently estimated to  be
over  $3  billion annually in the U.S. alone.  Oracle Strategic
Partners  is a private investment firm specializing  in  public
securities  investing and merchant banking in the health  care,
bioscience and related industries.

    CANCER   HYPERTHERMIA   PRODUCTS.   The   Company's   cancer
hyperthermia  products  are designed  to  apply  electromagnetic
(i.e., microwave or radiofrequency) or ultrasonic energy to  the
human body in order to generate temperatures of 40 C to 60 C  at
the  site of the tumor.  Thermometry systems are used to measure
tumor  and normal tissue temperatures during treatment in  order
to   assist  in  achieving  and  maintaining  safe  and  optimal
treatment temperatures.  The Company's hyperthermia systems  are
designed to permit the treatment of various tumor sizes, various
tumor  depths and various anatomical sites.  A physician wishing
to  have full hyperthermia treatment capability must have a wide
variety of hyperthermia techniques and devices available.

   Cancer Hyperthermia Systems.  A hyperthermia system typically
consists  of  an integrated computer control unit,  a  fixed  or
variable frequency generator, applicators, and thermometry.  The
Company's  computer software is designed to maximize the  safety
and  effectiveness  of  the treatment.  The  Company's  computer
software  provides accurate monitoring of temperature and  other
treatment parameters, and also pre-treatment planning,  display,
storage,  and  recall  of  patient  treatment  data.   The  pre-
treatment planning capability utilizes the Company's proprietary
algorithms  and  software to allow the  physician  to  customize
hyperthermia  treatments  for specific  tumors.   The  Company's
cancer  hyperthermia  system product line includes  many  system
designations, depending upon the configuration and options.

   Cancer  Hyperthermia  Applicators.  Hyperthermia  applicators
emit  radiofrequency,  microwave or ultrasonic  energy  directly
into  the  patient to provide tumor heating.   The  Company  has
developed   and   patented  a  number  of   specially   designed
applicators  for  treating a particular tumor  in  a  particular
location.   The Company's applicators are designed to facilitate
safety, effectiveness and comfort of treatment.

   Applicators  generally  fall into two  categories:   external
surface  applicators  (superficial and  deep)  and  interstitial
(i.e.,  invasive) applicators.  Microwave, superficial, external
applicators deliver externally generated heat to specific  sites
on or slightly below the surface of the skin.  Deep phased array
radiofrequency applicators provide externally generated heat  to
deep  seated  tumors  by  combining  phase  aligned  beams  from
multiple  applicators  positioned around the  body.   Ultrasound
external  applicators generally provide deeper and more  focused
heating   than  microwave  external  applicators.   Interstitial
microwave applicators are antennae which are implanted  directly
into the body for heating from within the tumor itself.

   Thermometry.  In order to monitor and control the heating  of
tumors,  thermometry  systems that are  accurate,  reliable  and
suitable  for use in clinical hyperthermia must be  included  in
hyperthermia   systems.   The  Company  manufactures   the   BSD
Thermistor  Probe, as well as other thermistor based thermometry
probes.    The  Company  has  an  exclusive  license   for   the
manufacture and distribution of the BSD Thermistor  Probe.   The
Company   also   manufactures  and  sells  specially   developed
thermistor probes for ultrasound treatments.

MARKETING AND SALES

   In  the  U.S.,  the  Company sells its  cancer  hyperthermia
products  primarily  to  radiation  oncology  departments  and,
outside  the  U.S.,  to  radiation  oncology  and  chemotherapy
oncology  departments.   The  Company  currently  markets   its
products  in the United States directly through its  own  sales
and   marketing  staff.   International  sales  are   generally
accomplished through distributing companies located in  various
foreign  countries.   The Company's marketing  efforts  include
participation  at trade shows and symposia and  development  of
product   brochures,   newsletters,   and   other   promotional
materials.    The   Company   also   co-sponsors   an    annual
international BSD Users' Conference.

   Current  marketing efforts include education, training,  and
dissemination of information on the effectiveness and  benefits
of   BSD's  equipment  and  therapy.   BSD  also  plans  to  do
advertising in appropriate trade publications and in mass media
publications to increase patient education and demand.

  Future marketing for current cancer products will be expanded
into   two   previously   unexplored  markets:   surgical   and
chemotherapeutic oncology.  These two disciplines control  most
cancer  patients and treatment funds, and clinical evidence  of
the  safety  and  efficacy of hyperthermia in conjunction  with
chemotherapy  and  surgery  has been  published.   The  Company
believes  that the domestic market will begin to slowly  expand
in  the  future because of the recent publication of randomized
studies showing the effectiveness of hyperthermia and a renewed
interest in hyperthermia in the U.S.; however, there can be  no
assurance that an increase in the U.S. market will occur.

   For  the  year ended August 31, 1997, two customers accounted
for  approximately 52% and 8%, respectively, of net sales of the
Company.   The  loss  of  a significant customer  could  have  a
material detrimental impact on the Company's operations.

   THIRD-PARTY REIMBURSEMENT/MEDICAL COST CONTAINMENT.   In  the
United States, the Company'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.   In
December 1984, the Health Care Financing Administration  ("HCFA"
---  the  agency responsible for administering the Medicare  and
Medicaid  systems)  and  most of the private  medical  insurance
carriers in the U.S. approved reimbursement for hyperthermia  in
conjunction with radiation therapy for the treatment of  surface
and  subsurface tumors.  Reimbursement for services rendered  to
Medicaid  beneficiaries is determined pursuant to  each  state's
Medicaid plan which is established by state law and regulations,
subject to requirements of Federal law and regulations.

   In  November  1995, the Health Care Financing  Administration
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 into one of two categories - A  or  B.
Category  A  includes devices for which questions of safety  and
effectiveness  have  not  been resolved.   Category  B  includes
investigational devices for which underlying questions of safety
and effectiveness of that device type have been resolved.  As of
November  1,  1995, HCFA stated that all devices and  procedures
which  fall  under  Category B will be reimbursed  for  Medicare
patients.   All of BSD's investigational equipment and protocols
have been categorized by the FDA into Category B and thus may be
reimbursed by Medicare.  This new procedure will have no  effect
on  BSD's  PMA  approved  equipment and therapy  which  received
approval   for  reimbursement  from  HCFA  in  1984.    However,
investigational  treatments using BSD's PMA  approved  equipment
may  also  be reimbursed under this new policy.  BSD anticipates
that these changes in reimbursement policy could have a positive
effect on U.S. sales; however, these new policies have not  been
actively implemented by HCFA at this time.

   Cost-containment  policies  are impacting  the  major  cancer
markets  such as the U.S., Western Europe, and Japan, and  these
changes  have negatively impacted the industry.  The Company  is
unable  to  predict  the extent to which  its  business  may  be
affected  by  future  legislative and  regulatory  developments.
There  can  be  no  assurance  that future  health  care  reform
legislation  or  regulation will not  have  a  material  adverse
effect  on  the  Company's  business,  financial  condition  and
results   of  operations.   There  can  be  no  assurance   that
procedures using the Company's products will, in the future,  be
considered   cost-effective   by   third-party   payers,    that
reimbursement will be available or, if available,  that  payers'
reimbursement  levels  will not adversely affect  the  Company's
ability to sell its products.

COMPETITION

   Competition in the medical products industry is intense, both
in the United States and internationally.  Some of the Company's
competitors  have  significantly greater  financial,  technical,
research    and    development,   engineering,    manufacturing,
distribution,  and  sales  and  marketing  resources  than   the
Company.   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,
four  other  companies  (Clinitherm -  no  longer  in  business,
Labthermics,  Cheung Labs, and Cook Medical) have  received  FDA
Pre-Market   Approval  for  the  commercial  sale   of   certain
hyperthermia equipment for the treatment of cancer in  the  U.S.
BSD  participates in the BPH market as an investor in TherMatrx,
Inc.  (see  "Hyperthermia/  Thermotherapy  as  a  Treatment  for
Prostatic  Carcinoma  and Benign Prostatic  Hyperplasia  (BPH)",
page  3).   In  the  BPH market, competitive companies  offering
products  similar to BSD's BSD-50 include EDAP TMS and  Urologix
(which  have  PMA  approval from the FDA),  VidaMed  (which  has
510(k)  marketing  clearance  from the  FDA),  Dornier,  Thermal
Therapeutics, and other foreign manufacturers.  In  addition  to
hyperthermia/thermotherapy equipment made by competitors,  there
are  many  other  competitive treatments  for  benign  prostatic
hyperplasia (including various drug treatments, surgical lasers,
ultrasound    ablation,   electro-cautery    surgery,    stents,
transurethral incision of the prostate (T.U.I.P.),  and  balloon
dilation)   which  are  currently  being  developed,  clinically
investigated and/or actively marketed.

   The Company believes that other companies are considering  or
will consider marketing hyperthermia/thermotherapy equipment and
anticipates increased competition both in the United States  and
internationally.   There  can  be  no  assurance  that   others,
including  those  with  greater  resources  and  more  extensive
business  experience than the Company, will not develop products
that  would  materially  adversely affect  the  ability  of  the
Company  to  compete  effectively.  Further,  the  treatment  of
disease with hyperthermia equipment, and with other methods,  is
subject  to  rapid  technological  change.   There  can  be   no
assurance  that other forms of treatment will not  be  developed
which could render the Company's hyperthermia systems obsolete.

   The  Company  expects to rely upon trade secrets,  unpatented
proprietary know-how and continuing technological innovation, as
well as current patents and new patent applications, in order to
maintain and improve its competitive position.

PRODUCT SERVICE

    The   Company   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,  technical  and   clinical
training  is  performed  by  Company personnel  or  consultants.
Subsequent to the applicable warranty period, the Company offers
full or limited service contracts to its domestic customers.

   Generally,  the  Company'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.  The Company 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
the Company's facilities in Salt Lake City.

PRODUCTION

   The Company produces and tests its products at its facilities
in Salt Lake City, Utah.  The Company's manufacturing operations
consist  primarily of component assembly and testing.   Most  of
the  principal components of the Company's systems are purchased
from independent suppliers and are modified, as required, by the
Company  at  its  facilities.   Some  purchased  components  are
modified  by  the  supplier or are customized to  the  Company's
specifications.   Key factors in the manufacturing  process  are
assembly and testing.  Raw/pre-fabricated materials, components,
and  sub-assemblies required for production are tested at  every
stage of manufacture and again prior to final shipment.  Certain
components  and  processes  used in  the  manufacturing  of  the
Company's products are currently provided or performed by single-
source vendors.  Any supply interruption or yield problems  from
these  vendors  would  have a material  adverse  effect  on  the
Company's ability to manufacture its products until a new source
of supply were qualified and, as a result, could have a material
adverse  effect  on the Company's business, financial  condition
and results of operations.

    In   order   to  provide  outside  financial   support   for
manufacturing  operations and diversify the Company's  services,
the  Company  is  providing manufacturing and  testing  services
under contract to local companies.

RESEARCH AND DEVELOPMENT

   Technological changes in the treatment of disease in general,
and  in  the  hyperthermia  field in particular,  are  frequent.
Thus, the Company intends to continue to devote substantial sums
to  research  and  development  in  order  to  improve  existing
products and develop new products. During the fiscal years ended
August  31,  1995,  August 31, 1996, and August  31,  1997,  the
Company  expended $219,871, $565,158, and $432,394 respectively,
for  research and development, representing 19.14%, 22.28%,  and
32.76%  of  total revenues.  The Company intends to  pursue  new
markets and applications for the Company's products.

   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 be modified for integration  with
a  magnetic  resonance  imaging system,  and  becomes  the  BSD-
2000/3D/MR  system.   BSD is completing development  of  the  MR
portion  of this system with corporate funding.  The BSD-2000/3D
System  integrates three-dimensional (3D) focused deep  regional
hyperthermia  with  3D  patient specific treatment  planning  in
order  to  provide  3D heating pattern steered  focusing.   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
system  has  been  installed  at a  leading  German  oncological
research  institution - the Clinic of Medical  Oncology  of  the
Klinikum  Grosshadern  Medical  School  of  Ludwigs-Maximilians-
Universitaet  Muenchen,  Munich,  Germany.   Delivery   of   the
Magnetic  Resonance  (MR)  Imaging portion  of  this  system  is
anticipated  for  January  1998.  The  Medical  School  received
funding  from  the  Stiftung Deutsche  Krebshilfe  e.V.  (German
Cancer Aid Foundation) for the system order.  Over the past  few
years,  the  Foundation has contributed more than DM 11  million
($7.5  million U.S.) to this Institution to develop the clinical
application   of  regional  deep  hyperthermia   combined   with
chemotherapy for the treatment of cancer patients.  The  Company
has  received orders totaling $1,631,978 for purchases  of  this
new  product,  and,  as  of November 1997,  has  a  back-log  of
$996,837  in  sales  for  the new product line,  which  will  be
delivered in fiscal 1998.  BSD plans to submit to the FDA for  a
modified IDE for this equipment.

  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, which has  the  potential  to
optimize  tumor heating and thus tumor destruction.    Currently
available  hyperthermia equipment requires the use  of  invasive
temperature  monitoring  to  control  heating  delivery  and  to
determine  treatment effectiveness, which limits the  commercial
and  clinical  applications.  The development of  reliable  non-
invasive  thermometry is the next required step in the field  of
hyperthermia and has the potential to significantly increase the
clinical  applications and commercial potential of hyperthermia;
however, there can be no assurance that this system will provide
reliable non-invasive thermometry.

   The Company is also currently collaborating with a number  of
research   institutions  to  develop  advanced  heat   treatment
products  and  treatments to increase the clinical  applications
for  BSD's  products, with a focus on deep regional hyperthermia
and the treatment of prostatic carcinoma and breast cancer.

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.   The Company's policy is to file patent applications
to   protect  significant  technology,  inventions  and  product
improvements.   The Company has been issued 18  patents  in  the
United  States and additional patents outside the United States.
Other  hyperthermia related patents are pending  in  the  United
States,  Japan and Europe.  There can be no assurance  that  the
patents presently issued or those applied for (if granted), will
be  of  significant value to the Company or will be  held  valid
upon  judicial  review.   Successful  litigation  against  these
patents  by  a  competitor could have a material adverse  effect
upon the Company's business, financial condition and results  of
operations.

  The Company believes that it possesses significant proprietary
know-how  in its hardware and software capabilities.  There  can
be  no assurance that others will not develop, acquire or patent
technologies similar or superior to those of the Company or that
secrecy will not be breached.  In July 1979, the Company 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 licenser.  The Company pays royalties based
upon  its sales of the Bowman Probe.  The license agreement  was
amended and renewed in 1987 and is currently in effect.

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

   From  time  to time, the Company 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.  In 1994, BSD issued  a  non-exclusive
license  to Urologix to practice some of its patented technology
for  cash  payments and royalties on future sales; in 1996,  the
Company  terminated this license (see Part I, Item 3,  Urologix,
Inc. vs. BSD Medical Corporation).

  In July 1996, BSD entered into a license agreement and granted
EDAP  Technomed, Inc., now EDAP TMS S.A., a non-exclusive,  non-
transferable license of certain rights to one of BSD's  patents.
As  a  result of this transaction, BSD received a non-refundable
license fee in the amount of $1,500,000 ($1,000,000 in July 1996
and $500,000 in September 1996), as well as the right to receive
royalties of 2.5%, up to a maximum of $3,500,000, on the sale of
certain products.

GOVERNMENT REGULATION

   The medical devices that have been and are being developed by
the Company 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.  This  regulation  has  become
stringent and the approval process expensive and time consuming.
In  addition,  various foreign countries in which the  Company's
products are or may be sold, have regulatory requirements.

   The  majority of the Company'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.   The
Company intends to continue to make improvements in and  to  its
existing  products.  Product improvements must be  submitted  to
the  FDA  under  IDEs,  510(k) PreMarket  notifications  or  PMA
supplements.

   International sales of unapproved medical devices are subject
to  FDA  export  requirements, unless these products  have  been
previously approved by one of 8 countries specified by the  FDA.
In  addition, international sales are subject to the  regulatory
safety  agency  requirements of each  country.   The  regulatory
review process varies from country to country.  The Company  has
obtained   regulatory  approval,  import  approval  and   export
approval for various of its products from certain countries  and
has  applied for additional approvals and will continue to apply
for others.  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 the Company's financial condition and
results  of operations.  Sales into the European Union (EU)  are
now  governed by the need to obtain ISO certification and  a  CE
Mark  and  to  comply with all applicable directives.   BSD  has
started  the  process  of obtaining testing  and  certifications
needed for compliance which will allow BSD to affix the CE Mark.
There can be no assurance that BSD can obtain the CE Mark,  and,
if  BSD  is  unable to obtain these approvals, it could  have  a
significant   material   effect  on  the   Company's   financial
condition.

  FDA regulations pertain not only to human health care products
and  medical  devices, but also to the processes and  facilities
used  to manufacture such products.  The Company is required  to
register  with the FDA as a device manufacturer.  As  such,  the
Company  is inspected from time to time by the FDA to  determine
whether  the  Company is in compliance with various  regulations
relating to medical device manufacturers.  All devices  must  be
manufactured in accordance with regulations specified in the FDA
Quality   System  Regulation  (QSR)  dated  October  1996.    In
complying with FDA's QSR, manufacturers must continue to  expend
time,  money  and effort in the areas of production and  quality
control to ensure full compliance.  Significant changes  to  the
manufacturing process require notification to the FDA,  and  all
changes  require  documentation.  The Medical  Device  Reporting
regulation requires that the Company provide information to  the
FDA on death or serious injuries alleged to have been associated
with  the  use  of its products, as well as product malfunctions
that would likely cause or contribute to death or serious injury
if  the  malfunctions  were to recur.  Failure  to  comply  with
regulatory requirements could have a material adverse effect  on
the  Company's  business,  financial condition  and  results  of
operations.   Although  the  Company  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 products, a determination that  the
Company 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 the Company.   Although  the
Company  cannot predict what impact, if any, such changes  might
have  on  its business, such changes could materially  adversely
affect the Company's business.

   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.   The
BSD-50, BSD-400, and the BSD-500 hyperthermia system applicators
emit a fixed frequency of 915 MHz, which is approved by the  FCC
for medical applications.  Some European countries allow the use
of 433.92 MHz rather than 915 MHz, thus the BSD-50, BSD-400, and
BSD-500  can  be  operated  at 433.92 MHz.   Accordingly,  these
systems  do  not require shielding to prevent interference  with
communications.   The  BSD-1000, BSD-1500 and  BSD-2000  systems
utilize variable-frequency generators and applicators to achieve
therapeutic  temperatures.  Accordingly, these  systems  require
electromagnetic shielding.  Ultrasound hyperthermia systems  can
be  operated  without  shielding because  the  applicators  emit
acoustic rather than electromagnetic energy.

PRODUCT LIABILITY EXPOSURE

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

EMPLOYEES

   On  August 31, 1997, the Company had 18 employees, 16 of them
full time employees.  None of the Company's employees is covered
by a collective bargaining agreement.  The Company considers its
relations with its employees to be satisfactory.  The Company is
dependent   upon   a   limited   number   of   key   management,
manufacturing,  and technical personnel.  The  Company'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 the Company
are  located in Salt Lake City, Utah.  The complete headquarters
and  production  facility occupies approximately  20,000  square
feet  and is rented on a lease with an option to purchase.   The
current  annual  rental  expense  is  $62,400  (see  Note  7  to
Financial Statements).  The building lease is accounted for as a
capitalized   lease  for  financial  statement  purposes.    The
building  is  currently in good condition; is adequate  for  the
Company's  needs;  is  suitable for all Company  functions;  and
provides  room for future expansion.  The Company believes  that
it carries adequate insurance on the property.


ITEM 3.  LEGAL PROCEEDINGS

UROLOGIX,  INC.  VS.  BSD  MEDICAL  CORPORATION,  United  States
District Court for the District of Minnesota, Civil Action No. 4-
96-647.

   In  June  of 1996, the Company advised Urologix, Inc.,  with
whom  it  had previously been involved in litigation  involving
the  alleged infringement of a BSD patent, of information which
the   Company   believed  indicated  a  breach  of   Urologix's
confidentiality obligations under the Settlement Agreement that
had  resolved  the earlier suit.  Dissatisfied with  Urologix's
response to this notice, the Company advised Urologix  that  it
was terminating the Settlement Agreement and the patent license
granted to Urologix thereunder.

   On  July  30,  1996,  Urologix filed a lawsuit  against  the
Company under seal in the United States District Court for  the
District  of  Minnesota (Urologix, Inc. v. BSD  Medical  Corp.,
Civil Action No. 4-96-647) seeking a declaratory judgment  that
Urologix  had  not  breached  the  Settlement  Agreement.   The
Company  answered  the Complaint and filed  a  counterclaim  on
August  20,  1996,  seeking  a declaratory  judgment  that  the
Settlement  Agreement  and  license  provided  thereunder  were
properly terminated by the Company based on Urologix's breaches
of  the confidentiality provision and seeking damages caused by
such  breaches.   Urologix has replied to the counterclaim  and
discovery  is nearly complete.  The case is currently  set  for
trial no later than April 1998.

   The  Company  believes that its claims against Urologix  are
well-founded and intends to pursue the matter through trial  if
necessary.   There  can be no assurance  that  the  Court  will
resolve  the lawsuit in the Company's favor.  Though Urologix's
Complaint  against the Company requests unspecified  "damages,"
it  is  apparent that the principal thrust of the relief sought
by  Urologix is declaratory and injunctive, and no damages have
been  quantified.   Moreover, since the Company  has  taken  no
action  to preclude Urologix from continuing to offer  products
under  the  now-terminated license or  to  otherwise  interrupt
Urologix's  on-going business, it seems unlikely that  Urologix
will be able to substantiate significant monetary damages.

NELSON BUNKER HUNT LIQUIDATING TRUST (NBHLT) VS. ALAN L. HIMBER

   On  October  5, 1994, Alan L. Himber, a former principal  and
officer   of  the  Company,  filed  a  voluntary  petition   for
bankruptcy  relief under Chapter 11 in the Northern District  of
Texas.   On March 1, 1995, the case was converted to Chapter  7.
Mr.  Himber  made  claims  against the  Company  for  wages  and
equitable ownership interests through various entities in  which
he  had an interest; these claims became property of the Chapter
7  estate.  Through an Asset Purchase and Release of Claims, the
Chapter  7  Trustee of Himber's estate "sold,  transferred,  and
conveyed" to the NBHLT all of the Himber estate's claims against
BSD,  as well as its entire interest in and right to any  shares
of  stock of BSD, and all rights of the Himber estate to acquire
additional  shares of BSD.  On May 19, 1997, BSD purchased  from
the NBHLT all such rights previously owned by the Himber estate.
As  a  result of this purchase, the Company believes that it  no
longer has any obligations regarding Mr. Himber or claims he may
have against the Company or his former partnerships.

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

  No matters were submitted to a vote of security holders during
the fourth quarter of fiscal year 1997.

<PAGE>
                           PART II

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

   The Company's Common Stock began publicly trading on December
9, 1980, and was traded in the over-the-counter market under the
NASDAQ  symbol  "BSDM"  until it was  delisted  from  NASDAQ  on
January  3, 1991.  After that time, it continued to trade  (very
sporadically)  in  the over-the-counter market and  consistently
reliable  stock  quotations were not readily  available  because
there  had  been no established market for the Company's  stock.
In  May  1997, the symbol "BSDM" was listed on the OTC  Bulletin
Board.

    The  following  table  sets  forth  the  high  and  low  bid
transactions,  as provided by the OTC Bulletin  Board,  for  the
quarters  in  fiscal year 1997 after the Company's stock  symbol
was  listed.   The amounts reflect inter-dealer prices,  without
retail  mark-up, mark-down or commission, and may not  represent
actual transactions.


                              Bid       
     Quarter Ended:       High    Low   
     ---------------------------------                                     
     May 31, 1997        $0.5625 $0.50  
     August 31, 1997     $0.6250 $0.25  


  As of August 31, 1997, there were approximately 627 holders of
record  of the Common Stock. The Company 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, 1997, and the statements of
operations,   statements  of  cash  flow   and   statements   of
stockholders' equity for the years ending August 31,  1996,  and
1997,  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, 1997.  Revenues for  the  year
ended   August  31,  1997,  totaled  $1,319,698,   compared   to
$2,536,525  for the year ended August 31, 1996,  a  decrease  of
$1,216,827,  or  47.97%, primarily because the Company  received
$1,501,376 in fiscal 1996 from the grant of a patent license, as
opposed  to  $232,163  in license fees in 1997.   Product  sales
increased from $711,459 in 1996 to $949,369 in 1997, an increase
of $237,910, or 33.43%.  During fiscal 1996, the Company devoted
time and resources to completion of a new product line - the BSD-
2000/3D/MR  - and to establishing the manufacturing capabilities
and  support  functions needed for this new product  line.   The
first  BSD-2000/3D  was installed in August  1997,  and  BSD  is
completing  the  modifications required for the installation  of
the   MR  portion  of  this  system,  which  is  projected   for
installation in January 1998.  BSD has received orders  totaling
$1,631,978  for  purchases  of this  new  product,  and,  as  of
November 1997, has a back-log of $996,837 in sales for  the  new
product line, which will be delivered in fiscal 1998.

   The  Company's  revenues from products and  services  in  the
United States decreased from $266,147 in fiscal 1996 to $122,413
in  fiscal 1997.  The Company is currently evaluating methods to
increase  U.S.  sales,  which  includes  pursuing  increases  in
reimbursement for some treatments and a strategic partnership to
pursue studies regarding treatment of prostatic carcinoma.   BSD
also  intends to install a BSD-2000/3D System at Duke University
Medical Center, projected for installation in December 1997,  as
part  of  the  NCI  grant (Grant No. CA61515)  BSD  received  to
develop  and  clinically evaluate this system.   Some  of  these
actions  may  eventually improve the U.S. market, however,  this
market continues to be sluggish.

   Gross  profit  on  product sales for 1997  was  $560,924,  an
increase of 256.95%, as compared to $218,298 for fiscal 1996,  a
result of an increase in sales and lower product costs in  1997,
as  compared  to 1996.  Gross profit margin as a  percentage  of
sales  increased from 30.68% in fiscal 1996 to 59.08% in  fiscal
1997  because of the aforementioned increase in sales and  lower
product costs.

   Selling, General and Administrative Expenses for 1997 totaled
$1,359,082,  an increase of $662,082, or 94.99%, as compared  to
$697,000  for  fiscal 1996, primarily because of  the  following
expenditures.  The Selling, General and Administrative  Expenses
for   1997  included  $372,000  in  deferred  compensation  from
amortization  of options and warrants issued to purchase  shares
of   the  Company's  common  stock  (see  Note  6  to  Financial
Statements); increases in compensation; $311,000 in legal  costs
due  to  litigation with Urologix (see Part  I,  Item  3,  Legal
Proceedings,   Urologix,  Inc.  vs.  BSD  Medical  Corporation);
$47,858  due  to  write-off of amortization costs  of  abandoned
patents;  and  increased  costs for trade  shows  and  marketing
expense.   Selling,  General  and  Administrative  Expenses  may
increase  in  the future as the Company intends  to  expand  its
marketing and sales efforts.

  Research and Development Expenses for 1997 totaled $432,394, a
decrease  of  $132,764 or 23.49%, as compared  to  $565,158  for
fiscal  1996, due to completion of the design of the BSD-2000/3D
product line.  The Company may increase research and development
in  the future in order to improve existing products and develop
new  products, including prostatic carcinoma treatment products.
The  Company also intends to pursue new markets and applications
for the Company's products.

  Total Costs and Expenses for 1997 were $2,179,921, an increase
of 20.03%, as compared to $1,755,319 for fiscal 1996, due to the
aforementioned  increases in Selling, General and Administrative
Expenses for 1997.

   Interest Expense in 1997 decreased to $22,936, as compared to
$46,461  in  1996.  The decrease was caused primarily  by  lower
interest  costs  associated with notes  payable  as  they  reach
maturity and typical periodic business fluctuations.

   During  fiscal 1997, the Company experienced a  net  loss  of
$872,525.   During  fiscal 1996, the Company experienced  a  net
profit  of $870,993 before taxes and $800,993 after taxes.   The
difference  from 1996 to 1997 was due to the receipt  in  fiscal
1996  of  $1,501,376  from the grant of  a  patent  license  (as
opposed to $232,163 in license fees in 1997), combined with  the
aforementioned increases in Selling, General, and Administrative
costs during 1997.  As of November 1997, BSD had received orders
totaling $1,631,978 for purchases of BSD-2000/3D/MR product line
and  has  a  back-log of $996,837 in sales for the  new  product
line, which will be delivered in fiscal 1998.

  RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.  International
sales  accounted  for  62.59% and 72.94% of the Company's  total
product sales during the fiscal years ended August 31, 1997, and
August  31,  1996,  respectively.   The  Company  expects   that
international  sales  will continue to represent  a  significant
portion  of  its total sales.  The Company 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 the Company'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.  The Company'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  in
order  to  reduce the balance of payments deficit may result  in
retaliatory actions by foreign governments.  Such actions  could
have  adverse  effects upon sales of the Company's  products  in
certain  foreign  markets.  In addition,  the  laws  of  certain
foreign  countries  do  not protect the  Company's  intellectual
property rights to the same extent as do the laws of the  United
States.

   FLUCTUATIONS IN OPERATING RESULTS.  The Company'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 the Company's customers;
the   nature  of  the  medical  capital  equipment  market;  the
inability  of  the  Company to predict  the  timing  of  various
approvals  required  from the Food and Drug  Administration  and
other governmental agencies; the relatively large per unit sales
prices  of  the Company's products; the typical fluctuations  in
the   mix   of   orders   for  different  systems   and   system
configurations;  the limited unit sales volumes;  the  Company'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 decreased  by
$658,974,  a decrease of 32.49% from August 31, 1996, to  August
31,  1997.  The decrease was primarily due to decreases in  cash
and other receivables.  Cash decreased to $43,681, a decrease of
$338,065  or 88.55%, as compared to 1996, primarily as a  result
of  payment  of  accrued debts and increased operating  expenses
required to build and support new product lines.  Trade accounts
receivable  increased  by  $272,390,  an  increase  of  209.94%,
primarily  as a result of a receivable for the MR portion  of  a
BSD-2000/3D/MR  system, which is projected to  ship  in  January
1998.   Inventories increased by $11,160, an increase  of  2.1%,
primarily as a result of normal periodic fluctuations.   Current
liabilities  increased  by  $257,608,  an  increase  of  42.31%,
primarily  as  a result of increases in notes payable,  accounts
payable,  and deferred revenue, as well as other normal periodic
fluctuations.

MANAGEMENT DISCUSSION AND CURRENT STATUS OF FINANCIAL CONDITION.

   Management believes that the current projected sales will  be
sufficient  to  meet the Company's operating  cash  requirements
into  1998.  However,  if  sales  are  not  sufficient  to  meet
operating  needs,  management intends to use  its  current  cash
position, (supplemented and aided by anticipated cash flow  from
sales, budget controls, fiscal conservatism, the possibility  of
loans,  and  if  necessary,  private placements  of  its  equity
securities)  to  meet operating requirements planned  for  1998.
The  Company's backlog of unfilled customer orders was $408,355,
as of August 31, 1997; the Company's backlog was $409,141, as of
August 31, 1996, (for which a $335,000 deposit had already  been
collected  by  the  Company).  The Company also  had  long  term
receivables due for field service contracts of $105,820,  as  of
August  31,  1996, and $68,480, as of August 31,  1997.   As  of
November  1997, BSD had received orders totaling $1,634,978  for
purchases of the BSD-2000/3D/MR product line and had a  back-log
of $1,046,978 in sales for this product, which will be delivered
in fiscal 1998.

   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   urological  diseases,   specifically   Benign
Prostatic  Hyperplasia  (BPH).  The  BPH  market  is  currently
estimated  to  be over $3 billion annually in the  U.S.  alone.
Oracle   Strategic  Partners  is  a  private  investment   firm
specializing  in  public  securities  investing  and   merchant
banking in the health care, bioscience and related industries.

   TherMatrx will be capitalized by the contribution of  certain
assets of BSD which have applicability in the urology market and
a  $6 million investment by OSP.  OSP's investment is milestone-
based  with an initial $3 million investment on closing  and  $3
million  contingent  on  the achievement  of  certain  milestone
parameters.   Assuming completion of the milestone funding,  BSD
will retain a 30% interest on a fully diluted basis.  As part of
the  agreement,  BSD plans to provide certain manufacturing  and
consulting  services, for which TherMatrx  will  compensate  the
Company.   TherMatrx'  corporate  offices  will  be  located  in
Chicago,  Illinois.   The  President and  CEO  will  be  Charles
Manker.  Dr. Gerhard Sennewald has been appointed by BSD's Board
to  serve  as BSD's representative on the Board of Directors  of
TherMatrx.  This transaction is consistent with the strategy  of
the  BSD  Board of Directors to enhance shareholder value.   BSD
will  continue  to  focus its resources on the cancer  treatment
market,  including a concentration on the areas of deep regional
hyperthermia and the treatment of prostatic carcinoma.

   In  1996, BSD received the first purchase order for its  new,
deep  regional hyperthermia system -  the BSD-2000/3D/MR System.
The  purchase  order  was  received from Dr.  Sennewald/Medizin-
Technik   GmbH,   Munich,   Germany,  BSD's   primary   European
distributor,  and included an option for a second system  order.
The   Company  anticipates  that  the  BSD-2000/3D  System  will
increase  the  commercial market in hyperthermia throughout  the
world.   BSD has started collaborative developments for clinical
application  of this technology, and some of these  developments
will  be  conducted  under  grants from  the  Stiftung  Deutsche
Krebshilfe e.V. (German Cancer Aid Foundation).  The Company  is
seeking  other strategic partnerships for marketing,  sales  and
distribution  of  the Company's current products;  collaborative
arrangements for the development of new product lines;  as  well
as  alliances for product development and manufacturing  of  the
companies'  product.  BSD is in negotiations for some  of  these
partnerships.

   Management  is  expanding world wide  marketing  for  current
cancer products into two previously unexplored markets: surgical
and  chemotherapeutic oncology.  These two  disciplines  control
most  cancer patients and treatment funds, and clinical evidence
of  the safety and efficacy of hyperthermia in conjunction  with
chemotherapy and surgery has been published.

   The  Company  is  primarily focused on  the  development  and
commercialization of minimally invasive, low toxicity, effective
treatments  of disease using controlled heating.  BSD  plans  to
support  further R & D for current products to improve  function
and  reduce  cost.   Funding of R & D will primarily  come  from
government,  strategic  partnerships,  and  foundation  sources;
product improvements on existing product lines will be supported
by  current product sales.  The Company also intends  to  pursue
new markets and applications for the Company's product.

   The  Company  has  expanded its business to include  contract
manufacturing  in  order  to  more  effectively  utilize   BSD's
manufacturing expertise.

   Management has implemented programs to increase profitability
and  expand  BSD's business; however, there can be no  assurance
that   management  will  be  successful  in  achieving  improved
operating  results and there are certain risk factors which  may
impact the Company's ability to fund its cash needs.  Such  risk
factors  include  uncertainties as to the Company's  ability  to
achieve  adequate  sales, general economic conditions,  possible
unforeseen  and/or non recurring expenses, and the  availability
of   outside  financing.   The  Company's  backlog  as  of   any
particular  date  may not be indicative of the Company's  actual
sales  for  any  fiscal  period.   In  addition,  the  Company's
ability  to  produce  and  ship its products  depends  upon  its
production   capacity,   manufacturing  yields   and   component
availability,  among other factors.  The domestic United  States
market  for  cancer  hyperthermia equipment  has  been  severely
adversely impacted as a result of Medicare and other third-party
reimbursement  policies and procedures.  The  positive  clinical
results  from  European studies and recent changes  in  Medicare
reimbursement policy may eventually stimulate the  U.S.  market;
however, BSD projects that the U.S. market will continue to grow
at a slower rate than the international market.

   Domestic United States orders have traditionally generated  a
substantial  cash  down  payment with each  order.   These  down
payments  have  helped to stabilize cash fluctuations  over  the
course  of  each year and have helped to finance the acquisition
of  the  specific components needed to produce the  systems  for
which  these down payments have been received.  For the previous
few  years,  foreign sales have provided the majority  of  sales
revenues, and the Company anticipates that the majority  of  its
sales  for at least the next one to two years will be to foreign
customers.   The  dramatic  shift  from  predominantly  domestic
United States sales to predominantly foreign sales could have  a
negative  impact  on the Company's ability to  fund  its  future
purchases  of raw materials because payments to the Company  for
foreign sales have typically been by means of letters of  credit
whereby  100% of the purchase price for each system is  paid  to
the Company after the system has been produced and shipped.   In
order  to  remedy this situation, the Company is  attempting  to
encourage  substantial down payments with system orders  and  is
seeking to establish a line of credit; however, there can be  no
assurance the Company will be successful in obtaining either.


ITEM 7.  FINANCIAL STATEMENTS

  Pursuant to Rule 12b-23, the financial statements set forth on
pages   1  through  19  attached  hereto  are  incorporated   by
reference.


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

   As reported in Form 8-K/A filed September 2, 1997 and Form 8-
K/A  filed September 23, 1997, the Company dismissed its  former
auditors, KPMG Peat Marwick, LLP, on August 14, 1997.   Pursuant
to  action  approved by the Company's Board  of  Directors,  the
Company  retained Tanner + Co. as its auditors as of August  14,
1997.

<PAGE>
                          PART III

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

  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.  The Company does not presently
have  a nominating committee.  Executive officers of the Company
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  the
Company and none of these individuals have been involved in  any
reportable legal proceedings.

   The following table sets forth certain information concerning
the   directors,  executive  officers,  and  other   significant
employee(s) of the Company.


                                             
     Name              Age               Position
                             
Paul    F.    Turner,  50    Chairman of the Board, Acting
M.S.E.E.                      President, and Senior Vice
                              President of Research
                             
Dixie Toolson Sells    47    Vice President of Regulatory
                              Affairs and Corporate Secretary
                             
Ray Lauritzen          47    Vice President of Field Service
                             
Gerhard W. Sennewald,  61    Member of the Board of Directors
Ph.D.                        
S. Lewis Meyer, Ph.D.  53    Member of the Board of Directors
                             
J. Gordon Short, M.D.  66    Member of the Board of Directors
                             
Theron Schaefermeyer   46    Director of International Sales
                              and Marketing
                             


  Mr. Turner has been with BSD for 19 years.  He served as Staff
and  Senior  Scientist  from 1979 to  September  1986;  as  Vice
President of Research from September 1986, to January 1989;  and
as  Senior  Vice  President of Research from  January  1989,  to
October  1993.   In  October 1993, Mr. Turner resigned  as  Vice
President  of  Research, and he served as Senior Scientist  from
October 1993 to December 1994.  In December 1994, Mr. Turner was
re-appointed  as  Senior  Vice President  of  Research  and  was
elected  to  the Board of Directors.  On October  3,  1995,  the
Board of Directors appointed Mr. Turner as Acting President.

   Ms.  Sells  has been with BSD for 19 years.   She  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 Utah Intermountain Biomedical Association.

   Mr.  Lauritzen has been with BSD for 15 years.  He served  as
Field  Service  Manager from 1982 to January 1988  and  as  Vice
President of Field Service Operations since January 1988.

   Dr.  Gerhard  Sennewald  was  appointed  to  BSD's  Board  of
Directors  in  December 1994.  He has been the key BSD  European
representative  and  distributor  for  13  years  and  has  been
instrumental  in obtaining the majority of BSD's foreign  sales.
Dr.  Sennewald is the President and Chief Executive  Officer  of
Medizin-Technik GmbH of Munich, Germany.

   Dr.  S.  Lewis Meyer returned to BSD's Board of Directors  in
December 1994, after previously serving as a Director in the mid-
1980's.   Dr. Meyer is President and Chief Executive Officer  of
Imatron,  Inc., a publicly traded manufacturer of Ultrafast  CT (TM)
Scanner.  Dr. Meyer is also Chief Executive Officer of Heartscan
Imaging,  Inc., a subsidiary of Imatron, Inc., which is  engaged
in  the  development of a nationwide network of coronary  artery
disease risk assessment centers.

   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  President  and
Chief   Executive  Officer  of  Brevis  Corporation,  a  medical
products  company  which  specializes  in  consumable  specialty
supplies.

  Mr. Schaefermeyer has been with BSD for 16 years.  He has been
a  Research Assistant since 1985 and assisted with International
Marketing  from  1991  to 1995.  He has served  as  Director  of
International Sales and Marketing since July 1995.

   Pursuant to Section 16(a) of the Securities Act of 1934,  the
Company's directors, executive officers, and any persons holding
more  than  10 percent of the Company'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 the Company, all  of
such  persons subject to these reporting requirements filed  the
required  reports  with  respect to the  Company'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 the  Company  in
the  fiscal  year ended August 31, 1997. No stock  options  were
granted  to  or exercised by the Acting President during  fiscal
year  1997.  No other executive officers of the Company received
compensation exceeding $100,000.


                 SUMMARY COMPENSATION TABLE
                              
                                                  Long Term           
                  Annual Compensation            Compensation
                                                   Awards
--------------------------------------------  ----------------  ----
                                       Other   Restric-          All           
                                      Annual     ted            Other
                                      Compen-   Stock           Compen-
 Name and   Fiscal   Salary   Bonus   sation   Awards  Options  sation
 Position    Year      ($)     ($)     ($)       ($)     (#)      ($)
-----------------------------------------------------------------------
Paul F.      1997  $115,000    -0-     -0-       -0-     -0-      -0-
Turner,
Acting       1996  $115,000    -0-     -0-    $2,110(1)  14,953   -0-
President; 
Sr. VP,      1995  $115,000    -0-     -0-    $1,240(2)  166,000  -0-
Research

(1)     During fiscal 1996, the Company awarded Mr. Turner 1,000
  shares  of  restricted  common stock.   Consistently  reliable
  stock  quotations had not been readily available because there
  had  been  no established market for the Company's stock  (see
  Part  II,  Item 5).  However, the Company received a valuation
  of  $2.11  per  share  on  a minority  interest  basis  as  of
  December  31,  1996.  The Company believes these  numbers  may
  not  be  a  reliable indicator of actual realizable  value  of
  these shares.  However, this value has been reflected for  the
  shares listed in this table.

(2)     During fiscal 1995, the Company awarded both Mr.  Turner
  1,000   shares   of  restricted  common  stock.   Consistently
  reliable  stock  quotations  had not  been  readily  available
  because   there  had  been  no  established  market  for   the
  Company's  stock (see Part II, Item 5).  However, the  Company
  received  a  valuation  of $1.24 per share  on  a  controlling
  interest  basis as of December 4, 1994.  The Company  believes
  these  numbers  may  not  be a reliable  indicator  of  actual
  realizable  value of these shares.  However,  this  value  has
  been reflected for the shares listed in this table.


     AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
            AND FISCAL YEAR-END OPTION/SAR VALUES

           Shares                                      
          Acquired              Number of           Value of
             on     Value      Securities          Unexercised
            Exer-   Reali-     Underlying         In-the-Money
            cise      zed       Unexercised      Options at FY-end
                            Options at FY-end          ($)
                                   (#)
 Name and                  -------------------  -----------------
 Position    (#)    ($)    Exerci-  Unexerci-   Exerci-  Unexerci-
                            sable     sable      sable     sable
-----------------------------------------------------------------
Paul F.      -0-    -0-    172,655   8,298      $58,271   $2,801
Turner,    
Acting
President;
Sr. VP,
Research


COMPENSATION OF DIRECTORS

   During  the fiscal year ended August 31, 1997, the  Company's
directors received no compensation of any kind for their service
to the Company as directors.

EMPLOYMENT CONTRACTS

  The Company has an employment contract with Mr. Paul F. Turner
which  was  signed  November 2, 1988.  This  agreement  provided
specified salary increases through 1992; the agreement  provided
that, after October 1, 1993, Paul Turner's salary shall be based
upon  reasonable mutual agreements.  The agreement also provided
that, in the case of non-voluntary termination, Mr. Turner shall
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  shall
be  an  average of Mr. Turner's salary for the immediate  twelve
month  period prior to termination.  The agreement also requires
the Company 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
August 31, 1997, with respect to the beneficial ownership of the
outstanding Common Stock by (i) each person known to  management
of  the  Company  to  own  beneficially  more  than  5%  of  the
outstanding Common Stock, (ii) all directors and named executive
officers of the Company, and (iii) all officers and directors as
a group:

Name and Address of         Shares of Common      Percentage of
Beneficial Owner           Stock Beneficially     Common Stock
                                Owned (1)         Ownership (2)
-------------------------------------------------------------------
Dr. Gerhard W.                6,669,946(3)           41.04%
Sennewald
 c/o Medizin-Technik GmbH
 Augustenstrasse 27
 D-80333 Munich, Germany

Paul F. Turner                1,987,573(4)           12.16%
 762 Lacey Way
 North Salt Lake, UT  84054

John E. Langdon               1,434,010(5)            8.86%
 2501 Parkview Drive,
 Suite 500
 Fort Worth, TX  76102

Inchon Partners, L.P.(6)        912,500               5.64%
 c/o BSD Medical Corporation
 2188 West 2200 South
 Salt Lake City, UT 84119

S. Lewis Meyer, Ph.D.            19,000(7)               *
 c/o Imatron
 389 Oyster Point Boulevard
 South San Francisco,  CA 94080

J. Gordon Short, M.D., FCAP      16,000(8)               *
 c/o Brevis Corporation
 3310 South 2700 East
 Salt Lake City,  UT 84109

All officers and              9,268,928(9)           55.95%
directors as
a group (6 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 76,065 shares subject to options.

(4)  Includes 172,655 shares subject to options.

(5)  Includes 537,525 shares owned directly by Mr. Langdon.  The
  remaining  shares are held in trusts for which Mr. Langdon  is
  Trustee.

(6)   Alan L. Himber, as the General Partner of Inchon Partners,
  L.P.,  exercised the voting rights to the stock owned  by  the
  partnership.   Mr.  Himber  subsequently  declared  Chapter  7
  bankruptcy.   Pursuant to an agreement between Thomas  Powers,
  Himber's  Chapter  7  Trustee, and  Carter  Pate,  the  Nelson
  Bunker  Hunt Liquidating Trust (NBHLT) Trustee, dated  January
  12,  1996,  Powers  "sold, transferred, and conveyed"  to  the
  NBHLT all of the Himber estate's interest in and right to  any
  shares  of  stock of BSD, and all rights of the Himber  estate
  to  acquire  additional shares of BSD, including all  options,
  warrants,  and convertible instruments.  On May 19, 1997,  BSD
  purchased from the NBH Liquidating Trust its rights to  shares
  of  stock  of BSD and other equity or debt interest or  rights
  in  BSD  owned  by  the Himber estate, including  all  of  the
  Himber   estate's  interest  in  and  control  of  Cognoscenti
  Partners, Inchon Partners, and San Jacinto Partners.   BSD  is
  currently  attempting to ascertain the ownership positions  of
  the limited partners in this partnership.

(7)  Includes 14,000 shares subject to options.

(8)  Includes 14,000 shares subject to options.

(9)  Includes 388,637 shares subject to options.


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                           Description
Number
----------------------------------------------------------------      
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  BSD   Medical   Corporation  1987  Stock   Option   Plan.
      Incorporated  by  reference to  Exhibit  10  of  the  BSD
      Medical Corporation Form 10-K, filed April 8, 1988.
      
10.4  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.
      
10.5  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.
      
10.6  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.
      
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.

(b)Reports on Form 8-K
     
   The  Company  filed a report on Form 8-K/A  on  September  2,
   1997,  which  reported  a change in the Company's  certifying
   accountants.   The  letter of agreement  from  the  Company's
   former certifying accountant was filed as Exhibit 16 to  Form
   8-K/A on September 23, 1997.

   The  Company filed a report on Form 8-K on November 18, 1997,
   which  reported  the  formation of TherMatrx,  Inc.,  by  BSD
   Medical Corporation and Oracle Strategic Partners.

<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 26, 1997         By:    /s/   Paul F. Turner
                                Paul F. Turner
                                Chairman  of  the Board,  Acting
                                President,   and   Senior   Vice
                                President of Research



  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 26, 1997         By:    /s/   Paul F. Turner
                                Paul F. Turner
                                Chairman  of  the Board,  Acting
                                President,   and   Senior   Vice
                                President of Research


Date:  November 26, 1997         By:    /s/   S. Lewis Meyer
                                Dr. S. Lewis Meyer
                                Member of the Board of Directors


Date:  November 26, 1997         By: /s/   Gerhard W. Sennewald
                                Dr. Gerhard W. Sennewald
                                Member of the Board of Directors


Date: November 26, 1997          By:   /s/   J. Gordon Short
                                Dr. J. Gordon Short
                                Member of the Board of Directors


<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,  1997,  and  the  related
statements  of  operations, stockholders'  equity,  and  cash
flows for the year then ended. These financial statements are
the   responsibility   of  the  Company's   management.   Our
responsibility  is to express an opinion on  these  financial
statements based on our audit.

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

In  our  opinion, the 1997 financial statements  referred  to
above present fairly, in all material respects, the financial
position  of BSD Medical Corporation as of August  31,  1997,
and  the results of its operations and its cash flows for the
year   then  ended  in  conformity  with  generally  accepted
accounting principles.

The  accompanying  financial statements  have  been  prepared
assuming  that the company will continue as a going  concern.
As  discussed  in  Note  2 to the financial  statements,  the
Company  has an accumulated deficit and incurred an operating
loss.  These  conditions raise substantial  doubt  about  its
ability  to  continue as a going concern. Management's  plans
regarding  those matters also are described in  Note  2.  The
financial  statements  do not include  any  adjustments  that
might result from the outcome of this uncertainty.

                                                TANNER + CO.
Salt Lake City, Utah
September 30, 1997 except for note 16,
which is dated November 18, 1997

<PAGE>

                Independent Auditors' Report

The Board of Directors
BSD Medical Corporation:

We  have  audited the accompanying statements of  operations,
stockholder's   equity  and  cash  flows   of   BSD   Medical
Corporation (the Company) for the year ended August 31, 1996.
These  financial  statements are the  responsibility  of  the
Company's  management.  Our responsibility is to  express  an
opinion on these financial statements based on our audit.

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

In  our  opinion, the financial statements referred to  above
present  fairly,  in all material respects,  the  results  of
operations and cash flows of BSD Medical Corporation for  the
year  ended  August  31, 1996, in conformity  with  generally
accepted accounting principles.

The accompanying 1996 financial statements have been prepared
assuming  that  BSD Medical Corporation will  continue  as  a
going  concern.  As  discussed in note  2  to  the  financial
statements,  the Company has historically experienced  losses
from  operations  and has limited capital resources  both  of
which raise substantial doubt about the Company's ability  to
continue as a going concern. Management's plans in regard  to
these  matters  are also described in note 2.  The  financial
statements  do not include any adjustments that might  result
from the outcome of this uncertainty.

                                       KPMG Peat Marwick LLP
Salt Lake City, Utah
November 25, 1996


<PAGE>
                                                      BSD MEDICAL CORPORATION
                                                                Balance Sheet
                                                              August 31, 1997

            Assets

Current assets:
   Cash and cash equivalents                              $      43,681
   Receivables                                                  406,874
   Inventories                                                  542,226
   Prepaid expenses                                              20,500
   Deposits                                                       6,850
                                                          -------------
                Total current assets                          1,020,131

Property and equipment, net                                     280,396
Long-term trade receivables                                      68,480
                                                          -------------
                                                              1,369,007
                                                          =============
            Liabilities and Stockholders' Equity

Current liabilities:
   Current portion of long-term debt                            251,723
   Current portion of deferred revenue                           82,850
   Accounts payable                                             323,918
   Accrued expenses                                             207,913
                                                          -------------
                Total current liabilities                       866,404
                                                          -------------
Long-term debt                                                   89,697
Deferred revenue                                                104,733
                                                          -------------
                                                                194,430

                Total liabilities                             1,060,834
                                                          -------------
Commitments and contingency                                         -  

Stockholders' equity:
   Common stock, $.01 par value; authorized
     20,000,000 shares; issued and outstanding
     16,176,980 shares                                          161,770
   Additional paid-in capital                                20,413,575
   Accumulated deficit                                      (19,874,689)
   Deferred compensation                                       (463,246)

   Less 234,928 shares of treasury stock, at cost               (19,237)
                                                          -------------
                Total stockholders' equity                      308,173
                                                          -------------

                                                          $   1,369,007
                                                          =============


See accompanying notes to financial statements                        1
<PAGE>
                                                      BSD MEDICAL CORPORATION
                                                      Statement of Operations


                                                 Years Ended August 31,
                                                        1997       1996
                                                  -----------------------
Product sales                                     $   949,369 $  711,459
Grant and license revenue                             370,329  1,825,066
                                                  -----------------------
           Total revenues                           1,319,698  2,536,525
                                                  -----------------------
Costs and expenses:
    Cost of product sales                             388,445    493,161
    Research and development                          432,394    565,158
    Selling, general, and administrative            1,359,082    697,000
                                                  -----------------------
           Total costs and expenses                 2,179,921  1,755,319
                                                  -----------------------
           Operating (loss) income                   (860,223)   781,206
    Other income (expense):
    Interest income                                    10,634      2,243
    Interest expense                                  (22,936)   (46,461)
    Other, net                                            -      134,005
                                                  -----------------------
           Net income (loss) before income taxes     (872,525)   870,993

Provision for income taxes - current                      -      (70,000)
                                                  -----------------------
Net (loss) income                                 $  (872,525)$  800,993
                                                  =======================
Net (loss) income per common and common
  equivalent share                                $      (.05)$      .05
                                                  =======================
Weighted average number of shares outstanding      16,176,980 17,164,967
                                                  =======================


See accompanying notes to financial statements                         2
<PAGE>



                                                      BSD MEDICAL CORPORATION
                                            Statement of Stockholders' Equity
                                         Years Ended August 31, 1997 and 1996
<TABLE>
<S>                                <C>         <C>        <C>          <C>          <C>          <C>      <C>



                                                           Additional     Deferred
                                        Common Stock         Paid-In       Compen-   Accumulated    Treasury Stock
                                      Shares      Amount     Capital       sation      Deficit     Shares     Amount
                                   ------------------------------------------------------------------------------------
Balances,
September 1, 1996                   16,176,980 $  161,770 $ 20,055,347 $ (1,055,070)$(19,713,157)  67,428 $    (19,911)

Treasury stock issued
for exercised stock
options                                    -          -           (442)         -            -        -            844

Treasury stock issued
for employee bonuses                       -          -         35,200          -            -        -          4,200

Deferred compensation
related to grant of stock
options                                    -          -        251,313     (251,313)         -        -            -  

Amortization of deferred
compensation                               -          -            -        456,967          -        -            -  

Net income                                 -          -            -            -        800,993      -            -  
                                   ------------------------------------------------------------------------------------
Balance, 
August 31, 1996                     16,176,980    161,770   20,341,418     (849,416) (18,912,164)  67,428      (14,867)

Amortization of deferred
compensation                               -          -            -        405,170          -        -            -  

Cancellation of stock
options                                    -          -        (19,843)         -            -        -            -  

Deferred compensation
related to grant of stock
options                                    -          -         19,000      (19,000)         -        -            -  

Treasury stock issued
for employee bonuses                       -          -            -            -            -     (3,000)         630

Purchase of treasury
stock for cash                             -          -            -            -            -    170,500       (5,000)

Net loss                                   -          -            -            -       (872,525)     -            -  
                                   ------------------------------------------------------------------------------------

Balances,
August 31, 1997                     16,176,980    161,770   20,340,575    $(463,246)$(19,784,689) 234,928 $    (19,237)
                                   ====================================================================================

</TABLE>


See accompanying notes to financial statements.                              3

<PAGE>
                                                      BSD MEDICAL CORPORATION
                                                     Statements of Cash Flows

                                                       Years Ended August 31,
                                                          1997        1996
                                                      -----------------------
Cash flows from operations activities:
   Net (loss) income                                  $ (872,525) $  800,993
   Adjustments to reconcile net (loss) income to net
     cash (used in) provided by operating activities:
      Depreciation and amortization                       24,481      39,705
      Write-off of patents                                67,742         -  
      Provision for losses on receivables                (46,694)     46,694
      Provision for warranties                           (12,377)     32,172
      Gain on settlement of payables                         -       (95,765)
      Stock issued for employee bonuses                      -        39,400
      Deferred compensation                              386,170     456,967
      Stock compensation expense                          73,000         -  
      (Increase) decrease in:
         Receivables                                     324,539    (582,887)
         Inventories                                     (11,160)        915
         Prepaid expense and other assets                 14,475      (5,084)
      Increase (decrease) in:
         Accounts payable                                190,926    (107,483)
         Accrued expenses                               (165,892)     22,121
         Deferred revenue                               (252,291)      9,172
                                                      -----------------------
                  Net cash (used in) provided by 
                  operations activities                 (279,606)    656,920
                                                      -----------------------
Cash flows from investing activities - purchase
  of property and equipment                              (52,474)     (6,866)
                                                      -----------------------
Cash flows from financing activities:
   Net proceeds from (payments on) short-term notes
     payable                                             155,672    (246,230)
   Payments on capital lease obligation                  (46,554)    (48,403)
   Payments on long-term debt obligation                (109,890)    (20,202)
   Proceeds from exercise of stock options                   -           402
   Payment for treasury stock                             (5,213)        -  
                                                      -----------------------
                  Net cash used in
                  financing activities                    (5,985)   (314,433)
                                                      -----------------------
(Decrease) increase in cash and cash equivalents        (338,065)    335,621

Cash and cash equivalents, beginning of year             381,746      46,125
                                                      -----------------------
Cash and cash equivalents, end of year                $   43,681  $  381,746
                                                      =======================



See accompanying notes to financial statements.                            4
<PAGE>




                                                      BSD MEDICAL CORPORATION
                                                Notes to Financial Statements
                                                     August 31, 1997 and 1996
     
     
1.  Summary of Business and Significant Accounting Policies Business

BSD Medical Corporation, the Company, develops, produces, markets, and
services systems used for the treatment of cancer and other diseases.  Such
systems are sold worldwide.

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
Raw material 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.  The building under capital lease
is stated at the present value of the minimum lease payments, plus costs
incurred to obtain the option to purchase the building, less the reserve for
potential impairment.  Depreciation is provided using the straight-line method
over the estimated useful lives of 40 years for the building and leasehold
improvements and 5 to 12 years for furniture, fixtures, and equipment.

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.

Income (Loss) Per Common and Common Equivalent Share
Net loss per share is based on net loss and the weighted average number of
common shares outstanding, during each period after giving effect to stock
options considered to be dilutive stock equivalents, determined using the
treasury stock method.  Fully diluted net loss per share is antidilutive or
not materially different from primary net loss per share.

                                                                           5
<PAGE>




                                                      BSD MEDICAL CORPORATION
                                                Notes to Financial Statements
                                                                    Continued

1.  Summary of Business and Significant Accounting Policies -
Continued

Revenue Recognition
Sales revenues for products are recorded when products are shipped.  Revenue
from long-term service contracts is recognized on a straight-line basis over
the term of the contract, which approximates recognizing it as it is 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.

Other Income
Included in other income in 1996 are gains from settling payables for less
than their recorded balances.  These gains totaled approximately $96,000 in
fiscal 1996, which increased earnings per share by $.01 in 1996.

Concentration of Credit Risk
Financial instruments which 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 which, 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.

                                                                           6
<PAGE>




                                                      BSD MEDICAL CORPORATION
                                                Notes to Financial Statements
                                                                    Continued

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.

Reclassifications
Certain accounts in the 1996 financial statements have been reclassified to
conform with the current year.

2.  Going Concern

The Company has historically encountered difficulties in meeting its
obligations as they come due, has experienced a substantial operating loss,
and has had to rely primarily upon cash provided by financing activities and
fees received from its patent license agreement to meet cash requirements. 
Furthermore, the Company has limited capital resources.  These conditions
raise substantial doubt concerning the continuation of the Company as a going
concern.  Management intends to use its current cash position supplemented and
aided by anticipated cash inflows from sales, budget cutting, fiscal
conservatism, the possibility of loans, and, if necessary, private placements
of its equity securities to meet operating requirements for future years. 
However, there are certain risk factors which may impact the Company's ability
to fund its cash needs.  Such risk factors include uncertainties as to the
Company's ability to achieve adequate sales, general economic conditions,
possible unforseen and/or nonrecurring expenses, and the availability of
outside financing.  The financial statements do not include any adjustments
that might result from the outcome of these uncertainties.

                                                                           7
<PAGE>




                                                      BSD MEDICAL CORPORATION
                                                Notes to Financial Statements
                                                                    Continued

3.  Detail of Certain Balance Sheet Accounts

Details of certain balance sheet accounts at August 31, 1997 are as follows:  


         Receivables:
            Trade receivables                       $  412,565
            Other                                        4,309
            Less allowance for doubtful accounts       (10,000)
                                                    ----------
                     Net receivables                $  406,874
                                                    ==========

         Inventories:
            Parts and supplies                      $  255,718
            Work-in-process                             29,802
            Finished goods                             276,706
            Inventory reserve                          (20,000)
                                                    ----------
                     Total inventory                $  542,226
                                                    ==========

         Accrued expenses:
            Accrued expenses                        $  137,913
            Income taxes payable                        70,000
                                                    ----------
                     Total accrued expenses         $  207,913
                                                    ==========
                                                                           8
<PAGE>




                                                      BSD MEDICAL CORPORATION
                                                Notes to Financial Statements
                                                                    Continued

4.  Property and Equipment

Property and equipment at August 31, 1997 consists of the following:

         Buildings, net of reserve for impairment
           of $181,534                              $  233,766
         Equipment                                     525,573
         Furniture and fixtures                        297,743
                                                    ----------
                                                     1,057,082

         Less accumulated depreciation and
           amortization                               (776,686)
                                                    ----------
                     Net property and equipment     $  280,396
                                                    ==========



5.          Income Taxes

The Income tax benefit (provision) differs from the amount computed at federal
statutory rates as follows:

                                                 Years Ended
                                                  August 31,
                                                1997      1996
                                           ---------------------
         Income tax benefit (provision) at
           statutory rate                     282,000   (296,138)
         State taxes                           44,000    (26,400)
         Change in valuation allowance       (326,000)   305,897
         Other                                    -      (53,359)
                                           ---------------------
         Total income tax benefit
           (provision                      $      -    $ (70,000)
                                           =====================

                                                                           9
<PAGE>




                                                      BSD MEDICAL CORPORATION
                                                Notes to Financial Statements
                                                                    Continued

5.  Income Taxes - Continued

Deferred tax assets (liabilities) at August 31, 1997 are comprised of the
following:

         Net operating loss carryforward           $ 3,904,000
         Deferred compensation expense                 157,000
         Depreciation                                    5,000
         Allowance for bad debt and reserves            10,000
         General business credit carryforward          128,000
                                                   -----------
                                                     4,204,000

         Valuation allowance                        (4,204,000) 
                                                   -----------
         Total deferred income taxes               $       -  
                                                   ===========




         Expiration Date            NOL          RETC        ITC

                1998         $   1,192,000   $     16,000   $      2,100
                1999             1,238,000              -          3,300
                2000             1,115,000              -              -
                2001               235,000              -          1,000
                2002             2,827,000          8,000              -  
                2003             2,122,000         41,000              -  
                2004                     -         57,000              -  
                2005             1,000,000              -              -
                2007               197,000              -              -
                2009               200,000              -              -
                2010               174,000              -              -
                2012               873,000              -              -
                                 ---------   ------------   ------------
                             $  11,173,000      $ 122,000   $      6,400
                             =============   ============   ============
                                                                           10

<PAGE>




                                                      BSD MEDICAL CORPORATION
                                                Notes to Financial Statements
                                                                    Continued

5.  Income Taxes - Continued

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 these carryovers may expire unutilized due to
the limitation imposed by the change of ownership rules.  

Net operating losses expiring in the years 2005 through 2012 have been
estimated due to no tax returns having been filed by the Company  for the
years in which these losses originated.


6.  Stock Option and Award Plans

Stock Options
The Company's 1987 Employee Stock Option Plan authorizes 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 of over a five-year period and expire upon the
employee's termination or after ten years from the date of grant.

In addition, the Board of Directors authorized the cancellation of all
outstanding options and resistance of options with an exercise price of $.10
per share which will vest over a one to five year period.  Each employee was
granted options to purchase 3,000 shares per year of service performed at the
Company, and the officers and directors were each granted options to purchase
35,000 shares.  In addition, the Company granted 242,655 warrants to another
entity at an exercise price of $.20 per share.


                                                                           11
<PAGE>


                                                      BSD MEDICAL CORPORATION
                                                Notes to Financial Statements
                                                                    Continued

6.  Stock Option and Award Plans - Continued

A schedule of the options and warrants of at August 31, 1997 is as follows:

                                 Number of            Price Per 
                                 Options  Warrants    Share

         Outstanding at
         August 31, 1997      1,090,246          -    $        .10
         Granted                 47,500    242,655      .10 to .20
         Exercised                   -           -              -
         Expired                (30,000)         -             .10
                              ------------------------------------
         Outstanding at
         August 31, 1997      1,107,746    242,655    $ .10 to .20
                              ====================================


Options exercisable at August 31, 1997 and 1996 were 908,714 and 377,992,
respectively.

Stock options shown above include 162,065 options which were authorized by the
Company's Board of Directors and not issued under the employee stock option
plan discussed above.  Of these 162,065 options 100,000 were issued to
nonemployees.

The Company has issued options to purchase shares of common stock to employees
and nonemployees, at an exercise price of $.10 per share.  For options granted
to employees, the Company has recorded as deferred compensation the excess of
the deemed value of common stock at the date of grant over the exercise price. 
For options granted to nonemployees, the Company's financial statements include
$0 and $155,273 as deferred compensation as of August 31, 1997 and 1996, 
respectively, which is the estimated fair value of those options at the date of

                                                                           12
<PAGE>



                                                      BSD MEDICAL CORPORATION
                                                Notes to Financial Statements
                                                                    Continued


7.  Capital Lease Obligation

The Company building is leased under a noncancellable lease.  According to the
terms of the lease, the Company has the option to purchase the building at any
time during the lease term at a purchase price of approximately $330,000.  If
the Company elects to exercise the purchase option, $2,000 of each monthly
lease payment made will be applied against the purchase price.

The asset under capital lease includes the capitalization of the costs
incurred to obtain and retain the option to purchase the asset, as well as
management's best estimate of a reserve for impairment.

Future minimum lease payments at August 31, 1997 are as follows:

                     Year Ending August 31:
                            1998                      $  62,400
                            1999                         57,200
                                                      ---------
                     Total minimum lease payments       119,600
                     Less amount representing interest  (13,230)
                     Present value of net minimum     ---------
                       lease payments                   106,370
                     Less current portion of capital
                       leases                          (52,459)
                                                      ---------
                                                      $  53,911
                                                      =========            13
<PAGE>



                                                      BSD MEDICAL CORPORATION
                                                Notes to Financial Statements
                                                                    Continued



8.  Long-term Debt

Long-term debt at August 31, 1997 consists of the following:


  Note payable to a vendor, due in monthly
  installments of $2,742, including
  interest at 9%, maturing October 1, 1999            $64,549

  Note payable to an insurance company,
  due in monthly installments of $2,125,
  including interest at 9.6%, maturing
  June 1998                                            20,500

  Related party note payable (Note 4)                 150,000

  Capital lease obligation (Note 7)                   106,370
                                                     --------
                                                      341,420
Less current portion                                 (257,723)
                                                     --------
                                                      $89,697
                                                     ========
Future maturities of long-term debt are as follows:

              Year Ending August 31:
                            1998                     $251,723
                            1999                       84,275
                            2000                        5,422
                                                     --------
                                                     $341,240
                                                     ========
9.  Grant and License Revenue

On July 3, 1996, the Company issued a license agreement for the use of a
patent owned by the Company.  As consideration for the agreement the Company
received a nonrefundable license fee of $1,500,000, which was recognized as
revenue during the year ended August 31, 1996.  In addition, the Company will
also receive a royalty of 2.5 percent, up to a maximum of $3,500,000, of the
net selling price received on products covered by the Company's patent.

                                                                           14
<PAGE>


                                                      BSD MEDICAL CORPORATION
                                                Notes to Financial Statements
                                                                    Continued

9.  Grant and License Revenue - Continued

The Company was awarded a federal grant from the National Cancer Institute for
research and development.  During fiscal 1997 and 1996, $138,499 and $325,066
of revenues and expenses were recognized under this grant.  These grants were
issued for the production and testing of system upgrades.  A representative of
the awarding agency is currently reviewing the allowableness of grant
expenditures.  This agency is currently reviewing the allowableness of grant
expenditures.  This agency may disallow certain expenditures based on its
judgements about information available to it during its examination.  However,
while the outcome of the examination is currently not determinable, it is
management's opinion that this examination will not have a material adverse
effect on the Company's financial condition, results of operations, or
liquidity.

10. Sales to Foreign Customers and Major Customers

A summary of sales to foreign customers are as follows:
                                    
                                                       Years Ended
                                                        August 31,
                                                      1997     1996

         Europe                                   $ 795,420  $ 320,826
         Far East                                         -    102,917
         Other                                       35,000     21,569
                                                  ---------  ---------
                                                  $ 830,420  $ 445,312
                                                  =========  =========

Sales to major customers, which exceeded ten percent of total sales, are as
follows:

                                                      Years Ended
                                                       August 31,
                                                     1997     1996
                                                 --------------------
         Company A                               $ 692,542  $ 277,509
         Company B                               $       -  $ 100,000

                                                                           15
<PAGE>


                                                      BSD MEDICAL CORPORATION
                                                Notes to Financial Statements
                                                                    Continued

11.  Related Party Transactions

During fiscal 1997 and 1996, the Company had sales to a stockholder totaling
$692,542 and $277,509, respectively.  Furthermore, included in finished goods
inventories at August 31, 1997, is $35,702 of inventory on consignment to this
stockholder.

The Company has a noninterest bearing, unsecured note payable to a shareholder
of the corporation in the amount of $150,000.  The Company expects to repay
this loan in December 1997.

12.  Supplemental Cash Flow Information

During the year ended August 31, 1996, the Company converted accounts payable
and accrued expenses to notes payable and long-term debt

Actual amounts paid for interest and income taxes are as follows:

                                                Years Ended
                                                 August 31,
                                                 1997     1996

         Interest expense                    $  22,936  $  46,461
                                             =========  =========
         Income taxes                        $       -  $       -  
                                             =========  =========



13.  Commitments and Contingencies

The Company is involved in various claims and other legal actions that have
arisen in the ordinary course of business.  Furthermore, the last tax returns
filed by the Company were for 1993.  While the outcome of such matters is
currently not determinable, it is management's opinion that these matters will
not have a material adverse effect on the Company's financial condition,
results of operations, or liquidity.

                                                                           16
<PAGE>


                                                      BSD MEDICAL CORPORATION
                                                Notes to Financial Statements
                                                                    Continued

The Company has an employment agreement with the acting president of the
Company.  The agreement provides that the president's salary will be based
upon reasonable mutual agreement.  At August 31, 1997, the agreement provided
for a salary to the acting president of $115,000 per year.  Additionally, in
the case of nonvoluntary termination, the acting president 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 would be an average of the acting president's salary
for the immediate twelve month period prior to termination.  The agreement
also requires the Company to pay the acting president for any accrued unused
vacation and $1,000 for any newly issued patents.

In addition, in July of 1979, the Company entered into an exclusive worldwide
license for a unique temperature 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 licenser.  The Company pays royalties based upon its sales of
this probe.  Royalties accrued as of August 31, 1997, totaled $4,600.  Royalty
expense was $8,400 and $9,600 for 1997 and 1996, respectively.


14.  Fair Value of Financial Instruments

None of the Company's financial instruments are held for trading purposes. 
The Company estimates that the fair value of all financial instruments at
August 31, 1997, 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.

                                                                           17
<PAGE>


                                                      BSD MEDICAL CORPORATION
                                                Notes to Financial Statements
                                                                    Continued


15.  Stock-Based Compensation

In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123) which established financial accounting and reporting
standards for stock-based compensation.  The new standard defines a fair value
method of accounting for an employee stock option or similar equity
instrument.  This statement gives entities the choice between adopting the
fair value method or continuing to use the intrinsic value method under
Accounting Principles Board (APB) Opinion No. 25 with footnote disclosures of
the pro forma effects if the fair value method had been adopted.  The Company
has opted for the latter approach.  Accordingly, no compensation expense has
been recognized for the stock option plans.  Had compensation expense for the
Company's stock option plan been determined based on the fair value at the
grant date for awards in 1997 and 1996 consistent with the provisions of FAS
No. 123, the Company's results of operations would have been reduced to the
pro forma amounts indicated below:


                                                  August 31,
                                               1997        1996
                                          -----------------------
         Net (loss) income - as reported  $ (872,525)  $  800,993
         Net (loss) income - pro forma    $ (881,898)  $  791,620
         (Loss) earnings per share
            as reported                   $    (.05)          .05
         (Loss) earnings per share
            pro forma                     $    (.05)          .05
                                          -----------------------

The fair value of each option grant is estimated in the date of grant using
the Black-Scholes option pricing model with the following assumptions:

                                              August 31,
                                            1997       1996
                                          -------------------
         Expected dividend yield          $     -     $     -  
         Expected stock price volatility     229%        229%
         Risk-free interest rate             6.3%        5.5%
         Expected life of options         5 years     5 years
                                          -------------------


The weighted average fair value of options granted during 1997 and 1996 are
$.10 and $.10, respectively.

                                                                           18
<PAGE>


                                                      BSD MEDICAL CORPORATION
                                                Notes to Financial Statements
                                                                    Continued

The following table summarizes information about fixed stock options and
warrants outstanding at August 31, 1997:


                   Options Outstanding                  Options Exercisable
                  -----------------------------------------------------------
                                 Weighted
                                  Average
                     Number      Remaining  Weighted       Number    Weighted
        Range of   Outstanding  Contractual   Average   Exercisable  Average
        Exercise       at          Life     Exercisable      at      Exercise
         Prices     8/31/97       (Years)      Price       8/31/97    Price     
     ------------------------------------------------------------------------
      $      .10      1,107,746     3.9         .10        666,059  $     .10
             .20        242,655     4.0         .20        242,655  $     .20
     ------------------------------------------------------------------------
      $  .10-.20      1,350,401     3.9         .12        908,714  $     .13
     ========================================================================


16.  Subsequent Events

The Company entered into an agreement to form a jointly owned Company which
will initially focus on treatment of urological diseases, specifically BPH.

As part of the agreement, the Company will contribute certain assets and the
other joint venture company will contribute cash.