TherMatrx, Inc.
                          (A Development Stage Company)
                              Financial Statements
                               September 30, 2000

<PAGE>


                          INDEPENDENT AUDITORS' REPORT




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

We have audited the accompanying balance sheet of TherMatrx, Inc. (A Development
Stage  Company) as of September 30, 2000,  and the related  statements of income
and retained  earnings and cash flows for the year ended September 30, 2000, and
the period from  November 13, 1997 (Date of  Inception)  to September  30, 2000.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of TherMatrx,  Inc. (A Development
Stage  Company) as of September 30, 2000,  and the results of its operations and
its cash flows for the year then ended and the period  from  November  13,  1997
(Date of  Inception),  to  September  30, 2000,  in  conformity  with  generally
accepted accounting principles.

Sincerely,





Benham, Ichen & Knox LLP
October 24, 2000


     1117 S. Milwaukee Avenue, Suite C-11 Libertyville, Illinois 60048-3763
     Voice: (847) 362-4310 Facsimile: (847) 362-5016 E-mail: info@bikcpa.com

<PAGE>
<TABLE>
<CAPTION>

                                 TherMatrx, Inc.
                          (A Development Stage Company)
                                  Balance Sheet
                               September 30, 2000



                                                       ASSETS

Current Assets
<S>                                                         <C>                 <C>
     Cash and Cash Equivalents                              $          690,414
     Investments                                                     3,417,140
     Inventory                                                          72,081
     Deposits and Prepaid Expenses                                     192,178
         Total Current Assets                                                   $       4,371,813

Property and Equipment
     Furniture and Fixtures                                             11,175
     Equipment                                                          37,513
                                                                        48,688
     Less: Accumulated Depreciation                                    (28,843)
         Total Property and Equipment                                                      19,845

Other Assets
     Patents                                                         2,682,500
         Total Other Assets                                 __       2,682,500

              Total Assets                                                      $       7,074,158


                                        LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
     Accounts Payable                                       $           59,270
     Accrued Expenses                                                  108,897
         Total Current Liabilities                                              $         168,167

Stockholders' Equity
     Common Stock, .001 Par Value
         (1,000,000 Shares Authorized; 54,000
         Shares Issued and Outstanding)                              4,000,000
     Preferred Stock, .01 Par Value
         (1,000,000 Shares Authorized; 103,500
         Shares Issued and Outstanding)                              6,500,000
     Retained Earnings
         (Deficit Accumulated During the
         Development Stage)                                         (3,594,009)
         Total Stockholders' Equity                                                     6,905,991
             Total Liabilities and Stockholders' Equity                         $       7,074,158

                                                                                =================
</TABLE>
<PAGE>

                                 TherMatrx, Inc.
                          (A Development Stage Company)
                    Statement of Income and Retained Earnings
               Year Ended September 30, 2000, and the Period from
           November 13, 1997 (Date of Inception) to September 30, 2000
<TABLE>
<CAPTION>

                                                                                           November 13, 1997
                                                             Year Ended                     (Inception) To
                                                         September 30, 2000               September 30, 2000

Expenses
<S>                                                       <C>                             <C>
     Sales and Marketing                                  $           139,626             $          250,182
     Administrative                                                   748,583                      2,539,815
     Research and Development                                         768,131                      2,245,634
         Total Expenses                                             1,656,340                      5,035,631

Other Income (Expense)
     Settlement from Lawsuit                                                                       1,230,000
     Interest Income                                                  267,643                        594,899
     Loss on Sale of Equipment                                           (656)                          (656)
     Organization Costs                                                                             (382,621)
         Total Other Income                                           266,987             _        1,441,622

Net Loss                                                           (1,389,353)                    (3,594,009)

Retained Earnings, Beginning of Period                             (2,204,656)                             0

Retained Earnings, End of Period                          $        (3,594,009)            $       (3,594,009)
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                 TherMatrx, Inc.
                          (A Development Stage Company)
                            Statements of Cash Flows
               Year Ended September 30, 2000, and the Period from
           November 13, 1997 (Date of Inception) to September 30, 2000

                                                                                           November 13, 1997
                                                                  Year Ended                (Inception) To
                                                              September 30, 2000          September 30, 2000

Cash Flows From Operating Activities
<S>                                                           <C>                            <C>
     Net Loss                                                 $       (1,389,353)           $     (3,594,009)
     Adjustments to reconcile net loss to
         net cash used by operating activities:
         Depreciation and Amortization                                   235,968                     678,819
         Loss on Sale of Equipment                                           656                         656
         Decrease (increase) in operating assets:
              Inventory                                                  (51,024)                    (72,081)
              Other                                                     (151,676)                   (192,179)
         Increase (decrease) in operating liabilities:
              Accounts Payable                                            27,537                      59,270
              Accrued Liabilities                                         68,258                     108,898

     Total Adjustments                                                   129,719                     583,383

     Net Cash Used by Operating Activities                            (1,259,634)                 (3,010,626)

Cash Flows From Investing Activities
     Proceeds from Sale of Equipment                                         600                         600
     Investments                                                       1,458,725                  (3,417,140)
     Purchase of Property and Equipment                                   (4,261)                    (52,420)
     Lawsuit Settlement Allocated to Patents                                                         670,000

     Net Cash Provided (Used) by
         Investing Activities                                          1,455,064                  (2,798,960)

Cash Flows From Financing Activities
     Preferred Stock                                                                               6,500,000

Increase in Cash and Cash Equivalents                                    195,430                     690,414

Cash and Cash Equivalents at
     Beginning of Period                                                 494,984

Cash and Cash Equivalents
     at End of Period                                         $          690,414            $        690,414

Noncash Investing and Financing Transactions
     Common Stock was acquired
         by the contribution of patents                                                     $      4,000,000
</TABLE>

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

                                 TherMatrx, Inc.
                          (A Development Stage Company)
                          Notes to Financial Statements
             From Inception November 13, 1997, to September 30, 2000


NOTE 1 ORGANIZATION AND OPERATION

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


NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Method of Accounting

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

Cash and Cash Equivalents

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

Inventory

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

Property and Equipment

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

                           Furniture and Fixtures             5 years
                           Equipment                          3 years

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

Use of Estimates

The process of preparing  financial  statements  in  conformity  with  generally
accepted  accounting  principles  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 reported  amounts of revenues  and expenses  during the reported
period. Actual results could differ from those estimates.
<PAGE>

                                 TherMatrx, Inc.
                          (A Development Stage Company)
                          Notes to Financial Statements
             From Inception November 13, 1997, to September 30, 2000


NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes

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

Patents

Patents are amortized on the straight-line basis over 15 years.

                  Costs                              $        4,000,000
                  Proceeds from Lawsuit                        (670,000)
                  Accumulated Amortization                     (647,500)
                                                     ___________________
                  Patents, net                       $        2,682,500
                                                     ===================

NOTE 3 COMMITMENTS

The Company has a lease for its office  space.  The  minimum  monthly  rental is
$2,070.  The lease expires on December 31, 2000. The Company is responsible  for
its  proportional  share of real  estate  taxes and  operating  expenses  of the
building.

Future minimum rental payments:

                           Year ending September 30                     Amount
                                          2001                     $     6,211
                                                                   ===========
Rent  expense  for the period  ended  September  30,  2000,  1999,  and 1998 was
$25,894, $25,107, and $18,371, respectively.

The Company intends to sublease office space on a  month-to-month  basis through
December 2000.

Rental  income for the period  ended  September  30,  2000,  1999,  and 1998 was
$19,500, $2,600, and $11,700, respectively.


NOTE 4 INVESTMENTS

Investments consist of time deposits worth $2,408,807 and a Treasury Note with a
value of $1,008,333.  The carrying value of these investments  approximates fair
value because of the short-term maturities of these financial instruments.
<PAGE>

                                 TherMatrx, Inc.
                          (A Development Stage Company)
                          Notes to Financial Statements
             From Inception November 13, 1997, to September 30, 2000


NOTE 5 CONCENTRATION OF CREDIT RISK

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


NOTE 6 RELATED PARTY

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

Consulting Agreement

The Company will use the expertise, on an "as needed" basis, of employees of BSD
in the  development  and conducting  clinical  trials of a new medical device to
treat Benign Prostatic  Hyperplasia.  At September 30, 2000, 1999, and 1998, the
Company  has paid  approximately  $346,000,  $179,000,  and  $197,000  for these
services, respectively.

Supply Agreement

The Company has purchased,  from BSD, the demo medical devices to be used in the
clinical  trials.  The Company will also purchase  supplies used in the clinical
trials.  These supplies consist mainly of applicators and temperature probes. At
September 30, 2000, 1999, and 1998, the Company has paid approximately  $45,000,
$92,000, and $175,000, respectively, for these supplies.

Non-compete, Non-disclosure Agreement

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


NOTE 7 CAPITALIZATION AND VALUATION OF INTANGIBLES
<TABLE>
<CAPTION>


     Capitalization                              Date           # of Shares                Amount

<S>                                          <C>                     <C>              <C>
     Common Stock                            11/13/97                54,000           $ 4,000,000

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

                                 TherMatrx, Inc.
                          (A Development Stage Company)
                          Notes to Financial Statements
             From Inception November 13, 1997, to September 30, 2000


NOTE 7 CAPITALIZATION AND VALUATION OF INTANGIBLES (Continued)


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

Valuation of Intangibles

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


NOTE 8 DEVELOPMENT STAGE COMPANY

The  Company  has  conducted  a  clinical  trial to  investigate  the safety and
efficacy of the TherMatrx  TMX2000 and its clinical  utility in treating certain
aspects of symptomatic Benign Prostatic Hyperplasia.  The proposed investigation
was a double blinded  randomized trial, which included a sham group to study any
placebo  effects and a treatment  group which received  Transurethral  Microwave
Thermotherapy (Thermotherapy) at a targeted dose range.

Although the official Phase I/II Protocol has been approved by the U.S. Food and
Drug  Administration  (FDA), it is possible that modifications will be requested
during the final review process.  When all of the  modifications  have been made
and FDA  approval  has been  granted  then the  Company  can  start to sell this
procedure to treat Benign Prostatic Hyperplasia.


NOTE 9  SUBSEQUENT EVENTS

Common and Preferred Stock

The Board of Directors has unanimously  approved that the total number of shares
of stock which the  Corporation  shall have authority to issue will be increased
to  twenty  million  (20,000,000)  shares  each  having a par value of $.001 per
share, divided into (a) fifteen million (15,000,000) shares of common stock (the
"Common Stock") and (b) five million  (5,000,000) shares of preferred stock (the
"Preferred  Stock").  As of the date of this report,  the additional shares have
not been issued.

<PAGE>

                                 TherMatrx, Inc.
                          (A Development Stage Company)
                          Notes to Financial Statements
             From Inception November 13, 1997, to September 30, 2000


NOTE 9 SUBSEQUENT EVENTS (Continued)

The Board of Directors  also  approved a 50 to 1 stock split for both common and
preferred stock.

Stock Options

The Board of Directors has approved the following stock options:

          Options  granted January 2, 1998,  vesting  January 2, 1999,  expiring
          January 2, 2008,  exercise price $1.50 per share.  Number of shares is
          300,000.

          Options granted  September 30, 2000,  vesting 1/3 immediately,  1/3 on
          January 1, 2001,  and 1/3 on January 1, 2002,  expiring  September 30,
          2010, exercise price $1.67 per share. Number of shares is 652, 500.

          Options  conditionally  granted  October  19,  2000,  vesting  only if
          personal  performance  targets are met and on the following  schedule:
          1/3 on October 2, 2001,  1/3 on October 2, 2002, and 1/3 on October 2,
          2003,  expiring  October  19,  2010,  exercise  price $1.78 per share.
          Number of shares is 172,500.

These stock options are the 22,500  shares  discussed in Note 7 after the impact
of the 50 to 1 split

None of the  above  stock  options  have been  exercised  as of the date of this
report.